<PAGE>
As filed with the Securities and Exchange Commission on November 7, 1997
Registration No. 333-
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
PENNFIRST BANCORP, INC. PENNFIRST CAPITAL TRUST I
(Exact name of Registrant as (Exact name of Registrant as
specified in its charter) specified in itS trust agreement)
PENNSYLVANIA DELAWARE
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
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25-1659846 APPLIED FOR
(I.R.S. Employer (I.R.S. Employer
Identification No.) Identification 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)
------------------------
Copies to:
NORMAN B. ANTIN, Esq. JAMES S. FLEISCHER, ESQ.
Jeffrey D. Haas, Esq. Silver, Freedman & Taff, L.L.P.
Elias, Matz, Tiernan & Herrick, L.L.P. 1100 New York Avenue, N.W.
734 15th Street, N.W. Washington, D.C. 20005
Washington, D.C. 20005
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. / /
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(2)
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<S> <C> <C> <C> <C>
Trust Preferred Securities of PennFirst Capital
Trust I........................................ $23,000,000 100% $23,000,000 $6,969.70
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Junior Subordinated Deferrable Interest
Debentures of PennFirst Bancorp, Inc.(2)....... $23,000,000 100% $23,000,000 N/A
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PennFirst Bancorp, Inc. Guarantee with respect to
the Trust Preferred Securities................. N/A N/A N/A N/A
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Total............................................ $23,000,000(4) 100% $23,000,000(4) $6,969.70
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) No separate consideration will be received for the Junior Subordinated
Deferrable Interest Debentures of PennFirst Bancorp, Inc. (the "Junior
Subordinate Debentures") distributed upon any liquidation of PennFirst
Capital Trust I.
(3) No separate consideration will be received for the PennFirst Bancorp, Inc.
Guarantee.
(4) Such amount represents the liquidation amount of the PennFirst Capital Trust
I Trust Preferred Securities and the principal amount of Junior Subordinated
Debentures that may be distrusted to holders of such Trust Preferred
Securities upon any liquidation of PennFirst Capital Trust I.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE 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.
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<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
$20,000,000
PENNFIRST CAPITAL TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
2,000,000 PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
[LOGO]
PENNFIRST BANCORP, INC.
The % Cumulative Trust Preferred Securities (the "Preferred Securities")
offered hereby represent beneficial interests in PennFirst Capital Trust I, a
trust created under the laws of the State of Delaware (the "Trust Issuer").
PennFirst Bancorp, Inc., a Pennsylvania corporation ("PennFirst" or the
"Company"), will be the owner of all of the beneficial interests represented by
common securities of the Trust Issuer (the "Common Securities" and, collectively
with the Preferred Securities, the "Trust Securities"). The Bank of New York is
the Property Trustee of the Trust Issuer. The Trust Issuer exists for the sole
purpose of issuing the Trust Securities and investing the proceeds from the sale
thereof in % Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures") to be issued by the Company. The Junior Subordinated
Debentures will mature on , 2027 (the "Stated Maturity"). The Preferred
Securities will have a preference over the Common Securities under certain
circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of the Preferred
Securities--Subordination of the Common Securities."
Application has been made to list the Preferred Securities on the Nasdaq
Stock Market's National Market under the symbol "PWBCP." See "Risk
Factors--Absence of Prior Public Market for the Preferred Securities; Trading
Price and Tax Considerations."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT
INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OR THE BANK
INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC COMMISSION(1) ISSUER (2)(3)
<S> <C> <C> <C>
Per Preferred Security................................... $10.00 (2) $10.00
Total(4)................................................. $20,000,000 (2) $20,000,000
</TABLE>
(1) The Trust Issuer and PennFirst have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in the Junior Subordinated Debentures of
PennFirst, PennFirst has agreed to pay the Underwriter, as compensation for
their arranging the investment of such proceeds in the Junior Subordinated
Debentures, $ per Preferred Security, or $ in the aggregate
($ in the aggregate if the over-allotment option is exercised in full).
See "Underwriting."
(3) Before deducting expenses payable by PennFirst, estimated to be
approximately $ .
(4) The Trust Issuer and PennFirst have granted the Underwriter a 30-day option
to purchase up to 300,000 additional Preferred Securities on the same terms
and conditions set forth above solely to cover over-allotments, if any. If
this option is exercised in full, the total Price to Public and Proceeds to
Issuer will be $23,000,000. See "Underwriting."
The Preferred Securities are offered by the Underwriter subject to receipt
and acceptance by it, prior sale and the Underwriter's right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Preferred Securities will be made in
book-entry form through the book-entry facilities of The Depository Trust
Company on or about , 1997 against payment therefor in immediately
available funds.
RYAN, BECK & CO.
The date of this Prospectus is , 1997
<PAGE>
(continued from the previous page)
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust
Company, as depository ("DTC"). Beneficial interests in the global securities
will be shown on, and transfer thereof will be effected only through, records
maintained by DTC and its participants. Except as described under
"Description of Preferred Securities," Preferred Securities in definitive
form will not be issued and owners of beneficial interests in the global
securities will not be considered holders of the Preferred Securities.
Settlement for the Preferred Securities will be made in immediately available
funds. The Preferred Securities will trade in DTC's Same-Day Funds Settlement
System, and secondary market trading activity for the Preferred Securities
will therefore settle in immediately available funds.
Holders of the Preferred Securities will be entitled to receive
preferential cumulative cash distributions accumulating from the date of
original issuance and payable quarterly in arrears on March 1, June 1,
September 1 and December 1 of each year, commencing March 1, 1998, at the
annual rate of % of the Liquidation Amount (as defined herein) of $10 per
Preferred Security ("Distributions"). Subject to certain exceptions,
PennFirst has the right to defer payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to each deferral period (each,
an "Extension Period"), provided that no Extension Period may extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the rate of %,
compounded quarterly, to the extent permitted by applicable law), PennFirst
may elect to begin a new Extension Period subject to the requirements set
forth herein. If interest payments on the Junior Subordinated Debentures are
so deferred, Distributions on the Preferred Securities will also be deferred,
and PennFirst will not be permitted, subject to certain exceptions described
herein, to declare or pay any cash distributions with respect to the capital
stock of PennFirst or debt securities of PennFirst that rank PARI PASSU with
or junior to the Junior Subordinated Debentures.
During an Extension Period, interest on the Junior Subordinated
Debentures would continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled would accumulate) at the
rate of % per annum, compounded quarterly, and holders of the Preferred
Securities would be required to include interest income in their gross income
for United States federal income tax purposes in advance of receipt of the
cash distributions with respect to such deferred interest payments. PennFirst
believes that the mere existence of its right to defer interest payments
should not cause the Preferred Securities to be issued with original issue
discount for federal income tax purposes. However, it is possible that the
Internal Revenue Service could take the position that the likelihood of
deferral was not a remote contingency within the meaning of applicable
Treasury Regulations. See "Description of the Junior Subordinated
Debentures-Right to Defer Interest Payment Obligation" and "Certain Federal
Income Tax Consequences--Interest Income and Original Issue Discount."
iii
<PAGE>
PennFirst and the Trust Issuer believe that, taken together, the
obligations of PennFirst under the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement (each as
defined herein), constitute in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of all of the Trust
Issuer's obligations under the Preferred Securities. See "Relationship Among
the Preferred Securities, the Junior Subordinated Debentures, the Expense
Agreement and the Guarantee--Full and Unconditional Guarantee." The Guarantee
of PennFirst (the "Guarantee") guarantees the payment of Distributions and
payments on liquidation or redemption of the Preferred Securities, but only
in each case to the extent of funds held by the Trust Issuer, as described
herein. See "Description of the Guarantee." If PennFirst does not make
interest payments on the Junior Subordinated Debentures held by the Trust
Issuer, the Trust Issuer will have insufficient funds to pay Distributions on
the Preferred Securities. The Guarantee does not cover payment of
Distributions when the Trust Issuer does not have sufficient funds to pay
such Distributions. In such event, a holder of the Preferred Securities may
institute a legal proceeding directly against PennFirst to enforce payment of
amounts equal to such Distributions to such holder. See "Description of the
Junior Subordinated Debentures-Enforcement of Certain Rights by Holders of
the Preferred Securities."
The Preferred Securities are subject to mandatory redemption, in whole or
in part, upon repayment of the Junior Subordinated Debentures at their Stated
Maturity or their earlier redemption. Subject to regulatory approval, if then
required under applicable capital guidelines or regulatory policies, the
Junior Subordinated Debentures are redeemable prior to their Stated Maturity
at the option of the Company (i) on or after , 2002, in whole at any
time or in part from time to time, or (ii) at any time, in whole (but not in
part), upon the occurrence and continuation of a Tax Event, an Investment
Company Event or a Capital Treatment Event (each as defined herein) at a
redemption price (the "Redemption Price") equal to the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed
for redemption plus 100% of the principal amount thereof. See "Description of
the Junior Subordinated Debentures-Redemption or Exchange."
The obligations of PennFirst under the Guarantee and the Junior
Subordinated Debentures will be unsecured and are subordinate and junior in
right of payment to all Senior Indebtedness (as defined in "Description of
the Junior Subordinated Debentures--Subordination") of PennFirst. At
September 30, 1997, PennFirst had no outstanding Senior Indebtedness. There
is no limitation on the amount of Senior Indebtedness which PennFirst may
issue. PennFirst may from time to time incur indebtedness constituting Senior
Indebtedness. See "Description of the Junior Subordinated
Debentures-Subordination."
PennFirst, as the holder of the Common Securities, will have the right at
any time to dissolve the Trust Issuer. The ability of PennFirst to do so may
be subject to PennFirst's prior receipt of regulatory approval. In the event
of the dissolution of the Trust Issuer, after satisfaction of liabilities to
creditors of the Trust Issuer as required by applicable law, the holders of
the Preferred Securities will be entitled to receive a Liquidation Amount of
$10 per Preferred Security plus accumulated and unpaid Distributions thereon
to the date of payment, which may
iv
<PAGE>
be in the form of a distribution of such amount in Junior Subordinated
Debentures, subject to certain exceptions. See "Description of the Preferred
Securities--Liquidation Distribution upon Termination."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING
TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. ANY OF
THE FOREGOING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME
WITHOUT NOTICE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
v
<PAGE>
[MAP INDICATING PENNFIRST BANCORP, INC.'S BRANCH OFFICES]
vi
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York
10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by writing to the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material may also be
accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov.
The Company and the Trust Issuer have filed with the Commission a
Registration Statement on Form S-2 (together with all amendments thereto, the
"Registration Statement"), of which this Prospectus is a part, under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Preferred Securities, the Junior Subordinated Debentures and the
Guarantee. This Prospectus does not contain all of the information set forth
in the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company, the Trust Issuer, the Preferred
Securities and the Junior Subordinated Debentures, reference is made to the
Registration Statement, including the exhibits thereto. Any statements
contained herein concerning the provisions of any document filed as an
exhibit to the Registration Statement are not necessarily complete, and, in
each instance, reference is made to the copy of such document so filed for a
more complete description of the matter involved. Each such statement is
qualified in its entirely by such reference. The Registration Statement may
be inspected without charge at the principal office of the Commission in
Washington, D.C., and copies of all or part of it may be obtained from the
Commission upon payment of the prescribed fees.
No separate financial statements of the Trust Issuer have been included
herein. The Company does not consider that such financial statements would be
material to holders of Preferred Securities because (i) all of the voting
securities of the Trust Issuer will be owned by the Company, a reporting
company under the Exchange Act, (ii) the Trust Issuer has no independent
operations but exists for the sole purpose of issuing securities representing
undivided beneficial interests in the assets of the Trust Issuer and
investing the proceeds thereof in Junior Subordinated Debentures issued by
the Company, and (iii) the obligations of the Company described herein to
provide certain indemnities in respect of and be responsible for certain
costs, expenses, debts and liabilities of the Trust Issuer under the
Indenture and pursuant to the Trust Agreement, the guarantee issued by the
Company with respect to the Preferred Securities, the Junior Subordinated
Debentures purchased by the Trust Issuer, the related Indenture and the
Expense Agreement, taken together, constitute, in the belief of the Company
and the Trust Issuer full and unconditional guarantee of payments due on the
Preferred Securities. See "Description of the Junior Subordinated Debentures"
and "Description of the Guarantee."
<PAGE>
The Trust Issuer is not currently subject to the information reporting
requirements of the Exchange Act and the Company does not expect that the
Trust Issuer will file reports, proxy statements and other information under
the Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (attached hereto as Appendix A); and
2. The Company's Quarterly Reports on Form 10-Q for the quarters
ended September 30, 1997(attached hereto as Appendix B), June 30, 1997
and March 31, 1997; and
3. Current Reports on Form 8-K dated September 17, 1997,
July 15, 1997, June 18, 1997, April 3, 1997, March 19, 1997 and
February 10, 1997.
Any statement contained herein 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 Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" means this
Prospectus, including the documents incorporated or deemed to be incorporated
herein by reference, as the same may be amended, supplemented or otherwise
modified from time to time. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein do not purport
to be complete, and where reference is made to the particular provisions of
such contract or other document, such provisions are qualified in all
respects by reference to all of the provisions of such contract or other
document.
The Company will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the foregoing documents incorporated by reference
herein (other than exhibits, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such documents
should be directed to PennFirst Bancorp, Inc., 600 Lawrence Avenue, Ellwood
City, Pennsylvania 16117, Attn: Secretary (telephone (412) 758-5584).
The Company will provide to the holders of the Preferred Securities
quarterly reports containing unaudited financial statements and annual
reports containing financial statements audited by the Company's independent
auditors. The Company will also furnish annual reports on Form 10-K and
quarterly reports
2
<PAGE>
on Form 10-Q free of charge to holders of the Preferred Securities who so
request in writing to the Company.
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this
Prospectus assumes that the underwriters' over-allotment option will not be
exercised.
PennFirst Bancorp, Inc.
PennFirst Bancorp, Inc. ("PennFirst" or the "Company") is a Pennsylvania
corporation and thrift holding company registered under the Home Owners' Loan
Act, as amended. PennFirst is the parent company of ESB Bank, F.S.B. ("ESB"),
Troy Hill Federal Savings Bank ("Troy Hill" and together with ESB, the
"Banks") and PennFirst Financial Services, Inc. ("PFSI")
On April 3, 1997, the Company completed its acquisition of Troy Hill
Bancorp, Inc. ("THB"), pursuant to which THB was merged with and into
PennFirst and, as a result, Troy Hill, a wholly owned subsidiary of THB,
became a wholly owned subsidiary of PennFirst. ESB is a federally chartered
savings bank headquartered in Ellwood City, Pennsylvania. ESB conducts
business from nine offices in Lawrence, Beaver, Butler and Allegheny
counties, located in western Pennsylvania. Troy Hill is a federally chartered
savings bank headquartered in Pittsburgh, Pennsylvania and conducts business
from two offices located in Allegheny County, Pennsylvania. PFSI, which was
incorporated on July 31, 1992 as a Delaware-chartered company, is engaged in
the management of investments on behalf of PennFirst.
At September 30, 1997, PennFirst had on a consolidated basis, total
assets of $822.4 million, total liabilities of $753.5 million, including
total deposits of $394.1 million, and total stockholders' equity of $68.8
million.
The Company, through its subsidiaries, is primarily engaged in attracting
retail deposits from the general public through its eleven offices and using
such deposits to originate loans secured by first mortgage liens on
single-family (one-to-four units) residential and commercial real estate,
construction and consumer loans and to purchase mortgage-backed and other
securities. The Company also originates loans secured by multi-family (over
four units) residential real estate and, to a lesser extent, commercial
business loans. In addition, the Company utilizes advances from the Federal
Home Loan Bank ("FHLB") of Pittsburgh to fund the Company's investment
portfolio. The Company invests in securities issued by the United States
government and agencies and other investments permitted by federal laws and
regulations.
3
<PAGE>
PennFirst derives its income principally from interest earned on loans,
investments and mortgage-backed securities and, to a lesser extent, from fees
received in connection with the origination of loans and for other services.
The Company's primary expenses are interest expense on deposits and
borrowings and general operating expenses. Funds for activities are provided
by deposits, amortization and prepayments of outstanding loans and
mortgage-backed securities and borrowings from the FHLB of Pittsburgh and
other sources.
The Company's business strategy is to operate the Banks as
well-capitalized, profitable and independent community savings institutions
offering a wide variety of savings products to their retail customers while
concentrating their lending activities on the origination of loans secured by
one-to four-family residential and multi-family and commercial real estate,
construction and consumer loans and to purchase mortgage-backed and other
securities. The Banks have sought to implement this strategy by (1) growth
through the pursuit of acquisition opportunities when appropriate, (2)
investing in mortgage-backed securities, (3) increased emphasis on
multi-family and commercial real estate lending, and (4) continued emphasis
on consumer lending.
Highlights of the Company's operating strategy are as follows:
* Growth through Acquisitions. The Company will continue to consider
acquisition opportunities in Western Pennsylvania when it perceives that they
are advantageous to the Company. In April 1997, the Company completed its
acquisition of Troy Hill Federal Savings Bank. As a result of the
acquisition, PennFirst acquired $109.3 million in assets, including total
loans of $90.0 million, and total liabilities of $89.4 million, including
$53.8 million of deposits. In March 1994, the Company completed its
acquisition of ESB Bancorp, Inc. As a result of the acquisition, 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. The Company plans to continue its emphasis on growth, particularly
deposit growth either by increased deposits through its existing branch
offices or acquisitions.
* Investing in Mortgage-Backed Securities. In order to limit the
Company's credit and interest rate risk exposure, and to earn a positive
interest rate spread, as well as to supplement the loan portfolio, the
Company maintains a substantial portfolio of mortgage-backed securities,
which are primarily issued or guaranteed by U.S. Government agencies or
government sponsored enterprise, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FMLMC"). Mortgage-backed
securities increase the quality of the Company'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 the Company.
The Company occasionally will purchase mortgage-backed and other securities
which are funded at a positive interest rate spread through the use of FHLB
advances and/or securities sold under agreements to repurchase. At September
30, 1997, the Company's mortgage-backed securities portfolio totalled $374.4
million or 45.5% of total assets, $151.0 million or 40.3% of which had
adjustable rates.
4
<PAGE>
* Increased Emphasis on Multi-Family and Commercial Real Estate
Lending. At September 30, 1997, $37.7 million or 11.0% of the Company's total
loan portfolio consisted of loans secured by multi-family and commercial real
estate. The Company plans to increase its emphasis on the origination of
multi-family and commercial real estate loans, primarily for the acquisition
of small apartment buildings and office buildings located in the Banks'
current market area. The Company expects to focus on loans with principal
balances in the $1 million to $3 million range. Multi-family and commercial
loans afford the Company the opportunity to receive higher yields than those
obtainable on single-family residential loans.
* Continued Emphasis on Consumer Lending. In addition to one-to
four-family residential first mortgage lending, the Company plans to continue
its emphasis on consumer lending, particularly home equity loans. At
September 30, 1997, December 31, 1996, 1995 and 1994, consumer loans totalled
$51.9 million, $45.5 million, $41.3 million and $33.8 million, respectively.
Such loans reprice more frequently, have shorter maturities, and/or have
higher yields than one-to four-family first mortgage loans.
The Company, as a registered savings and loan holding company, is subject
to examination and regulation by the Office of Thrift Supervision ("OTS") and
is subject to various reporting and other requirements of the Commission. The
Banks, as federally chartered savings banks are subject to comprehensive
regulation and examination by the OTS and by the Federal Deposit Insurance
Corporation ("FDIC"), which administers the Savings Association Insurance
Fund ("SAIF"), which insures the Banks' deposits to the maximum extent
permitted by law. The Banks are members of the FHLB of Pittsburgh, which is
one of the 12 regional banks which comprise the FHLB System. The Banks are
further subject to regulations of the Board of Governors of the Federal
Reserve System ("Federal Reserve Board") which governs reserves required to
be maintained against deposits and certain other matters.
The Company's principal executive offices are located at 600 Lawrence
Avenue, Ellwood City, Pennsylvania 16117, and its telephone number is (412)
758-5584.
THE TRUST ISSUER
The Trust Issuer is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement executed by the Company, as depositor,
The Bank of New York, as Property Trustee, The Bank of New York (Delaware),
as Delaware Trustee, and the Administrative Trustees named therein and (ii)
the filing of a certificate of trust with the Delaware Secretary of State on
November 5, 1997. The trust agreement will be amended and restated in its
entirety (as so amended, the "Trust Agreement"). All of the Common Securities
will be owned by the Company. The Company will acquire Common Securities in
an aggregate Liquidation Amount equal to 3% of the total capital of the Trust
Issuer. The Trust Issuer exists for the exclusive purposes of (i) issuing and
selling the Trust Securities, (ii) using the proceeds from the sale of the
Trust Securities to acquire Junior Subordinated Debentures issued by the
Company and (iii) engaging in only those other
5
<PAGE>
activities necessary, advisable or incidental thereto (such as registering
the transfer of the Trust Securities). Accordingly, the Junior Subordinated
Debentures will be the sole assets of the Trust Issuer, and payments under
the Junior Subordinated Debentures will be the sole revenue of the Trust
Issuer. The principal executive office of the Trust Issuer is 600 Lawrence
Avenue, Ellwood City, Pennsylvania 16117 and its telephone number is (412)
758-5584.
THE OFFERING
The Trust Issuer................... PennFirst Capital Trust I, a Delaware
statutory business trust (the "Trust
Issuer"). The sole assets of the Trust
Issuer will be the Junior Subordinated
Debentures.
Securities Offered................. 2,000,000 shares of % Cumulative Trust
Preferred Securities (the "Preferred
Securities"), evidencing preferred undivided
beneficial interests in the assets of the
Trust Issuer, which will consist only of the
Junior Subordinated Debentures.
Offering Price..................... $10 per Preferred Security (Liquidation
Amount $10).
Distributions...................... Holders of the Preferred Securities will be
entitled to receive cumulative cash
Distributions at an annual rate of % of
the Liquidation Amount of $10 per Preferred
Security, accumulating from the date of
original issuance and payable quarterly in
arrears on March 1, June 1, September 1 and
December 1 of each year, commencing on
March 1, 1998. The distribution rate and the
distribution and other payment dates for the
Preferred Securities will correspond to the
interest rate and interest and other payment
dates on the Junior Subordinated Debentures.
See "Description of the Preferred
Securities."
Junior Subordinated Debentures..... The Trust Issuer will invest the proceeds
from the issuance of the Trust Securities in
an equivalent amount of the Junior
Subordinated Debentures. The Junior
Subordinated Debentures will mature on
, 2027. The Junior Subordinated
Debentures will rank subordinate and junior
in right of payment to all Senior
Indebtedness of PennFirst. At September 30,
1997, PennFirst had no outstanding Senior
Indebtedness. There is no limitation on the
amount of Senior Indebtedness, or
Subordinated Debt (as defined in
"Description of Junior Subordinated
Debentures-Subordination") which is PARI
PASSU with the Junior
6
<PAGE>
Subordinated Debentures, which
PennFirst may issue. PennFirst may from time
to time, incur indebtedness constituting
Senior Indebtedness. In addition, because
PennFirst is a holding company, PennFirst's
obligations under the Junior Subordinated
Debentures will effectively be subordinated
to all existing and future liabilities and
obligations of its subsidiaries, including
the Banks. See "Risk Factors--Subordination
of the Guarantee and the Junior Subordinated
Debentures," "Risk Factors--Source of
Payments to Holders of Preferred Securities"
and "Description of the Junior Subordinated
Debentures--Subordination."
Guarantee.......................... Payments of Distributions out of funds held
by the Trust Issuer, and payments on
liquidation of the Trust Issuer or the
redemption of the Preferred Securities, are
guaranteed by PennFirst to the extent the
Trust Issuer has funds available therefor.
PennFirst and the Trust Issuer believe that,
taken together, the obligations of PennFirst
under the Guarantee, the Trust Agreement,
the Junior Subordinated Debentures, the
Indenture and the Expense Agreement,
constitute, in the aggregate, a full and
unconditional guarantee, on a subordinated
basis, of all of the Trust Issuer's
obligations under the Preferred Securities.
See "Description of the Guarantee" and
"Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures, the Expense Agreement and the
Guarantee." The obligations of PennFirst
under the Guarantee are subordinate and
junior in right of payment to all Senior
Indebtedness of PennFirst. See "Risk
Factors-- Subordination of the Guarantee and
the Junior Subordinated Debentures" and
"Description of the Guarantee."
Right to Defer Interest Payments... So long as no event of default under the
Indenture has occurred and is continuing,
PennFirst has the right under the Indenture
at any time during the term of the Junior
Subordinated Debentures to defer the payment
of interest at any time or from time to time
for a period not exceeding 20 consecutive
quarters with respect to each Extension
Period, provided that no Extension Period
may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. At the end
of such Extension Period, PennFirst must pay
all interest then accrued and unpaid
(together with interest thereon at the
annual rate of %, compounded
quarterly, to the extent permitted
7
<PAGE>
by applicable law). During an
Extension Period, interest will continue to
accrue and holders of the Junior
Subordinated Debentures (or holders of the
Preferred Securities, while outstanding)
will be required to accrue interest income
for United States federal income tax
purposes in advance of receipt of payment of
such deferred interest. See "Certain Federal
Income Tax Consequences--Interest Income and
Original Issue Discount").
During any such Extension Period, PennFirst
may not, and may not permit any subsidiary
of PennFirst to, (i) declare or pay any
dividends or distributions on, or redeem,
purchase, acquire or make a liquidation
payment with respect to, any of PennFirst's
capital stock (other than (a) the
reclassification of any class of PennFirst's
capital stock into another class of capital
stock, (b) dividends or distributions
payable in common stock of PennFirst, (c)
any declaration of a dividend in connection
with the implementation of a stockholders'
rights plan, the issuance of stock under any
such plan in the future or the redemption or
repurchase of any such rights pursuant
thereto, (d) payments under the Guarantee
and (e) purchases of common stock related to
the issuance of common stock or rights under
any of PennFirst's benefit plans for its
directors, officers or employees), (ii) make
any payment of principal, interest or
premium, if any, on, or repay, repurchase or
redeem, any debt securities of PennFirst
that rank PARI PASSU with or junior in right
of payment to the Junior Subordinated
Debentures, or (iii) make any guarantee
payments with respect to any guarantee by
PennFirst of the debt securities of any
subsidiary of PennFirst if such guarantee
ranks PARI PASSU with or junior in right of
payment to the Junior Subordinated
Debentures other than payments pursuant to
the Guarantee. Prior to the termination of
any such Extension Period, PennFirst may
further defer the payment of interest on the
Junior Subordinated Debentures, provided
that no Extension Period may exceed 20
consecutive quarters or extend beyond the
Stated Maturity of the Junior Subordinated
Debentures. There is no limitation on the
number of times that PennFirst may elect to
begin an Extension Period. See "Description
of the Junior Subordinated Debentures--Right
to Defer Interest Payment Obligation" and
"Certain
8
<PAGE>
Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
PennFirst has no current intention of
exercising its right to defer payments of
interest by extending the interest payment
period on the Junior Subordinated Debentures.
However, should PennFirst elect to exercise
such right in the future, the market price of
the Preferred Securities is likely to be
adversely affected. As a result of the
existence of PennFirst's right to defer
interest payments, the market price of the
Preferred Securities may be more volatile
than the market prices of other similar
securities that do not provide for such
optional deferrals.
Redemption........................ The Junior Subordinated Debentures are
subject to redemption prior to their Stated
Maturity at the option of PennFirst (i) on or
after , 2002, in whole at any time
or in part from time to time, or (ii) at any
time, in whole (but not in part), within 180
days following the occurrence and
continuation of a Tax Event, an Investment
Company Event or a Capital Treatment Event
(each as defined herein), in each case at a
redemption price equal to 100% of the
principal amount of the Junior Subordinated
Debentures so redeemed, together with any
accrued and unpaid interest to the date fixed
for redemption.
If the Junior Subordinated Debentures are
redeemed prior to their Stated Maturity, the
Trust Issuer must apply the proceeds of such
redemption to redeem a Like Amount (as
defined herein) of the Preferred Securities
and the Common Securities. The Preferred
Securities will be redeemed upon repayment of
the Junior Subordinated Debentures at their
Stated Maturity. See "Description of the
Preferred Securities-- Redemption."
Distribution of the Junior
Subordinated Debentures upon
Liquidation of the Trust Issuer.. PennFirst will have the right at any time to
dissolve the Trust Issuer and, after
satisfaction of creditors of the Trust
Issuer, if any, as provided by applicable
law, cause the Junior Subordinated Debentures
to be distributed to the holders of the
Preferred Securities and the Common
Securities in exchange therefor upon
liquidation of the Trust Issuer. The ability
of PennFirst to do so may be subject to
PennFirst's prior receipt of regulatory
approval.
9
<PAGE>
In the event of the liquidation of the Trust
Issuer, after satisfaction of the claims of
creditors of the Trust Issuer, if any, as
provided by applicable law, the holders of
the Preferred Securities will be entitled to
receive a Liquidation Amount of $10 per
Preferred Security plus accumulated and
unpaid Distributions thereon to the date of
payment, which may be in the form of a
distribution of a Like Amount (as defined
herein) of the Junior Subordinated
Debentures, subject to certain exceptions as
described herein. See "Description of the
Preferred Securities-- Liquidation of the
Trust Issuer and Distribution of the Junior
Subordinated Debentures to Holders."
Voting Rights.................... Except in limited circumstances, the holders
of the Preferred Securities will have no
voting rights. See "Description of the
Preferred Securities-- Voting Rights;
Amendment of Trust Agreement."
Use of Proceeds.................. All of the proceeds from the sale of the
Preferred Securities will be used by the
Trust Issuer to purchase Junior Subordinated
Debentures. PennFirst intends that the net
proceeds from the sale of such Junior
Subordinated Debentures will be used for
general corporate purposes, including, but
not limited to, acquisitions by either the
Company or the Banks (although there
presently exist no agreements or
understandings with respect to any such
acquisition), capital contributions to the
Banks to support growth and for working
capital, and the possible repurchase of
shares of PennFirst's common stock, subject
to acceptable market conditions.
Risk Factors..................... An investment in the Preferred Securities
involves substantial risks that should be
considered by prospective purchasers. In
addition, because holders of the Preferred
Securities may receive Junior Subordinated
Debentures on termination of the Trust
Issuer, and because payments on the Junior
Subordinated Debentures are the sole source
of funds for Distributions on and redemptions
of the Preferred Securities, prospective
purchasers of the Preferred Securities are
also making an investment decision with
regard to the Junior Subordinated Debentures
and should carefully review all of the
information regarding the Junior Subordinated
Debentures
10
<PAGE>
contained herein. See "Risk Factors" and
"Description of the Junior Subordinated
Debentures."
Nasdaq National Market Symbol.... Application has been made to have the
Preferred Securities approved for listing on
The Nasdaq Stock Market's National Market
under the symbol "PWBCP."
ERISA Considerations............. For a discussion of certain restrictions on
purchases, see "ERISA Considerations."
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND
OTHER DATA OF THE COMPANY
(Dollars in Thousands, except share data)
The following tables set forth certain consolidated financial and other
data of the Company at the dates and for the periods indicated. For
additional financial information about the Company, reference is made to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and
related notes in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, copies of which are attached hereto as Appendices A and
B, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
SEPTEMBER 30,
1997(1) 1996 1995 1994(1) 1993 1992
-------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets................................. $ 822,350 698,735 659,371 637,916 410,314 331,520
Investment securities held to maturity....... 16,049 18,082 20,757 25,206 1,973 8,925
Investment securities available for sale..... 57,992 88,687 43,932 3,260 1,015 --
Mortgage-backed securities held to
maturity................................... 71,647 78,118 91,173 307,172 192,201 192,059
Mortgage-backed securities available for
sale....................................... 302,722 259,442 286,921 105,175 117,700 38,666
Loans receivable, net........................ 330,714 216,865 183,878 161,630 79,250 75,961
Deposits..................................... 394,130 332,889 338,494 333,825 206,629 210,903
Borrowed funds............................... 350,661 309,195 259,472 246,437 160,988 80,187
Stockholders' equity......................... 68,826 51,543 54,926 52,407 40,099 37,615
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997(1) 1996 1996 1995 1994(1) 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Interest income................................ $ 40,420 $ 34,893 $ 46,737 $ 44,183 $ 34,873 $ 23,878 $ 22,671
Interest expense............................... 28,040 24,240 32,629 30,219 22,159 14,585 13,365
--------- --------- --------- --------- --------- --------- ---------
Net interest income............................ 12,380 10,653 14,108 13,964 12,714 9,293 9,306
Provision for possible losses on loans......... 796 681 873 13 41 336 314
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for
possible losses on loans..................... 11,584 9,972 13,235 13,951 12,673 8,957 8,992
Gain (loss) on sale of investment securities
available for sale........................... (4) (31) (35) 54 140 324 (244)
Noninterest income............................. 784 543 868 892 871 771 652
Noninterest expense(2)......................... 6,886 8,306 10,535 8,962 7,364 4,993 5,676
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and cumulative
effect of change in accounting principle..... 5,478 2,178 3,533 5,935 6,320 5,059 3,724
Income tax expense............................. 1,446 364 703 1,967 2,461 1,902 1,420
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative effect of change in
accounting principle......................... 4,032 1,814 2,830 3,968 3,859 3,157 2,304
Cumulative effect of change in accounting
principle.................................... -- -- -- -- -- 125 --
--------- --------- --------- --------- --------- --------- ---------
Net income..................................... $ 4,032 $ 1,814 $ 2,830 $ 3,968 $ 3,859 $ 3,282 $ 2,304
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per share(3):
Primary....................................... $ 0.81 $ 0.42 $ 0.65 $ 0.85 $ 0.83 $ 0.85 $ 0.60
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Fully diluted................................. $ 0.81 $ 0.42 $ 0.65 $ 0.85 $ 0.83 $ 0.85 $ 0.59
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS
ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------------
1997(1) 1996 1996 1995 1994(1) 1993
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Other Data(4):
Performance Ratios:
Return on assets(2)........................................ 0.69% 0.35% 0.41% 0.61% 0.68% 0.83%
Return on equity(2)........................................ 8.78 4.66 5.47 7.44 7.68 8.44
Equity to assets........................................... 7.85 7.58 7.50 8.24 8.79 9.83
Interest rate spread....................................... 2.01 1.97 1.98 1.92 1.96 2.01
Net interest margin........................................ 2.38 2.34 2.32 2.29 2.29 2.39
Interest-earning assets to interest-bearing liabilities.... 107 107 107 108 108 110
Noninterest expense to assets(2)........................... 1.18 1.62 1.53 1.39 1.29 1.26
Efficiency ratio(5)........................................ 49.31 52.14 53.25 58.25 52.98 49.89
Cash dividends per share(3)................................ $ 0.25 $ 0.70(6) $ 0.78(6) $ 0.33 $ 0.25 $ 0.15
Asset Quality Ratios:
Nonperforming loans to total loans at end of period.......... 1.47% 1.83% 1.80% 0.42% 1.31% 2.06%
Nonperforming assets to total assets at end of period........ 0.68 0.59 0.59 0.13 0.40 0.49
Allowance for loan losses to total loans at end of
period..................................................... 1.42 1.40 1.46 1.29 1.43 1.64
Allowance for loan losses to nonperforming loans at end of
period..................................................... 96.88 76.52 81.02 309.26 109.08 79.42
Ratio of net charge-offs during the period to average loans
outstanding during the period.............................. 0.03 0.01 0.02 0.01 0.07 0.22
Capital Ratios:
Stockholders' equity to total assets at end of period........ 8.37 6.98 7.38 8.33 8.22 9.77
Tangible stockholders' equity to tangible assets at end of
period..................................................... 7.51 6.37 6.78 7.65 7.42 9.75
<CAPTION>
1992
---------
<S> <C>
Other Data(4):
Performance Ratios:
Return on assets(2)........................................ 0.73%
Return on equity(2)........................................ 6.27
Equity to assets........................................... 11.70
Interest rate spread....................................... 2.52
Net interest margin........................................ 3.05
Interest-earning assets to interest-bearing liabilities.... 112
Noninterest expense to assets(2)........................... 1.81
Efficiency ratio(5)........................................ 55.65
Cash dividends per share(3)................................ $ 0.11
Asset Quality Ratios:
Nonperforming loans to total loans at end of period.......... 2.80%
Nonperforming assets to total assets at end of period........ 1.16
Allowance for loan losses to total loans at end of
period..................................................... 1.48
Allowance for loan losses to nonperforming loans at end of
period..................................................... 52.96
Ratio of net charge-offs during the period to average loans
outstanding during the period.............................. 0.05
Capital Ratios:
Stockholders' equity to total assets at end of period........ 11.35
Tangible stockholders' equity to tangible assets at end of
period..................................................... 11.32
</TABLE>
- ------------------------
(1) In April 1997, the Company completed its acquisition of Troy Hill
Federal Savings Bank. As a result of the acquisition, PennFirst acquired
$109.3 million in assets, including total loans of $90.0 million, and total
liabilities of $89.4 million, including $53.8 million of deposits. In
March 1994, the Company completed its acquisition of ESB Bancorp, Inc. As
a result of the acquisition, 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. Both acquisitions were
accounted for under the purchase method of accounting. Consequently, the
operating results and assets and liabilities acquired are included only
from the date of acquisition.
(2) Exclusive of the $2.2 million ($1.3 million net of applicable income tax
benefits) one-time special Savings Association Insurance Fund ("SAIF")
assessment, PennFirst's noninterest expense, return on assets, return on
equity and noninterest expense to assets ratios would have been $6.1
million, 0.62%, 8.11% and 1.19%, respectively, for the nine months ended
September 30, 1996 and $8.3 million, 0.61%, 8.08% and 1.21%,
respectively, for the year ended December 31, 1996.
(3) Adjusted for prior stock dividends.
(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) 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 special foreclosed real estate charges and
any special non-recurring expense (such as the one-time special SAIF
assessment in 1996).
(6) Includes a special cash dividend of $.50 per share paid in June 1996.
13
<PAGE>
RISK FACTORS
An investment in the Preferred Securities involves a high degree of risk.
Prospective investors should carefully consider, together with the other
information contained in this Prospectus, the following factors in evaluating
the Company, its business and the Trust Issuer before purchasing the Preferred
Securities offered hereby. Prospective investors should note, in particular,
that this Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve substantial risks and uncertainties. When used in
this Prospectus, the words "anticipate," "believe," "estimate," "may," "intend"
and "expect" and similar expressions identify certain of such forward-looking
statements. Actual results, performance or achievements could differ materially
from those contemplated, expressed or implied by the forward-looking statements
contained herein. The considerations listed below represent certain important
factors the Company believes could cause such results to differ. These
considerations are not intended to represent a complete list of the general or
specific risks that may affect the Company and the Trust Issuer. It should be
recognized that other risks, including general economic factors and expansion
strategies, may be significant, presently or in the future, and the risks set
forth below may affect PennFirst and the Trust Issuer to a greater extent than
indicated.
RISK FACTORS RELATING TO THE OFFERING
Subordination of the Guarantee and the Junior Subordinated Debentures
The obligations of PennFirst under the Guarantee issued by PennFirst for
the benefit of the holders of the Preferred Securities and under the Junior
Subordinated Debentures issued to the Trust Issuer will be unsecured and will
rank subordinate and junior in right of payment to all Senior Indebtedness of
PennFirst. At September 30, 1997, PennFirst had no outstanding Senior
Indebtedness. There is no limitation on the amount of Senior Indebtedness,
or subordinated debt which is pari passu with the Junior Subordinated
Debentures, which PennFirst may issue. Because PennFirst is a holding
company, the right of PennFirst to participate in any distribution of assets
of any subsidiary, including the Banks, upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Preferred
Securities to benefit indirectly from such distribution), is subject to the
prior claims of creditors of that subsidiary (including depositors in the
Banks), except to the extent that PennFirst may itself be recognized as a
creditor of that subsidiary. If PennFirst is a creditor of a subsidiary, the
claims of PennFirst would be subject to any prior security interest in the
assets of the subsidiary and any indebtedness of the subsidiary senior to
that of PennFirst. Accordingly, the Junior Subordinated Debentures and the
Guarantee will be effectively subordinated to all existing and future
liabilities of PennFirst's subsidiaries, including the Banks. At September
30, 1997 the Banks had aggregate liabilities of $738.7 million (including
$394.1 million in deposits). Only the capital stock of PennFirst is
currently junior in right of payment to the Junior Subordinated Debentures to
be issued to the Trust Issuer. Holders of the Junior Subordinated Debentures
will be able to look only to the assets of PennFirst for payments on the
Junior Subordinated Debentures. None of the
14
<PAGE>
Indenture, the Guarantee, the Expense Agreement or the Trust Agreement places
any limitation on the amount of secured or unsecured debt, including Senior
Indebtedness, that may be incurred by PennFirst. PennFirst may, from time to
time, incur indebtedness constituting Senior Indebtedness. See "Description
of the Guarantee--Status of the Guarantee" and "Description of the Junior
Subordinated Debentures--Subordination."
Source of Payments to Holders of Preferred Securities
As a savings and loan holding company, PennFirst conducts its operations
principally through its subsidiaries and, therefore, its principal source of
cash, other than its investing and financing activities, is the receipt of
dividends from the Banks. Since PennFirst is without significant assets other
than the capital stock of the Banks, the ability of PennFirst to pay interest on
the principal of the Junior Subordinated Debentures to the Trust Issuer (and
consequently, the Trust Issuer's ability to pay Distributions on the Preferred
Securities and PennFirst's ability to pay its obligations under the Guarantee)
will be dependent on the ability of the Banks to pay dividends to PennFirst in
amounts sufficient to service PennFirst's obligations. PennFirst may become
obligated to make other payments with respect to securities issued by PennFirst
in the future which are pari passu or have a preference over the Junior
Subordinated Debentures issued to the Trust Issuer with respect to the payment
of principal, interest or dividends. There is no restriction on the ability of
PennFirst to issue, or limitations on the amount of securities which PennFirst
may issue, which are pari passu or have a preference over the Junior
Subordinated Debentures issued to the Trust Issuer, nor is there any restriction
on the ability of the Banks to issue additional capital stock or incur
additional indebtedness.
There are legal limitations on the source and amount of dividends that
savings bank such as the Banks are permitted to pay. The current OTS regulation
applicable to the payment of dividends or other capital distributions by savings
institutions imposes limits on capital distributions based on an institution's
regulatory capital levels and net income. An institution that meets or exceeds
all of its fully phased-in capital requirements (both before and after giving
effect to the distribution) and is not in need of more than normal supervision
would be a "Tier 1 association." A Tier 1 association may make capital
distributions during a calendar year of up to the greater of (i) 100% of net
income for the current calendar year plus 50% of the amount by which the lesser
of the association's tangible, core or risk-based capital exceeds its fully
phased-in capital requirement for such capital component, as measured at the
beginning of the calendar year or (ii) 75% of its net income over the most
recent four quarters. At September 30, 1997, the Banks could have paid
aggregate dividends totaling approximately $16.0 million. Any additional
capital distributions would require prior regulatory approval. The Banks
currently exceed their fully phased-in capital requirements and both qualify as
Tier 1 associations under the regulation, but there is no assurance that the
Banks will continue to so qualify. See "Regulation-Regulatory Capital
Requirements."
An institution that meets the minimum regulatory capital requirements but
does not meet the fully phased-in capital requirements would be a "Tier 2
association," which may make capital distributions of between 25% and 75% of its
net income over the most recent four-quarter period,
15
<PAGE>
depending on the institution's risk-based capital level. A "Tier 3
association" is defined as an institution that does not meet all of the
minimum regulatory capital requirements and therefore may not make any
capital distributions without the prior approval of the OTS.
Savings institutions must provide the OTS with at least 30 days written
notice before making any capital distributions. All such capital distributions
are also subject to the OTS' right to object to a distribution on safety and
soundness grounds.
Right to Defer Interest Payment Obligation; Tax Consequences; Market Price
Consequences
So long as no event of default under the Indenture has occurred and is
continuing, PennFirst has the right under the Indenture to defer the payment of
interest on the Junior Subordinated Debentures, at any time or from time to
time, for a period not exceeding 20 consecutive quarters with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. As a consequence of any such
deferral, quarterly Distributions on the Preferred Securities by the Trust
Issuer would also be deferred (and the amount of Distributions to which holders
of the Preferred Securities are entitled would accumulate additional
Distributions thereon at the rate of ___% per annum, compounded quarterly from
the relevant payment date for such Distributions) during any such Extension
Period. During any such Extension Period, PennFirst may not, and may not permit
any subsidiary of PennFirst to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of PennFirst's capital stock, (other than (a) the
reclassification of PennFirst's capital stock into another class of capital
stock, (b) dividends or distributions in common stock of PennFirst, (c) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future or the redemption or repurchase of any such rights pursuant thereto, (d)
payments under the Guarantee and (e) purchases of common stock related to the
issuance of common stock or rights under any of PennFirst's benefit plans for
its directors, officers or employees), (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of PennFirst that rank pari passu with or junior in interest to the
Junior Subordinated Debentures or (iii) make any guarantee payments with respect
to any guarantee by PennFirst of the debt securities of any subsidiary of
PennFirst if such guarantee ranks pari passu with or junior in interest to the
Junior Subordinated Debentures other than payments pursuant to the Guarantee.
Prior to the termination of any such Extension Period, PennFirst may further
defer the payment of interest, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any Extension Period and the
payment of all interest then accrued and unpaid on the Junior Subordinated
Debentures (together with interest thereon at the annual rate of ___%,
compounded quarterly from the relevant payment date for such interest, to the
extent permitted by applicable law), PennFirst may elect to begin a new
Extension Period subject to the above requirements. There is no limitation on
the number of times that PennFirst may elect to begin an Extension Period so
long as no event of default under the Indenture has occurred and is continuing.
See "Description of the Preferred Securities--
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Distributions" and "Description of the Junior Subordinated Debentures--Right
to Defer Interest Payment Obligation."
If an Extension Period were to occur, a holder of the Preferred Securities
would continue to accrue income (in the form of original issue discount) for
United States federal income tax purposes in respect of its pro rata share of
the interest accruing on the Junior Subordinated Debentures held by the Trust
Issuer. As a result, a holder of the Preferred Securities would be required to
include such income in gross income for United States federal income tax
purposes in advance of the receipt of cash and would not receive the cash
related to such income from the Trust Issuer if the holder disposed of the
Preferred Securities prior to the record date for the payment of Distributions.
See "Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount" and "--Sales or Redemption of the Preferred Securities."
PennFirst has no current intention of exercising its right to defer
payments of interest on the Junior Subordinated Debentures. However, should
PennFirst elect to exercise such right in the future, the market price of the
Preferred Securities would likely be adversely affected. A holder that disposed
of its Preferred Securities during an Extension Period, therefore, might not
receive the same return on its investment as a holder that continued to hold its
Preferred Securities. In addition, as a result of the existence of PennFirst's
right to defer interest payments, the market price of the Preferred Securities
may be more volatile than the market prices of other similar securities that are
not subject to such deferrals.
Optional Redemption After 2002
PennFirst has the right to redeem the Junior Subordinated Debentures prior
to their stated Maturity on or after ______, 2002 in whole at one time or in
part from time to time. The exercise of such right may be subject to PennFirst
having received prior regulatory approval. See "Description of the Junior
Subordinated Debentures--General."
Redemption Due to Tax Event, Investment Company Event or Capital Treatment Event
PennFirst has the right, but not the obligation, to redeem the Junior
Subordinated Debentures in whole (but not in part) within 180 days following the
occurrence of a Tax Event, an Investment Company Event or a Capital Treatment
Event (whether occurring before or after __________, 2002), and, therefore,
cause a mandatory redemption of the Preferred Securities. The exercise of such
right may be subject to PennFirst having received prior regulatory approval.
A "Tax Event" means the receipt by the Trust Issuer of an Opinion of
Counsel to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or such pronouncement or
decision is announced on or after the date of issuance of the Preferred
Securities under the Trust Agreement, there is more than an
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insubstantial risk that (i) the Trust Issuer is, or will be within 90 days of
the date of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by PennFirst on the Junior Subordinated Debentures is
not, or within 90 days of the date of such opinion will not be, deductible by
PennFirst, in whole or in part, for United States federal income tax purposes
or (iii) the Trust Issuer is, or will be within 90 days of the date of such
opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges. The Trust Issuer or PennFirst must request and
receive an opinion with regard to such matters within a reasonable period of
time after it becomes aware of the possible occurrence of any of the events
described in clauses (i) through (iii) above.
"Investment Company Event" means the receipt by the Trust Issuer of an
Opinion of Counsel to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority, the Trust Issuer is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which change
occurs or becomes effective on or after the date of original issuance of the
Preferred Securities.
"Capital Treatment Event" means the receipt by the Trust Issuer of an
Opinion of Counsel to the effect that as a result of any amendment to, or
change (including any proposed change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or
regulations, which amendment or change is effective or such proposed change,
pronouncement, action or decision is announced on or after the date of
original issuance of the Preferred Securities, there is more than an
insubstantial risk that the Preferred Securities would not constitute Tier 1
Capital (or the then equivalent thereof) applied as if PennFirst (or its
successor) were a bank holding company for purposes of applicable capital
adequacy guidelines of the Federal Reserve (or any successor regulatory
authority with jurisdiction over bank holding companies), or any capital
adequacy guidelines as then in effect and applicable to PennFirst.
"Opinion of Counsel" means an opinion in writing of independent legal
counsel experienced in such matters as are being opined upon.
Exchange of Preferred Securities for Junior Subordinated Debentures;
Redemption and Tax Consequences
PennFirst has the right at any time to dissolve the Trust Issuer and,
after the satisfaction of liabilities to creditors of the Trust Issuer as
required by applicable law, cause the Junior Subordinated Debentures to be
distributed to the holders of the Preferred Securities in exchange therefor
in liquidation of the Trust Issuer. The exercise of such right may be
subject to PennFirst having received prior regulatory approval. PennFirst
will have the right, in certain circumstances, to redeem the Junior
Subordinated Debentures in whole or in part, in lieu of a distribution of the
Junior Subordinated Debentures by the Trust Issuer, in which event the Trust
Issuer will redeem the Preferred Securities on a pro rata basis to the same
extent as the Junior Subordinated
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Debentures are redeemed by PennFirst. Any such distribution or redemption
prior to the Stated Maturity will be subject to prior regulatory approval if
then required under applicable capital guidelines or regulatory policies.
See "Description of the Preferred Securities--Liquidation of the Trust Issuer
and Distribution of the Junior Subordinated Debentures to Holders" and
"Description of the Junior Subordinated Debentures--Redemption or Exchange."
Under current United States federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of the Trust Issuer would
not be a taxable event to holders of the Preferred Securities. If, however,
the Trust Issuer were characterized as an association taxable as a
corporation at the time of the dissolution of the Trust Issuer, the
distribution of the Junior Subordinated Debentures would constitute a taxable
event to holders of Preferred Securities. Moreover, any redemption of the
Preferred Securities for cash would be a taxable event to such holders. See
"Certain Federal Income Tax Consequences--Distribution of the Junior
Subordinated Debentures to Holders of the Preferred Securities" and "--Sales
or Redemption of the Preferred Securities."
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities upon a dissolution or liquidation of the
Trust Issuer. The Preferred Securities or the Junior Subordinated Debentures
may trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby. Because holders of Preferred Securities
may receive Junior Subordinated Debentures as a result of the liquidation of
the Trust, and because payments on the Junior Subordinated Debentures are the
sole source of funds for Distributions and redemptions of the Preferred
Securities, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Junior Subordinated Debentures and
should carefully review all the information regarding the Junior Subordinated
Debentures contained herein.
If the Junior Subordinated Debentures are distributed to the holders of
Preferred Securities upon the liquidation of the Trust Issuer, PennFirst will
use its reasonable efforts to list the Junior Subordinated Debentures on the
Nasdaq Stock Market's National Market or SmallCap Market or such stock
exchanges, if any, on which the Preferred Securities are then listed.
Rights under the Guarantee
The Guarantee guarantees to the holders of the Preferred Securities the
following payments, to the extent not paid by the Trust Issuer: (i) any
accumulated and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that the Trust Issuer has funds on hand available
therefor at such time, (ii) the redemption price with respect to any
Preferred Securities called for redemption, to the extent that the Trust
Issuer has funds on hand available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding-up or liquidation of the Trust
Issuer (unless the Junior Subordinated Debentures are distributed to holders
of the Preferred Securities in exchange therefor), the lesser of (a) the
aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Trust Issuer has
funds on hand available therefor at such time, and (b) the amount of assets
of the Trust Issuer remaining available for distribution to holders of the
Preferred Securities after payment of creditors of the Trust Issuer as
required by applicable law.
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If PennFirst were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Trust Issuer would lack funds
for the payment of Distributions or amounts payable on redemption of the
Preferred Securities or otherwise, and, in such event, holders of the
Preferred Securities would not be able to rely upon the Guarantee for payment
of such amounts. The holders of not less than a majority in aggregate
Liquidation Amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Guarantee Trustee in respect of the Guarantee or to direct the
exercise of any trust power conferred upon the Guarantee Trustee under the
Guarantee. Any holder of the Preferred Securities may institute a legal
proceeding directly against PennFirst to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Trust
Issuer, the Guarantee Trustee or any other person or entity. In the event an
event of default under the Indenture shall have occurred and be continuing
and such event is attributable to the failure of PennFirst to pay interest on
or principal of the Junior Subordinated Debentures on the applicable payment
date, a holder of the Preferred Securities may institute a legal proceeding
directly against PennFirst for enforcement of payment to such holder of the
principal of or interest on such Junior Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Preferred
Securities of such holder (a "Direct Action"). The exercise by PennFirst of
its right, as described herein, to defer the payment of interest on the
Junior Subordinated Debentures does not constitute an event of default under
the Indenture. In connection with any Direct Action, PennFirst will have a
right of set-off under the Indenture to the extent of any payment made by
PennFirst to such holder of the Preferred Securities in the Direct Action.
Except as described herein, holders of the Preferred Securities will not be
able to exercise directly any other remedy available to the holders of the
Junior Subordinated Debentures or assert directly any other rights in respect
of the Junior Subordinated Debentures. The Bank of New York will act as the
guarantee trustee under the Guarantee (the "Guarantee Trustee") and will hold
the Guarantee for the benefit of the holders of the Preferred Securities.
The Bank of New York will also act as Debenture Trustee for the Junior
Subordinated Debentures and as Property Trustee, and The Bank of New York
(Delaware) will act as Delaware Trustee under the Trust Agreement. See
"Description of the Junior Subordinated Debentures--Enforcement of Certain
Rights by Holders of the Preferred Securities," "Description of the Junior
Subordinated Debentures--Debenture Events of Default" and "Description of the
Guarantee." The Trust Agreement provides that each holder of the Preferred
Securities by acceptance thereof agrees to the provisions of the Guarantee
and the Indenture.
Limited Covenants
The covenants in the Indenture are limited and there are no covenants in
the Trust Agreement. As a result, neither the Indenture nor the Trust
Agreement protects holders of Junior Subordinated Debentures or Preferred
Securities, respectively, in the event of a material adverse change in
PennFirst's financial condition or results of operations or limits the
ability of PennFirst or any subsidiary to incur or assume additional
indebtedness or other obligations. Additionally, neither the Indenture nor
the Trust Agreement contains any financial ratios or specified levels of
liquidity to which PennFirst must adhere. Therefore, the provisions of these
governing instruments should not be considered a significant factor in
evaluating whether PennFirst will be able to or will comply with its
obligations under the Junior Subordinated Debentures or the Guarantee.
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Limited Voting Rights
Holders of the Preferred Securities will generally have limited voting
rights relating only to the modification of the Preferred Securities and the
exercise of the Trust Issuer's rights as holder of the Junior Subordinated
Debentures and the Guarantee. Holders of the Preferred Securities will not
be entitled to vote to appoint, remove or replace the Property Trustee, the
Delaware Trustee or the Administrative Trustees, as such voting rights are
vested exclusively in PennFirst, as the holder of the Common Securities
(except, with respect to the Property Trustee and the Delaware Trustee, upon
the occurrence of certain events described herein). The Property Trustee,
the Administrative Trustees and PennFirst may amend the Trust Agreement
without the consent of holders of the Preferred Securities to ensure that the
Trust Issuer will be classified for United States federal income tax
purposes as a grantor trust even if such action adversely affects the
interests of such holders. See "Description of the Preferred
Securities--Voting Rights; Amendment of the Trust Agreement" and "--Removal
of the Trust Issuer Trustees."
Absence of Prior Public Market for the Preferred Securities; Trading Price and
Tax Considerations
There is no current public market for the Preferred Securities.
Application has been made to list the Preferred Securities on the Nasdaq
Stock Market's National Market. However, one of the requirements for listing
and continued listing is the presence of two market makers for the Preferred
Securities. PennFirst has been advised that the Underwriter intends to make
a market in the Preferred Securities. However, the Underwriter is not
obligated to do so and such market making may be discontinued at any time.
Therefore, there is no assurance that an active trading market will develop
for the Preferred Securities or, if such market develops, that it will be
maintained or that the market price will equal or exceed the public offering
price set forth on the cover page of this Prospectus. Accordingly, holders
of Preferred Securities may experience difficulty reselling them or may be
unable to sell them at all. The public offering price for the Preferred
Securities has been determined through negotiations between PennFirst and the
Underwriter. Prices for the Preferred Securities will be determined in the
marketplace and may be influenced by many factors, including prevailing
interest rates, the liquidity of the market for the Preferred Securities,
investor perceptions of PennFirst and general industry and economic
conditions.
Further, should PennFirst exercise its option to defer any payment of
interest on the Junior Subordinated Debentures, the Preferred Securities
would be likely to trade at prices that do not fully reflect the value of
accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. In the event of such a deferral, a holder of
Preferred Securities that disposed of its Preferred Securities between record
dates for payments of Distributions (and consequently did not receive a
Distribution from the Trust Issuer for the period prior to such disposition)
would nevertheless be required to include accrued but unpaid interest on the
Junior Subordinated Debentures through the date of disposition in income as
ordinary income and to add such amount to the adjusted tax basis of the
Preferred Securities disposed of. Upon disposition of the Preferred
Securities, such holder would recognize a capital loss to the extent the
selling price (which might not fully reflect the value of accrued but unpaid
interest) was less than its adjusted tax basis (which would include all
accrued but unpaid interest). Subject to certain
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limited exceptions, capital losses cannot be applied to offset ordinary
income for United States federal income tax purposes. See "Certain Federal
Income Tax Consequences--Sales or Redemption of the Preferred Securities."
Possible Tax Law Changes Affecting the Preferred Securities
Under current law, PennFirst will be able to deduct interest on the
Junior Subordinated Debentures. However, there is no assurance that future
legislation will not affect the ability of the Company to deduct interest on
the Junior Subordinated Debentures. Such a change would give rise to a Tax
Event. A Tax Event would permit PennFirst, upon receipt of regulatory
approval if then required under applicable capital guidelines or regulatory
policies, to cause a redemption of the Preferred Securities before, as well
as after, __, 2002. See "Description of the Junior Subordinated
Debentures--Redemption or Exchange."
RISK FACTORS RELATING TO THE COMPANY
Potential Impact of Changes in Interest Rates
The Banks' profitability is dependent to a large extent on its net
interest income, which is the difference between its income on
interest-earning assets and its expense on interest-bearing liabilities. The
Banks, like most financial institutions, are affected by changes in general
interest rate levels and by other economic factors beyond its control.
Interest rate risk arises in part from mismatches (i.e., the interest
sensitivity gap) between the dollar amount of repricing or maturing assets
and liabilities, and is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. More assets than liabilities repricing or
maturing over a given time frame is considered asset-sensitive and is
reflected as a positive gap, and more liabilities than assets repricing or
maturing over a given time frame is considered liability-sensitive and is
reflected as a negative gap. A liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and reduce earnings in a rising interest rate environment, while
an asset-sensitive position (i.e., a positive gap) will generally enhance
earnings in a rising interest rate environment and will reduce earnings in a
falling interest rate environment. Fluctuations in interest rates are not
predictable or controllable. At September 30, 1997, the Company had a
consolidated one year cumulative negative gap of 12.0%. This negative one
year gap position may, as noted above, have a negative impact on earnings in
a rising interest rate environment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Asset and
Liability Management" and "--Interest Rate Sensitivity" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, a copy of
which is attached hereto as Appendix A, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Asset and Liability
Management" in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, a copy of which is attached hereto as Appendix B.
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Allowance for Loan Losses
Industry experience indicates that a portion of the Company's loans will
become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by the Company,
losses may be experienced as a result of various factors beyond the Company's
control, including, among other things, changes in market conditions
affecting the value of properties and problems affecting the credit of the
borrower. The Company's determination of the adequacy of its allowance for
loan losses is based on various considerations, including an analysis of the
risk characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair value of the underlying collateral, current economic
conditions, the views of the Company's regulators (who have the authority to
require additional reserves), and geographic and industry loan concentration.
However, if delinquency levels were to increase as a result of adverse
general economic conditions, especially in Pennsylvania where the Company's
exposure is greatest, the loan loss reserve so determined by the Company may
not be adequate. There can be no assurance that the allowance will be
adequate to cover loan losses or that the Company will not experience
significant losses in its loan portfolios which may require significant
increases to the allowance for loan losses in the future. At September 30,
1997, the ratio of the Company's allowance for loan losses to total loans was
1.42% and the allowance for loan losses to non-performing loans was 96.9%.
See "Business-Allowances for Losses on Loans and Real Estate Owned" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, a
copy of which is attached hereto as Appendix A, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations - Provision for (recoveries of) loan losses" in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, a
copy of which is attached hereto as Appendix B.
Regulatory Oversight
The Banks are subject to extensive regulation, supervision and
examination by the OTS as its chartering authority and primary federal
regulator, and by the FDIC, which insures its deposits up to applicable
limits. The Banks are members of the FHLB of Pittsburgh and are subject to
certain limited regulation by the Federal Reserve Board. As the holding
company of the Banks, PennFirst is also subject to regulation and oversight
by the OTS. Such regulation and supervision governs the activities in which
an institution may engage and is intended primarily for the protection of the
FDIC insurance funds and depositors. Regulatory authorities have been granted
extensive discretion in connection with their supervisory and enforcement
activities and regulations have been implemented which have increased capital
requirements, increased insurance premiums and have resulted in increased
administrative, professional and compensation expenses. Any change in the
regulatory structure or the applicable statutes or regulations could have a
material impact on the Company and the Banks and their operations.
Additional legislation and regulations may be enacted or adopted in the
future which could significantly affect the powers, authority and operations
of the Banks and the Banks' competitors which in turn could have a material
adverse effect on the Banks and their operations. See "Business-Regulation"
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996, a copy of which is attached hereto as Appendix A.
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Composition of Loan Portfolio
Most of the loans in the Company's portfolio are secured by real estate.
At September 30, 1997, approximately 95% of the Company's total loans
receivable were secured by properties located in Pennsylvania. Conditions in
the real estate markets in which the collateral for the Company's mortgage
loans are located strongly influence the level of the Company's
non-performing loans and its results of operations. Real estate values are
affected by, among other things, changes in general or local economic
conditions, changes in governmental rules or policies, the availability of
loans to potential purchasers, and natural disasters. Declines in real
estate markets could negatively impact the value of the collateral securing
the Company's loans and its results of operations. See "Business" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, a
copy of which is attached hereto as Appendix A.
As of September 30, 1997, $221.2 million, or 64.4% of the Company's total
loan portfolio consisted of loans secured by first liens on one- to
four-family residences. At that date, $37.7 million or 11.0% of the
Company's total loan portfolio consisted of commercial and multi-family real
estate loans, $24.3 million or 7.1% of the Company's total loan portfolio
consisted of construction loans, $8.2 million or 2.4% of the Company's total
loan portfolio consisted of commercial business loans, and $51.9 million or
15.1% of the Company's total loan portfolio consisted of consumer loans.
Although these types of loans generally have higher yields than one- to
four-family loans, such loans generally carry a higher level of credit risk
than do single-family residential loans. See "Business" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, a copy of
which is attached hereto as Appendix A.
Competition
The Company faces substantial competition in purchasing and originating
real estate loans and in attracting deposits. The Company's competition in
originating real estate loans is principally from banks, other thrifts,
mortgage banking companies, real estate financing conduits, and small
insurance companies. In purchasing real estate loans the Company competes
with other participants in the secondary mortgage market. Many entities
competing with the Company enjoy competitive advantages over the Company
relative to a potential borrower or seller in terms of a prior business
relationship, wide geographic presence or more accessible branch office
locations, the ability to offer additional services or more favorable pricing
alternatives, a lower origination and operating cost structure, and other
relevant items. Increased competition in the areas in which the Company
conducts operations from traditional competitors or new sources could result
in a decrease in the origination or purchase of mortgage loans and could
adversely affect the Company's results of operations. In its deposit
gathering activities, the Company competes with insured depository
institutions such as thrifts, credit unions, and banks, as well as uninsured
investment alternatives including money market funds. These competitors may
offer higher rates than the Company, which could result in the Company either
attracting fewer deposits or in requiring the Company to increase the rates
it pays to attract deposits. Increased deposit competition could adversely
affect the Company's ability to generate the funds necessary for its lending
operations and could adversely affect the Company's results of operations.
See "Business" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, a copy of which is attached hereto as Appendix A.
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USE OF PROCEEDS
All of the proceeds from the sale of the Preferred Securities will be
invested by the Trust Issuer in Junior Subordinated Debentures. The net
proceeds to the Company from the sale of the Junior Subordinated Debentures
are estimated to be approximately $_____ million ($____ million if the
Underwriter's over-allotment option is exercised in full after deduction of
the underwriting discount and estimated expenses), PennFirst intends to use
the net proceeds from the sale of the Junior Subordinated Debentures for
general corporate purposes, including, but not limited to, acquisitions by
either the Company or the Banks (although there presently exist no agreements
or understandings with respect to any such acquisition), capital
contributions to the Banks to support growth and for working capital, and
possible repurchase of shares of PennFirst's common stock, subject to
acceptable market conditions.
MARKET FOR THE PREFERRED SECURITIES
Application has been made to list the Preferred Securities on the Nasdaq
Stock Market's National Market under the symbol "PWBCP." Although the
Underwriter has informed the Company that it presently intends to make a
market in the Preferred Securities, the Underwriter is not obligated to do so
and any such market making may be discontinued at any time. Accordingly,
there is no assurance that an active and liquid trading market will develop
or, if developed, that such a market will be sustained. The offering price
and distribution rate have been determined by negotiations among
representatives of the Company and the Underwriter, and the offering price of
the Preferred Securities may not be indicative of the market price following
the offering. See "Underwriting."
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust Issuer will be treated as a
subsidiary of the Company and, accordingly, the Trust Issuer's financial
statements will be included in the consolidated financial statements of the
Company. The Preferred Securities will be presented as a separate line item
in the consolidated statements of financial condition of the Company under
the caption "Guaranteed Preferred Beneficial Interests in the Company's
Junior Subordinated Debentures" and appropriate disclosures about the
Preferred Securities will be included in the notes to the consolidated
financial statements. For financial reporting purposes, the Company will
record distributions payable on the Preferred Securities as an interest
expense in the consolidated statements of operations.
In its future financial reports, the Company will: (i) present the
Preferred Securities on the Company's statements of financial condition as a
separate line item entitled "Guaranteed Preferred Beneficial Interests in the
Company's Junior Subordinated Debentures;" (ii) include in a footnote to the
financial statements disclosure that the sole assets of the Trust Issuer are
the Junior Subordinated Debentures specifying the principal amount, interest
rate and maturity date of Junior Subordinated Debentures held; and (iii) if
Staff Accounting Bulletin No. 53 treatment
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<PAGE>
is sought, include, in an audited footnote to the financial statements,
disclosure that (a) the Trust Issuer is wholly owned, (b) the sole assets of
the Trust Issuer are its Junior Subordinated Debentures, and (c) the
obligations of the Company under the Junior Subordinated Debentures, the
Indenture, the Trust Agreement and the Guarantee, in the aggregate,
constitute a full and unconditional guarantee by the Company of the Trust
Issuer's obligations under the Preferred Securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for the periods indicated.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
------------- ---------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings to Fixed Charges:
Including intereston deposits 1.20x 1.09x 1.11x 1.20x 1.29x 1.35x 1.28x
Excluding intereston deposits 1.35x 1.16x 1.19x 1.38x 1.58x 1.80x 2.21x
</TABLE>
For purposes of computing the ratios of earnings to fixed charges,
earnings represent income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in accounting principle
plus fixed charges. Fixed charges represent total interest expense, including
and excluding interest on deposits, as applicable, as well as the interest
component of rental expense.
26
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1997, as adjusted to give effect to the consummation
of the offering of the Preferred Securities. The following data should be read
in conjunction with the Consolidated Financial Statements and Notes thereto of
the Company included in the Appendices attached hereto.
<TABLE>
<CAPTION>
As
Actual Adjusted
------ --------
(In thousands)
<S> <C> <C>
Deposits............................................................. $394,130 $394,130
Borrowings:
FHLB of Pittsburgh advances....................................... 335,845 335,845
Other borrowings.................................................. 14,816 14,816
-------- --------
Total deposits and borrowed funds............................. 744,791 744,791
-------- --------
Guaranteed Preferred Beneficial Interests in the Company's Junior
Subordinated Debentures(1)........................................... -- 20,000
-------- --------
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 authorized; none issued -- --
Common stock, $.01 par value, 10,000,000 shares authorized;
5,819,808 issued and 5,310,173 shares outstanding............... 58 58
Additional paid-in capital........................................... 48,595 48,595
Retained income, substantially restricted............................ 26,787 26,787
Treasury stock, at cost; 509,635 shares.............................. (6,630) (6,630)
Unearned Employee Stock Ownership Plan shares........................ (2,659) (2,659)
Unvested shares held by Management Recognition Plan.................. (237) (237)
Unrealized gain on securities available for sale, net................ 2,912 2,912
-------- --------
Total stockholders' equity.................................... 68,826 68,826
-------- --------
</TABLE>
- -------------------
(1) Preferred Securities of the Trust Issuer representing beneficial interests
in $20.0 million aggregate principal amount of the Junior Subordinated
Debentures issued by the Company to the Trust Issuer. The Junior
Subordinated Debentures will bear interest at the annual rate of ___% of
the principal amount thereof, payable quarterly and will mature on
_________, 2027. The Company owns all of the Common Securities of the
Trust Issuer.
27
<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
General
The following is a summary of certain terms and provisions of the
Preferred Securities. This summary of certain terms and provisions of the
Preferred Securities does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the Trust Agreement. The form of
the Trust Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Unless otherwise expressly
stated or the context otherwise requires, all references to the "Company"
appearing under this caption "Description of the Preferred Securities" and
under the caption "Description of the Junior Subordinated Debentures" shall
mean PennFirst Bancorp, Inc. excluding its consolidated subsidiaries.
Distributions
The Preferred Securities represent preferred undivided beneficial
interests in the assets of the Trust Issuer. Distributions on such Preferred
Securities will be payable at the annual rate of ___% of the stated
Liquidation Amount of $10, payable quarterly in arrears on March 1, June 1,
September 1 and December 1 of each year, to the holders of the Preferred
Securities on the relevant record dates. The record date will be the 15th
day of the preceding month in which the relevant Distribution payment date
occurs. Distributions will accumulate from the date of the initial issuance
of the Preferred Securities and are cumulative. The first Distribution
payment date for the Preferred Securities will be March 1, 1998. The amount
of Distributions payable for any period will be computed on the basis of a
360-day year of twelve 30-day months. In the event that any date on which
Distributions are payable on the Preferred Securities is not a Business Day,
then payment of the Distributions payable on such date will be made on the
next succeeding day that is a Business Day (and without any additional
Distributions or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on the date such payment was originally payable
(each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). A "Business Day" shall mean any day other
than a Saturday or a Sunday, or a day on which banking institutions in the
City of New York are authorized or required by law or executive order to
remain closed or a day on which the principal corporate trust office of the
Property Trustee or the Debenture Trustee is closed for business.
So long as no event of default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect
to each Extension Period, provided that no Extension Period may extend beyond
the Stated Maturity of the Junior Subordinated Debentures. As a consequence
of any such deferral of interest, quarterly Distributions on the Preferred
Securities by the Trust Issuer will also be deferred during any such
Extension Period. Distributions to which holders of the Preferred Securities
are entitled will accumulate additional Distributions
28
<PAGE>
thereon at the rate per annum of ___% thereof, compounded quarterly from the
relevant payment date for such Distributions. The term "Distributions" as
used herein, shall include any such additional Distributions. During any
such Extension Period, the Company may not, and may not permit any subsidiary
of the Company to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire or make a liquidation payment with respect to, any
of the Company's capital stock other than payments pursuant to the Guarantee
(other than (a) the reclassification of any class of the Company's capital
stock into another class of capital stock, (b) dividends or distributions in
common stock of the Company, (c) any declaration of a dividend in connection
with the implementation of a stockholders' rights plan, or the issuance of
stock under any such plan in the future or the redemption or repurchase of
any such rights pursuant thereto, (d) payments under the Guarantee and (e)
purchases of common stock related to the issuance of common stock or rights
under any of the Company's benefit plans for its directors, officers or
employees), (ii) make any payment of principal, interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Company that
rank pari passu with or junior in interest to the Junior Subordinated
Debentures or (iii) make any guarantee payments with respect to any guarantee
by the Company of the debt securities of any subsidiary of the Company if
such guarantee ranks pari passu with or junior in interest to the Junior
Subordinated Debentures other than payments pursuant to the Guarantee. Prior
to the termination of any such Extension Period, the Company may further
defer the payment of interest on the Junior Subordinated Debentures, provided
that no Extension Period may exceed 20 consecutive quarters periods or extend
beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the rate of %,
compounded quarterly, to the extent permitted by applicable law), the Company
may elect to begin a new Extension Period. There is no limitation on the
number of times that the Company may elect to begin an Extension Period. See
"Description of the Junior Subordinated Debentures--Right to Defer Interest
Payment Obligation" and "Certain Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
The revenue of the Trust Issuer available for distribution to holders of
its Preferred Securities will be limited to payments under the Junior
Subordinated Debentures in which the Trust Issuer will invest the proceeds
from the issuance and sale of its Trust Securities. See "Description of the
Junior Subordinated Debentures." If the Company does not make interest
payments on the Junior Subordinated Debentures, the Property Trustee will not
have funds available to pay Distributions on the Preferred Securities. The
payment of Distributions (if and to the extent the Trust Issuer has funds
legally available for the payment of such Distributions and cash sufficient
to make such payments) is guaranteed by the Company on a limited basis as set
forth herein under "Description of the Guarantee."
The Company has no current intention of exercising its right to defer
payments of interest on the Junior Subordinated Debentures.
29
<PAGE>
Subordination of the Common Securities
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, shall be made pro rata based
on the Liquidation Amount of the Preferred Securities and the Common
Securities; provided, however, that if on any Distribution Date or Redemption
Date an event of default under the Indenture shall have occurred and be
continuing, no payment of any Distribution on, or Redemption Price of, any of
the Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of such Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid Distributions on
all of the outstanding Preferred Securities for all Distribution periods
terminating on or prior thereto, or, in the case of payment of the Redemption
Price, the full amount of such Redemption Price on all of the outstanding
Preferred Securities then called for redemption shall have been made or
provided for, and all funds available to the Property Trustee shall first be
applied to the payment in full in cash of all Distributions on, or Redemption
Price of, the Preferred Securities then due and payable.
In the case of any event of default under the Trust Agreement resulting
from an event of default under the Indenture, the Company as holder of the
Common Securities will be deemed to have waived any right to act with respect
to any such event of default under the Trust Agreement until the effect of
all such events of default with respect to the Preferred Securities shall
have been cured, waived or otherwise eliminated. Until any such events of
default under the Trust Agreement shall have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
holders of the Preferred Securities and not on behalf of the Company as
holder of the Common Securities, and only the holders of the Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
Redemption
The Preferred Securities are subject to mandatory redemption, in whole or
in part, upon repayment of the Junior Subordinated Debentures at their Stated
Maturity or earlier redemption as provided in the Indenture. The proceeds
from such repayment or redemption shall be applied by the Property Trustee to
redeem a Like Amount (as defined below) of the Preferred Securities upon not
less than 30 nor more than 60 days notice prior to the date fixed for
repayment or redemption, at a redemption price equal to the aggregate
Liquidation Amount of such Preferred Securities plus accumulated and unpaid
Distributions thereon (the "Redemption Price") to the date of redemption (the
"Redemption Date"). For a description of the Stated Maturity and redemption
provisions of the Junior Subordinated Debentures, see "Description of the
Junior Subordinated Debentures--General" and "--Redemption or Exchange."
The Company has the option to redeem the Junior Subordinated Debentures
prior to maturity on or after ________, 2002, in whole at any time or in part
from time to time, and thereby cause a mandatory redemption of a Like Amount
of the Preferred Securities. See "Description of the Junior Subordinated
Debentures--Redemption or Exchange." Any time that a Tax Event, an
Investment Company Event or a Capital Treatment Event (each as defined
30
<PAGE>
below) shall occur and be continuing, the Company has the right to redeem the
Junior Subordinated Debentures in whole (but not in part) and thereby cause a
mandatory redemption of the Preferred Securities in whole (but not in part).
See "Description of the Junior Subordinated Debentures--Redemption or
Exchange."
Redemption Procedures
Preferred Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the applicable proceeds from the contemporaneous
redemption of a Like Amount of the Junior Subordinated Debentures.
Redemptions of the Preferred Securities shall be made and the Redemption
Price shall be paid on each Redemption Date only to the extent that the Trust
Issuer has funds on hand available for the payment of such Redemption Price.
See also "Description of the Preferred Securities--Subordination of the
Common Securities."
If the Trust Issuer gives a notice of redemption in respect of the
Preferred Securities, then, by 10:00 a.m., New York City time, on the
Redemption Date, to the extent funds are available, the Property Trustee will
deposit irrevocably with the DTC funds sufficient to pay the applicable
Redemption Price and will give DTC irrevocable instructions and authority to
pay the Redemption Price to the holders thereof upon surrender of their
certificates evidencing such Preferred Securities. Notwithstanding the
foregoing, Distributions payable on or prior to the Redemption Date for the
Preferred Securities called for redemption shall be payable to the holders of
the Preferred Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then, upon the date of such deposit, all rights of the
holders of such Preferred Securities so called for redemption will cease,
except the right of the holders of such Preferred Securities to receive the
Redemption Price, but without interest on such Redemption Price, and such
Preferred Securities will cease to be outstanding.
In the event that any date fixed for redemption of the Preferred
Securities is not a Business Day, then payment of the Redemption Price
payable on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any
such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day.
In the event that payment of the Redemption Price in respect of the Preferred
Securities called for redemption is improperly withheld or refused and not
paid either by the Trust Issuer or by the Company pursuant to the Guarantee
as described under "Description of the Guarantee," Distributions on such
Preferred Securities will continue to accrue at the then applicable rate,
from the Redemption Date originally established by the Trust Issuer for such
Preferred Securities to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by private
agreement.
31
<PAGE>
Payment of the Redemption Price on the Preferred Securities and any
distribution of the Junior Subordinated Debentures to holders of the
Preferred Securities shall be made to the applicable recordholders thereof as
they appear on the register for the Preferred Securities on the relevant
record date, which date shall be one business day prior to the relevant
Redemption Date, however, in the event the Preferred Securities do not remain
in book entry form, the relevant record date shall be the date at least 15
days prior to the Redemption Date or liquidation date, as applicable.
If less than all of the Preferred Securities and Common Securities issued
by the Trust Issuer are to be redeemed on a Redemption Date, then the
aggregate Liquidation Amount of the Preferred Securities and Common
Securities to be redeemed shall be allocated pro rata to the Preferred
Securities and the Common Securities based upon the relative Liquidation
Amounts of such classes. The particular Preferred Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Property Trustee from the outstanding Preferred Securities not previously
called for redemption, or if the Preferred Securities are then held in the
form of a global preferred security in accordance with DTC's customary
procedures. The Property Trustee shall promptly notify the trust registrar
in writing of the Preferred Securities selected for redemption and, in the
case of any Preferred Securities selected for partial redemption, the
Liquidation Amount thereof to be redeemed. For all purposes of the Trust
Agreement, unless the context otherwise requires, all provisions relating to
the redemption of the Preferred Securities shall relate, in the case of the
Preferred Securities redeemed or to be redeemed only in part, to the portion
of the aggregate Liquidation Amount of the Preferred Securities which has
been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each holder of the Preferred
Securities to be redeemed at its registered address. Unless the Company
defaults in payment of the Redemption Price on the Junior Subordinated
Debentures, on and after the Redemption Date interest will cease to accrue on
the Junior Subordinated Debentures or portions thereof called for redemption.
Liquidation of the Trust Issuer and Distribution of the Junior Subordinated
Debentures to Holders
The Company has the right at any time to dissolve the Trust Issuer and,
after satisfaction of the liabilities of creditors of the Trust Issuer as
provided by applicable law, cause Junior Subordinated Debentures to be
distributed to the holders of the Preferred Securities and Common Securities
in exchange therefor upon liquidation of the Trust Issuer.
After the liquidation date fixed for any distribution of the Junior
Subordinated Debentures for Preferred Securities (i) such Preferred
Securities will no longer be deemed to be outstanding, and (ii) DTC or its
nominee, as the registered holder of Preferred Securities, will receive a
registered global certificate or certificates representing the Junior
Subordinated Debentures to be delivered upon such distribution with respect
to Preferred Securities held by DTC or its nominee, (iii) any certificates
representing the Preferred Securities not held by DTC or its nominee will be
32
<PAGE>
deemed to represent Junior Subordinated Debentures having a principal amount
equal to the stated Liquidation Amount of such Preferred Securities, and
bearing accrued and unpaid interest in an amount equal to the accumulated and
unpaid Distributions on such series of the Preferred Securities until such
certificates are presented to the Administrative Trustees or their agent for
transfer or reissuance.
Under current United States federal income tax law and interpretations, a
distribution of the Junior Subordinated Debentures should not be a taxable
event to holders of the Preferred Securities. Should there be a change in
law, a change in legal interpretation, a Tax Event or other circumstances,
however, the distribution could be a taxable event to holders of the
Preferred Securities. See "Certain Federal Income Tax
Consequences--Distribution of the Junior Subordinated Debentures to Holders
of the Preferred Securities."
Liquidation Distribution upon Dissolution
Pursuant to the Trust Agreement, the Trust Issuer shall automatically
dissolve upon expiration of its term and shall dissolve on the first to occur
of (i) certain events of bankruptcy, dissolution or liquidation of the
Company, subject in certain instances to any such event remaining in effect
for a period of 90 consecutive days; (ii) the distribution of a Like Amount
of the Junior Subordinated Debentures to the holders of its Preferred
Securities, if the Company, as depositor, has given written direction to the
Property Trustee to dissolve the Trust Issuer (which direction is optional
and wholly within the discretion of the Company, as depositor); (iii)
redemption of all of the Preferred Securities as described under "Description
of the Preferred Securities-Redemption;" and (iv) the entry of an order for
the dissolution of the Trust Issuer by a court of competent jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or (iv)
of the preceding paragraph, the Trust Issuer shall be liquidated by the Trust
Issuer Trustees as expeditiously as the Trust Issuer Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of
the Trust Issuer, if any, as provided by applicable law, to the holders of
the Preferred Securities a Like Amount of the Junior Subordinated Debentures,
unless such distribution is determined by the Property Trustee not to be
practical, in which event such holders will be entitled to receive out of the
assets of the Trust Issuer available for distribution to holders, after
satisfaction of liabilities to creditors of the Trust Issuer, if any, as
provided by applicable law, an amount equal to, in the case of holders of the
Preferred Securities, the aggregate of the Liquidation Amount plus accrued
and unpaid Distributions thereon to the date of payment (such amount being
the "Liquidation Distribution"). If such Liquidation Distribution can be
paid only in part because the Trust Issuer has insufficient assets available
to pay in full the aggregate Liquidation Distribution, then the amounts
payable directly by the Trust Issuer on Preferred Securities shall be paid on
a pro rata basis. The Company, as the holder of the Common Securities, will
be entitled to receive distributions upon any such liquidation pro rata with
the holders of the Preferred Securities, except that if an event of default
under the Indenture has occurred and is continuing, the Preferred Securities
shall have a priority over the Common Securities with respect to any such
distributions.
33
<PAGE>
Events of Default; Notice
Any one of the following events constitutes an "Event of Default" under
the Trust Agreement (an "Event of Default") with respect to the Preferred
Securities issued thereunder (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(i) the occurrence of an event of default under the Indenture (see
"Description of the Junior Subordinated Debentures--Debenture Events of
Default"); or
(ii) default in the payment of any Distribution when it becomes due
and payable, and continuation of such default for a period of 30 days; or
(iii)default in the payment of any Redemption Price of any
Preferred Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Trust Issuer Trustees in the Trust
Agreement (other than a covenant or warranty a default in the performance
of which or the breach of which is dealt with in clause (ii) or (iii)
above), and continuation of such default or breach for a period of 60 days
after there has been given, by registered or certified mail, to the
defaulting Trust Issuer Trustee or Trustees by the holders of at least 25%
in aggregate Liquidation Amount of the outstanding Preferred Securities, a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" under the
Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency
with respect to the Property Trustee and the failure by the Company to
appoint a successor Property Trustee within 60 days thereof.
Within 90 days after the occurrence of any Event of Default actually
known to the Property Trustee, the Property Trustee shall transmit notice of
such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as depositor, unless such Event of
Default shall have been cured or waived. The Company, as depositor, and the
Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all
the conditions and covenants applicable to them under the Trust Agreement.
If an event of default under the Indenture has occurred and is
continuing, the Preferred Securities shall have a preference over the Common
Securities as described above. See "Description of the Preferred
Securities--Subordination of the Common Securities" and "--Liquidation
Distribution Upon Termination". The existence of an event of default does
not entitle the holders of the Preferred Securities to accelerate the payment
thereof.
34
<PAGE>
Removal of the Trust Issuer Trustees
Unless an event of default under the Indenture shall have occurred and be
continuing, any Trust Issuer Trustee may be removed at any time by the holder
of the Common Securities. If an event of default under the Indenture has
occurred and is continuing, the Property Trustee and the Delaware Trustee may
be removed at such time by the holders of a majority in Liquidation Amount of
the outstanding Preferred Securities. In no event will the holders of the
Preferred Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Company as the holder of the Common Securities. No resignation or removal of
any Trust Issuer Trustee and no appointment of a successor trustee shall be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Trust Agreement.
Co-trustees and Separate Property Trustee
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act, if applicable, or of any jurisdiction in which any part of the
Trust Property (as defined in the Trust Agreement) may at the time be
located, the Company, as the holder of the Common Securities, shall have
power to appoint one or more persons either to act as a co-trustee, jointly
with the Property Trustee, of all or any part of such Trust Property, or to
act as separate trustee of any such property, in either case with such powers
as may be provided in the instrument of appointment, and to vest in such
person or persons in such capacity any property, title, right or power deemed
necessary or desirable, subject to the provisions of the Trust Agreement. In
the event an event of default under the Indenture has occurred and is
continuing, the Property Trustee alone shall have power to make such
appointment.
Merger or Consolidation of the Trust Issuer Trustees
Any entity into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any entity resulting from
any merger, conversion or consolidation to which such Trustee shall be a
party or any entity succeeding to all or substantially all the corporate
trust business of such Trustee, shall be the successor of such Trustee under
the Trust Agreement, provided such entity shall be otherwise qualified and
eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Trust Issuer
The Trust Issuer may not merge with or into, consolidate, amalgamate, be
replaced by, convey, transfer or lease its properties and assets
substantially as an entirety to any entity or other Person, except as
described below or as otherwise described in the Trust Agreement. The Trust
Issuer may, at the request of the Company, with the consent of the
Administrative Trustees and without the consent of the holders of the
Preferred Securities, the Property Trustee or the Delaware Trustee, merge
with or into, consolidate, amalgamate, be replaced by, convey, transfer
35
<PAGE>
or lease its properties and assets substantially as an entirety to, a trust
organized as such under the laws of any State: provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of the
Trust Issuer with respect to the Preferred Securities or (b) substitutes for
the Preferred Securities other securities having substantially the same terms
as the Preferred Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Preferred Securities in priority
with respect to Distributions and payments upon liquidation, redemption and
otherwise, (ii) the Company expressly appoints a trustee of such successor
entity possessing the same powers and duties as the Property Trustee as the
holder of the Junior Subordinated Debentures, (iii) the Successor Securities
are registered or listed, or any Successor Securities will be registered or
listed upon notification of issuance, on any national securities exchange or
other organization on which the Preferred Securities are then registered or
listed (including, if applicable, the Nasdaq Stock Market's National Market),
if any, (iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the Preferred Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect, (vi)
such successor entity has a purpose substantially identical to that of the
Trust Issuer, (vii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Company has received an
opinion from independent counsel to the Trust Issuer experienced in such
matters to the effect that (a) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the Preferred Securities
(including any Successor Securities) in any material respect and (b)
following such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither the Trust Issuer nor such successor entity will be
required to register as an investment company under the Investment Company
Act of 1940, as amended (the "Investment Company Act") and (viii) the Company
or any permitted successor or assignee owns all of the common securities or
its equivalent of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust Issuer
shall not, except with the consent of holders of 100% in Liquidation Amount
of the Preferred Securities, consolidate, amalgamate, merge with or into or
be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other entity or permit any other entity
to consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease would cause the Trust Issuer or the successor entity to be classified
as other than a grantor trust for United States federal income tax purposes.
Voting Rights; Amendment of the Trust Agreement
Except as provided below and under "Description of the
Guarantee--Amendments and Assignment" and as otherwise required by law and
the Trust Agreement, the holders of the Preferred Securities will have no
voting rights.
36
<PAGE>
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities, (i) with respect to acceptance of
appointment of a successor trustee, (ii) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent
with any other provision or to make any other provisions with respect to
matters or questions arising under the Trust Agreement, which shall not be
inconsistent with the other provisions of the Trust Agreement or (iii) to
modify, eliminate or add to any provisions of the Trust Agreement to such
extent as shall be necessary to ensure that the Trust Issuer will be
classified for United States federal income tax purposes as a grantor trust
at all times that the Preferred Securities are outstanding or to ensure that
the Trust Issuer will not be required to register as an "investment company"
under the Investment Company Act; provided, however, that in the case of
clause (ii), such action shall not adversely affect in any material respect
the interests of any holder of the Preferred Securities, and any such
amendments of the Trust Agreement shall become effective when notice thereof
is given to the holders of the Preferred Securities. The Trust Agreement may
be amended by the Trust Issuer Trustees and the Company with (i) the consent
of holders representing not less than a majority (based upon Liquidation
Amounts) of the outstanding Preferred Securities and (ii) receipt by the
Trust Issuer Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the Trust Issuer Trustees
in accordance with such amendment will not affect the Trust Issuer's status
as a grantor trust for United States federal income tax purposes or the Trust
Issuer's exemption from status as an "investment company" under the
Investment Company Act, provided that without the consent of each holder of
the Preferred Securities, the Trust Agreement may not be amended to (a)
change the amount or timing of any Distribution on the Preferred Securities
or otherwise adversely affect the amount of any Distribution required to be
made in respect of the Preferred Securities as of a specified date or (b)
restrict the right of a holder of the Preferred Securities to institute suit
for the enforcement of any such payment on or after such date.
So long as the Junior Subordinated Debentures are held by the Property
Trustee, the Trust Issuer Trustees shall not (i) direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee or executing any trust or power conferred on the Property Trustee
with respect to the Junior Subordinated Debentures, (ii) waive any past
default that is waivable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Junior
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the Junior
Subordinated Debentures, where such consent shall be required, without, in
each case, obtaining the prior approval of the holders of a majority in
aggregate Liquidation Amount of all outstanding Preferred Securities;
provided, however, that where a consent under the Indenture would require the
consent of each holder of the Junior Subordinated Debentures affected
thereby, no such consent shall be given by the Property Trustee without the
prior consent of each holder of the Preferred Securities. The Trust Issuer
Trustees shall not revoke any action previously authorized or approved by a
vote of the holders of the Preferred Securities except by subsequent vote of
the holders of the Preferred Securities. The Property Trustee shall notify
each holder of the Preferred Securities of any notice of default with respect
to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of the holders of the Preferred Securities, prior to
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taking any of the foregoing actions, the Trust Issuer Trustees shall obtain
an opinion of counsel experienced in such matters to the effect that the
Trust Issuer will not be classified as an association taxable as a
corporation for United States federal income tax purposes on account of such
action.
Any required approval of holders of the Preferred Securities may be given
at a meeting of holders of the Preferred Securities convened for such purpose
or pursuant to written consent. The Property Trustee will cause a notice of
any meeting at which holders of the Preferred Securities are entitled to
vote, or of any matter upon which action by written consent of such holders
is to be taken, to be given to each holder of record of the Preferred
Securities in the manner set forth in the Trust Agreement.
No vote or consent of the holders of the Preferred Securities will be
required for the Trust Issuer to redeem and cancel the Preferred Securities
in accordance with the Trust Agreement.
Notwithstanding that holders of the Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Company, the Trust Issuer Trustees
or any affiliate of the Company or the Trust Issuer Trustees shall, for
purposes of such vote or consent, be treated as if they were not outstanding.
Liquidation Value
The amount payable on the Preferred Securities in the event of any
liquidation of the Trust Issuer is $10 per Preferred Security plus
accumulated and unpaid Distributions, which may be in the form of a
distribution of such amount in Junior Subordinated Debentures, subject to
certain exceptions. See "Description of the Preferred Securities
- --Liquidation Distribution Upon Termination."
Expenses and Taxes
In the Indenture, the Company, as borrower, has agreed to pay all debts
and other obligations (other than with respect to the Preferred Securities)
and all costs and expenses of the Trust Issuer (including costs and expenses
relating to the organization of the Trust Issuer, the fees and expenses of
the Trust Issuer Trustee and the costs and expenses relating to the operation
of the Trust Issuer) and to pay any and all taxes and all costs and expenses
with respect thereto (other than United States withholding taxes) to which
the Trust Issuer might become subject. The foregoing obligations of the
Company under the Indenture are for the benefit of, and shall be enforceable
by, any person to whom any such debts, obligations, costs, expenses and taxes
are owed (a "Creditor") whether or not such Creditor has received notice
thereof. Any such Creditor may enforce such obligations of the Company
directly against the Company, and the Company has irrevocably waived any
right or remedy to require that any such Creditor take any action against the
Trust Issuer or any other person before proceeding against the Company. The
Company has also agreed in the Indenture to execute such additional
agreements as may be necessary or desirable to give full effect to the
foregoing.
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Book Entry, Delivery and Form
The Preferred Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of,
DTC and registered in the name of DTC's nominee. Unless and until it is
exchangeable in whole on in part for the Preferred Securities in definitive
form, a global security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by
DTC or any such nominee to a successor of such Depository or a nominee of
such successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("Participants") or
persons that may hold interests through Participants. The Company expects
that, upon the issuance of a global security, DTC will credit, on its
book-entry registration and transfer system, the Participants' accounts with
their respective principal amounts of the Preferred Securities represented by
such global security. Ownership of beneficial interests in such global
security will be shown on, and the transfer of such ownership interests will
be effected only through, records maintained by DTC (with respect to
interests of Participants) and on the records of Participants (with respect
to interests of Persons held through Participants). Beneficial owners will
not receive written confirmation from DTC of their purchase, but are expected
to receive written confirmations from the Participants through which the
beneficial owner entered into the transaction. Transfers of ownership
interests will be accomplished by entries on the books of Participants acting
on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Preferred Securities represented by such global
security for all purposes under the Junior Subordinated Indenture. Except as
provided below, owners of beneficial interests in a global security will not
be entitled to receive physical delivery of the Preferred Securities in
definitive form and will not be considered the owners or holders thereof
under the Junior Subordinated Indenture. Accordingly, each person owning a
beneficial interest in such a global security must rely on the procedures of
DTC and, if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest, to exercise any
rights of a holder of Preferred Securities under the Junior Subordinated
Indenture. The Company understands that, under DTC's existing practices, in
the event that the Company requests any action of holders, or an owner of a
beneficial interest in such a global security desires to take any action
which a holder is entitled to take under the Junior Subordinated Indenture,
DTC would authorize the Participants holding the relevant beneficial
interests to take such action, and such Participants would authorize
beneficial owners owning through such Participants to take such action or
would otherwise act upon the instructions of beneficial owners owning through
them. Redemption notices will also be sent to DTC. If less than all of the
Preferred Securities are being redeemed, the Company understands that it is
DTC's existing practice to determine by lot the amount of the interest of
each Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC
or its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global
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security representing such Preferred Securities. None of the Company, the
Trust Issuer Trustee, the Administrators, any Paying Agent or any other agent
of the Company or the Trust Issuer Trustees will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the global security for such
Preferred Securities or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. Disbursements of
Distributions to Participants shall be the responsibility of DTC. DTC's
practice is to credit Participants' accounts on a payable date in accordance
with their respective holdings shown on DTC's records unless DTC has reason
to believe that it will not receive payment on the payable date. Payments by
Participants to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts
of customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Company, the Trust
Issuer Trustees, the Paying Agent or any other agent of the Company, subject
to any statutory or regulatory requirements as may be in effect from time to
time.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice
to the Company or the Trust Issuer Trustees. If DTC notifies the Company
that it is unwilling to continue as such, or if it is unable to continue or
ceases to be a clearing agency registered under the Exchange Act and a
successor depository is not appointed by the Company within ninety days after
receiving such notice or becoming aware that DTC is no longer so registered,
the Company will issue the Preferred Securities in definitive form upon
registration of transfer of, or in exchange for, such global security. In
addition, the Company may at any time and in its sole discretion determine
not to have the Preferred Securities represented by one or more global
securities and, in such event, will issue Preferred Securities in definitive
form in exchange for all of the global securities representing such Preferred
Securities.
DTC has advised the Company and the Trust Issuer as follows: DTC is a
limited purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its Participants and to facilitate the
clearance and settlement of securities transactions between Participants
through electronic book entry changes to accounts of its Participants,
thereby eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust companies
and clearing corporations and may include certain other organizations.
Certain of such Participants (or their representatives), together with other
entities, own DTC. Indirect access to the DTC system is available to others
such as banks, brokers, dealers and trust companies that clear through, or
maintain a custodial relationship with, a Participant, either directly or
indirectly.
Same-Day Settlement and Payment
Settlement for the Preferred Securities will be made by the Underwriter
in immediately available funds.
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Secondary trading in preferred securities of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the
Preferred Securities will trade in DTC's Same-Day Funds Settlement System,
and secondary market trading activity in the Preferred Securities will
therefore be required by DTC to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in immediately
available funds on trading activity in the Preferred Securities.
Payment and Paying Agency
Payments in respect of the Preferred Securities will be made to DTC,
which will credit the relevant accounts at DTC on the applicable Distribution
Dates or, if the Preferred Securities are not held by DTC, such payments will
be made by check mailed to the address of the holder entitled thereto. as
such address appears on the securities register for the Trust Securities.
The paying agent (the "Paying Agent") will initially be the Property Trustee
and any co-paying agent chosen by the Property Trustee and acceptable to the
Administrators. The Paying Agent will be permitted to resign as Paying Agent
upon 30 days' written notice to the Property Trustee and the Administrators.
If the Property Trustee is no longer the Paying Agent, the Property Trustee
will appoint a successor (which must be a bank or trust company reasonably
acceptable to the Administrators) to act as Paying Agent.
Registrar and Transfer Agent
The Property Trustee will act as the registrar and the transfer agent for
the Preferred Securities. Registration of transfers of Preferred Securities
will be effected without charge by or on behalf of the Trust Issuer, except
for the payment of any tax or other governmental charges that may be imposed
in connection with any transfer or exchange. In the event of any redemption,
the Trust Issuer will not be required to (i) issue, register the transfer of,
or exchange any Preferred Securities during a period beginning at the opening
of business 15 days before the date of mailing of a notice of redemption of
any Preferred Securities called for redemption and ending at the close of
business on the day of such mailing; or (ii) register the transfer of or
exchange any Preferred Securities so selected for redemption, in whole or in
part, except the unredeemed portion of any such Preferred Securities being
redeemed in part.
Information Concerning the Property Trustee
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to
this provision, the Property Trustee is under no obligation to exercise any
of the powers vested in it by the Trust Agreement at the request of any
holder of Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
If no Event of Default has occurred and is continuing and the Property
Trustee is required to decide between alternative causes of action, construe
ambiguous provisions in the Trust
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Agreement or is unsure of the application of any provision of the Trust
Agreement, and the matter is not one on which holders of Preferred Securities
are entitled under the Trust Agreement to vote, then the Property Trustee
will take such action as it deems advisable and in the best interests of the
holders of the Preferred Securities and will have no liability except for its
own bad faith, negligence or willful misconduct.
Miscellaneous
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust Issuer in such a way that the Trust
Issuer will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or classified as an association
taxable as a corporation for United States federal income tax purposes and so
that the Junior Subordinated Debentures will be treated as indebtedness of
the Company for United States federal income tax purposes. In this
connection, the Company and the Administrative Trustees are authorized to
take any action, not inconsistent with applicable law, the certificate of
trust of the Trust Issuer or the Trust Agreement, that the Company and the
Administrative Trustees determine in their discretion to be necessary or
desirable for such purposes.
Holders of the Preferred Securities have no preemptive or similar rights.
The Trust Agreement and the Preferred Securities will be governed by, and
construed in accordance with, the laws of the State of Delaware.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under an Indenture
(the "Indenture") between the Company and The Bank of New York, as trustee
(the "Debenture Trustee"). The Indenture will be qualified as an Indenture
under the Trust Indenture Act. This summary of certain terms and provisions
of the Junior Subordinated Debentures and the Indenture does not purport to
be complete and is subject to, and is qualified in its entirety by reference
to, the Indenture, and to the Trust Indenture Act. Wherever particular
defined terms of the Indenture are referred to, but not defined herein, such
defined terms are incorporated herein by reference. The form of the
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
General
Concurrently with the issuance of the Preferred Securities, the Trust
Issuer will invest the proceeds thereof, together with the consideration paid by
the Company for the Common Securities, in the Junior Subordinated Debentures.
The Junior Subordinated Debentures will bear interest at the annual rate of
%, payable quarterly in arrears on March 1, June 1, September 1 and
December 1 of each year (each, an "Interest Payment Date"), commencing
March 1, 1998,
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to the person in whose name each Subordinated Debenture is registered,
subject to certain exceptions, at the close of business on the Business Day
next preceding such Interest Payment Date. It is anticipated that, until the
liquidation, if any, of the Trust Issuer, the Junior Subordinated Debentures
will be held in the name of the Property Trustee in trust for the benefit of
the holders of the Preferred Securities. The amount of interest payable for
any period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which interest is payable on the
Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is
a Business Day (and without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on the
date such payment was originally payable. Accrued interest that is not paid
on the applicable Interest Payment Date will bear additional interest on the
amount thereof (to the extent permitted by law) at the rate per annum of
% thereof, compounded quarterly from the relevant Interest Payment Date. The
term "interest" as used herein shall include quarterly interest payments,
interest on quarterly interest payments not paid on the applicable Interest
Payment Date and Additional Interest (as defined below), as applicable.
The Junior Subordinated Debentures will mature on , 2027 (the
"Stated Maturity").
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Debt and Subordinated Debt
(collectively "Senior Indebtedness") of the Company. Because the Company is a
holding company, the right of the Company to participate in any distribution of
assets of any subsidiary, including the Banks, upon such subsidiary's
liquidation or reorganization or otherwise, is subject to the prior claims of
creditors of that subsidiary, except to the extent that the Company may itself
be recognized as a creditor of that subsidiary. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries, and holders of the Junior
Subordinated Debentures should look only to the assets of the Company for
payments on the Junior Subordinated Debentures. The Indenture does not limit
the incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Debt and Subordinated Debt, whether under the Indenture or any
existing or other indenture that the Company may enter into in the future or
otherwise.
Right to Defer Interest Payment Obligation
So long as no event of default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture at any time or from
time to time during the term of the Junior Subordinated Debentures to defer the
payment of interest on the Junior Subordinated Debentures for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. At the end of each Extension Period, the
Company must pay all interest then accrued and unpaid on the Junior Subordinated
Debentures (together with interest
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on such unpaid interest at the annual rate of
%, compounded quarterly from the relevant Interest Payment Date, to the
extent permitted by applicable law, referred to herein as "Compounded
Interest"). During an Extension Period, interest would continue to accrue and
holders of the Junior Subordinated Debentures would be required to accrue
interest income for United States federal income tax purposes. See "Certain
Federal Income Tax Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (other than (a) the
reclassification of any class of the Company's capital stock into another class
of capital stock, (b) dividends or distributions in common stock of the Company,
(c) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, the issuance of stock under any such plan in the
future or the redemption or repurchase of any such rights pursuant thereto, (d)
payments under the Guarantee and (e) purchases of common stock related to the
issuance of common stock or rights under any of the Company's benefit plans for
its directors, officers or employees) or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in interest to the
Junior Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks pari passu with or junior in interest to the
Junior Subordinated Debentures other then payments pursuant to the Guarantee;
and (iii) the Company shall not redeem, purchase or acquire less than all the
outstanding Junior Subordinated Debentures or any of the Preferred Securities.
Prior to the termination of any such Extension Period, the Company may further
defer the payment of interest, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all interest then accrued and unpaid (together with interest
thereon at the rate of %, compounded quarterly, to the extent permitted by
applicable law), the Company may elect to begin a new Extension Period subject
to the above requirements. No interest shall be due and payable during an
Extension Period, except at the end thereof. The Company must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
election of such Extension Period at least one Business Day prior to the earlier
of (i) the date interest on the Junior Subordinated Debentures would have been
payable except for the election to begin such Extension Period or (ii) the date
the Administrative Trustees are required to give notice of the record date, or
the date such Distributions are payable, to the Nasdaq Stock Market's National
Market or other applicable self-regulatory organization or to holders of the
Preferred Securities as of the record date or the date such Distributions are
payable, but in any event not less than one Business Day prior to such record
date. The Debenture Trustee shall give notice of the Company's election to
begin a new Extension Period to the holders of the Preferred Securities. There
is no limitation on the number of times that the Company may elect to begin an
Extension Period.
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Additional Interest
If the Trust Issuer or the Property Trustee is required to pay any
additional taxes, duties or other governmental charges as a result of a Tax
Event, the Company will pay such additional amounts (the "Additional Sums")
on the Junior Subordinated Debentures as shall be required so that the
Distributions payable by the Trust Issuer shall not be reduced as a result of
any such additional taxes, duties or other governmental charges.
Redemption or Exchange
The Company will have the right to redeem the Junior Subordinated
Debentures prior to maturity (i) on or after , 2002, in whole at any time
or in part from time to time, or (ii) at any time in whole (but not in part),
within 180 days following the occurrence of a Tax Event, an Investment
Company Event or a Capital Treatment Event, in each case at a redemption
price equal to the accrued and unpaid interest on the Junior Subordinated
Debentures so redeemed to the date fixed for redemption, plus 100% of the
principal amount thereof. Any such redemption prior to the Stated Maturity
will be subject to prior regulatory approval if then required.
"Investment Company Event" means the receipt by the Trust Issuer of an
Opinion of Counsel to the effect that, as a result of the occurrence of a
change in law or regulation or a change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority, the Trust Issuer is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change becomes effective on or after the date of original
issuance of the Preferred Securities.
"Capital Treatment Event" means the receipt by the Trust of an Opinion of
Counsel to the effect that, as a result of any amendment to, or change
(including any proposed change) in, the laws (or any regulations thereunder)
of the United States or any political subdivision thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which amendment
or change is effective or such proposed change, pronouncement, action or
decision is announced on or after the date of original issuance of the
Preferred Securities, there is more than an insubstantial risk that the
Preferred Securities would not constitute Tier 1 Capital (or the then
equivalent thereof) applied as if the Company (or its successor) were a bank
holding company for purposes of the capital adequacy guidelines of the
Federal Reserve (or any successor regulatory authority with jurisdiction over
bank holding companies), or any capital adequacy guidelines as then in effect
and applicable to the Company. There are currently no capital adequacy
guidelines applicable to savings bank holding companies such as the Company.
The Junior Subordinated Debentures will not be subject to any sinking fund.
"Tax Event" means the receipt by the Trust Issuer of an Opinion of
Counsel to the effect that, as a result of any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision or
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taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying
such laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of
the Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Trust Issuer is, or will be within 90 days of
the date of such opinion, subject to United Stated federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on the Junior Subordinated Debentures is
not, or within 90 days of the date of such opinion will not be, deductible by
the Company, in whole or in part, for United States federal income tax
purposes or (iii) the Trust Issuer is, or will be within 90 days of the date
of such opinion, subject to more than a de minimis amount of other taxes,
duties or other governmental charges.
"Opinion of Counsel" means an opinion in writing of independent legal
counsel experienced in such matters as being opined upon, that is delivered
to the Trustee.
"Additional Interest" means the additional amounts as may be necessary in
order that the amount of Distributions then due and payable by the Trust
Issuer on the outstanding Preferred Securities and Common Securities shall
not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Trust Issuer has become subject as a result
of a Tax Event.
"Like Amount" means (i) with respect to a redemption of the Preferred
Securities, Preferred Securities having a Liquidation Amount equal to that
portion of the principal amount of the Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Preferred Securities pro rata based upon the
relative Liquidation Amounts of such Preferred Securities and the proceeds of
which will be used to pay the Redemption Price of such Preferred Securities
and (ii) with respect to a distribution of the Junior Subordinated Debentures
to holders of the Preferred Securities in exchange therefor in connection
with a dissolution or liquidation of the Trust Issuer, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Preferred Securities of the holder to whom such Junior Subordinated
Debentures would be distributed.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder of the Junior
Subordinated Debentures to be redeemed at its registered address. Unless the
Company defaults in payment of the redemption price, on and after the
redemption date interest ceases to accrue on the Junior Subordinated
Debentures or portions thereof called for redemption.
Registration, Denomination and Transfer
The Junior Subordinated Debentures will initially be registered in the
name of the Trust Issuer. If the Junior Subordinated Debentures are
distributed to holders of Preferred Securities, it is anticipated that the
depository arrangements for the Junior Subordinated Debentures will be
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substantially identical to those in effect for the Preferred Securities. See
"Description of Preferred Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling
or unable to continue as depositary and a successor depositary is not
appointed by the Company within 90 days of receipt of notice from DTC to such
effect, the Company will cause the Junior Subordinated Debentures to be
issued in definitive form.
Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede & Co., the nominee for DTC, as the registered
holder of the Junior Subordinated Debentures, as described under "Description
of Preferred Securities -- Book Entry, Delivery and Form." If Junior
Subordinated Debentures are issued in certificated form, principal and
interest will be payable, the transfer of the Junior Subordinated Debentures
will be registrable, and Junior Subordinated Debentures will be exchangeable
for Junior Subordinated Debentures of other authorized denominations of a
like aggregate principal amount, at the corporate trust office of the
Debenture Trustee in New York, New York or at the offices of any Paying Agent
or transfer agent appointed by the Company, provided that payment of interest
may be made at the option of the Company by check mailed to the address of
the persons entitled thereto. However, a holder of $1 million or more in
aggregate principal amount of Junior Subordinated Debentures may receive
payments of interest (other than interest payable at the Stated Maturity) by
wire transfer of immediately available funds upon written request to the
Debenture Trustee not later than 15 calendar days prior to the date on which
the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations and
of a like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Indenture or at the office of any transfer agent designated by the Company
for such purpose without service charge and upon payment of any taxes and
other governmental charges as described in the Indenture. The Company will
appoint the Debenture Trustee as securities registrar under the Indenture.
The Company may at any time designate additional transfer agents with respect
to the Junior Subordinated Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior
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Subordinated Debentures so selected for redemption, except, in the case of
any Junior Subordinated Debentures being redeemed in part, any portion
thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable shall, at the request of the Company,
be repaid to the Company and the holder of such Junior Subordinated Debenture
shall thereafter look, as a general unsecured creditor, only to the Company
for payment thereof.
Restrictions on Certain Payments
The Company will also covenant, as to the Junior Subordinated Debentures,
that it will not, and will not permit any subsidiary of the Company to, (i)
declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock (other than (a) the reclassification of any class of the
Company's capital stock into another class of capital stock, (b) dividends or
distributions in common stock of the Company, (c) any declaration of a
dividend in connection with the implementation of a stockholders' rights
plan, the issuance of stock under any such plan in the future or the
redemption or repurchase of any such rights pursuant thereto, (d) payments
under the Guarantee and (e) purchases of common stock related to the issuance
of common stock or rights under any of the Company's benefit plans for its
directors, officers or employees), (ii) make any payment of principal,
interest or premium, if any, on or repay or repurchase or redeem any debt
securities of the Company that rank pari passu with or junior in interest to
the Junior Subordinated Debentures other than payments pursuant to the
Guarantee or (iii) the Company shall not redeem, purchase or acquire less
than all the outstanding Junior Subordinated Debentures or any of the
Preferred Securities if at such time (i) there shall have occurred an Event
of Default under the Indenture with respect to the Junior Subordinated
Debentures, (ii) if the Junior Subordinated Debentures are held by the Trust
Issuer, the Company shall be in default with respect to its payment of any
obligations under the Guarantee relating to such Preferred Securities or
(iii) the Company shall have given notice of its selection of an Extension
Period as provided in the Indenture with respect to the Junior Subordinated
Debentures and shall not have rescinded such notice, or such Extension
Period, or any extension thereof, shall be continuing.
Modification of Indenture
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies, provided that any
such action does not materially adversely affect the interest of the holders
of the Junior Subordinated Debentures or the ability to qualify, or maintain
the qualification of, the Indenture under the Trust Indenture Act. The
Indenture contains provisions permitting the Company and the Debenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Junior Subordinated Debentures affected, to modify
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the Indenture in a manner affecting the rights of the holders of the Junior
Subordinated Debentures, provided that no such modification may, without the
consent of the holder of each outstanding Subordinated Debenture so affected,
(i) extend the Stated Maturity of the Junior Subordinated Debentures, reduce
the principal amount thereof or reduce the rate or extend the time of payment
of interest thereon or (ii) reduce the percentage of principal amount of the
Junior Subordinated Debentures, the holders of which are required to consent
to any such modification of the Indenture.
Debenture Events of Default
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred
and is continuing constitutes a "Debenture Event of Default":
(i) failure for 30 days to pay interest (including Additional
Interest or Compounded Interest, if any) on the Junior Subordinated
Debentures when due (subject to the deferral of certain due dates in the
case of an Extension Period); or
(ii) failure to pay any principal on the Junior Subordinated
Debentures when due, whether at maturity, upon declaration of acceleration
of maturity or otherwise; or
(iii) failure to observe or perform certain other covenants
contained in the Indenture for 90 days after written notice to the Company
from the Debenture Trustee or the holders of at least 25% in aggregate
outstanding principal amount of the outstanding Junior Subordinated
Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company, subject in certain instances to any such event remaining in effect
for a period of 60 consecutive days.
The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25%
in aggregate outstanding principal amount of the Junior Subordinated
Debentures may declare the principal due and payable immediately upon a
Debenture Event of Default. The holders of a majority in aggregate
outstanding principal amount of the Junior Subordinated Debentures may annul
such declaration and waive the default if the default (other than the
non-payment of the principal of the Junior Subordinated Debentures which has
become due solely by such acceleration) has been cured and a sum sufficient
to pay all matured installments of interest and principal due otherwise than
by acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures affected thereby may, on behalf of the
holders of all the Junior
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Subordinated Debentures, waive any past default, except a default in the
payment of principal or interest (unless such default has been cured and a
sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee)
or a default in respect of a covenant or provision which under the Indenture
cannot be modified or amended without the consent of the holder of each
outstanding Subordinated Debenture. The Company is required to file annually
with the Debenture Trustee a certificate as to whether or not the Company is
in compliance with all the conditions and covenants applicable to it under
the Indenture.
Enforcement of Certain Rights by Holders of the Preferred Securities
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
principal is otherwise payable, a holder of the Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of the principal of or interest on the Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). The Company may not amend the Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of the
holders of all of the Preferred Securities. If the right to bring a Direct
Action is removed, the Trust Issuer may become subject to the reporting
obligations under the Exchange Act. The Company shall have the right under
the Indenture to set-off any payment made to such holder of the Preferred
Securities by the Company in connection with a Direct Action.
The holders of the Preferred Securities will not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures. See
"Description of the Preferred Securities--Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that the Company shall not consolidate with or
merge into any other entity or convey, transfer or lease its properties and
assets substantially as an entirety to any entity, and no entity shall
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless:
(i) in the event the Company consolidates with or merges into another entity
or conveys or transfers its properties and assets substantially as an
entirety to any entity, the successor entity is organized under the laws of
the United States or any state or the District of Columbia, and such
successor entity expressly assumes the Company's obligations on the Junior
Subordinated Debentures issued under the Indenture; (ii) immediately after
giving effect thereto, no Debenture Event of Default, and no event which,
after notice or lapse of time or both, would become a Debenture Event of
Default, shall have occurred and be continuing; and (iii) certain other
conditions as prescribed by the Indenture are met.
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The general provisions of the Indenture do not afford holders of the
Junior Subordinated Debentures protection in the event of a highly leveraged
or other transaction involving the Company that may adversely affect holders
of the Junior Subordinated Debentures.
Satisfaction and Discharge
The Indenture provides that when, among other things, all of the Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and
payable at their Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount in the currency or currencies in which the Junior
Subordinated Debentures are payable sufficient to pay and discharge the
entire indebtedness on the Junior Subordinated Debentures not previously
delivered to the Debenture Trustee for cancellation, for the principal and
interest to the date of the deposit or to the Stated Maturity, as the case
may be, then the Indenture will cease to be of further effect (except as to
the Company's obligations to pay all other sums due pursuant to the Indenture
and to provide the officers' certificates and opinions of counsel described
therein), and the Company will be deemed to have satisfied and discharged the
Indenture.
Subordination
In the Indenture, the Company has covenanted and agreed that the Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Indebtedness to the extent provided in the
Indenture. Upon any payment or distribution of assets to creditors upon the
liquidation, dissolution, winding-up, reorganization, assignment for the
benefit of creditors, marshaling of assets or any bankruptcy, insolvency,
debt restructuring or similar proceedings in connection with any insolvency
or bankruptcy proceeding of the Company, the holders of Senior Indebtedness
will first be entitled to receive payment in full of principal of (and
premium, if any) and interest, if any, on such Senior Indebtedness before the
holders of the Junior Subordinated Debentures, or the Property Trustee on
behalf of the holders, will be entitled to receive or retain any payment in
respect of the principal of or interest, if any, on the Junior Subordinated
Debentures.
In the event of the acceleration of the maturity of any of the Junior
Subordinated Debentures, the holders of all Senior Indebtedness outstanding
at the time of such acceleration will first be entitled to receive payment in
full of all amounts due thereon (including any amounts due upon acceleration)
before the holders of the Junior Subordinated Debentures will be entitled to
receive or retain any payment in respect of the principal of or interest, if
any, on the Junior Subordinated Debentures.
No payments on account of principal or interest, if any, in respect of
the Junior Subordinated Debentures may be made if there shall have occurred
and be continuing a default in any payment with respect to Senior
Indebtedness or an event of default with respect to any
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Senior Indebtedness resulting in the acceleration of the maturity thereof, or
if any judicial proceeding shall be pending with respect to any such default.
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent: (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of
property, assets or businesses; (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person; (iv) every obligation of
such Person issued or assumed as the deferred purchase price of property or
services (but excluding trade accounts payable or accrued liabilities arising
in the ordinary course of business); (v) every capital lease obligation of
such Person; (vi) all indebtedness of such Person whether incurred on or
prior to the date of the Indenture or thereafter incurred, for claims in
respect of derivative products, including interest rate, foreign exchange
rate and commodity forward contracts, options and swaps and similar
arrangements; and (vii) every obligation of the type referred to in clauses
(i) through (vi) of another Person and all dividends of another Person the
payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor or otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest,
if any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Junior Subordinated
Debentures or to other Debt which is pari passu with, or subordinated to, the
Junior Subordinated Debentures; provided, however, that Senior Debt shall not
be deemed to include: (i) any Debt of the Company which when incurred and
without respect to any election under Section 1111(b) of the United States
Bankruptcy Code of 1978, as amended, was without recourse to the Company,
(ii) any Debt of the Company to any of its subsidiaries, and (iii) any Debt
to any employee of the Company.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether
or not such claim for post-petition interest is allowed in such proceeding),
on Debt, whether incurred on or prior to the date of the Indenture or
thereafter incurred, which is by its terms expressly provided to be junior
and subordinate to other Debt of the Company (other than the Debentures),
except that Subordinated Debt shall not include debentures sold by the
Company to the Trust.
The Indenture places no limitation on the amount of Senior Indebtedness
that may be incurred by the Company. The Company may from time to time incur
indebtedness constituting Senior Indebtedness.
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Governing Law
The Indenture and the Junior Subordinated Debentures will be governed by
and construed in accordance with the laws of the State of New York, without
regard to conflicts of laws principles thereof.
Information Concerning the Debenture Trustee
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of the Junior Subordinated Debentures,
unless offered reasonable indemnity by such holder against the costs,
expenses and liabilities which might be incurred thereby. The Debenture
Trustee is not required to expend or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the
Debenture Trustee reasonably believes that repayment or adequate indemnity is
not reasonably assured to it.
Distribution of the Junior Subordinated Debentures
As described under "Description of the Preferred Securities--Liquidation
of the Trust Issuer and Distribution of the Junior Subordinated Debentures to
Holders," under certain circumstances involving the termination of the Trust
Issuer, Junior Subordinated Debentures may be distributed to the holders of
the Preferred Securities in exchange therefor upon liquidation of the Trust
Issuer, after satisfaction of liabilities to creditors of the Trust Issuer as
provided by applicable law. Any such distribution will be subject to receipt
of prior regulatory approval if then required. If the Junior Subordinated
Debentures are distributed to the holders of Preferred Securities upon the
liquidation of the Trust Issuer, the Company will use its best efforts to
list the Junior Subordinated Debentures on the Nasdaq Stock Market's National
Market or such stock exchanges, if any, on which the Preferred Securities are
then listed. There can be no assurance as to the market price of any Junior
Subordinated Debentures that may be distributed to the holders of the
Preferred Securities.
Payment and Paying Agents
Payment of principal of and any interest on the Junior Subordinated
Debentures will be made at the offices of the Debenture Trustee in the city
of New York or at the offices of such Paying Agent or Paying Agents as the
Company may designate from time to time, except that at the option of the
Company payment of any interest may be made (i) by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Securities Register or (ii) by transfer to an account maintained by the
Person entitled thereto as specified in the Securities Register, provided
that proper transfer instructions have been received by the Regular Record
Date. Payment of any interest on the Junior Subordinated Debentures will be
made to the Person in whose name the Subordinated Debenture is registered at
the close of business on
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the Regular Record Date for such interest, except in the case of Defaulted
Interest. The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent; however, the Company will at all
times be required to maintain a Paying Agent in each Place of Payment for the
Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Company in trust, for the payment of the principal of or
interest on the Junior Subordinated Debentures and remaining unclaimed for
two years after such principal or interest has become due and payable shall
be repaid to the Company upon written request of the Company on May 31 of
each year or (if then held in trust by the Company) will be discharged from
such trust and the holders of the Junior Subordinated Debentures shall
thereafter look, as general unsecured creditors, only to the Company for
payment thereof.
Registrar and Transfer Agent
The Debenture Trustee will act as the registrar and the transfer agent
for the Junior Subordinated Debentures. Junior Subordinated Debentures may
be presented for registration of transfer (with the form of transfer endorsed
thereon, or a satisfactory written instrument of transfer, duly executed) at
the office of the registrar. The Company may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts; provided that the Company
maintains a transfer agent in the place of payment. The Company may at any
time designate additional transfer agents with respect to the Junior
Subordinated Debentures. In the event of any redemption, neither the Company
nor the Debenture Trustee will be required to (i) issue, register the
transfer of or exchange Junior Subordinated Debentures during a period
beginning at the opening of business 15 days before the day of selection for
redemption of Junior Subordinated Debentures and ending at the close of
business on the day of mailing of the relevant notice of redemption, or (ii)
transfer or exchange any Junior Subordinated Debentures so selected for
redemption, except, in the case of any Junior Subordinated Debentures being
redeemed in part, any portion thereof not to be redeemed.
DESCRIPTION OF THE GUARANTEE
A Guarantee will be executed and delivered by the Company concurrently
with the issuance of the Preferred Securities for the benefit of the holders
from time to time of such Preferred Securities (the "Guarantee"). The Bank
of New York will act as trustee ("Guarantee Trustee") under the Guarantee.
This summary of certain provisions of the Guarantee does not purport to be
complete and is subject to, and qualified in its entirety by reference to,
all of the provisions of the Guarantee. Wherever particular defined terms of
the Guarantee are referred to, but not defined herein, such defined terms are
incorporated herein by reference. The form of the Guarantee has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part.
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General
The Company will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments (as defined
below) to the holders of the Preferred Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that the Trust
Issuer may have or assert other than the defense of payment. The following
payments with respect to the Preferred Securities, to the extent not paid by
or on behalf of the Trust Issuer (the "Guarantee Payments"), will be subject
to the Guarantee: (i) any accrued and unpaid Distributions required to be
paid on the Preferred Securities, to the extent that the Trust Issuer has
funds on hand available therefor at such time, (ii) the Redemption Price with
respect to any Preferred Securities called for redemption, to the extent that
the Trust Issuer has funds on hand available therefor at such time, or (iii)
upon a voluntary or involuntary dissolution, winding up or termination of the
Trust Issuer (unless the Junior Subordinated Debentures are distributed to
holders of the Preferred Securities), the lesser of (a) the Liquidation
Distribution, to the extent that the Trust Issuer has funds available
therefor at such time, and (b) the amount of assets of the Trust Issuer
remaining available for distribution to holders of the Preferred Securities
after satisfaction of liabilities to creditors of the Trust Issuer as
required by applicable law. The Company's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of the Preferred Securities or by causing the Trust
Issuer to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Trust Issuer's obligations under the Preferred Securities, but will apply
only to the extent that the Trust Issuer has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Company does not make interest payments on the Junior Subordinated
Debentures held by the Trust Issuer, the Trust Issuer will not be able to pay
Distributions on the Preferred Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right
of payment to all Senior Debt of the Company. See "Description of the
Guarantee--Status of the Guarantee." Because the Company is a holding
company, the right of the Company to participate in any distribution of
assets of any subsidiary upon such subsidiary's liquidation or reorganization
or otherwise is subject to the prior claims of creditors of that subsidiary,
except to the extent the Company may itself be recognized as a creditor of
that subsidiary. Accordingly, the Company's obligations under the Guarantee
will be effectively subordinated to all existing and future liabilities of
the Company's subsidiaries, and claimants should look only to the assets of
the Company for payments thereunder. The Guarantee does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Debt, whether under the Indenture, any other indenture that
the Company may enter into in the future, or otherwise. The Company may from
time to time to incur indebtedness constituting Senior Indebtedness.
The Company and the Trust Issuer believe that the Company has, through
the Guarantee, the Trust Agreement, the Junior Subordinated Debentures, the
Indenture and the Expense Agreement, taken together, fully, irrevocably and
unconditionally guaranteed all of the Trust
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Issuer's obligations under the Preferred Securities, on a subordinated basis.
No single document standing alone or operating in conjunction with fewer than
all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a
full, irrevocable and unconditional guarantee of the Trust Issuer's
obligations under the Preferred Securities. See "Relationship Among the
Preferred Securities, the Junior Subordinated Debentures, the Expense
Agreement and the Guarantee."
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company in the same manner as the Junior Subordinated
Debentures.
The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or
entity). The Guarantee will be held for the benefit of the holders of the
Preferred Securities. The Guarantee will not be discharged except by payment
of the Guarantee Payments in full to the extent not paid by the Trust Issuer
or upon distribution to the holders of the Preferred Securities of the Junior
Subordinated Debentures.
Amendments and Assignment
Except with respect to any changes that do not materially adversely
affect the rights of holders of the Preferred Securities (in which case no
vote will be required), the Guarantee may not be amended without the prior
approval of the holders of not less than a majority of the aggregate
Liquidation Amount of such outstanding Preferred Securities. The manner of
obtaining any such approval will be as set forth under "Description of the
Preferred Securities--Voting Rights; Amendment of the Trust Agreement." All
guarantees and agreements contained in the Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company
and shall inure to the benefit of the holders of the Preferred Securities
then outstanding.
Events of Default
An event of default under the Guarantee will occur upon the failure of
the Company to perform any of its payments or other obligations thereunder.
The holders of not less than a majority in aggregate Liquidation Amount of
the Preferred Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of such Guarantee or to direct the exercise of any trust
or power conferred upon the Guarantee Trustee under the Guarantee.
The Company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
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Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance
of a default by the Company in the performance of the Guarantee, undertakes
to perform only such duties as are specifically set forth in the Guarantee
and, after default with respect to the Guarantee, must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by
the Guarantee at the request of any holder of the Preferred Securities unless
it is offered reasonable indemnity by such holder against the costs, expenses
and liabilities that might be incurred thereby. The Guarantee Trustee is not
required to expend or risk its own funds or otherwise incur personal
financial liability in the performance of its duties if the Guarantee Trustee
reasonably believes repayment or adequate indemnity is not reasonably assured
to it.
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
(a) full payment of the Redemption Price of the Preferred Securities, (b)
full payment of the amounts payable upon liquidation of the Trust Issuer, or
(c) distribution of the Junior Subordinated Debentures to the holders of the
Preferred Securities in exchange therefor. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any
holder of the Preferred Securities must restore payment of any sums paid
under the Preferred Securities or the Guarantee.
Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York, without regard to conflicts of laws principles
thereof.
The Expense Agreement
Pursuant to the Expense Agreement entered into by the Company under the
Trust Agreement (the "Expense Agreement"), the Company will irrevocably and
unconditionally guarantee to each person or entity to whom the Trust Issuer
becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Trust Issuer, other than obligations of the Trust Issuer
to pay to the holders of the Preferred Securities the amounts due such
holders pursuant to the terms of the Preferred Securities. Third party
creditors of the Trust Issuer may proceed directly against the Company under
the Expense Agreement, regardless of whether such creditors had notice of the
Expense Agreement.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES, THE EXPENSE
AGREEMENT AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the Preferred
Securities (to the extent the Trust Issuer has funds available for the
payment of such Distributions) are irrevocably guaranteed by the Company as
and to the extent set forth under "Description of the Guarantee." The
Company and the Trust Issuer believe that, taken together, the Company's
obligations under the Junior Subordinated Debentures, the Indenture, the
Trust Agreement, the Expense Agreement and the Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
distributions and other amounts due on the Preferred Securities, on a
subordinated basis. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust Issuer's obligations under the Preferred Securities. If and to the
extent that the Company does not make payments on the Junior Subordinated
Debentures, the Trust Issuer will not pay Distributions or other amounts due
on its Preferred Securities. The Guarantee does not cover payment of
Distributions when the Trust Issuer does not have sufficient funds to pay
such Distributions. In such event, the remedy of a holder of the Preferred
Securities is to institute a Direct Action against the Company for
enforcement of payment of such Distributions to such holder. The obligations
of the Company under the Guarantee are subordinate and junior in right of
payment to all Senior Debt.
Sufficiency of Payments
As long as payments of interest and other payments are made when due on
the Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Preferred Securities, primarily
because: (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate stated Liquidation
Amount of the Preferred Securities and Common Securities; (ii) the interest
rate and interest and other payment dates on the Junior Subordinated
Debentures will match the Distribution rate and Distribution and other
payment dates for the Preferred Securities; (iii) the Company shall pay for
all and any costs, expenses and liabilities of the Trust Issuer except the
Trust Issuer's obligations to holders of its Preferred Securities; and (iv)
the Trust Agreement further provides that the Trust Issuer will not engage in
any activity that is not consistent with the limited purposes of the Trust
Issuer.
Notwithstanding anything to the contrary in the Indenture, the Company
has the right to set off any payment it is otherwise required to make
thereunder with and to the extent the Company has theretofore made, or is
concurrently on the date of making such payment, a payment under the
Guarantee.
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Enforcement Rights of Holders of the Preferred Securities
A holder of a Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Guarantee Trustee,
the Trust Issuer or any other person or entity.
A default or event of default under any Senior Debt of the Company would
not constitute a default or event of default under the Indenture. However,
in the event of payment defaults under, or acceleration of, Senior Debt of
the Company, the subordination provisions of the Indenture provide that no
payments may be made in respect of the Junior Subordinated Debentures until
such Senior Debt has been paid in full or any payment default thereunder has
been cured or waived. Failure to make required payments on the Junior
Subordinated Debentures would constitute an event of default under the
Indenture.
Limited Purpose of the Trust Issuer
The Preferred Securities evidence a preferred undivided beneficial
interest in the Trust Issuer, and the Trust Issuer exists for the sole
purpose of issuing its Preferred Securities and Common Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A
principal difference between the rights of a holder of a Preferred Security
and a holder of a Subordinated Debenture is that a holder of a Subordinated
Debenture is entitled to receive from the Company the principal amount of and
interest accrued on Junior Subordinated Debentures held, while a holder of
the Preferred Securities is entitled to receive Distributions from the Trust
Issuer (or from the Company under the Guarantee) if, and to the extent, the
Trust Issuer has funds available for the payment of such Distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution, winding-up or liquidation
of the Trust Issuer involving the liquidation of the Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of the Trust
Issuer, if any, as provided by applicable law, the holders of the Preferred
Securities will be entitled to receive, out of assets held by the Trust
Issuer, the Liquidation Distribution in cash. See "Description of the
Preferred Securities-Liquidation Distribution Upon Termination." Upon any
voluntary or involuntary liquidation or bankruptcy of the Company, the
Property Trustee, as holder of the Junior Subordinated Debentures, would be a
subordinated creditor of the Company, subordinated in right of payment to all
Senior Debt as set forth in the Indenture, but entitled to receive payment in
full of principal and interest, before any stockholders of the Company
receive payments or distributions. Since the Company is the guarantor under
the Guarantee and has agreed to pay for all costs, expenses and liabilities
of the Trust Issuer (other than the Trust Issuer's obligations to the holders
of its Preferred Securities), the positions of a holder of such Preferred
Securities and a holder of the Junior Subordinated Debentures relative to
other creditors and to stockholders of the Company in the event of
liquidation or bankruptcy of the Company are expected to be substantially the
same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income
tax consequences of the purchase, ownership and disposition of the Preferred
Securities. This summary addresses only the tax consequences to a person
that acquires Preferred Securities on their original issue at the stated
offering price and does not address the tax consequences to persons that may
be subject to special treatment under United States federal income tax law,
such as banks, insurance companies, thrift institutions, regulated investment
companies, real estate investment trusts, employee benefit plans, tax-exempt
organizations, dealers in securities or currencies, persons that will hold
Preferred Securities as part of a position in a "straddle" or as part of a
"hedging", "conversion" or other integrated investment transaction for
federal income tax purposes, persons whose functional currency is not the
United States dollar or persons that do not hold Preferred Securities as
capital assets.
The statements of law or legal conclusions set forth in this summary
constitute the opinion of Elias, Matz, Tiernan & Herrick L.L.P. ("Elias
Matz"), special tax counsel to the Company and the Trust Issuer. This
summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, Internal Revenue Service rulings and
pronouncements and judicial decisions now in effect, all of which are subject
to change at any time. Such changes may be applied retroactively in a manner
that could cause the tax consequences to vary substantially from the
consequences described below, possibly adversely affecting a beneficial owner
of the Preferred Securities. The authorities on which this summary is based
are subject to various interpretations, and it is therefore possible that the
United States federal income tax treatment of the purchase, ownership and
disposition of the Preferred Securities may differ from the treatment
described below.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING ON
A HOLDER'S PARTICULAR SITUATION. PROSPECTIVE INVESTORS ARE ADVISED TO
CONSULT WITH THEIR OWN TAX ADVISORS IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES AS TO THE UNITED STATES FEDERAL TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES, AS WELL AS
THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Classification of the Trust Issuer
In the opinion of Elias Matz, under current law, the Trust Issuer will
not be classified as an association taxable as a corporation for United
States federal income tax purposes. As a result, for United States federal
income tax purposes, each beneficial owner of Preferred Securities (a
"Securityholder") will be treated as owning an undivided beneficial interest
in the Junior Subordinated Debentures, and thus, will be required to include
in its gross income its pro rata share of the interest (or accrued original
issue discount) in addition to any interest and other income (if any) with
respect to the Junior Subordinated Debentures. See "--Interest Income and
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Original Issue Discount." No amount included in income with respect to the
Preferred Securities will be eligible for the dividends-received deduction.
Classification of the Junior Subordinated Debentures
In connection with the classification of the Junior Subordinated
Debentures, Elias, Matz is of the opinion that such securities will be
classified for United States federal income tax purposes as indebtedness of
the Company under current law, and thus the payments designated as interest
under the terms of the Junior Subordinated Debentures will be deductible by
the Company for federal income tax purposes. No assurance can be given,
however, that the Internal Revenue Service will not challenge such
classification.
Interest Income and Original Issue Discount
Under applicable Treasury regulations, currently Section 1.1275-2(h) (the
"Regulations"), if the terms and conditions of a debt instrument make the
likelihood that stated interest will not be timely paid a "remote"
contingency, such contingency will be ignored in determining whether the debt
instrument is issued with original issue discount ("OID"). The Company
believes that the likelihood of its exercising its option to defer payments
of interest on the Junior Subordinated Debentures is remote, since exercising
that option would prevent it from declaring dividends on any class of its
stock. Based on the foregoing, the Company intends to take the position that
the Junior Subordinated Debentures were not issued with OID and, accordingly,
a Securityholder purchasing the Preferred Securities at the stated price
should be required to include in gross income only such Securityholder's pro
rata share of stated interest on the Junior Subordinated Debentures in
accordance with such Securityholder's method of tax accounting.
The Regulations have not yet been addressed in any rulings or other
published interpretations by the Internal Revenue Service (the "IRS"). In
the opinion of Elias Matz, it is not unreasonable for the Company to take the
position that the Junior Subordinated Debentures will not be issued with OID.
However, it is possible the IRS could take the position that the likelihood
of deferral was not a remote contingency within the meaning of the
Regulations.
Under the Regulations, if the Company were to exercise its option to
defer payments of interest after treating the Junior Subordinated Debentures
as issued without OID, the Junior Subordinated Debentures would be treated as
re-issued with OID at that time, and all stated interest (and de minimis OID,
if any) on the Junior Subordinated Debentures would thereafter be treated as
OID as long as the Junior Subordinated Debentures remained outstanding. In
such event, all of a Securityholder's interest income with respect to the
Junior Subordinated Debentures would be accounted for as OID on an economic
accrual basis regardless of such Securityholder's method of tax accounting,
and actual distributions of stated interest related thereto would not be
includable in gross income. Consequently, a Securityholder would be required
to include OID in gross income even though the Company would not make and the
Securityholder would not receive any actual cash payments during an Extension
Period.
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A Securityholder that disposed of Preferred Securities prior to the
record date for the payment of Distributions following an Extension Period
would include OID in gross income but would not receive any cash related
thereto from the Trust Issuer. Any amount of OID included in a
Securityholder's gross income (whether or not during an Extension Period)
would increase such Securityholder's tax basis in its Preferred Securities,
and the amount of Distributions not includable in gross income would reduce
such Securityholder's tax basis in its Preferred Securities.
Distribution of the Junior Subordinated Debentures to Holders of the Preferred
Securities
Under current United States federal income tax law and provided that the
Trust Issuer is not treated as an association taxable as a corporation, a
distribution by the Trust Issuer of the Junior Subordinated Debentures as
described under the caption "Description of the Preferred
Securities-Liquidation of the Trust Issuer and Distribution of the Junior
Subordinated Debentures to Holders" will be nontaxable to the Securityholders
and will result in a Securityholder receiving its pro rata share of the
Junior Subordinated Debentures previously held indirectly through the Trust
Issuer, with a holding period and aggregate tax basis equal to the holding
period and aggregate tax basis such Securityholder had in its Preferred
Securities before such distribution. A Securityholder will account for
interest in respect of the Junior Subordinated Debentures received from the
Trust Issuer in the manner described above under "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount," including any
accrual of OID (if any) attributed to the Junior Subordinated Debentures upon
the distribution.
Sales or Redemption of the Preferred Securities
Gain or loss will be recognized by a Securityholder on the sale of
Preferred Securities (including a redemption for cash or other consideration)
in an amount equal to the difference between the amount realized on the sale
(or redemption) and the Securityholder's adjusted tax basis in the Preferred
Securities sold or so redeemed. Gain or loss recognized by a Securityholder
on Preferred Securities held for more than one year will generally be taxable
as long-term capital gain or loss. Pursuant to the Taxpayer Relief Act of
1997, Preferred Securities constituting a capital asset which are acquired
by an individual after July 28, 1997, and held for more than 18 months are
accorded a maximum United States federal capital gains tax rate of 20% (or a
rate of 10%, if the individual taxpayer is in the 15% tax bracket).
Effective in 2001, the 20% rate drops to 18% (and the 10% rate drops to 8%)
for capital assets acquired after the year 2000 and held more than five
years; however, the requirement that the capital asset be acquired after the
year 2000 does not apply to the 8% rate. Preferred Securities held by an
individual for more than one year, but not more than 18 months, are accorded
a United States federal capital gains tax rate of 28%.
If the Company were to exercise its option to defer payments of interest
on the Junior Subordinated Debentures, the Preferred Securities might trade
at a price that did not fully reflect the value of accrued but unpaid
interest with respect to the underlying Junior Subordinated Debentures. A
Securityholder that disposed of its Preferred Securities between record dates
for
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payments of Distributions (and consequently did not receive a Distribution
from the Trust Issuer for the period prior to such disposition) would
nevertheless be required to include in income as ordinary income accrued but
unpaid interest on the Junior Subordinated Debentures through the date of
disposition and to add such amount to its adjusted tax basis in its Preferred
Securities disposed of. Such Securityholder would recognize a capital loss on
the disposition of its Preferred Securities to the extent the selling price
(which might not fully reflect the value of accrued but unpaid interest) was
less than the Securityholder's adjusted tax basis in the Preferred Securities
(which would include accrued but unpaid interest). Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary
income for United States federal income tax purposes.
United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the
United States, a foreign corporation, a non-resident alien individual, a
foreign partnership or a non-resident fiduciary of a foreign estate or trust.
Under current United States federal income tax law: (i) payments by the
Trust Issuer or any of its paying agents to any Securityholder who or which
is a United States Alien Holder will not be subject to United States federal
withholding tax provided that (a) the Securityholder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (b) the Securityholder is
not a controlled foreign corporation that is related to the Company through
stock ownership and (c) either (A) the Securityholder certifies to the Trust
Issuer or its agent, under penalties of perjury, that it is not a United
States holder and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution") certifies to the Trust Issuer or its agent, under penalties of
perjury, that such statement has been received from the Securityholder by it
or by a Financial Institution holding such security for the Securityholder
and furnishes the Trust Issuer or its agent with a copy thereof, and (ii) a
United States Alien Holder of a Preferred Security will not be subject to
United States federal withholding tax on any gain realized upon the sale or
other disposition of a Preferred Security.
Proposed Treasury regulations (the "Proposed Regulations") would provide
alternative methods for satisfying the certification requirement described in
clause (i)(c) above. The Proposed Regulations also would require, in the
case of Preferred Securities held by a foreign partnership, that (x) the
certification described in clause (i)(c) above be provided by the partners
rather than by the foreign partnership and (y) the partnership provide
certain information, including a United States taxpayer identification
number. A look-through rule would apply in the case of tiered partnerships.
The Proposed Regulations are proposed to be effective for payments made after
December 31, 1997. There can be no assurance that the Proposed Regulations
will be adopted or as to the provisions that they will include if and when
adopted in temporary or final form. The Trust Issuer will issue a Form 1042
or Form 1042-S, where appropriate.
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Information Reporting to Securityholders
Generally, income on the Preferred Securities will be reported to
Securityholders on Forms 1099-INT, which will be mailed to Securityholders by
January 31 following each calendar year.
Backup Withholding
Payments made on, and proceeds from the sale of, Preferred Securities may
be subject to a "backup" withholding tax of 31% unless the Securityholder
complies with certain certification requirements. Any withheld amounts will
be allowed as a credit against the Securityholder's United States federal
income tax, provided the required information is provided to the Internal
Revenue Service.
ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be considered
a "party in interest" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or a "disqualified person" within
the meaning of Section 4975 of the Code with respect to many employee benefit
plans ("Plans") that are subject to ERISA. The purchase of the Preferred
Securities by a Plan that is subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of Section
4975(e)(1) of the Code and with respect to which the Company, or any
affiliate of the Company, is a service provider (or otherwise is a party in
interest or a disqualified person) may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless the Preferred
Securities are acquired pursuant to and in accordance with an applicable
exemption. Any pension or other employee benefit plan proposing to acquire
any Preferred Securities should consult with its counsel.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") dated ________, 1997, among the Company, the Trust
Issuer and Ryan, Beck & Co. (the "Underwriter"), the Trust Issuer has agreed
to sell to the Underwriter, and the Underwriter has agreed to purchase from
the Trust Issuer, $20,000,000 aggregate Liquidation Amount of Preferred
Securities at the public offering price subject to the underwriting
commissions set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the
Underwriter will purchase all of the Preferred Securities offered hereby if
any of such Preferred Securities are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Preferred Securities to the public and other dealers at
the public offering price set forth on
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the cover page of this Prospectus and will share with certain dealers from
its commission a concession not in excess of $____ per Preferred Security.
The Underwriter may allow, and such dealers may reallow, a concession not in
excess of $____ per Preferred Security to certain other dealers. After the
public offering, the offering price and other selling terms may be changed by
the Underwriter.
The Company has granted to the Underwriter an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to an
additional $3,000,000 aggregate Liquidation Amount of the Preferred
Securities at the public offering price plus accrued Distributions, if any,
from ________, 1997. To the extent that the Underwriter exercises such
option, the Company will be obligated, pursuant to the option, to sell such
Preferred Securities to the Underwriter. The Underwriter may exercise such
option only to cover over-allotments made in connection with the sale of the
Preferred Securities offered hereby. If purchased, the Underwriter will
offer such additional Preferred Securities on the same terms as those on
which the $20,000,000 aggregate Liquidation Amount of the Preferred
Securities are being offered.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued
by the Company, the Underwriting Agreement provides that the Company will pay
as compensation for the Underwriter's arranging the investment therein of
such proceeds an amount of $____ per Preferred Security (or $_______
($_______ if the over-allotment option is exercised in full) in the
aggregate). The Company has also agreed to reimburse the Underwriter for its
reasonable out-of-pocket expenses, including legal fees and expenses relating
to the Offering of the Preferred Securities.
In connection with the offering of the Preferred Securities, the
Underwriter and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the Securities
and Exchange Commission's Regulation M that are intended to stabilize,
maintain or otherwise affect the market price of the Preferred Securities.
Such transactions may include over-allotment transactions in which the
Underwriter creates a short position for its own account by selling more
Preferred Securities than it is committed to purchase from the Trust Issuer.
In such a case, to cover all or part of the short position, the Underwriter
may exercise the over-allotment option described above or may purchase
Preferred Securities in the open market following completion of the initial
offering of the Preferred Securities. The Underwriter also may engage in
stabilizing transactions in which it bids for, and purchases, shares of the
Preferred Securities at a level above that which might otherwise prevail in
the open market for the purpose of preventing or retarding a decline in the
market price of the Preferred Securities. The Underwriter also may reclaim
any selling concessions allowed to an Underwriter or dealer if the
Underwriter repurchases shares distributed by the Underwriter or dealer. Any
of the foregoing transactions may result in the maintenance of a price for
the Preferred Securities at a level above that which might otherwise prevail
in the open market. Neither the Company nor the Underwriter makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Preferred
Securities. The Underwriter is not required to engage in any of the
foregoing transactions and, if commenced, such transactions may be
discontinued at any time without notice.
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Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made
in compliance with the applicable provisions of Rule 2810 of the NASD's
Conduct Rules.
The Preferred Securities are a new issue of securities with no
established trading market. The Company and the Trust Issuer have been
advised by the Underwriter that it intends to make a market in the Preferred
Securities. However, the Underwriter is not obligated to do so and such
market making may be interrupted or discontinued at any time without notice
at the sole discretion of the Underwriter. Application has been made by the
Company to list the Preferred Securities on the Nasdaq National Market, but
one of the requirements for listing and continuing listing is the presence of
two market makers for the Preferred Securities, and the presence of a second
market maker cannot be assured. Accordingly, no assurance can be given as to
the development or liquidity of any market for the Preferred Securities.
The Company and the Trust Issuer have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act.
The Underwriter has in the past and may in the future perform various
services for the Company, including investment banking services, for which it
has and will receive customary fees for such services.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the creation of the
Trust Issuer will be passed upon by Richards, Layton & Finger, special
Delaware counsel to the Company and the Trust Issuer. The validity of the
Guarantee and the Junior Subordinated Debentures will be passed upon for the
Company by Elias, Matz, Tiernan & Herrick L.L.P. Certain legal matters will
be passed upon for the Underwriter by Silver, Freedman & Taff, L.L.P.
Certain matters relating to the United States federal income tax
considerations will be passed upon for the Company by Elias, Matz, Tiernan &
Herrick L.L.P.
EXPERTS
The consolidated financial statements of the Company and subsidiaries as
of December 31, 1996 and 1995 and for each of the years in the three-year
period ended December 31, 1996, appearing in the 1996 Annual Report of the
Company to its stockholders and incorporated by reference in the Annual
Report on Form 10-K for the year ended December 31, 1996, have been
incorporated by reference in the Prospectus and in the Registration Statement
of which this Prospectus forms a part, in reliance upon the report of KPMG
Peat Marwick LLP, independent public accountants, incorporated by reference
herein, whose report thereon appears therein, and upon the authority of said
firm as experts in accounting and auditing.
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Appendix A
================================================================================
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
[X] of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 1996
or
Transition Report Pursuant to Section 13 or 15(d)
[ ] of the Securities Exchange Act of 1934
For the transition period from to .
---- ----
Commission File Number: 0-19345
PennFirst Bancorp, Inc.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 25-1659846
- -------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
- --------------------------- ----------
(Address) (Zip Code)
Registrant's telephone number, including area code: (412) 758-5584
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period as the Registrant has been
subject to such requirements) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
-----
As of March 24, 1997, the aggregate value of the 3,467,023 shares of Common
Stock of the Registrant outstanding on such date, which excludes 444,007 shares
held by all directors and officers of the Registrant as a group was
approximately $48.1 million. This figure is based on the closing sales price
of $13.875 per share of the Registrant's Common Stock on March 24, 1997.
Number of shares of Common Stock outstanding as of March 24, 1997: 3,911,030
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and
the Part of the Form 10-K into which the document is incorporated:
(1) Portions of the Annual Report to Stockholders for the year ended
December 31, 1996 are incorporated into Part II, Items 5 - 8 of this Form 10-K.
(2) Portions of the definitive proxy statement for the Annual Meeting
of Stockholders are incorporated into Part III, Items 10 - 13 of this Form
10-K.
================================================================================
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PART I
ITEM 1. BUSINESS
GENERAL
PennFirst Bancorp, Inc. ("PennFirst" or the "Company") is a
Pennsylvania corporation and thrift holding company registered under the Home
Owners' Loan Act, as amended. PennFirst is the parent company of ESB Bank,
F.S.B. ("ESB" or the "Savings Bank") and PennFirst Financial Services, Inc.
("PFSI").
On March 25, 1994, the Company completed its acquisition of ESB
Bancorp, Inc. pursuant to which ESB Bancorp, Inc. was merged with and into
PennFirst. As a result of the merger, Economy Savings Bank, PaSA ("Economy
Savings"), a Pennsylvania chartered savings association and wholly owned
subsidiary of ESB Bancorp, Inc., operated as a wholly owned subsidiary of
PennFirst until March 30, 1995, when Economy Savings was merged with and into
Ellwood Federal Savings Bank. In connection with the merger, the surviving
institution amended its federal stock charter to change its name to ESB Bank,
F.S.B. ESB is a federally chartered, federally insured stock savings bank
headquartered in Ellwood City, Pennsylvania. ESB conducts business from nine
offices in Lawrence, Beaver, Butler and Allegheny counties, located in western
Pennsylvania. PFSI, which was incorporated on July 31, 1992 as a
Delaware-chartered company, is engaged in the management of investments on
behalf of PennFirst.
At December 31, 1996, PennFirst had on a consolidated basis, total
assets of $698.7 million, total liabilities of $647.2 million, including total
deposits of $332.9 million, and total stockholders' equity of $51.5 million.
The Company, through its subsidiaries is primarily engaged in
attracting retail deposits from the general public through its nine offices and
using such deposits to originate loans secured by first mortgage liens on
single-family (one-to-four units) residential and commercial real estate,
construction and consumer loans and to purchase mortgage-backed securities.
The Company also originates loans secured by multi-family (over four units)
residential real estate and, to a lesser extent, commercial business loans. In
addition, the Company utilizes advances from the Federal Home Loan Bank
("FHLB") of Pittsburgh to fund the Company's investment portfolio. The Company
invests in securities issued by the United States government and agencies and
other investments permitted by federal laws and regulations.
PennFirst derives its income principally from interest earned on
loans, investments and mortgage-backed securities and, to a lesser extent, from
fees received in connection with the origination of loans and for other
services. The Company's primary expenses are interest expense on deposits and
borrowings and general operating expenses. Funds for activities are provided
by deposits, amortization and prepayments of outstanding loans and
mortgage-backed securities and borrowings from the FHLB of Pittsburgh and other
sources.
<PAGE>
PennFirst has in recent years emphasized the origination of
adjustable-rate single-family residential 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
part of the Company's asset and liability management program which is intended
to reduce the Company's vulnerability to rapid increases in interest rates. At
December 31, 1996, $131.3 million or 57.9% of the Company's total loan
portfolio had adjustable interest rates or maturities of less than 12 months.
In recent years, the Company also has increased its origination of commercial
real estate loans, construction loans, consumer loans and commercial business
loans. Such lending, which generally entails additional credit risks as
compared to single-family residential real estate lending, is characterized by
shorter terms to maturity and higher interest rates. Furthermore, in recent
years, PennFirst has also substantially increased its mortgage-backed
securities portfolio as an additional means of strengthening its asset and
liability management program. Such mortgage-backed securities are issued by
the United States government and agencies thereof and generally have an
expected weighted average life of between three and seven years. The Company
recently adopted a strategy of purchasing tax-exempt municipals and callable
agency securities. The strategy was adopted to increase the overall yield
earned on the Savings Bank's investment portfolio and because management
believed that a significant or prolonged increase in interest rates was not
likely at this time. The Company's investment in mortgage-backed securities
(including mortgage-backed securities available for sale) and investment
securities (including investment securities available for sale) amounted to
$337.6 million or 48.3% and $106.8 million or 15.3%, respectively, of the
Company's total assets at December 31, 1996. As a result of the Company's
asset and liability management program, during 1996, the Company was able to
maintain a one year interest rate sensitivity gap ("GAP") of between a positive
5% of total assets to a negative 15% of total assets. The Company's GAP was a
negative 10.4% of total assets as of December 31, 1996.
The one year interest rate sensitivity GAP has been the most common
industry standard used to measure an institution's interest rate risk position.
PennFirst also utilizes income simulation modeling in measuring its interest
rate risk and managing its interest rate sensitivity. The Asset and Liability
Management committee of PennFirst believes that simulation modeling may more
accurately estimate the possible effects on net interest income due to the
exposure to changing market interest rates, the slope of the yield curve and
different prepayment and decay assumptions to maximize the stability of net
interest income under various interest rate scenarios. At December 31, 1996,
PennFirst's simulation model indicated that the Company's balance sheet is
liability sensitive, and as such in a 300 basis point rising rate environment,
with minor changes in the balance sheet and limited reinvestment changes, net
interest income is projected to decrease by approximately 6% over a 24-month
period.
3
<PAGE>
The Company, as a registered savings and loan holding company, is
subject to examination and regulation by the Office of Thrift Supervision
("OTS") and is subject to various reporting and other requirements of the
Securities and Exchange Commission ("SEC"). ESB, as a federally chartered
savings bank is subject to comprehensive regulation and examination by the OTS
and by the Federal Deposit Insurance Corporation ("FDIC"), which administers
the Savings Association Insurance Fund ("SAIF"), which insures the Savings
Bank's deposits to the maximum extent permitted by law. ESB is a member of the
FHLB of Pittsburgh, which is one of the 12 regional banks which comprise the
FHLB System. ESB is further subject to regulations of the Board of Governors
of the Federal Reserve System ("Federal Reserve Board") which governs reserves
required to be maintained against deposits and certain other matters.
The Company's principal executive offices are located at 600 Lawrence
Avenue, Ellwood City, Pennsylvania 16117, and its telephone number is (412)
758-5584.
RECENT DEVELOPMENTS
On September 16, 1996, the Company entered into an Agreement and Plan
of Reorganization with Troy Hill Bancorp, Inc. ("THBC"), pursuant to which
THBC shall be merged with and into the Company with the Company as the
surviving corporation. Under the terms of the agreement each shareholder of
THBC will receive $21.15 of each share of THBC Common Stock owned and have the
option of receiving either all cash or all stock. The Company has recently
received shareholder approval, however, is still awaiting regulatory approval,
but still anticipates closing the transaction by April 30, 1997.
At December 31, 1996, THBC had total consolidated assets of $102.6
million, total consolidated liabilities of $84.2 million, including total
consolidated deposits of $53.3 million and total consolidated stockholders'
equity of $18.5 million. THBC reported net income of $308,000 and $360,000 for
the three and six months ended December 31, 1996, respectively.
LENDING ACTIVITIES
GENERAL. At December 31, 1996, the Company's net portfolio of loans
receivable totaled $216.9 million, representing approximately 31.0% of its
$698.7 million of total assets at that date. The principal categories of loans
in the Company's portfolio are single-family and multi-family residential real
estate loans, commercial real estate loans, construction loans, consumer loans
and commercial business loans. Substantially all of the Company'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").
4
<PAGE>
A federally chartered savings institution has general authority to
originate and purchase loans secured by real estate located throughout the
United States. Historically, the Company's lending activities have been
concentrated in single-family residential loans secured by properties located
in its primary market area of Allegheny, Lawrence, Beaver and Butler counties
Pennsylvania. In addition, the Company has become increasingly active in
recent years in the origination of construction loans, commercial real estate
loans and consumer loans also in its primary market area. On occasion, the
Company has utilized its nationwide lending authority by purchasing whole loans
and loan participations secured by properties located outside of its primary
market area. Notwithstanding this nationwide authority, the Company estimates
that approximately 90% of its mortgage loans are secured by properties located
in western Pennsylvania. Moreover, substantially all of the Company's
non-mortgage loan portfolio, with the exception of certain financing leases,
consists of loans made to residents and businesses located in the four counties
encompassing the Company's primary market area. Financing leases are
originated nationwide.
Federal regulations permit the Savings Bank to invest without
limitation in residential mortgage loans and up to four times their respective
capital in loans secured by nonresidential or commercial real estate. ESB is
also permitted to invest in secured and unsecured consumer loans in an amount
not exceeding 35% of its total respective assets; however, such 35% limit may
be exceeded for certain types of consumer loans, such as home equity, property
improvement and education loans. In addition, the Savings Bank is permitted to
invest up to 20% of its total respective assets in secured and unsecured loans
for commercial, corporate, business or agricultural purposes, provided that any
amount in excess of 10% consist of small business loans. To date, the Savings
Bank's lending activities have focused on residential real estate, commercial
real estate, construction lending and consumer lending, and to a lesser extent,
multi-family residential real estate and commercial business lending.
The permissible amount of loans-to-one borrower follows the national
bank standard for all loans made by savings institutions. The national bank
standard 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.
While the Savings Bank historically originated loans with lesser
dollar balances than was permitted by federal regulations, the loans-to-one
borrower limitation may restrict the Company's ability to do business with
certain customers. At December 31, 1996, the Savings Bank's limit on
loans-to-one borrower was $6.6 million. Nonetheless, it has been a practice of
the Savings Bank to limit the amount it lends to any one borrower to less than
the regulatory limits. At December 31, 1996, the Company's five largest loans
or groups of loans-to-one borrower, including related entities, aggregated
$5.29 million, $4.16 million, $3.64 million,
5
<PAGE>
$2.43 million and $2.00 million. These five loans or groups of loans are
secured primarily by financing leases, commercial real estate or other
residential land developments located in the Company's primary market area.
The Company's largest borrower at December 31, 1996 was an individual
engaged in residential home construction and lot development. The individual
is sole owner of a home construction company and part owner of another home
construction company and a land development company. The individual has one
direct loan with the Savings Bank and is guarantor of four others. The direct
loan is a mortgage on the individual's principle residence. The guarantees are
on a loan to a family member for a mortgage on a principal residence,
lines-of-credit for both the solely owned and partially owned home building
companies and an acquisition and development loan to the partially owned land
development company. The lines-of-credit are used by the home building
companies to acquire developed lots and to construct speculative and pre-sold
single-family homes. At December 31, 1996, the Savings Bank's overall loan
commitments total $5.29 million and includes a $478,000 outstanding balance on
the direct loan and $2.98 million outstanding balance on the guaranteed loans.
The Company's second largest borrower at December 31, 1996 was also an
individual engaged in residential home construction and land development. The
individual is sole owner of a home building company and a land development
company and is partial owner of another land development company. The
individual does not have a direct loan with the Savings Bank, but is guarantor
on three loans, one to each of the companies mentioned. The home building
company has a line-of-credit and each of the land development companies has an
acquisition and development loan. The Savings Bank's overall loan commitments
total $4.16 million with $2.48 million outstanding at December 31, 1996.
The Company's third largest borrower at December 31, 1996 was to a
corporation involved in the origination of financing leases. These leases
primarily financed office equipment and were entered into with individuals,
partnerships, corporations and municipalities. Packages of such leases were
sold and pledged to the Savings Bank as collateral for loans to the borrower.
Additionally, the borrower guaranteed the lease payments and executed
promissory notes to the Savings Bank. On March 29, 1996, the borrower filed
for protection under a voluntary bankruptcy petition pursuant to United States
Code, Chapter 11, Title 11. Such filing was made subsequent to a criminal
indictment issued at the request of the Securities and Exchange Commission
against the borrower's Chief Financial Officer. The indictment alleges that
the borrower was engaged in fraud involving hundreds of millions of dollars.
There were approximately 250 Banks ("Banks") with claims totaling approximately
$200 million and in excess of 7,000 individual investors with additional claims
involved with the
6
<PAGE>
borrower at the time of the bankruptcy filing. The case is currently under the
jurisdiction of the United States Bankruptcy Court for the Northern District of
New York. The Court has appointed a Trustee to operate the borrower's business
during the pendency of the Chapter 11 case. The Trustee continues to collect
payments made under the leases and is required by the Court to deposit all such
payment proceeds into an escrow account pending a ruling on the Banks' motion
to modify the automatic stay. The Trustee, in an effort to maximize the
recovery for the individual investors, is challenging the Banks' perfection of
their security interests in the leases and has withheld payments to the Banks
on their loans. The Court has issued an advisory ruling which appears to
indicate that the Court will rule in favor of the Banks' perfection of their
security interest in the leases. Actual evidentiary hearings will commence in
the second quarter of 1997 with respect to this issue. Presumably, cash will
begin to flow to the Banks' following a successful ruling. Of course, the
Trustee may prevail at the evidentiary hearings or appeal which would further
delay the receipt of cash. At December 31, 1996, the outstanding principal
balance of these leases owed to the Savings Bank was $3.64 million. As a
result of the disruption of payment flows and the uncertainty regarding the
status of the borrower, the Savings Bank has classified all $3.64 million of
the leases as substandard, categorizing them as nonperforming and increased the
Company's loss reserves to 25 percent of the aggregate balance of the lease
agreements based on the substandard classification. There can be no assurance
that additional losses will not be incurred in connection with the lease
agreements.
The Company's fourth largest borrower at December 31, 1996 was an
individual who operates as a sole proprietor and who is engaged in residential
construction and land development. The Savings Bank has extended four loans to
this individual. One is a permanent mortgage on the individual's residence and
the other three are speculative construction loans. As of December 31, 1996,
the total commitments were $2.43 million with an outstanding balance of $1.13
million. The construction loans originally financed six duplex units (of which
five remain unsold), a six unit townhouse building (of which one unit remains
unsold) and another eight unit townhouse building (which is still in the
construction phase).
The Company's fifth largest borrower consists of two individuals who
have formed several residential development joint ventures. The individuals
develop residential communities with a variety of housing products including
townhouses, single-family dwellings and a variety of community amenities. The
Savings Bank has extended three loans to two of the related joint ventures.
The total commitments were $2.00 million with an outstanding balance of
$978,000 at December 31, 1996. The loans include a revolving construction loan
for 31 townhouse units and a land loan and short term amenity financing.
7
<PAGE>
Loan Portfolio Composition and Maturity. The following table sets
forth the composition of the Company's portfolio of loans receivable at the
dates indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family residential(1) $126,854 55.9% $105,551 55.3% $91,756 53.0%
Multi-family residential(2) 3,516 1.5 4,015 2.1 4,451 2.6
Commercial real estate 20,473 9.0 16,650 8.7 17,136 9.9
Construction 20,942 9.2 13,495 7.1 17,851 10.3
-------- ----- -------- ----- ------- -----
Total real estate loans 171,785 75.6 139,711 73.2 131,194 75.8
Consumer loans:
Deposit loans 1,768 0.8 2,076 1.1 2,097 1.2
Home improvement loans 1,146 0.5 1,167 0.5 1,009 0.5
Automobile loans 6,210 2.7 5,142 2.7 1,969 1.1
Education loans 6,737 3.0 6,870 3.6 6,426 3.7
Consumer discount loans - 0.0 - 0.0 3,763 2.2
Home equity loans 26,950 11.9 23,593 12.4 16,361 9.5
Personal loans 2,314 1.0 2,141 1.1 1,696 1.0
Other consumer loans(3) 361 0.2 333 0.2 473 0.3
-------- ----- -------- ----- ------- -----
Total consumer loans 45,486 20.1 41,322 21.6 33,794 19.5
Commercial business loans(4) 9,656 4.3 9,950 5.2 8,127 4.7
-------- ----- -------- ----- ------- -----
Total loans
receivable 226,927 100.0% 190,983 100.0% 173,115 100.0%
-------- ===== -------- ===== -------- =====
Less:
Undisbursed loan proceeds 6,373 4,167 8,372
Discount on purchased loans - - -
Unearned discounts and loan
fees 380 467 638
Allowance for loan losses 3,309 2,471 2,475
-------- -------- --------
Net loans receivable $216,865 $183,878 $161,630
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1993 1992
----------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real estate loans:
Single-family residential(1) $39,784 46.8% $42,610 51.6%
Multi-family residential(2) 1,512 1.8 2,357 2.9
Commercial real estate 12,549 14.7 13,529 16.4
Construction 11,555 13.6 7.743 9.4
------- ----- ------- -----
Total real estate loans 65,400 76.9 66,239 80.3
Consumer loans:
Deposit loans 1,321 1.5 1,152 1.4
Home improvement loans 1,017 1.2 1,080 1.3
Automobile loans 515 0.6 552 0.7
Education loans 5,840 6.9 5,214 6.2
Consumer discount loans - 0.0 5 0.1
Home equity loans 7,582 8.9 4,750 5.7
Personal loans 1,723 2.0 1,860 2.3
Other consumer loans(3) 330 0.4 373 0.5
------- ----- ------- -----
Total consumer loans 18,328 21.5 14,986 18.2
Commercial business loans(4) 1,344 1.6 1,273 1.5
------- ----- ------- -----
Total loans
receivable 85,072 100.0% 82,498 100.0%
------- ===== ------- =====
Less:
Undisbursed loan proceeds 4,190 5,125
Discount on purchased loans - -
Unearned discounts and loan
fees 239 187
Allowance for loan losses 1,393 1,225
------- -------
Net loans receivable $79,250 $75,961
======= =======
</TABLE>
- ----------------------
(1) Consists of loans secured by one-to-four family properties.
(2) Consists of loans secured by five-or-more family properties.
(3) Consists primarily of overdraft loans.
(4) Includes financing lease loans.
8
<PAGE>
The following table sets forth the scheduled contractual amortization
of loans in the Company's portfolio at December 31, 1996 and the dollar amount
of loans at that date which are scheduled to mature after one year which have
fixed or adjustable interest rates. Demand loans, loans having no stated
schedule of repayments and no stated maturity and overdraft loans are reported
as due within one year.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------
REAL COMMERCIAL
ESTATE CONSUMER BUSINESS
LOANS LOANS LOANS (1) TOTAL
-------- -------- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Amounts due:
Within one year $ 18,957 21,988 $3,483 $ 44,428
After one year
through two years 10,028 4,617 3,055 17,700
After two years
through three years 14,667 4,071 2,113 20,851
After three years
through five years 15,023 6,202 659 21,884
After five years
through ten years 32,753 7,512 336 40,601
After ten years
through fifteen years 22,432 1,011 10 23,453
After fifteen years 57,925 85 - 58,010
-------- ------- ------ --------
Total $171,785 $45,486 $9,656 $226,927
======== ======= ====== ========
Loans due after
one year:
Fixed $ 60,857 $20,577 $2,337 $ 83,771
======== ======= ====== ========
Adjustable $ 91,971 $ 2,921 $3,836 $ 98,728
======== ======= ====== ========
</TABLE>
(1) Includes Financing Lease Loans
Scheduled contractual amortization of loans does not reflect the
expected actual term of an institution's loan portfolio. The average life of
loans is substantially less than their contractual terms because of prepayments
and due-on-sale clauses, which gives an institution the right to declare a
conventional 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.
9
<PAGE>
ORIGINATION, PURCHASE AND SALE OF LOANS. Applications for residential
real estate loans and consumer loans are obtained at eight of the Company's
nine branch offices. Applications for commercial real estate and commercial
business loans are taken only at the Company's Ellwood City and Aliquippa
offices. Residential loan applications are primarily attributable to existing
customers, builders, mortgage banking correspondents and, to a lesser extent,
walk-in customers and referrals from both real estate brokers and existing
customers. Commercial real estate loan applications are obtained primarily by
direct solicitation and referrals from former and existing borrowers. Consumer
loans are primarily obtained through existing and walk-in customers.
Applications are obtained by loan officers who are full-time, salaried
employees of the Company as well as through the Company's mortgage banking
correspondent relationships. The processing and underwriting of real estate
and commercial business loans is performed for the most part in the Ellwood
City office, and to a lesser extent, in the Aliquippa office for commercial
business loans originated up to a maximum of $30,000. The Company believes
this centralized approach to approving such loan applications allows it to
process and approve such applications faster and with greater efficiency. The
Company also believes that this approach increases its ability to service the
loans. The Company's mortgage banking correspondents originate and process
one-to-four family residential mortgage loans for a fee generally equal to 1%
of the loan amount. Underwriting of these loans is performed by the Company.
Due to the average size of the consumer loans originated by the Company,
processing and underwriting of such loans is generally performed at the branch
offices where such loans are originated.
The Savings Bank has established three levels of lending authority.
Loans may be approved by certain loan officers within designated limits, which
are established and modified from time to time to reflect expertise and
experience. All loans in excess of an individual's designated limits are
referred to the officer with the requisite authority or the Officers' Loan
Committee. The President and Chief Executive Officer of the Savings Bank has
approval authority equal to the Federal Home Loan Mortgage Corporation's
("FHLMC") maximum conforming loan amount as revised from time to time for loans
secured by residential real estate, up to $100,000 for secured commercial
business loans and up to $75,000 for unsecured commercial business loans and
consumer loans. Other members of the Officers' Loan Committee have individual
lending authorities that range from $10,000 to the FHLMC maximum conforming
loan amount. The Officers' Loan Committee, which consists of Charlotte A.
Zuschlag, President and Chief Executive Officer; Todd F. Palkovich, Senior Vice
President of Lending; Robert J. Colalella, Senior Vice President; John W.
Donaldson, II, Vice President; Peter J. Greco, Vice President - Retail Lending;
Walter W. Gulla, Vice President - Retail Lending; and Sally A. Mannarino,
10
<PAGE>
Assistant Vice President - Real Estate Lending, is authorized to act on all
loan applications up to an aggregate of $400,000. The third level of lending
authority is reserved for the Board of Directors or the Board's Executive
Committee, which serve as the approval bodies for all loans above the aggregate
of $400,000. In addition, the Board of Directors ratifies all loans originated
by the Savings Bank.
Historically, ESB has originated a substantial portion of the loans in
its portfolio. Since early 1989, the residential real estate loans originated
by ESB have been under terms, conditions and documentation requirements which
permit the sale to the FHLMC and other investors in the secondary market. The
Savings Bank in the past has not been an active seller of loans in the
secondary market and has chosen, instead, to hold the loans it originates in
its own portfolio until maturity. However, during 1993, the Savings Bank began
to originate and sell 30-year fixed-rate residential loans to the FHLMC as a
means of satisfying the demand for such loans within the Company's primary
market area. In addition, a portion of these originations are maintained in its
own portfolio until maturity, while not adversely affecting its interest rate
sensitivity GAP.
The Savings Bank has been an active purchaser of loans in the past.
The Savings Bank has purchased single-family residential, owner-occupied
residences, whole loans or loan participations in those instances where demand
for new loan originations did not fulfill its needs. These loans were secured
by both residential and commercial real estate located primarily outside of
ESB's primary market area. Such loans were presented to ESB from contacts
primarily at other financial institutions, particularly those with which it has
previously done business. At December 31, 1996, $13.8 million or 6.1% of the
Company's total loans receivable consisted of whole loans, participation
interests in loans purchased from other financial institutions and leases. The
majority of such purchases or loan participations were made prior to 1979 and
at December 31, 1996, $531,000 or 3.9% of such loan purchases and loan
participations consisted of loans secured by commercial real estate.
The Company has in recent years become increasingly active in the
purchase of mortgage-backed securities in order to supplement its lending
activities and to increase the diversity of its interest-earning assets. See
"- Mortgage-Backed Securities." Although mortgage-backed securities do not
reduce the effective maturity of the Company's asset base, such securities are
generally more liquid than traditional mortgage loans and thus can be more
easily sold if necessitated by changes in market rates of interest. While the
Company could exchange its long-term, fixed-rate mortgage loans for FHLMC
participation certificates in order to achieve the same benefit of increased
liquidity, to date it has not elected to do so.
11
<PAGE>
The Company requires that all purchased loans be underwritten in
accordance with its underwriting guidelines and standards. The Company reviews
the loans, particularly scrutinizing the borrower's ability to repay the
obligation, the appraisal and the loan-to-value ratio. Servicing of loans or
loan participations purchased by the Company generally is performed by the
seller, with a portion of the interest being paid by the borrower retained
by the seller to cover servicing costs. At December 31, 1996, approximately
$13.8 million or 6.1% of the Company's total loans receivable were being
serviced for the Company by others.
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- ------- -------
(Dollars In Thousands)
<S> <C> <C> <C>
Net loans receivable at
beginning of period $183,878 $161,630 $ 79,250
-------- -------- --------
Loans associated with
acquisition of Economy
Savings - - 64,785
Originations:
Single-family residential 43,938 26,729 27,629
Multi-family residential and
commercial real estate 9,157 4,075 4,059
Construction 5,623 6,155 3,357
Consumer 24,154 22,574 18,149
Commercial business 5,872 2,452 4,819
-------- -------- --------
Total originations 88,744 61,985 58,013
-------- -------- --------
Purchases 492 2,499 2,012
-------- -------- --------
Total originations
and purchases 89,236 64,484 60,025
Loans sold (268) (971) (79)
Repayments (45,919) (34,167) (30,865)
-------- -------- --------
Net loan activity 43,049 29,346 29,081
-------- -------- --------
Other(1) (10,062) (7,098) (11,486)
-------- -------- --------
Net loans receivable at
end of period $216,865 $183,878 $161,630
======== ======== ========
</TABLE>
- ---------------
(1) Includes net activity for loans in process, the allowance for loan
losses, unearned discounts and deferred loan fees.
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, including the OTS, in December 1992 ("Guidelines"). The
12
<PAGE>
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, multifamily 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).
Certain institutions can make real estate loans that do not conform
with the established LTV ratio limits up to 100% of the institution's total
capital. Within this aggregate limit, total loans for all commercial,
agricultural, multifamily and other non one-to-four family residential
properties should not exceed 30% of total capital. An institution will come
under increased supervisory scrutiny as the total of such loans approaches
these levels. Certain loans are exempt from the LTV ratios (e.g. those
guaranteed by a government agency, loans to facilitate the sale of real estate
owned and loans renewed, refinanced or restructured by the original lender(s)
to the same borrower(s) where there is no advancement of new funds, etc.).
SINGLE-FAMILY RESIDENTIAL REAL ESTATE LOANS. Historically, savings
institutions such as ESB have concentrated their lending activities on the
origination of loans secured primarily by first mortgage liens on existing
single-family residences. At December 31, 1996, $126.9 million or 55.9% of the
Company's total loan portfolio consisted of single-family residential real
estate loans, substantially all of which are conventional loans.
Since July 1981, the Company has emphasized the origination of
single-family residential adjustable-rate mortgages ("ARMs") which provide for
periodic adjustments to the interest rate. Such loans amounted to
approximately 63.0%, 74.2% and 52.6% of the single-
13
<PAGE>
family residential loans originated by the Company in 1996, 1995 and 1994,
respectively. Included in these originations are loans that maintain a fixed
rate of interest for a portion of the loan term and then adjusting annually
thereafter (i.e., 3/3, 5/1, 7/1 and 10/1 loans).
The adjustable-rate loans currently emphasized by the Company have up
to 30-year terms and an interest rate which adjusts annually in accordance with
one of several indices. There is a 2% cap on any increase or decrease in the
interest rate per year, and there is currently a limit of 6% on the amount that
the interest rate can increase and a limit of 2% on the amount that the
interest rate can decrease over the life of the loan. The Company has not
engaged in the practice of using a cap on the loan payments, which could allow
the loan balance to increase rather than decrease, resulting in negative
amortization. Although the Company occasionally offers discounts of one to two
percentage points on the interest rate on its adjustable-rate residential
mortgage loans during the first year of the mortgage loan for competitive
reasons, generally it determines a borrower's ability to pay at the
fully-indexed rate for the first two years.
Adjustable-rate mortgage loans decrease the risks associated with
changes in interest rates, but involve other risks because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
potential for default. At the same time, the marketability of the underlying
collateral may be adversely affected by higher interest rates. These risks
have not had an adverse effect on the Company to date.
The Company continues to originate fixed-rate loans with terms of up
to 30 years in order to provide a full range of products to its customers, but
generally only under terms, conditions and documentation which permit their
sale in the secondary market. The Company originated $16.3 million, $6.9
million and $11.4 million of fixed-rate single-family residential real estate
loans during 1996, 1995 and 1994, respectively. In 1993, the Company began to
originate and sell 30-year fixed-rate residential loans to the FHLMC, while
maintaining a portion of these originations in its own portfolio, which did not
adversely affect the Company's interest rate sensitivity GAP. The Company sold
$268,000, $971,000 and $79,000 of fixed-rate loans to the FHLMC during 1996,
1995 and 1994, respectively, resulting in gains of $6,000, $6,000 and $1,000
during those respective years. At December 31, 1996, approximately $60.4
million or 47.6% of the single-family residential loans in the Company's loan
portfolio consisted of loans which provide for fixed-rates of interest.
Although these loans generally provide for repayments of principal over a fixed
period up to 30 years, it is the Company's experience that because of
prepayments and due-on-sale clauses, such loans generally remain outstanding
for a substantially shorter period of time.
14
<PAGE>
The Company 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, the Company 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, private mortgage insurance is generally obtained on residential
loans for which loan-to-value ratios exceed 80%. The Company will generally
lend up to 95% of the appraised value of one-to-four family, owner-occupied
residential dwellings when the required private mortgage insurance is obtained,
however, through the Company's low to moderate income loan program, the Company
will lend up to 97% of the appraised value of the security property to
qualified borrowers.
Property appraisals on the real estate and improvements securing the
Company's single-family residential loans are made by independent appraisers
approved by the Company's Board of Directors. Appraisals are performed in
accordance with federal regulations and policies.
Title insurance policies are required on most first mortgage real
estate loans originated by the Company. If title insurance is not obtained or
is unavailable, the Company obtains an abstract of title and title opinion.
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 the
Company makes disbursements for items such as real estate taxes, hazard
insurance premiums and mortgage insurance premiums as they become due.
MULTI-FAMILY RESIDENTIAL, COMMERCIAL REAL ESTATE AND CONSTRUCTION
LOANS. The Company originates mortgage loans for the acquisition of existing
multi-family residential and commercial real estate properties. At December
31, 1996, $3.5 million or 1.5% of the Company's total loan portfolio consisted
of loans secured by existing multi-family residential real estate properties
and $20.5 million or 9.0% of such loan portfolio consisted of loans secured by
existing commercial real estate properties.
The Company's multi-family residential and commercial real estate
lending activities are conducted pursuant to a policy which is reviewed and
reapproved annually by the Board of Directors. The Company emphasizes
investment in office buildings, apartment buildings, retail shopping
establishments and churches. These types of properties constitute 90% of the
Company's multi-family residential and commercial real estate loan portfolio,
with the majority of the Company's commercial real estate loans being
15
<PAGE>
secured by office buildings. The Company's multi-family residential and
commercial real estate loan portfolio consists primarily of loans secured by
properties located in its primary market area. Applications for multi-family
residential and commercial real estate loans are obtained primarily from
previous borrowers, direct contacts with the Company and referrals.
Although terms vary, multi-family residential and commercial real
estate loans generally are amortized over a period of up to 25 years and mature
in ten years and have interest rates which adjust at periodic intervals of
generally less than five years, in accordance with a designated index, which
generally is negotiated at the time of origination. Loan-to-value ratios on
the Company's commercial real estate loans are currently limited to 80% or
lower. However, the Company has in the past made multi-family residential and
commercial real estate loans with higher loan-to-value ratios. In addition, as
part of the criteria for underwriting multi-family residential and commercial
real estate loans, the Company generally imposes a debt coverage ratio (the
ratio of net cash from operations before payment of debt service to debt
service) of at least 110%. It is also the Company's general policy to obtain
personal guarantees on its multi-family residential and commercial 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 December 31, 1996, the Company's multi-family residential and
commercial real estate loan portfolio consisted of approximately 140 loans with
an average principal balance of $171,000. At December 31, 1996, the Company's
net loans receivable did not consist of any nonaccrual multi-family residential
and commercial real estate loans.
From time to time, the Company has originated loans to construct
single-family residences, commercial real estate and multi-family residences,
builder loans and lines-of-credit and loans to acquire and develop real estate
for construction of residential or commercial properties (together
"construction loans"). These construction lending activities generally are
limited to the Company's market area. Construction loans may be made to an
individual for the purpose of constructing a personal residence, to a developer
for the purpose of constructing single-family residential developments or to a
builder for the purpose of constructing a speculative single-family residence
or a commercial real estate project. During 1996, the Company began to
originate builder lines-of-credit. These loans are, in effect, pre-approved
loans to established builders for the purpose of purchasing developed lots and
the construction of pre-sold and speculative single-family residences. The LTV
guidelines established are not to exceed 80% of the appraised value or cost of
construction, whichever is less on pre-sold and speculative single-family
residences and 75% of the purchase price of developed lots.
16
<PAGE>
The Savings Bank requires principal reduction on lots held in inventory after
18 months. Speculative single-family residences held in inventory 12 months
after completion will be converted to a 25 year amortizing mortgage with a
balloon payment after 60 months. The line-of-credit product significantly
reduces approval turn around time and saves the builder expense over single
approvals via reduced fees and title premiums. The Savings Bank does maintain
the authority to refuse to fund for lots or homes it deems to be unacceptable
and retains the right to cancel the line-of-credit upon notice should the
lending relationship be deemed to be unsatisfactory. At December 31, 1996,
construction loans amounted to $20.9 million or 9.2% of the Company's total
loan portfolio. As of such date, the Company's portfolio of construction loans
consisted of loans totaling $12.5 million for the construction of single-family
residential loans and $8.4 million for land development and the construction of
commercial real estate. Builder lines-of-credit were extended to 12 builders
with $2.9 million outstanding under lines approved in the aggregate amount of
$10.9 million.
Construction loans generally have maturities of 6 to 18 months at an
adjustable rate of interest, with payments being made monthly on an
interest-only basis. Principal repayment comes either from the sale and
release of the financed real estate or from the permanent financing
arrangements which will generally provide for either an adjustable or fixed
interest rate in keeping with the Company's policies with respect to
residential and commercial real estate financing. The Company has in some
instances granted construction loans with maturities of up to 36 months for
acquisition and development purposes. Construction loans are otherwise
generally underwritten and approved in the same manner as commercial real
estate loans.
The Company has increased its involvement in commercial real estate
and construction lending within both its primary market area and the greater
Pittsburgh metropolitan area. Such loans afford the Company the opportunity to
increase the interest rate sensitivity of its loan portfolio and, with respect
to nonresidential projects, to receive higher yields than those obtainable on
single-family residential loans. These higher yields correspond to the higher
credit risks associated with commercial real estate and construction lending.
Commercial real estate and 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.
17
<PAGE>
The Company has attempted to minimize the foregoing risks by, among
other things: adopting what management believes are conservative underwriting
guidelines which impose more stringent loan-to-value, debt service and other
requirements for loans which are believed to involve higher elements of credit
risk; requiring, in certain circumstances, appraisals by Board designated
appraisers on loans with principal balances of more than $50,000; limiting the
geographic area in which the Company will make a commercial or construction
loan; and limiting the amount of certain types of commercial real estate loans
in its portfolio. In addition, in the case of commercial real estate loans,
the Company emphasizes existing loans on relatively newly-constructed
properties, as opposed to older properties which may require more maintenance
or new loans on which there is no payment experience.
CONSUMER LOANS. The Company offers a variety of consumer loans in
order to provide a full range of financial services to its customers. At
December 31, 1996, $45.5 million or 20.1% of the Company's total loan portfolio
consisted of consumer loans. The consumer loans offered by the Company include
home equity loans, education loans, automobile loans, deposit account secured
loans, home improvement loans, personal loans and unsecured lines-of-credit or
signature loans. Consumer loans are primarily obtained through existing and
walk-in customers.
As of December 31, 1996, the Company's largest group of consumer loans
were home equity loans. The Company originates both adjustable rate home
equity line-of-credit loans and fixed rate home equity loans with terms up to
15 years. At December 31, 1996, $27.0 million or 59.2% of the Company's
consumer loan portfolio was made up of home equity loans.
Although ESB issues a credit card in its name, it does so pursuant to
an agency agreement with Mellon Bank, N.A., Pittsburgh, Pennsylvania, and it
does not retain or have any liability related to the credit which is extended
in connection with such credit cards.
Consumer loans generally have shorter terms and higher interest rates
than mortgage loans but generally involve more credit risk than mortgage loans
because of the type and nature of the collateral and, in certain cases, the
absence of collateral. In addition, consumer lending collections are dependent
on the borrower's continuing financial stability, and thus are more likely to
be adversely affected by job loss, divorce, illness and personal bankruptcy.
In most cases, any repossessed collateral for a defaulted consumer loan will
not provide an adequate source of repayment of the outstanding loan balance
because of improper repair and maintenance of the underlying security. The
remaining deficiency often does not warrant further substantial collection
efforts against the borrower. The Company believes that the generally higher
yields earned on consumer loans compensate for the increased credit risk
associated with such loans and that consumer loans are important to its efforts
to increase the interest rate sensitivity and shorten the average maturity of
its loan portfolio.
18
<PAGE>
COMMERCIAL BUSINESS LOANS. At December 31, 1996, $9.7 million or 4.3%
of the Company's total loan portfolio consisted of commercial business loans.
The Company's commercial business loan portfolio consists of secured or
unsecured loans for commercial, corporate and business purposes, such as
commercial lines of credit and commercial loans secured by inventory or
receivables and purchased financing lease loans. As previously detailed, the
Company's largest commercial borrower is the originator of various financing
lease loans. See "- Lending Activities - General." The two next largest
commercial borrowers are a community hospital and a commercial developer and
contractor. As of December 31, 1996, these three loans had outstanding
principal balances of $3.6 million, $1.1 million and $1.0 million,
respectively.
LOAN FEE INCOME. In addition to interest earned on loans, the Company
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.
The Company charges loan origination fees which are calculated as a
percentage of the amount borrowed. Loan origination fees generally amount to
one to two percent of the amount borrowed in the case of a mortgage loan. Loan
origination fees are not obtained in connection with consumer loans. 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 accreted and amortized in the same manner.
NON-PERFORMING LOANS AND REAL ESTATE OWNED. When a borrower fails to
make a required payment on a loan, the Company attempts to cure the deficiency
by contacting the borrower and seeking payment. Contacts are generally made on
the fifteenth day after a payment is due. In most cases, deficiencies are
cured promptly. If a delinquency extends beyond 15 days, the loan and payment
history is reviewed and efforts are made to collect the loan. While the
Company generally prefers to work with borrowers to resolve such problems, when
the account becomes 90 days delinquent, the Company does institute foreclosure
or other proceedings, as necessary, to minimize any potential loss.
Loans are placed on nonaccrual 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 nonaccrual, previously
accrued but unpaid interest is deducted from interest income. As a matter of
policy, the Company does not accrue interest on loans past due 90 days or more.
19
<PAGE>
Real estate acquired by the Company as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as real estate owned until it is
sold. When property is acquired, it is recorded at the lower of cost or
estimated fair value less estimated costs to sell at the date of acquisition
and any write-down resulting therefrom is charged to the allowance for losses
on real estate owned. All costs incurred in maintaining the Company's interest
in the property, with the exception of legal fees, are capitalized between the
date the loan becomes delinquent and 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. See Note 1 to the Consolidated Financial Statements of the
Company.
The following table sets forth information regarding nonaccrual loans
and real estate owned held by the Company at the dates indicated. As of the
dates presented, the Company did not have any loans which were 90 days or more
overdue but still accruing interest or loans which were classified as troubled
debt restructurings.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Single-family residential
real estate loans $ 285 $ 599 $ 668 $ 425 $ 422
Multi-family residential
and commercial real
estate loans - - 1,497 1,210 1,695
Construction loans - - - - -
------ ------ ------ ------ ------
Total 285 599 2,165 1,635 2,117
Consumer loans 163 86 104 119 153
Commercial business loans 3,636(1) 114 - - 43
------ ------ ------ ------ ------
Total nonaccrual loans 4,084 799 2,269 1,754 2,313
Total nonaccrual loans to
net loans receivable 1.88% 0.43% 1.40% 2.21% 3.04%
====== ====== ====== ====== ======
Total real estate owned, net
of related reserves $ 37 $ 52 $ 294 $ 246 $1,524
====== ====== ====== ====== ======
Total nonaccrual loans and
real estate owned to
total assets 0.59% 0.13% 0.40% 0.49% 1.16%
====== ====== ====== ====== ======
</TABLE>
- --------------------
(1) Consists of financing lease loans as discussed under "Lending Activities -
General".
Interest income that would have been recorded under the original terms
of such loans during 1996, 1995 and 1994 was approximately $232,000, $26,000,
and $167,000, respectively. These amounts were not included in the Company's
interest and dividend income for the respective periods.
At December 31, 1996 nonaccrual single-family residential real estate
loans included 17 loans ranging from approximately $1,000 to $45,000.
20
<PAGE>
At December 31, 1996 the Company had no nonaccrual multi-family and
commercial real estate loans. The $485,000 decrease in nonaccrual multi-family
residential and commercial real estate loans during 1993 was primarily due to a
$348,000 participation loan secured by two hotels in Erie, Pennsylvania,
becoming current and the partial payoff of a $175,000 loan secured by a
commercial real estate property located on Neville Island, Pennsylvania. The
$287,000 increase in nonaccrual multi-family residential and commercial loans
during 1994 was primarily due to a $256,000 loan which became nonaccrual during
the year. This loan is secured by a multi-purpose building located in
Cranberry Township, Pennsylvania. The $1.5 million decrease in multi-family
residential and commercial real estate loans during 1995 represents the
collection of two loans secured by the multi-purpose building in Cranberry
Township, Pennsylvania. At December 31, 1994, the borrower and loans were the
Company's fourth largest aggregate borrowing relationship. During 1995, the
smaller of these two loans was paid-off and the larger was paid down by
$883,000, to a balance of $360,000 at December 31, 1995. This repayment was
effected under a confirmed bankruptcy plan of reorganization. The remaining
loan balance is secured by the building which appraised for $3.2 million as of
July 5, 1994. The Savings Bank also received approximately $460,000 which
represented unpaid interest, late charges and reimbursement of legal expenses
for both loans. As a result of the principal repayment, collection of unpaid
interest, adherence to the confirmed bankruptcy plan of reorganization and the
collateral position, the remaining loan balance has been reclassified as
performing.
At December 31, 1996, nonaccrual consumer loans consisted of 55 loans
with an average principal balance of $3,000. At December 31, 1996, nonaccrual
commercial business loans consisted of the 13 financing lease loans with an
outstanding principal balance of $3.6 million. See "- Lending Activities -
General."
At December 31, 1996, the Company's total real estate owned amounted
to $37,000. This amount represents the net investment in a single-family
property. This property is currently being marketed for sale.
ALLOWANCES FOR LOSSES ON LOANS AND REAL ESTATE OWNED. PennFirst'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 loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth and composition of the loan portfolio, and other relevant factors. The
allowance is increased by provisions for loan losses which are charged against
income. See Notes 1, 6 and 7 to the Consolidated Financial Statements of the
Company.
21
<PAGE>
Effective December 21, 1993, the OTS, in conjunction with the Office
of the Comptroller of the Currency, the FDIC and the Federal Reserve Board,
issued an Interagency Policy Statement on the Allowance for Loan and Lease
Losses ("Policy Statement"). The Policy Statement, which effectively
supersedes previous OTS proposed guidance, 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
allowance. The Policy Statement also sets forth quantitative measures for the
allowance with respect to assets classified substandard and doubtful, described
below, 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."
Federal regulations require that each insured savings institution
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
those classified as substandard with the added 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 as loss is considered uncollectible
and of such little value that continuance as an asset of the institution is not
warranted. Another category designated "asset watch" is also utilized by the
Company for assets which do not currently expose an insured institution to a
sufficient degree of risk to warrant classification as substandard, doubtful or
loss. Assets classified as substandard or doubtful require the institution to
establish general allowances for loan losses. If an asset or portion thereof
is classified as loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge-off such amount. General loss allowances
established to cover possible losses related to assets classified substandard
or doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses do not qualify as
regulatory capital.
22
<PAGE>
The following table sets forth information concerning the activity in
the Company's allowance for loan losses during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995 1994 1993 1992
------ ---- ---- ---- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of
period $2,471 $2,475 $1,393 $1,225 $ 952
Allowance associated with
the acquisition of Economy
Savings - - 1,128 - -
Charge-offs:
Real Estate (3) (25) (27) (159) (48)
Consumer (49) (22) (37) (26) (27)
Commercial business - - (39) - -
------ ------ ------ ------ ------
Total loans charged-off (52) (47) (103) (185) (75)
Recoveries 17 30 16 17 34
------ ------ ------ ------ ------
Net charge-offs (35) (17) (87) (168) (41)
Additions charged to
operations 873 13 41 336 314
------ ------ ------ ------ ------
Allowance at end of period $3,309 $2,471 $2,475 $1,393 $1,225
====== ====== ====== ====== ======
Ratio of net charge-offs to
average loans outstanding
during the period 0.02% 0.01% 0.07% 0.22% 0.05%
Ratio of allowance to
total loans receivable
at end of period 1.46% 1.29% 1.43% 1.64% 1.48%
</TABLE>
The primary reason for the increase in net charge-offs in 1993 was
attributable to the charge-off of $72,000 relating to the settlement received
on a commercial real estate property located on Neville Island, Pennsylvania,
and the charge-off of $60,000 relating to a commercial property located in
Pittsburgh, Pennsylvania. At December 31, 1993, this loan was determined to be
an in-substance foreclosure and was reclassified as real estate owned. The
primary reason for the increase in net charge-offs in 1996 was attributable to
the charge-off of consumer loans. The Company's recoveries for these periods
were primarily due to payments received with respect to charged-off consumer
loans. At December 31, 1996, the Company had no allowance for losses on real
estate owned.
23
<PAGE>
The following table shows the Company's total allowance for loan
losses at the dates indicated and the allocation to the various loan
categories.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------- ----------------- ----------------- ----------------- -----------------
Percent Percent Percent Percent Percent
of Total of Total of Total of Total of Total
Loans by Loans by Loans by Loans by Loans by
Amount Category Amount Category Amount Category Amount Category Amount Category
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans $1,733 1.01% $1,803 1.29% $1,648 1.26% $1,164 1.78% $1,040 1.57%
Consumer loans 574 1.26 522 1.26 472 1.40 212 1.16 175 1.17
Commercial business loans 1,002 10.38 146 1.47 355 4.32 17 1.26 10 0.79
------ ------ ------ ------ ------ -----
Total allowance for losses
on loans to total loans
receivable at end of period $3,309 1.46% $2,471 1.29% $2,475 1.43% $1,393 1.64% $1,225 1.48%
====== ====== ====== ====== ======
</TABLE>
24
<PAGE>
PennFirst's management believes that the reserves established by the
Company are adequate to cover any potential losses in the Company's loan and
real estate owned portfolios. However, future adjustments to these reserves
may be necessary, and the Company'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.
In May 1993, the Financial Accounting Standards Board ("FASB")
released Statement of Financial Accounting Standards ("SFAS") No. 114
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114 established
standards to determine in what circumstances, if any, a creditor should measure
impairment of a loan based on either the present (discounted) value of expected
future cash flows related to the loan, the market price of the loan or the fair
value of the underlying collateral.
The Company adopted SFAS No. 114 and SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures," an
amendment of SFAS No. 114, effective October 1, 1995. These statements address
the accounting by creditors for impairment of certain loans. They apply to all
creditors and to all loans, uncollateralized as well as collateralized, except
for large groups of smaller-balance homogeneous loans that are collectively
evaluated for impairment. The Savings Bank considers all one-to-four family
residential mortgage loans and all consumer loans to be smaller homogeneous
loans. Loans within the scope of these statements are considered impaired
when, based on current information and events, it is probable that all
principal and interest will not be collected in accordance with the contractual
terms of the loans. Management determines the impairment of loans based on
knowledge of the borrower's ability to repay the loan according to the
contractual agreement, the borrower's repayment history and the fair value of
collateral dependent loans. Pursuant to SFAS No. 114 paragraph 8, management
does not consider an insignificant delay or insignificant shortfall to impair a
loan. Management has determined that a delay less than 90 days will be
considered an insignificant delay. All loans are charged off when management
determines that principal and interest are not collectible. Any excess of the
Savings Bank's recorded investment in the loans over the measured value of the
loans in accordance with SFAS No. 114 are provided for in the allowance for
loan losses. The Savings Bank reviews its loans for impairment on a quarterly
basis.
MORTGAGE-BACKED SECURITIES
The Company invests in a portfolio of mortgage-backed securities which
are insured or guaranteed by the FHLMC, the Federal National Mortgage
Association ("FNMA") and the Government National Mortgage Association ("GNMA").
Mortgage-backed securities increase the quality of the Company'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 the Company.
25
<PAGE>
The Company has adopted a methodology for the classification of
mortgage-backed securities at the time of their purchase as either held to
maturity or available for sale. If it is management's intent and the Company
has the ability to hold such securities until their maturity, these securities
are classified as held to maturity and are carried on the Company's books at
cost, adjusted for amortization of premium and accretion of discount on a level
yield basis. Alternatively, if it is management's intent at the time of
purchase to hold securities for an indefinite period of time and/or to use such
securities as part of its asset/liability management strategy, the securities
are classified as available for sale and carried at fair value, with unrealized
gains and losses excluded from net earnings and reported as a separate
component of stockholders' equity, net of tax. Mortgage-backed securities
available for sale include securities which may be sold in response to changes
in interest rates, resultant prepayment risk and other factors related to
interest rate or prepayment risk.
The following table sets forth the activity in the Company's
mortgage-backed securities portfolio during the periods indicated.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Mortgage-backed securities
at beginning of period $378,094 $412,347 $309,902
Mortgage-backed securities acquired
in connection with the acquisition
of Economy Savings - - 34,606
Purchases 97,406 72,340 181,046
Sales (66,185) (50,471) (36,554)
Repayments (70,413) (60,780) (70,079)
Premium amortization (1,035) (930) (1,635)
Change in unrealized gain (loss) on
securities available for sale (307) 5,588 (4,939)
-------- ------- --------
Mortgage-backed securities
at end of period (1) $337,560 $378,094 $412,347
======== ======== ========
Weighted average yield at
end of period 6.72% 6.53% 6.13%
======= ======= =======
</TABLE>
(1) Includes a fair market value of $259.4, $286.9 and $105.2 million in
1996, 1995 and 1994, respectively, of mortgage-backed securities
classified as available for sale.
At December 31, 1996, the Company's mortgage-backed securities
portfolio (including mortgage-backed securities classified as available for
sale) had an amortized cost and a fair market value of $337.2 million and
$335.2 million, respectively. At the same date, $525,000 of such securities
were scheduled to mature after one year through three years, $47.9 million were
scheduled to mature after three through five years, $16.9 million were
scheduled to mature after five through seven years and $270.5 million were
scheduled to mature after seven years. Due to prepayments of the underlying
loans, the actual maturities of the securities are expected to be substantially
less than the scheduled maturities.
26
<PAGE>
On December 1, 1995, the Company reclassified $184.9 million of
mortgage-backed securities held to maturity to mortgage-backed securities
available for sale. The reclassification was in accordance with the FASB
issuing a special report "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities" that
permitted this one-time reassessment. At December 31, 1996, the Company had
classified $259.1 million at amortized cost of its mortgage-backed securities
as available for sale and $78.1 million at amortized cost of mortgage-backed
securities as held to maturity. The Company has classified certain securities
as available for sale due to expected changes in interest rates, resultant
prepayment risk and other factors related to interest rate or prepayment risk.
The Company has occasionally sold securities from its available for sale
portfolio in accordance with its asset and liability management strategies.
Of the Company's total investment in mortgage-backed securities, at
amortized cost, (including mortgage-backed securities classified as available
for sale) at December 31, 1996, $153.9 million consisted of FNMA certificates,
$100.7 million consisted of FHLMC certificates, $77.0 million consisted of GNMA
certificates, and $5.6 million consisted of Collateralized Mortgage
Obligations. At December 31, 1996, $140.7 million or 41.7% of the Company's
portfolio of mortgage-backed securities (including mortgage-backed securities
classified as available for sale) were secured by ARMs. See Notes 4 and 5 to
the Consolidated Financial Statements of the Company.
INVESTMENT ACTIVITIES
Federally chartered savings institutions have authority to invest in
various types of securities, including U.S. Treasury obligations and securities
of various federal agencies, certificates of deposit at insured banks and
savings institutions, bankers' acceptances and federal funds. Subject to
various restrictions, federally chartered savings institutions also may invest
a portion of their assets in commercial paper, corporate debt securities, tax
exempt obligations and mutual funds whose assets conform to the investments
that a federally chartered savings institution is authorized to make directly.
As a member of the FHLB System, ESB must maintain minimum liquidity
levels specified by the OTS and which vary from time to time. Liquidity may
increase or decrease depending upon the yields available on investment
opportunities and upon management's judgment as to the attractiveness of such
yields and its expectation of the level of yields that will be available in the
future.
The Company's investment activities are directly monitored by the
Company's Asset and Liability Management Committee under investment policy
guidelines adopted by the Board of Directors.
27
<PAGE>
The general objectives of the Company's investment policy are to provide
adequate liquidity to meet the anticipated and unanticipated operating needs of
the Company and to maximize income while protecting against credit and interest
rate risk.
The Company has adopted a methodology for the classification of
securities at the time of their purchase as either held to maturity or
available for sale. If it is management's intent and the Company has the
ability to hold such securities until their maturity, these securities are
classified as held to maturity and are carried on the Company's books at cost,
adjusted for amortization of premium and accretion of discount on a level yield
basis. Alternatively, if it is management's intent at the time of purchase to
hold securities for an indefinite period of time and/or to use such securities
as part of its asset/liability management strategy, the securities are
classified as available for sale and carried at fair value, with unrealized
gains and losses excluded from net earnings and reported as a separate
component of stockholders' equity, net of tax. Investment and mortgage-backed
securities available for sale include securities which may be sold in response
to changes in interest rates, resultant prepayment risk and other factors
related to interest rate or prepayment risk. The Company recently adopted a
strategy of purchasing tax-exempt municipal obligations and callable agency
securities. The strategy was adopted to increase the overall yield earned on
the Savings Bank's investment portfolio and because management believed that a
significant or prolonged increase in interest rates was not likely at this
time.
The following table sets forth the Company's investment securities
portfolio at carrying value at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
Amortized Percent of Amortized Percent of Amortized Percent of
Cost(1) Portfolio Cost(1) Portfolio Cost(1) Portfolio
--------------------- --------------------- ---------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government and
agency securities $ 49,978 46.75% $26,756 42.14% $23,613 82.98%
Corporate obligations - - 169 .27 554 1.95
Tax-exempt obligations 56,677 53.02 36,315 57.20 4,040 14.20
FHLMC preferred stock 250 .23 250 .39 250 .87
------- ------ ------- ------ ------- ------
Total $106,905(2) 100.00% $63,490(2) 100.00% $28,457(2) 100.00%
- --------------- ======== ====== ======= ====== ======= ======
</TABLE>
(1) The fair market value of the Company's investment securities portfolio
amounted to $106.5 million, $64.8 million and $26.9 million at
December 31, 1996, 1995 and 1994, respectively.
(2) Includes a fair market value of $88.7 million, $43.9 million and $3.3
million of investment securities classified as available for sale at
December 31, 1996, 1995 and 1994, respectively.
28
<PAGE>
On December 1, 1995, the Company reclassified $8.1 million of
investment securities held to maturity to investment securities available for
sale. The reclassification was in accordance with the FASB issuing a special
report "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities" that permitted this one-time
reassessment.
The following table sets forth the maturities and weighted average
yields of the debt securities, at amortized cost, in the Company's investment
securities portfolio at December 31, 1996.
<TABLE>
<CAPTION>
Less than One to Five to Over Ten
One Year Five Years Ten Years Years
-------------- -------------- -------------- --------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and
agency securities $ 15 7.50% $ 999 6.01% $46,972 6.95% $ 1,992 7.30%
Tax-exempt obligations 25 5.60 252 4.25 316 4.86 56,084 5.72
FHLMC preferred stock - - 250 7.90 - - - -
------ ---- ------ ---- ------- ---- ------- ----
$ 40 6.31% $1,501 6.03% $47,288 6.93% $58,076 5.77%
====== ==== ====== ==== ======= ==== ======= ====
</TABLE>
SOURCES OF FUNDS
PennFirst's principal source of funds for use in lending and for other
general business purposes has traditionally come from deposits obtained through
the Company's branch offices. The Company also derives funds from amortization
and prepayments of outstanding loans and mortgage-backed securities and from
maturing investment securities. When needed, the Company also may borrow funds
from the FHLB of Pittsburgh and other sources to support originations and
purchases of loans and mortgage-backed and investment securities.
DEPOSITS. The Company's current deposit products include regular
savings accounts, demand accounts, NOW accounts, money market deposit accounts,
and certificates of deposit ranging in terms from 30 days to ten years.
Included among these deposit products are certificates of deposit with
negotiable interest rates and balances of $100,000 or more ("Jumbo
certificates"), which amounted to 5.3%, 5.8% and 6.3% of PennFirst's total
deposits at December 31, 1996, 1995 and 1994, respectively. The Company's
deposit products also include Individual Retirement Account certificates ("IRA
certificates") and Keogh Plan retirement certificates.
The Company's deposits are obtained primarily from residents of
Allegheny, Lawrence, Beaver and Butler counties, Pennsylvania. The Company
attracts deposit accounts by offering a wide variety of accounts, competitive
interest rates, and convenient office locations and service hours. The Company
utilizes traditional marketing methods to attract new customers and savings
deposits,
29
<PAGE>
including cable television, print media advertising and direct mailings.
PennFirst does limited advertising for deposits outside of its local market
area but does not utilize the direct services of deposit brokers, and
management believes that an insignificant number of deposit accounts were held
by non-residents of Pennsylvania at December 31, 1996. PennFirst has a
drive-up banking facility at its Ellwood City, Aliquippa, Ambridge, Center
Township and Coraopolis offices and has installed automated teller machines
("ATMs") at six of its branch offices. The Company participates in the ATM
network known as MAC (Money Access Service) operated by CoreStates Financial
Corporation, Philadelphia, Pennsylvania.
The Company's deposit composition has remained relatively stable for
the past several years. The Company 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.
The Company intends to continue its efforts to attract deposits as a principal
source of funds for supporting its lending and investment activities because
the cost of these funds generally is less than other borrowings. Although
market demand generally dictates which deposit maturities and rates will be
accepted by the public, the Company intends to continue to promote longer term
deposits to the extent possible and consistent with its asset and liability
management goals. Management believes that as customers become more interest
rate conscious and willing to move funds to higher rate accounts, the ability
of PennFirst to attract and maintain deposits and its cost of funds will
continue to be largely affected by national money market conditions.
PennFirst pays 1% interest on its mortgage escrow accounts. Interest
paid on such escrow accounts for 1996 was $18,000.
30
<PAGE>
The following table shows the distribution of the Company's deposits
by type of deposit as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1996 1995 1994
------------------- -------------------- --------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
checking accounts $ 5,082 1.53% $ 3,776 1.12% $ 4,034 1.21%
Regular savings
and club accounts 56,849 17.08 60,850 17.98 70,186 21.03
NOW accounts 22,334 6.71 20,791 6.14 21,023 6.30
Money market deposit
accounts 58,624 17.61 57,920 17.11 47,786 14.31
Certificate of deposit
accounts(1) 190,000 57.07 195,157 57.65 190,796 57.15
-------- ------ -------- ------ -------- ------
Total deposits $332,889 100.00% $338,494 100.00% $333,825 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
- -----------------
(1) At December 31, 1996, 1995, and 1994, jumbo certificates amounted to
$17.5 million, $19.6 million and $21.1 million respectively.
The following table sets forth the net deposit flows of the Company during
the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1995 1994(1)
-------- -------- ---------
(Dollars In Thousands)
<S> <C> <C> <C>
Increase (decrease) before
interest credited $(20,089) $ (9,448) $114,854
Interest credited 14,484 14,117 12,341
-------- -------- --------
Net deposit increase (decrease) $ (5,605) $ 4,669 $127,195
======== ======== ========
</TABLE>
- -----------
(1) The $114.9 million increase for the year ended December 31, 1994 was
primarily the result of the acquisition $114.2 million of deposits in
connection with the acquisition of Economy Savings.
The Company experienced decreases of $20.1 million and $9.4 million
in deposits (before interest credited) for the years ended December 31, 1996
and 1995, respectively. The decreases were primarily the result of the decline
in interest rates offered by the Company. The Company's management carefully
monitors the interest rates and terms of its deposit products in order to
maximize the interest rate spread and to better match its interest-sensitive
liabilities with its interest-sensitive assets.
31
<PAGE>
The following tables present by various interest rate categories the
amounts of certificates of deposit of the Company at the dates indicated and
the amounts at December 31, 1996 which mature during the periods indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1996 1995 1994
--------- ---------- ----------
(Dollars In Thousands)
<S> <C> <C> <C>
2.50 to 4.49% $ 1,492 $ 5,825 $ 54,508
4.50 to 6.49% 170,129 159,914 112,334
6.50 to 8.49% 14,767 23,421 17,451
8.50 to 10.49% 3,519 5,997 6,255
10.50 to 12.49% 93 - 248
-------- -------- --------
Total $190,000 $195,157 $190,796
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Amounts at December 31, 1996 Maturing in
-----------------------------------------------------------------------------
More than More than
1 to 12 one year two years After
Months to two years to three years three years Total
-------- ------------ -------------- ----------- -----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
2.50 to 4.49% $ 1,459 $ 33 $ - $ - $ 1,492
4.50 to 6.49% 115,845 41,833 8,785 3,666 170,129
6.50 to 8.49% 2,943 3,915 5,037 2,872 14,767
8.50 to 10.49% 1,501 2,018 - - 3,519
10.50 to 12.49% 93 - - - 93
-------- ------- ------- ------- --------
Total $121,841 $47,799 $13,822 $ 6,538 $190,000
======== ======= ======= ======= ========
</TABLE>
BORROWINGS. From time to time, the Company obtains advances from the
FHLB of Pittsburgh upon the security of the common stock it owns in the FHLB
and certain of its residential mortgage loans and other assets (principally
securities which are obligations of, or guaranteed by, the United States),
provided certain standards related to creditworthiness have been met. See
"Regulation - Regulation of the Savings Bank - Federal Home Loan Bank System."
Such advances are made pursuant to several different credit programs, each of
which has its own interest rate, maximum size of advance and range of
maturities. Depending on the program, limitations on the amount of such
borrowings are based either on a fixed percentage of the Savings Bank's capital
or on the FHLB's assessment of the Savings Bank's creditworthiness. At
December 31, 1996, the Company had $295.5 million in advances, $137.2 million
of which were scheduled to mature after December 31, 1997. These advances have
generally been utilized to fund purchases of mortgage-backed securities at a
positive interest rate spread. The increase of $47.1 million in FHLB advances
during 1996, was primarily due to the purchase of municipal obligations and
callable agencies, which were funded at a positive interest rate spread.
The Company participates as an authorized depository for treasury tax
and loan accounts on behalf of the Federal Reserve Bank of Cleveland ("FRB of
Cleveland"). Under the terms of an agreement with the FRB of Cleveland, funds
deposited to the Company's account accrue interest at a rate of 1/4 of 1% below
the overnight federal funds rate.
32
<PAGE>
The Company has entered into sales of securities under agreements to
repurchase (reverse repurchase agreements). Fixed-coupon reverse repurchase
agreements are treated as financings and the obligations to repurchase
securities sold are reflected as a liability in the consolidated statement of
financial condition. The dollar amount of securities underlying the agreements
remains in the asset accounts. The government agency securities underlying the
agreement were delivered to the FHLB and an independent brokerage firm who
arranged the transactions. See Note 11 to the Consolidated Financial
Statements of the Company.
The following table sets forth the borrowings of the Company at the
dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995 1994
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
Advances from FHLB of Pittsburgh $295,522 $248,386 $237,883
Treasury tax and loan accounts 223 86 110
Reverse repurchase agreements 13,450 11,000 8,444
-------- -------- --------
$309,195 $259,472 $246,437
======== ======== ========
</TABLE>
33
<PAGE>
The following table presents certain information regarding aggregate
short-term FHLB advances (maturities of one year or less), the Treasury tax and
loan note payable and the reverse repurchase agreements of the Company at the
dates and for the periods indicated.
<TABLE>
<CAPTION>
At or For the Year Ended
December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding(1) $162,894 $161,874 $ 75,533
Maximum amount outstanding at any month-end
during the period 160,941 164,075 185,357
Balance outstanding at end of period 158,335 133,940 139,275
Average interest rate during the period(2) 6.10% 5.72% 5.25%
Average interest rate at end of period 6.17% 6.07% 5.65%
Treasury tax and loan note:
Average balance outstanding(1) $ 4 $ 3 $ 96
Maximum amount outstanding at any month-end
during the period 223 176 158
Balance outstanding at end of period 223 86 110
Average interest rate during the period(2) 3.34% 3.59% 3.20%
Average interest rate at end of period 5.18% 5.16% 5.21%
Reverse repurchase agreements:
Average balance outstanding(1) $ 13,112 $ 60 $ 1,272
Maximum amount outstanding at any month-end
during the period 14,000 11,000 8,444
Balance outstanding at end of period 13,450 11,000 8,444
Average interest rate during the period(2) 5.50% 5.88% 6.09%
Average interest rate at end of period 5.58% 5.88% 5.89%
Total short-term borrowings:
Average balance outstanding(1) $176,010 $161,937 $ 75,629
Maximum amount outstanding at any month-end
during the period 175,164 175,251 185,515
Balance outstanding at end of period 172,008 145,026 147,829
Average interest rate during the period(2) 6.06% 5.72% 5.25%
Average interest rate at end of period 6.12% 6.06% 5.64%
</TABLE>
- ---------------
(1) Calculated using daily balances.
(2) Calculated using daily weighted average interest rates.
34
<PAGE>
COMPETITION
The Company 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. Particularly
in times of high interest rates, the Company faces additional significant
competition for investors' funds from short-term money market funds and issuers
of corporate and government securities. The Company competes for deposits
principally by offering depositors a variety of deposit programs, convenient
branch locations, hours and other services. The Company does not rely upon any
individual group or entity for a material portion of its deposits.
The Company's competition for real estate loans comes principally from
mortgage banking companies, other savings institutions, commercial banks and
credit unions. The Company 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.
EMPLOYEES
The Company had 92 full-time employees and 33 part-time employees as of
December 31, 1996. None of these employees is represented by a collective
bargaining agent. The Company believes that it enjoys excellent relations with
its personnel.
SUBSIDIARIES
The Savings Bank is permitted by current OTS regulations to invest an
amount up to 2% of their respective assets in stock, paid-in surplus and
secured and unsecured loans in service corporations. The Savings Bank may
invest an additional 1% of its respective assets when the additional funds are
utilized for community or inner-city purposes. In addition, federally
chartered savings institutions under certain circumstances also may make
conforming loans to service corporations in which the lender owns or holds more
than 10% of the capital stock in an aggregate amount of up to 50% of regulatory
capital. Savings institutions meeting these requirements also may make,
subject to the loans-to-one borrower limitations, an unlimited amount of
conforming loans to service corporations in which the lender does not own or
hold more than 10% of the capital stock of certain other corporations meeting
specified requirements.
35
<PAGE>
At December 31, 1996, the Savings Bank was authorized under the current
regulations to have a maximum investment of $13.6 million in its service
corporations, exclusive of the additional 1% of assets investment permitted for
community or inner-city purposes but inclusive of the ability to make
conforming loans to their subsidiaries. On that date, ESB had a $51,000
investment in AMSCO, Inc. ("AMSCO") its wholly owned service corporation.
AMSCO was incorporated in 1974 as a wholly-owned subsidiary of the
Savings Bank to engage in real estate development, property management and
condominium conversions, independently or in conjunction with joint ventures.
At December 31, 1996 AMSCO's assets consisted of an undeveloped commercially
zoned lot with a net book value of $80,000 and an investment in one joint
venture totaling $32,000.
The joint venture, Westchase Development, consists of a 50% interest in
a partnership with a local developer. Westchase purchased approximately 20
acres of undeveloped land in Findlay Township, Allegheny County, Pennsylvania
in April 1991 and developed the land into 54 lots for the purpose of building
single-family residential dwellings. The Savings Bank is providing financing
for the project. As of December 31, 1996, 3 of the 54 lots remain unsold.
A savings institution is required to deduct the amount of investment in,
and extensions of credit to, a subsidiary engaged in activities not permissible
for national banks. Because the acquisition and development of real estate is
not a permissible activity for national banks, the investments in and loans to
any subsidiary of the Savings Bank which is engaged in such activities are
subject to exclusion from their respective regulatory capital calculation. See
"Regulation - Regulation of the Savings Bank - Regulatory Capital
Requirements."
36
<PAGE>
REGULATION
Set forth below is a brief description of certain laws and regulations
which relate to the regulation of the Company and ESB. 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.
REGULATION OF THE COMPANY
GENERAL. The Company is a registered savings and loan holding company
pursuant to the Home Owners' Loan Act, as amended ("HOLA"). As such, the
Company is subject to OTS regulations, examinations, supervision and reporting
requirements. As a subsidiary of a savings and loan holding company, ESB is
subject to certain restrictions in its dealings with the Company 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 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
saving 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 "Regulation -
Regulation of the Savings Bank - Qualified Thrift Lender Test."
If the Company were to acquire control of another savings association,
other than through merger or other business combination with the Savings Bank,
the Company 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, the activities of the Company and any of its subsidiaries (other than the
Savings Bank or other subsidiary savings associations) would thereafter be
subject to further
37
<PAGE>
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 Federal Reserve Board 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 the Company) 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 transactions be on terms substantially the same, or at
least favorable, to the association or subsidiary as those 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 Section 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, Section 22(g) and (h) 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 institution ("a principal
stockholder"), and certain
38
<PAGE>
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution'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 institution to all
insiders cannot exceed the institution's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers. At December 31, 1996, the Savings Bank 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 ("FDIA"); 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).
The Federal Reserve Board may approve an application by a bank holding
company to acquire control of a savings association. A bank holding company
that controls a savings association may 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 with the
approval of the appropriate federal banking agency and the Federal Reserve
Board. As a result of these provisions, there have been a number of
acquisitions of savings associations by bank holding companies in recent years.
39
<PAGE>
REGULATION OF THE SAVINGS BANK
GENERAL. The Savings Bank is a federally chartered savings bank, the
deposits of which are federally insured and backed by the full faith and credit
of the United States Government. Accordingly, the Savings Bank is subject to
broad federal regulation and oversight by the OTS and the FDIC extending to all
aspects of their operations. The Savings Bank is a member of the FHLB of
Pittsburgh and is subject to certain limited regulation by the Federal Reserve
Board.
FEDERAL SAVINGS ASSOCIATION REGULATION. The OTS has extensive
regulatory 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. Such regulation
and supervision is primarily intended for the protection of depositors.
The investment and lending authority of the Savings Bank is prescribed
by federal laws and regulations, and are prohibited from engaging in any
activities not permitted by such laws and regulations. These laws and
regulations generally are applicable to all federally chartered savings
associations and many also apply to state-chartered savings associations.
There are limitations on the aggregate amount of loans that a savings
association could make to any one borrower, including related entities. For
information about the Company's largest loans or groups of loans, see "Business
- - Lending Activities - General."
OTS enforcement authority over all savings associations and their
holding companies 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.
INSURANCE OF ACCOUNTS. The deposits of the Savings Bank 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.
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<PAGE>
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 FDIA. 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 resulted in nine assessment risk classifications, with rates ranging
from .23% for well capitalized, healthy institutions to .31% for
undercapitalized institutions with substantial supervisory concerns.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Savings Bank, 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 the Savings Bank's deposit insurance.
On November 14, 1995, the FDIC lowered the insurance rates for
commercial banks and certain savings banks through the Bank Insurance Fund
("BIF") to zero to 4 basis points on insured deposits (subject to a $2,000
minimum) as the commercial banks had reached the required capitalization level
of $1.25 for each $100 of insured deposits.
On September 30, 1996, President Clinton signed into law legislation
which eliminates the premium differential between SAIF-insured institutions and
BIF-insured institutions by recapitalizing the SAIF's reserves to the required
ratio. The legislation required all SAIF member institutions to pay a one-time
special assessment to recapitalize the SAIF, with the aggregate amount to 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.
Implementing 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 accrued as an expense on September 30, 1996. The Savings
Bank's one-time special assessment amounted to $2.2 million ($1.3 million net
of tax) or $.34 per share. The payment of such special assessment had the
effect of immediately reducing the Savings Bank's capital by such amount.
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<PAGE>
Nevertheless, management does not believe that this one-time special assessment
had a material adverse effect on the Savings Bank's consolidated financial
condition.
In the fourth quarter of 1996, the FDIC lowered the 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 generally range
from zero basis points to 27 basis points, except that during the fourth
quarter of 1996, the rates for SAIF members ranged from 18 basis points to 27
basis points in order to include assessments paid to the Financing Corporation
("FICO"). From 1997 through 1999, SAIF members will pay 6.5 basis points to
fund the FICO, while BIF member institutions will pay approximately 1.3 basis
points. The Savings Bank's insurance premiums, which had amounted to 23 basis
points, were thus reduced to 6.5 basis points effective January 1, 1997. Based
upon the $331.2 million of assessable deposits at December 31, 1996, the
Savings Bank will pay approximately $273,000 less in insurance premiums in the
first half of 1997.
LIQUIDITY REQUIREMENTS. The Savings Bank is required to maintain an
average daily balance of liquid assets equal to at least 5% of the sum of their
respective average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. This liquidity requirement may be
changed from time to time by the OTS to any amount within the range of 4% to
10% depending upon economic conditions and savings flows of all savings
associations and is currently 5%.
Liquid assets for purposes of this ratio include specified short-term
assets (e.g., cash, certain time deposits, certain banker's acceptances and
short-term United States Government obligations), and long-term assets (e.g.,
United States Government obligations of more than one and less than five years
and state agency obligations with a minimum term of 18 months). The OTS
designates as liquid assets certain mortgage-related securities with less than
one year to maturity. Short-term liquid assets currently must constitute at
least 1% of the liquidity base. Monetary penalties may be imposed for failure
to meet liquidity requirements. The Savings Bank's average daily liquidity
ratio for the month ended December 31, 1996 was 11.4% and its short-term
liquidity ratio at December 31, 1996 exceeded the regulatory requirement of 1%.
The Savings Bank has consistently maintained liquidity levels in excess of the
minimum requirements in recent years.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings associations
are required to maintain minimum levels of regulatory capital. The regulatory
capital standards for savings associations 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.
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<PAGE>
Current OTS capital standards require savings associations to satisfy
three different OTS capital requirements. Under these standards, savings
associations must maintain "tangible" capital equal to 1.5% of adjusted total
assets, "core" capital equal to 3% of adjusted total assets and "total" capital
(a combination of core and "supplementary" capital) equal to 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
association'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 capable of being
sold in the market. Tangible capital is core capital less qualifying
supervisory goodwill and all other intangible assets, with only a limited
exception for purchased mortgage servicing rights. At December 31, 1996, the
Savings Bank had approximately $146,000 that was deducted from its capital
calculation. The Savings Bank had no supervisory goodwill as of December 31,
1996, and, accordingly, none was included in its capital calculation. However,
the Savings Bank had approximately $4.5 million in intangible assets which were
deducted from its capital calculation as of such date.
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 for 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).
At December 31, 1996, the Savings Bank did not have any significant investments
in nor any extensions of credit to nonincludable subsidiaries.
A savings association is allowed to include both core capital and
supplementary capital in its total capital for purposes of the risk-based
capital requirements, provided that the amount of supplementary capital
included does not exceed the savings association's core capital. Supplementary
capital consists of certain capital instruments that do not qualify as core
capital, and general valuation loan and lease loss allowances up to a maximum
of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy
the risk-based requirement only in an amount equal to the amount of core
capital. In determining the required amount of risk-based capital, total
assets, including certain off-balance sheet items, are multiplied by a risk
weight based on the risks inherent in the type of assets. The risk weights
assigned by the OTS for principal categories of assets are (i) 0% for cash and
securities issued by the United States Government or unconditionally backed by
the full faith and credit of the United
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<PAGE>
States Government; (ii) 20% for securities (other than equity securities)
issued by United States Government-sponsored agencies and mortgage-backed
securities issued by, or fully guaranteed as to principal and interest by, the
FNMA or the FHLMC, except for those classes with residual characteristics or
stripped mortgage-related securities; (iii) 50% for prudently underwritten
permanent one-to-four-family first lien mortgage loans not more than 90 days
delinquent and having a loan-to-value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or the FHLMC,
and qualifying residential bridge loans made directly for the construction of
one-to-four-family residences; and (iv) 100% for all other loans and
investments, including consumer loans, commercial loans, and one-to-four-family
residential real estate loans more than 90 days delinquent and for repossessed
assets. Off-balance sheet items also are adjusted to take into account certain
risk characteristics.
OTS policy imposes a limitation on the amount of net deferred tax assets
under SFAS No. 109 that may be included in regulatory capital. (Net deferred
tax assets represent deferred tax assets, reduced by any valuation allowances,
in excess of deferred tax liabilities). Application of the limit depends on
the possible sources of taxable income available to an institution to realize
deferred tax assets. Deferred tax assets that can be realized from the
following generally are not limited: taxes paid in prior carryback years and
future reversals of existing taxable temporary differences. To the extent that
the realization of deferred tax assets depends on an institution's future
taxable income (exclusive of reversing temporary differences and
carryforwards), or its tax-planning strategies, such deferred tax assets are
limited for regulatory capital purposes to the lesser of the amount that can be
realized within one year of the quarter-end report date or 10% of core capital.
At December 31, 1996, the Savings Bank had $499,000 in net deferred tax assets
which is deducted from its tangible, core and risk-based capital.
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. 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 a 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 economic 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 economic
value of its assets.
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<PAGE>
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 two 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
institutions with a greater than "normal" risk until the OTS publishes an
appeals process. In August 1995, the OTS issued Thrift Bulletin No. 67 which
allows eligible institutions to request an adjustment to their interest rate
risk component as calculated by the OTS, or to request to use their own models
to calculate their interest rate component. The OTS also indicated that it
will delay invoking its interest rate risk rule requiring institutions with
above normal interest rate risk exposure to adjust their regulatory capital
requirement until new procedures are implemented and evaluated. The OTS has
not yet established an effective date for the capital deduction.
The following table sets forth certain information concerning the
Savings Bank's regulatory capital at December 31, 1996.
<TABLE>
<CAPTION>
ESB BANK
Amount Percentage
--------------------
<S> <C> <C>
Dollars in Thousands
- --------------------
Tangible Capital:
Actual $41,217 6.11%
Required 10,116 1.50
------- -----
Excess $31,101 4.61%
======= =====
Core Capital:
Actual $41,217 6.11%
Required 20,231 3.00
------- -----
Excess $20,986 3.11%
======= =====
Risk-based Capital:
Actual $44,107 19.08%
Required 18,498 8.00
------- -----
Excess $25,609 11.08%
======= =====
</TABLE>
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<PAGE>
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 the Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("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. As a result of this
requirement, at December 31, 1996, the Savings Bank's regulatory capital was
decreased by $116,000.
A savings institution which is not in capital compliance or which is
otherwise deemed to require more than normal supervision is subject to
restrictions on its ability to grow pursuant to Regulatory Bulletin 3a-1. In
addition, a provision of HOLA generally provides that the Director of OTS must
restrict the asset growth of savings institutions not in regulatory compliance,
subject to a limited exception for growth not exceeding interest credited.
A savings institution which is not in capital compliance is also
automatically subject to the following: (i) new directors and senior executive
officers and employment contracts for senior executive officers must be
approved by the OTS in advance; (ii) the savings institution may not accept or
renew any brokered deposits; (iii) the savings institution is subject to higher
OTS assessments as a capital-deficient institution; and (iv) the savings
institution may not make any capital distributions without prior written
approval.
Any savings association that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such actions
could include a capital directive, a cease and desist order, civil money
penalties, the establishment of restrictions on an association's operations,
termination of federal deposit insurance and the appointment of a conservator
or receiver. Certain actions are required by law, as discussed below. See "-
Prompt Corrective Action." The OTS' capital regulation provides that such
actions, through enforcement proceedings or otherwise, could require one or
more of a variety of corrective actions.
PROPOSED REGULATORY CAPITAL REQUIREMENTS. In April 1991, the OTS
proposed to modify the 3% of adjusted total assets core capital requirement in
the same manner as the Comptroller of the Currency requirement for national
banks. Under the OTS proposal, only savings associations rated composite 1
under the OTS CAMEL rating system and without certain other risk
characteristics will be permitted to operate at the regulatory minimum core
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<PAGE>
capital ratio of 3%. For all other savings associations, the minimum core
capital ratio will range from 4% to 5% of adjusted total assets or more, as
determined by the OTS based on the quality of risk management systems and the
level of overall risk in each individual savings association through the
examination process on a case-by-case basis. Due to ESB Bank's strong
capitalization, management does not believe that this proposal, if adopted,
will materially adversely affect their respective operations.
PROMPT CORRECTIVE ACTION. Under Section 38 of the FDIA as added by the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), each federal
banking agency is required to implement a system of prompt corrective action
for institutions which it regulates. In 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, a savings association
shall be deemed to be (i) "well capitalized" if it has total risk-based capital
of 10.0% or more, has a Tier 1 risk-based ratio of 6.0% or more, has a Tier 1
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 1 risk-based capital ratio of 4.0% or more and a
Tier 1 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 1 risk-based capital ratio that is less than 4.0% or a Tier 1
leverage capital ratio that is less than 4.0% (3.0% under certain
circumstances), (iv) "significantly undercapitalized" if it has a total
risk-based ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that
is less than 3.0% or a Tier 1 leverage capital ratio that is less than 3.0%,
and (v) "critically 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
the OTS may reclassify a well capitalized savings association as adequately
capitalized and may require an adequately capitalized savings association or an
undercapitalized savings association to comply with supervisory actions as if
it were in the next lower category (except that the OTS may not reclassify a
significantly undercapitalized savings association as critically
undercapitalized). At December 31, 1996, ESB was in the "well capitalized"
category.
CLASSIFICATION OF ASSETS. For information concerning the Policy
Statement on Allowance for Loan and Lease Losses, see "Business - Allowance for
Losses on Loans and Real Estate Owned." At December 31, 1996, the Company's
classified assets totaled $4.6 million, of which $4.5 million were assets
classified substandard with the remaining $59,000 classified as a loss.
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<PAGE>
ACCOUNTING REQUIREMENTS AND INVESTMENT PRACTICES. The OTS has
established accounting standards to be applicable to all savings associations
for purposes of complying with regulations, except to the extent otherwise
specified in the capital standards. Such standards must incorporate generally
accepted accounting principles to the same degree as is prescribed by the
Federal banking agencies for banks or may be more stringent than such
requirements.
On September 2, 1992, the OTS amended a number of its accounting
regulations and reporting requirements (effective October 2, 1992). The
amendments reflected the adoption by the OTS of the following standards: (i)
regulatory reports will incorporate GAAP when GAAP is used by federal banking
agencies; (ii) savings association transactions, financial condition and
regulatory capital must be reported and disclosed in accordance with OTS
regulatory reporting requirements that will be at least as stringent as for
national banks; and (iii) the director of the OTS may prescribe regulatory
reporting requirements more stringent than GAAP whenever the director
determines that such requirements are necessary to ensure the safe and sound
reporting and operation of savings associations. The OTS anticipates further
similar revisions to its regulations in the near future.
Effective December 31, 1992, savings associations are required to use
fair value instead of net realizable value for the valuation of troubled,
collateral dependent loans and foreclosed assets. This change was made by the
OTS to comply with the Statement of Position ("SOP") 92-3 "Accounting for
Foreclosed Assets" issued by the American Institute of Certified Public
Accountants. Under the SOP 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 their net realizable value. The
Company's accounting for it real estate owned complies with the guidance set
forth in SOP 92-3.
For information about the Company's investment securities, see "Business
- - Investment Activities."
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"). The QTL test set forth in the HOLA requires a
thrift institution to maintain 65% of portfolio assets in Qualified Thrift
Investments ("QTIs"). Portfolio assets are defined as total assets less
intangibles, property used by a savings institution in its business and
liquidity investments in an amount not exceeding
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<PAGE>
20% of assets. Generally, QTIs are residential housing related assets. At
December 31, 1996, the amount of the Savings Bank's assets which were invested
in QTIs was 76.6%, which exceeded the percentage required to qualify the
Savings Bank under the QTL test. A savings institution that does not meet the
QTL test must either convert to a bank charter or comply with the following
restrictions on its operations: (i) the institution 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 institution shall be restricted to those of a national bank;
(iii) the institution shall not be eligible to obtain any advances from its
FHLB; and (iv) payment of dividends by the institution shall be subject to the
rules regarding payment of dividends by a national bank. Upon the expiration
of three years from the date the institution 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).
RESTRICTIONS ON CAPITAL DISTRIBUTIONS. The OTS regulates 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. Associations and distributions that do not qualify for the safe
harbor are required to obtain prior OTS approval before making any capital
distributions.
Generally, Tier 1 associations, which are savings associations that
before and after the proposed distribution meet or exceed their fully phased-in
capital requirements, 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, and "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. Under the regulation, ESB is a "Tier 1"
institutions.
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<PAGE>
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 as a result of such a
determination.
On December 5, 1994, the OTS published a notice of proposed rulemaking
to amend its capital distribution regulation. Under the proposal, institutions
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," as defined above under "-Prompt Corrective Action." Because ESB
is a subsidiary of a holding company, the proposal would require ESB to provide
notice to the OTS of their intent to make a capital distribution. The Savings
Bank does not believe that the proposal will adversely affect its ability to
make capital distributions if it is adopted substantially as proposed.
FEDERAL HOME LOAN BANK SYSTEM. The Savings Bank is a member of the FHLB
System which consists of 12 regional FHLBs, with each subject to supervision
and regulation by the Federal Housing Finance Board. The FHLBs provide a
central credit facility primarily for member savings institutions. The Savings
Bank as a member of the FHLB of Pittsburgh, is required to acquire and hold
shares of capital stock in that FHLB in an amount equal to at least 1% of the
aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or 5%
of its advances (borrowings) from the FHLB of Pittsburgh, whichever is greater.
At December 31, 1996, ESB had a $15.2 million investment in the stock of the
FHLB of Pittsburgh, and was in compliance with this requirement.
Advances from the FHLB of Pittsburgh are secured by a member's shares of
stock in the FHLB of Pittsburgh, certain types of mortgages and other assets.
Interest rates charged for advances vary depending upon maturity, the cost of
funds to the FHLB of Pittsburgh and the purpose of the borrowing. At December
31, 1996, the Savings Bank had $295.5 million in borrowings from the FHLB of
Pittsburgh outstanding.
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 year ended December 31, 1996,
dividends paid by the FHLB of Pittsburgh totaled $901,000 to the Savings Bank.
50
<PAGE>
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and certain non-personal time
deposits. At December 31, 1996, ESB was in compliance with the 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.
BRANCHING BY FEDERAL ASSOCIATIONS. The OTS "Policy Statement on
Branching by Federal Savings Associations" permits interstate branching to the
full extent permitted by statute (which is essentially unlimited).
Generally, federal law prohibits federal thrifts from establishing,
retaining or operating a branch outside the state in which the federal
association has its home office unless the association meets the Internal
Revenue's domestic building and loan test (generally, 60% of a thrift's assets
must be housing-related) ("IRS Test"). The IRS Test requirement does not apply
if: (i) the branch(es) result(s) from an emergency acquisition of a troubled
thrift (however, if the troubled association is acquired by a bank holding
company, does not have its home office in the state of the bank holding company
bank subsidiary and does not quality under the IRS Test, its branching is
limited to the branching laws for state-chartered banks in the state where the
thrift is located); (ii) the law of the state where the branch would be located
would permit the branch to be established if the federal association were
chartered by the state in which its home office is located; or (iii) the branch
was operated lawfully as a branch under state law prior to the association's
conversion to a federal charter.
The OTS will also evaluate a branching applicant's record of compliance
with the Community Reinvestment Act of 1977, as amended ("CRA"). A poor CRA
record may be the basis for denial of a branching application.
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. Effective August 9, 1995, the federal banking
agencies, including the OTS, implemented
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<PAGE>
final rules and 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 systems, (c) loan documentation, (d) credit underwriting, (e)
interest rate exposure, (f) asset growth, and (g) compensation, fees and
benefits. Under the asset quality and earnings standards, the Savings Bank
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 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. Effective October 1,
1996, the federal banking agencies also adopted asset quality and earnings
standards. If a savings institution 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 institution 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 institution to increase its ratio of tangible
equity to assets; (3) restrict the rates of interest that the savings
institution may pay; or (4) take any other action that would better carry out
the purpose of prompt corrective action. The Savings Bank 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.
TAXATION
FEDERAL TAXATION
GENERAL. The Savings Bank is subject to federal income taxation in the
same general manner as other corporations with some exceptions, including
particularly the reserve for bad debts discussed below. The following
discussion of federal taxation is intended to only summarize certain pertinent
federal income tax matters and is not a comprehensive description of the tax
rules applicable to the thrift.
METHOD OF ACCOUNTING. For federal income tax purposes, the Savings Bank
currently reports its income and expenses on the accrual method of accounting
and uses a tax year ending December 31 for filing its federal income tax
returns.
52
<PAGE>
BAD DEBT RESERVES. For tax years ending prior to 1996, the Bank was
allowed to make an addition to their bad debt reserves based upon a statutory
percentage of their taxable income with certain modifications. The Small
Business Job Protection Act of 1996 which was signed into law on August 20,
1996 repealed the percentage of taxable income bad debt deduction for taxable
years beginning after 1995 and requires a thrift to generally recapture the
excess of their 1995 tax reserves over their 1987 base year tax reserves.
The recapture resulting from the change in a thrift's method of
accounting for the bad debt reserve will generally be taken into taxable income
ratably (on a straight line basis) over a six year period. If, however, a
thrift meets a "residential loan requirement" for the taxable year beginning in
1996 or 1997, the recapture of the reserve will be suspended for such tax year.
Thus, recapture can potentially be deferred for up to two years. The
"residential loan requirement" is met if the principal amount of housing loans
made by a thrift during 1996 or 1997 is not less than the average of the
principal amount of loans made during the six most recent taxable years prior
to 1996. Refinancings and certain home equity loans are included to the extent
the proceeds of the loans are used to acquire, construct, or improve qualified
residential real property. The Bank expects to meet the residential lending
test for 1996. The amount of tax bad debt reserve subject to recapture is
approximately $2.27 million. In accordance with FASB No. 109, deferred income
taxes have previously been provided on this amount, thus no financial statement
expense should be recorded as a result of this recapture. The Bank's
supplemental bad debt reserve of approximately $1.2 million is not subject to
recapture.
As a large bank (asset greater than $500 million), the Bank's bad debt
deduction for 1996 and subsequent years will be computed on the specific charge
off method.
DISTRIBUTIONS. If the Savings Bank distributes cash or property to
their sole stockholder, and the distribution is treated as being from its
pre-1987 bad debt reserves, the distribution will cause the Savings Bank to
have additional taxable income. A distribution to stockholders is deemed to
have been made from pre-1987 bad debt reserves to the extent that (a) the
reserves exceed the amount that would have been accumulated on the basis of
actual loss experience, and (b) the distribution is a "non-dividend
distribution." A distribution in respect of stock is a non-dividend
distribution to the extent that, for federal income tax purposes, (i) it is in
redemption of shares, (ii) it is pursuant to a liquidation of the institution,
or (iii) in the case of a current distribution, together with all other such
distributions during the taxable year, exceeds the Savings Bank's current and
post-1951 accumulated earnings and profits. The amount of additional taxable
income created by a non-dividend distribution is an amount that when reduced by
the tax attributable to it is equal to the amount of the distribution.
53
<PAGE>
MINIMUM TAX. For taxable years beginning after December 31, 1986, the
Code imposes an alternative minimum tax at a rate of 20%. The alternative
minimum tax generally will apply to a base of regular taxable income plus
certain tax preferences ("alternative minimum taxable income" or "AMTI") and
will be payable to the extent such AMTI is in excess of regular income tax.
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) 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. Corporations are also subject to an
environmental tax equal to 0.12% of the excess of AMTI for the taxable year
(determined without regard to net operating losses and the deduction for the
environmental tax) over $2.0 million.
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back
net operating losses to the preceding three taxable years and forward to the
succeeding 15 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. Losses incurred by savings institutions in
years beginning after 1981 and before 1986 may be carried back ten years and
forward eight years. At December 31, 1996, the Savings Bank had no net
operating loss carryforwards for federal income tax purposes.
CAPITAL GAINS AND CORPORATE DIVIDENDS-RECEIVED DEDUCTION. The capital
gains income tax which was previously imposed at a rate of 28% on a
corporation's net long-term capital gains was repealed effective December 31,
1986. Consequently, corporate net capital gains are taxed at a maximum rate of
34% after December 31, 1986. The corporate dividends-received deduction is 80%
in the case of dividends received from corporations with which a corporate
recipient does not file a consolidated tax return and the stock of which the
corporate recipient owns 20% or more, and corporations which own less than 20%
of the stock of a corporation distributing a dividend may deduct only 70% of
dividends received or accrued on their behalf. However, a corporation may
deduct 100% of dividends from a member of the same affiliated group of
corporations.
54
<PAGE>
PENNSYLVANIA TAXATION
For Pennsylvania tax purposes, ESB is subject to the Pennsylvania Mutual
Thrift Institutions Tax. Under the terms of the Mutual Thrift Institutions
Tax, institutions subject thereto are exempt from all other corporate taxes
imposed by the Commonwealth of Pennsylvania and from all local taxation imposed
by political subdivisions of the Commonwealth of Pennsylvania, except taxes on
real estate or transfers thereof.
The mutual thrift institution tax is based upon income computed in
accordance with generally accepted accounting principles with an adjustment for
U.S. government and Pennsylvania municipal interest income. A reduction in
interest expense is required for any nontaxable interest income.
OTHER MATTERS. The Company's federal income tax returns have been
examined through 1994 and tax year 1995 is open under the statute of
limitations and is subject to review by the Internal Revenue Service ("IRS").
RECENT FASB DEVELOPMENTS. In October 1994, the FASB released SFAS No.
119 "Disclosure about financial Instruments and Fair Value of Financial
Instruments." The Company adopted SFAS No. 119 as of January 1, 1995. The
adoption of SFAS No. 119 had no material impact to the Company's financial
position or results of operations.
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," an amendment of SFAS No. 114,
effective October 1, 1995. These statements address the accounting by
creditors for impairment of certain loans. They apply to all creditors and to
all loans, uncollateralized as well as collateralized, except for large groups
of smaller-balance homogeneous loans that are collectively evaluated for
impairment. The Savings Bank considers all one-to four-family residential
mortgage loans and all installment loans to be smaller homogeneous loans.
Loans within the scope of these statements are considered impaired when, based
on current information and events, it is probable that all principal and
interest will not be collected in accordance with the contractual terms of the
loans. Management determines the impairment of loans based on knowledge of the
borrower's ability to repay the loan according to the contractual agreement,
the borrower's repayment history and the fair value of collateral for certain
collateral dependent loans. Pursuant to SFAS No. 114 paragraph 8, management
does not consider an insignificant delay or insignificant shortfall to impair a
loan. Management has determined that a delay less than 90 days will be
considered an insignificant delay. All loans are charged off when management
determines that principal and interest are not collectible. Any excess of the
Savings Bank's recorded investment in the loans over the measured value of the
loans in accordance with SFAS No. 114 are provided for in the allowance for
loan losses. The Savings Bank reviews its loans for impairment on a quarterly
basis.
55
<PAGE>
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights." SFAS No. 122 amends SFAS No. 65, "Accounting for Certain
Mortgage Banking Activities" by requiring that a mortgage banking enterprise
that acquires mortgage servicing rights through either the purchase or
origination of mortgage loans recognize those rights as separate assets by
allocating the total cost of the mortgage loans to the mortgage servicing
rights and the loans (without the mortgage servicing rights) based on their
relative fair values. In addition, SFAS No.122 requires that a mortgage
banking enterprise assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. This pronouncement is to
be applied prospectively in fiscal years beginning after December 15, 1995.
SFAS No. 122 had no material impact to the Company's financial position or
results of operations.
In October 1995, the FASB released SFAS No. 123, "Accounting for
Stock-Based Compensation." Effective for fiscal years beginning after December
15, 1995, SFAS No. 123 outlines preferable accounting treatment and reporting
guidelines for employee stock option plans. The Company has elected to follow
Accounting Principles Board Opinion ("APB") No. 25 "Accounting for Stock Issued
to Employees" and related interpretations in accounting for its employee stock
options due to the alternative fair value accounting provided for under SFAS
No. 123 which requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB No. 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
The Company's Incentive Stock Option Plans have authorized the grant of
options to management personnel for up to 47,901 shares of the Company's common
stock for the year ended December 31, 1996. All options granted have ten year
terms and vest and become fully exercisable at the end of six months from the
date of grant.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes Option Pricing Model with the following weighted average
assumptions for 1996: risk-free interest rates of 6.8%; dividend yields of
2.8%; volatility factors of the expected market price of the Company's common
stock of 25%; and a weighted-average expected life of the option of seven
years.
The Black-Scholes Option Valuation Model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, options valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing
56
<PAGE>
models do not necessarily provide a reliable single measure of the fair value
of its employee stock options.
In June 1996, the FASB issued SFAS No. 125, which will be effective, 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 that focuses on control. SFAS
No. 125 extends the "available for sale" and "trading" approach of SFAS No.
115 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 to 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. Management has not yet determined the
effect, if any, SFAS No. 125 and 127 will have on the Company's financial
statements.
In February 1997, the FASB released 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 the standards for computing
earnings per share previously found in APB Opinion No. 15, Earnings Per Share
and makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15.
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.
57
<PAGE>
ITEM 2. PROPERTIES.
The Savings Bank conducts its business from its main office in Ellwood
City, Pennsylvania and eight additional offices located in Allegheny, Lawrence,
Beaver and Butler counties, Pennsylvania. At December 31, 1996, the Company
owned the building and land for six of its offices and leased the remaining
three offices. For additional information, see Note 9 to the Consolidated
Financial Statements of the Company.
58
<PAGE>
The following table sets forth certain information with respect to the
offices and property of the Company and the percentage of savings deposits
attributable thereto, as of December 31, 1996.
<TABLE>
<CAPTION>
Lease Leasehold
Owned Expiration Interest or Percent of
or Date Net Book Total
Location Leased (Including Options) Value Deposits
- -------- ------ ------------------- ----------- ----------
<S> <C> <C> <C> <C>
Main Office:
600 Lawrence Avenue Owned -- $909,000 31.5%
Ellwood City, PA 16117
Branch Offices:
Lawrence Village Plaza Leased April 30, 1999 1,000 14.2
Route #65
New Castle, PA 16101
Northgate Plaza Leased November 30, 2002 4,000 5.4
Route #19
Zelienople, PA 16063
Franklin Plaza Leased October 31, 1998 11,000 5.3
1314 Zelienople Road
Ellwood City, PA 16117
1060 Freeport Road Owned -- 301,000 10.0
Pittsburgh, PA 15238
506 Merchant Street Owned -- 108,000 16.5
Ambridge, PA 15003
2301 Sheffield Road Owned -- 156,000 11.0
Aliquippa, PA 15001
1207 Brodhead Road Owned -- 196,000 2.9
Monaca, PA 15061
900 Fifth Avenue Owned -- 101,000 3.2
Coraopolis, PA 15108
Other Property:
Drive-in facility Owned -- 73,000 --
618 Beaver Avenue
Ellwood City, PA 16117
Parking Lot Owned -- 23,000 --
816-817 Lawrence Avenue
Ellwood City, PA 16117
Franklin Township Owned -- 82,000 --
Mercer Road/Mecklem Lane
Ellwood City, PA 16117
Findlay Township Owned -- 259,000 --
Route 30
Clinton, PA 15026
</TABLE>
59
<PAGE>
The Company's data processing is provided by a third party servicer.
The cost of such data processing services is approximately $31,000 per month.
The estimated net book value of the electronic data processing equipment owned
by the Company, including computers, teller terminals, video display equipment
and ATMs was $127,000 at December 31, 1996.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in legal proceedings occurring in the ordinary
course of business which in the aggregate are believed by management to be
immaterial to the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required herein is incorporated by reference from pages 37 and
38 of the Company's 1996 Annual Report to Stockholders attached hereto as
Exhibit 13 (the "1996 Annual Report").
ITEM 6. SELECTED FINANCIAL DATA.
The information required herein is incorporated by reference from pages 1 and 5
of the Company's 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required herein is incorporated by reference from pages 6 to 13
of the Company's 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required herein is incorporated by reference from pages 14 to
36 of the Company's 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
60
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required herein is incorporated by reference from pages 2 to 7
of the definitive proxy statement of the Company. ("Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference from pages 7 to 10
of the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required herein is incorporated by reference from pages 2 to 5
of the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required herein is incorporated by reference from page 12 of
the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) The following financial statements are incorporated by
reference from Item 8 hereof (See Exhibit 13):
Report of Independent Auditors
Consolidated Statements of Financial Condition at December 31, 1996
and 1995
Consolidated Statements of Income for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statement of Changes in Stockholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) All schedules for which provision is made in the applicable
accounting regulation of the SEC are omitted because of the absence of
conditions under which they are required or because the required
information is included in the Consolidated Financial Statements and
related notes thereto.
61
<PAGE>
(3)(a) The following exhibits are filed as part of this Form 10-K,
and this list includes the Exhibit Index.
<TABLE>
No. Exhibits
--- --------
<S> <C>
3(a) Amended and Restated Articles of
Incorporation (1)
3(b) Bylaws (1)
4 Specimen Common Stock Certificate (2)
10(a) Stock Option Plan (2)(4)
10(b) Employee Stock Ownership Plan (2)(4)
10(c) Management Development and Recognition
Plan and Trust Agreement (2)(4)
10(d) Employment Agreement with Charlotte A.Zuschlag (2)(4)
10(e) 1992 Stock Incentive Plan (3)(4)
11 Statement RE Computation of Per Share Earnings'
13 1996 Annual Report to Stockholders
22 Subsidiaries of the Registrant -
Reference is made to Item 1. "Business
- Subsidiaries" for the required information
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
- -------------------
(1) Incorporated by reference from the Current Report on Form 8-K filed by
the Company with the SEC on March 27, 1991.
(2) Incorporated by reference from the Registration Statement on Form S-4
(Registration No. 33-39219) filed by the Company with the SEC on March
1, 1991.
(3) Incorporated by reference from the Annual Report on Form 10-K filed by
the Company with the SEC on March 29, 1993.
(4) Management contract or compensatory plan or arrangement.
(b) On December 18, 1996, the Company filed a Current Report on
Form 8-K with the SEC reporting the payment of a cash
dividend.
(c) See (a)(3) above for all exhibits filed herewith and the
exhibit index
(d) There are no other financial statements and financial
statement schedules which were excluded from the Annual Report
which are required to be included herein.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Charlotte A. Zuschlag
-----------------------------
March 24, 1997 Charlotte A. Zuschlag
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ Charlotte A. Zuschlag March 24, 1997
- ----------------------------
Charlotte A. Zuschlag
President and Chief
Executive Officer
/s/ William B. Salsgiver March 24, 1997
- ----------------------------
William B. Salsgiver
Chairman of the Board
/s/ Herbert S. Skuba March 24, 1997
- ----------------------------
Herbert S. Skuba
Vice Chairman of the Board
/s/ Charles P. Evanoski March 24, 1997
- ----------------------------
Charles P. Evanoski
Senior Vice President of
Finance (principal financial
officer)
</TABLE>
63
<PAGE>
<TABLE>
<S> <C>
/s/ George William Blank, Jr. March 24, 1997
- -----------------------------
George William Blank, Jr.
Director
/s/ Lloyd L. Kildoo March 24, 1997
- -----------------------------
Lloyd L. Kildoo
Director
/s/ Charles Delman March 24, 1997
- -----------------------------
Charles Delman
Director
/s/ Edmund C. Smith March 24, 1997
- -----------------------------
Edmund C. Smith
Director
</TABLE>
64
<PAGE>
EXHIBIT 13
[PENNFIRST BANCORP, INC. LOGO]
1996
ANNUAL
REPORT
<PAGE>
- --------------------------------------------------------------------------------
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
Financial Highlights ...................................................... 1
Letter to Stockholders .................................................... 2
Business .................................................................. 4
Selected Consolidated Financial and Other Data ............................ 5
Management's Discussion and Analysis ...................................... 6
Consolidated Statements of Financial Condition ............................ 14
Consolidated Statements of Income ......................................... 15
Consolidated Statements of Changes in Stockholders' Equity ................ 16
Consolidated Statements of Cash Flows ..................................... 17
Notes to Consolidated Financial Statements ................................ 18
Auditors' Report .......................................................... 36
Stock Information ......................................................... 37
Common Stock Market Makers/Corporate Information .......................... 38
Board of Directors ........................................................ 39
Officers .................................................................. 40
Office Locations ..............................................Inside Back Cover
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Total Assets..................................................................... $698,735 $659,371
Total Deposits................................................................... 332,889 338,494
Loans Receivable, Net............................................................ 216,865 183,878
Net Interest Income.............................................................. 14,108 13,964
Net Income....................................................................... 2,830 3,968
Earnings per Share............................................................... 0.71 0.94
Cash Dividends per Share......................................................... 0.86 0.36
Stockholders' Equity............................................................. 51,543 54,926
Stockholders' Equity per Share................................................... 13.21 13.77
Net Interest Margin ............................................................. 2.32% 2.29%
Efficiency Ratio................................................................. 53.25% 58.25%
</TABLE>
EARNINGS/CASH DIVIDENDS
[CHART]
NET INTEREST/NET INCOME
[CHART]
-1-
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO STOCKHOLDERS
- --------------------------------------------------------------------------------
TO OUR STOCKHOLDERS:
As I look back over l996 and review its challenges and accomplishments, I am
pleased to report that our 81st year in business was another successful year at
PennFirst Bancorp, Inc. The industry's deposit insurance disparity issue was
finally resolved and the Company continues to grow in spite of an increasingly
competitive business environment.
'96 OPERATING RESULTS: We are pleased with the annual results despite the
impact that the recapitalization of the Savings Association Insurance Fund
("SAIF") had on our industry. PennFirst reported 1996 earnings of $.71 per
share on net income of $2.8 million compared to earnings of $.94 per share on
net income of $4.0 million in 1995. This decline is directly attributable to
the one-time special SAIF assessment. Excluding the SAIF assessment, earnings
per share would have increased 11.7% to $1.05 per share on income of $4.2
million.
For PennFirst, this special SAIF assessment charge, which was applied to all
banks and thrifts with SAIF-insured FDIC deposits, resulted in a $2.2 million
pretax charge or $.34 per share. Despite the impact this assessment had on 1996
earnings, the resolution of the SAIF issue will actually have a positive impact
on future earnings by reducing PennFirst's deposit insurance premiums from $.23
to $.06 per $100 in deposits which equates to an estimated pre-tax annual
premium savings of approximately $550,000. This premium reduction will enable
PennFirst to be more competitive with commercial banks in pricing our deposit
products.
[PHOTO]
Charlotte A. Zuschlag, President and CEO
PennFirst's total assets grew to a record $698.7 million at year end 1996 which
represents a 6.0% increase over 1995 year end levels of $659.4 million. The
past year's increase can be primarily attributed to our exceptional loan
growth. Strong mortgage and consumer demand combined with our expanded emphasis
on construction lending allowed us to increase total loans by 17.9% in 1996.
Total net loan outstandings increased to $216.9 million compared to $183.9
million at year end 1995. PennFirst's nonperforming asset ratio increased to
0.59% at December 31, 1996, the result of $3.6 million of financing leases
being placed on nonaccrual status during the first quarter of 1996. Despite the
increase, this ratio continues to evidence PennFirst's strong asset quality and
is still impressive when compared to industry norms. As a result of the
increase in nonperforming assets, the Company increased its allowance for loan
losses to $3.3 million or 1.46% of the Company's total loans receivable at
December 31, 1996.
NONPERFORMING ASSETS TO TOTAL ASSETS
[CHART]
PennFirst's unwavering commitment to closely monitor and control our operating
expenses is best evaluated by reviewing our efficiency ratio. While a 60% ratio
is considered an industry benchmark, in 1996, PennFirst improved its efficiency
ratio to an impressive 53.25%.
STOCKHOLDER VALUE: PennFirst has paid a cash dividend each quarter since our
stock conversion in June 1990. In addition to the quarterly cash dividends
totaling $.36 per share, we also paid a special $.50 per share cash dividend in
June 1996. The Board of Directors is committed to a philosophy of sharing
profits with stockholders and keeping stockholder return a primary focus.
The PennFirst Dividend Reinvestment/Stock Purchase Plan also continues to be
well received by our stockholders. During 1996, stockholders acquired over
49,600 additional shares of PennFirst stock without paying commissions or fees
through the Plan's automatic dividend reinvestment and optional cash payment
features. Recognizing an attractive opportunity to repurchase our stock,
PennFirst also committed nearly $3.0 million to its stock buyback program in
1996.
-2-
<PAGE>
MERGER AGREEMENT ANNOUNCED: In September we announced the execution of a
definitive agreement to acquire Troy Hill Bancorp, Inc., a thrift holding
company headquartered in the Troy Hill area of Pittsburgh. At December 31,
1996, Troy Hill Bancorp, Inc. had total assets of $102.6 million. Troy Hill
Federal Savings Bank, a wholly owned subsidiary of Troy Hill Bancorp, Inc., has
two offices located in the Allegheny County communities of Troy Hill and
Wexford. Under the terms of the agreement, Troy Hill Federal Savings Bank will
continue to operate as a separate subsidiary of PennFirst for a minimum period
of one year. Subject to stockholder and regulatory approval, this acquisition
fits well with our business and strategic growth plans and should allow
PennFirst to further enhance stockholder value as well as increase our market
presence in Allegheny County.
ALLOWANCE FOR LOAN LOSSES
[CHART]
CUSTOMER FOCUS: At PennFirst we are committed to providing "exceptional
customer service" with the bottom line being "total customer satisfaction". It
is this customer orientation that differentiates us from the competition and
ultimately is the key to enhancing stockholder value. To this end, several of
our offices have expanded evening hours and all of our offices are now open
Saturday mornings. In addition, we have provided increased employee training
opportunities and have continued our efforts to be an energetic supporter of
area organizations and projects aimed at improving the quality of life in our
communities.
We further acknowledge that, as a customer driven organization, it is the
quality of our people that will make the competitive difference. Our Employee
Stock Ownership Plan is a valued benefit and provides employees with true
ownership in PennFirst. By more closely aligning employee interests with those
of the Company and fellow stockholders, there is added incentive for employees
to focus on increasing profits and productivity.
LOOKING TO 1997: We enter 1997 as a stronger organization with talented people
and other resources necessary to take advantage of selective opportunities in
this dynamic industry. During 1997, we anticipate consummating our acquisition
of Troy Hill and intend to continue our growth through an opportunistic
acquisition strategy focusing on additional bank and branch office purchases.
It is critical that we prudently manage this growth while concentrating on our
goal of building an organization that will provide sustainable and consistent
growth. We intend to maintain the Company's strong capital position and to keep
this strength a priority in any decision that is made.
We intend to begin construction of a new bank office building located in
Wexford, Pennsylvania and will soon be finalizing plans to move our Franklin
Township office into a newly constructed branch office. Both of these locations
are prime growth areas which will further enhance our ability to conveniently
serve our expanding customer base. We also understand the critical role
technology plays in the delivery of our products and services and will be
exploring various data processing alternatives to enable us to continue to
provide the services demanded by our customers.
Finally, a sincere thank you to the employees, officers and directors for their
continuing dedication and hard work in making 1996 a success. We are fortunate
to have a team that works together and is committed to the goal of ensuring
that PennFirst remains a profitable and competitive company dedicated to
serving its customers and communities.
We also appreciate the confidence our stockholders have shown in PennFirst
Bancorp, Inc. We look forward to rewarding your trust by continuing to work
hard and keep stockholder value a top priority.
Sincerely,
/s/ CHARLOTTE A. ZUSCHLAG
Charlotte A. Zuschlag
President and Chief Executive Officer
-3-
<PAGE>
- -------------------------------------------------------------------------------
BUSINESS
- -------------------------------------------------------------------------------
PennFirst Bancorp, Inc. ("PennFirst" or the "Company") is a Pennsylvania
corporation and thrift holding company registered under the Home Owners' Loan
Act, as amended. PennFirst is the parent company of ESB Bank, F.S.B. ("ESB" or
the "Savings Bank") and PennFirst Financial Services, Inc. ("PFSI"). PFSI,
which was incorporated on July 31, 1992 as a Delaware-chartered company, is
engaged in the management of investments on behalf of PennFirst.
On March 25, 1994, the Company completed its acquisition of ESB Bancorp,
Inc. pursuant to which ESB Bancorp, Inc. was merged with and into PennFirst. As
a result of the merger, Economy Savings Bank, PaSA ("Economy Savings"), a
Pennsylvania chartered savings association and wholly owned subsidiary of ESB
Bancorp, Inc., operated as a wholly owned subsidiary of PennFirst until March
30, 1995 when Economy Savings was merged with and into Ellwood Federal Savings
Bank. In connection with the merger, the surviving institution amended its
federal stock charter to change its name to ESB Bank, F.S.B. ESB is a federally
chartered, federally insured stock savings bank headquartered in Ellwood City,
Pennsylvania. The Savings Bank conducts business from nine offices in Lawrence,
Beaver, Butler and Allegheny counties, located in western Pennsylvania.
At December 31, 1996, PennFirst had on a consolidated basis, total assets
of $698.7 million, total liabilities of $647.2 million, including total
deposits of $332.9 million and total stockholders' equity of $51.5 million.
The Company, through its subsidiaries, is primarily engaged in attracting
retail deposits from the general public through its nine offices and using such
deposits to originate loans secured by first mortgage liens on single-family
(one-to-four units) residential and commercial real estate, construction and
consumer loans and to purchase mortgage-backed securities. The Company also
originates loans secured by multi-family (over four units) residential real
estate and, to a lesser extent, commercial business loans. In addition, the
Company utilizes advances from the Federal Home Loan Bank ("FHLB") of
Pittsburgh to fund the Company's investment portfolio. The Company invests in
securities issued by the United States government and agencies and other
investments permitted by federal laws and regulations.
PennFirst derives its income principally from interest earned on loans,
investments and mortgage-backed securities and, to a lesser extent, from fees
received in connection with the origination of loans and for other services.
The Company's primary expenses are interest expense on deposits and borrowings
and general operating expenses. Funds for activities are provided by deposits,
amortization and prepayments of outstanding loans and mortgage-backed
securities and borrowings from the FHLB of Pittsburgh and other sources.
PennFirst has in recent years emphasized the origination of
adjustable-rate single-family residential 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 part of
the Company's asset and liability management program which is intended to
reduce the Company's vulnerability to rapid increases in interest rates. At
December 31, 1996, $131.3 million or 57.9% of the Company's total loan
portfolio had adjustable interest rates or maturities of less than 12 months.
In recent years, the Company also has increased its origination of commercial
real estate loans, construction loans, consumer loans and commercial business
loans. Such lending, which generally entails additional credit risks as
compared to single-family residential real estate lending, is characterized by
shorter terms to maturity and higher interest rates. Furthermore, in recent
years, PennFirst has also substantially increased its mortgage-backed
securities portfolio as an additional means of strengthening its asset and
liability management program. Such mortgage-backed securities are issued by the
United States government and agencies thereof and generally have an expected
weighted average life of between three and seven years. The Company recently
adopted a strategy of purchasing tax-exempt municipals and callable agency
securities. The strategy was adopted to increase the overall yield earned on
the Savings Bank's investment portfolio and because management believed that a
significant or prolonged increase in interest rates was not likely at this
time. The Company's investment in mortgage-backed securities (including
mortgage-backed securities available for sale) and investment securities
(including investment securities available for sale) amounted to $337.6 million
or 48.3% and $106.8 million or 15.3%, respectively, of the Company's total
assets at December 31, 1996. As a result of the Company's asset and liability
management program, during 1996, the Company was able to maintain a one-year
interest rate sensitivity gap ("GAP") of between a positive 5% of total assets
to a negative 15% of total assets. The Company's GAP was a negative 10.4% of
total assets as of December 31, 1996.
The Company, as a registered savings and loan holding company, is subject
to examination and regulation by the Office of Thrift Supervision ("OTS") and
is subject to various reporting and other requirements of the Securities and
Exchange Commission ("SEC"). ESB, as a federally chartered savings bank is
subject to comprehensive regulation and examination by the OTS and by the
Federal Deposit Insurance Corporation ("FDIC"), which administers the Savings
Association Insurance Fund ("SAIF"), which insures the Savings Bank's deposits
to the maximum extent permitted by law. ESB is a member of the FHLB of
Pittsburgh, which is one of the 12 regional banks which comprise the FHLB
System. ESB is further subject to regulations of the Board of Governors of the
Federal Reserve System ("Federal Reserve Board") which governs reserves
required to be maintained against deposits and certain other matters.
-4-
<PAGE>
- -------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
The following tables set forth certain consolidated financial and other
data of the Company at the dates and for the periods indicated. For additional
financial information about the Company, reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and related notes included
elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995 1994(1) 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets ............................... $698,735 $659,371 $637,916 $410,314 $331,520
Investment securities held to maturity ..... 18,082 20,757 25,206 1,973 8,925
Investment securities available for sale ... 88,687 43,932 3,260 1,015 -
Mortgage-backed securities held to maturity . 78,118 91,173 307,172 192,201 192,059
Mortgage-backed securities available for sale 259,442 286,921 105,175 117,700 38,666
Loans receivable, net ...................... 216,865 183,878 161,630 79,250 75,961
Savings deposits ........................... 332,889 338,494 333,825 206,629 210,903
Borrowed funds ............................. 309,195 259,472 246,437 160,988 80,187
Stockholders' equity ....................... 51,543 54,926 52,407 40,099 37,615
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations Data:
Interest income ............................ $ 46,737 $ 44,183 $ 34,873 $ 23,878 $ 22,671
Interest expense ........................... 32,629 30,219 22,159 14,585 13,365
-------- -------- -------- -------- --------
Net interest income ........................ 14,108 13,964 12,714 9,293 9,306
Provision for possible losses on loans ..... 873 13 41 336 314
-------- -------- -------- -------- --------
Net interest income after provision for
possible losses on loans .............. 13,235 13,951 12,673 8,957 8,992
Gain (loss) on sale of investment securities
available for sale ..................... (35) 54 140 324 (244)
Noninterest income ......................... 868 892 871 771 652
Noninterest expense (3) .................... 10,535 8,962 7,364 4,993 5,676
-------- -------- -------- -------- --------
Income before income taxes and cumulative
effect of change in accounting principle 3,533 5,935 6,320 5,059 3,724
Income tax expense ......................... 703 1,967 2,461 1,902 1,420
-------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principle .................. 2,830 3,968 3,859 3,157 2,304
Cumulative effect of change in accounting
principle ............................. - - - 125 -
-------- -------- -------- -------- --------
Net income ................................. $ 2,830 $ 3,968 $ 3,859 $ 3,282 $ 2,304
======== ======== ======== ======== ========
Earnings per share:
Primary ................................ $ .71 $ .94 $ .91 $ .94 $ .66
======== ======== ======== ======== ========
Fully diluted .......................... $ .71 $ .94 $ .91 $ .94 $ .65
======== ======== ======== ======== ========
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Other Data (2):
<S> <C> <C> <C> <C> <C>
Return on assets (3) ....................... 0.41% 0.61% 0.68% 0.83% 0.73%
Return on equity (3) ....................... 5.47 7.44 7.68 8.44 6.27
Equity to assets ........................... 7.50 8.24 8.79 9.83 11.70
Interest rate spread ....................... 1.98 1.92 1.96 2.01 2.52
Net interest margin ........................ 2.32 2.29 2.29 2.39 3.05
Interest-earning assets to interest-bearing
liabilities ............................ 1.07 1.08 1.08 1.10 1.12
Noninterest expense to assets (3) .......... 1.53 1.39 1.29 1.26 1.81
Efficiency ratio (4) ....................... 53.25 58.25 52.98 49.89 55.65
Allowance for loan losses to total loans
receivable at end of period ............ 1.46 1.29 1.43 1.64 1.48
Nonperforming assets to total assets at
end of period .......................... 0.59 0.13 0.40 0.49 1.16
Cash dividends per share ................... $ .86 $ .36 $ .28 $ .17 $ .12
</TABLE>
- ---------------
(1) In March 1994, the Company 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) With the exception of end of period ratios, all ratios are based on
average monthly balances during the respective periods.
(3) Exclusive of the $2.2 million one-time special SAIF assessment,
PennFirst's noninterest expense, return on assets, return on equity and
noninterest expense to assets ratios would have been $8.3 million, 0.61%,
8.08% and 1.21%, respectively, for the year ended December 31, 1996.
(4) 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 special foreclosed real estate charges and any
special non-recurring expense (one-time special SAIF assessment in 1996).
-5-
<PAGE>
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
GENERAL
The operating results of PennFirst 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 consist of deposits and borrowings. The Company's net income
is also affected by its provision for possible losses on loans, as well as the
level of its noninterest income, including loan origination and other fees, and
its noninterest expenses, such as employee salaries and benefits, occupancy
costs and income taxes.
In general, thrift 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 thrift
institutions, including the Savings Bank, 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. This
factor has historically caused the income earned by thrift institutions,
including ESB, on their loan portfolios to adjust more slowly to changes in
interest rates than their 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, the Company has
implemented the asset and liability management policies described below.
ASSET AND LIABILITY MANAGEMENT
PennFirst maintains a program designed to preserve the Company's
relatively low exposure to material and prolonged increases in interest rates.
The principal determinant of the exposure of PennFirst's earnings to interest
rate risk is the timing difference between the repricing or maturity of
PennFirst's interest-earning assets and the repricing or maturity of its
interest-bearing liabilities. PennFirst's asset and liability management
policies have generally increased the Company's interest rate sensitivity
primarily by shortening the maturities of PennFirst's interest-earning assets
while at the same time extending the maturities of PennFirst's interest-bearing
liabilities. The Board of Directors of PennFirst 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 Board
emphasizes a larger, more diversified portfolio of residential mortgage loans
in the form of mortgage-backed securities. The Company's mortgage-backed
securities portfolio consists of both adjustable-rate as well as fixed-rate
securities that have expected weighted average lives of between three and seven
years.
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, the Senior Vice President and Chief Financial Officer,
the 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 investment in mortgage-backed securities as described above; and
(ii) an emphasis on the origination of adjustable-rate single-family
residential 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 December 31, 1996, the implementation of these asset and liability
strategies resulted in the following: (i) $131.3 million or 57.9% of the
Company's total loan portfolio had adjustable interest rates or maturities of
less than 12 months; (ii) $79.0 million or 56.7% of the Company's portfolio of
single-family residential mortgage loans (including residential construction
loans) consisted of ARMs; and (iii) $140.7 million or 41.7% of the Company's
portfolio of mortgage-backed securities (including mortgage-backed securities
available for sale) were secured by ARMs.
The implementation of the foregoing asset and liability strategies 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
December 31, 1996, the Company's interest-earning assets maturing or repricing
within one year totaled $281.6 million while the Company's interest-bearing
liabilities maturing or repricing within one year totaled $354.1 million,
providing a deficiency of interest-earning assets over interest-bearing
liabilities of $72.5 million or a negative 10.4% of total assets. At December
31, 1996, the percentage of the Company's assets to liabilities maturing or
repricing within one year was 79.5%. The Company's one-year GAP changed from a
negative 5.6% of total assets at December 31, 1995 to the negative 10.4% of
total assets at December 31, 1996 as a result of the Company's maturing FHLB
advances. 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.
PennFirst also utilizes income simulation modeling in measuring its interest
rate risk and managing its interest rate sensitivity. The Asset and Liability
Management Committee of PennFirst believes that simulation modeling may more
accurately estimate the possible effects on net interest income due to the
exposure to changing market interest rates, the slope of the yield curve and
different prepayment and decay assumptions to maximize the stability of net
interest income under various interest rate scenarios. At December 31, 1996,
PennFirst's simulation model indicated that the Company's balance sheet is
liability sensitive, and as such in a 300 basis point rising rate environment,
with minor changes in the balance sheet and limited reinvestment changes, net
interest income is projected to decrease by approximately 6% over a 24-month
period.
-6-
<PAGE>
INTEREST RATE-SENSITIVITY ANALYSIS
The following table sets forth certain information at the dates indicated
relating to the Company's interest-earning assets and interest-bearing
liabilities which are estimated to mature or are scheduled to reprice within
one year.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets maturing or repricing within one year(1) ..................... $281,615 $299,470 $301,301
Interest-bearing liabilities maturing or repricing within one year(2) ................ 354,077 336,382 327,870
-------- -------- --------
Deficiency of interest-earning assets over interest-bearing liabilities .............. $(72,462) $(36,912) $(26,569)
======== ======== ========
Deficiency of interest-earning assets over interest-bearing
liabilities as a percentage of total assets ...................................... (10.36)% (5.60)% (4.16)%
Percentage of assets to liabilities maturing or repricing within one year ............ 79.53% 89.03% 91.90%
</TABLE>
- ---------------
(1) Adjustable and floating-rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due, and fixed-rate loans are included in the periods in
which they are scheduled to be repaid, based on scheduled amortization, in
each case as adjusted to take into account estimated prepayments based on
the assumptions set forth in the footnotes to the following table.
(2) Does not include demand accounts because they are noninterest-bearing.
Deposit decay rates are based on the assumptions set forth in the
footnotes to the following table.
The following table summarizes the anticipated maturities or repricing of
the Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1996 based on the information and assumptions set forth in the
notes.
<TABLE>
<CAPTION>
MORE THAN MORE THAN
WITHIN SIX TO ONE YEAR THREE YEARS OVER
SIX TWELVE TO THREE TO FIVE FIVE
MONTHS MONTHS YEARS YEARS YEARS TOTAL
------ ------ ----- ----- ----- -----
Interest-earning assets(1): (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage and other loans:
Fixed(2)................................... $ 5,954 $ 5,375 $ 18,070 $ 11,919 $ 24,060 $ 65,378
Variable(3)................................ 34,787 17,691 23,515 10,161 13,183 99,337
Consumer loans(4).............................. 21,383 6,721 11,065 3,719 2,433 45,321
Commercial business loans(4)................... 5,243 260 345 66 106 6,020
Mortgage-backed securities(5).................. 85,161 72,694 45,839 57,222 73,224 334,140
Investment securities and other
interest-earning assets.................... 23,846 2,500 - 1,260 100,575 128,181
-------- --------- ---------- ----------- --------- --------
Total.................................. $176,374 $ 105,241 $ 98,834 $ 84,347 $ 213,581 $678,377
======== ========= ========== =========== ========= ========
Interest-bearing liabilities:
Deposits:
Regular savings and NOW accounts(6)(7)..... $ 9,571 $ 6,954 $ 17,619 $ 12,715 $ 34,179 $ 81,038
Money market deposit accounts(8)........... 38,038 3,280 8,662 4,326 4,316 58,622
Certificates of deposits................... 92,850 31,376 45,679 13,216 6,863 189,984
Borrowings..................................... 101,923 70,085 135,534 231 1,466 309,239
-------- -------- ---------- ----------- --------- --------
Total.................................. $242,382 $111,695 $ 207,494 $ 30,488 $ 46,824 $638,883
======== ======== ========== =========== ========= ========
Excess (deficiency) of interest-earning assets
over interest-bearing liabilities.............. $(66,008) $ (6,454) $ (108,660) $ 53,859 $ 166,757 $ 39,494
======== ======== ========== =========== ========= ========
Cumulative excess (deficiency) of interest-
earning assets over interest-bearing liabilities $(66,008) $(72,462) $ (181,122) $ (127,263) $ 39,494
======== ======== ========== =========== =========
Cumulative excess (deficiency) of interest-
earning assets over interest-bearing liabilities
as a percentage of total assets................ ( 9.44)% (10.36)% (25.91)% (18.20)% 5.65%
======== ======== ========== =========== =========
</TABLE>
- ----------------
(1) Net of undisbursed loan proceeds and unearned premiums, discounts and
fees.
(2) For fixed-rate single-family residential real estate loans, assumes annual
amortization and prepayment rate at 12%. For fixed-rate multi-family
residential loans and other loans, assumes annual amortization and
prepayment rate at 10%.
(3) Assumes annual amortization and prepayment rate at 22% for adjustable-rate
single-family residential loans and at 25% for adjustable-rate
multi-family residential and commercial real estate loans.
(4) Assumes annual amortization and prepayment rate at 35%.
(5) Assumes annual amortization and prepayment rate at 12% for fixed-rate
mortgage-backed securities, 30% for adjustable-rate mortgage-backed
securities and 16% for 5 and 7 year fixed balloon securities.
(6) For regular savings accounts, assumes an annual decay rate of 17%. For NOW
accounts, assumes an annual decay rate of 22%.
(7) Does not include demand accounts because they are noninterest-bearing.
Includes advances by borrowers for taxes and insurance.
(8) For money market deposit accounts, assumes an annual decay rate of 29%.
-7-
<PAGE>
RESULTS OF OPERATIONS
PennFirst reported net income of $2.8 million, $4.0 million and $3.9
million in 1996, 1995 and 1994, respectively. Net income decreased by $1.2
million or 28.7% in 1996. The decrease was primarily the result of a one-time
special SAIF assessment of $2.2 million, combined with a $860,000 increase in
the provision for possible losses on loans and a $113,000 decrease in
noninterest income, which more than offset a $1.3 million decrease in income
tax expense and a $623,000 decrease in noninterest expense (excluding the
special SAIF assessment). Net income increased by $109,000 or 2.8% in 1995. The
increase was primarily the result of a $1.3 million increase in net interest
income, a $494,000 decrease in income tax expense and a $28,000 decrease in the
provision for possible losses on loans, which was substantially offset by an
increase in noninterest expense of $1.6 million and a $65,000 decrease in
noninterest income. Without the one-time special assessment, the Company would
have recognized net income of $4.2 million in 1996, an increase of $210,000 or
5.3% when compared to the prior year.
On September 30, 1996, President Clinton signed into law legislation
recapitalizing the SAIF resulting in a one-time special assessment charge to
all banks and thrifts (including ESB) which have SAIF-insured FDIC deposits.
The one-time special assessment required a payment of 65.7 cents for every $100
of SAIF insured deposits held at March 31, 1995.
NET INTEREST INCOME. Net interest income is determined by the Company'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.
The following table sets forth, for the periods indicated, information
regarding (i) the Company's average balance sheet; (ii) interest earned and the
resultant average yields; (iii) interest paid and the resultant average rates;
(iv) net interest income; (v) interest rate spread; and (vi) net interest
margin. Information is based on the average month-end balances during the
indicated periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- --------------------------
INTEREST INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS COST(1) BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST
------- --------- ------- ------- --------- ---- ------- --------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earnings assets:
Loans(2)........................ $200,570 $16,182 8.07% $175,468 $15,156 8.64% $132,144 $10,619 8.04%
Interest-earning deposits....... 4,075 142 3.48 3,987 200 5.02 10,495 270 2.57
Investment securities(3,4)...... 102,536 8,029 7.83 43,726 3,275 7.49 21,632 1,480 6.84
Mortgage-backed securities(5)... 350,789 22,962 6.55 395,456 25,204 6.37 381,994 21,917 5.74
Other interest-earning assets... 14,214 901 6.34 12,203 818 6.70 10,882 654 6.01
-------- ------- -------- ------- -------- -------
Total interest-earning assets 672,184 48,216 7.17 630,840 44,653 7.08 557,147 34,940 6.27
------- ------- -------
Noninterest-earning assets:
Office properties and equipment,
net......................... 2,805 2,859 2,384
Real estate, net................ 58 106 300
Other noninterest-earning assets 14,277 13,169 11,645
-------- -------- --------
Total assets................ $689,324 $646,974 $571,476
======== ======== ========
Interest-bearing liabilities:
Interest-bearing deposits and
escrow...................... $331,435 14,428 4.35 $334,225 14,721 4.40 $296,438 11,198 3.78
FHLB advances................... 282,750 17,354 6.14 241,191 14,893 6.17 211,165 10,660 5.05
Other borrowings................ 14,171 847 5.98 9,802 605 6.17 5,970 301 5.04
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities............. 628,356 32,629 5.19 585,218 30,219 5.16 513,573 22,159 4.31
------- ------- -------
Noninterest-bearing liabilities:
Noninterest-bearing deposits.... 3,855 3,415 2,862
Other liabilities............... 5,401 5,026 4,797
-------- -------- --------
Total liabilities........... 637,612 593,659 521,232
Stockholders' equity........ 51,712 53,315 50,244
-------- -------- --------
Total liabilities and
stockholders' equity..... $689,324 $646,974 $571,476
======== ======== ========
Net interest income (3)............ $15,587 $14,434 $12,781
======= ======= =======
Interest rate spread............... 1.98% 1.92% 1.96%
==== ==== ====
Net interest margin ............... 2.32% 2.29% 2.29%
==== ==== ====
</TABLE>
(1) At December 31, 1996, the weighted average yields and rates were as
follows: total loans, 8.03%; interest-earning deposits, 5.39%; investment
securities, 7.85%; mortgage-backed securities, 6.72%; other
interest-earning assets, 6.25%; total interest-earning assets, 7.30%;
interest-bearing deposits and escrow, 4.35%; FHLB advances, 6.09%; other
borrowings, 5.57%; total interest-bearing liabilities, 5.18%; and interest
rate spread, 2.12%.
(2) Does not include interest on loans 90 days or more past due.
(3) Investment securities interest and yields are shown on a fully tax
equivalent basis.
(4) Includes investment securities classified as available for sale.
(5) Includes mortgage-backed securities classified as available for sale.
-8-
<PAGE>
The following table sets forth the effects of changing rates and volumes
on net interest income of the Company. Information is provided with respect to
(i) effects on interest income attributable to changes in volume (changes in
volume multiplied by prior rate); and (ii) effects on interest income
attributable to changes in rate (changes in rate multiplied by prior volume).
The changes in both rate and volume have been allocated to the change in rate
or the change in volume based upon their respective percentages of their
combined totals.
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
------------------------------- -------------------------------
RATE VOLUME NET RATE VOLUME NET
---- ------ --- ---- ------ ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) ........................................ $(1,044) $ 2,070 $ 1,026 $ 844 $ 3,693 $ 4,537
Interest-earning deposits ....................... (62) 4 (58) 160 (230) (70)
Investment securities(2) ........................ 156 4,598 4,754 152 1,643 1,795
Mortgage-backed securities(3) ................... 667 (2,909) (2,242) 2,494 793 3,287
Other interest-earning assets ................... (46) 129 83 80 84 164
------- ------- ------- ------- ------- -------
Total net change in income on
interest-earning assets ..................... (329) 3,892 3,563 3,730 5,983 9,713
------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Interest-bearing deposits and escrow (171) (122) (293) 1,993 1,530 3,523
FHLB advances ................................... (90) 2,551 2,461 2,585 1,648 4,233
Other borrowings(4) ............................. (20) 262 242 78 226 304
------- ------- ------- ------- ------- -------
Total net change in expense on
interest-bearing liabilities ................ (281) 2,691 2,410 4,656 3,404 8,060
------- ------- ------- ------- ------- -------
Net change in net interest income .................. $ (48) $ 1,201 $ 1,153 $ (926) $ 2,579 $ 1,653
======= ======= ======= ======= ======= =======
</TABLE>
(1) Does not include interest on loans 90 days or more past due.
(2) Includes investment securities classified as available for sale.
(3) Includes mortgage-backed securities classified as available for sale.
(4) See "Business - Sources of Funds - Borrowings" for a discussion of the
treasury tax and loan note.
The Company's net interest income increased by $1.3 million or 9.8% in
1995 and by $144,000 or 1.0% in 1996. The increase in 1995 was a result of a
$9.3 million or 26.7% increase in total interest income, which offset an
increase of $8.1 million or 36.4% in total interest expense. The increase in
total interest income was primarily attributable to increases in the average
balances of loans and investment securities, and an 81 basis point increase in
the weighted average yield earned on total interest-earning assets. The
increase in total interest expense was due primarily to an 85 basis point
increase in the weighted average rate paid on total interest-bearing
liabilities and an increase in the average balance of total interest-bearing
liabilities. The increase in 1996 was a result of a $2.6 million or 5.8%
increase in total interest income which offset an increase of $2.4 million or
8.0% in total interest expense. The increase in total interest income was
primarily attributed to increases in the average balances of investment
securities and loans. The increase in total interest expense was due primarily
to an increase in the average balance of FHLB advances.
INTEREST INCOME. Interest on loans increased by $4.5 million or 42.7% in
1995 and by $1.0 million or 6.8% in 1996. The increase in 1995 was primarily
attributable to an increase of $43.3 million in the average balance of loans
outstanding, which was a result of $64.5 million in loan originations and
purchases during the year. The increase in 1996 was primarily attributable to
an increase of $25.1 million in the average balance of loans outstanding, which
was a result of $89.2 million in loan originations and purchases during the
year.
Interest on mortgage-backed securities (including mortgage-backed
securities available for sale) increased $3.3 million or 15.0% in 1995 and
decreased by $2.2 million or 8.9% in 1996. The increase in 1995 was primarily
due to an increase of 63 basis points in the weighted average yield earned on
mortgage-backed securities and, to a lesser extent, a $13.5 million increase in
the average balance of mortgage-backed securities. The average yield earned on
mortgage-backed securities increased due to the general increase in short-term
interest rates. The increase in the average balance of mortgage-backed
securities in 1995 reflected the purchases of mortgage-backed securities
discussed under - "Asset and Liability Management". During the 12 months ended
December 31, 1995, the Company purchased $72.3 million of additional
mortgage-backed securities (including mortgage-backed securities available for
sale), consisting primarily of Federal National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation ("FHLMC") and Government National
Mortgage Association ("GNMA") mortgage participation certificates. On December
1, 1995, the Company reclassified $8.1 million of investment securities held to
maturity to investment securities available for sale, as well as $184.9 million
of mortgage-backed securities held to maturity to mortgage-backed securities
available for sale. The reclassification was in accordance with the Financial
Accounting Standards Board ("FASB") issuing a special report "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" that permitted this one-time reassessment. At December
31, 1995, the Company had classified $286.9 million of its mortgage-backed
securities as available for sale. The Company has classified such securities as
available for sale due to expected changes in interest rates, resultant
prepayment risk and other factors related to interest rate or prepayment risk.
The Company has occasionally sold securities from its available for sale
portfolio in accordance with its asset and liability management strategies. The
decrease in interest on mortgage-backed securities in 1996 was primarily due to
a decrease of $44.7 million in the average balance of mortgage-backed securites
which was the result of the cash flows from the portfolio being utilized to
fund the increase in loan originations and the purchase of investment
securities. At December 31, 1996, the Company classified $259.4 million of its
mortgage-backed securities as available for sale. The Company has classified
such securities as available for sale due to expected interest rate changes,
resultant prepayment risk and other factors related to interest rate or
prepayment risk. The Company has occasionally sold securities from its
available for sale portfolio in accordance with its asset and liability
management strategies.
-9-
<PAGE>
Interest and dividends on investment securities (including investment
securities available for sale) and other interest-earning assets (consisting
primarily of U.S. government and agency obligations, corporate and municipal
obligations, interest-earning deposits and FHLB of Pittsburgh stock) increased
by $1.5 million or 63.5% in 1995 and by $3.8 million or 98.6% in 1996. The
increase in 1995 primarily resulted from an increase of $16.9 million in the
average balance of investment securities and other interest-earning assets
(primarily FHLB of Pittsburgh stock). The increase in 1996 was primarily due to
an increase of $58.8 million in the average balance of investment securities.
The increase was primarily the result of the purchase of $43.9 million of
callable U.S. Goverment agency securities, consisting of FHLMC, FNMA and FHLB
securities, and $32.5 million of municipal obligations during 1996.
INTEREST EXPENSE. Interest expense on deposits, the largest component of
the Company's interest-bearing liabilities, increased by $3.5 million or 31.5%
in 1995 and decreased by $293,000 or 2.0% in 1996. The increase in 1995 was
primarily due to a 62 basis point increase in the weighted average rate paid on
interest-bearing deposits and, to a lesser extent, by an increase of $37.8
million in the average balance of interest-bearing deposits. The increase in
the average balance of deposits during 1995 was primarily the result of the
acquisition of $114.2 million of deposits in connection with the acquisition of
Economy Savings in 1994. The average rate paid on interest-bearing deposits
increased due to the general increase in short-term interest rates. The
decrease in 1996 was due to a 5 basis point decrease in the weighted average
rate paid on interest-bearing deposits and, to a lesser extent, by a decrease
of $2.8 million in the average balance of interest-bearing deposits. The
decreases in the average rate paid and the average balance on interest-bearing
deposits were primarily the result of the decline in interest rates offered by
the Savings Bank on its deposit accounts.
Interest on borrowings (consisting of advances from the FHLB of
Pittsburgh, treasury tax and loan note payable and reverse repurchase
agreements) increased in 1995 by $4.5 million or 41.4% and by $2.7 million or
17.4% in 1996. The increase in 1995 was primarily due to an increase of 112
basis points in the weighted average rate paid on the Company's borrowed funds.
The average rate paid on borrowed funds increased in 1995 due to the general
increase in short-term interest rates. The increase in 1995 was also, to a
lesser extent, due to an increase of $30.0 million in the average balance of
FHLB advances which were utilized to fund, in part, the purchase of $131.0
million of mortgage-backed and investment securities. The increase in 1996 was
primarily due to an increase of $41.6 million in the average balance of FHLB
advances which were utilized to purchase $174.0 million in mortgage-backed and
investment securities. The purchases of mortgage-backed and investment
securities during 1995 and 1996 were funded at positive interest rate spreads
through short-term advances from the FHLB of Pittsburgh.
PROVISIONS FOR POSSIBLE LOSSES ON LOANS. Provisions for possible losses
on loans 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 the Company, the status of past due principal
and interest payments, general economic conditions, particularly as they relate
to the Company's market area, and other factors related to the collectibility
of the Company's loan portfolio.
PennFirst recorded provisions for possible losses on loans of $41,000 ,
$13,000 and $873,000 in 1994, 1995 and 1996, respectively. The provision in
1994 was due to specific provisions relating to single-family residential
mortgages and personal line of credit loans. The provision in 1995 was due to
specific provisions relating to single-family home equity loans. The provision
in 1996 was due to an increase in general reserve provisions relating to
financing lease loans as discussed in greater detail below. At December 31,
1996, the Company's total allowance for loan losses amounted to $3.3 million or
1.46% of the Company's total loan portfolio and 81.0% of the Company's total
nonperforming loans.
The Company's nonperforming assets increased during 1996 as a result of
the Company placing $3.6 million of financing leases on nonaccrual status
during the first quarter of 1996. These leases were all originated by, serviced
by and financially guaranteed by Bennett Funding Group and affiliates which
have filed for Chapter 11 bankruptcy. As a result of the disruption of payment
flows and the uncertainty regarding the status of the servicer, the Savings
Bank has classified all $3.6 million of the leases as substandard, categorizing
them as nonperforming and increased the Company's loss reserves to 25 percent
of the aggregate balance of the lease agreements based on the substandard
classification. There can be no assurance that additional losses will not be
incurred in connection with the lease agreements. The Company continues to
closely monitor the situation. As a result of the leases, the Company increased
the provision for possible losses on loans by $860,000 in 1996.
NONINTEREST INCOME. The Company's noninterest income decreased by $65,000
or 6.4% in 1995 and by $113,000 or 11.9% in 1996. The decreases in 1995 and
1996 were primarily the result of a $86,000 and a $89,000 decline in gain on
sale of securities available for sale, during the respective periods. The sales
of such securities are discussed in greater detail below.
Fees and service charges increased by $37,000 or 4.6% in 1995 and
decreased by $28,000 or 3.3% in 1996. The increase in 1995 was primarily due to
an increase in fees earned on NOW accounts and, to a lesser extent, an increase
in loan origination fees earned on construction loans. The decrease in 1996 was
primarily due to a decrease in loan origination fees earned on construction
loans.
The $54,000 gain on sale of securities available for sale (including
mortgage-backed and investment securities) recognized during 1995 was the
result of the sale of approximately $67.8 million of such securities within the
Company's available for sale portfolio during 1995. The Company's management
decided upon review of the securities within its available for sale portfolio
that, due to a projected increase in prepayment speeds on certain fixed and
adjustable-rate mortgage-backed securities, it was in the Company's best
interest to sell such securities within its portfolio. The proceeds from the
sale were primarily invested in adjustable rate mortgage-backed securities and
tax-exempt municipal obligations. The $35,000 loss on sale of securities
available for sale recognized during 1996 was the result of the sale of $86.5
million of mortgage-backed and investment securities within its available for
sale portfolio during 1996. The proceeds
-10-
<PAGE>
from the sale were invested in fixed-rate mortgage-backed securities that have
expected weighted average lives of between three and seven years and callable
U.S. Government agency securities with maturities exceeding five years. The
securities sold during 1996 displayed similar characteristics to those that
were sold during 1995.
Miscellaneous other income decreased by $16,000 or 25.4% in 1995 and
increased by $4,000 or 8.5% in 1996. The decrease in 1995 was due primarily to
a decline in income associated with the Savings Bank's subsidiary, AMSCO, Inc.
("AMSCO"). The increase during 1996 was due primarily to a fee paid to the
Savings Bank as a result of granting a right of way that was adjacent to a
branch facility and, to a lesser extent, from income associated with AMSCO.
AMSCO is involved in a 50% partnership with a local developer for the purpose
of developing raw land into lots and the construction of single-family
residences.
NONINTEREST EXPENSE. Noninterest expense increased by $1.6 million or
21.7% in 1995 and by $1.6 million or 17.6% in 1996. The increase in 1995 was
attributed to: (1) an increase in professional and legal fees associated with
litigation matters; (2) an increase in salaries and personnel costs; and (3) an
increase in premises and occupancy costs. The increase for 1996 was
attributable to the one-time special SAIF assessment.
Salaries and personnel costs, which represent the largest component of
the Company's recurring noninterest expense, increased by $377,000 or 10.1% in
1995 and by $189,000 or 4.6% in 1996. The increase in 1995 was primarily
attributable to an increase of $345,000 in expenses relating to the operations
of Economy Savings and, to a lesser extent, normal salary increases and
staffing changes. The increase in 1996 was primarily due to normal salary
increases and staffing changes. The average number of full-time equivalent
employees was 107.8, 109.0 and 109.2 at the end of 1994, 1995 and 1996,
respectively.
Premises and occupancy costs increased by $122,000 or 14.6% in 1995 and
by $15,000 or 1.6% in 1996. The increase in 1995 was primarily due to an
increase of $64,000 in expenses relating to the operations of Economy Savings
and, to a lesser extent, an increase in repair and maintenance costs of the
Savings Bank's branch facilities. The increase in 1996 was primarily due to an
increase in repair and maintenance costs of the Savings Bank's branch
facilities.
Federal insurance premiums increased by $91,000 or 13.5% in 1995 and by
$7,000 or 0.9% in 1996. Federal insurance premiums are a function of the size
of the Company's deposit base and premiums which were assessed by the FDIC
during the respective years. The increase in 1995 was primarily due to the
$114.2 million in deposits acquired in 1994 in connection with the Company's
acquisition of Economy Savings.
In 1996, the Savings Bank accrued and paid a non-recurring charge or
one-time special SAIF assessment of $2.2 million ($1.3 million net of taxes).
The assessment consisted of a one-time charge of 65.7 cents for every $100 of
SAIF insured deposits held at March 31, 1995 by the Savings Bank. The
assessment will be used to recapitalize the SAIF allowing federal insurance
premiums going forward to be reduced to approximately $.06 per $100 from $.23
per $100. The Savings Bank estimates a pretax annual savings going forward of
approximately $550,000.
Data processing costs increased by $7,000 or 2.0% in 1995 and by $11,000
or 3.1% in 1996. The increase during 1995 was primarily due to expenses
associated with the acquisition of Economy Savings. The increase in 1996 was
primarily due to an increase in processing charges.
Advertising expenses increased by $1,000 or 0.5% in 1995 and decreased by
$15,000 or 8.0% in 1996. The increase in 1995 was nominal. The decrease in 1996
was primarily due to the absence of costs associated with a marketing program
initiated during 1995.
PennFirst experienced gains on real estate owned of $123,000 in 1994,
$58,000 in 1995 and no gain or loss in 1996. The gain realized during 1994 was
primarily due to a recovery of $115,000 from the former owners of a real estate
owned property located in Carnegie, Pennsylvania. This property was sold in
July 1993. The gain realized during 1995 was primarily due to a $58,000 gain
recognized on the sale of a commercial real estate property. As of December 31,
1996, the Company's real estate owned amounted to $37,000.
Miscellaneous other expenses, which consist primarily of professional
fees, forms, supplies, bank charges, postage, insurance expenses,
organizational dues, ATM expenses, amortization of intangible assets, net
carrying costs associated with real estate owned and provisions for losses on
fixed assets, increased by $935,000 or 54.6% in 1995 and decreased by $888,000
or 33.5% in 1996. The increase in 1995 was primarily due to: (1) $146,000 in
expenses associated with the operations of Economy Savings, which included
$90,000 of amortization expense related to the core deposit intangible acquired
in connection with the acquisition of Economy Savings; and (2) increases in
professional legal fees associated with litigation matters. The decrease for
1996 was primarily due to: (1) $283,000 recovery relating to litigation
expenses incurred in prior periods, as the amount of the settlement recorded in
the first half of 1996 was less than those expenses originally estimated; and
(2) a decrease in professional legal fees associated with litigation matters.
INCOME TAXES. The Company recorded a provision for income taxes of $2.5
million, $2.0 million and $703,000 during 1994, 1995 and 1996, respectively.
The effective tax rate decreased from a rate of 38.9% in 1994 to a rate of
33.1% in 1995 and then to a rate of 19.9% in 1996. The decrease in income tax
expense in 1995 was primarily due to: (1) the decrease in income before income
taxes; and (2) the purchase of $45.6 million in municipal obligations during
1995, which are exempt from federal income taxes. The decrease in income tax
expense in 1996 was primarily due to the decrease in income before income taxes
caused by the one-time special SAIF assessment of $2.2 million.
-11-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The consolidated assets of PennFirst totaled $698.7 million at December
31, 1996 as compared to $659.4 million at December 31, 1995. The $39.4 million
or 6.0% increase in total assets was due primarily to an increase of $33.0
million in net loans receivable. The Company's total consolidated liabilities
increased by $42.7 million or 7.1% primarily as a result of an increase of
$49.7 million in the Company's borrowed funds.
Total consolidated stockholders' equity as of December 31, 1996 was $51.5
million, a decrease of $3.4 million or 6.2% when compared to total consolidated
stockholders' equity at December 31, 1995. The decrease was primarily a result
of cash dividends declared of $3.3 million (which incudes a special cash
dividend of $.50 per share), the purchase of $3.0 million of Treasury Stock and
a $1.1 million decline in the unrealized gain on securities available for sale,
which was partially offset by net income of $2.8 million.
The Savings Bank currently exceeds all regulatory capital requirements,
having a tangible and risk-based capital ratio of 6.11% and 19.08% at December
31, 1996, respectively. As a result, regulatory capital requirements should
have no material impact on operations. See note 22 of Notes to Consolidated
Financial Statements.
The Savings Bank is required under applicable federal regulations to
maintain specified levels of "liquid" investments including United States
government and federal agency securities and other investments. Regulations
currently in effect require thrifts to maintain liquid assets of not less than
5% of its net withdrawable accounts plus short-term borrowings ("liquidity
base") of which short-term liquid assets must consist of not less than 1%.
These levels are changed from time to time by the OTS to reflect economic
conditions. The Savings Bank's liquidity has recently been influenced by
general economic conditions, financial market conditions and fluctuations in
the interest rates and products offered by competing entities. Although the
Savings Bank has consistently maintained liquidity well in excess of OTS
requirements, the restructuring of the asset portfolio has generally reduced
the Savings Bank's overall liquidity. At December 31, 1996, the level of the
Savings Bank's liquid assets as a percentage of the liquidity base was 11.4%.
PennFirst's primary source of funds generally has been deposits obtained
through the Savings Bank's offices and, to a lesser extent, amortization and
prepayments of outstanding loans, maturing investment securities and borrowings
from the FHLB of Pittsburgh. During the year ended December 31, 1996, the
Company used its sources of funds primarily to purchase mortgage-backed
securities, fund loan commitments and, to a lesser extent, purchase investment
securities. At December 31, 1996, ESB had outstanding commitments to purchase
mortgage-backed securities totaling $8.7 million and no outstanding commitments
to purchase investment securities. As of such date, ESB had outstanding loan
commitments totaling $24.1 million and $6.4 million of undisbursed loans in
process.
At December 31, 1996, savings certificates amounted to $190.0 million or
57.1% of the Company's total consolidated deposits, including $121.8 million
which are scheduled to mature by December 31, 1997. At the same date, the total
amount of FHLB advances scheduled to mature by December 31, 1997 was $158.3
million. The Company's management believes that it has adequate resources to
fund all of these commitments, that all of these commitments will be funded by
December 31, 1997 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.
The Company's nonperforming assets totaled $4.1 million at December 31,
1996 or 0.6% of total assets. Nonperforming assets consist of nonaccrual loans
and real estate owned. A loan is placed on nonaccrual when such loan becomes
ninety days or more delinquent. Management can also place a loan on nonaccrual
based on factors other than delinquency. Nonperforming assets at December 31,
1996 consisted primarily of $285,000 in single-family loans, $163,000 in
consumer loans, $3.6 million in financing leases and other commercial business
loans and $37,000 in real estate owned, net of reserves. Nonperforming assets
at December 31, 1995 totaled $851,000 or 0.1% of total assets and consisted
primarily of $599,000 in single-family loans, $86,000 in consumer loans,
$114,000 in commercial business loans and $52,000 in real estate owned, net of
reserves. Nonperforming assets totaled $2.6 million at December 31, 1994 or
0.4% of total assets and consisted primarily of $668,000 in single-family
loans, $1.5 million in multi-family residential and commercial real estate
loans, $104,000 in consumer loans and $294,000 in real estate owned, net of
reserves. Approximately $232,000, $26,000 and $167,000 of additional interest
income would have been recognized in 1996, 1995 and 1994, respectively, if the
Company's nonaccrual loans had been current in accordance with their original
terms and outstanding throughout the years ended December 31, 1996, 1995 and
1994.
-12-
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements of PennFirst and the related notes
presented herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars, without considering changes
in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates. In the current interest rate environment,
liquidity and the maturity structure of PennFirst's assets and liabilities are
critical to the maintenance of acceptable performance levels.
RECENT ACCOUNTING AND REGULATORY DEVELOPMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, which will be
effective, 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 that focuses
on control. SFAS No. 125 extends the "available for sale" and "trading"
approach of SFAS No. 115 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 to 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. Management has not yet determined the effect, if any, SFAS Nos.
125 and 127 will have on the Company's financial statements.
On September 30, 1996, President Clinton signed into law the Deposit
Funds Act of 1996 ("ACT"). Among other things, the Act imposed a one-time
special assessment on deposits insured by the SAIF designed to fully capitalize
the SAIF to the level required by law. The result of this one-time charge was
$2.2 million ($1.3 million net of tax) to the Savings Bank. The Act also
provides for the eventual merger of the SAIF with the Bank Insurance Fund
("BIF") and reallocates payment of Financing Corporation bond obligations to
both SAIF and BIF insured institutions. In addition, the Act contains
prohibitions on insured institutions facilitating or encouraging the migration
of SAIF deposits to the BIF until the end of 1999. As a result of the
recapitalization of the SAIF, deposit insurance premiums will be significantly
reduced beginning in calendar year 1997 for all SAIF insured institutions. This
will have a positive impact on the Savings Bank by reducing its deposit
insurance premiums from $.23 per $100 in deposits to approximately $.06 per
$100, resulting in annual premium savings of approximately $550,000 before
taxes.
-13-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
ASSETS 1996 1995
--------- ---------
<S> <C> <C>
Cash on hand and due from banks ........................................................... $ 1,884 $ 2,195
Interest-earning deposits in other institutions ........................................... 5,244 4,448
Federal funds sold ........................................................................ 156 151
Investment securities held to maturity, at cost (market value
of $17,849 and $20,916) (notes 2 and 11) .............................................. 18,082 20,757
Investment securities available for sale, at market
(cost of $88,823 and $42,733) (notes 3 and 11)......................................... 88,687 43,932
Mortgage-backed securities held to maturity, at cost
(market value of $75,712 and $89,806) (notes 4 and 11) ................................ 78,118 91,173
Mortgage-backed securities available for sale, at market
(cost of $259,101 and $286,273) (notes 5 and 11) ...................................... 259,442 286,921
Loans receivable, (net of unearned income of $380 and $467) (notes 6 and 11) .............. 220,174 186,349
Less allowance for loan losses (note 6) ................................................... 3,309 2,471
--------- ---------
Loans receivable, net ................................................................. 216,865 183,878
Accrued interest receivable (notes 2, 3, 4, 5 and 6) ...................................... 5,557 4,651
Real estate owned, net (note 7) ........................................................... 37 52
Federal Home Loan Bank stock, at cost (notes 8 and 11) .................................... 15,153 12,473
Office properties and equipment, at cost, less accumulated depreciation
and amortization (note 9) ............................................................. 2,740 2,841
Prepaid expenses and sundry assets ........................................................ 6,770 5,899
--------- ---------
Total assets ...................................................................... $ 698,735 $ 659,371
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings deposits (note 10):
Noninterest-bearing ............................................................... $ 5,082 $ 3,776
Interest-bearing demand, passbook and money market ................................ 137,807 139,561
Certificate of deposit and other time ............................................. 190,000 195,157
--------- ---------
Total deposits ................................................................ 332,889 338,494
Advances by borrowers for taxes and insurance (note 10) ............................... 1,855 1,808
Borrowed funds (note 11) .............................................................. 309,195 259,472
Accrued expenses and other liabilities ................................................ 3,253 4,671
--------- ---------
Total liabilities ............................................................. 647,192 604,445
--------- ---------
Commitments and contingencies (notes 9,17, 23 and 24)
Stockholders' equity (notes 13, 14, 15, 19, 20 and 22):
Preferred stock:
5,000,000 shares, $.01 par value per share, authorized; none issued and outstanding - -
Common stock:
at December 31, 1996 and 1995, 10,000,000 shares,
$.01 par value per share, authorized; 4,364,023 shares issued ................. 44 44
Additional paid-in capital ............................................................ 26,465 26,045
Retained income, substantially restricted ............................................. 31,990 33,706
Unrealized gain on securities available for sale, net ................................. 136 1,219
Unearned Employee Stock Ownership Plans shares ........................................ (1,136) (1,205)
Treasury stock, at cost (462,243 and 375,949 shares) .................................. (5,956) (4,883)
--------- ---------
Total stockholders' equity ................................................... 51,543 54,926
--------- ---------
Total liabilities and stockholders' equity ................................... $ 698,735 $ 659,371
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-14-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest income:
Loans ............................................................................. $ 16,182 $ 15,156 $ 10,619
Investment securities held to maturity (note 2) ................................... 1,482 2,065 1,559
Investment securities available for sale (note 3) ................................. 5,209 940 125
Mortgage-backed securities held to maturity ....................................... 4,934 17,543 15,549
Mortgage-backed securities available for sale ..................................... 18,029 7,661 6,367
Federal Home Loan Bank stock ...................................................... 901 818 654
-------- -------- --------
Total interest income ......................................................... 46,737 44,183 34,873
-------- -------- --------
Interest expense:
Savings deposits and escrow (note 10) ............................................. 14,428 14,721 11,198
Borrowed funds .................................................................... 18,201 15,498 10,961
-------- -------- --------
Total interest expense ........................................................ 32,629 30,219 22,159
-------- -------- --------
Net interest income .................................................................. 14,108 13,964 12,714
Provision for possible losses on loans (note 6) ...................................... 873 13 41
-------- -------- --------
Net interest income after provision for possible losses on loans ..................... 13,235 13,951 12,673
Noninterest income:
Fees and service charges .......................................................... 817 845 808
Gain (loss) on sale of investment and mortgage-backed securities available for sale (35) 54 140
Other income ...................................................................... 51 47 63
-------- -------- --------
Total noninterest income ...................................................... 833 946 1,011
-------- -------- --------
Noninterest expenses:
Salaries and personnel costs (note 14) ............................................ 4,296 4,107 3,730
Premises and occupancy costs ...................................................... 974 959 837
Federal insurance premiums ........................................................ 774 767 676
Special SAIF assessment ........................................................... 2,196 - -
Data processing costs ............................................................. 363 352 345
Advertising ....................................................................... 173 188 187
Gain on real estate owned ......................................................... - (58) (123)
Other ............................................................................. 1,759 2,647 1,712
-------- -------- --------
Total noninterest expenses .................................................... 10,535 8,962 7,364
-------- -------- --------
Income before income taxes .................................................... 3,533 5,935 6,320
-------- -------- --------
Income taxes (note 12):
Federal ........................................................................... 532 1,696 2,060
State ............................................................................. 171 271 401
-------- -------- --------
Total income taxes ............................................................ 703 1,967 2,461
-------- -------- --------
Net income .................................................................... $ 2,830 $ 3,968 $ 3,859
======== ======== ========
Primary and fully diluted earnings per share ...................................... $ .71 $ .94 $ .91
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-15-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL UNEARNED UNVESTED
COMMON PAID-IN ESOP SHARES HELD
STOCK CAPITAL SHARES BY THE MRP
----- ------- ------ ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993............... $27 $11,467 $ (173) $(25)
--- ------- -------- ----
Common stock issued as a result of the
acquisition of ESB Bancorp, Inc. ...... 10 14,534 (145) -
Principal payments on ESOP debt............ - 6 130 -
Additional shares acquired for ESOP ....... - - (1,000) -
Accrued compensation expense for
the MRP................................ - - - 13
Cash dividends declared on Common
Stock at $.28 per share................ - - - -
Unrealized loss on securities
available for sale, net................ - - - -
Adjustment as a result of a six-for-five
stock split of the Company's
common stock (note 15)................. 7 (7) - -
Payment of cash in lieu of
fractional shares relating to a
six-for-five stock split............... - (10) - -
Purchase of Treasury Stock, at
cost (15,829 shares)................... - - - -
Common stock issued from Treasury
Stock for options exercised
(1,592 shares)......................... - - - -
1994 Net income............................ - - - -
--- ------- -------- ----
Balance at December 31, 1994............... 44 25,990 (1,188) (12)
--- ------- -------- ----
Principal payments on ESOP debt............ - 10 215 -
Additional shares acquired for ESOP........ - - (232) -
Accrued compensation expense for
the MRP................................ - - - 12
Cash dividends declared on Common
Stock at $.36 per share................ - - - -
Unrealized gain on securities
available for sale, net................ - - - -
Purchase of Treasury Stock, at
cost (374,712 shares).................. - - - -
Tax benefit from exercised options......... - 45 - -
Common stock issued from Treasury
Stock for options exercised
(13,000 shares)........................ - - - -
1995 Net income............................ - - - -
--- ------- -------- ----
Balance at December 31, 1995............... 44 26,045 (1,205) -
--- ------- -------- ----
Principal payments on ESOP debt............ - 11 215 -
Additional shares acquired for ESOP........ - - (146) -
Cash dividends declared on Common
Stock at $.86 per share................ - - - -
Unrealized loss on securities
available for sale, net................ - - - -
Purchase of Treasury Stock, at
cost (232,979 shares).................. - - - -
Tax benefit from exercised options......... - 409 - -
Common stock issued from Treasury
Stock for options exercised
(146,685 shares)....................... - - - -
1996 Net income............................ - - - -
--- ------- -------- -----
Balance at December 31, 1996............... $44 $26,465 $ (1,136) $ -
=== ======= ======== =====
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED GAIN
(LOSS) ON SECURITIES TOTAL
RETAINED TREASURY AVAILABLE STOCKHOLDERS'
INCOME STOCK FOR SALE, NET EQUITY
------- ------- ------------ -------
<S> <C> <C> <C> <C>
Balance at December 31, 1993............... $28,803 $ - $ - $40,099
------- ------- --------- -------
Common stock issued as a result of the
acquisition of ESB Bancorp, Inc. ...... - - - 14,399
Principal payments on ESOP debt............ - - - 136
Additional shares acquired for ESOP ....... - - - (1,000)
Accrued compensation expense for
the MRP................................ - - - 13
Cash dividends declared on Common
Stock at $.28 per share................ (1,361) - - (1,361)
Unrealized loss on securities
available for sale, net................ - - (3,524) (3,524)
Adjustment as a result of a six-for-five
stock split of the Company's
common stock (note 15)................. - - - -
Payment of cash in lieu of
fractional shares relating to a
six-for-five stock split............... - - - (10)
Purchase of Treasury Stock, at
cost (15,829 shares)................... - (219) - (219)
Common stock issued from Treasury
Stock for options exercised
(1,592 shares)......................... (7) 22 - 15
1994 Net income............................ 3,859 - - 3,859
------- ------- --------- -------
Balance at December 31, 1994............... 31,294 (197) (3,524) 52,407
------- ------- --------- -------
Principal payments on ESOP debt............ - - - 225
Additional shares acquired for ESOP........ - - - (232)
Accrued compensation expense for
the MRP................................ - - - 12
Cash dividends declared on Common
Stock at $.36 per share................ (1,440) - - (1,440)
Unrealized gain on securities
available for sale, net................ - - 4,743 4,743
Purchase of Treasury Stock, at
cost (374,712 shares).................. - (4,866) - (4,866)
Tax benefit from exercised options......... - - - 45
Common stock issued from Treasury
Stock for options exercised
(13,000 shares)........................ (116) 180 - 64
1995 Net income............................ 3,968 - - 3,968
------- ------- --------- -------
Balance at December 31, 1995............... 33,706 (4,883) 1,219 54,926
------- ------- --------- -------
Principal payments on ESOP debt............ - - - 226
Additional shares acquired for ESOP........ - - - (146)
Cash dividends declared on Common
Stock at $.86 per share................ (3,307) - - (3,307)
Unrealized loss on securities
available for sale, net................ - - (1,083) (1,083)
Purchase of Treasury Stock, at
cost (232,979 shares).................. - (2,983) - (2,983)
Tax benefit from exercised options......... - - - 409
Common stock issued from Treasury
Stock for options exercised
(146,685 shares)....................... (1,239) 1,910 - 671
1996 Net income............................ 2,830 - - 2,830
------- ------- --------- -------
Balance at December 31, 1996............... $31,990 $(5,956) $ 136 $51,543
======= ======= ========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-16-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income .................................................................... $ 2,830 $ 3,968 $ 3,859
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ............................................. 402 422 356
Provisions for loan and REO losses ........................................ 881 25 55
Amortization of premium and accretion of discounts ........................ 930 678 1,417
(Gain) loss on sale of securities available for sale ...................... 35 (54) (140)
Increase in accrued interest receivable ................................... (906) (624) (524)
(Increase) decrease in prepaid and sundry assets .......................... (871) 163 (200)
Increase (decrease) in accrued interest payable ........................... (11) 263 303
Increase (decrease) in other liabilities .................................. (392) 339 767
Other ..................................................................... 99 59 (120)
--------- --------- ---------
Net cash provided by operating activities ......................... 2,997 5,239 5,773
--------- --------- ---------
Cash flows from investing activities:
Loans originated and purchased ................................................ (89,236) (64,484) (60,025)
Purchases of:
Investment securities held to maturity .................................... (8,489) (10,000) (22,375)
Investment securities available for sale .................................. (68,112) (48,630) (1,986)
Mortgage-backed securities held to maturity ............................... - (6,819) (160,291)
Mortgage-backed securities available for sale ............................. (97,406) (65,521) (20,755)
Fixed assets .............................................................. (301) (651) (298)
FHLB stock ................................................................ (2,680) (535) (2,895)
Principal repayments of:
Loans ..................................................................... 55,213 41,326 42,435
Investment securities held to maturity .................................... 11,171 6,406 1,410
Investment securities available for sale .................................. 1,650 - -
Mortgage-backed securities held to maturity ............................... 12,618 38,232 36,325
Mortgage-backed securities available for sale ............................. 57,795 22,548 33,754
Proceeds from sale of:
Loans ..................................................................... 274 977 80
Investment securities available for sale .................................. 20,729 17,723 22,471
Mortgage-backed securities available for sale ............................. 65,736 50,071 36,554
Fixed assets .............................................................. - 218 72
Real estate owned ......................................................... 56 371 131
Purchase of ESB Bancorp, Inc. net of cash acquired ........................ - - 2,956
--------- --------- ---------
Net cash used by investing activities ............................. (40,982) (18,768) (92,437)
--------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in NOW, money market demand, passbook and club accounts (448) 307 (7,876)
Net increase (decrease) in certificates of deposits ........................... (5,157) 4,362 20,888
Net increase other borrowed funds ............................................. 49,723 13,036 79,946
Proceeds received from the exercise of stock options .......................... 671 64 15
Cash dividends paid on common stock ........................................... (3,400) (1,489) (1,238)
Purchase of treasury stock .................................................... (2,983) (4,866) (219)
Additional stock purchased by ESOP ............................................ (146) (232) (1,000)
Principal repayment of ESOP debt .............................................. 215 215 130
--------- --------- ---------
Net cash provided by financing activities ......................... 38,475 11,397 90,646
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ............................. 490 (2,132) 3,982
Cash and cash equivalents at beginning of year ................................... 6,794 8,926 4,944
--------- --------- ---------
Cash and cash equivalents at end of year ......................................... $ 7,284 $ 6,794 $ 8,926
========= ========= =========
Supplemental schedule of noncash investing and financing activities:
The Company purchased all of the common stock of ESB Bancorp, Inc. for
$26.0 million. In conjunction with the acquisition, the
assets acquired and the liabilities assumed were as follows:
Fair value of assets acquired ......................................... $ - $ - $ 141,834
Stock issued for purchase of ESB Bancorp, Inc. common stock ........... - - (14,399)
Cash paid for ESB Bancorp, Inc. common stock .......................... - - (11,576)
Liabilities assumed ................................................... - - (121,266)
--------- --------- ---------
Excess of liabilities assumed over assets acquired ................ $ - $ - $ (5,407)
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .............................................................. $ 32,684 $ 30,070 $ 21,818
========= ========= =========
Income taxes .......................................................... $ 1,089 $ 1,975 $ 2,075
========= ========= =========
Noncash items:
Foreclosed mortgage loans transferred to real estate owned ........... $ 55 $ 103 $ 121
========= ========= =========
Dividends declared but not paid ....................................... $ 343 $ 353 $ 402
========= ========= =========
Transfer of securities from held to maturity to available for sale .... $ - $ 192,982 $ -
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-17-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of PennFirst Bancorp, Inc. ("PennFirst"
or the "Company"), a thrift holding company, includes the accounts of the
Company and its direct and indirect wholly owned subsidiaries, ESB Bank, F.S.B.
("ESB" or the "Savings Bank"), PennFirst Financial Services, Inc. ("PFSI") and
AMSCO, Inc. ESB was formed as a result of the merger of Economy Savings Bank,
PaSA ("Economy Savings"), with and into Ellwood Federal Savings Bank ("Ellwood
Federal") with the surviving institution changing its name to ESB. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
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 balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and due from banks, interest-earning deposits in other institutions and
federal funds sold.
Investment and Mortgage-Backed Securities
The Company has adopted a methodology for the classification of securities at
the time of their purchase as either held to maturity or available for sale. If
it is management's intent and the Company has the ability to hold such
securities until their maturity, these securities are classified as held to
maturity and are carried on the Company's books at cost, adjusted for
amortization of premium and accretion of discount on a level yield basis.
Alternatively, if it is management's intent at the time of purchase to hold
securities for an indefinite period of time and/or to use such securities as
part of its asset/liability management strategy, the securities are classified
as available for sale and are carried at fair value, with unrealized gains and
losses excluded from net earnings and reported as a separate component of
stockholders' equity, net of tax. Investment and mortgage-backed securities
available for sale include securities which may be sold in response to changes
in interest rates, resultant prepayment risk and other factors related to
interest rate or prepayment risk. Gains and losses on sale of securities are
recorded based on the specific identification method. The Company's
mortgage-backed securities portfolio consists primarily of Federal National
Mortgage Association ("FNMA") mortgage participation certificates, Federal Home
Loan Mortgage Corporation ("FHLMC") mortgage participation certificates and
Government National Mortgage Association ("GNMA") mortgage participation
certificates.
In October 1994, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 119 , "Disclosures
about Financial Instruments and Fair Value of Financial Instruments". The
Company adopted SFAS No. 119 as of January 1, 1995. The adoption of SFAS No.
119 had no material impact to the Company's financial position or results of
operations.
On December 1, 1995, the Company reclassified $8.1 million of investment
securities held to maturity to investment securities available for sale, as
well as $184.9 million of mortgage-backed securities held to maturity to
mortgage-backed securities available for sale. The reclassification was in
accordance with the FASB issuing a special report "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities" that permitted this one-time reassessment.
Loans
Monthly payments on loans are scheduled to include principal and interest.
Interest earned on loans for which no payments were received during the month
is accrued. Interest accrued on loans more than ninety days delinquent or
otherwise doubtful of collection is offset by a reserve for uncollected
interest and is not recognized as income. Loan origination and commitment fees
and all incremental direct loan origination costs are deferred and recognized
over the estimated remaining lives of the related loans on a level yield basis.
Discounts and premiums on loans purchased are accreted and amortized in the
same manner.
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," an amendment of SFAS No. 114, effective
October 1, 1995. These statements address the accounting by creditors for
impairment of certain loans. They apply to all creditors and to all loans,
uncollateralized as well as collateralized, except for large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment. The Savings Bank considers all one-to-four family residential
mortgage loans and all installment loans (as presented in note 6) to be smaller
homogeneous loans. Loans within the scope of these statements are considered
impaired when, based on current information and events, it is probable that all
principal and interest will not be collected in accordance with the
contractural terms of the loans. Management determines the impairment of loans
based on knowledge of the borrower's ability to repay the loan according to the
contractural agreement,
-18-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
the borrower's repayment history and the fair value of collateral for certain
collateral dependent loans. Pursuant to SFAS No. 114 paragraph 8, management
does not consider an insignificant delay or insignificant shortfall to impair a
loan. Management has determined that a delay less than 90 days will be
considered an insignificant delay. All loans are charged off when management
determines that principal and interest are not collectible. Any excess of the
Savings Bank's recorded investment in the loans over the measured value of the
loans in accordance with SFAS No. 114 are provided for in the allowance for
loan losses. The Savings Bank reviews its loans for impairment on a quarterly
basis.
Real Estate Owned
Real estate owned is carried at the lower of cost or estimated fair value less
estimated cost to sell at the date of acquisition. The carrying value of
individual properties is subsequently adjusted by means of an allowance account
for declines in fair value.
Allowances for Losses
Provisions for estimated losses on specific loans and real estate owned are
charged to operations when any significant decline reduces the market value of
the underlying collateral to less than the carrying value. In addition to
provisions for specific loans, a general provision is made for losses on loans
based on loss experience and prevailing market conditions.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for loan losses and real estate owned, management obtains independent
appraisals for significant properties.
Management believes that the allowances for losses on loans and real estate
owned are adequate. While management uses available information to recognize
losses on loans and real estate owned, future additions to the allowances 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 allowances for losses on loans and real
estate owned. Such agencies can require the Company to recognize additions to
the allowances based on their judgements about information available to them at
the time of their examination.
Office Properties and Equipment
Office properties and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed on the straight-line
method over the estimated useful lives of the related assets. Estimated lives
are twenty-five to forty years for buildings and three to ten years for
furniture and equipment. Amortization of leasehold improvements is computed on
the straight-line method over the term of the related lease.
Interest on Savings and Escrow
Interest on savings deposits and certain deposits by borrowers for taxes and
insurance is accrued and charged to expense monthly and is paid or credited in
accordance with the terms of the respective accounts.
Income Taxes
Under the asset and liability method of SFAS No. 109, 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 and operating loss and tax
credit carryforwards. 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. Under SFAS
No. 109, 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.
Earnings Per Share
Primary and fully diluted earnings per share are calculated by dividing net
income by the weighted average number of common shares and common stock
equivalents outstanding. 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". Reported primary per share amounts are based on 3,960,505, 4,228,245
and 4,264,219 common and common stock equivalents for 1996, 1995 and 1994,
respectively. Reported fully diluted per share amounts are based on 3,964,545,
4,233,307 and 4,264,219 common and common stock equivalents for 1996, 1995 and
1994, respectively. The number of shares used to calculate earnings per share
have been restated to reflect the two six-for-five stock splits.
Intangible Assets
Intangible assets, which consist of goodwill and core deposit intangibles, are
amortized to expense using the straight-line method over the period estimated
to be benefited, generally up to fifteen years for book purposes. Intangible
assets are reviewed for possible impairment when events or changed
circumstances may affect the underlying basis of the asset.
-19-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
Caps and Floors
The Company purchases interest rate caps and floors to manage its sensitivity
to interest rate risk. The caps and floors may be designated as a hedge against
certain financial instruments if a high correlation exists between the caps and
floors and the hedged instrument. The cost of caps and floors are recorded in
other assets in the Consolidated Statement of Financial Condition and are
amortized on a straight line basis over the shorter of the contractual life of
the contract or the hedged instrument. Amortization is recorded as an
adjustment of the yield or cost of the hedged instrument. Realized gains and
losses on the sale of a cap or floor designated as a hedge are deferred and
amortized over the life of the hedged instrument as interest revenue or
interest expense or, recognized in earnings at the time of disposition of the
hedged instrument. Hedge correlation of the Company's caps and floors to the
hedged instruments are periodically reviewed. Interest rate caps or floors that
do not meet the criteria for hedge accounting are recorded at estimated fair
value with unrealized gains and losses included in earnings.
Reclassification of Prior Year's Statements
Certain items previously reported have been reclassified to conform with the
current year's reporting format.
(2) INVESTMENT SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------
GROSS GROSS QUOTED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
United States government and agency obligations due:
Beyond 12 months but within 5 years ............. $ 999 $ - $ (18) $ 981
Beyond 5 years but within 10 years .............. 15,498 30 (218) 15,310
Beyond 10 years ................................. 992 - (42) 950
Municipal obligations due:
Within 12 months ................................ 25 - - 25
Beyond 12 months but within 5 years ............. 252 5 - 257
Beyond 5 years but within 10 years .............. 316 11 (1) 326
-------- -------- -------- --------
$ 18,082 $ 46 $ (279) $ 17,849
======== ======== ======== ========
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------
GROSS GROSS QUOTED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
United States government and agency obligations due:
Beyond 12 months but within 5 years ............. $ 5,000 $ - $ (9) $ 4,991
Beyond 5 years but within 10 years .............. 15,000 150 (7) 15,143
Municipal obligations due:
Beyond 12 months but within 5 years ............. 275 9 - 284
Beyond 5 years but within 10 years .............. 313 16 - 329
Corporate debt securities .......................... 169 - - 169
-------- -------- -------- --------
$ 20,757 $ 175 $ (16) $ 20,916
======== ======== ======== ========
</TABLE>
Accrued interest receivable on investment securities was $332 and $311 at
December 31, 1996 and 1995, respectively. Interest income on investment
securities held to maturity was $1,482, $2,065 and $1,559 of which $32, $123
and $110 was nontaxable interest income and $42, $36 and $108 was interest on
money market investments and jumbo certificates for the years ended December
31, 1996, 1995 and 1994, respectively. At December 31, 1996 the Savings Bank
had no outstanding commitments to purchase investment securities held to
maturity. There were no sales of investment securities classified as held to
maturity during 1996, 1995 or 1994.
-20-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
(3) INVESTMENT SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------
GROSS GROSS QUOTED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
United States government and agency obligations due:
Within 12 months ............................................. $ 15 $ - $ - $ 15
Beyond 5 years but within 10 years ........................... 31,474 19 (600) 30,893
Beyond 10 years .............................................. 1,000 - (12) 988
Municipal obligations due:
Beyond 10 years .............................................. 56,084 679 (225) 56,538
FHLMC Preferred Stock ........................................... 250 3 - 253
-------- -------- -------- --------
$ 88,823 $ 701 $ (837) $ 88,687
======== ======== ======== ========
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------
GROSS GROSS QUOTED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
United States government and agency obligations due:
Within 12 months ............................................. $ 15 $ - $ - $ 15
Beyond 12 months but within 5 years .......................... 740 - (71) 669
Beyond 5 years but within 10 years ........................... 5,000 26 - 5,026
Beyond 10 years .............................................. 1,000 10 - 1,010
Municipal obligations due:
Beyond 10 years .............................................. 35,728 1,227 - 36,955
FHLMC Preferred Stock ........................................... 250 7 - 257
-------- -------- -------- --------
$ 42,733 $ 1,270 $ (71) $ 43,932
======== ======== ======== ========
</TABLE>
Accrued interest receivable on securities available for sale was $1,592 and
$554 at December 31, 1996 and 1995, respectively. Interest income on investment
securities available for sale was $5,209, $940 and $125 of which $2,860, $848
and $2 was nontaxable income for the years ended December 31, 1996, 1995 and
1994, respectively. At December 31, 1996 the Savings Bank had no outstanding
commitments to purchase investment securities available for sale. Proceeds from
sales of investment securities classified as available for sale during 1996,
1995 and 1994 were $20,729, $17,723 and $22,471, respectively. Gross gains of
$554, $476 and $0 were realized on these sales in 1996, 1995 and 1994,
respectively. There were gross losses of $140, $22 and $12 on sales in 1996,
1995 and 1994, respectively.
(4) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------
GROSS GROSS QUOTED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
FHLMC ........................................................... $ 21,958 $ - $ (747) $ 21,211
FNMA ............................................................ 56,160 - (1,659) 54,501
-------- ---------- -------- --------
$ 78,118 $ - $ (2,406) $ 75,712
======== ========== ======== ========
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------
GROSS GROSS QUOTED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
FHLMC ........................................................... $ 25,492 $ - $ (353) $ 25,139
FNMA ............................................................ 65,681 - (1,014) 64,667
-------- ---------- -------- --------
$ 91,173 $ - $ (1,367) $ 89,806
======== ========== ======== ========
</TABLE>
A FNMA mortgage-backed security carried at approximately $5,142 is pledged as
security on the Federal Reserve Bank treasury tax and loan note payable, at
December 31, 1996.
Accrued interest receivable on mortgage-backed securities held to maturity was
$416 and $485 at December 31, 1996 and 1995, respectively. At December 31, 1996
the Savings Bank had no outstanding commitments to purchase mortgage-backed
securities held to maturity. There were no sales of mortgage-backed securities
classified as held to maturity during 1996, 1995 or 1994.
-21-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
(5) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------
GROSS GROSS QUOTED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
GNMA ............................................... $ 77,048 $ 639 $ (353) $ 77,334
FHLMC .............................................. 78,736 454 (394) 78,796
Collateralized mortgage obligations ................ 5,636 27 (70) 5,593
FNMA ............................................... 97,681 656 (618) 97,719
-------- -------- -------- --------
$259,101 $ 1,776 $ (1,435) $259,442
======== ======== ======== ========
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------
GROSS GROSS QUOTED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
GNMA ............................................... $ 43,333 $ 480 $ (88) $ 43,725
FHLMC .............................................. 108,765 799 (602) 108,962
Collateralized mortgage obligations ................ 5,616 - (115) 5,501
FNMA ............................................... 128,559 996 (822) 128,733
-------- -------- -------- --------
$286,273 $ 2,275 $ (1,627) $286,921
======== ======== ======== ========
</TABLE>
Collateralized mortgage obligations carried at approximately $3,715 are pledged
as security on savings certificates of $100 or more at December 31, 1996.
Accrued interest receivable on mortgage-backed securities available for sale
was $1,769 and $2,097 at December 31, 1996 and 1995, respectively. At December
31, 1996, the Savings Bank had outstanding commitments to purchase
mortgage-backed securities available for sale totaling $8.7 million. Proceeds
from sales of mortgage-backed securities classified as available for sale
during 1996, 1995 and 1994 were $65,736, $50,071 and $36,554, respectively.
Gross gains of $171, $120 and $163 were realized on these sales in 1996, 1995
and 1994, respectively. There were gross losses of $620, $520 and $11 on sales
in 1996, 1995 and 1994, respectively.
(6) LOANS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
First mortgage loans:
Single-family residential .................................... $126,854 $105,551
Multi-family residential ..................................... 3,516 4,015
Construction ................................................. 20,942 13,495
Commercial real estate ....................................... 20,473 16,650
-------- --------
171,785 139,711
Mortgage loans in process .................................... (6,373) (4,167)
Unearned discounts and deferred fees ......................... (482) (551)
Allowance for loan losses .................................... (1,733) (1,803)
-------- --------
163,197 133,190
-------- --------
Other loans:
Automobile ................................................... 6,210 5,142
Commercial business loans .................................... 6,020 6,395
Financing leases ............................................. 3,636 3,555
Education .................................................... 6,737 6,870
Home equity .................................................. 26,950 23,593
Home improvement ............................................. 1,146 1,167
Loans secured by savings deposits ............................ 1,768 2,076
Personal ..................................................... 2,314 2,141
Other ........................................................ 361 333
-------- --------
55,142 51,272
Unearned discounts and deferred fees ......................... 102 84
Allowance for loan losses ................................... (1,576) (668)
-------- --------
53,668 50,688
-------- --------
$216,865 $183,878
======== ========
</TABLE>
Accrued interest receivable on loans was $1,448 and $1,204 at December 31, 1996
and 1995, respectively.
-22-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
Nonaccrual loans totaled $4,084, $799 and $2,269 at December 31, 1996, 1995 and
1994, respectively. Interest income that would have been recorded under the
original terms of such loans and the interest income actually recognized for
the years ended December 31, are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income that would have been recognized.... $312 $ 92 $385
Interest income recognized ........................ 80 66 218
---- ---- ----
Interest income foregone .......................... $232 $ 26 $167
==== ==== ====
</TABLE>
The Company is not committed to lend additional funds to debtors in nonaccrual
status.
Activity with respect to the allowance for loan losses is summarized as
follows:
<TABLE>
<CAPTION>
FIRST
MORTGAGE OTHER TOTAL
LOANS LOANS LOANS
----- ----- -----
<S> <C> <C> <C>
Balance, December 31, 1993 .......................................................... $1,163 $ 230 $1,393
Allowance associated with acquisition of Economy Savings ............................ 867 261 1,128
Provision ........................................................................... (120) 161 41
Recoveries .......................................................................... 6 10 16
Charge-offs ......................................................................... (27) (76) (103)
------ ------ ------
Balance, December 31, 1994 .......................................................... 1,889 586 2,475
Provision ........................................................................... (66) 79 13
Recoveries .......................................................................... 5 25 30
Charge-offs ......................................................................... (25) (22) (47)
------ ------ ------
Balance, December 31, 1995 .......................................................... 1,803 668 2,471
Provision ........................................................................... (67) 940 873
Recoveries .......................................................................... - 17 17
Charge-offs ......................................................................... (3) (49) (52)
------ ------ ------
Balance, December 31, 1996 .......................................................... $1,733 $1,576 $3,309
====== ====== ======
</TABLE>
At December 31, 1996, the recorded investment in loans that are considered to
be impaired under SFAS No. 114 was $3,636, for which the related allowance for
credit loss was $909. The amount of the Company's impaired loans is the result
of financing leases being placed on nonaccrual status during the first quarter
of 1996. For the fiscal year ended December 31, 1996, the Company recognized
interest income on those impaired loans of $83 which was recognized using the
cash basis method of income recognition. The average recorded investment in
impaired loans during the year ended December 31, 1996 was approximately
$2,755.
(7) REAL ESTATE OWNED
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Real estate owned .................. $37 $52
Allowance for possible losses....... - -
--- ---
$37 $52
=== ===
</TABLE>
Activity with respect to the allowance for possible losses on real estate owned
is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
Balance at beginning of year .................................. $ - $ 15 $ 4
Allowance associated with acquisition of Economy Savings...... - - 3
Provision ..................................................... 8 12 14
Recoveries .................................................... - - -
Charge-offs ................................................... (8) (27) (6)
----- ---- ----
Balance at end of year ....................................... $ - $ - $ 15
===== ==== ====
</TABLE>
-23-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
(8) FEDERAL HOME LOAN BANK ("FHLB") STOCK
ESB is a member of the FHLB System. As a member, ESB maintains an investment in
the capital stock of the FHLB of Pittsburgh in an amount not less than 1% of
its outstanding home loans or 5% of its outstanding notes payable to the FHLB
of Pittsburgh, whichever is greater, as calculated on a monthly basis.
(9) OFFICE PROPERTIES AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------ ------
<S> <C> <C>
Land ......................................... $ 945 $ 862
Office buildings and improvements ............ 3,584 3,506
Furniture, fixtures and equipment ............ 3,075 2,985
Leasehold improvements ....................... 391 390
7,995 7,743
------ ------
Less accumulated depreciation and amortization 5,255 4,902
------ ------
Office properties and equipment, net ........ $2,740 $2,841
====== ======
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1996,
1995 and 1994, were $402, $422 and $356, respectively.
Certain branch office premises are leased under operating lease agreements
expiring no later than October 31, 2007. Minimum annual rentals are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
DECEMBER 31, AMOUNT
------------------ --------
<S> <C> <C>
1997 $ 73
1998 71
1999 26
2000 16
2001 16
Thereafter 105
----
$307
====
</TABLE>
Rent expense for the years ended December 31, 1996, 1995 and 1994, was $73, $76
and $74, respectively.
(10) SAVINGS DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------- ---------------------------------
WEIGHTED PERCENT WEIGHTED PERCENT
AVERAGE OF AVERAGE OF
COST AMOUNT DEPOSITS COST AMOUNT DEPOSITS
-------- -------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance by type:
NOW accounts:
Noninterest bearing................................. - $ 5,082 1.5% - $ 3,776 1.1%
Interest bearing.................................... 0.98% 22,334 6.7 0.96% 20,791 6.1
Passbook and club accounts ............................. 2.31 56,849 17.1 2.41 60,850 18.0
Money market demand accounts............................ 3.79 58,624 17.6 3.92 57,920 17.1
-------- ----- -------- -----
142,889 42.9 143,337 42.3
-------- ----- -------- -----
Jumbo certificates of deposit .......................... 5.74 17,516 5.3 5.98 19,587 5.8
Fixed rate certificates ................................ 5.82 135,967 40.8 6.00 140,480 41.5
Money market certificates .............................. 5.09 36,517 11.0 5.09 35,090 10.4
-------- ----- -------- -----
190,000 57.1 195,157 57.7
-------- ----- -------- -----
$332,889 100.0% $338,494 100.0%
======== ===== ======== =====
</TABLE>
-24-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
As of December 31, 1996, certificate of deposit accounts mature as follows:
<TABLE>
<CAPTION>
PERCENT
AMOUNT OF DEPOSITS
------ -----------
<S> <C> <C>
Within one year ................... $121,841 36.6%
After one year through two years .. 35,246 10.6
After two years through three years 12,553 3.8
Thereafter ........................ 20,360 6.1
-------- ----
$190,000 57.1%
======== ====
</TABLE>
The Company had a total of approximately $34,142 in deposits of $100 or more at
December 31, 1996.
Interest expense by deposit category is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
NOW accounts.................................................... $ 199 $ 195 $ 368
Passbook and club accounts...................................... 1,673 1,881 1,829
Money market demand accounts ................................... 2,229 1,883 1,386
Jumbo certificates of deposit .................................. 767 1,055 408
Fixed rate certificates......................................... 7,743 7,824 5,940
Money market certificates....................................... 1,799 1,843 1,234
------- ------- -------
$14,410 $14,681 $11,165
======= ======= =======
</TABLE>
Interest expense on advances from borrowers for taxes and insurance accounts
was $18, $40 and $33 for the years ended December 31, 1996, 1995 and 1994,
respectively.
(11) BORROWED FUNDS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- ----------------------
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..................................................... 6.172% $ 158,335 6.072% $ 133,940
Due beyond 12 months but within 5 years.................................. 5.976 135,721 6.301 113,129
Due beyond 5 years but within 10 years .................................. 8.818 1,072 9.169 967
Due beyond 10 years....................................................... 6.608 394 8.472 350
--------- ---------
295,522 248,386
Treasury tax and loan note payable............................................ 223 86
Reverse repurchase agreements................................................. 5.580 13,450 5.880 11,000
--------- ---------
$ 309,195 $ 259,472
========= =========
</TABLE>
The notes payable to the FHLB of Pittsburgh are secured by the Savings Bank's
stock in the FHLB of Pittsburgh, qualifying residential mortgage loans and
other mortgage-backed securities to the extent that the fair market value of
such pledged collateral must be at least equal to the notes payable
outstanding.
ESB has an agreement with the Federal Reserve Bank of Cleveland whereby ESB is
an authorized treasury tax and loan depository. Under the terms of a note
agreement, funds deposited to the Company's treasury tax and loan account
(limited to $150) accrue interest at a rate of 1/4 of 1% below the overnight
federal funds rate.
Interest expense on FHLB notes payable was $17,355, $14,893 and $10,660 and on
the reverse repurchase agreements $788, $601 and $296 for the years ended
December 31, 1996, 1995 and 1994, respectively.
The Company enters into sales of securities under agreements to repurchase.
Such repurchase agreements are treated as financings and the obligations to
repurchase securities sold are reflected as a liability in the consolidated
statement of financial condition. The dollar amount of securities underlying
the agreements remain in the asset account. The securities sold under agreement
to repurchase are
-25-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
collateralized by various securities that are either held in safekeeping by the
FHLB of Pittsburgh or delivered to the dealer who arranged the transaction. The
market value of such securities exceeds the value of the securities sold under
agreements to repurchase.
At December 31, 1996, these agreements had a weighted average interest rate of
5.58% and matured within two months. Short-term borrowings under repurchase
agreements averaged $14,110 and $9,814 during 1996 and 1995, respectively. The
maximum amount outstanding at any month-end was $15,810 and $11,400 during 1996
and 1995, respectively. At December 31, 1996, short-term borrowings under
agreements to repurchase securities sold are summarized as follows:
<TABLE>
<CAPTION>
COLLATERAL
-----------------------------
U.S. GOVERNMENT AND
WEIGHTED FEDERAL AGENCY OBLIGATIONS
REPURCHASE AVERAGE -----------------------------
LIABILITY RATE BOOK VALUE MARKET VALUE
--------- ---- ---------- ------------
<S> <C> <C> <C> <C>
Within 60 Days............................................... $13,450 5.58% $14,057 $14,135
</TABLE>
(12) INCOME TAXES
On August 20, 1996, President Clinton signed legislation which eliminated 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 in excess
of its 1987 base year reserves. As the Savings Bank has previously provided
deferred taxes on this amount, no financial statement tax expense should result
from this new legislation.
The provision for income tax expense consisted of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal:
Current ............................................................................ $1,030 $1,687 $1,681
Deferred............................................................................ (498) 9 379
State:
Current ............................................................................ 171 271 401
------ ------ ------
$ 703 $1,967 $2,461
====== ====== ======
</TABLE>
In addition to income taxes applicable to income before taxes, the following
income tax benefits (expense) were recorded:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Stockholders' equity for the tax effect
of unrealized net (gain) loss on securities available for sale ....................................... $ 559 $(2,034)
Stockholders' equity for compensation expense for tax purposes in excess
of amounts recognized for financial statement purposes ............................................... 409 -
------ -------
$ 968 $(2,034)
====== =======
</TABLE>
The actual income tax expense for 1996, 1995 and 1994 differs from the
"expected" income tax expense for those years computed by applying the
applicable statutory U. S. federal corporate tax rate to income before income
taxes (pretax income), as follows:
<TABLE>
<CAPTION>
PERCENT OF PRETAX INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate.................................................................. 34.0% 34.0% 34.0%
Tax free interest, net of interest disallowance ........................................ (23.1) (4.7) (0.6)
State income tax expense, net of federal income tax .................................... 3.2 3.0 4.2
Goodwill................................................................................ 3.4 2.0 1.5
Other items, net ....................................................................... 2.4 (1.2) (0.2)
---- ---- ----
Reported rate....................................................................... 19.9% 33.1% 38.9%
==== ==== ====
</TABLE>
-26-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
The tax effect of temporary differences that give rise to significant portions
of deferred tax assets and liabilities for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
DEFERRED TAX ASSETS
<S> <C> <C>
Loan loss reserves ................................................... $ 250 $ -
Net loan origination fees............................................. 54 17
Reserve for uncollected interest ..................................... 31 12
Fixed assets.......................................................... 71 12
Minimum tax credit carry forward ..................................... 262 -
Other ................................................................ 107 262
----- -----
Gross deferred tax assets............................................. 775 303
Valuation allowance .................................................. - -
----- -----
Gross deferred tax asset net of
valuation allowance............................................... 775 303
----- -----
DEFERRED TAX LIABILITIES
Accretion of bond discount............................................ 21 19
Loan loss reserves.................................................... - 16
Other ................................................................ 196 208
Investment securities available for sale ............................. 70 629
----- -----
Gross deferred tax liabilities........................................ 287 872
----- -----
Net deferred tax asset (liability).................................... $ 488 $(569)
===== =====
</TABLE>
The Company determined that it was not required to establish a valuation
allowance for deferred tax assets in accordance with SFAS No. 109 since it is
more likely than not that the deferred tax asset will be realized through
carryback to taxable income in prior years, future reversals of existing
taxable temporary differences, and to lesser extent, future taxable income.
The minimum tax credit carry forward of $262 is available for use in future
years when the Company's regular tax liabilities exceeds its alternative
minimum tax liability. This credit cannot reduce a taxpayer's regular tax below
its alternative minimum tax liability. The credit can be carried forward
indefinitely.
(13) RETAINED INCOME
SFAS No. 109 treats tax basis bad debt reserves established after 1987 as
temporary differences on which income taxes have been provided. Deferred taxes
are not required to be provided on tax bad debt reserves recorded in 1987 and
prior years (base year bad debt reserves). Approximately $12 million of
balances for ESB in retained income at December 31, 1995 (the most recent date
for which a tax return has been filed) represent base year bad debt deductions
for tax purposes only. No provision for federal income tax has been made for
such amount. If any portion of that amount is used other than to absorb loan
losses (which is not expected), the amount will be subject to federal income
tax at the current corporate rate.
(14) EMPLOYEE BENEFIT PLANS
RETIREMENT SAVINGS PLAN
Effective May 15, 1995, Ellwood Federal and Economy Savings retirement savings
plans were terminated and merged into a new plan called PennFirst Bancorp, Inc.
Retirement Savings Plan ("Plan"). The terms of the Plan are as follows: (1)
employees payroll deductions for deposit are matched by the Bank up to 6% of
the employee contributions; (2) the Savings Bank matches 100% of the first 1%
of employee contributions, and the remaining 2% through 6% is matched at 50%;
and (3) the employee is allowed to contribute up to 15% of his or her
compensation in the Plan. In 1996, 1995 and 1994, the Company recognized $102,
$102 and $92, respectively, of expense related to the Plan.
STOCK OPTION PLANS
The Company maintains a stock option plan for its directors, officers and other
selected key employees who are deemed to be responsible for the future growth
of the Company. The Company has a total of 77,713 shares remaining to be
granted under the original 1990 plan.
-27-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
- -------------------------------------------------------------------------------
The Company later adopted and the stockholders approved a 1992 Stock Incentive
Plan. The Company had a total of 161,740 options approved under the 1992 Plan.
The Company has granted all of the options under the 1992 Plan.
The Company has elected to follow Accounting Principles Board Opinion ("APB")
No. 25 "Accounting for Stock Issued to Employees" and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation", requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB No. 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
The Company's Incentive Stock Option Plans have authorized the grant of options
to management personnel for up to 44,100 and 47,901 shares of the Company's
common stock for the years ended December 31, 1995 and 1996, respectively. All
options granted have ten year terms and vest and become fully exercisable at
the end of six months from the date of grant.
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes Option Pricing Model with the following weighted-average
assumption for 1995 and 1996, respectively: risk-free interest rates of 6.7%
and 6.8%; dividend yields of 2.8% and 2.8%; volatility factors of the expected
market price of the Company's common stock of 27% and 25%; and a
weighted-average expected life of the option of seven years.
The Black-Scholes Option Valuation Model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, options valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purpose of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1995
------ ------
<S> <C> <C>
Pro forma net income............................................$2,708 $3,852
Pro forma earnings per share:
Primary.....................................................$ 0.68 $ 0.91
Fully diluted...............................................$ 0.68 $ 0.91
</TABLE>
Stock option activity under the plans was as follows:-
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding at December 31, 1993 ............................ 222,681 $5.24
Granted ................................................. 39,700 13.75
Exercised ............................................... (1,592) 9.15
Expired ................................................. - -
Increase due to 20% stock split ......................... 52,147 5.43
-------
Outstanding at December 31, 1994 ............................ 312,936 5.43
Granted.................................................. 44,100 13.06
Exercised................................................ (13,000) 4.96
Expired.................................................. (600) 11.45
-------
Outstanding at December 31, 1995............................. 343,436 6.41
Granted.................................................. 47,901 13.00
Exercised ............................................... (146,685) 4.57
Expired ................................................. - -
-------
Outstanding at December 31, 1996 ............................ 244,652 $8.81
=======
</TABLE>
Weighted-average fair value of options granted during the years 1996, 1995 and
1994 was $3.86, $4.00 and $4.13, respectively.
These options expire at various dates through July 1, 2006. Option prices in
the above table have been restated to reflect all stock splits.
-28-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
The following table summarizes the characteristics of stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OUTSTANDING AND EXERCISABLE
------------------------------------------------------
EXERCISE PRICE SHARES LIFE(1) EXERCISE PRICE
-------------- ------ ------- --------------
<S> <C> <C> <C>
$ 3.84 92,021 3.5 $ 3.84
$ 7.62 22,680 5.3 $ 7.62
$11.45 41,100 7.5 $11.45
$13.00 47,701 9.5 $13.00
$13.06 41,150 8.5 $13.06
-------
244,652 6.4 $ 8.81
======= === ======
</TABLE>
(1) Weighted average contractual life remaining in years.
At December 31, 1995, 343,436 options were exercisable at an average exercise
price of $6.41. At December 31, 1994, 312,936 options were exercisable at an
average exercise price of $5.43.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Savings Bank has maintained an employee stock ownership plan to provide the
opportunity for substantially all employees of the Savings Bank to become
stockholders of the Company. On October 1, 1995, the Economy Savings ESOP was
merged with and into Ellwood Federal's ESOP and the name was subsequently
changed to PennFirst Bancorp, Inc. ESOP.
The ESOP was funded in 1990 with a loan from a third party to purchase 65,688
(adjusted for stock splits) shares of stock. The loan was reflected as a
liability to the Savings Bank with a corresponding reduction of stockholders'
equity. During 1994, the ESOP loan was paid off and funded internally. The
Savings Bank recognized an expense and contributed $56, $65 and $75 in 1996,
1995 and 1994, respectively, to the ESOP, which was used to make debt service
payments. At December 31, 1996, 16,542 ESOP shares were unallocated.
Participants in the plan are all employees who have met minimum service and age
requirements.
During 1996 and 1995, 10,823 and 17,522, respectively, of ESOP shares were
purchased. These purchases amounted to $146 in 1996 and $232 in 1995, and were
funded internally. The Savings Bank recognized an expense of $171 and $136 from
12,969 and 10,446 shares that were committed to be released in 1996 and 1995 at
an average fair value of $13.18 and $13.00 per share. Unallocated ESOP shares
at December 31, 1996 amounted to 85,714 shares with a total fair value of $1.2
million. Dividends received on unallocated ESOP shares in 1996 amounted to $81.
MANAGEMENT RECOGNITION PLAN (MRP)
The Board of Directors of ESB adopted and the stockholders approved a MRP in
1990. In November 1990, the Trust purchased with funds from ESB 14,929 shares
of stock at a price of $4.44 per share (adjusted for stock splits). In November
1990, these shares were awarded to three executive officers of ESB. The shares
granted under the MRP are in the form of restricted stock and are payable over
a five-year period with 20% of the shares being earned annually. All shares
were earned as of December 31, 1995.
(15) STOCK SPLITS
The Board of Directors of PennFirst has declared two six-for-five stock splits
on the following dates:
<TABLE>
<CAPTION>
RECORD DATE PAYMENT DATE STOCK SPLIT OUTSTANDING SHARES
----------- ------------ ----------- ------------------
<S> <C> <C> <C>
December 31, 1993 January 24, 1994 20% 2,739,756
December 31, 1994 January 25, 1995 20% 4,349,786
</TABLE>
An amount equal to the par value of the shares issued has been transferred from
additional paid-in-capital to the common stock account. All share and per share
data have been restated for all periods presented to reflect the stock splits.
-29-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income......................................................... $11,229 $11,625 $11,913 $11,970
Total interest expense........................................................ 7,833 8,044 8,364 8,388
------- ------- ------- -------
Net interest income .......................................................... 3,396 3,581 3,549 3,582
Provision for possible losses on loans........................................ 285 - 396 192
------- ------- ------- -------
Net interest income after provision for possible losses on loans.............. 3,111 3,581 3,153 3,390
Total noninterest income...................................................... 231 211 198 193
Total noninterest expense..................................................... 1,890 2,177 4,240 2,228
------- ------- ------- -------
Income (loss) before taxes ................................................... 1,452 1,615 (889) 1,355
------- ------- ------- -------
Income tax .................................................................. 437 530 (603) 339
------- ------- ------- -------
Net income (loss)............................................................. $ 1,015 $ 1,085 $ (286) $ 1,016
======= ======= ======= =======
Primary and fully diluted earnings (loss) per share........................... $ .25 $ .27 $ (.07) $ .26
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income......................................................... $10,695 $10,922 $11,045 $11,521
Total interest expense........................................................ 7,150 7,479 7,769 7,821
------- ------- ------- -------
Net interest income .......................................................... 3,545 3,443 3,276 3,700
Provision (recoveries) for possible losses on loans........................... (1) 6 14 (6)
------- ------- ------- -------
Net interest income after provision (recoveries) for possible losses on loans 3,546 3,437 3,262 3,706
Total noninterest income...................................................... 228 263 217 238
Total noninterest expense..................................................... 2,206 2,112 2,011 2,633
------- ------- ------- -------
Income before taxes .......................................................... 1,568 1,588 1,468 1,311
------- ------- ------- -------
Income tax .................................................................. 593 593 522 259
------- ------- ------- -------
Net income.................................................................... $ 975 $ 995 $ 946 $ 1,052
======= ======= ======= =======
Primary and fully diluted earnings per share.................................. $ .22 $ .24 $ .23 $ .26
</TABLE>
Quarterly earnings per share data may vary from annual earnings per share data
due to rounding.
(17) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Savings Bank had commitments to extend credit at December 31, 1996 and
1995. Commitments to extend credit involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statement of financial condition.
The Savings Bank's exposure to credit loss in the event of nonperformance by
the other party for commitments to extend credit is represented by the
contractual amount of these commitments, less any collateral value obtained.
The Savings Bank uses the same credit policies in making commitments as they do
for on-balance-sheet instruments.
-30-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTRACT AMOUNT AT DECEMBER 31,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
First mortgage loans:
Variable-rate........................................................$ 6,972 $ 6,758
Fixed-rate (7.51% and 7.92%
for 1996 and 1995, respectively*).................................... 1,427 502
Other loans:
Variable-rate........................................................ 22,063 12,094
Mortgage-backed securities............................................... 8,674 -
Investment securities.................................................... - 497
* Weighted Average
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Savings Bank evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by the Bank upon
extension of credit is based on management's credit evaluation of the
counter-party. Collateral held varies but may include accounts receivable,
inventory, real estate, and income-producing commercial properties.
(18) CONCENTRATION OF CREDIT RISK
The Savings Bank is primarily engaged in attracting retail deposits from the
general public and using such deposits to originate loans (primarily
single-family residential loans). The Savings Bank conducts business from nine
offices in Lawrence, Beaver, Butler and Allegheny counties, located in western
Pennsylvania and primarily lends in these geographical areas. The Savings Bank
does not believe it has significant concentrations of credit risk to any one
group of borrowers given its underwriting and collateral requirements, but
estimates approximately 70% of its loans are located within these counties of
western Pennsylvania.
(19) PENNFIRST BANCORP, INC. (PARENT COMPANY ONLY)
The condensed financial statements of the Parent Company are as follows:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
ASSETS 1996 1995
---- ----
<S> <C> <C>
Mortgage-backed securities available for sale, at market (cost of $834 at December 31, 1995)........... $ - $ 815
Interest-earning deposits in other institutions ....................................................... 504 557
Investment in subsidiaries ............................................................................ 67,996 65,422
Other assets .......................................................................................... 593 363
------- -------
Total assets....................................................................................... $69,093 $67,157
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Amounts due to affiliates.............................................................................. $17,150 $11,500
Accrued expenses and other liabilities................................................................. 400 731
Stockholders' equity................................................................................... 51,543 54,926
------- -------
Total liabilities and stockholders' equity......................................................... $69,093 $67,157
======= =======
</TABLE>
-31-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Mortgage-backed securities held to maturity.......................................... $ - $ 43 $ 51
Mortgage-backed securities available for sale......................................... 138 18 10
Investment securities held to maturity................................................ 32 192 116
Management fees ...................................................................... 576 1,500 75
Other................................................................................. - 4 (2)
Equity in undistributed earnings of subsidiaries...................................... 3,405 3,581 4,003
------ ------ ------
Total income...................................................................... 4,151 5,338 4,253
------ ------ ------
Expense:
Interest expense on borrowed funds.................................................... 878 724 303
Personnel costs....................................................................... 756 470 139
Other................................................................................. 46 11 28
------ ------ ------
Total expense.................................................................... 1,680 1,205 470
------ ------ ------
Income before income taxes........................................................ 2,471 4,133 3,783
------ ------ ------
Income tax provision (benefit)........................................................... (359) 165 (76)
------ ------ ------
Net income........................................................................ $2,830 $3,968 $3,859
====== ====== ======
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income............................................................................ $2,830 $3,968 $3,859
Adjustments to reconcile net income to
net cash provided by operating activities:
(Increase) decrease in other assets............................................... (230) (309) 19
Increase (decrease) in other liabilities.......................................... (331) 174 289
Equity in undistributed earnings of subsidiaries.................................. (3,405) (3,581) (4,003)
Decrease (increase) in investment in subsidiaries................................. 372 3,379 (7,452)
Other............................................................................. 150 72 (104)
------ ------ ------
Net cash provided (used) by operating activities......................................... (614) 3,703 (7,392)
------ ------ ------
Cash flows from investing activities:
Purchases of:
Mortgage-backed securities available for sale..................................... - (2,161) -
Principal repayments of:
Mortgage-backed securities held to maturity....................................... - 72 427
Mortgage-backed securities available for sale..................................... 554 68 -
Investment securities held to maturity............................................ - 2,000 -
Proceeds from sale of mortgage-backed securities available for sale................... - - 468
------ ------ ------
Net cash provided (used) by investing activities......................................... 554 (21) 895
------ ------ ------
Cash flows from financing activities:
Net increase in amounts due to affiliates............................................. 5,650 2,612 8,715
Cash dividends paid on common stock .................................................. (3,400) (1,489) (1,238)
Proceeds received from the exercise of stock options.................................. 671 64 15
Additional stock purchased by ESOP.................................................... (146) (232) (1,000)
Purchase of treasury stock ........................................................... (2,983) (4,866) (220)
Principal repayment of ESOP loan...................................................... 215 215 130
------ ------ ------
Net cash provided (used) by financing activities ........................................ 7 (3,696) 6,402
------ ------ ------
Net decrease in cash and cash equivalents................................................ (53) (14) (95)
Cash and cash equivalents at beginning of year .......................................... 557 571 666
------ ------ ------
Cash and cash equivalents at end of year................................................. $ 504 $ 557 $ 571
====== ====== ======
</TABLE>
-32-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
(20) ACQUISITION
On March 25, 1994 the Company completed its acquisition of ESB Bancorp, Inc.
pursuant to which ESB Bancorp, Inc. was merged with and into PennFirst Bancorp.
As a result of the merger, Economy Savings, formerly a wholly owned subsidiary
of ESB Bancorp, Inc., operated as a wholly owned subsidiary of PennFirst. Under
the terms of the merger each shareholder of ESB Bancorp, Inc. received $27.00
in cash or 1.62 shares of PennFirst common stock for each share of ESB Bancorp,
Inc. common stock owned and had the option of receiving either all cash, all
stock or a combination thereof subject to certain limitations.
As a result of the acquisition, 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. The acquisition was accounted
for under the purchase method of accounting. The operations of Economy Savings
for the nine months ended December 31, 1994 were included in the income
statement of PennFirst. As a result of the purchase accounting utilized in the
acquisition, PennFirst recorded an intangible asset of $5.4 million, which will
be amortized on a straight line basis over a fifteen year period. The gross
purchase price of all the outstanding common stock of ESB Bancorp, Inc. was
$26.0 million. PennFirst issued approximately 1.1 million shares with respect
to the acquisition (adjusted for a six-for-five stock split).
(21) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" (SFAS No. 107), requires disclosure of fair
value information about financial instruments, whether or not recognized in the
Consolidated Statement of Financial Condition as of December 31, 1996 and 1995,
respectively. SFAS No. 107 excludes certain financial instruments and all
non-financial 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 Statement of
Financial Condition approximate fair value for the following financial
instruments: cash, interest-earning deposits with other institutions, federal
funds sold, FHLB Stock and all savings deposits except certificate of deposits.
The estimated fair value of investment and mortgage-backed securities were
valued below the net carrying value at December 31, 1996 by $233 and $2,406,
respectively. At December 31, 1995 the estimated fair value of investment
securities exceeded the net carrying value by $159. The estimated fair value of
mortgage-backed securities were valued below the net carrying value at December
31, 1995 by $1,367. Estimated fair values are based on quoted market prices,
dealer quotes and prices obtained from independent pricing services. Refer to
notes 2 through 5 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 by $1.5
million and $2.5 million at December 31, 1996 and 1995, respectively. Loans
with comparable characteristics including collateral and repricing structures
were segregated for valuation purposes. The fair value of performing loans,
except one-to-four family residential mortgage loans, is calculated by
discounting scheduled cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent
in the loan. For performing one-to-four family residential mortgage loans, fair
value is estimated by using secondary market pricing sources. The fair value
reflects market prepayments estimates. The estimated fair value for
nonperforming loans is the "as is" appraised value of the underlying
collateral.
The fair market value of loan commitments at December 31, 1996 and 1995 was
equal to the carrying value of the commitments on those dates.
The carrying amounts and estimated fair values of certificate of deposits at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Certificate of deposits:
Carrying amount........................................ $190,000 $195,157
Estimated fair value................................... 191,768 197,371
</TABLE>
The carrying amounts of noninterest-bearing demand accounts, interest-bearing
NOW and MMDA accounts, passbook and club accounts approximate their fair
values. Fair values of certificate of deposits are based on the discounted
value of contractual cash flows. The discount rate is estimated using average
market rates currently offered for deposits of similar remaining maturities.
-33-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
The carrying amounts and estimated fair values of advances and other borrowings
at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---- ----
<S> <C> <C>
Advances and other borrowings:
Carrying amount ......................................... $309,195 $259,472
Estimated fair value .................................... 309,964 261,320
</TABLE>
The fair value of FHLB advances and other borrowings are based on the
discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for advances of similar remaining maturities.
For adjustable-rate borrowings, the carrying amount will approximate the
estimated fair value because of the frequent repricing characteristics.
The estimated fair value and net carrying value of the Company's interest rate
cap contracts were $321 and $334 at December 31, 1996 and $20 and $91 at
December 31, 1995. The estimated fair value and net carrying value of the
Company's interest rate floor contracts were $77 and $60 at December 31, 1996.
Estimated fair values are based on quoted market prices, dealer quotes and
prices obtained from independent pricing services.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates. Fair value
estimates are based on existing on-and-off-balance sheet financial instruments
without attempting to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered financial instruments.
Some other significant assets and liabilities that are not considered financial
assets or liabilities include office properties and equipment.
(22) STOCKHOLDERS' EQUITY
The Savings Bank is subject to various regulatory capital requirements
administered by the federal banking 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 the Savings Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Savings Bank must meet specific capital guidelines that involve
quantitative measures of the Savings Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Savings Bank's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weighting and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Savings Bank to maintain amounts and ratios (set forth in the table
below) of core capital (as defined in the regulations), tangible capital (as
defined in the regulations) and risk-based capital (as defined in the
regulations). As of December 31, 1996, the Savings Bank met all capital
adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the OTS categorized
the Savings Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Savings Bank must
maintain minimum core, tangible and risked-based capital as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the Savings Bank's category. The following
table sets forth certain information concerning the Savings Bank's regulatory
capital.
-34-
<PAGE>
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Dollars in Thousands, except share data
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------------------- --------------------------------------
TANGIBLE CORE RISK-BASED TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL CAPITAL
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Equity Capital (1)............................. $ 46,453 $ 46,453 $ 46,453 $ 44,541 $ 44,541 $ 44,541
Non allowable-intangible assets................ (5,120) (5,120) (5,120) (5,077) (5,077) (5,077)
Unrealized securities gains.................... (116) (116) (116) (1,058) (1,058) (1,058)
General valuation allowances (2)............... - - 2,890 - - 2,410
-------- --------- --------- --------- --------- ---------
Total regulatory capital....................... 41,217 41,217 44,107 38,406 38,406 40,816
Minimum required regulatory capital............ 10,116 20,231 18,498 9,462 18,923 16,848
-------- --------- --------- --------- --------- ---------
Excess regulatory capital...................... $ 31,101 $ 20,986 $ 25,609 $ 28,944 $ 19,483 $ 23,968
======== ========= ========= ========= ========= =========
Regulatory capital as a percentage (3)......... 6.11% 6.11% 19.08% 6.09% 6.09% 19.38%
Minimum regulatory capital requirement
as a percentage ........................... 1.50% 3.00% 8.00% 1.50% 3.00% 8.00%
---- ---- ----- ---- ---- -----
Excess regulatory capital as a
percentage ................................ 4.61% 3.11% 11.08% 4.59% 3.09% 11.38%
==== ==== ===== ==== ==== =====
Minimum required capital percentage
to be well capitalized under
prompt corrective action provisions........ 5.00% 6.00% 10.00% 5.00% 6.00% 10.00%
==== ==== ===== ==== ==== =====
</TABLE>
(1) Represents equity capital of the Savings Bank as reported to the OTS.
(2) Limited to 1.25% of risk adjusted total assets.
(3) Tangible capital and core capital are calculated as a percentage of
adjusted total assets of $674,369 and $630,782 at December 31, 1996 and
1995, respectively. Risk-based capital is calculated as a percentage of
adjusted risk-weighted assets of $231,221 and $210,599 at December 31, 1996
and 1995, respectively.
(23) AGREEMENT AND PLAN OF REORGANIZATION
On September 16, 1996, the Company entered into an Agreement and Plan of
Reorganization with Troy Hill Bancorp, Inc. ("THBC"), pursuant to which THBC
shall be merged with and into the Company with the Company as the surviving
corporation.
Under the terms of the agreement each shareholder of THBC will receive $21.15
for each share of THBC Common Stock owned and have the option of receiving
either all cash or all stock. The Company is still awaiting shareholder and
regulatory approval but anticipates closing the transaction by March 31, 1997.
At December 31, 1996, THBC had total consolidated assets of $102.6 million,
total consolidated liabilities of $84.2 million, including total consolidated
deposits of $53.3 million and total consolidated stockholders' equity of $18.5
million. THBC reported net income of $308 and $360 for the three and six months
ended December 31, 1996, respectively.
(24) CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. The outcome of these claims and actions are not
presently determinable; however, in the opinion of the Company's management,
after consulting with their legal counsel, the ultimate disposition of these
matters will not have a material adverse effect on the accompanying
consolidated financial statements.
-35-
<PAGE>
- -------------------------------------------------------------------------------
AUDITORS' REPORT
- -------------------------------------------------------------------------------
[KPMG PEAT MARWICK LLP LETTERHEAD]
The Board of Directors and Stockholders
PennFirst Bancorp, Inc.
Ellwood City, Pennsylvania
We have audited the accompanying consolidated statements of financial
condition of PennFirst Bancorp, Inc. and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996. 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
audits.
We conducted our audits in accordance with generally accepted auditing
standards. These 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
PennFirst Bancorp, Inc. and subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
January 23, 1997
-36-
<PAGE>
- -------------------------------------------------------------------------------
STOCK INFORMATION
- -------------------------------------------------------------------------------
PennFirst's common stock is traded in the Over-the-Counter market and quoted on
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System under the symbol "PWBC". The bid and ask quotations for
the common stock on January 3, 1997 were:
<TABLE>
<CAPTION>
BID ASK
--- ---
<S> <C>
$13.50 $14.50
</TABLE>
The following table sets forth the high and low market prices for the periods
indicated:
<TABLE>
<CAPTION>
MARKET PRICE
------------------------
QUARTER ENDED 1994 HIGH LOW
------------------ ---- ---
<S> <C> <C>
March 31.................................... $15.21 $12.08
June 30..................................... 13.13 11.46
September 30................................ 12.92 11.67
December 31................................. 13.25 11.25
QUARTER ENDED 1995 HIGH LOW
------------------ ---- ---
March 31.................................... $14.13 $12.75
June 30..................................... 13.75 12.50
September 30................................ 13.75 12.75
December 31................................. 13.50 12.00
QUARTER ENDED 1996 HIGH LOW
------------------ ---- ---
March 31.................................... $13.25 $11.88
June 30..................................... 13.75 12.00
September 30 ............................... 14.75 13.00
December 31................................. 14.25 13.50
</TABLE>
On September 18, 1990, the Board of Directors of Ellwood Federal (the
predecessor to PennFirst and ESB Bank) declared a regular quarterly cash
dividend for the quarter ended September 30, 1990. Thereafter cash dividends
have been reviewed, determined and paid on a quarterly basis. PennFirst intends
to continue to pay quarterly cash dividends subject to determination and
declaration by the Board of Directors, which will take into account the
Company's financial condition and results of operations, tax considerations,
industry standards, economic conditions and other factors, including certain
regulatory restrictions. During the past three years, PennFirst has paid cash
dividends on the following dates:
<TABLE>
<CAPTION>
CASH DIVIDENDS
RECORD DATE PAYMENT DATE PER SHARE
----------- ------------ ---------
<S> <C> <C>
April 7, 1994 April 25, 1994 $.075
July 5, 1994 July 25, 1994 .075
October 5, 1994 October 25, 1994 .075
December 31, 1994 January 25, 1995 .090
April 5, 1995 April 25, 1995 .090
July 5, 1995 July 25, 1995 .090
September 30, 1995 October 25, 1995 .090
December 31, 1995 January 25, 1996 .090
March 31, 1996 April 25, 1996 .090
May 31, 1996 June 25, 1996 .500
June 30, 1996 July 25, 1996 .090
September 30, 1996 October 25, 1996 .090
December 31, 1996 January 24, 1997 .090
</TABLE>
All dividend and stock price information has been adjusted to reflect the two
six-for-five stock splits.
As of December 31, 1996, the Company had approximately 2,500 stockholders of
record. The number of stockholders includes an estimate of the number of
persons or entities who held their stock in nominee or "street" name through
various brokerage firms or entities.
-37-
<PAGE>
- -------------------------------------------------------------------------------
COMMON STOCK MARKET MAKERS
- -------------------------------------------------------------------------------
PennFirst Bancorp, Inc.'s common stock is traded on the Nasdaq National Market
System under the symbol "PWBC" by the following market makers:
LEGG MASON WOOD WALKER INC.
2 Oliver Plaza
Pittsburgh, Pa 15222
(412) 261-7300
HERZOG, HEINE, GEDULD, INC.
26 Broadway
New York, NY 10004
(212) 908-4000
SANDLER O'NEILL & PARTNERS, L.P.
2 World Trade Center
104th Floor
New York, NY 10048
1-800-635-6851
RODGERS BROTHERS INC.
7 Wood Street
7th Floor
Pittsburgh, Pa 15222
(412) 281-1940
RYAN BECK & CO. INC.
80 Main Street
West Orange, NJ 07052
1-800-223-8969
- -------------------------------------------------------------------------------
CORPORATE INFORMATION
- -------------------------------------------------------------------------------
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
PENNFIRST DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Common stock holders may have PennFirst dividends reinvested to purchase
additional shares. Participants may also make optional cash purchases of common
stock through this plan and pay no brokerage commissions or fees. To obtain a
Plan prospectus and authorization card call 1-800-368-5948.
ANNUAL MEETING
The Company's Annual Meeting of Stockholders will be held on April 15, 1997 at
10:00 a.m., Eastern Time, at the Connoquenessing Country Club, R.D. #2, Route
65, Ellwood City, Pennsylvania 16117.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, is available without charge to all
stockholders of record by writing to:
Frank D. Martz, Senior Vice President of Operations and Secretary
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
-38-
<PAGE>
- -------------------------------------------------------------------------------
BOARD OF DIRECTORS
- -------------------------------------------------------------------------------
WILLIAM B. SALSGIVER
Chairman of the Board
Principal of Perry Homes
Zelienople, Pennsylvania
HERBERT S. SKUBA
Vice Chairman of the Board
President & Chief Executive Officer
Ellwood City Hospital
Ellwood City, Pennsylvania
CHARLOTTE A. ZUSCHLAG
President and Chief Executive Officer of the Company
and ESB Bank
Ellwood City, Pennsylvania
GEORGE WILLIAM BLANK, JR.
President of George W. Blank Supply Co., Inc.
Ellwood City, Pennsylvania
CHARLES DELMAN
Retired, Chairman of the Board of Economy Savings
and ESB Bancorp, Inc.
Aliquippa, Pennsylvania
LLOYD L. KILDOO
Owner, Glenn-Kildoo Funeral Homes
Zelienople, Pennsylvania
MARIO J. MANNA
Tax Collector
Borough of Coraopolis, Pennsylvania
EDMUND C. SMITH
Retired, Works Manager
Armco Steel
Ambridge, Pennsylvania
JEFREY F. WALL
Owner, Walls Lawn & Garden
Ambridge, Pennsylvania
The Board of Directors serves in that capacity for both PennFirst Bancorp, Inc.
and ESB Bank with the exception of Messrs. Wall and Manna who serve as
directors solely for ESB Bank.
ESB BANK ADVISORY BOARD:
LOUIS R. BORSANI
Retired, Owner
C&L Supermarket
Aliquippa, Pennsylvania
GIBSON E. BROCK
Retired, Manager of Engineering Administration
Jones & Laughlin Steel Corporation
Aliquippa, Pennsylvania
DR. ALLAN GASTFRIEND
Retired, Dentist
Aliquippa, Pennsylvania
WATSON F. MCGAUGHEY, JR.
President, MBI, Inc.
Ambridge, Pennsylvania
DONALD R. MILLER
President
Miller & Sons Chevrolet
Aliquippa, Pennsylvania
JOHN J. SYKA
Owner, John Syka Funeral Home, Inc.
Ambridge, Pennsylvania
-39-
<PAGE>
- -------------------------------------------------------------------------------
OFFICERS
- -------------------------------------------------------------------------------
PENNFIRST BANCORP, INC.
WILLIAM B. SALSGIVER
Chairman of the Board
CHARLOTTE A. ZUSCHLAG
President and Chief Executive Officer
CHARLES P. EVANOSKI
Senior Vice President and Chief Financial Officer
ROBERT C. HILLIARD, CPA
Senior Vice President of Audit/Compliance
FRANK D. MARTZ
Senior Vice President of Operations and Secretary
TODD F. PALKOVICH
Senior Vice President of Lending
JOHN T. STUNDA
Senior Vice President of Administration
ESB BANK
WILLIAM B. SALSGIVER
Chairman of the Board
CHARLOTTE A. ZUSCHLAG
President and Chief Executive Officer
ROBERT J. COLALELLA
Senior Vice President
CHARLES P. EVANOSKI
Senior Vice President
ROBERT C. HILLIARD, CPA
Senior Vice President
TERESA KRUKENBERG
Senior Vice President
FRANK D. MARTZ
Senior Vice President
TODD F. PALKOVICH
Senior Vice President
JOHN T. STUNDA
Senior Vice President
JOHN W. DONALDSON, II
Vice President
NORMAN L. GIANCOLA
Vice President
PETER J. GRECO
Vice President
WALTER W. GULLA
Vice President
NANCY A. MOORE
Vice President
RUTH A. AMBROSE
Assistant Vice President
KATHLEEN A. BENDER
Assistant Vice President
CHARLOTTE M. BOLINGER
Assistant Vice President
THOMAS E. CAMPBELL
Assistant Vice President
NANCY A. GLITSCH
Assistant Vice President
DEBORAH S. GOEHRING
Assistant Vice President
RONALD J. MANNARINO
Assistant Vice President
SALLY A. MANNARINO
Assistant Vice President
MARILYN R. MAPLE
Assistant Vice President
LARRY MASTREAN
Assistant Vice President
JOSEPH R. PIGONI
Assistant Vice President
MARK A. PLATZ
Assistant Vice President
JOYCE A. STELLITANO
Assistant Vice President
WAYNE ZERISHNEK
Assistant Vice President
PAMELA K. ZIKELI
Assistant Vice President
-40-
<PAGE>
- -------------------------------------------------------------------------------
OFFICE LOCATIONS
- -------------------------------------------------------------------------------
ESB BANK
- - Aliquippa Office
2301 Sheffield Road
Aliquippa, PA 15001
(412) 378-4436
- - Ambridge Office
506 Merchant Street
Ambridge, PA 15003
(412) 266-5002
- - Center Township Office
(Monaca)
1207 Brodhead Road
Monaca, PA 15061
(412) 774-0332
- Coraopolis Office
900 Fifth Avenue
Coraopolis, PA 15108
(412) 264-8862
- - Ellwood City Office
600 Lawrence Avenue
Ellwood City, PA 16117
(412) 758-5584
- - Fox Chapel Office
1060 Freeport Road
Pittsburgh, PA 15238
(412) 782-6500
- - Franklin Township Office
1314 Zelienople Road
Ellwood City, PA 16117
(412) 752-2500
- - New Castle Office
Route #65
New Castle, PA 16101
(412) 654-7781
- - Zelienople Office
Route #19
Zelienople, PA 16063
(412) 452-6500
[MAP]
<PAGE>
PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, PA 16117
<PAGE>
APPENDIX B
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
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
<TABLE>
<S> <C>
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
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST ISSUER OR
THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH
IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.....................................................
Incorporation of Certain Documents by Reference...........................
Summary...................................................................
Selected Consolidated Financial and Other Data of the Company.............
Risk Factors..............................................................
Use of Proceeds...........................................................
Market for the Preferred Securities.......................................
Accounting Treatment......................................................
Ratio of Earnings to Fixed Charges........................................
Capitalization............................................................
Description of the Preferred Securities...................................
Description of the Junior Subordinated Debentures.........................
Description of the Guarantee..............................................
Relationship Among the Preferred Securities, the Junior Subordinated
Debentures, the Expense Agreement and the Guarantee.....................
Certain Federal Income Tax Consequences...................................
ERISA Considerations......................................................
Underwriting..............................................................
Validity of Securities....................................................
Experts...................................................................
Appendix A--Annual Report on Form 10-K for Year Ended December 31, 1996...
Appendix B--Quarterly Report on From 10-Q for the Quarter Ended September
30, 1997................................................................
</TABLE>
$20,000,000
PENNFIRST CAPITAL
TRUST I
% TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT
$10 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
PENNFIRST BANCORP, INC.
---------------------
PROSPECTUS
---------------------
RYAN, BECK & CO.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee.............................................................. $ 6,969
NASD fee.......................................................................... 2,800
Nasdaq fees....................................................................... 6,250
Trustees' fees and expenses....................................................... 5,000
Legal fees and expenses........................................................... 82,500*
Accounting fees and expenses...................................................... 50,000*
Printing expenses................................................................. 40,000*
Underwriters expenses............................................................. 70,000*
Miscellaneous expenses............................................................ 16,481
--------
Total....................................................................... $280,000*
--------
--------
</TABLE>
- ------------------------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the Pennsylvania Business Corporation Act, Article 9 of
the PennFirst Bancorp, Inc. (the "Corporation") 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 take 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
II-1
<PAGE>
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, 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, 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
II-2
<PAGE>
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.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------
<C> <S>
1 Form of Underwriting Agreement
4.1 Indenture of the Corporation relating to the Junior Subordinated Debentures
4.2 Form of Certificate of Junior Subordinated Debenture (included as Exhibit A to Exhibit 4.1)
4.3 Certificate of Trust of PennFirst Capital Trust I
4.4 Amended and Restated Trust Agreement of PennFirst Capital Trust I
4.5 Form of Trust Preferred Security Certificate for PennFirst Capital Trust I
4.6 Form of Guarantee of the Corporation relating to the Trust Preferred Securities
5.1 Opinion and consent of Elias, Matz, Tiernan & Herrick L.L.P. as to legality of the Junior
Subordinated Debentures and the Guarantee to be issued by the Corporation
5.2 Opinion and consent of Richards, Layton & Finger, P.A., as to legality of the Trust Preferred
Securities to be issued by PennFirst Capital Trust I
8 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. as to certain federal income tax matters
12 Computation of ratio of earnings to fixed charges
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in Exhibit 5.1)
23.3 Consent of Richard, Layton & Finger, P.A. (included in Exhibit 5.2)
24 Power of Attorney of certain officers and directors of the Corporation (located on the signature page
to Form S-2)
25.1 Form T-1 Statement of Eligibility of The Bank of New York to act as trustee under the Indenture
25.2 Form T-1 Statement of Eligibility of The Bank of New York to act as trustee under the Declaration of
Trust of PennFirst Capital Trust I
25.3 Form T-1 Statement of Eligibility of The Bank of New York under the Guarantee for the benefit of the
holders of the Trust Preferred Securities
</TABLE>
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
Each of the undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of a 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 this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, 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 trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, 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
question 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.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and 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 6th day of
November 1997.
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 Charles P. Evanoski, and each of them severally, as
his or her attorney-in-fact to sign in his or her name and behalf, in any and
all capacities stated below and to file with the Securities and Exchange
Commission any and all amendments to this Registration Statement on Form S-2,
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.
<TABLE>
<CAPTION>
Name Title Date
- -------------------------- ----------------------------- ----------------------
<S> <C> <C>
/s/ Charlotte A. Zuschlag President and Chief Executive November 6, 1997
- ------------------------- Officer
Charlotte A. Zuschlag (principal executive officer)
/s/ Charles P. Evanoski Senior Vice President of Finance November 6, 1997
- ------------------------- (principal financial and
Charles P. Evanoski accounting officer)
/s/ William B. Salsgiver Chairman of the Board November 6, 1997
- -------------------------
William B. Salsgiver
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
- ----------------------------- ----------------------------- ----------------------
<S> <C> <C>
/s/ Herbert S. Skuba Vice Chairman of the Board November 6, 1997
- -----------------------------
Herbert S. Skuba
/s/ George William Blank, Jr. Director November 6, 1997
- -----------------------------
George William Blank, Jr.
/s/ Lloyd L. Kildoo Director November 6, 1997
- -------------------------
Lloyd L. Kildoo
/s/ Charles Delman Director November 6, 1997
- -------------------------
Charles Delman
/s/ Edmund C. Smith Director November 6, 1997
- -------------------------
Edmund C. Smith
/s/ Edwin A. Thaner Director November 6, 1997
- -------------------------
Edwin A. Thaner
</TABLE>
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, PennFirst
Capital Trust I certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-2 and 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 6th day
of November 1997.
PENNFIRST CAPITAL TRUST I
By: /s/ Charlotte A. Zuschlag
------------------------------------------------
Charlotte A. Zuschlag
Administrative Trustee
By: /s/ Frank D. Martz
------------------------------------------------
Frank D. Martz
Administrative Trustee
By: /s/ Charles P. Evanoski
------------------------------------------------
Charles P. Evanoski
Administrative Trustee
Each of the administrative trustees of PennFirst Capital Trust I whose
signature appears below hereby appoints Charlotte A. Zuschlag and Charles P.
Evanoski, and each of them severally, as his or her attorney-in-fact to sign in
his or her name and behalf, in any and all capacities stated below and to file
with the Securities and Exchange Commission any and all amendments to this
Registration Statement on Form S-2, making such changes in the Registration
Statement as appropriate, and generally to do all such things in their behalf in
their capacities as administrative trustees to enable PennFirst Capital Trust I
to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission.
PENNFIRST CAPITAL TRUST I
By: /s/ Charlotte A. Zuschlag
------------------------------------------------
Charlotte A. Zuschlag
Administrative Trustee
II-7
<PAGE>
By: /s/ Frank D. Martz
------------------------------------------------
Frank D. Martz
Administrative Trustee
By: /s/ Charles P. Evanoski
------------------------------------------------
Charles P. Evanoski
Administrative Trustee
II-8
<PAGE>
Exhibit 1.0
PENNFIRST CAPITAL TRUST I
(a Delaware business trust)
2,000,000 Preferred Securities
____% Cumulative Trust Preferred Securities
(Liquidation Amount $10 per Preferred Security)
UNDERWRITING AGREEMENT
November __, 1997
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, New Jersey 07039
Ladies and Gentlemen:
PennFirst Capital Trust I (the "Trust"), a statutory business trust
organized under the Business Trust Act (the "Delaware Act") of the State of
Delaware (Chapter 38, Title 12, of the Delaware Business Code, 12 Del. C.
Section 3801 et seq.), and PennFirst Bancorp, Inc., a Pennsylvania corporation
(the "Company"), as depositor of the Trust and as guarantor (hereafter the Trust
and the Company are referred to collectively as the "Offerors"), hereby confirm
their agreement (the "Agreement") with Ryan Beck & Co., Inc. ("You" or the
"Underwriter"), with respect to the issue and sale by the Trust and the purchase
by the Underwriter of 2,000,000 (the "Initial Securities") of the Trust's ____%
Cumulative Trust Preferred Securities (the "Preferred Securities"). The Trust
and the Company also propose to issue and sell to the Underwriter, at the
Underwriter's option, up to an additional 300,000 Preferred Securities (the
"Option Securities") as set forth herein. The term "Preferred Securities" as
used herein, unless indicated otherwise, shall mean the Initial Securities and
the Option Securities.
The Preferred Securities and the Common Securities (as defined herein)
are to be issued pursuant to the terms of an Amended and Restated Trust
Agreement dated as of the Closing Time (as hereinafter defined) (the "Trust
Agreement"), among the Offerors, The Bank of New York ("Trust Company"), a New
York banking corporation, as property trustee ("Property Trustee"), and The Bank
of New York (Delaware), as Delaware trustee ("Delaware Trustee"), and Charlotte
A.
<PAGE>
Zuschlag, Charles P. Evanoski and Frank D. Martz (the "Administrative
Trustees" and, together with the Property Trustee and the Delaware Trustee, (the
"Trustees") and the holders from time to time of undivided interests in the
assets of the Trust. The Preferred Securities will be guaranteed by the
Company, on a subordinated basis and subject to certain limitations, with
respect to distributions and payments upon liquidation, redemption or otherwise
(the "Guarantee") pursuant to the Guarantee Agreement dated as of the Closing
Time (the "Guarantee Agreement"), between the Company and the Trust Company, as
guarantee trustee (the "Guarantee Trustee"). The Company will guarantee the
full payment of any costs, expenses or liabilities of the Trust, other than
obligations of the Trust to pay to the holders of Preferred Securities the
amounts due to such holders, pursuant to the Agreement as to Expenses and
Liabilities dated as of the Closing Time between the Trust and the Company
("Expense Agreement"). The assets of the Trust will consist of ____% junior
subordinated debentures due _________ __, 2027 (the "Junior Subordinated
Debentures") of the Company which will be issued under the Indenture dated as of
the Closing Time (the "Indenture"), between the Company and the Trust Company,
as trustee (the "Indenture Trustee"). Under certain circumstances, the Junior
Subordinated Debentures will be distributable to the holders of undivided
beneficial interests in the assets of the Trust. The entire proceeds from the
sale of the Preferred Securities will be combined with the entire proceeds from
the sale by the Trust to the Company of the Trust's common securities (the
"Common Securities"), and will be used by the Trust to purchase an equivalent
amount of the Junior Subordinated Debentures.
The initial public offering price for the Preferred Securities, the
purchase price to be paid by the Underwriter for the Preferred Securities, the
commission per Preferred Security to be paid by the Company to the Underwriters
and the rate of interest to be paid on the Preferred Securities shall be agreed
upon by the Company and the Underwriter, and such agreement shall be set forth
in a separate written instrument substantially in the form of Exhibit A hereto
(the "Price Determination Agreement"). The Price Determination Agreement may
take the form of an exchange of any standard form of written telecommunication
between the Company and the Underwriter and shall specify such applicable
information as is indicated in Exhibit A hereto. Such Price Determination
Agreement shall be executed no later than 5:30 p.m. on the first business day
following the date hereof. The offering of the Preferred Securities will be
governed by this Agreement, as supplemented by the Price Determination
Agreement. From and after the date of the execution and delivery of the Price
Determination Agreement, this Agreement shall be deemed to incorporate, and all
references herein to "this Agreement" shall be deemed to include, the Price
Determination Agreement.
The Offerors have prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-2 (File Nos.
333-_____ and 333-________) for the registration of the Preferred Securities,
the Guarantee and the Junior Subordinated Debentures under the Securities Act of
1933, as amended (the "1933 Act"), including the related preliminary prospectus
or prospectuses, and, if such registration statement has not become effective,
the Company will prepare and file, prior to the effective date of such
registration statement, an amendment to such registration statement, including a
final prospectus. Each prospectus used before the time such registration
statement becomes effective is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto and the documents
incorporated by
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reference therein pursuant to Item 12 of Form S-2 under the 1933
Act, at the time it becomes effective, is herein called the "Registration
Statement," and the prospectus, including the documents incorporated by
reference therein pursuant to Item 12 of Form S-2 under the 1933 Act, included
in the Registration Statement at the time it becomes effective is herein called
the "Prospectus" except that, if any revised prospectus provided to the
Underwriter by the Company for use in connection with the offering of the
Preferred Securities differs from the prospectus included in the Registration
Statement at the time it becomes effective (whether or not such prospectus is
required to be filed pursuant to Rule 424(b)), the term "Prospectus" shall refer
to such revised prospectus from and after the time it is first furnished to the
Underwriter for such use.
The Company understands that the Underwriter proposes to make a public
offering of the Preferred Securities (the "Offering") as soon as possible after
the Registration Statement becomes effective. The Underwriter may assemble and
manage a selling group of broker-dealers that are members of the National
Association of Securities Dealers, Inc. ("NASD") to participate in the
solicitation of purchase orders for the Preferred Securities under the form of a
master selected dealer agreement or similar form of dealer agreement, which the
Underwriter has entered into with such broker dealers.
Section 1. Representations and Warranties.
(a) The Offerors jointly and severally represent and warrant to and
agree with the Underwriter that:
(i) The Company meets the requirements for use of Form S-2 under the
1933 Act and when the Registration Statement on such form shall become
effective and at the Closing Time referred to below and, with respect to
Option Securities, on the Date of Delivery referred to below, (A) the
Registration Statement and any amendments and supplements thereto will
comply in all material respects with the requirements of the 1933 Act and
the rules and regulations of the Commission under the 1933 Act (the "1933
Act Regulations"); (B) neither the Registration Statement nor any amendment
or supplement thereto will contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; and (C) neither the Prospectus nor any
amendment or supplement thereto will include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, except that none of the representations and
warranties in this Section 1(a)(i)(B) & (C) shall apply to statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Offerors by the Underwriter expressly for use
in the Registration Statement or the Prospectus, [or any information
contained in any Form T-1 which is an exhibit to the Registration
Statement.] The statements contained under the caption "Underwriting" in
the Registration Statement or the Prospectus constitute the only
information furnished to the Offerors in writing by the Underwriter
expressly for use in the Registration Statement or the Prospectus.
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(ii) The documents incorporated by reference in the Prospectus
pursuant to Item 12 of Form S-2 under the 1933 Act, at the time they were
filed with the Commission, complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the rules and regulations of the Commission thereunder (the
"1934 Act Regulations") and, when read together and with the other
information in the Prospectus, at the time the Registration Statement
becomes effective and at all times subsequent thereto up to the Closing
Time, will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order
to make the statements therein not misleading, in each case after excluding
any statement that does not constitute a part of the Registration Statement
or the Prospectus pursuant to Rule 412 of the 1933 Act Regulations.
(iii) KPMG Peat Marwick, LLP, who are reporting upon the audited
financial statements included or incorporated by reference in the
Registration Statement, are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iv) This Agreement has been duly authorized, executed and delivered
by the Offerors and, when duly executed by the Underwriter, will constitute
the valid and binding agreement of the Offerors enforceable against the
Offerors in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, or reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles. The Guarantee Agreement, the Junior
Subordinated Debentures, the Trust Agreement and the Indenture have each
been duly authorized by the Company and when validly executed and delivered
by the Company and, in the case of the Guarantee, by the Guarantee Trustee,
in the case of the Trust Agreement, by the Trustees, and in the case of the
Indenture, by the Indenture Trustee, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their
respective terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, or reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or general equitable
principles; the Junior Subordinated Debentures are entitled to the benefits
of the Indenture; and the Guarantee Agreement, the Junior Subordinated
Debentures, the Trust Agreement and the Indenture conform, in all material
respects, to the descriptions thereof in the Prospectus. The Trust
Agreement, the Guarantee Agreement, and the Indenture have been duly
qualified under the Trust Indenture Act of 1939, amended (the "TIA").
(v) The consolidated financial statements, audited and unaudited
(including the Notes thereto), included or incorporated by reference in the
Registration Statement present fairly the consolidated financial position
of the Company and its subsidiaries as of the dates indicated therein and
the consolidated statements of income and cash flows of the Company and its
subsidiaries for the periods specified therein. Such financial statements
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved,
except as otherwise stated therein. The financial statement schedules, if
any, included in the Registration Statement present fairly the
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information required to be stated therein. The selected financial, pro
forma and statistical data included in the Prospectus are accurate in all
material respects and present fairly the information shown therein and have
been compiled on a basis consistent with that of the audited consolidated
financial statements included or incorporated by reference in the
Registration Statement.
(vi) The Company is a corporation duly organized, validly existing and
in good standing under the laws of Pennsylvania with corporate power and
authority under such laws to own, lease and operate its properties and
conduct its business as described in the Prospectus. The Company is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of
a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect on
the condition (financial or otherwise), earnings, business affairs, assets
or business prospects of the Company and its subsidiaries, considered as
one enterprise.
(vii) The Company is duly registered as a savings and loan holding
company under the Home Owners' Loan Act of 1933, as amended ("HOLA"); each
subsidiary of the Company that conducts business as a bank is duly
authorized to conduct such business in each jurisdiction in which such
business is currently conducted, except to the extent that the failure to
be so authorized would not have a material adverse effect on the Company
and its subsidiaries, considered as one enterprise; and the deposit
accounts of ESB Bank, FSB and Troy Hill Federal Savings Bank (collectively,
the "Bank") are insured by the Savings Association Insurance Fund of the
Federal Deposit Insurance Corporation ("FDIC") up to the maximum allowable
limits thereof. The Offerors have all such power, authority,
authorization, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and to issue
and sell the Preferred Securities.
(viii) The Bank is a federally chartered stock savings bank duly
organized, validly existing and in good standing under the laws of the
United States with corporate power and authority under such laws to own,
lease and operate its properties and conduct its business; the Bank is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of
a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so
qualify or be in good standing would not have a material adverse effect on
the condition (financial or otherwise), earnings, business affairs, assets
or business prospects of the Company and its subsidiaries, considered as
one enterprise. All of the outstanding shares of capital stock of the Bank
have been duly authorized and validly issued and are fully paid and
non-assessable and are owned by the Company directly, free and clear of any
pledge, lien, security interest, charge, claim, equity or encumbrance of
any kind.
(ix) Except for the Bank and the Trust, the Company does not have any
"significant subsidiaries" as defined in Rule 1-02 of Regulation S-X under
the 1933 Act.
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(x) The Company had at the date indicated a duly authorized and
outstanding capitalization as set forth in the Prospectus under the caption
"Capitalization"; the capital stock of the Company, and the Subordinated
Debentures conform in all material respects to the description thereof
contained or incorporated by reference in the Prospectus and such
description conforms to the rights set forth in the instruments defining
the same.
(xi) The Preferred Securities have been duly and validly authorized by
the Trust for issuance and sale to the Underwriter pursuant to this
Agreement and, when executed and authenticated in accordance with the terms
of the Trust Agreement and delivered by the Trust to the Underwriter
pursuant to this Agreement against payment of the consideration set forth
herein, will be validly issued and fully paid and non-assessable. The
Trust Agreement has been duly authorized by the Trust and, when executed by
the Property Trustee and the Administrative Trustees of the Trust and
delivered by the Trust, will have been duly executed and delivered by the
Trust and will constitute the valid and legally binding instrument of the
Trust, enforceable in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting enforcement of creditors'
rights generally or by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law). The Preferred
Securities conform, in all material respects, to the statements relating
thereto contained in the Prospectus and such description conforms, in all
material respects, to the rights set forth in the instruments defining the
same; the holders of the Preferred Securities (the "Security holders") will
be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware; and the issuance of the Preferred
Securities is not subject to the preemptive or other similar rights of any
security holder of the Company.
(xii) The Common Securities have been duly and validly authorized by
the Trust and upon delivery by the Trust to the Company against payment
therefor as described in the Prospectus, will be duly and validly issued
and fully paid undivided beneficial interests in the assets of the Trust
and will conform, in all material respects, to the description thereof
contained in the Prospectus and such description conforms, in all material
respects, to the rights set forth in the instruments defining the same; the
issuance of the Common Securities is not subject to preemptive or other
similar rights; and at the Closing Time, all of the issued and outstanding
Common Securities of the Trust will be directly owned by the Company free
and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity.
(xiii) The Trust has been duly created and is validly existing as a
statutory business trust in good standing under the Delaware Act with the
power and authority to own, lease and operate its properties and conduct
its business as described in the Prospectus, and the Trust has conducted no
business to date, and it will conduct no business in the future that would
be inconsistent with the description of the Trust set forth in the
Prospectus; the Trust is not a party to or bound by any agreement or
instrument other than this Agreement, the Trust Agreement and the
agreements and instruments contemplated by the Trust Agreement or
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<PAGE>
described in the Prospectus; the Trust has no liabilities or obligations
other than those arising out of the transactions contemplated by this
Agreement and the Trust Agreement and described in the Prospectus; and the
Trust is not a party to or subject to any action, suit or proceeding of any
nature.
(xiv) The issuance and sale of the Preferred Securities and the
Common Securities by the Trust, the compliance by the Trust with all of the
provisions of this Agreement, the purchase of the Junior Subordinated
Debentures by the Trust, and the consummation of the transactions herein
contemplated will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture, loan
agreement, mortgage, deed of trust or other agreement or instrument to
which the Trust is a party or by which the Trust is bound or to which any
of the property or assets of the Trust is subject, nor will such action
result in any violation by the Trust of the provisions of the Trust
Agreement or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Trust or any of
its properties, except in any case for such conflicts, breaches, defaults
or violations that would not have a material adverse effect on the
condition (financial or otherwise), earnings, business affairs, assets or
business prospects of the Company and its subsidiaries, considered as one
enterprise; and no consent, approval, authorization, order, license,
certificate, permit, registration or qualification of or with any such
court or other governmental agency or body is required to be obtained by
the Trust for the issue and sale of the Preferred Securities and the Common
Securities by the Trust, the purchase of the Junior Subordinated Debentures
by the Trust or the consummation by the Trust of the transactions
contemplated by this Agreement and the Trust Agreement, except for such
consents, approvals, authorizations, licenses, certificates, permits,
registrations or qualifications as have already been obtained, or as may be
required under the 1933 Act or the 1933 Act Regulations, 1934 Act or 1934
Act Regulations, state securities laws or under the TIA.
The issuance by the Company of the Guarantee and the Junior
Subordinated Debentures, the compliance by the Company with all of the
provisions of this Agreement, the execution, delivery and performance by
the Company of the Trust Agreement, the Junior Subordinated Debentures, the
Guarantee Agreement and the Indenture, and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any material indenture, loan agreement,
mortgage, deed of trust, or other material agreement or instrument to which
the Company is a party or by which the Company is bound or to which any of
the property or assets of the Company is subject, nor will such action
result in any violation by the Company of the provisions of the Certificate
of Incorporation or by-laws of the Company or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its properties, except in any case
for such conflicts, breaches, defaults or violations that would not have a
material adverse effect on the condition (financial or otherwise),
earnings, business affairs, assets or business prospects of the Company and
its subsidiaries, considered as one enterprise;
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<PAGE>
and no consent, approval, authorization, order, license, certificate,
permit, registration or qualification of or with any such court or other
governmental agency or body is required to be obtained by the Company for
the issue of the Guarantee and the Junior Subordinated Debentures or the
consummation by the Company of the other transactions contemplated by this
Agreement, except for such consents, approvals, authorizations, licenses,
certificates, permits, registrations or qualifications as have already been
obtained, or as may be required under the 1933 Act or the 1933 Act
Regulations, 1934 Act or 1934 Act Regulations, state securities laws or
under the TIA.
(xv) The Trust is not, and after giving effect to the offering and
sale of the Preferred Securities will not be, an "investment company," or
an entity "controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act").
(xvi) All of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable, and none of the outstanding shares of capital stock was
issued in violation of the preemptive rights of any stockholder of the
Company.
(xvii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, there has not been (A) any material adverse change in the
condition (financial or otherwise), earnings, business affairs, assets or
business prospects of the Company and its subsidiaries, considered as one
enterprise, whether or not arising in the ordinary course of business, (B)
any transaction entered into by the Company or any subsidiary, other than
in the ordinary course of business, that is material to the Company and its
subsidiaries, considered as one enterprise, or (C) any dividend or
distribution of any kind declared, paid or made by the Company on its
capital stock, excluding the regular quarterly dividend paid on its common
stock. Neither the Company nor the Bank has any material liability of any
nature, contingent or otherwise, except as set forth in the Prospectus.
(xviii) Neither the Company nor the Bank is in violation of any
provision of its charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which it may be bound
or to which any of its properties may be subject, except for such defaults
that would not have a material adverse effect on the condition (financial
or otherwise), earnings, business affairs, assets or business prospects of
the Company and its subsidiaries, considered as one enterprise.
(xix) Except as disclosed in the Prospectus, there is no action, suit
or proceeding before or by any government, governmental instrumentality or
court, domestic or foreign, now pending or, to the knowledge of the
Company, threatened against the Company or the Bank that is required to be
disclosed in the Prospectus or that could reasonably be expected
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<PAGE>
to result in any material adverse change in the condition (financial or
otherwise), earnings, business affairs, assets or business prospects of the
Company and its subsidiaries, considered as one enterprise, or that could
reasonably be expected to materially and adversely affect the properties or
assets of the Company and its subsidiaries, considered as one enterprise,
or that could reasonably be expected to materially and adversely affect the
consummation of the transactions contemplated in this Agreement; all
pending legal or governmental proceedings to which the Company or the Bank
is a party that are not described in the Prospectus, including ordinary
routine litigation incidental to its business, if decided in a manner
adverse to the Company, would not have a material adverse effect on the
condition (financial or otherwise), earnings, business affairs or business
prospects of the Company and its subsidiaries, considered as one enterprise.
(xx) There are no material contracts or documents of a character
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not
described and filed as required.
(xxi) The Company and the Bank each has good and marketable title to
all properties and assets described in the Prospectus as owned by it, free
and clear of all liens, charges, encumbrances or restrictions, except such
as (A) are described in the Prospectus or (B) are neither material in
amount nor materially significant in relation to the business of the
Company and its subsidiaries, considered as one enterprise; all of the
leases and subleases material to the business of the Company and its
subsidiaries, considered as one enterprise, and under which the Company or
the Bank holds properties described in the Prospectus, are in full force
and effect, and neither the Company nor the Bank has any notice of any
material claim that has been asserted by anyone adverse to the rights of
the Company or the Bank under any of the leases or subleases mentioned
above, or affecting or questioning the rights of such corporation to the
continued possession of the leased or subleased premises under any such
lease or sublease.
(xxii) Each of the Company and the Bank owns, possesses or has
obtained all material governmental licenses, permits, certificates,
consents, orders, approvals and other authorizations necessary to own or
lease, as the case may be, and to operate its properties and to carry on
its business as presently conducted, and neither the Company nor the Bank
has received any notice of any restriction upon, or any notice of
proceedings relating to revocation or modification of, any such licenses,
permits, certificates, consents, orders, approvals or authorizations.
(xxiii) Except as disclosed in the Prospectus, no labor problem
exists with the employees of the Company or with employees of the Bank or,
to the best knowledge of the Company, is imminent that could, materially
adversely affect the Company and its subsidiaries, considered as one
enterprise, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or the Bank's principal
suppliers, contractors or customers that could reasonably be expected to
materially adversely affect the
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condition (financial or otherwise), earnings, business affairs or business
prospects of the Company and its subsidiaries, considered as one enterprise.
(xxiv) There are no persons with registration or other similar rights
to have any securities of the Company registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act.
(xxv) Except as disclosed in the Prospectus, the Company and the Bank
own or possess all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets or other unpatented and/or
unpatentable proprietary or confidential information systems or
procedures), trademarks, servicemarks and tradenames (collectively, "patent
and proprietary rights") currently employed by them in connection with the
business now operated by them except where the failure to so own, possess
or acquire such patent and proprietary rights would not have a material
adverse effect on the condition, financial or otherwise, or the earnings,
business affairs, assets or business prospects of the Company and its
subsidiaries considered as one enterprise, and neither the Company nor the
Bank has received any notice nor is otherwise aware of any infringement of
or conflict with asserted rights of others with respect to any patent or
proprietary rights, and which infringement or conflict (if the subject of
any unfavorable decision, rule and refinement, singly or in the aggregate)
could reasonably be expected to result in any material adverse change in
the condition, financial or otherwise, or in the earnings, business
affairs, assets or business prospects of the Company and its subsidiaries
considered as one enterprise.
(xxvi) The Company and each subsidiary of the Company have filed all
Federal, state and local income, franchise or other tax returns required to
be filed and have made timely payments of all taxes due and payable
indicated by such returns and no material deficiency has been asserted with
respect thereto by any taxing authority.
(xxvii) The Company has filed with NASD all documents and notices
required by NASD of companies that have issued securities that are traded
in the over-the-counter market and quotations for which are reported by the
Nasdaq National Market of the Nasdaq Stock Market, Inc. ("Nasdaq Stock
Market").
(xxviii) Neither the Trust nor the Company or any Subsidiary has
taken or will take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected
to constitute, the stabilization or manipulation, under the Exchange Act or
otherwise, of the price of the Preferred Securities.
(xxix) Neither the Company nor the Bank is or has been (by virtue of
any action, omission to act, contract to which it is a party or by which it
is bound, or any occurrence or state of facts whatsoever) in violation of
any applicable Federal, state, municipal, or local statutes, laws,
ordinances, rules, regulations and/or orders issued pursuant to foreign,
federal, state, municipal, or local statutes, laws, ordinances, rules, or
regulations (including those
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relating to any aspect of banking, bank holding companies, environmental
protection, occupational safety and health, and equal employment practices)
heretofore or currently in effect, except such violation that has been fully
cured or satisfied without recourse or that is not reasonably likely to have
a material adverse effect on the Company or the Bank.
(xxx) The Company and the Bank have no agreement or understanding
with any entity concerning the future acquisition by the Company or the
Bank of a controlling interest in any entity that is required by the 1933
Act or the 1933 Act Regulations to be disclosed by the Company that is not
disclosed in the Prospectus; the Company and the Bank have no agreement or
understanding with any entity concerning the future acquisition of a
controlling interest in the Company or the Bank by any entity that is
required by the 1933 Act or the 1933 Act Regulations to be disclosed by the
Company that is not disclosed in the Prospectus.
(b) Any certificate signed by any authorized officer of the Company
or the Bank and delivered to the Underwriter or to counsel for the Underwriter
pursuant to this Agreement shall be deemed a representation and warranty by the
Company to the Underwriter as to the matters covered thereby.
Section 2. Sale and Delivery to the Underwriter; Closing.
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the Trust
agrees to sell to the Underwriter, and the Underwriter agrees to purchase from
the Trust 2,000,000 Initial Securities at the purchase price and terms set forth
herein and in the Price Determination Agreement.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Trust
hereby grants an option to the Underwriter to purchase up to 300,000 Option
Securities in accordance with the terms set forth herein and in the Price
Determination Agreement. The option hereby granted will expire at 5:00 p.m. on
the 30th day after the date the Registration Statement is declared effective by
the Commission (or at 5:00 p.m. on the next business day if such 30th day is not
a business day) and may be exercised, on one occasion only, solely for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Securities upon notice by you to the
Company setting forth the number of Option Securities as to which the
Underwriter is exercising the option and the time, date and place of payment and
delivery for the Option Securities. Such time and date of delivery (the "Option
Closing Date") shall be determined by the Underwriter but shall not be later
than five full business days after the date on which the notice of the exercise
of the option shall have been given, nor in any event prior to Closing Time, as
hereinafter defined, nor earlier than the second business day after the date on
which the notice of the exercise of the option shall have been given.
(b) Payment of the purchase price for, and delivery of certificates
for, the Initial Securities shall be made at the offices of Elias, Matz, Tiernan
& Herrick, LLP, or at such other place
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as shall be agreed upon by the Company and the Underwriter, at 9:30 a.m. on the
third full business day after the effective date of the Registration Statement,
or at such other time not more than seven full business days thereafter as you
and the Company shall determine (such date and time of payment and delivery
being herein called the "Closing Time"). In addition, in the event that any or
all of the Option Securities are purchased by the Underwriter, payment of the
purchase price for, and delivery of certificates for, such Option Securities
shall be made at the above-mentioned office of Elias, Matz, Tiernan & Herrick,
LLP, or at such other place as shall be agreed upon by the Company and the
Underwriter, on the Option Closing Date as specified in the notice from the
Underwriter to the Company. Payment for the Initial Securities and the Option
Securities, if any, shall be made to the Company by wire transfer of
immediately available funds, against delivery to the Underwriter for the account
of the Underwriter of Preferred Securities to be purchased by it.
(c) The Initial Securities shall be issued in the form of one or more
fully registered global securities (the "Global Securities") in book-entry form
in such denominations and registered in the name of the nominee of The
Depository Trust Company (the "DTC") or in such names as the Underwriter may
request in writing at least two business days before the Closing Date or the
Option Closing Date, as the case may be. The Global Securities representing the
Initial Securities or the Option Securities to be purchased will be made
available in Washington, D.C. for examination by the Underwriter and counsel to
the Underwriter not later than 10:00 A.M. on the business day prior to the
Closing Time or the Option Closing Date, as the case may be.
Section 3. Certain Covenants of the Offerors. Each of the Offerors
covenants jointly and severally with the Underwriter as follows:
(a) The Offerors will use their best efforts to cause the
Registration Statement to become effective and will notify the Underwriter
immediately, and confirm the notice in writing, (i) when the Registration
Statement, or any post-effective amendment to the Registration Statement, shall
have become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments from the
Commission (iii) of any request of the Commission to amend the Registration
Statement or amend or supplement the Prospectus or for additional information
and (iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Preferred Securities or capital stock, for offering or sale
in any jurisdiction, or of the institution or threatening of any proceedings for
any of such purposes. The Offerors will use every reasonable effort to prevent
the issuance of any such stop order or of any order preventing or suspending
such use and, if any such order is issued, to obtain the lifting thereof at the
earliest possible moment.
(b) The Offerors will not at any time file or make any amendment to
the Registration Statement, or any amendment or supplement, if the Offerors have
elected to rely upon Rule 430A, to the Prospectus (including documents
incorporated by reference into such prospectus or to the Prospectus) of which
the Underwriter shall not have previously been advised and have
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previously been furnished a copy, or to which the Underwriter or counsel for
the Underwriter shall reasonably object.
(c) The Offerors have furnished or will furnish to you as many signed
and conformed copies of the Registration Statement as originally filed and of
each amendment thereto, whether filed before or after the Registration Statement
becomes effective, copies of all exhibits and documents filed therewith
(including documents incorporated by reference into the Prospectus pursuant to
Item 12 of Form S-2 under the 1933 Act) and signed copies of all consents and
certificates of experts as you may reasonably request.
(d) The Offerors will deliver or cause to be delivered to the
Underwriter, without charge, from time to time until the effective date of the
Registration Statement, as many copies of each preliminary prospectus as the
Underwriter may reasonably request, and the Offerors hereby consent to the use
of such copies for purposes permitted by the 1933 Act. The Offerors will deliver
or cause to be delivered to the Underwriter, without charge, as soon as the
Registration Statement shall have become effective (or, if the Offerors have
elected to rely upon Rule 430A, as soon as practicable after the Price
Determination Agreement has been executed and delivered) and thereafter from
time to time as requested during the period when the Prospectus is required to
be delivered under the 1933 Act, such number of copies of the Prospectus (as
supplemented or amended) as the Underwriter may reasonably request.
(e) The Company will comply to the best of its ability with the 1933
Act and the 1933 Act Regulations, and the 1934 Act and the 1934 Act Regulations,
so as to permit the completion of the distribution of the Preferred Securities
as contemplated in this Agreement and in the Prospectus. If, at any time when a
prospectus is required by the 1933 Act to be delivered in connection with sales
of the Preferred Securities, any event shall occur or condition exist as a
result of which it is necessary, in the reasonable opinion of counsel for the
Underwriter or counsel for the Offerors, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the reasonable opinion of either such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such untrue statement or omission or to make the Registration Statement
or the Prospectus comply with such requirements.
(f) The Offerors will use their best efforts, in cooperation with the
Underwriter, to qualify the Preferred Securities and the Junior Subordinated
Debentures for offering and sale under the applicable securities laws of such
states and other jurisdictions as the Underwriter may designate in writing and
to maintain such qualifications in effect for a period of not less than one year
from the effective date of the Registration Statement; provided, however, that
the Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or
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as a dealer in securities in any jurisdiction in which it is not so qualified or
to subject itself to taxation in respect of doing business in any jurisdiction
in which it is not otherwise so subject. The Company will file such statements
and reports as may be required by the laws of each jurisdiction in which the
Preferred Securities have been qualified as above provided.
(g) The Company will make generally available (within the meaning of
Rule 158) as soon as practible, but not later than the Availability Date (as
defined below) to its security holders, the Underwriter and the Security holders
an earnings statement (which need not be audited) of the Company and its
subsidiary (in form complying with the provisions of Rule 158 of the 1933 Act
Regulations) covering a period of at least 12 months beginning after the
effective date of the Registration Statement. For the purpose of the preceding
sentence, "Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such effective date,
except that, if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Availability Date" means the 90th day after the end of such fourth
fiscal quarter.
(h) The Trust shall apply the proceeds from its sale of the Preferred
Securities, combined with the entire proceeds from the issuance by the Trust to
the Company of the Trust's Common Securities, to purchase an equivalent amount
of Junior Subordinated Debentures. The Company and the Bank will use the net
proceeds received by them from the sale of the Junior Subordinated Debentures in
the manner specified in the Prospectus under the caption "Use of Proceeds".
(i) The Offerors, during the period when the Prospectus is required
to be delivered under the 1933 Act, will file promptly all documents required to
be filed with the Commission pursuant to Section 13 or 14 of the 1934 Act
subsequent to the time the Registration Statement becomes effective.
(j) For a period of five years after the Closing Time, the Company
will furnish to the Underwriter, copies of all annual reports, quarterly reports
and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or
such other similar forms as may be designated by the Commission, and such other
documents, reports, Proxy Statements, and information as shall be furnished by
the Company to its stockholders generally.
(k) The Offerors will cause the Preferred Securities to be listed and
will file with the Nasdaq Stock Market all documents and notices required by the
Nasdaq Stock Market of companies that have issued securities that are traded in
the over-the-counter market and quotations for which are reported by the Nasdaq
Stock Market.
(l) The Company shall pay for the legal fees and related filing fees
to your counsel to prepare one or more "blue sky" surveys (each, a "Blue Sky
Survey") for use in connection with the offering of the Preferred Securities as
contemplated by the Prospectus and a copy of such Blue Sky Survey or surveys
shall be delivered to each of the Company and the Underwriter.
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(m) If, at the time the Registration Statement becomes effective, any
information shall have been omitted therefrom in reliance upon Rule 430A of the
1933 Act Regulations, then the Offerors will prepare, and file or transmit for
filing with the Commission in accordance with such Rule 430A and Rule 424(b),
copies of an amended Prospectus, or, if required by such Rule 430A, a
post-effective amendment to the Registration Statement (including an amended
Prospectus), containing all information so omitted.
(n) The Company will, at its expense, subsequent to the issuance of
the Preferred Securities, prepare and distribute to each of the Underwriter and
counsel to the Underwriter, copies of all the documents used in connection with
the issuance of the Preferred Securities in the form of a Closing Bound Volume.
(o) The Offerors will not, prior to the Option Closing Date or thirty
(30) days after the date of this Agreement, whichever occurs first, incur any
material liability or obligation, direct or contingent, or enter into any
material transaction, other than in the ordinary course of business, or any
transaction with a related party which is required to be disclosed in the
Prospectus pursuant to Item 404 of Regulation S-K under the Securities Act,
except as contemplated by the Prospectus.
(p) During a period of ten days from the date of the Prospectus,
neither the Trust nor the Company will, without the prior written consent of the
Underwriter, directly or indirectly, offer, sell, offer to sell, or otherwise
dispose of any Preferred Securities, any other beneficial interests in the
assets of the Trust, or any preferred securities or other securities of the
Trust or the Company which are substantially similar to the Preferred
Securities, including any guarantee of such securities. The foregoing sentence
shall not apply to any of the Preferred Securities to be sold hereunder.
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Section 4. Payment of Expenses and Advisory Fee.
(a) The Company will pay and bear all costs and expenses incident to
the performance of its and the Trust's obligations under this Agreement,
including (a) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits), as originally filed and as
amended, the preliminary prospectuses and the Prospectus and any amendments or
supplements thereto, and the cost of furnishing copies thereof to the
Underwriter, (b) the preparation, printing and distribution of this Agreement,
the Preferred Securities and the Blue Sky Survey, (c) the issuance and delivery
of the Preferred Securities to the Underwriter, including any transfer taxes
payable upon the sale of the Preferred Securities to the Underwriter, (d) the
fees and disbursements of the Company's counsel and accountants, (e) NASD filing
fees, (f) fees and disbursements of counsel in connection with the Blue Sky
Survey, (g) the qualification of the Preferred Securities under the applicable
securities laws in accordance with Section 3(f) and any filing fee for review of
the offering with the NASD, (h) the legal fees and expenses of the Underwriter's
counsel (such counsel's fees shall not exceed $55,000 (exclusive of
out-of-pocket expenses of counsel) and general out-of-pocket expenses of the
Underwriter not to exceed $5,000, (i) the fees and expenses of the Indenture
Trustee, including the fees and disbursements of counsel for the Indenture
Trustee, in connection with the Indenture and the Junior Subordinated
Debentures; (j) the fees and expenses of the Property Trustee and Delaware
Trustee, including the fees and disbursements of counsel for the Property
Trustee and the Delaware Trustee, in connection with the Trust Agreement and the
Certificate of Trust, and (k) all other costs incident to the performance of the
Offerors' obligations hereunder.
If (i) the Closing Time does not occur on or before December 31, 1997,
(ii) the Company abandons or terminates the Offering, or (iii) this Agreement is
terminated by the Underwriter in accordance with the provisions of Section 5 or
11(a), the Company shall reimburse the Underwriter for all its reasonable
out-of-pocket expenses, as set forth in this Section 4, including the reasonable
fees and disbursements of counsel for the Underwriter.
Section 5. Conditions of Underwriter's Obligations. The obligations
of the Underwriter to purchase and pay for the Preferred Securities that it has
agreed to purchase pursuant to this Agreement are subject to the accuracy of the
representations and warranties of the Offerors contained herein or in
certificates of the officers or trustees of the Offerors or any subsidiary
delivered pursuant to the provisions hereof, to the execution of the Price
Determination Agreement no later than 5:30 p.m. on the first business day
following the date hereof, or at such later time as you may agree in writing (in
your sole discretion), to the performance by the Offerors of their obligations
hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date of this Agreement or, with your consent, at a later
time and date not later, however, than 5:30 P.M. on the first business day
following the date hereof, or at such later time or on such later date as you
may agree to in writing; at the Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no
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proceedings for that purpose shall have been instituted or shall
be pending or, to the Underwriter's knowledge or the knowledge of the Offerors
shall be contemplated by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of counsel for the Underwriter. If the Offerors have elected to
rely upon Rule 430A, a prospectus containing the Rule 430A Information shall
have been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A).
(b) At the Closing Time, you shall have received:
(i) The favorable opinion, dated as of Closing Time, of Elias, Matz,
Tiernan & Herrick, LLP, counsel for the Company, in form and substance
reasonably satisfactory to counsel for the Underwriter, substantially in
the form set forth in Exhibit B.
(ii) The favorable opinion, dated as of Closing Time, of Richards,
Layton & Finger, special Delaware counsel for the Offerors, in form and
substance satisfactory to counsel for the Underwriter, substantially in the
form set forth in Exhibit C.
(iii) The favorable opinion, dated as of Closing Time, of Emmet,
Marvin & Martin, LLP, counsel for the Indenture Trustee and the Delaware
Trustee, in form and substance satisfactory to counsel for the Underwriter,
substantially in the form set forth in Exhibit D.
(iv) The favorable opinion, dated as of Closing Time, of Silver,
Freedman & Taff, L.L.P., counsel for the Underwriter, in form and substance
satisfactory to the Underwriter.
In giving such opinion, such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the federal law of the United
States, upon opinions of other counsel, who shall be counsel satisfactory to
counsel for the Underwriter (the Underwriter agrees and acknowledges that,
Elias, Matz, Tiernan & Herrick, LLP and Silver, Freedman & Taff, L.L.P. will
rely on the opinion of Richards, Layton & Finger with respect to matters of
Delaware law), in which case the opinion shall state that counsel believes that
you and your counsel are entitled to so rely. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Company, the Bank
and the Trust and certificates of public officials.
(c) At the Closing Time and again at the Option Closing Date, (i) the
Registration Statement and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the 1933 Act Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the 1933 Act
Regulations, the Offerors shall have complied in all material respects with Rule
430A (if they shall have elected to rely thereon) and neither the Registration
Statement nor the Prospectus, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) there shall not have been, since the respective dates as of
which information is given
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in the Registration Statement, any material adverse change in the condition
(financial or otherwise), earnings, business affairs, assets or business
prospects of the Company and its subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business, (iii) no action,
suit or proceeding at law or in equity shall be pending or, to the knowledge
of the Offerors, threatened against the Company or any subsidiary or the
Trust that would be required to be set forth in the Prospectus other than as
set forth therein and no proceedings shall be pending or, to the knowledge of
the Offerors, threatened against the Offerors or any subsidiary before or by
any federal, state or other commission, board or administrative agency
wherein an unfavorable decision, ruling or finding could reasonably be
expected to materially adversely affect the condition (financial or
otherwise), earnings, business affairs, assets or business prospects of the
Company and its subsidiaries, considered as one enterprise, other than as set
forth in the Prospectus, (iv) each of the Offerors shall have complied, in
all material respects, with all agreements and satisfied all conditions on
its part to be performed or satisfied at or prior to the Closing Time, (v)
the other representations and warranties of the Offerors set forth in Section
l(a) shall be accurate in all material respects as though expressly made at
and as of the Closing Time, and (vi) no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose been initiated or to the best knowledge of the
Offerors threatened by the Commission. At the Closing Time, the Underwriter
shall have received a certificate of the Chairman or the President, and the
Chief Financial Officer or Controller, of the Company, dated as of the
Closing Time, to such effect.
(d) At the time that this Agreement is executed by the Company, you
shall have received from KPMG Peat Marwick, LLP a letter or letters, dated such
date, in form and substance satisfactory to you, confirming that they are
independent certified public accountants with respect to the Company within the
meaning of the 1933 Act and the published 1933 Act Regulations, and stating in
effect that:
With respect to the Company:
(i) in their opinion, the consolidated financial statements as of
September 30, 1997 and 1996, and for each of the years in the three year
period ended December 31, 1997 and the related financial statement
schedules, if any, included or incorporated by reference in the
Registration Statement and the Prospectus and covered by their opinions
included therein comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published 1933
Act Regulations;
(ii) on the basis of a reading of the minutes of all meetings of the
stockholders of the Company and the Bank, of the Board of Directors of the
Company and the Bank and of the Audit and Executive Committees of the Board
of Directors of the Bank since September 30, 1997, inquiries of certain
officials of the Company and its subsidiaries responsible for financial and
accounting matters, and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
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(A) at a specified date not more than three days prior to the
date of this Agreement, there was any increase in other borrowings or
real estate owned, or any decrease in allowance for loan losses of the
Company and its consolidated subsidiaries or any decrease in total
assets, total deposits or stockholders' equity of the Company and its
consolidated subsidiaries or any increase in the number of outstanding
shares of capital stock of the Company and its consolidated
subsidiaries, in each case as compared with amounts shown in the
financial statements at September 30, 1997 in the Registration
Statement, except in each case, for changes, increases or decreases
that the Prospectus discloses have occurred or which are described in
such letter; or
(B) for the period from September 30, 1997 to a specified date
not more than three days prior to the date of this Agreement, there
was any decrease in consolidated net interest income, non-interest
income or net income or the (split-adjusted) total or fully diluted
per share amounts of net income or any increase in the consolidated
provision for loan losses, in each case as compared with the
comparable period in the preceding year, except in each case, for
changes, increases or decreases that the Prospectus discloses have
occurred or which are described in such letter.
(iii) in addition to the procedures referred to in clause (ii) above,
they have performed other specified procedures, not constituting an audit,
with respect to certain amounts, percentages, numerical data and financial
information appearing in the Registration Statement (including the Selected
Consolidated Financial Data) (having compared such items with, and have
found such items to be in agreement with, the financial statements of the
Company or general accounting records of the Company, as applicable, which
are subject to the Company's internal accounting controls or other data and
schedules prepared by the Company from such records).
(iv) on the basis of a review of schedules provided to them by the
Company, nothing came to their attention that caused them to believe that
the pro forma information, set forth in the Prospectus under the headings
"Capitalization" on page [____] had not been correctly calculated on the
basis described therein.
(e) At the Closing Time, the Underwriter shall have received from
KPMG Peat Marwick, LLP letters, in form and substance satisfactory to the
Underwriter and dated as of the Closing Time, to the effect that they reaffirm
the statements made in the letter(s) furnished pursuant to Section 5(d), except
that the inquiries specified in Section 5(d) shall be made based upon the latest
available unaudited interim consolidated financial statements and the specified
date referred to shall be a date not more than three days prior to the Closing
Time.
(f) At the Closing Time, counsel for the Underwriter shall have been
furnished with all such documents, certificates and opinions as they may request
for the purpose of enabling them to pass upon the issuance and sale of the
Preferred Securities as contemplated in this Agreement and the matters referred
to in Section 5(c) and in order to evidence the accuracy and completeness
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of any of the representations, warranties or statements of the Offerors, the
performance of any of the covenants of the Offerors, or the fulfillment of
any of the conditions herein contained; all proceedings taken by the Company
at or prior to the Closing Time in connection with the authorization,
issuance and sale of the Preferred Securities and the Junior Subordinated
Debentures as contemplated in this Agreement shall be satisfactory in form
and substance to the Underwriter and to counsel for the Underwriter.
(g) Between the date of this Agreement and the Closing Time, (i) no
downgrading shall have occurred in the rating accorded any securities of the
Company or any deposit instruments of the Bank by any "nationally recognized
statistical rating organization," as that term is defined by the Commission for
purposes of Rule 436(g) (2) under the 1933 Act and (ii) no such organization
shall have given any notice of any intended or potential downgrading or of any
surveillance or review, with possible negative implications, of its rating of
any of the Company's securities or any deposit instruments of the Bank.
(h) The Company shall have paid, or made arrangements satisfactory to
the Underwriter for the payment of, all such expenses as may be required by
Section 4 hereof.
(i) In the event the Underwriter exercises its option provided in
Section 2 hereof to purchase all or any portion of the Option Securities, the
obligations of the Underwriter to purchase the Option Securities that it has
agreed to purchase shall be subject to the accuracy of the representations and
warranties of the Offerors contained herein and of the statements in any
certificates furnished by the Offerors hereunder as of such Option Closing Date
(as if made on such date), to the performance by the Offerors of their
obligations hereunder and to the receipt by you on the Option Closing Date of:
(1) A certificate, dated the Option Closing Date, of the
Chairman or the President and the Chief Financial Officer or
Controller of the Company confirming that the certificate
delivered on the Closing Time pursuant to Section 5(c) hereof
remains true as of the Option Closing Date;
(2) The favorable opinion of Elias, Matz, Tiernan & Herrick,
LLP, counsel for the Company, addressed to you and dated the
Option Closing Date, in form satisfactory to Silver, Freedman &
Taff L.L.P., your counsel, relating to the Option Securities
and otherwise to the same effect as the opinion required by
Section 5(b) hereof;
(3) The favorable opinion of Richards, Layton & Finger,
special Delaware counsel for the Offerors, addressed to you and
dated the Option Closing Date, in form satisfactory to Silver,
Freedman & Taff, L.L.P., your counsel, relating to the Option
Securities and otherwise to the same effect as the opinion
required by Section 5(b) hereof;
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(4) The favorable opinion of Emmet, Marvin & Martin, LLP,
counsel for the Indenture Trustee and the Delaware Trustee,
addressed to you and dated the Option Closing Date, relating to
the Option Securities and otherwise to the same effect as the
opinion required by Section 5(b) hereof;
(5) The favorable opinion of Silver, Freedman & Taff,
L.L.P., dated the Option Closing Date, relating to the Option
Shares and otherwise to the same effect as the opinion required
by Section 5(b) hereof; and
(6) Letters from KPMG Peat Marwick, LLP addressed to the
Underwriter and dated the Option Closing Date, in form and
substance satisfactory to the Underwriter and substantially the
same in form and substance as the letters furnished to the
Underwriter pursuant to Section 5(d) hereof.
(j) The Preferred Securities, the Guarantee and the Junior
Subordinated Debentures shall have been qualified or registered for sale, or
subject to an available exemption from such qualification or registration, under
the Blue Sky Laws of such jurisdictions as shall have been reasonably specified
by the Underwriter and the offering contemplated by this Agreement shall have
been cleared by the NASD.
If any of the conditions specified in this Section 5 shall not have
been fulfilled when and as required by this Agreement to be fulfilled, this
Agreement may be terminated by the Underwriter on notice to the Offerors at any
time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other Party, except as provided in Section 4.
Notwithstanding any such termination, the provisions of Sections 6, 7, 10 and 12
shall remain in effect.
Section 5A. Conditions of Offeror's Obligations. The obligations of the
Offerors to sell and deliver the portion of the Preferred Securities required to
be delivered as and when specified in this Agreement are subject to the
conditions that the Registration Statement shall have become effective and that
as of the Closing Time (or the Option Closing Date with respect to the Option
Securities) no stop order suspending the effectiveness of the Registration
Statement shall have been issued and in effect or proceedings therefor initiated
or threatened, and there shall have been no change in the Internal Revenue Code
of 1986 or the regulations promulgated thereunder that reasonably would be
expected to adversely effect the ability of the Company to deduct the interest
paid by it under the Junior Subordinated Debentures.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, officers, directors, employees, agents, and counsel of the
Underwriter, and each person, if any, who controls
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the Underwriter within the meaning of Section 15 of the 1933 Act or Section
20(a) of the 1934 Act, against any loss, liability, claim, damage, and
expense whatsoever (which shall include, but not be limited to amounts
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim or investigation whatsoever and any and
all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, contained in (A) any
Preliminary Prospectus, the Registration Statement, or the Prospectus (as
from time to time amended and supplemented), or any amendment or supplement
thereto or in any document incorporated by reference therein or required to
be delivered with any Preliminary Prospectus or the Prospectus or (B) in any
application or other document or communication (collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Preferred Securities under the "blue
sky" or securities laws thereof or filed with the Commission or any
securities exchange; unless such statement or omission or alleged statement
or omission was made in reliance upon and in conformity with written
information concerning the Underwriter, the Underwriting Agreement or the
compensation of the Underwriter furnished to the Company by or on behalf of
the Underwriter expressly for inclusion in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, or (ii) any breach of any
representation, warranty, covenant, or agreement of the Company contained in
the Underwriting Agreement. The foregoing indemnification with respect to
any preliminary prospectus shall not inure to the benefit of the Underwriter
(or its directors, officers, employees and controlling persons within the
meaning of the federal securities laws) if the person asserting any such
losses, claims, damages or liabilities against the Underwriter (or such other
persons) purchased Preferred Securities and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of the Underwriter
to such person, if such is required by law, in connection with the written
confirmation of the sale of such Preferred Securities to such person and if
the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage or liability, provided that the
Company delivered the Prospectus, as amended or supplemented, to the
Underwriter on a timely basis to permit such delivery or sending. For
purposes of this section, the term "expense" shall include, but not be
limited to, counsel fees and costs, court costs, out-of-pocket costs and
compensation for the time spent by the Underwriter's directors, officers,
employees and counsel according to his or her normal hourly billing rates.
The indemnification provisions shall also extend to all affiliates of the
Underwriter, its respective directors, officers, employees, legal counsel,
agents and controlling persons within the meaning of the federal securities
laws. The foregoing agreement to indemnify shall be in addition to any
liability the Company may otherwise have to the Underwriter or the persons
entitled to the benefit of these indemnification provisions.
(b) The Underwriter agrees to indemnify and hold harmless the
Offerors, their directors, officers who signed the Registration Statement,
and each person, if any, who controls the Offerors within the meaning of
Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, against
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any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) above, as incurred, but only with
respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto) or
any Preliminary Prospectus or the Prospectus (or any amendment or supplement
thereto) or any application in reliance upon and in conformity with written
information about the Underwriter, the Underwriting Agreement, or the
compensation of the Underwriter, furnished to either of the Offerors by the
Underwriter expressly for use in the Registration Statement (or any amendment
thereto) or such Preliminary Prospectus or the Prospectus (or any amendment
or supplement thereto) or in any application.
(c) An indemnified party shall give prompt notice to the
indemnifying party if any action, suit, proceeding or investigation is
commenced in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve the indemnifying party
from its obligations to indemnify hereunder, except to the extent that the
indemnifying party has been prejudiced in any material respect by such
failure. If it so elects within a reasonable time after receipt of such
notice, an indemnifying party may assume the defense of such action,
including the employment of counsel satisfactory to the indemnified parties
and payment of all expenses of the indemnified party in connection with such
action. Such indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified party or parties unless
the employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action or the
indemnifying party shall not have promptly employed counsel satisfactory to
such indemnified party or parties or such indemnified party or parties shall
have reasonably concluded that there may be one or more legal defenses
available to it or them or to other indemnified parties which are different
from or additional to those available to one or more of the indemnifying
parties, in any of which events such fees and expenses shall be borne by the
indemnifying party and the indemnifying party shall not have the right to
direct the defense of such action on behalf of the indemnified party or
parties. The Company shall be liable for any settlement of any claim against
the Underwriter (or its directors, officers, employees, affiliates or
controlling persons), made with the Company's written consent, which consent
shall not be unreasonably withheld. The Company shall not, without the
written consent of the Underwriter, settle or compromise any claim against it
based upon circumstances giving rise to an indemnification claim against the
Company hereunder unless such settlement or compromise provides that the
Underwriter and the other indemnified parties shall be unconditionally and
irrevocably released from all liability in respect to such claim.
(d) In order to provide for just and equitable contribution, if a
claim for indemnification pursuant to these indemnification provisions is
made but it is found in a final judgment by a court that such indemnification
may not be enforced in such case, even though the express provisions hereof
provide for indemnification in such case, then the Company, on the one hand,
and the Underwriter, on the other hand, shall contribute to the amount paid
or payable by such indemnified persons as a result of such loss, liability,
claim, damage and expense in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the
Underwriter, on the other hand, from the underwriting, and also the relative
fault of the Company,
23
<PAGE>
on the one hand, and the Underwriter, on the other hand, in connection with
the statements, acts or omissions which resulted in such loss, liability,
claim, damage and expense, and any other relevant equitable considerations
shall also be considered. No person found liable for a fraudulent
misrepresentation or omission shall be entitled to contribution from any
person who is not also found liable for such fraudulent misrepresentation or
omission. Notwithstanding the foregoing, the Underwriter shall not be
obligated to contribute any amount hereunder that exceeds the amount of the
underwriting commission paid by the Company to the Underwriter with respect
to the Preferred Securities purchased by the Underwriter.
(e) The indemnity and contribution agreements contained herein are in
addition to any liability which the Company may otherwise have to the
Underwriter.
(f) Neither termination nor completion of the engagement of the
Underwriter nor any investigation made by or on behalf of the Underwriter shall
affect the indemnification obligations of the Company or the Underwriter
hereunder, which shall remain and continue to be operative and in full force and
effect.
Section 7. Representations, Warranties and Agreements to Survive
Delivery. The representations, warranties, indemnities, agreements and other
statements of the Offerors or its officers or trustees set forth in or made
pursuant to this Agreement will remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Offerors or the
Underwriter or any controlling person and will survive delivery of and payment
for the Preferred Securities.
Section 8. Offering by the Underwriter. The Trust and the Company
are advised by the Underwriter that the Underwriter proposes to make a public
offering of the Preferred Securities, on the terms and conditions set forth in
the Registration Statement from time to time as and when the Underwriter deems
advisable after the Registration Statement becomes effective. Because the NASD
is expected to view the Preferred Securities as interests in a direct
participation program, the offering of the Preferred Securities is being made in
compliance with the applicable provisions of Rule 2810 of the NASD's Conduct
Rules.
24
<PAGE>
Section 9. Termination of Agreement.
(a) You may terminate this Agreement, by notice to the Offerors, at
any time at or prior to the Closing Time (i) if there has been, since the
respective dates as of which information is given in the Registration Statement,
any material adverse change in the condition (financial or otherwise), earnings,
business affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any outbreak or escalation of existing
hostilities or other national or international calamity or crisis the effect of
which on the financial markets of the United States is such as to make it, in
the Underwriter's reasonable judgment, impracticable to market the Preferred
Securities or enforce contracts for the sale of the Preferred Securities, or
(iii) if trading in any securities of the Company has been suspended by the
Commission or the National Association of Securities Dealers, Inc., or if
trading generally on the New York Stock Exchange or in the over-the-counter
market has been suspended, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices for securities have been required, by such
exchange or by order of the Commission, the National Association of Securities
Dealers, Inc. or any other governmental authority with appropriate jurisdiction
over such matters, or (iv) if a banking moratorium has been declared by federal,
Pennsylvania or New York authorities, or (v) if there shall have been such
material and substantial change in the market for securities in general or in
political, financial or economic conditions as in your reasonable judgment makes
it inadvisable to proceed with the Offering, sale and delivery of the Preferred
Securities on the terms contemplated by the Prospectus, (vi) if you reasonably
determine (which determination shall be in good faith) that there has not been
satisfactory disclosure of all relevant financial information relating to the
Offerors in the Offerors' disclosure documents and that the sale of the
Preferred Securities is unreasonable given such disclosures or (vii) if the
Price Determination Agreement has not been executed by all the parties hereto
prior to 5:30 p.m. on the first business day following the date of this
Agreement.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 4. Notwithstanding any such termination, the
provisions of Sections 6 and 7 shall remain in effect.
Section 10. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered, mailed or transmitted by any standard form of telecommunication.
Notices shall be addressed as follows:
If to the Underwriter:
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, New Jersey 07039
Attention: Bruce G. Miller
Senior Vice President
25
<PAGE>
with a copy to:
James S. Fleischer, P.C.
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005-3934
If to the Company or the Trust:
PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
Attention: Charlotte A. Zuschlag
President and Chief Executive Officer
with a copy to:
Jeffrey D. Haas, Esq.
Elias, Matz, Tiernan & Herrick, LLP
734 15th Street, N.W., 8th Floor
Washington, D.C. 20005
Section 11. Parties. This Agreement is made solely for the benefit of
the Underwriter, and the officers, directors, employees, agents and counsel of
the Underwriter specified in Section 6, the Trust and the Company and, to the
extent expressed, any person controlling the Trust, the Company or the
Underwriter, and the directors of the Company, or Administrative Trustees of the
Trust, their respective officers who have signed the Registration Statement, and
their respective executors, Administrative Trustees, successors and assigns, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser, as
such purchaser, from the Underwriter of the Preferred Securities.
Section 12. Arbitration. Any claims, controversies, demands,
disputes or differences between or among the parties hereto or any persons
bound hereby arising out of, or by virtue of, or in connection with, or
otherwise relating to this Agreement shall be submitted to and settled by
arbitration conducted in Pennsylvania before one or three arbitrators, each
of whom shall be knowledgeable in the field of securities law and investment
banking. Such arbitration shall otherwise be conducted in accordance with the
rules then obtaining of the American Arbitration Association. The parties
hereto agree to share equally the responsibility for all fees of the
arbitrators, abide by any decision rendered as final and binding, and waive
the right to appeal the decision or otherwise submit the dispute to a court
of law for a jury or non-jury trial. The parties hereto specifically agree
that neither party may appeal or subject the award or decision of any such
arbitrator to appeal or review
26
<PAGE>
in any court of law or in equity or in any other tribunal, arbitration system
or otherwise. Judgment upon any award granted by such arbitrator may be
enforced in any court having jurisdiction thereof.
Section 13. Governing Law and Time. This Agreement shall be governed
by the laws of the State of Pennsylvania. Specified times of the day refer to
Washington, D.C. time.
Section 14. Counterparts. This Agreement may be executed in one or
more counterparts, and when a counterpart has been executed by each party, all
such counterparts taken together shall constitute one and the same agreement.
27
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement among the Company, the Trust and the
Underwriter in accordance with its terms.
Very truly yours,
PENNFIRST CAPITAL TRUST I
By: PENNFIRST BANCORP, INC.
By:____________________________________________
Name: Charlotte A. Zuschlag
Title: President and Chief Executive Officer
PENNFIRST BANCORP, INC.
By:______________________________________________
Name: Charlotte A. Zuschlag
Title: President and Chief Executive Officer
Confirmed and accepted as of
the date first above written:
RYAN, BECK & CO., INC.
By:__________________________
Name: Bruce G. Miller
Title: Senior Vice President
28
<PAGE>
EXHIBIT A
PENNFIRST CAPITAL TRUST I
(a Delaware business trust)
_________ Preferred Securities
___% Cumulative Trust Preferred Securities
(Liquidation Amount $10 per Preferred Security)
PRICE DETERMINATION AGREEMENT
_______, 1997
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, New Jersey 07039
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated the date hereof (the
"Underwriting Agreement") among PennFirst Capital Trust I, a Delaware business
trust, (the "Trust"), PennFirst Bancorp, Inc. (the "Company" and together with
the Trust, the "Offerors") and the Underwriter named above (the "Underwriter").
The Underwriting Agreement provides for the purchase by the Underwriter from the
Trust, subject to the terms and conditions set forth therein, of 2,000,000
shares, subject to a 300,000 adjustment (to cover over-allotments, if any), of
the _____% Cumulative Trust Preferred Securities of the Trust (the "Preferred
Securities"). This Agreement is the Price Determination Agreement referred to
in the Underwriting Agreement.
Pursuant to Section 2 of the Underwriting Agreement, the Offerors agree
with the Underwriter as follows:
1. The public offering price per Preferred Security shall be $10.
2. The purchase price for the Preferred Securities to be paid by the
Underwriter shall be $10 per Preferred Security.
3. The commission per Preferred Security to be paid by the Company to
the Underwriter for their commitments hereunder shall be $_____ per Preferred
Security.
4. The interest rate on the Preferred Securities shall be _____% per
annum.
29
<PAGE>
The Offerors represent and warrant to the Underwriter that the
representations and warranties of the Offerors set forth in Section 1(a) of
the Underwriting Agreement are accurate as though expressly made at and as of
the date hereof.
This Agreement shall be governed by the laws of the State of Pennsylvania.
If the foregoing is in accordance with the understanding of the Underwriter
of the agreement between the Underwriter and the Offerors, please sign and
return to the Company a counterpart hereof, whereupon this instrument, along
with all counterparts and together with the Underwriting Agreement, shall be a
binding agreement between the Underwriter and the Offerors in accordance with
its terms and the terms of the Underwriting Agreement.
Very truly yours,
PENNFIRST CAPITAL TRUST I
By:________________________
Name: Charlotte A. Zuschlag
Title: President and Chief Executive Officer
PENNFIRST BANCORP, INC.
By:___________________________
Charlotte A. Zuschlag
President and Chief Executive Officer
Confirmed and accepted as of
the date first above written:
RYAN, BECK & CO., INC.
By: __________________________
David P. Downs
Senior Vice President
30
<PAGE>
EXHIBIT B
1. The Underwriting Agreement has been duly authorized, executed and
delivered by the Trust and the Corporation.
2. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Trust Act.
3. The Trust Agreement has been duly authorized, executed and delivered
by the Corporation and the Administrative Trustees and is a valid and binding
obligation of each of the Corporation and the Administrative Trustees,
enforceable against the Company and the Administrative Trustees in accordance
with its terms except as rights to indemnity and contribution thereunder may
be limited under applicable law, subject to the qualifications that (i) that
enforcement of the Trust Agreement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws (including the laws of fraudulent
conveyance) or judicial decisions affecting the enforcement of creditors'
rights generally and (ii) the enforceability of the Corporation's and the
Administrative Trustees' obligations under the Trust Agreement is subject to
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity) and to the effect of certain
laws and judicial decisions upon the availability and enforcement of certain
remedies, including the remedies of specific performance and self-help.
4. The Preferred Securities have been duly authorized for issuance by the
Trust; and the Preferred Securities, when executed and authenticated in
accordance with the Trust Agreement and delivered and paid for in accordance
with the Underwriting Agreement, will be validly issued, fully paid and
nonassessable, representing undivided beneficial ownership interests in the
assets of the Trust; and the holders of such Preferred Securities will be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware. We bring to your attention, however, that the holders
of Preferred Securities may be obligated, pursuant to the Trust Agreement, to
(i) provide indemnity and/or securities in connection with and pay taxes or
governmental charges arising from transfers of Preferred Securities and (ii)
provide security and indemnity in connection with the requests of or directions
to the Property Trustee to exercise its rights and powers under the Trust
Agreement.
5. The Guarantee has been duly authorized, executed and delivered by the
Corporation and constitutes a valid and binding obligation of the Corporation,
enforceable against the Corporation in accordance with its terms, except as
rights to indemnity and contribution thereunder may be limited under applicable
law, subject to the qualifications that (i) enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other laws (including the
laws of fraudulent conveyance) or judicial decisions affecting the enforcement
of creditors' rights generally and (ii) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity) and
to the effect of certain laws and judicial decisions upon the availability and
enforcement of certain remedies, including the remedies of specific performance
and self help.
6. The Indenture has been duly authorized, executed and delivered by
the Corporation and constitutes a valid and binding obligation of the
Corporation, enforceable against the Corporation in accordance with its
terms, except as rights to indemnity and contribution thereunder may be
limited under applicable law, subject to the qualifications that (i)
enforcement of the Indenture may be limited by
<PAGE>
bankruptcy, insolvency, reorganization, moratorium, or other laws (including
the laws of fraudulent conveyance) judicial decisions affecting the
enforcement of creditors' rights generally and (ii) the enforceability of the
Corporation's obligations under the Indenture is subject to general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity) and to the effect of certain laws and
judicial decisions upon the availability and enforcement of certain remedies,
including the remedies of specific performance and self help.
7. The issuance and sale of the Subordinated Debentures has been duly
authorized by the Corporation and, when duly executed, authenticated and issued
in accordance with the Indenture and paid for in accordance with the Debenture
Subscription Agreement, will constitute valid and binding obligations of the
Corporation entitled to the benefits of the Indenture and enforceable against
the Corporation in accordance with their terms, except as rights to indemnity
and contribution thereunder may be limited under applicable law, subject to the
qualifications that (i) enforcement of the Subordinated Debentures may be
limited by bankruptcy, insolvency, reorganization, moratorium, or other laws
(including the laws of fraudulent conveyance) or judicial decisions affecting
the enforcement of creditors' rights generally and (ii) the enforceability of
the Corporation's obligations under the Subordinated Debentures is subject to
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity) and to the effect of certain laws and
judicial decisions upon the availability and enforcement of certain remedies,
including the remedies of specific performance and self help.
8. At the time the Registration Statement became effective, the
Registration Statement (except for the financial statements, notes to financial
statements, schedules and other financial or statistical information and data
included therein, as to which we express no opinion) complied as to form in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
During the course of preparation of the Prospectus, we reviewed the
Prospectus and participated in discussions with officers of the Corporation and
the Bank, and their advisors. We did not participate in the preparation of the
Operative Documents, but have, however, reviewed such documents and discussed
the business and affairs of the Corporation with officers and representatives of
the Corporation. Although we have not undertaken to determine independently,
and are not passing upon or assuming any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Prospectus or the
Registration Statement, on the basis of such review and discussions, nothing has
come to our attention that caused us to believe that the Registration Statement
(other than the financial statements, notes to financial statements, schedules
and other financial and statistical information and data included therein or
omitted therefrom, as to which we express no opinion), at the time it became
effective or the date hereof contained or contains an untrue statement of a
material fact or omitted to state a material fact required to be stated therein,
or necessary to make the statements therein, not misleading or that the
Prospectus (other than the financial statements, notes to financial statements,
schedules and other financial and statistical information and data included
therein or omitted therefrom, as to which we express no opinion), as of its date
or the date hereof contained or contains an untrue statement of a material fact
or omitted to state a material fact required to be stated therein, or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
<PAGE>
In rendering this opinion letter, we do not express any opinion concerning
any law other than the law of the State of New York, the law of the State of
Delaware concerning the treatment of Delaware business trusts, the corporate law
of the State of Delaware and the federal law of the United States of America and
we do not express any opinion concerning the application of the "doing business"
laws or the securities laws of any jurisdiction other than the federal
securities laws of the United States. In addition, we do not express any
opinion on any issue not expressly addressed above.
<PAGE>
EXHIBIT C
The opinion of counsel, as special Delaware counsel to the Company and the Trust
to be delivered pursuant to Section 5(b)(ii) of the Underwriting Agreement shall
be substantially to the effect that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act, 12 Del.
C. Section 3801 et seq. (the "Delaware Act"), and all filings required under
the laws of the State of Delaware with respect to the creation and valid
existence of the Trust as a business trust have been made.
2. Under the Delaware Act and the Trust Agreement the Trust has the
trust power and authority to own its property and to conduct its business,
all as described in the Prospectus.
3. The Trust Agreement constitutes a valid and binding obligation of
the Company and the Property Trustee and the Delaware Trustee, and is
enforceable against the Company and the Trustees, in accordance with its
terms.
4. Under the Delaware Act and the Trust Agreement, the Trust has the
trust power and authority to execute and deliver, and to perform its
obligations under, the Underwriting Agreement and to issue and perform its
obligations under the Preferred Securities and the Common Securities.
5. Under the Delaware Act and the Trust Agreement, the execution and
delivery by the Trust of the Underwriting Agreement, and the performance by
the Trust of its obligations thereunder, have been duly authorized by all
necessary trust action on the part of the Trust.
6. The Preferred Securities have been duly authorized by the Trust
Agreement and are duly and validly issued and, subject to the qualifications
set forth herein, fully paid and nonassessable undivided beneficial interests
in the assets of the Trust and are entitled to the benefits of the Trust
Agreement. The Holders, as beneficial owners of the Trust, will be entitled
to the same limitations of personal liability extended to stockholders of
private corporations for profit organized under the General Corporation Law
of the State of Delaware. We note that the Holders may be obligated pursuant
to the Trust Agreement, (i) to provide indemnity and/or security in
connection with and pay taxes or governmental charges arising from transfers
or exchanges of Preferred Securities Certificates and the issuance of
replacement Preferred Securities Certificates, and (ii) to provide security
or indemnity in connection with requests of or directions to the Property
Trustee to exercise its rights and powers under the Trust Agreement.
7. Under the Delaware Act and the Trust Agreement, the issuance of the
Preferred Securities and Common Securities is not subject to preemptive
rights.
8. The Common Securities have been duly authorized by the Trust
Agreement and are duly and validly issued undivided beneficial interests in
the assets of the Trust and are entitled to the benefits of the Trust
Agreement.
<PAGE>
9. The issuance and sale by the Trust of the Preferred Securities and
Common Securities, the purchase by the Trust of the Subordinated Debentures,
the execution, delivery and performance by the Trust of the Underwriting
Agreement, the consummation by the Trust of the transactions contemplated by
the Underwriting Agreement and the compliance by the Trust with its
obligations thereunder will not violate (i) any of the provisions of the
Certificate of Trust or the Trust Agreement or (ii) any applicable Delaware
law or administrative regulation.
10. The Delaware Trustee is duly incorporated and is validly existing in
good standing as a banking corporation with trust powers under the laws of
the State of Delaware.
11. The Delaware Trustee has the requisite power and authority to
execute and deliver the Trust Agreement, and has taken all necessary
corporate action to authorize the execution and delivery of the Trust
Agreement.
<PAGE>
EXHIBIT D
The opinion of counsel to Trust Company and Delaware Trustee to be delivered
pursuant to Section 5(b)(iii) of the Underwriting Agreement shall be
substantially to the effect that:
1. The Trust Company is duly incorporated and is validly existing in
good standing as a banking corporation with trust powers under the laws of
the State of New York.
2. The Indenture Trustee has the requisite power and authority to
execute, deliver and perform its obligations under the Indenture, and has
taken all necessary corporate action to authorize the execution, delivery and
performance by it of the Indenture.
3. The Guarantee Trustee has the requisite power and authority to
execute, deliver and perform its obligations under the Guarantee Agreement,
and has taken all necessary corporate action to authorize the execution,
delivery and performance by it of the Guarantee Agreement.
4. The Property Trustee has the requisite power and authority to
execute and deliver the Trust Agreement, and has taken all necessary
corporate action to authorize the execution and delivery of the Trust
Agreement.
5. Each of the Indenture and the Guarantee Agreement has been duly
executed and delivered by the Indenture Trustee and the Guarantee Trustee,
respectively, and constitutes a legal, valid and binding obligation of the
Indenture Trustee and the Guarantee Trustee, respectively, enforceable
against the Indenture Trustee and the Guarantee Trustee, respectively, in
accordance with its respective terms, except that certain payment obligations
may be enforceable solely against the assets of the Trust and except that
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, liquidation, fraudulent conveyance and transfer or other similar
laws affecting the enforcement of creditors' rights generally, and by general
principles of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether such
enforceability, is considered in a proceeding in equity or at law), and by
the affect of applicable public policy on the enforceability of provisions
relating to indemnification or contribution.
6. The Subordinated Debentures delivered on the date hereof have been
duly authenticated by the Indenture Trustee in accordance with the terms of
the Indenture.
<PAGE>
Exhibit 4.1
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PENNFIRST BANCORP, INC.
AND
THE BANK OF NEW YORK,
AS TRUSTEE
INDENTURE
% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
DUE , 2027
DATED AS OF , 1997
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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ARTICLE I DEFINITIONS.............................................. 2
Section 1.1 Definitions of Terms..................................... 2
ARTICLE II ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION
AND EXCHANGE OF THE DEBENTURES........................... 10
Section 2.1 Designation And Principal Amount......................... 10
Section 2.2 Maturity................................................. 10
Section 2.3 Form And Payment......................................... 10
Section 2.4 Interest................................................. 11
Section 2.5 Execution And Authentications............................ 12
Section 2.6 Registration of Transfer And Exchange.................... 12
Section 2.7 Temporary Debentures..................................... 14
Section 2.7A Global Securities........................................ 14
Section 2.8 Mutilated, Destroyed, Lost or Stolen Debentures.......... 15
Section 2.9 Cancellation............................................. 16
Section 2.10 Benefit of Indenture..................................... 17
Section 2.11 Authentication Agent..................................... 17
Section 2.12 Right of Set-off......................................... 17
Section 2.13 CUSIP Numbers............................................ 18
ARTICLE III REDEMPTION OF DEBENTURES................................. 18
Section 3.1 Redemption............................................... 18
Section 3.2 Special Event Redemption................................. 18
Section 3.3 Optional Redemption by Company........................... 19
Section 3.4 Notice of Redemption..................................... 19
Section 3.5 Payment Upon Redemption.................................. 20
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Section 3.6 No Sinking Fund.......................................... 21
ARTICLE IV EXTENSION OF INTEREST PAYMENT PERIOD..................... 21
Section 4.1 Extension of Interest Payment Period..................... 21
Section 4.2 Notice of Extension...................................... 21
Section 4.3 Limitation on Transactions............................... 22
ARTICLE V PARTICULAR COVENANTS OF THE COMPANY...................... 23
Section 5.1 Payment of Principal And Interest........................ 23
Section 5.2 Maintenance of Agency.................................... 23
Section 5.3 Paying Agents............................................ 23
Section 5.4 Appointment to Fill Vacancy in Office of Trustee......... 24
Section 5.5 Compliance With Consolidation Provisions................. 24
Section 5.6 Limitation on Transactions............................... 25
Section 5.7 Covenants as to The Trust................................ 25
Section 5.8 Covenants as to Purchases................................ 26
ARTICLE VI DEBENTURE HOLDERS' LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEES......................................... 26
Section 6.1 Company to Furnish Trustee Names And Addresses of
Debenturesholders....................................... 26
Section 6.2 Preservation of Information Communications With
Debenture Holders........................................ 26
Section 6.3 Reports by The Company................................... 27
Section 6.4 Reports by The Trustee................................... 27
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Section 6.5 Statements As to Default................................ 28
ARTICLE VII REMEDIES OF THE TRUSTEE AND DEBENTURE HOLDERS ON
EVENT OF DEFAULT........................................ 28
Section 7.1 Events of Default....................................... 28
Section 7.2 Collection of Indebtedness And Suits For Enforcement
by Trustee.............................................. 30
Section 7.3 Application of Moneys Collected......................... 31
Section 7.4 Limitation on Suits..................................... 32
Section 7.5 Rights And Remedies Cumulative; Delay or Omission Not
Waiver.................................................. 33
Section 7.6 Control by Debenture Holders............................ 33
Section 7.7 Undertaking to Pay Costs................................ 34
Section 7.8 Direct Action by Holders of Preferred Securities........ 34
ARTICLE VIII FORM OF DEBENTURE AND ORIGINAL ISSUE.................... 35
Section 8.1 Form of Debenture....................................... 35
Section 8.2 Original Issue of Debentures............................ 35
ARTICLE IX CONCERNING THE TRUSTEE.................................. 35
Section 9.1 Certain Duties And Responsibilities..................... 35
Section 9.2 Notice of Defaults...................................... 36
Section 9.3 Certain Rights of Trustee............................... 37
Section 9.4 Trustee Not Responsible For Recitals, Etc. ............. 38
Section 9.5 May Hold Debentures..................................... 38
Section 9.6 Moneys Held in Trust.................................... 38
Section 9.7 Compensation And Reimbursement.......................... 39
Section 9.8 Reliance on Officers' Certificate....................... 39
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Section 9.9 Disqualification: Conflicting Interests................. 40
Section 9.10 Corporate Trustee Required Eligibility.................. 40
Section 9.11 Resignation And Removal; Appointment of Successor....... 40
Section 9.12 Acceptance of Appointment by Successor.................. 42
Section 9.13 Merger, Conversion, Consolidation or Succession to
Business................................................ 42
Section 9.14 Preferential Collection of Claims Against The Company... 43
ARTICLE X CONCERNING THE DEBENTURE HOLDERS........................ 43
Section 10.1 Evidence of Action by Holders........................... 43
Section 10.2 Proof of Execution by Debenture Holders................. 43
Section 10.3 Who May Be Deemed Owners................................ 44
Section 10.4 Certain Debentures Owned by Company Disregarded......... 44
Section 10.5 Actions Binding on Future Debenture Holders............. 45
ARTICLE XI SUPPLEMENTAL INDENTURES................................. 45
Section 11.1 Supplemental Indentures Without The Consent of
Debenture Holders....................................... 45
Section 11.2 Supplemental Indentures With Consent of Debenture
Holders................................................. 46
Section 11.3 Effect of Supplemental Indentures....................... 47
Section 11.4 Debentures Affected by Supplemental Indentures.......... 47
Section 11.5 Execution of Supplemental Indentures.................... 47
ARTICLE XII SUCCESSOR CORPORATION................................... 48
Section 12.1 Company May Consolidate, Etc. .......................... 48
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Section 12.2 Successor Corporation Substituted....................... 49
Section 12.3 Evidence of Consolidation, Etc. to Trustee.............. 49
ARTICLE XIII SATISFACTION AND DISCHARGE.............................. 49
Section 13.1 Satisfaction And Discharge of Indenture................. 49
Section 13.2 Discharge of Obligations................................ 50
Section 13.3 Deposited Money to Be Held in Trust..................... 50
Section 13.4 Payment of Monies Held by Paying Agents................. 51
Section 13.5 Repayment to Company.................................... 51
ARTICLE XIV IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND
DIRECTORS............................................... 51
Section 14.1 No Recourse............................................. 51
ARTICLE XV MISCELLANEOUS PROVISIONS................................ 52
Section 15.1 Effect on Successors And Assigns........................ 52
Section 15.2 Actions by Successor.................................... 52
Section 15.3 Surrender of Company Powers............................. 52
Section 15.4 Notices................................................. 52
Section 15.5 Governing Law........................................... 53
Section 15.6 Treatment of Debentures as Debt......................... 53
Section 15.7 Compliance Certificates And Opinions.................... 53
Section 15.8 Payments on Business Days............................... 53
Section 15.9 Conflict With Trust Indenture Act....................... 54
Section 15.10 Counterparts............................................ 54
Section 15.11 Separability............................................ 54
Section 15.12 Assignment.............................................. 54
</TABLE>
v
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 15.13 Acknowledgment of Rights................................ 54
ARTICLE XVI SUBORDINATION OF DEBENTURES............................. 55
Section 16.1 Agreement to Subordinate................................ 55
Section 16.2 Default on Senior Debt or Subordinated Debt............. 55
Section 16.3 Liquidation; Dissolution; Bankruptcy.................... 55
Section 16.4 Subrogation............................................. 57
Section 16.5 Trustee to Effectuate Subordination..................... 58
Section 16.6 Notice by The Company................................... 58
Section 16.7 Rights of The Trustee; Holders of Senior Indebtedness... 59
Section 16.8 Subordination May Not Be Impaired....................... 59
</TABLE>
vi
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
SECTION OF TRUST INDENTURE ACT OF 1939, AS SECTION OF INDENTURE
AMENDED
<S> <C>
310(a) 9.10
310(b) 9.9
9.11
310(c) N/A
311(a) 9.14
311(b) 9.14
311(c) N/A
312(a) 6.1
6.2(a)
312(b) 6.2(c)
312(c) 6.2(c)
313(a) 6.4(a)
313(b) 6.4(b)
313(c) 6.4(a)
6.4(b)
313(d) 6.4(c)
314(a) 6.3(a)
314(b) N/A
314(c) 15.7
314(d) N/A
314(e) 15.7
314(f) N/A
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
SECTION OF TRUST INDENTURE ACT OF 1939, AS SECTION OF INDENTURE
AMENDED
<S> <C>
315(a) 9.1(a)
9.3
315(b) 9.2
315(c) 9.1(a)
315(d) 9.1(b)
315(e) 7.7
316(a) 1.1
7.6
316(b) 7.4(b)
316(c) 10.1(b)
317(a) 7.2
317(b) 5.3
318(a) 15.9
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Indenture
and shall not affect the interpretation of any of its terms or provisions.
viii
<PAGE>
INDENTURE
INDENTURE, dated as of , 1997, between PENNFIRST BANCORP, INC.,
a Pennsylvania corporation (the "Company"), and THE BANK OF NEW YORK, a New York
banking corporation (the "Trustee").
RECITALS
WHEREAS, for its lawful corporate purposes, the Company has duly authorized
the execution and delivery of this Indenture to provide for the issuance of
unsecured securities to be known as its % Junior Subordinated Deferrable
Interest Debentures due , 2027 (hereinafter referred to as the
"Debentures"), the form and substance of such Debentures and the terms,
provisions and conditions thereof to be set forth as provided in this Indenture;
and
WHEREAS, PennFirst Capital Trust I, a Delaware statutory business trust (the
"Trust"), has offered to the public $ aggregate liquidation amount of
its Preferred Securities (as defined herein) and proposes to invest the proceeds
from such offering, together with the proceeds of the issuance and sale by the
Trust to the Company of $ aggregate liquidation amount of its Common
Securities (as defined herein), in $ aggregate principal amount of the
Debentures; and
WHEREAS, the Company has requested that the Trustee execute and deliver this
Indenture; and
WHEREAS, all requirements necessary to make this Indenture a valid
instrument in accordance with its terms, and to make the Debentures, when
executed by the Company and authenticated and delivered by the Trustee, the
valid obligations of the Company, have been performed, and the execution and
delivery of this Indenture have been duly authorized in all respects, and
WHEREAS, to provide the terms and conditions upon which the Debentures are
to be authenticated, issued and delivered, the Company has duly authorized the
execution of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement of
the Company, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of the
Debentures by the holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the holders of the Debentures and
intending to be legally bound hereby:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1. 1 DEFINITIONS OF TERMS.
The terms defined in this Section 1.1 (except as in this Indenture otherwise
expressly provided or unless the context otherwise requires) for all purposes of
this Indenture and of any indenture supplemental hereto shall have the
respective meanings specified in this Section 1.1 and shall include the plural
as well as the singular. All other terms used in this Indenture that are defined
in the Trust Indenture Act, or that are by reference in the Trust Indenture Act
defined in the Securities Act (except as herein otherwise expressly provided or
unless the context otherwise requires), shall have the meanings assigned to such
terms in the Trust Indenture Act and in the Securities Act as in force at the
date of the execution of this instrument. All accounting terms used herein and
not expressly defined shall have the meanings assigned to such terms in
accordance with Generally Accepted Accounting Principles as in effect at the
time of computation.
"Additional Interest" shall have the meaning set forth in Section 2.4.
"Administrative Trustees" shall have the meaning set forth in the Trust
Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10%
or more of the outstanding voting securities or other ownership interests of
the specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control
with the specified Person; (d) a partnership in which the specified Person is
a general partner; (e) any officer or director of the specified Person; and
(f) if the specified Person is an individual, any entity of which the
specified Person is an executive officer, director or general partner.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of the Depositary for such Global Security, in each case to the
extent applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means an authenticating agent with respect to the
Debentures appointed by the Trustee pursuant to Section 2.11.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state
law for the relief of debtors.
2
<PAGE>
"Board of Directors" means the Board of Directors of the Company or any duly
authorized committee of such Board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification.
"Business Day" means, with respect to the Debentures, any day other than a
Saturday or a Sunday or a day on which federal or state banking institutions in
the Borough of Manhattan, The City of New York, or the State of Delaware are
authorized or required by law, executive order or regulation to close, or a day
on which the Corporate Trust Office of the Trustee or the Property Trustee is
closed for business.
"Capital Treatment Event" means the receipt by the Trust of an Opinion of
Counsel to the effect that, as a result of any amendment to, or change
(including any proposed change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision thereof or therein, or as a
result of any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which amendment or
change is effective or such proposed change pronouncement, action or decision is
announced on or after the date of original issuance of the Preferred Securities
under the Trust Agreement, there is more than an insubstantial risk that the
Preferred Securities would not constitute "Tier 1 Capital" (or the then
equivalent thereof) applied as if the Company (or its successor) were a bank
holding company for purposes of the capital adequacy guidelines of the Federal
Reserve (or any successor regulatory authority with jurisdiction over bank
holding companies), or any capital adequacy guidelines as then in effect and
applicable to the Company.
"Certificate" means a certificate signed by the principal executive officer,
the principal financial officer, the principal accounting officer, the treasurer
or any vice president of the Company. The Certificate need not comply with the
provisions of Section 15.7.
"Change in 1940 Act Law" shall have the meaning set forth in the definition
of "Investment Company Event."
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Securities" means undivided beneficial interests in the assets of
the Trust which rank PARI PASSU with the Preferred Securities; provided,
however, that upon the occurrence of an Event of Default, the rights of holders
of Common Securities to payment
3
<PAGE>
in respect of (i) distributions and (ii) payments upon liquidation, redemption
and otherwise are subordinated to the rights of holders of Preferred Securities.
"Company" means PennFirst Bancorp, Inc., a corporation duly organized and
existing under the laws of the Commonwealth of Pennsylvania, and, subject to the
provisions of Article XII, shall also include its successors and assigns.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Corporate Trust Office" means the office of the Trustee at which, at any
particular time, its corporate trust business shall be principally administered,
which office at the date hereof is located at 101 Barclay Street, Floor 21 West,
New York, New York 10286, Attention: Corporate Trust Trustee Administration.
"Coupon Rate" shall have the meaning set forth in Section 2.4.
"Custodian" means any receiver, trustee, assignee, liquidator, or similar
official under any Bankruptcy Law.
"Debentures" shall have the meaning set forth in the Recitals hereto.
"Debentureholder," "holder of Debentures," "registered holder," or other
similar term, means the Person or Persons in whose name or names a particular
Debenture shall be registered on the books of the Company or the Trustee kept
for that purpose in accordance with the terms of this Indenture.
"Debenture Register" shall have the meaning set forth in Section 2.6(b).
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such Person, whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of derivative products,
including interest rate, foreign exchange rate and commodity forward contracts,
options, swaps and similar arrangements; (vii) every obligation of the type
referred to in clauses (i) through (v) of another Person and all dividends of
another Person the payment of which, in either case, such Person has guaranteed
or is responsible or liable, directly or indirectly, as obligor or otherwise.
4
<PAGE>
"Default" means any event, act or condition that with notice or lapse of
time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Depositary" means, with respect to the Debentures issuable or issued in
whole or in part in the form of one or more Global Securities, the Person
designated as Depositary by the Company pursuant to Section 2.3. The initial
Depositary shall be The DTC.
"Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Trust Agreement and the Debentures held by the Property Trustee are to be
distributed to the holders of the Trust Securities issued by the Trust pro rata
in accordance with the Trust Agreement.
"DTC" shall mean The Depository Trust Company.
"Event of Default" means, with respect to the Debentures, any event
specified in Section 7.1, which has continued for the period of time, if any,
and after the giving of the notice, if any, therein designated.
"Exchange Act" means the Securities Exchange Act of 1934, or any successor
statute, in each case as amended from time to time.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Generally Accepted Accounting Principles" means such accounting principles
as are generally accepted at the time of any computation required hereunder.
"Global Security" means a Debenture evidencing all or part of the
Debentures, issued to the Depositary or its nominee, and registered in the name
of such Depositary or its nominee.
"Governmental Obligations" means securities that are (i) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged; or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America that, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such Governmental
Obligation or a specific payment of principal of or interest on any such
Governmental Obligation held by such custodian for the account of the holder of
such depositary receipt; provided, however, that (except as
5
<PAGE>
required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depositary receipt from any amount
received by the custodian in respect of the Governmental Obligation or the
specific payment of principal of or interest on the Governmental Obligation
evidenced by such depositary receipt.
"Herein," "hereof," and "hereunder," and other words of similar import,
refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into in accordance with the terms hereof.
"Interest Payment Date," when used with respect to any installment of
interest on the Debentures, means the date specified in the Debenture or in a
Board Resolution or in an indenture supplemental hereto with respect to the
Debentures as the fixed date on which an installment of interest with respect to
the Debentures is due and payable.
"Investment Company Act" means the Investment Company Act of 1940, and any
statute successor thereto, in each case as amended from time to time.
"Investment Company Event" means the receipt by the Trust of an Opinion of
Counsel, to the effect that, as a result of the occurrence of a change in law or
regulation or a change in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory authority (a
"Change in 1940 Act Law"), the Trust is or shall be considered an "investment
company" that is required to be registered under the Investment Company Act,
which Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Preferred Securities under the Trust Agreement.
"Maturity Date" means the date on which the Debentures mature and on which
the principal shall be due and payable together with all accrued and unpaid
interest thereon including Compounded Interest and Additional Interest, if any
as set forth in Section 2.2.
"Ministerial Action" shall have the meaning set forth in Section 3.2.
"Officers' Certificate" means a certificate signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the
Controller or an Assistant Controller or the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(a) a statement that each officer signing the Officers' Certificate has read
the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
6
<PAGE>
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of independent legal
counsel experienced in such matters as being opined upon, that is delivered to
the Trustee in accordance with the terms hereof.
"Outstanding" when used with reference to the Debentures, means, subject to
the provisions of Section 10.4, as of any particular time, all Debentures
theretofore authenticated and delivered by the Trustee under this Indenture,
except (a) Debentures theretofore canceled by the Trustee or any paying agent,
or delivered to the Trustee or any paying agent for cancellation or that have
previously been canceled; (b) Debentures or portions thereof for the payment or
redemption of which moneys or Governmental Obligations in the necessary amount
shall have been deposited in trust with the Trustee or with any paying agent
(other than the Company) or shall have been set aside and segregated in trust by
the Company (if the Company shall act as its own paying agent); provided,
however, that if such Debentures or portions of such Debentures are to be
redeemed prior to the maturity thereof, notice of such redemption shall have
been given as provided in Article III or provision satisfactory to the Trustee
shall have been made for giving such notice; (c) Debentures in lieu of or in
substitution for which other Debentures shall have been authenticated and
delivered pursuant to the terms of Section 2.6 and (d) Debentures paid pursuant
to Section 2.8.
"Person"' means any individual, corporation, partnership, joint-venture,
trust, joint-stock company, unincorporated organization or government or any
agency or political subdivision thereof.
"Place of Payment" means the place or places where the principal of and
interest on the Debentures are payable in accordance with the terms of this
Indenture.
"Predecessor Debenture" means every previous Debenture evidencing all or a
portion of the same debt as that evidenced by such particular Debenture; and,
for the purposes of this definition, any Debenture authenticated and delivered
under Section 2.8 in lieu of a lost, destroyed or stolen Debenture shall be
deemed to evidence the same debt as the lost, destroyed or stolen Debenture.
"Preferred Securities" means undivided beneficial interests in the assets of
the Trust which rank PARI PASSU with Common Securities issued by the Trust;
provided, however, that upon the occurrence of an Event of Default, the rights
of holders of Common Securities to
7
<PAGE>
payment in respect of distributions and payments upon liquidation, redemption
and otherwise are subordinated to the rights of holders of Preferred
Securities.
"Preferred Securities Guarantee" means the Preferred Securities Guarantee,
as amended from time to time, by and between the Company, as guarantor, and the
Trustee, executed and delivered for the benefit of the Holders of the Preferred
Securities.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Responsible Officer" when used with respect to the Trustee means any vice
president, any assistant vice president, any assistant secretary, any assistant
treasurer, any corporate trust officer or any other officer or assistant officer
of the Trustee customarily performing functions similar to those performed by
the Persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Scheduled Maturity Date" means , 2027.
"Securities Act" means the Securities Act of 1933, or any successor statute,
in each case as amended from time to time.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of this Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Debentures or to other Debt which is PARI
PASSU with, or subordinated to, the Debentures; provided, however, that Senior
Debt shall not be deemed to include (i) any Debt of the Company which when
incurred and without respect to any election under Section 1111 (b) of the
United States Bankruptcy Code of 1978, as amended, was without recourse to the
Company; (ii) any Debt of the Company to any of its subsidiaries; and (iii) any
Debt to any employee of the Company.
"Senior Indebtedness" shall have the meaning set forth in Section 16.1.
"Special Event" means a Tax Event, an Investment Company Event or a Capital
Treatment Event.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Indenture or thereafter
incurred, which is by its terms expressly provided to be junior and
8
<PAGE>
subordinate to other Debt of the Company (other than the Debentures), except
that Subordinated Debt shall not include debentures sold by the Company to
the Trust.
"Subsidiary" means, with respect to any Person, (i) any corporation at least
a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries; (ii) any general
partnership, joint venture, trust or similar entity, at least a majority of
whose outstanding partnership or similar interests shall at the time be owned by
such Person, or by one or more of its Subsidiaries, or by such Person and one or
more of its Subsidiaries; and (iii) any limited partnership of which such Person
or any of its Subsidiaries is a general partner.
"'Tax Event" means the receipt by the Trust of an Opinion of Counsel, to
the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is
announced on or after the date of issuance of the Preferred Securities under
the Trust Agreement, there is more than an insubstantial risk that (i) the
Trust is, or shall be within 90 days after the date of such Opinion of
Counsel, subject to United States federal income tax with respect to income
received or accrued on the Debentures; (ii) interest payable by the Company
on the Debentures is not, or within 90 days after the date of such Opinion of
Counsel, shall not be, deductible by the Company, in whole or in part, for
United States federal income tax purposes; or (iii) the Trust is, or shall be
within 90 days after the date of such Opinion of Counsel, subject to more
than a DE MINIMIS amount of other taxes, duties, assessments or other
governmental charges. The Trust or the Company shall request and receive such
Opinion of Counsel with regard to such matters within a reasonable period of
time after the Trust or the Company shall have become aware of the possible
occurrence of any of the events described in clauses (i) through (iii) above.
"Trust" means PennFirst Capital Trust I, a Delaware statutory business trust
created by the Trust Agreement.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
, 1997, of the Trust, as amended, modified or supplemented in
accordance with the applicable provisions thereof, among the trustees of the
trust named therein, the Company, as depositor, and the holders from time to
time of undivided beneficial ownership interests in the assets of the Trust,
including all exhibits thereto, including, for all purposes of the Trust
Agreement, and any such modification, amendment or supplement, the provisions of
the Trust Indenture Act that are deemed to be a part of and govern the Trust
Agreement and any such modification, amendment or supplement, respectively.
9
<PAGE>
"Trustee" means The Bank of New York and, subject to the provisions of
Article IX, shall also include its successors and assigns, and, if at any time
there is more than one Person acting in such capacity hereunder, "'Trustee"
shall mean each such Person.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended,
subject to the provisions of Sections 11.1, 11.2, and 12.1 and any statute
successor thereto, in each case as amended from time to time.
"Trust Securities" means the Common Securities and Preferred Securities,
collectively.
"Voting Stock" as applied to stock of any Person, means shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person having ordinary voting power for the election of a majority of
the directors (or the equivalent) of such Person, other than shares, interests,
participations or other equivalents having such power only by reason of the
occurrence of a contingency.
ARTICLE II
ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION
AND EXCHANGE OF THE DEBENTURES
Section 2.1 Designation And Principal Amount.
There is hereby authorized Debentures designated the " % Junior
Subordinated Deferrable Interest Debentures due , 2027," limited in
aggregate principal amount to $ which amount shall be as set forth in
any written order of the Company for the authentication and delivery of
Debentures pursuant to Section 2.5.
Section 2.2 Maturity.
The Maturity Date shall be the Scheduled Maturity Date.
Section 2.3 Form And Payment.
The Debentures shall be issued in fully registered certificated form without
interest coupons. Principal and interest on the Debentures issued in
certificated form shall be payable, the transfer of such Debentures shall be
registrable and such Debentures shall be exchangeable for Debentures bearing
identical terms and provisions at the office or agency of the Trustee; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the holder at such address as shall appear in the Debenture
Register or by wire transfer to an account maintained by the holder as specified
in the Debenture Register, provided that the holder provides proper wire
transfer
10
<PAGE>
instructions by the regular record date. Notwithstanding the foregoing, so
long as the holder of any Debentures is the Property Trustee, the payment of
the principal of and interest (including Compounded Interest and Additional
Interest, if any) on such Debentures held by the Property Trustee shall be made
at such place and to such account as may be designated by the Property Trustee.
Debentures shall be issuable in whole or in part in the form of one or more
Global Securities and, in such case, the Depositary for such Global Securities
shall be DTC.
Section 2.4 Interest.
(a) Each Debenture shall bear interest at the rate of % per annum (the
"Coupon Rate") from the original date of issuance until the principal thereof
becomes due and payable, and on any overdue principal and (to the extent that
payment of such interest is enforceable under applicable law) on any overdue
installment of interest at the Coupon Rate, compounded quarterly, payable
(subject to the provisions of Article IV) quarterly in arrears on March 1, June
1, September 1 and December 1 of each year (each, an "Interest Payment Date,"
commencing on March 1, 1998), to the Person in whose name such Debenture or any
Predecessor Debenture is registered, at the close of business on the regular
record date for such interest installment, next preceding such Interest Payment
Date.
(b) The amount of interest payable for any period shall be computed on the
basis of a 360-day year of twelve 30-day months. Except as provided in the
following sentence, the amount of interest payable for any period shorter than a
full quarterly period for which interest is computed, shall be computed on the
basis of the actual number of days elapsed in such period. In the event that any
date on which interest is payable on the Debentures is not a Business Day, then
payment of interest payable on such date shall be made on the next succeeding
day which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the date such payment was originally payable.
(c) If, at any time while the Property Trustee is the holder of any
Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company shall pay as additional interest ("Additional
Interest") on the Debentures held by the Property Trustee, such additional
amounts as shall be required so that the net amounts received and retained by
the Trust and the Property Trustee after paying such taxes, duties, assessments
or other governmental charges shall be equal to the amounts the Trust and the
Property Trustee would have received had no such taxes, duties, assessments or
other governmental charges been imposed.
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Section 2.5 Execution And Authentications.
(a) The Debentures shall be signed on behalf of the Company by its Chief
Executive Officer, President or one of its Vice Presidents, under its
corporate seal attested by its Secretary or one of its Assistant Secretaries.
Signatures may be in the form of a manual or facsimile signature. The Company
may use the facsimile signature of any Person who shall have been a Chief
Executive Officer, President or Vice President thereof, or of any Person who
shall have been a Secretary or Assistant Secretary thereof, notwithstanding
the fact that at the time the Debentures shall be authenticated and delivered
or disposed of such Person shall have ceased to be the Chief Executive
Officer, President or a Vice President, or the Secretary or an Assistant
Secretary, of the Company. The seal of the Company may be in the form of a
facsimile of such seal and may be impressed, affixed, imprinted or otherwise
reproduced on the Debentures. The Debentures may contain such notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Debenture shall be dated the date of its authentication by the Trustee.
(b) A Debenture shall not be valid until authenticated manually by an
authorized signatory of the Trustee, or by an Authenticating Agent. Such
signature shall be conclusive evidence that the Debenture so authenticated
has been duly authenticated and delivered hereunder and that the holder is
entitled to the benefits of this Indenture.
(c) At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Debentures executed by the Company
to the Trustee for authentication, together with a written order of the
Company for the authentication and delivery of such Debentures signed by its
Chief Executive Officer, President or any Vice President and its Secretary or
any Assistant Secretary, and the Trustee in accordance with such written
order shall authenticate and make available for delivery such Debentures.
(d) In authenticating such Debentures and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the
Trustee shall be entitled to receive, and (subject to Section 9.1) shall be
fully protected in relying upon, an Opinion of Counsel stating that the form
and terms thereof have been established in conformity with the provisions of
this Indenture.
(e) The Trustee shall not be required to authenticate such Debentures if
the issue of such Debentures pursuant to this Indenture shall affect the
Trustee's own rights, duties or immunities under the Debentures and this
Indenture or otherwise in a manner that is not reasonably acceptable to the
Trustee.
Section 2.6 Registration of Transfer And Exchange.
(a) Debentures may be exchanged upon presentation thereof at the office
or agency of the Company designated for such purpose, for other Debentures
and for a like aggregate principal amount, upon payment of a sum sufficient
to cover any tax or other
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governmental charge in relation thereto, all as provided in this Section 2.6.
In respect of any Debentures so surrendered for exchange, the Company shall
execute, the Trustee shall authenticate and such office or agency shall
deliver in exchange therefor the Debenture or Debentures that the Debenture
holder making the exchange shall be entitled to receive, bearing numbers not
contemporaneously outstanding.
(b) The Company shall keep, or cause to be kept, at its office or agency
designated for such purpose or such other location designated by the Company
a register or registers (herein referred to as the "Debenture Register") in
which, subject to such reasonable regulations as it may prescribe, the
Company shall register the Debentures and the transfers of Debentures as in
this Article II provided and which at all reasonable times shall be open for
inspection by the Trustee. The registrar for the purpose of registering
Debentures and transfer of Debentures as herein provided shall be appointed
as authorized by Board Resolution (the "Debenture Registrar"). Upon surrender
for transfer of any Debenture at the office or agency of the Company
designated for such purpose, the Company shall execute, the Trustee shall
authenticate and such office or agency shall make available for delivery in
the name of the transferee or transferees a new Debenture or Debentures for a
like aggregate principal amount. All Debentures presented or surrendered for
exchange or registration of transfer, as provided in this Section 2.6, shall
be accompanied (if so required by the Company or the Debenture Registrar) by
a written instrument or instruments of transfer, in form satisfactory to the
Company or the Debenture Registrar, duly executed by the registered holder or
by such holder's duly authorized attorney in writing.
(c) No service charge shall be made for any exchange or registration of
transfer of Debentures, or issue of new Debentures in case of partial
redemption, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge in relation thereto, other than
exchanges pursuant to Section 2.7, Section 3.5(b) and Section 11.4 not
involving any transfer.
(d) The Company shall not be required (i) to issue, exchange or register
the transfer of any Debentures during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
less than all the Outstanding Debentures and ending at the close of business
on the day of such mailing; nor (ii) to register the transfer of or exchange
any Debentures or portions thereof called for redemption.
(e) Notwithstanding any other provision of this Indenture, transfers and
exchanges of Debentures and beneficial interests in a Global Security shall
be made only in accordance with this Section 2.6(e).
(i) A Debenture that is not a Global Security may be transferred, in
whole or in part, to a Person who takes delivery in the form of
another Debenture that is not a Global Security as provided in this
Section 2.6.
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(ii) A beneficial interest in a Global Security may be exchanged for a
Debenture that is not a Global Security as provided in Section 2.7A.
Section 2.7 Temporary Debentures.
Pending the preparation of definitive Debentures, the Company may
execute, and the Trustee shall authenticate and deliver, temporary Debentures
(printed, lithographed, or typewritten). Such temporary Debentures shall be
substantially in the form of the definitive Debentures in lieu of which they
are issued, but with such omissions, insertions and variations as may be
appropriate for temporary Debentures, all as may be determined by the
Company. Every temporary Debenture shall be executed by the Company and be
authenticated by the Trustee upon the same conditions and in substantially
the same manner, and with like effect, as the definitive Debentures. Without
unnecessary delay the Company shall execute and shall furnish definitive
Debentures and thereupon any or all temporary Debentures may be surrendered
in exchange therefor (without charge to the holders), at the office or agency
of the Company designated for such purpose, and the Trustee shall
authenticate and such office or agency shall deliver in exchange for such
temporary Debentures an equal aggregate principal amount of definitive
Debentures, unless the Company advises the Trustee to the effect that
definitive Debentures need not be executed and furnished until further notice
from the Company. Until so exchanged, the temporary Debentures shall be
entitled to the same benefits under this Indenture as definitive Debentures
authenticated and delivered hereunder.
Section 2.7A Global Securities.
(a) Each Global Security issued under this Indenture shall be registered
in the name of the Depositary designated by the Company for such Global
Security or a nominee thereof and delivered to such Depositary or a nominee
thereof or custodian therefor, and each such Global Security shall constitute
a single Security for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Debentures registered, and
no transfer of a Global Security in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Security or
a nominee thereof unless (i) such Depositary advises the Trustee in writing
that such Depositary is no longer willing or able to properly discharge its
responsibilities as Depositary with respect to such Global Security, and the
Company is unable to locate a qualified successor, (ii) the Company executes
and delivers to the Trustee a Company Order stating that the Company elects
to terminate the book-entry system through the Depositary, or (iii) there
shall have occurred and be continuing an Event of Default.
(c) If any Global Security is to be exchanged for other Debentures or
cancelled in whole, it shall be surrendered by or on behalf of the Depositary
or its nominee to the Securities Registrar for exchange or cancellation as
provided in this Article II. If any Global
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Security is to be exchanged for other Debentures or cancelled in part, or if
another Security is to be exchanged in whole or in part for a beneficial
interest in any Global Security, then either (i) such Global Security shall
be so surrendered for exchange or cancellation as provided in this Article II
or (ii) the principal amount thereof shall be reduced or increased by an
amount equal to the portion thereof to be so exchanged or cancelled, or equal
to the principal amount of such Debenture to be so exchanged for a beneficial
interest therein, as the case may be, by means of an appropriate adjustment
made on the records of the Securities Registrar, whereupon the Trustee, in
accordance with Applicable Procedures, shall instruct the Depositary or its
authorized representative to make a corresponding adjustment to its records.
Upon any such surrender or adjustment of a Global Security by the Depositary,
accompanied by registration instructions, the Trustee shall, subject to
Section 2.6 and as otherwise provided in this Article II, authenticate and
make available for delivery any Debentures issuable in exchange for such
Global Security (or any portion thereof) in accordance with the instructions
of the Depositary. The Trustee shall not be liable for any delay in delivery
of such instructions and may conclusively rely on, and shall be fully
protected in relying on, such instructions.
(d) Every Debenture authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Article II, Section 3.5 or Article
IX or otherwise, shall be authenticated and delivered in the form of, and
shall be, a Global Security, unless such Debenture is registered in the name
of a Person other than the Depositary for such Global Security or a nominee
thereof.
(e) The Depositary or its nominee, as the registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Debenture, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security shall
be shown only on, and the transfer of such interest shall be effected only
through, records maintained by the Depositary or its nominee or agent.
Neither the Trustee nor the Securities Registrar shall have any liability in
respect of any transfers effected by the Depositary.
(f) The rights of owners of beneficial interests in a Global Security
shall be exercised only through the Depositary and shall be limited to those
established by law and agreements between such owners and the Depositary
and/or its Agent Members.
Section 2.8 Mutilated, Destroyed, Lost or Stolen Debentures.
(a) In case any temporary or definitive Debenture shall become mutilated
or be destroyed, lost or stolen, the Company (subject to the next succeeding
sentence) shall execute, and upon the Company's request the Trustee (subject
as aforesaid) shall authenticate and make available for delivery, a new
Debenture bearing a number not contemporaneously outstanding, in exchange and
substitution for the mutilated Debenture, or in lieu of and in substitution
for the Debenture so destroyed, lost or stolen. In every case
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the applicant for a substituted Debenture shall furnish to the Company and
the Trustee such security or indemnity as may be required by them to save
each of them harmless, and, in every case of destruction, loss or theft, the
applicant shall also furnish to the Company and the Trustee evidence to their
satisfaction of the destruction, loss or theft of the applicant's Debenture
and of the ownership thereof. The Trustee may authenticate any such
substituted Debenture and make available for delivery the same upon the
written request or authorization of any officer of the Company. Upon the
issuance of any substituted Debenture, the Company may require the payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith. In case any Debenture that has
matured or is about to mature shall become mutilated or be destroyed, lost or
stolen, the Company may, instead of issuing a substitute Debenture, pay or
authorize the payment of the same (without surrender thereof except in the
case of a mutilated Debenture) if the applicant for such payment shall
furnish to the Company and the Trustee such security or indemnity as they may
require to save them harmless, and, in case of destruction, loss or theft,
evidence to the satisfaction of the Company and the Trustee of the
destruction, loss or theft of such Debenture and of the ownership thereof.
(b) Every replacement Debenture issued pursuant to the provisions of
this Section 2.8 shall constitute an additional contractual obligation of the
Company whether or not the mutilated, destroyed, lost or stolen Debenture
shall be found at any time, or be enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately
with any and all other Debentures duly issued hereunder. All Debentures shall
be held and owned upon the express condition that the foregoing provisions
are exclusive with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Debentures, and shall preclude (to the extent
lawful) any and all other rights or remedies, notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement or payment of negotiable instruments or other securities without
their surrender.
Section 2.9 Cancellation.
All Debentures surrendered for the purpose of payment, redemption,
exchange or registration of transfer shall, if surrendered to the Company or
any paying agent, be delivered to the Trustee for cancellation, or, if
surrendered to the Trustee, shall be canceled by it, and no Debentures shall
be issued in lieu thereof except as expressly required or permitted by any of
the provisions of this Indenture. On request of the Company at the time of
such surrender, the Trustee shall deliver to the Company canceled Debentures
held by the Trustee. In the absence of such request the Trustee may dispose
of canceled Debentures in accordance with its standard procedures. If the
Company shall otherwise acquire any of the Debentures, however, such
acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by such Debentures unless and until the same are
delivered to the Trustee for cancellation.
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Section 2.10 Benefit of Indenture.
Nothing in this Indenture or in the Debentures, express or implied, shall
give or be construed to give to any Person, other than the parties hereto and
the holders of the Debentures (and, with respect to the provisions of Article
XVI, the holders of Senior Indebtedness) any legal or equitable right, remedy
or claim under or in respect of this Indenture, or under any covenant,
condition or provision herein contained; all such covenants, conditions, and
provisions being for the sole benefit of the parties hereto and of the
holders of the Debentures (and, with respect to the provisions of Article
XVI, the holders of Senior Indebtedness).
Section 2.11 Authentication Agent.
(a) So long as any of the Debentures remain Outstanding there may be an
Authenticating Agent for any or all such Debentures, which the Trustee shall
have the right to appoint. Said Authenticating Agent shall be authorized to
act on behalf of the Trustee to authenticate Debentures issued upon exchange,
transfer or partial redemption thereof, and Debentures so authenticated shall
be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder. All
references in this Indenture to the authentication of Debentures by the
Trustee shall be deemed to include authentication by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall be a
corporation that has a combined capital and surplus, as most recently
reported or determined by it, sufficient under the laws of any jurisdiction
under which it is organized or in which it is doing business to conduct a
trust business, and that is otherwise authorized under such laws to conduct
such business and is subject to supervision or examination by federal or
state authorities. If at any time any Authenticating Agent shall cease to be
eligible in accordance with these provisions, it shall resign immediately.
(b) Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at
any time (and upon request by the Company shall) terminate the agency of any
Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may appoint
an eligible successor Authenticating Agent acceptable to the Company. Any
successor Authenticating Agent, upon acceptance of its appointment hereunder,
shall become vested with all the rights, powers and duties of its predecessor
hereunder as if originally named as an Authenticating Agent pursuant hereto.
Section 2.12 Right of Set-off.
With respect to the Debentures initially issued to the Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set-off any payment it is otherwise required to make in respect of
any such Debenture to the extent the Company
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has theretofore made, or is concurrently on the date of such payment making,
a payment under the Preferred Securities Guarantee relating to such Debenture
or to a holder of Preferred Securities pursuant to an action undertaken under
Section 7.8 of this Indenture.
Section 2.13 CUSIP Numbers.
The Company in issuing the Debentures may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Debentureholders; provided that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Debentures or as contained in any
notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Debentures, and any such redemption
shall not be affected by any defect in or omission or such numbers. The
Company will promptly notify the Trustee of any change in the CUSIP numbers.
ARTICLE III
REDEMPTION OF DEBENTURES
Section 3.1 Redemption.
Subject to the Company having received prior regulatory approval, if then
required under applicable capital guidelines or regulatory policies, the
Company may redeem the Debentures issued hereunder on and after the dates set
forth in and in accordance with the terms of this Article III.
Section 3.2 Special Event Redemption.
Subject to the Company having received prior regulatory approval, if then
required under applicable capital guidelines or regulatory policies, if a
Special Event has occurred and is continuing, then, notwithstanding Section
3.3, the Company shall have the right upon not less than 30 days nor more
than 60 days notice to the holders of the Debentures to redeem the
Debentures, in whole but not in part, for cash within 180 days following the
occurrence of such Special Event (the "180-Day Period") at a redemption price
equal to 100% of the principal amount to be redeemed plus any accrued and
unpaid interest thereon to the date of such redemption (the "Redemption
Price"), provided that if at the time there is available to the Company the
opportunity to eliminate, within the 180-Day Period, a Tax Event by taking
some ministerial action (a "Ministerial Action"), such as filing a form or
making an election, or pursuing some other similar reasonable measure which
has no adverse effect on the Company, the Trust or the holders of the Trust
Securities issued by the Trust, the Company shall pursue such Ministerial
Action in lieu of redemption, and, provided further, that the Company shall
have no right to redeem the Debentures while the Trust is pursuing any
Ministerial Action pursuant to its obligations under the Trust Agreement. The
Redemption Price shall be paid prior to 12:00 noon, New York time, on
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the date of such redemption or such earlier time as the Company determines,
provided that the Company shall deposit with the Trustee an amount sufficient
to pay the Redemption Price by 10:00 a.m., New York time, on the date such
Redemption Price is to be paid.
Section 3.3 Optional Redemption by Company.
Except as otherwise may be specified in this Indenture, the Company shall
have the right to redeem the Debentures, in whole or in part, from time to
time, on or after __________ __, 2002, at a Redemption Price equal to 100% of
the principal amount to be redeemed plus any accrued and unpaid interest
thereon to the date of such redemption. Any redemption pursuant to this
Section 3.3 shall be made upon not less than 30 days nor more than 60 days
notice to the holder of the Debentures, at the Redemption Price. If the
Debentures are only partially redeemed pursuant to this Section 3.3, the
Debentures shall be redeemed pro rata or by lot or in such other manner as
the Trustee shall deem appropriate and fair in its discretion. The Redemption
Price shall be paid prior to 12:00 noon, New York time, on the date of such
redemption or at such earlier time as the Company determines provided that
the Company shall deposit with the Trustee an amount sufficient to pay the
Redemption Price by 10:00 a.m., New York time, on the date such Redemption
Price is to be paid.
Section 3.4 Notice of Redemption.
(a) In case the Company shall desire to exercise such right to redeem
all or a portion of the Debentures in accordance with the right reserved so
to do, the Company shall, or shall cause the Trustee to, upon receipt of 45
days written notice from the Company, give notice of such redemption to
holders of the Debentures to be redeemed by mailing, first class postage
prepaid, a notice of such redemption not less than 30 days and not more than
60 days before the date fixed for redemption to such holders at their last
addresses as they shall appear upon the Debenture Register unless a shorter
period is specified in the Debentures to be redeemed. Any notice that is
mailed in the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the registered holder receives the notice. In
any case, failure duly to give such notice to the holder of any Debenture
designated for redemption in whole or in part, or any defect in the notice,
shall not affect the validity of the proceedings for the redemption of any
other Debentures. In the case of any redemption of Debentures prior to the
expiration of any restriction on such redemption provided in the terms of
such Debentures or elsewhere in this Indenture, the Company shall furnish the
Trustee with an Officers' Certificate evidencing compliance with any such
restriction. Each such notice of redemption shall identify the Debenture to
be redeemed (including CUSIP numbers, if any) and shall specify the date
fixed for redemption and the Redemption Price and shall state that payment of
the Redemption Price shall be made at the office or agency of the Company or
at the Corporate Trust Office, upon presentation and surrender of such
Debentures, that interest accrued to the date fixed for redemption shall be
paid as specified in said notice and that from and after said date interest
shall cease to accrue. If less than all the Debentures are to be
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redeemed, the notice to the holders of the Debentures shall specify the
particular Debentures to be redeemed. If the Debentures are to be redeemed in
part only, the notice shall state the portion of the principal amount thereof
to be redeemed and shall state that on and after the redemption date, upon
surrender of such Debenture, a new Debenture or Debentures in principal
amount equal to the unredeemed portion thereof shall be issued.
(b) If less than all the Debentures are to be redeemed, the Company
shall give the Trustee at least 45 days notice in advance of the date fixed
for redemption as to the aggregate principal amount of Debentures to be
redeemed, and thereupon the Trustee shall select, by lot or in such other
manner as it shall deem appropriate and fair in its discretion, the portion
or portions (equal to $10 or any integral multiple thereof) of the Debentures
to be redeemed and shall thereafter promptly notify the Company in writing of
the numbers of the Debentures to be redeemed, in whole or in part. The
Company may, if and whenever it shall so elect pursuant to the terms hereof,
by delivery of instructions signed on its behalf by its President or any Vice
President, instruct the Trustee or any paying agent to call all or any part
of the Debentures for redemption and to give notice of redemption in the
manner set forth in this Section 3.4, such notice to be in the name of the
Company or its own name as the Trustee or such paying agent may deem
advisable. In any case in which notice of redemption is to be given by the
Trustee or any such paying agent, the Company shall deliver or cause to be
delivered to, or permit to remain with, the Trustee or such paying agent, as
the case may be, such Debenture Register, transfer books or other records, or
suitable copies or extracts therefrom, sufficient to enable the Trustee or
such paying agent to give any notice by mail that may be required under the
provisions of this Section 3.4.
Section 3.5 Payment Upon Redemption.
(a) If the giving of notice of redemption shall have been completed as
above provided, the Debentures or portions of Debentures to be redeemed
specified in such notice shall become due and payable on the date and at the
place stated in such notice at the applicable Redemption Price, and interest
on such Debentures or portions of Debentures shall cease to accrue on and
after the date fixed for redemption, unless the Company shall default in the
payment of such Redemption Price with respect to any such Debenture or
portion thereof. On presentation and surrender of such Debentures on or after
the date fixed for redemption at the place of payment specified in the
notice, said Debentures shall be paid and redeemed at the Redemption Price
(but if the date fixed for redemption is an interest payment date, the
interest installment payable on such date shall be payable to the registered
holder at the close of business on the applicable record date pursuant to
Section 2.4).
(b) Upon presentation of any Debenture that is to be redeemed in part
only, the Company shall execute and the Trustee shall authenticate and the
office or agency where the Debenture is presented shall make available for
delivery to the holder thereof, at the
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expense of the Company, a new Debenture of authorized denomination in
principal amount equal to the unredeemed portion of the Debenture so
presented.
Section 3.6 No Sinking Fund.
The Debentures are not entitled to the benefit of any sinking fund.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
Section 4.1 Extension of Interest Payment Period.
So long as no Event of Default has occurred and is continuing, the
Company shall have the right, at any time and from time to time during the
term of the Debentures, to defer payments of interest by extending the
interest payment period of such Debentures for a period not exceeding 20
consecutive quarters (the "Extended Interest Payment Period"), during which
Extended Interest Payment Period no interest shall be due and payable;
provided that no Extended Interest Payment Period may extend beyond the
Maturity Date. Interest, which has been deferred because of the extension of
the interest payment period pursuant to this Section 4.1, shall bear interest
thereon at the rate of ____% per annum, compounded quarterly during the
Extended Interest Payment Period (the "Compounded Interest''). At the end of
the Extended Interest Payment Period, the Company shall calculate (and
deliver such calculation to the Trustee) and pay all interest accrued and
unpaid on the Debentures, including any Additional Interest and Compounded
Interest (together, "Deferred Interest") that shall be payable to the holders
of the Debentures in whose names the Debentures are registered in the
Debenture Register on the first record date after the end of the Extended
Interest Payment Period. Before the termination of any Extended Interest
Payment Period, the Company may further extend such period, provided that
such period together with all such further extensions thereof shall not
exceed 20 consecutive quarters, or extend beyond the Maturity Date of the
Debentures. Upon the termination of any Extended Interest Payment Period and
upon the payment of all Deferred Interest then due, the Company may commence
a new Extended Interest Payment Period, subject to the foregoing
requirements. No interest shall be due and payable during an Extended
Interest Payment Period, except at the end thereof, but the Company may
prepay at any time all or any portion of the interest accrued during an
Extended Interest Payment Period.
Section 4.2 Notice of Extension.
(a) If the Property Trustee is the only registered holder of the
Debentures at the time the Company selects an Extended Interest Payment
Period, the Company shall give written notice to the Administrative Trustees,
the Property Trustee and the Trustee of its selection of such Extended
Interest Payment Period one Business Day before the earlier of (i) the next
succeeding date on which Distributions on the Trust Securities issued by the
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Trust are payable; or (ii) the date the Trust is required to give notice of
the record date or the date such Distributions are payable to The Nasdaq
Stock Market's National Market of other applicable self-regulatory
organization or to holders of the Preferred Securities issued by the Trust,
but in any event at least one Business Day before such record date.
(b) If the Property Trustee is not the only holder of the Debentures at
the time the Company selects an Extended Interest Payment Period, the Company
shall give the holders of the Debentures and the Trustee written notice of
its selection of such Extended Interest Payment Period at least one Business
Day before the earlier of (i) the next succeeding Interest Payment Date; or
(ii) the date the Company is required to give notice of the record or payment
date of such interest payment to The Nasdaq Stock Market's National Market or
other applicable self-regulatory organization or to holders of the Debentures.
(c) The quarter in which any notice is given pursuant to paragraphs (a)
or (b) of this Section 4.2 shall be counted as one of the 20 quarters
permitted in the Minimum Extended Interest Payment Period permitted under
Section 4.1.
Section 4.3 Limitation on Transactions.
If (i) the Company shall exercise its right to defer payment of interest
as provided in Section 4.1; (ii) there shall have occurred any Event of
Default; or (iii) the Company is in default with respect to its obligations
under the Preferred Securities Guarantee, then (a) the Company will not, and
will not permit any Subsidiary to, declare or pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock (other than (1) the
reclassification of any class of the Company's capital stock into another
class of its capital stock; (2) dividends or distributions payable in any
class of the Company's common stock, (3) any declaration of a dividend in
connection with the implementation of a shareholder rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (4) payments under the
Preferred Securities Guarantee and (5) purchases of the Company's common
stock related to the rights under any of the Company's benefit plans for its
or its subsidiaries' directors, officers or employees); (b) the Company will
not, and will not permit any Subsidiary to, make any payment of interest,
principal or premium, if any, or repay, repurchase or redeem any debt
securities issued by the Company which rank pari passu with or junior to the
Debentures or make any guarantee payments with respect to any guarantee by
the Company of the debt securities of any Subsidiary of the Company if such
guarantee ranks pari passu with or junior to the Debentures; provided,
however, that notwithstanding the foregoing the Company may make payments
pursuant to its obligations under the Preferred Securities Guarantee; and (c)
the Company shall not redeem, purchase or acquire less than all of the
outstanding Debentures or any of the Preferred Securities.
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ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
Section 5.1 Payment of Principal And Interest.
The Company shall duly and punctually pay or cause to be paid the
principal of and interest on the Debentures at the time and place and in the
manner provided herein.
Section 5.2 Maintenance of Agency.
So long as any of the Debentures remain Outstanding, the Company shall
maintain an office or agency in the Place of Payment where (i) Debentures may
be presented for payment; (ii) Debentures may be presented as hereinabove
authorized for registration of transfer and exchange; and (iii) notice and
demands to or upon the Company in respect of the Debentures and this
Indenture may be given or served, such designation to continue with respect
to such office or agency until the Company shall, by written notice signed by
its President or a Vice President and delivered to the Trustee, designate
some other office or agency for such purposes or any of them. If at any time
the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such
presentations, notices and demands may be made or served at the Corporate
Trust Office of the Trustee, and the Company hereby appoints the Trustee as
its agent to receive all such presentations, notices and demands. In addition
to any such office or agency, the Company may from time to time designate one
or more offices or agencies where the Debentures may be presented for
registration or transfer and for exchange in the manner provided herein, and
the Company may from time to time rescind such designation as the Company may
deem desirable or expedient; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to
maintain any such office or agency in the Place of Payment for such purposes.
The Company shall give the Trustee prompt written notice of any such
designation or rescission thereof.
Section 5.3 Paying Agents.
(a) If the Company shall appoint one or more paying agents for the
Debentures, other than the Trustee, the Company shall cause each such paying
agent to execute and deliver to the Trustee an instrument in which such agent
shall agree with the Trustee, subject to the provisions of this Section 5.3:
(i) that it shall hold all sums held by it as such agent for the
payment of the principal of or interest on the Debentures (whether
such sums have been paid to it by the Company or by any other obligor
of such Debentures) in trust for the benefit of the Persons entitled
thereto;
(ii) that it shall give the Trustee prompt written notice of any
failure by the Company (or by any other obligor of such Debentures) to
make any payment
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of the principal of or interest on the Debentures when the same shall
be due and payable;
(iii) that it shall, at any time during the continuance of any
failure referred to in the preceding paragraph (a)(ii) above, upon the
written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such paying agent; and
(iv) that it shall perform all other duties of paying agent as set
forth in this Indenture.
(b) If the Company shall act as its own paying agent with respect to the
Debentures, it shall on or before each due date of the principal of or
interest on such Debentures, set aside, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay such
principal or interest so becoming due on Debentures until such sums shall be
paid to such Persons or otherwise disposed of as herein provided and shall
promptly notify the Trustee of such action, or any failure (by it or any
other obligor on such Debentures) to take such action. Whenever the Company
shall have one or more paying agents for the Debentures, it shall, prior to
each due date of the principal of or interest on any Debentures, deposit with
the paying agent a sum sufficient to pay the principal or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal or interest, and (unless such paying agent is the
Trustee) the Company shall promptly notify the Trustee of this action or
failure so to act.
(c) Notwithstanding anything in this Section 5.3 to the contrary, (i)
the agreement to hold sums in trust as provided in this Section 5.3 is
subject to the provisions of Section 13.3 and 13.4; and (ii) the Company may
at any time, for the purpose of obtaining the satisfaction and discharge of
this Indenture or for any other purpose, pay, or direct any paying agent to
pay, to the Trustee all sums held in trust by the Company or such paying
agent, such sums to be held by the Trustee upon the same terms and conditions
as those upon which such sums were held by the Company or such paying agent;
and, upon such payment by any paying agent to the Trustee, such paying agent
shall be released from all further liability with respect to such money.
Section 5.4 Appointment To Fill Vacancy In Office Of Trustee.
The Company, whenever necessary to avoid or fill a vacancy in the office
of Trustee, shall appoint, in the manner provided in Section 9.10, a Trustee,
so that there shall at all times be a Trustee hereunder.
Section 5.5 Compliance With Consolidation Provisions.
The Company shall not, while any of the Debentures remain outstanding,
consolidate with, or merge into, or merge into itself, or convey, transfer or
lease all or substantially all
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of its property and assets to any other entity and no entity shall
consolidate with or merge into the Company or convey, transfer or lease
substantially all of its properties and assets to the Company, unless the
provisions of Article XII hereof are complied with.
Section 5.6 Limitation On Transactions.
If Debentures are issued to the Trust or a trustee of the Trust in
connection with the issuance of Trust Securities by the Trust and (i) there
shall have occurred any event that would constitute an Event of Default; (ii)
the Company shall be in default with respect to its payment of any
obligations under the Preferred Securities Guarantee relating to the Trust;
or (iii) the Company shall have given notice of its election to defer
payments of interest on such Debentures by extending the interest payment
period as provided in this Indenture and such period, or any extension
thereof, shall be continuing, then (a) the Company may not, and may not
permit any Subsidiary to, declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (1)
the reclassification of any class of the Company's capital stock into another
class of capital stock, (2) dividends or distributions payable in any class
of the Company's common stock, (3) any declaration of a dividend in
connection with the implementation of a shareholder rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (4) payments under the
Preferred Securities Guarantee and (5) purchases of the Company's common
stock related to the rights under any of the Company's benefit plans for its
or its subsidiaries' directors, officers or employees); (b) the Company shall
not make any payment of interest, principal or premium, if any, or repay,
repurchase or redeem any debt securities issued by the Company which rank
pari passu with or junior to the Debentures; provided, however, that the
Company may make payments pursuant to its obligations under the Preferred
Securities Guarantee; and (c) the Company shall not redeem, purchase or
acquire less than all of the outstanding Debentures or any of the Preferred
Securities.
Section 5.7 Covenants As To The Trust.
For so long as such Trust Securities of the Trust remain outstanding, the
Company shall (i) maintain 100% direct or indirect ownership of the Common
Securities of the Trust; provided, however, that any permitted successor of
the Company under this Indenture may succeed to the Company's ownership of
the Common Securities; (ii) not voluntarily terminate, wind up or liquidate
the Trust, except upon prior regulatory approval if then so required under
applicable capital guidelines or regulatory policies and use its reasonable
efforts to cause the Trust (a) to remain a business trust, except in
connection with a distribution of Debentures, the redemption of all of the
Trust Securities of the Trust or certain mergers, consolidations or
amalgamations, each as permitted by the Trust Agreement; and (b) to otherwise
continue not to be treated as an association taxable as a corporation or
partnership for United States federal income tax purposes; and (iii) use its
reasonable efforts to cause each holder of Trust Securities to be treated as
owning an
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individual beneficial interest in the Debentures. In connection with the
distribution of the Debentures to the holders of the Preferred Securities
issued by the Trust upon a Dissolution Event, the Company shall use its best
efforts to list such Debentures on The Nasdaq Stock Market's National Market
or on such other exchange as the Preferred Securities are then listed.
Section 5.8 Covenants As To Purchases.
Prior to _________ ___, 2002, the Company shall not purchase any
Debentures, in whole or in part, from the Trust.
ARTICLE VI
DEBENTUREHOLDERS' LISTS AND REPORTS BY
THE COMPANY AND THE TRUSTEE
Section 6.1 Company To Furnish Trustee Names And Addresses Of
Debenture Holders
The Company shall furnish or cause to be furnished to the Trustee (a)
within one Business Day after January and June 30th of each year a list, in
such form as the Trustee may reasonably require, of the names and addresses
of the holders of the Debentures as of such regular record date, provided
that the Company shall not be obligated to furnish or cause to furnish such
list at any time that the list shall not differ in any respect from the most
recent list furnished to the Trustee by the Company; and (b) at such other
times as the Trustee may request in writing within 30 days after the receipt
by the Company of any such request, a list of similar form and content as of
a date not more than 15 days prior to the time such list is furnished;
provided, however, that, in either case, no such list need be furnished if
the Trustee shall be the Debenture Registrar.
Section 6.2 Preservation Of Information Communications With Debentureholders
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Debentures contained in the most recent list furnished to it as provided in
Section 6.1 and as to the names and addresses of holders of Debentures
received by the Trustee in its capacity as registrar for the Debentures (if
acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
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(c) Debentureholders may communicate as provided in Section 312(b) of
the Trust Indenture Act with other Debentureholders with respect to their
rights under this Indenture or under the Debentures.
Section 6.3 Reports By The Company.
(a) The Company covenants and agrees to file with the Trustee, within 15
days after the Company is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as the Commission
may from time to time by rules and regulations prescribe) that the Company
may be required to file with the Commission pursuant to Section 13 or Section
15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such Sections, then
to file with the Trustee and the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports that may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from to
time by the Commission, such additional information, documents and reports
with respect to compliance by the Company with the conditions and covenants
provided for in this Indenture as may be required from time to time by such
rules and regulations.
(c) The Company covenants and agrees to transmit by mail, first class
postage prepaid, or reputable over-night delivery service that provides for
evidence of receipt, to the Debentureholders, as their names and addresses
appear upon the Debenture Register, within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to subsections (a) and (b) of
this Section 6.3 and delivered to Debenture holders or the Company's
stockholders as may be required by rules and regulations prescribed from time
to time by the Commission.
(d) Delivery of such reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such shall
not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
Section 6.4 Reports By The Trustee.
(a) The Trustee shall transmit to Debentureholders such reports
concerning the Trustee and its actions under this Indenture as may be
required pursuant to the Trust
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Indenture Act at the times and in the manner provided pursuant thereto. If
required by Section 313(a) of the Trust Indenture Act, the Trustee shall,
within sixty days after each May 15 following the date of this Indenture
deliver to Debentureholders a brief report, dated as of such May 15, which
complies with the provisions of such Section 313(a).
(b) A copy of each such report shall, at the time of such transmission
to Debentureholders, be filed by the Trustee with each stock exchange, if
any, upon which the Debentures are listed with the Commission and with the
Company will promptly notify the Trustee when any Debentures become listed
on any stock exchange.
Section 6.5 Statements As To Default.
(a) The Company will deliver to the Trustee annually, within 120 days
after the end of each of its fiscal years, a certificate, from its principal
executive officer, principal financial officer or principal accounting
officer, stating whether or not to the best knowledge of the signer thereof
the Company is in compliance (without regard to periods of grace or notice
requirements) with all conditions and covenants under this Indenture, and if
the Company shall not be in compliance, specifying such non-compliance and
the nature and status thereof of which such signer may have knowledge.
(b) The Company shall deliver to the Trustee, as soon as possible and in
any event within five days after the Company becomes aware of the occurrence
of any Event of Default or an event which, with notice or the lapse of time
or both, would constitute an Event of Default, an Officers' Certificate
setting forth the details of such Event of Default or Default and the action
which the Company proposes to take with respect thereto.
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
Section 7.1 Events Of Default.
(a) Whenever used herein with respect to the Debentures, "Event of
Default" means any one or more of the following events that has occurred and
is continuing:
(i) the Company defaults in the payment of any installment of
interest (including Additional Interest or Compounded Interest, if
any) upon any of the Debentures, as and when the same shall become due
and payable, and continuance of such default for a period of 30 days;
provided, however, that a valid extension of an interest payment
period by the Company in accordance with the terms of this Indenture
shall not constitute a default in the payment of interest for this
purpose;
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(ii) the Company defaults in the payment of the principal on the
Debentures as and when the same shall become due and payable whether
at maturity, upon redemption, by declaration of acceleration of
maturity or otherwise;
(iii) the Company fails to observe or perform any other of its
covenants or agreements with respect to the Debentures for a period of
90 days after the date on which written notice of such failure,
requiring the same to be remedied and stating that such notice is a
"Notice of Default" hereunder, shall have been given to the Company by
the Trustee, by registered or certified mail, or to the Company and
the Trustee by the holders of at least 25% in aggregate principal
amount of the Debentures at the time Outstanding;
(iv) the Company pursuant to or within the meaning of any Bankruptcy
Law (i) commences a voluntary case; (ii) consents to the entry of an
order for relief against it in an involuntary case; (iii) consents to
the appointment of a Custodian of it or for all or substantially all
of its property; or (iv) makes a general assignment for the benefit of
its creditors;
(v) a court of competent jurisdiction enters an order under any
Bankruptcy Law that (i) is for relief against the Company in an
involuntary case; (ii) appoints a Custodian of the Company for all or
substantially all of its property; or (iii) orders the liquidation of
the Company, and the order or decree remains unstayed and in effect
for 60 days; or
(vi) the Trust shall have voluntarily or involuntarily dissolved,
wound-up its business or otherwise terminated its existence except in
connection with (i) the distribution of Debentures to holders of Trust
Securities in liquidation of their interests in the Trust; (ii) the
redemption of all of the outstanding Trust Securities of the Trust; or
(iii) certain mergers, consolidations or amalgamations, each as
permitted by the Trust Agreement.
(b) In each and every such case, unless the principal of all the
Debentures shall have already become due and payable, either the Trustee or
the holders of not less than 25% in aggregate principal amount of the
Debentures then Outstanding hereunder, by notice in writing to the Company
(and to the Trustee if given by such Debentureholders) may declare the
principal of all the Debentures to be due and payable immediately, and upon
any such declaration the same shall become and shall be immediately due and
payable, notwithstanding anything contained in this Indenture or in the
Debentures.
(c) At any time after the principal of the Debentures shall have been so
declared due and payable, and before any judgment or decree for the payment
of the moneys due shall have been obtained or entered as hereinafter
provided, the holders of a majority in aggregate principal amount of the
Debentures then Outstanding hereunder, by written notice
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to the Company and the Trustee, may rescind and annul such declaration and
its consequences if: (i) the Company has paid or deposited with the Trustee a
sum sufficient to pay all matured installments of interest (including
Additional Interest and Compounded Interest, if any) upon all the Debentures
and the principal of any and all Debentures that shall have become due
otherwise than by acceleration (with interest upon such principal, and upon
overdue installments of interest, at the rate per annum expressed in the
Debentures to the date of such payment or deposit) and the amount payable to
the Trustee under Section 9.6; and (ii) any and all Events of Default under
this Indenture, other than the nonpayment of principal on Debentures that
shall not have become due by their terms, shall have been remedied or waived
as provided in Section 7.6. No such rescission and annulment shall extend to
or shall affect any subsequent default or impair any right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right with
respect to Debentures under this Indenture and such proceedings shall have
been discontinued or abandoned because of such rescission or annulment or for
any other reason or shall have been determined adversely to the Trustee, then
and in every such case the Company and the Trustee shall be restored
respectively to their former positions and rights hereunder, and all rights,
remedies and powers of the Company and the Trustee shall continue as though
no such proceedings had been taken.
Section 7.2 Collection Of Indebtedness And Suits For Enforcement By Trustee.
(a) The Company covenants that (1) in case it shall default in the
payment of any installment of interest (including Additional Interest and
Compounded Interest) on any of the Debentures, and such default shall have
continued for a period of 90 Business Days; or (2) in case it shall default
in the payment of the principal of any of the Debentures when the same shall
have become due and payable, whether upon maturity of the Debentures or upon
redemption or upon declaration or otherwise, then, upon demand of the
Trustee, the Company shall pay to the Trustee, for the benefit of the holders
of the Debentures, the whole amount that then shall have been become due and
payable on all such Debentures for principal or interest, or both, as the
case may be, with interest upon the overdue principal and (if the Debentures
are held by the Trust or a trustee of the Trust, without duplication of any
other amounts paid by the Trust or trustee in respect thereof) upon overdue
installments of interest at the rate per annum expressed in the Debentures;
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, and the amount payable to the Trustee
and its counsel under Section 9.7.
(b) If the Company shall fail to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any action or proceedings at law
or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceeding to judgment or final decree, and may
enforce any such judgment or final decree against the Company
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or other obligor upon the Debentures and collect the moneys adjudged or
decreed to be payable in the manner provided by law out of the property of
the Company or other obligor upon the Debentures, wherever situated.
(c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or judicial
proceedings affecting the Company or the creditors or property of either, the
Trustee shall have power to intervene in such proceedings and take any action
therein that may be permitted by the court and shall (except as may be
otherwise provided by law) be entitled to file such proofs of claim and other
papers and documents as may be necessary or advisable in order to have the
claims of the Trustee and of the holders of the Debentures allowed for the
entire amount due and payable by the Company under this Indenture at the date
of institution of such proceedings and for any additional amount that may
become due and payable by the Company after such date, and to collect and
receive any moneys or other property payable or deliverable on any such
claim, and to distribute the same after the deduction of the amount payable
to the Trustee and its counsel under Section 9.7; and any receiver, assignee
or trustee in bankruptcy or reorganization is hereby authorized by each of
the holders of the Debentures to make such payments to the Trustee, and, in
the event that the Trustee shall consent to the making of such payments
directly to such Debentureholders, to pay to the Trustee any amount due it
under Section 9.7.
(d) All rights of action and of asserting claims under this Indenture,
or under any of the terms established with respect to Debentures, may be
enforced by the Trustee without the possession of any of such Debentures, or
the production thereof at any trial or other proceeding relating thereto, and
any such suit or proceeding instituted by the Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of judgment shall,
after provision for payment to the Trustee of any amounts due under Section
9.7, be for the ratable benefit of the holders of the Debentures. In case of
an Event of Default hereunder, the Trustee may in its discretion proceed to
protect and enforce the rights vested in it by this Indenture by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any of such rights, either at law or in equity or in
bankruptcy or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the exercise of any
power granted in this Indenture, or to enforce any other legal or equitable
right vested in the Trustee by this Indenture or by law. Nothing contained
herein shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Debentureholder any plan of reorganization,
arrangement, adjustment or composition affecting the Debentures or the rights
of any holder thereof or to authorize the Trustee to vote in respect of the
claim of any Debentureholder in any such proceeding.
Section 7.3 Application Of Moneys Collected.
Any moneys collected by the Trustee pursuant to this Article VII with
respect to the Debentures shall be applied in the following order, at the
date or dates fixed by the Trustee
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and, in case of the distribution of such moneys on account of principal or
interest, upon presentation of the Debentures, and notation thereon the
payment, if only partially paid, and upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under Section 9.7;
SECOND: To the payment of all Senior Indebtedness of the Company if
and to the extent required by Article XVI; and
THIRD: To the payment of the amounts then due and unpaid upon the
Debentures for principal and interest, in respect of which or for the
benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Debentures for principal and interest, respectively.
FOURTH: Any remaining balance to the Company.
Section 7.4 Limitation On Suits.
(a) No holder of any Debenture shall have any right by virtue or by
availing of any provision of this Indenture to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless (i) such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof
with respect to the Debentures specifying such Event of Default, as
hereinbefore provided; (ii) the holders of not less than 25% in aggregate
principal amount of the Debentures then Outstanding shall have made written
request upon the Trustee to institute such action, suit or proceeding in its
own name as trustee hereunder; (iii) such holder or holders shall have
offered to the Trustee such reasonable indemnity as it may require against
the costs, expenses and liabilities to be incurred therein or thereby; and
(iv) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity, shall have failed to institute any such action, suit or
proceeding; and (v) during such 60 day period, the holders of a majority in
principal amount of the Debentures do not give the Trustee a direction
inconsistent with the request.
(b) Notwithstanding anything contained herein to the contrary or any
other provisions of this Indenture, the right of any holder of the Debentures
to receive payment of the principal of and interest on the Debentures, as
therein provided, on or after the respective due dates expressed in such
Debenture (or in the case of redemption, on the redemption date), or to
institute suit for the enforcement of any such payment on or after such
respective dates or redemption date, shall not be impaired or affected
without the consent of such holder and by accepting a Debenture hereunder it
is expressly understood, intended and covenanted by the taker and holder of
every Debenture with every other such
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taker and holder and the Trustee, that no one or more holders of Debentures
shall have any right in any manner whatsoever by virtue or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of the
holders of any other of such Debentures, or to obtain or seek to obtain
priority over or preference to any other such holder, or to enforce any right
under this Indenture, except in the manner herein provided and for the equal,
ratable and common benefit of all holders of Debentures. For the protection
and enforcement of the provisions of this Section 7.4, each and every
Debentureholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
Section 7.5 Rights And Remedies Cumulative; Delay Or Omission Not Waiver.
(a) Except as otherwise provided in Section 2.8, all powers and remedies
given by this Article VII to the Trustee or to the Debentureholders shall, to
the extent permitted by law, be deemed cumulative and not exclusive of any
other powers and remedies available to the Trustee or the holders of the
Debentures, by judicial proceedings or otherwise, to enforce the performance
or observance of the covenants and agreements contained in this Indenture or
otherwise established with respect to such Debentures.
(b) No delay or omission of the Trustee or of any holder of any of the
Debentures to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power,
or shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 7.4, every power and
remedy given by this Article VII or by law to the Trustee or the
Debentureholders may be exercised from time to time, and as often as shall be
deemed expedient, by the Trustee or by the Debentureholders.
Section 7.6 Control By Debentureholders.
The holders of a majority in aggregate principal amount of the Debentures
at the time Outstanding, determined in accordance with Section 10.4, shall
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee; provided, however, that such direction
shall not be in conflict with any rule of law or with this Indenture. Subject
to the provisions of Section 9.1, the Trustee shall have the right to decline
to follow any such direction if the Trustee in good faith shall, by a
Responsible Officer or Officers of the Trustee, determine that the proceeding
so directed would involve the Trustee in personal liability. The holders of a
majority in aggregate principal amount of the Debentures at the time
Outstanding affected thereby, determined in accordance with Section 10.4, may
on behalf of the holders of all of the Debentures waive any past default in
the performance of any of the covenants contained herein and its
consequences, except (i) a default in the payment of the principal of or
interest on, any of the Debentures as and when the same shall become due by
the terms of such Debentures otherwise than by acceleration (unless such
default has been cured and a sum sufficient to pay all matured installments
of interest and principal has been deposited with the Trustee (in accordance
with Section 7.1(c)); (ii) a default in the covenants contained in Section
5.6; or (iii) in respect of a covenant or
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provision hereof which cannot be modified or amended without the consent of
the holder of each Outstanding Debenture affected; provided, however, that if
the Debentures are held by the Trust or a trustee of the Trust, such waiver
or modification to such waiver shall not be effective until the holders of a
majority in liquidation preference of Trust Securities of the Trust shall
have consented to such waiver or modification to such waiver; provided
further, that if the consent of the holder of each Outstanding Debenture is
required, such waiver shall not be effective until each holder of the Trust
Securities of the Trust shall have consented to such waiver. Upon any such
waiver, the default covered thereby shall be deemed to be cured for all
purposes of this Indenture and the Company, the Trustee and the holders of
the Debentures shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 7.7 Undertaking To Pay Costs.
All parties to this Indenture agree, and each holder of any Debentures by
such holder's acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for
any action taken or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees and expenses, against any party litigant in such
suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; but the provisions of this Section 7.7
shall not apply to any suit instituted by the Trustee, to any suit instituted
by any Debentureholder, or group of Debentureholders holding more than 10% in
aggregate principal amount of the Outstanding Debentures, or to any suit
instituted by any Debentureholder for the enforcement of the payment of the
principal of or interest on the Debentures, on or after the respective due
dates expressed in such Debenture or established pursuant to this Indenture.
Section 7.8 Direct Action By Holders Of Preferred Securities.
Any registered holder of the Preferred Securities issued by the Trust
shall have the right, upon the occurrence of an Event of Default described in
Section 7.1(a)(i) or 7.1(a)(ii), to institute a suit directly against the
Company for enforcement of payment to such holder of principal of and
(subject to Sections 2.4 and 4.1) interest (including any Additional
Interest) on the Debentures having a principal amount equal to the aggregate
Liquidation Amount (as defined in the Trust Agreement) of such Preferred
Securities held by such holder. The Company may not amend this Indenture to
remove this right to institute a suit directly against the Company without
the prior consent of the holders of all the Preferred Securities.
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ARTICLE VIII
FORM OF DEBENTURE AND ORIGINAL ISSUE
Section 8.1 Form Of Debenture.
The Debenture and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the forms contained as Exhibit A
attached hereto and incorporated herein by reference.
Section 8.2 Original Issue Of Debentures.
Debentures in the aggregate principal amount of up to $__________ may,
upon execution of this Indenture, be executed by the Company and delivered to
the Trustee for authentication, and the Trustee shall thereupon authenticate
and make available for delivery said Debentures to or upon the written order
of the Company, signed by its Chairman, its Vice Chairman, its President, or
any Vice President and its Treasurer or an Assistant Treasurer, without any
further action by the Company.
ARTICLE IX
CONCERNING THE TRUSTEE
Section 9.1 Certain Duties And Responsibilities.
(a) The Trustee, prior to the occurrence of an Event of Default and
after the curing of all Events of Default that may have occurred, shall
undertake to perform with respect to the Debentures such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants shall be read into this Indenture against the Trustee. In case an
Event of Default has occurred that has not been cured or waived, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture,
and use the same degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
(b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(1) prior to the occurrence of an Event of Default and after the curing or
waiving of all Events of Default that may have occurred:
(i) the duties and obligations of the Trustee shall, with respect to
the Debentures, be determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable with respect to the
Debentures except for the performance of such duties and obligations
as are specifically set forth in
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this Indenture, and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may with respect to the Debentures conclusively rely, as to
the truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions that by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Indenture;
(2) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining
the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of
the holders of not less than a majority in principal amount of the
Debentures at the time outstanding relating to the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee under this
Indenture with respect to the Debentures; and
(4) none of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if there is reasonable ground for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Indenture or adequate indemnity
against such risk is not reasonably assured to it.
Section 9.2 Notice Of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Debentures, the Trustee shall transmit by mail to all holders of the
Debentures, as their names and addresses appear in the Debenture Register,
notice of such default, unless such default shall have been cured or waived;
provided, however, that, except in the case of any default in the payment of
the principal or interest (including Additional Interest and Compounded
Interest, if any) on any Debenture, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the
executive committee or a trust committee of the directors and/or Responsible
Officers of the Trustee determines in good faith that the withholding of such
notice is in the interests of the holders of such Debentures; and provided,
further, that in the case of any default of the character specified in
Section 7.1(a)(iii), no such notice to holders of Debentures need be sent
until at least 30 days after the occurrence thereof. For
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the purposes of this Section 9.2, the term "default" means any event which
is, or after notice or lapse of time or both, would become, an Event of
Default with respect to the Debentures.
Section 9.3 Certain Rights Of Trustee.
Except as otherwise provided in Section 9.1:
(a) The Trustee may conclusively rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, security or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a Board Resolution or an instrument
signed in the name of the Company by the President or any Vice President and by
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer thereof (unless other evidence in respect thereof is specifically
prescribed herein);
(c) The Trustee shall not be deemed to have knowledge of a default or an
Event of Default, other than an Event of Default specified in Section
7.1(a)(i) or (ii), unless and until it receives notification of such Event of
Default from the Company or by holders of at least 25% of the aggregate
principal amount of the Debentures at the time Outstanding;
(d) The Trustee may consult with counsel of its selection and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered or
omitted hereunder in good faith and in reliance thereon;
(e) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Debentureholders, pursuant to the provisions of this
Indenture, unless such Debentureholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby; nothing contained herein shall,
however, relieve the Trustee of the obligation, upon the occurrence of an
Event of Default (that has not been cured or waived) to exercise with respect
to the Debentures such of the rights and powers vested in it by this
Indenture, and to use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs;
(f) The Trustee shall not be liable for any action taken or omitted to be
taken by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture;
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(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, security, or
other papers or documents, but the Trustee in its discretion may make such
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney; and
(h) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 9.4 Trustee Not Responsible For Recitals, Etc.
(a) The Recitals contained herein and in the Debentures, except the
certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for the correctness of the
same.
(b) The Trustee makes no representations as to the validity or sufficiency
of this Indenture or of the Debentures.
(c) The Trustee shall not be accountable for the use or application by
the Company of any of the Debentures or of the proceeds of such Debentures,
or for the use or application of any moneys paid over by the Trustee in
accordance with any provision of this Indenture, or for the use or
application of any moneys received by any paying agent other than the Trustee.
Section 9.5 May Hold Debentures.
The Trustee or any paying agent or registrar for the Debentures, in its
individual or any other capacity, may become the owner or pledgee of Debentures
and, subject to Sections 9.9 and 9.14, may otherwise deal with the Company with
the same rights it would have if it were not Trustee, paying agent or Debenture
Registrar.
Section 9.6 Moneys Held In Trust.
Subject to the provisions of Section 13.5, all moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from
other funds except to the extent required by law. The Trustee shall be under
no liability for interest on any moneys received by it hereunder except such
as it may agree in writing with the Company to pay thereon.
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Section 9.7 Compensation And Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation as the
Company and the Trustee shall from time to time agree in writing for all
services rendered by it hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the compensation and the expenses and disbursements
of its agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee and
their agents for, and to hold them harmless against, any and all loss,
damage, claims, liability or expense, including taxes (other than taxes based
upon, measured by or determined by the income of the Trustee), arising out of
or in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent that such loss, damage,
claim, liability or expense is due to its own negligence or bad faith.
The Trustee shall have a lien prior to the Debentures as to all property
and funds held by it hereunder for any amount owing it or any predecessor
Trustee pursuant to this Section 9.7, except with respect to funds held in
trust for the benefit of the holders of particular Debentures. When the
Trustee incurs expenses or renders services in connection with an Event of
Default specified in Section 7.1(a)(iv), Section 7.1(a)(v) or 7.1(a)(vi), the
expenses (including the reasonable charges and expenses of its counsel) and
the compensation for the services are intended to constitute expenses of
administration under any applicable Bankruptcy Law.
The provisions of this Section shall survive the termination of this
Indenture.
Section 9.8 Reliance On Officers' Certificate.
Except as otherwise provided in Section 9.1, whenever in the
administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking
or suffering or omitting to take any action hereunder, such matter (unless
other evidence in respect thereof be herein specifically prescribed) may, in
the absence of negligence or bad faith on the part of the Trustee, be deemed
to be conclusively proved and established by an Officers' Certificate
delivered to the Trustee and such certificate, in the absence of negligence
or bad faith on the part of the
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Trustee, shall be full warrant to the Trustee for any action taken, suffered
or omitted to be taken by it under the provisions of this Indenture upon the
faith thereof.
Section 9.9 Disqualification: Conflicting Interests.
If the Trustee has or shall acquire any "conflicting interest" within the
meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
Section 9.10 Corporate Trustee Required Eligibility.
There shall at all times be a Trustee with respect to the Debentures
issued hereunder which shall at all times be a corporation organized and
doing business under the laws of the United States of America or any State or
Territory thereof or of the District of Columbia or a corporation or other
Person permitted to act as trustee by the Commission, authorized under such
laws to exercise corporate trust powers, having a combined capital and
surplus of at least $50,000,000, and subject to supervision or examination by
federal, state, territorial, or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section 9.10, the combined capital and surplus
of such corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. The Company
may not, nor may any Person directly or indirectly controlling, controlled
by, or under common control with the Company, serve as Trustee. In case at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 9.10, the Trustee shall resign immediately in the
manner and with the effect specified in Section 9.11.
Section 9.11 Resignation And Removal; Appointment Of Successor.
(a) The Trustee or any successor hereafter appointed, may at any time
resign by giving written notice thereof to the Company and by transmitting
notice of resignation by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor trustee with respect to Debentures by written
instrument, in duplicate, executed by order of the Board of Directors, one
copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment within 30 days after the mailing of
such notice of resignation, the resigning Trustee may petition at the expense
of the Company any court of competent jurisdiction for the appointment of a
successor trustee with respect to Debentures, or any Debentureholder who has
been a bona fide holder of a Debenture or Debentures for at least six months
may, subject to the provisions of Section 9.9, on behalf of himself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it
may deem proper, appoint a successor trustee.
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(b) In case at any time any one of the following shall occur
(i) the Trustee shall fail to comply with the provisions of Section
9.9 after written request therefor by the Company or by any
Debentureholder who has been a bona fide holder of a Debenture or
Debentures for at least six months; or
(ii) the Trustee shall cease to be eligible in accordance with the
provisions of Section 9.10 and shall fail to resign after written
request therefor by the Company or by any such Debentureholder; or
(iii) the Trustee shall become incapable of acting, or shall be
adjudged bankrupt or insolvent, or commence a voluntary bankruptcy
proceeding, or a receiver of the Trustee or of its property shall be
appointed or consented to, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation, then, in any such
case, the Company may remove the Trustee with respect to all
Debentures and appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of
which instrument shall be delivered to the Trustee so removed and one
copy to the successor trustee, or, subject to the provisions of
Section 9.9, unless the Trustee's duty to resign is stayed as provided
herein, any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six months may, on behalf of that
holder and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, remove the
Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding may at any time remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee
with the consent of the Company. If no successor trustee shall have been so
appointed and have accepted appointment within 30 days after such
notification, the Trustee may petition at the expense of the Company any
court of competent jurisdiction for the appointment of a successor trustee
with respect to Debentures, or any Debentureholder who has been a bona fide
holder of a Debenture or Debentures for at least six months may, subject to
the provisions of Section 9.9, on behalf of himself and all others similarly
situated, petition any such court for the appointment of a successor trustee.
Such court may appoint a successor trustee.
(d) No resignation or removal of the Trustee and no appointment of a
successor trustee with respect to the Debentures pursuant to any of the
provisions of this Section 9.11 shall become effective until acceptance of
appointment by the successor trustee as provided in Section 9.12.
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Section 9.12 Acceptance Of Appointment By Successor.
(a) In case of the appointment hereunder of a successor trustee with
respect to the Debentures, every successor trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee
an instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Trustee; but,
on the request of the Company or the successor trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor trustee all the rights, powers, and trusts of
the retiring Trustee and shall duly assign, transfer and deliver to such
successor trustee all property and money held by such retiring Trustee
hereunder.
(b) Upon request of any successor trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor trustee all such rights, powers and trusts referred to in
paragraph (a) of this Section 9.12.
(c) No successor trustee shall accept its appointment unless at the time
of such acceptance such successor trustee shall be qualified and eligible under
this Article IX.
(d) Upon acceptance of appointment by a successor trustee as provided in
this Section 9.12, the Company shall transmit notice of the succession of
such trustee hereunder by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. If the Company fails to transmit such notice within ten days after
acceptance of appointment by the successor trustee, the successor trustee
shall cause such notice to be transmitted at the expense of the Company.
Section 9.13 Merger, Conversion, Consolidation Or Succession To Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be qualified under the provisions of
Section 9.9 and eligible under the provisions of Section 9.10, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding. In case any
Debentures shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the
Debentures so authenticated with the same effect as if such successor Trustee
had itself authenticated such Debentures.
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Section 9.14 Preferential Collection Of Claims Against The Company.
The Trustee shall comply with Section 31l(a) of the Trust Indenture Act,
excluding any creditor relationship described in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent included therein.
ARTICLE X
CONCERNING THE DEBENTUREHOLDERS
Section 10.1 Evidence Of Action By Holders.
(a) Whenever in this Indenture it is provided that the holders of a
majority or specified percentage in aggregate principal amount of the
Debentures may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any
other action), the fact that at the time of taking any such action the
holders of such majority or specified percentage have joined therein may be
evidenced by any instrument or any number of instruments of similar tenor
executed by such holders of Debentures in Person or by agent or proxy
appointed in writing.
(b) If the Company shall solicit from the Debentureholders any request,
demand, authorization, direction, notice, consent, waiver or other action,
the Company may, at its option, as evidenced by an Officers' Certificate, fix
in advance a record date for the determination of Debentureholders entitled
to give such request, demand, authorization, direction, notice, consent,
waiver or other action, but the Company shall have no obligation to do so. If
such a record date is fixed, such request, demand, authorization, direction,
notice, consent, waiver or other action may be given before or after the
record date, but only the Debentureholders of record at the close of business
on the record date shall be computed to be Debentureholders for the purposes
of determining whether Debentureholders of the requisite proportion of
Outstanding Debentures have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other
action, and for that purpose the Outstanding Debentures shall be computed as
of the record date; provided, however, that no such authorization, agreement
or consent by such Debentureholders on the record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than six months after the record date.
Section 10.2 Proof Of Execution By Debentureholders.
Subject to the provisions of Section 9.1, proof of the execution of any
instrument by a Debentureholder (such proof shall not require notarization) or
his agent or proxy and proof of the holding by any Person of any of the
Debentures shall be sufficient if made in the following manner:
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(a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Debentures shall be proved by the Debenture Register
of such Debentures or by a certificate of the Debenture Registrar thereof.
(c) The Trustee may require such additional proof of any matter referred
to in this Section 10.2 as it shall deem necessary.
Section 10.3 Who May Be Deemed Owners.
Prior to the due presentment for registration of transfer of any
Debenture, the Company, the Trustee, any paying agent, any Authenticating
Agent and any Debenture Registrar may deem and treat the Person in whose name
such Debenture shall be registered upon the books of the Company as the
absolute owner of such Debenture (whether or not such Debenture shall be
overdue and notwithstanding any notice of ownership or writing thereon made
by anyone other than the Debenture Registrar) for the purpose of receiving
payment of or on account of the principal of and interest on such Debenture
(subject to Section 2.3) and for all other purposes; and neither the Company
nor the Trustee nor any paying agent nor any Authenticating Agent nor any
Debenture Registrar shall be affected by any notice to the contrary.
Section 10.4 Certain Debentures Owned By Company Disregarded.
In determining whether the holders of the requisite aggregate principal
amount of Debentures have concurred in any direction, consent or waiver under
this Indenture, the Debentures that are owned by the Company or any other
obligor on the Debentures or by any Person directly or indirectly controlling
or controlled by, or under common control with the Company or any other
obligor on the Debentures shall be disregarded and deemed not to be
Outstanding for the purpose of any such determination, except that for the
purpose of determining whether the Trustee shall be protected in relying on
any such direction, consent or waiver, only Debentures that a Responsible
Officer of the Trustee actually knows are so owned shall be so disregarded.
The Debentures so owned that have been pledged in good faith may be regarded
as Outstanding for the purposes of this Section 10.4, if the pledgee shall
establish to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Debentures and that the pledgee is not a Person directly
or indirectly, controlling or controlled by, or under direct or indirect
common control with the Company or any such other obligor. In case of a
dispute as to such right, any decision by the Trustee taken upon the advice
of counsel shall be full protection to the Trustee.
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Section 10.5 Actions Binding On Future Debentureholders.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 10.1, of the taking of any action by the holders of the
majority or percentage in aggregate principal amount of the Debentures
specified in this Indenture in connection with such action, any holder of a
Debenture that is shown by the evidence to be included in the Debentures the
holders of which have consented to such action may, by filing written notice
with the Trustee, and upon proof of holding as provided in Section 10.2,
revoke such action so far as concerns such Debenture. Except as aforesaid any
such action taken by the holder of any Debenture shall be conclusive and
binding upon such holder and upon all future holders and owners of such
Debenture, and of any Debenture issued in exchange therefor, on registration
of transfer thereof or in place thereof, irrespective of whether or not any
notation in regard thereto is made upon such Debenture. Any action taken by
the holders of the majority or percentage in aggregate principal amount of
the Debentures specified in this Indenture in connection with such action
shall be conclusively binding upon the Company, the Trustee and the holders
of all the Debentures.
ARTICLE XI
SUPPLEMENTAL INDENTURES
Section 11.1 Supplemental Indentures Without The Consent Of Debentureholders.
In addition to any supplemental indenture otherwise authorized by this
Indenture, the Company and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall
conform to the provisions of the Trust Indenture Act as then in effect),
without the consent of the Debentureholders, for one or more of the following
purposes:
(a) to cure any ambiguity, defect, or inconsistency herein, in the
Debentures;
(b) to comply with Article X;
(c) to provide for uncertificated Debentures in addition to or in place of
certificated Debentures;
(d) to add to the covenants of the Company for the benefit of the holders
of all or any of the Debentures or to surrender any right or power herein
conferred upon the Company;
(e) to evidence the succession of another corporation to the Company, and
the assumption by any such successor of the covenants of the Company herein and
in the Debentures contained;
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(f) to convey, transfer, assign, mortgage or pledge to or with the
Trustee any property or assets which the Company may desire to convey,
transfer, assign, mortgage or pledge;
(g) to add to, delete from, or revise the conditions, limitations, and
restrictions on the authorized amount, terms, or purposes of issue,
authentication, and delivery of Debentures, as herein set forth;
(h) to make any change that does not adversely affect the rights of any
Debentureholder in any material respect;
(i) to provide for the issuance of and establish the form and terms and
conditions of the Debentures, to establish the form of any certifications
required to be furnished pursuant to the terms of this Indenture or of the
Debentures, or to add to the rights of the holders of the Debentures; or
(j) to qualify or maintain the qualification of this Indenture under the
Trust Indenture Act.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, and to make any further
appropriate agreements and stipulations that may be therein contained, but
the Trustee shall not be obligated to enter into any such supplemental
indenture that affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise. Any supplemental indenture authorized by the
provisions of this Section 11.1 may be executed by the Company and the
Trustee without the consent of the holders of any of the Debentures at the
time Outstanding, notwithstanding any of the provisions of Section 11.2.
Section 11.2 Supplemental Indentures With Consent Of Debentureholders.
With the consent (evidenced as provided in Section 10.1) of the holders
of not less than a majority in aggregate principal amount of the Debentures
at the time Outstanding, the Company, when authorized by Board Resolutions,
and the Trustee may from time to time and at any time enter into an indenture
or indentures supplemental hereto (which shall conform to the provisions of
the Trust Indenture Act as then in effect) for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Indenture or of any supplemental indenture or of modifying in any
manner not covered by Section 11.1 the rights of the holders of the
Debentures under this Indenture; provided, however, that no such supplemental
indenture shall without the consent of the holders of each Debenture then
Outstanding and affected thereby, (i) extend the fixed maturity of any
Debentures, reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon (other than the Company's right to
defer interest pursuant to this Indenture), without the consent of the holder
of each Debenture so affected; or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent
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to any such supplemental indenture; provided further, that if the Debentures
are held by the Trust or a trustee of the Trust, such supplemental indenture
shall not be effective until the holders of a majority in liquidation
preference of Trust Securities of the Trust shall have consented to such
supplemental indenture; provided further, that if the consent of the holder
of each Outstanding Debenture is required, such supplemental indenture shall
not be effective until each holder of the Trust Securities of the Trust shall
have consented to such supplemental indenture. It shall not be necessary for
the consent of the Debentureholders affected thereby under this Section 11.2
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such consent shall approve the substance thereof.
Section 11.3 Effect Of Supplemental Indentures.
Upon the execution of any supplemental indenture pursuant to the
provisions of this Article XI, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations, duties and immunities under this
Indenture of the Trustee, the Company and the holders of Debentures shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and
conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
Section 11.4 Debentures Affected By Supplemental Indentures.
Debentures affected by a supplemental indenture, authenticated and
delivered after the execution of such supplemental indenture pursuant to the
provisions of this Article XI, may bear a notation in form approved by the
Company, provided such form meets the requirements of any exchange upon which
the Debentures may be listed, as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Debentures so
modified as to conform, in the opinion of the Board of Directors of the
Company, to any modification of this Indenture contained in any such
supplemental indenture may be prepared by the Company, authenticated by the
Trustee and delivered in exchange for the Debentures then Outstanding.
Section 11.5 Execution Of Supplemental Indentures.
(a) Upon the request of the Company, accompanied by their Board
Resolutions authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of
Debentureholders required to consent thereto as aforesaid, the Trustee shall
join with the Company in the execution of such supplemental indenture unless
such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may
in its discretion but shall not be obligated to enter into such supplemental
indenture. The Trustee, subject to the provisions of Section 9.1, may receive
an Opinion of Counsel as conclusive evidence
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that any supplemental indenture executed pursuant to this Article XI is
authorized or permitted by, and conforms to, the terms of this Article XI and
that it is proper for the Trustee under the provisions of this Article XI to
join in the execution thereof.
(b) Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section 11.5, the
Trustee shall transmit by mail, first class postage prepaid, a notice,
setting forth in general terms the substance of such supplemental indenture,
to the Debentureholders as their names and addresses appear upon the
Debenture Register. Any failure of the Trustee to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity
of any such supplemental indenture.
ARTICLE XII
SUCCESSOR CORPORATION
Section 12.1 Company May Consolidate, Etc.
Nothing contained in this Indenture or in any of the Debentures shall
prevent any consolidation or merger of the Company with or into any other
corporation or corporations (whether or not affiliated with the Company, as
the case may be), or successive consolidations or mergers in which the
Company, as the case may be, or its successor or successors shall be a party
or parties, or shall prevent any sale, conveyance, transfer or other
disposition of the property of the Company, as the case may be, or its
successor or successors as an entirety, or substantially as an entirety, to
any other corporation (whether or not affiliated with the Company, as the
case may be, or its successor or successors) authorized to acquire and
operate the same; provided, however, the Company hereby covenants and agrees
that, (i) upon any such consolidation, merger, sale, conveyance, transfer or
other disposition, the due and punctual payment, in the case of the Company,
of the principal of and interest on all of the Debentures, according to their
tenor and the due and punctual performance and observance of all the
covenants and conditions of this Indenture to be kept or performed by the
Company as the case may be, shall be expressly assumed, by supplemental
indenture (which shall conform to the provisions of the Trust Indenture Act,
as then in effect) satisfactory in form to the Trustee executed and delivered
to the Trustee by the entity formed by such consolidation, or into which the
Company, as the case may be, shall have been merged, or by the entity which
shall have acquired such property; (ii) in case the Company consolidates with
or merges into another Person or conveys or transfers its properties and
assets substantially then as an entirety to any Person, the successor Person
is organized under the laws of the United States or any state or the District
of Columbia; and (iii) immediately after giving effect thereto, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing.
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Section 12.2 Successor Corporation Substituted.
(a) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition and upon the assumption by the successor
corporation, by supplemental indenture, executed and delivered to the Trustee
and satisfactory in form to the Trustee, of, in the case of the Company, the
due and punctual payment of the principal of and interest on all of the
Debentures Outstanding and the due and punctual performance of all of the
covenants and conditions of this Indenture to be performed by the Company, as
the case may be, such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named as
the Company herein, and thereupon the predecessor corporation shall be
relieved of all obligations and covenants under this Indenture and the
Debentures.
(b) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition such changes in phraseology and form (but not
in substance) may be made in the Debentures thereafter to be issued as may be
appropriate.
(c) Nothing contained in this Indenture or in any of the Debentures
shall prevent the Company from merging into itself or acquiring by purchase
or otherwise all or any part of the property of any other Person (whether or
not affiliated with the Company).
Section 12.3 Evidence Of Consolidation, Etc. To Trustee.
The Trustee, subject to the provisions of Section 9.1, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation,
merger, sale, conveyance, transfer or other disposition, and any such
assumption, comply with the provisions of this Article XII.
ARTICLE XIII
SATISFACTION AND DISCHARGE
Section 13.1 Satisfaction And Discharge Of Indenture.
If at any time: (a) the Company shall have delivered to the Trustee for
cancellation all Debentures theretofore authenticated (other than any
Debentures that shall have been destroyed, lost or stolen and that shall have
been replaced or paid as provided in Section 2.8) and Debentures for whose
payment money or Governmental Obligations have theretofore been deposited in
trust or segregated and held in trust by the Company (and thereupon repaid to
the Company or discharged from such trust, as provided in Section 13.5); or
(b) all such Debentures not theretofore delivered to the Trustee for
cancellation shall have become due and payable, or are by their terms to
become due and payable within one year or are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving
of notice of redemption, and the Company shall deposit or
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cause to be deposited with the Trustee as trust funds the entire amount in
moneys or Governmental Obligations sufficient or a combination thereof,
sufficient in the opinion of a nationally recognized firm of independent
public accountants expressed in written certification thereof delivered to
the Trustee, to pay at maturity or upon redemption all Debentures not
theretofore delivered to the Trustee for cancellation, including principal
and interest due or to become due to such date of maturity or date fixed for
redemption, as the case may be, and if the Company shall also pay or cause to
be paid all other sums payable hereunder by the Company; then this Indenture
shall thereupon cease to be of further effect except for the provisions of
Sections 2.3, 2.6, 2.8, 5.1, 5.2, 5.3 and 9.10, that shall survive until the
date of maturity or redemption date, as the case may be, and Sections 9.7 and
13.5, that shall survive to such date and thereafter, and the Trustee, on
demand of the Company and at the cost and expense of the Company, shall
execute proper instruments acknowledging satisfaction of and discharging this
Indenture.
Section 13.2 Discharge Of Obligations.
If at any time all Debentures not heretofore delivered to the Trustee for
cancellation or that have not become due and payable as described in Section
13.1 shall have been paid by the Company by depositing irrevocably with the
Trustee as trust funds moneys or an amount of Governmental Obligations
sufficient to pay at maturity or upon redemption all Debentures not
theretofore delivered to the Trustee for cancellation, including principal
and interest due or to become due to such date of maturity or date fixed for
redemption, as the case may be, and if the Company shall also pay or cause to
be paid all other sums payable hereunder by the Company, then after the date
such moneys or Governmental Obligations, as the case may be, are deposited
with the Trustee, the obligations of the Company under this Indenture shall
cease to be of further effect except for the provisions of Sections 2.3, 2.6,
2.8, 5.1, 5.2, 5.3, 9.7, 9.10 and 13.5 hereof that shall survive until such
Debentures shall mature and be paid. Thereafter, Sections 9.7 and 13.5 shall
survive.
Section 13.3 Deposited Moneys To Be Held In Trust.
All monies or Governmental Obligations deposited with the Trustee
pursuant to Sections 13.1 or 13.2 shall be held in trust and shall be
available for payment as due, either directly or through any paying agent
(including the Company acting as its own paying agent), to the holders of the
Debentures for the payment or redemption of which such moneys or Governmental
Obligations have been deposited with the Trustee.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Government Obligations
deposited pursuant to Section 13.1 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the holders of Outstanding Debentures.
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Section 13.4 Payment Of Monies Held By Paying Agents.
In connection with the satisfaction and discharge of this Indenture, all
moneys or Governmental Obligations then held by any paying agent under the
provisions of this Indenture shall, upon demand of the Company, be paid to
the Trustee and thereupon such paying agent shall be released from all
further liability with respect to such moneys or Governmental Obligations.
Section 13.5 Repayment To Company.
Any monies or Governmental Obligations deposited with any paying agent or
the Trustee, or then held by the Company in trust, for payment of principal
of or interest on the Debentures that are not applied but remain unclaimed by
the holders of such Debentures for at least two years after the date upon
which the principal of or interest on such Debentures shall have respectively
become due and payable, shall be repaid to the Company, as the case may be,
on May 31 of each year or (if then held by the Company) shall be discharged
from such trust; and thereupon the paying agent and the Trustee shall be
released from all further liability, with respect to such money's or
Governmental Obligations, and the holder of any of the Debentures entitled to
receive such payment shall thereafter, as an unsecured general creditor, look
only to the Company for the payment thereof.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 14.1 No Recourse.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of the Debentures, or for any claim based thereon or otherwise
in respect thereof, shall be had against any incorporator, stockholder,
officer or director, past, present or future as such, of the Company or of
any predecessor or successor corporation, either directly or through the
Company or any such predecessor or successor corporation, whether by virtue
of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that this
Indenture and the obligations issued hereunder are solely corporate
obligations, and that no such personal liability whatever shall attach to, or
is or shall be incurred by, the incorporators, stockholders, officers or
directors as such, of the Company or of any predecessor or successor
corporation, or any of them, because of the creation of the indebtedness
hereby authorized, or under or by reason of the obligations, covenants or
agreements contained in this Indenture or in any of the Debentures or implied
therefrom; and that any and all such personal liability of every name and
nature, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every such incorporator,
stockholder, officer or
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director as such, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Indenture or in any of the Debentures or implied therefrom,
are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issuance of such
Debentures.
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.1 Effect On Successors And Assigns.
All the covenants, stipulations, promises and agreements in this
Indenture contained by or on behalf of the Company shall bind their
respective successors and assigns, whether so expressed or not.
Section 15.2 Actions By Successor.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
corresponding board, committee or officer of any corporation that shall at
the time be the lawful sole successor of the Company.
Section 15.3 Surrender Of Company Powers.
The Company by instrument in writing executed by appropriate authority of
its Board of Directors and delivered to the Trustee may surrender any of the
powers reserved to the Company, and thereupon such power so surrendered shall
terminate both as to the Company, as the case may be, and as to any successor
corporation.
Section 15.4 Notices.
Except as otherwise expressly provided herein any notice or demand that
by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Debentures to or on the Company
may be given or served by being deposited first class postage prepaid in a
post-office letter box addressed (until another address is filed in writing
by the Company with the Trustee), as follows: PennFirst Bancorp, Inc., 600
Lawrence Avenue, Ellwood City, Pennsylvania 16117, Attention: President. Any
notice, election, request or demand by the Company or any Debentureholder to
or upon the Trustee shall be deemed to have been sufficiently given or made,
for all purposes, if given or made in writing at the Corporate Trust Office
of the Trustee.
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Section 15.5 Governing Law.
This Indenture and each Debenture shall be deemed to be a contract made
under the internal laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said State without regard to
conflicts of law principles.
Section 15.6 Treatment Of Debentures As Debt.
It is intended that the Debentures shall be treated as indebtedness and
not as equity for federal income tax purposes. The provisions of this
Indenture shall be interpreted to further this intention.
Section 15.7 Compliance Certificates And Opinions.
(a) Upon any application or demand by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent provided for in this Indenture relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of
such counsel all such conditions precedent have been complied with, except
that in the case of any such application or demand as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or demand, no additional certificate
or opinion need be furnished.
(b) Each certificate or opinion of the Company provided for in this
Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant in this Indenture shall include (1) a statement that
the Person making such certificate or opinion has read such covenant or
condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based; (3) a statement that, in the
opinion of such Person, he has made such examination or investigation as, in
the opinion of such Person, is necessary to enable him to express an informed
opinion as to whether or not such covenant or condition has been complied
with; and (4) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
Section 15.8 Payments On Business Days.
In any case where the date of maturity of interest or principal of any
Debenture or the date of redemption of any Debenture shall not be a Business
Day, then payment of interest or principal may (subject to Section 2.4) be
made on the next succeeding Business Day with the same force and effect as if
made on the nominal date of maturity or redemption, and no interest shall
accrue for the period after such nominal date.
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Section 15.9 Conflict With Trust Indenture Act.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
Section 15.10 Counterparts.
This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute
but one and the same instrument.
Section 15.11 Separability.
In case any one or more of the provisions contained in this Indenture or
in the Debentures shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Indenture or of the Debentures,
but this Indenture and the Debentures shall be construed as if such invalid
or illegal or unenforceable provision had never been contained herein or
therein.
Section 15.12 Assignment.
The Company shall have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Company, provided that, in the event of any
such assignment, the Company shall remain liable for all such obligations.
Subject to the foregoing, this Indenture is binding upon and inures to the
benefit of the parties hereto and their respective successors and assigns.
This Indenture may not otherwise be assigned by the parties hereto.
Section 15.13 Acknowledgment Of Rights.
The Company acknowledges that, with respect to any Debentures held by the
Trust or a trustee of the Trust, if the Property Trustee fails to enforce its
rights under this Indenture as the holder of the Debentures held as the
assets of the Trust, any holder of Preferred Securities may institute legal
proceedings directly against the Company to enforce such Property Trustee's
rights under this Indenture without first instituting any legal proceedings
against such Property Trustee or any other person or entity. Notwithstanding
the foregoing, if an Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or
principal on the Debentures on the date such interest or principal is
otherwise payable (or in the case of redemption, on the redemption date), the
Company acknowledges that a holder of Preferred Securities may directly
institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the Debentures having a principal amount equal to
the aggregate
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liquidation amount of the Preferred Securities of such holder on or after the
respective due date specified in the Debentures.
ARTICLE XVI
SUBORDINATION OF DEBENTURES
Section 16.1 Agreement To Subordinate.
The Company covenants and agrees, and each holder of Debentures issued
hereunder by such holder's acceptance thereof likewise covenants and agrees,
that all Debentures shall be issued subject to the provisions of this Article
XVI; and each holder of a Debenture, whether upon original issue or upon
transfer or assignment thereof, accepts and agrees to be bound by such
provisions. The payment by the Company of the principal of and interest on
all Debentures issued hereunder shall, to the extent and in the manner
hereinafter set forth, be subordinated and junior in right of payment to the
prior payment in full of all Senior Debt and Subordinated Debt (collectively,
"Senior Indebtedness") to the extent provided herein, whether outstanding at
the date of this Indenture or thereafter incurred. No provision of this
Article XVI shall prevent the occurrence of any default or Event of Default
hereunder.
Section 16.2 Default On Senior Debt Or Subordinated Debt.
In the event and during the continuation of any default by the Company in
the payment of principal, premium, interest or any other payment due on any
Senior Indebtedness of the Company, or in the event that the maturity of any
Senior Indebtedness of the Company has been accelerated because of a default,
then, in either case, no payment shall be made by the Company with respect to
the principal (including redemption payments) of or interest on the
Debentures. In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee when such payment is prohibited by the
preceding sentence of this Section 16.2, such payment shall be held in trust
for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear,
but only to the extent that the holders of the Senior Indebtedness (or their
representative or representatives or a trustee) notify the Company or the
Trustee in writing within 90 days of such payment of the amounts then due and
owing on the Senior Indebtedness and only the amounts specified in such
notice to the Trustee shall be paid to the holders of Senior Indebtedness.
Section 16.3 Liquidation; Dissolution; Bankruptcy.
(a) Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any
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liquidation, dissolution or winding-up, reorganization, assignment for the
benefit of creditors, marshaling of assets or any bankruptcy, insolvency,
debt restructuring or similar proceedings in connection with any insolvency
or bankruptcy proceeding of the Company, all amounts due upon all Senior
Indebtedness of the Company shall first be paid in full, or payment thereof
provided for in money in accordance with its terms, before any payment is
made by the Company on account of the principal or interest on the
Debentures; and upon any such liquidation, dissolution, winding-up,
reorganization, assignment for the benefit of creditors, marshaling of
assets, any payment by the Company, or distribution of assets of the Company
of any kind or character, whether in cash, property or securities, to which
the holders of the Debentures or the Trustee would be entitled to receive
from the Company, except for the provisions of this Article XVI, shall be
paid by the Company or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution, or by the
holders of the Debentures or by the Trustee under this Indenture if received
by them or it, directly to the holders of Senior Indebtedness of the Company
(pro rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders, as calculated by the Company) or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior
Indebtedness may have been issued, as their respective interests may appear,
to the extent necessary to pay such Senior Indebtedness in full, in money or
money's worth, after giving effect to any concurrent payment or distribution
to or for the holders of such Senior Indebtedness, before any payment or
distribution is made to the holders of Debentures or to the Trustee.
(b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, prohibited by the foregoing, shall be received
by the Trustee before all Senior Indebtedness of the Company is paid in full,
or provision is made for such payment in money in accordance with its terms,
such payment or distribution shall be held in trust for the benefit of and
shall be paid over or delivered to the holders of such Senior Indebtedness or
their representative or representatives, or to the trustee or trustees under
any indenture pursuant to which any instruments evidencing such Senior
Indebtedness may have been issued, as their respective interests may appear,
as calculated by the Company, for application to the payment of all Senior
Indebtedness of the Company, as the case may be, remaining unpaid to the
extent necessary to pay such Senior Indebtedness in full in money in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the benefit of the holders of such Senior Indebtedness.
(c) For purposes of this Article XVI, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this
Article XVI with respect to the Debentures to the payment of all Senior
Indebtedness of the Company, as the case may be, that may at the time be
outstanding, provided that (i) such Senior Indebtedness is assumed by the new
corporation, if any, resulting from any such
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reorganization or readjustment; and (ii) the rights of the holders of such
Senior Indebtedness are not, without the consent of such holders, altered by
such reorganization or readjustment. The consolidation of the Company with,
or the merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its
property as an entirety, or substantially as an entirety, to another
corporation upon the terms and conditions provided for in Article XII shall
not be deemed a dissolution, winding-up, liquidation or reorganization for
the purposes of this Section 16.3 if such other corporation shall, as a part
of such consolidation, merger, conveyance or transfer, comply with the
conditions stated in Article XII. Nothing in Section 16.2 or in this Section
16.3 shall apply to claims of, or payments to, the Trustee under or pursuant
to Section 9.7.
Section 16.4 Subrogation.
(a) Subject to the payment in full of all Senior Indebtedness of the
Company, the rights of the holders of the Debentures shall be subrogated to
the rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Indebtedness until the principal of and
interest on the Debentures shall be paid in full; and for the purposes of
such subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the holders of the
Debentures or the Trustee would be entitled except for the provisions of this
Article XVI, and no payment over pursuant to the provisions of this Article
XVI to or for the benefit of the holders of such Senior Indebtedness by
holders of the Debentures or the Trustee, shall, as between the Company, its
creditors other than holders of Senior Indebtedness of the Company, and the
holders of the Debentures, be deemed to be a payment by the Company to or on
account of such Senior Indebtedness. It is understood that the provisions of
this Article XVI are and are intended solely for the purposes of defining the
relative rights of the holders of the Debentures, on the one hand, and the
holders of such Senior Indebtedness on the other hand.
(b) Nothing contained in this Article XVI or elsewhere in this Indenture
or in the Debentures is intended to or shall impair, as between the Company,
its creditors (other than the holders of Senior Indebtedness of the Company),
and the holders of the Debentures, the obligation of the Company, which is
absolute and unconditional, to pay to the holders of the Debentures the
principal of and interest on the Debentures as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the holders of the Debentures and creditors of
the Company, as the case may be, other than the holders of Senior
Indebtedness of the Company, nor shall anything herein or therein prevent the
Trustee or the holder of any Debenture from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article XVI of the holders of such Senior
Indebtedness in respect of cash, property or securities of the Company, as
the case may be, received upon the exercise of any such remedy.
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(c) Upon any payment or distribution of assets of the Company referred
to in this Article XVI, the Trustee, subject to the provisions of Article IX,
and the holders of the Debentures shall be entitled to conclusively rely upon
any order or decree made by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceedings are
pending, or a certificate of the receiver, trustee in bankruptcy, liquidation
trustee, agent or other Person making such payment or distribution, delivered
to the Trustee or to the holders of the Debentures, for the purposes of
ascertaining the Persons entitled to participate in such distribution, the
holders of Senior Indebtedness and other indebtedness of the Company, as the
case may be, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article XVI.
Section 16.5 Trustee To Effectuate Subordination.
Each holder of Debentures by such holder's acceptance thereof authorizes
and directs the Trustee on such holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article XVI and appoints the Trustee such holder's attorney-in-fact for any
and all such purposes.
Section 16.6 Notice By The Company.
(a) The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit
the making of any payment of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article XVI. Notwithstanding
the provisions of this Article XVI or any other provisions of this Indenture,
the Trustee shall not be charged with knowledge of the existence of any facts
that would prohibit the making of any payment of monies to or by the Trustee
in respect of the Debentures pursuant to the provisions of this Article XVI,
unless and until a Responsible Officer of the Trustee shall have received
written notice thereof from the Company or a holder or holders of Senior
Indebtedness or from any trustee therefor, and before the receipt of any such
written notice, the Trustee, subject to the provisions of Section 9.1, shall
not be entitled in all respects to assume that no such facts exist; provided,
however, that if the Trustee shall not have received the notice provided for
in this Section 16.6 at least two Business Days prior to the date upon which
by the terms hereof any money may become payable for any purpose (including,
without limitation, the payment of the principal of or interest on any
Debenture), then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such money and to
apply the same to the purposes for which they were received, and shall not be
affected by any notice to the contrary that may be received by it within two
Business Days prior to such date.
(b) The Trustee, subject to the provisions of Section 9.1, shall be
entitled to conclusively rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness of the
Company (or a trustee on behalf of such
58
<PAGE>
holder) to establish that such notice has been given by a holder of such
Senior Indebtedness or a trustee on behalf of any such holder or holders. In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of such Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article XVI, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of such Senior
Indebtedness held by such Person, the extent to which such Person is entitled
to participate in such payment or distribution and any other facts pertinent
to the rights of such Person under this Article XVI, and, if such evidence is
not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
Section 16.7 Rights Of The Trustee; Holders Of Senior Indebtedness.
(a) The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XVI in respect of any Senior Indebtedness at
any time held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any
of its rights as such holder. The Trustee's right to compensation and
reimbursement of expenses as set forth in Section 9.7 shall not be subject to
the subordination provisions of this Article XVI.
(b) With respect to the holders of Senior Indebtedness of the Company,
the Trustee undertakes to perform or to observe only such of its covenants
and obligations as are specifically set forth in this Article XVI, and no
implied covenants or obligations with respect to the holders of such Senior
Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to have any fiduciary duty to the holders of such
Senior Indebtedness and, subject to the provisions of Section 9.1, the
Trustee shall not be liable to any holder of such Senior Indebtedness if it
shall in good faith mistakenly pay over or deliver to holders of Debentures,
the Company or any other Person money or assets to which any holder of such
Senior Indebtedness shall be entitled by virtue of this Article XVI or
otherwise.
Section 16.8 Subordination May Not Be Impaired.
(a) No right of any present or future holder of any Senior Indebtedness
of the Company to enforce subordination as herein provided shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part
of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof that any
such holder may have or otherwise be charged with.
(b) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Company may, at any time
and from time to time, without the consent of or notice to the Trustee or the
holders of the Debentures, without
59
<PAGE>
incurring responsibility to the holders of the Debentures and without
impairing or releasing the subordination provided in this Article XVI or the
obligations hereunder of the holders of the Debentures to the holders of such
Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew
or alter, such Senior Indebtedness, or otherwise amend or supplement in any
manner such Senior Indebtedness or any instrument evidencing the same or any
agreement under which such Senior Indebtedness is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing such Senior Indebtedness; (iii) release any Person liable
in any manner for the collection of such Senior Indebtedness; and (iv)
exercise or refrain from exercising any rights against the Company and any
other Person.
60
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
PENNFIRST BANCORP, INC.
By: _______________________________
Name: Charlotte A. Zuschlag
Title: President and Chief Executive Officer
THE BANK OF NEW YORK, as trustee
By: _______________________________
Name: _______________________________
Title: _______________________________
61
<PAGE>
EXHIBIT A
FACE OF DEBENTURE
No. $________
CUSIP No. __________________
PENNFIRST BANCORP, INC.
_____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE ______ __ , 2027
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE
ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER
NOMINEE OF THE DEPOSITARY, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE.
PENNFIRST BANCORP, INC., a Pennsylvania corporation (the "Company," which
term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to The Bank of New
York, as Property Trustee for PennFirst Capital Trust I, or registered
assigns, the principal sum of ___________________ Dollars ($__________) on
_______ __, 2027 (the "Stated Maturity"), and to pay interest on said
principal sum from _______ __, 1997, or from the most recent interest payment
date (each such date, an "Interest Payment Date") to which interest has been
paid or duly provided for, quarterly (subject to deferral as set forth
herein) in arrears on March 1, June 1, September 1 and December 1 of each
year commencing March 1, 1998, at the rate of ____% per annum until the
principal hereof shall have become due and payable, and on any overdue
principal and (without duplication) on any overdue installment of interest at
the rate of ____% per annum compounded quarterly. The amount of interest
payable on any Interest Payment Date shall be computed on the basis of a
360-day year of twelve 30-day months. In the event that any date on which
interest is payable on this Debenture is not a business day, then payment of
interest payable on such date shall be made on the next succeeding day that
is a business day (and without any interest or other payment in respect of
any such delay), except that, if such business day is in the next succeeding
calendar year, such payment shall be made on the preceding business day, in
each case with the same force and effect as if made on such date. The
interest installment so payable, and punctually, paid or duly provided for,
on any Interest Payment Date shall, as provided in the Indenture, be paid to
the person in whose name this Debenture (or one or more Predecessor
Debentures, as defined in said Indenture) is registered at the close of
business on the regular record date for such interest installment, which
shall be the close of business on the business day next preceding such
Interest Payment Date unless otherwise provided in the Indenture. Any such
interest installment not punctually paid or duly provided for shall forthwith
cease to be payable to the registered holders on such regular record date and
may be paid to the Person
<PAGE>
in whose name this Debenture (or one or more Predecessor Debentures) is
registered at the close of business on a special record date to be fixed by
the Trustee for the payment of such defaulted interest, notice whereof shall
be given to the registered holders of the Debentures not less than 10 days
prior to such special record date, or may be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities
exchange on which the Debentures may be listed, and upon such notice as may
be required by such exchange, all as more fully provided in the Indenture.
The principal of and the interest on this Debenture shall be payable at the
office or agency of the Trustee maintained for that purpose in any coin or
currency of the United States of America that at the time of payment is legal
tender for payment of public and private debts; provided, however, that
payment of interest may be made at the option of the Company by check mailed
to the registered holder at such address as shall appear in the Debenture
Register. Notwithstanding the foregoing, so long as the holder of this
Debenture is the Property Trustee, the payment of the principal of and
interest on this Debenture shall be made at such place and to such account as
may be designated by the Trustee.
The indebtedness evidenced by this Debenture is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of all Senior Indebtedness, and this Debenture is issued
subject to the provisions of the Indenture with respect thereto. Each holder
of this Debenture, by accepting the same, (a) agrees to and shall be bound by
such provisions; (b) authorizes and directs the Trustee on his or her behalf
to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination so provided; and (c) appoints the Trustee his or
her attorney-in-fact for any and all such purposes. Each holder hereof, by
his or her acceptance hereof, hereby waives all notice of the acceptance of
the subordination provisions contained herein and in the Indenture by each
holder of Senior Indebtedness, whether now outstanding or hereafter incurred,
and waives reliance by each such holder upon said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until
the Certificate of Authentication hereon shall have been signed by or on
behalf of the Trustee.
This Debenture shall be deemed to be a contract made under the laws of
the State of New York and for all purposes shall be construed in accordance
with the laws of New York without regard to conflicts of laws principles.
The provisions of this Debenture are continued on the reverse side hereof
and such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be executed.
PENNFIRST BANCORP, INC.
By: _______________________________
Name: _______________________________
Title: _______________________________
Attest: ________________________
By: ________________________
Name: ________________________
Title: ________________________
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK as Trustee or Authentication Agent
By: __________________________ By: ___________________
Authorized Signatory
1
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfer this Security
certificate to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert assignees social security or tax identification number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
__________________________________________________agent to transfer this
Security certificate on the books of the Company. The agent may substitute
another to act for him or her.
Date:_________________________________
Signature:
---------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:
-----------------------------------------------------------
- --------------------
Signature must be guaranteed by an "eligible guarantor institution" that is a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities and Exchange Act of 1934, as amended.
<PAGE>
REVERSE OF DEBENTURE
____% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
(CONTINUED )
This Debenture is one of the subordinated debentures of the Company
(herein sometimes referred to as the "Debentures"), specified in the
Indenture, all issued or to be issued under and pursuant to an Indenture
dated as of _______ __, 1997 (the "Indenture") duly executed and delivered
between the Company and The Bank of New York, as Trustee (the "Trustee"), to
which Indenture reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the holders of the Debentures. The Debentures are
limited in aggregate principal amount as specified in the Indenture.
The Company has the right to redeem this Debenture at the option of the
Company, without premium or penalty (i) at any time on or after _______ __,
2002 in whole or in part, or (ii) at any time in certain circumstances in
whole (but not in part) upon the occurrence of a Special Event, in each case
at a Redemption Price equal to 100% of the principal amount plus any accrued
but unpaid interest, to the date of such redemption (the "Redemption Price").
The Redemption Price shall be paid prior to 12:00 noon, Eastern Standard
Time, on the date of such redemption or at such earlier time as the Company
determines. Any redemption pursuant to this paragraph shall be made upon not
less than 30 days nor more than 60 days notice, at the Redemption Price. If
the Debentures are only partially redeemed by the Company, the Debentures
shall be redeemed pro rata or by lot or by any other method utilized by the
Trustee.
In the event of redemption of this Debenture in part only, a new
Debenture or Debentures for the unredeemed portion hereof shall be issued in
the name of the holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Debentures at the time outstanding, as defined in the
Indenture, to execute supplemental indentures for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of the Indenture or of any supplemental indenture or of modifying in any
manner the rights of the holders of the Debentures; provided, however, that
no such supplemental indenture shall (i) extend the fixed maturity of the
Debentures except as provided in the Indenture, or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon (except for deferrals of interest as described below), without the
consent of the holder of each Debenture so affected; or (ii) reduce the
aforesaid percentage of Debentures, the holders of which are required to
consent
<PAGE>
to any such supplemental indenture, without the consent of the holders of
each Debenture then outstanding and affected thereby. The Indenture also
contains provisions permitting the holders of a majority in aggregate
principal amount of the Debentures at the time outstanding, on behalf of all
of the holders of the Debentures, to waive any past default in the
performance of any of the covenants contained in the Indenture, or
established pursuant to the Indenture, and its consequences, except a default
in the payment of the principal of or interest on any of the Debentures. Any
such consent or waiver by the registered holder of this Debenture (unless
revoked as provided in the Indenture) shall be conclusive and binding upon
such holder and upon all future holders and owners of this Debenture and of
any Debenture issued in exchange therefor or in place thereof (whether by
registration of transfer or otherwise or whether any notation of such consent
or waiver is made upon this Debenture).
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal and interest on
this Debenture at the time and place and at the rate and in the money herein
prescribed.
So long as no Event of Default has occurred and is continuing, the
Company shall have the right at any time during the term of the Debentures
and from time to time to extend the interest payment period of such
Debentures for up to 20 consecutive quarters (each, an "Extended Interest
Payment Period"), at the end of which period the Company shall pay all
interest then accrued and unpaid (together with interest thereon at the rate
specified for the Debentures to the extent that payment of such interest is
enforceable under applicable law). Before the termination of any such
Extended Interest Payment Period, the Company may further extend such
Extended Interest Payment Period, provided that such Extended Interest
Payment Period together with all such further extensions thereof shall not
exceed 20 consecutive quarters. At the termination of any such Extended
Interest Payment Period and upon the payment of all accrued and unpaid
interest and any additional amounts then due, the Company may commence a new
Extended Interest Payment Period.
As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable by the registered holder hereof on
the Debenture Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Trustee accompanied
by a written instrument or instruments of transfer in form satisfactory to
the Company or the Trustee duly executed by the registered holder hereof or
his attorney duly authorized in writing, and thereupon one or more new
Debentures of authorized denominations and for the same aggregate principal
amount shall be issued to the designated transferee or transferees. No
service charge shall be made for any such transfer, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Debenture,
the Company, the Trustee, any paying agent and the Debenture Registrar may
deem and treat the
2
<PAGE>
registered holder hereof as the absolute owner hereof (whether or not this
Debenture shall be overdue and notwithstanding any notice of ownership or
writing hereon made by anyone other than the Debenture Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
interest due hereon and for all other purposes, and neither the Company nor
the Trustee nor any paying agent nor any Debenture Registrar shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect of the Indenture, against any incorporator, stockholder, officer or
director, past, present or future, as such, of the Company or any predecessor
or successor corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty or otherwise,
all such liability being, by the acceptance hereof and as part of the
consideration for the issuance hereof, expressly waived and released.
The Debentures are issuable only in registered form without coupons in
denominations of $10 and any integral multiple thereof.
All terms used in this Debenture that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
The Note is unsecured by any collateral, including the assets of the
Company or any of its subsidiaries or other affiliates.
3
<PAGE>
Exhibit 4.3
CERTIFICATE OF TRUST
OF
PENNFIRST CAPITAL TRUST I
THIS Certificate of Trust of PennFirst Capital Trust I (the "Trust"),
dated as of November 5, 1997, is being duly executed and filed by the
undersigned, as trustees, to form a business trust under the Delaware
Business Trust Act (12 Del. C. Section 3801, et seq.).
1. Name. The name of the business trust formed hereby is PennFirst
Capital Trust I.
2. Delaware Trustee. The name and business address of the trustee
of the Trust with a principal place of business in the State of
Delaware are The Bank of New York (Delaware), White Clay Center,
Route 273, Newark, Delaware 19711.
3. Effective Date. This Certificate of Trust shall be effective
upon filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the Trust, have
executed this Certificate of Trust as of the date first-above written.
THE BANK OF NEW YORK (DELAWARE), not in
its individual capacity but solely as trustee of the Trust
By:/s/ Walter N. Gitlin
-----------------------------------------
Name: Walter N. Gitlin
Title: Authorized Signatory
CHARLOTTE A. ZUSCHLAG, not in her individual
capacity but solely as trustee of the Trust
/s/ Charlotte A. Zuschlag
--------------------------------------------
FRANK D. MARTZ, not in his individual capacity but
solely as trustee of the Trust
/s/ Frank D. Martz
--------------------------------------------
CHARLES P. EVANOSKI, not in his individual
capacity but solely as trustee of the Trust
/s/ Charles P. Evanoski
--------------------------------------------
<PAGE>
Exhibit 4.4
AMENDED AND RESTATED TRUST AGREEMENT
among
PENNFIRST BANCORP, INC., as Depositor
THE BANK OF NEW YORK, AS PROPERTY TRUSTEE
THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee and
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
DATED AS OF , 1997
PENNFIRST CAPITAL TRUST I
<PAGE>
TABLE OF CONTENTS
Page
-----
ARTICLE I DEFINED TERMS
Section 101. Definitions............................................ 2
ARTICLE II ESTABLISHMENT OF THE TRUST
Section 201. Name.................................................... 10
Section 202. Office of The Delaware Trustee; Principal Place of
Business................................................ 11
Section 203. Initial Contribution of Trust Property; Organizational
Expenses................................................ 11
Section 204. Issuance of The Preferred Securities.................... 11
Section 205. Issuance of The Common Securities; Subscription And
Purchase of Debentures.................................. 11
Section 206. Declaration of Trust.................................... 12
Section 207. Authorization to Enter Into Certain Transactions........ 12
Section 208. Assets of Trust......................................... 16
Section 209. Title to Trust Property................................. 16
ARTICLE III PAYMENT ACCOUNT
Section 301. Payment Account......................................... 16
ARTICLE IV DISTRIBUTIONS; REDEMPTION
Section 401. Distributions........................................... 17
Section 402. Redemption.............................................. 18
Section 403. Subordination of Common Securities...................... 20
Section 404. Payment Procedures...................................... 21
Section 405. Tax Returns And Reports................................. 21
Section 406. Payments of Taxes, Duties, Etc. of The Trust............ 21
Section 407. Payments Under Indenture................................ 21
ARTICLE V TRUST SECURITIES CERTIFICATES
Section 501. Initial Ownership....................................... 22
Section 502. The Trust Securities Certificates....................... 22
Section 503. Execution And Delivery of Trust Securities
Certificates............................................ 22
Section 503a. Global Preferred Securities............................. 23
Section 504. Registration of Transfer And Exchange of Preferred
Securities Certificates................................. 25
Section 505. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates............................................ 26
Section 506. Persons Deemed Securityholders.......................... 27
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<PAGE>
Page
-----
Section 507. Access to List of Securityholders' Names And Addresses.. 27
Section 508. Maintenance of Office or Agency......................... 28
Section 509. Appointment of Paying Agent............................. 28
Section 510. Ownership of Common Securities by Depositor............. 28
Section 511. Notices to Clearing Agency.............................. 28
Section 511a. Definitive Preferred Securities And Temporary
Preferred Securities.................................... 29
Section 512. Rights of Securityholders............................... 29
Section 513. CUSIP Numbers........................................... 32
ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
Section 601. Limitations on Voting Rights............................ 32
Section 602. Notice of Meetings...................................... 33
Section 603. Meetings of Preferred Securityholders................... 33
Section 604. Voting Rights........................................... 34
Section 605. Proxies, Etc............................................ 34
Section 606. Securityholder Action by Written Consent................ 34
Section 607. Record Date For Voting And Other Purposes............... 34
Section 608. Acts of Securityholders................................. 34
Section 609. Inspection of Records................................... 35
ARTICLE VII REPRESENTATIONS AND WARRANTIES
Section 701. Representations And Warranties of The Property Trustee
And The Delaware Trustee................................ 36
Section 702. Representations And Warranties of Depositor............. 37
ARTICLE VIII TRUSTEES
Section 801. Certain Duties And Responsibilities..................... 37
Section 802. Certain Notices......................................... 39
Section 803. Certain Rights of Property Trustee...................... 39
Section 804. Not Responsible For Recitals or Issuance of Securities.. 41
Section 805. May Hold Securities..................................... 41
Section 806. Compensation; Indemnity; Fees........................... 42
Section 807. Corporate Property Trustee Required; Eligibility of
Trustees................................................ 43
Section 808. Conflicting Interests................................... 43
Section 809. Co-trustees And Separate Trustee........................ 43
Section 810. Resignation And Removal; Appointment of Successor....... 45
Section 811. Acceptance of Appointment by Successor.................. 46
Section 812. Merger, Conversion, Consolidation or Succession to
Business................................................ 47
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<PAGE>
Section 813. Preferential Collection of Claims Against Depositor or
Trust................................................... 47
Section 814. Reports by Property Trustee............................. 47
Section 815. Reports to The Property Trustee......................... 48
Section 816. Evidence of Compliance With Conditions Precedent........ 48
Section 817. Number of Trustees...................................... 48
Section 818. Delegation of Power..................................... 49
Section 819. Voting.................................................. 49
ARTICLE IX DISSOLUTION, LIQUIDATION AND MERGER
Section 901. Dissolution Upon Expiration Date........................ 49
Section 902. Early Dissolution....................................... 49
Section 903. Termination............................................. 50
Section 904. Liquidation............................................. 50
Section 905. Mergers, Consolidations, Amalgamations or Replacements
of The Trust............................................ 52
ARTICLE X MISCELLANEOUS PROVISIONS
Section 1001. Limitation of Rights of Securityholders................. 53
Section 1002. Amendment............................................... 53
Section 1003. Separability............................................ 54
Section 1004. Governing Law........................................... 54
Section 1005. Payments Due on Non-business Day........................ 54
Section 1006. Successors.............................................. 55
Section 1007. Headings................................................ 55
Section 1008. Reports, Notices And Demands............................ 55
Section 1009. Agreement Not to Petition............................... 55
Section 1010. Trust Indenture Act; Conflict With Trust Indenture Act.. 56
Section 1011. Acceptance of Terms of Trust Agreement, Guarantee
And Indenture........................................... 56
Exhibit A Certificate of Trust
Exhibit B Form of Certificate Depository Agreement
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Expense Agreement
Exhibit E Form of Preferred Securities Certificate
-iii-
<PAGE>
CROSS-REFERENCE TABLE
SECTION OF SECTION OF AMENDED
TRUST INDENTURE ACT AND RESTATED
OF 1939, AS AMENDED TRUST AGREEMENT
------------------- --------------------
310(a)(1) 807
310(a)(2) 807
310(a)(3) 807
310(a)(4) 207(a)(ii)
310(b) 808
311(a) 813
311(b) 813
312(a) 507
312(b) 507
312(c) 507
313(a) 814(a)
313(a)(4) 814(b)
313(b) 814(b)
313(c) 1008
313(d) 814(c)
314(a) 815
314(b) Not Applicable
314(c)(1) 816
314(c)(2) 816
314(c)(3) Not Applicable
314(d) Not Applicable
314(e) 101,816
315(a) 801(a), 803(a)
315(b) 802, 1008
315(c) 801(a)
315(d) 801, 803
316(a)(2) Not Applicable
316(b) Not Applicable
316(c) 607
317(a)(1) Not Applicable
317(a)(2) Not Applicable
317(b) 509
318(a) 1010
Note: This Cross-Reference Table does not constitute part of this Agreement and
shall not affect any interpretation of any of its terms or provisions.
-iv-
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AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of __________, 1997, among
(i) PennFirst Bancorp, Inc., a Pennsylvania corporation (including any
successors or assigns, the "Depositor"), (ii) The Bank of New York, a New York
banking corporation, as property trustee (in such capacity, the "Property
Trustee" and, in its separate corporate capacity and not in its capacity as
Property Trustee, the "Bank"), (iii) The Bank of New York (Delaware), a Delaware
banking corporation, as Delaware Trustee (the "Delaware Trustee"), (iv)
Charlotte A. Zuschlag, an individual, Frank D. Martz, an individual, and Charles
P. Evanoski, an individual, each of whose address is c/o PennFirst Bancorp,
Inc., 600 Lawrence Avenue, Ellwood City, Pennsylvania 16117 (each an
"Administrative Trustee" and collectively the "Administrative Trustees") (the
Property Trustee, the Delaware Trustee and the Administrative Trustees referred
to collectively as the "Trustees"), and (v) the several Holders (as hereinafter
defined).
RECITALS
WHEREAS, the Depositor, the Property Trustee and the Delaware Trustee have
heretofore duly declared and established a business trust, PennFirst Capital
Trust I, pursuant to the Delaware Business Trust Act by the entering into of
that certain Trust Agreement, dated as of ___________, 1997 (the "Original Trust
Agreement"), and by the execution and filing by the Delaware Trustee, the
Depositor and the Administrative Trustees with the Secretary of State of the
State of Delaware of the Certificate of Trust, filed on November ___, 1997, the
form of which is attached as Exhibit A; and
WHEREAS, the Depositor and the Trustees desire to amend and restate the
Original Trust Agreement in its entirety as set forth herein to provide for,
among other things, (i) the issuance of the Common Securities (as defined
herein) by the Trust (as defined herein) to the Depositor; (ii) the issuance and
sale of the Preferred Securities (as defined herein) by the Trust pursuant to
the Underwriting Agreement (as defined herein); and (iii) the acquisition by the
Trust from the Depositor of all of the right, title and interest in the
Debentures (as defined herein).
NOW THEREFORE, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party for the benefit of the
other parties and for the benefit of the Securityholders (as defined herein)
hereby amends and restates the Original Trust Agreement in its entirety and
agrees as follows.
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ARTICLE I
DEFINED TERMS
Section 101. Definitions.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to them
in this Article I and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) unless the context otherwise requires, any reference to an "Article"
or a "Section" refers to an Article or a Section, as the case may be, of this
Trust Agreement; and
(d) the words "herein", "hereof and "hereunder" and other words of similar
import refer to this Trust Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Act" has the meaning specified in Section 608.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of additional interest
accrued on interest in arrears and paid by the Depositor on a Like Amount of
Debentures for such period.
"Additional Interest" has the meaning specified in Section 1.1 of the
Indenture.
"Administrative Trustee" means each of the Persons identified as an
"Administrative Trustee" in the preamble to this Trust Agreement solely in such
Person's capacity as Administrative Trustee of the Trust formed and continued
hereunder and not in such Person's individual capacity, or such Administrative
Trustee's successor in interest in such capacity, or any successor trustee
appointed as herein provided.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (d) a partnership in which the specified person is a
general partner; (e) any officer or director of the specified Person; and (f) if
the specified Person is an individual, any entity of which the specified Person
is an executive officer, director or general partner.
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"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Preferred Security or beneficial interest therein, the rules
and procedures of the Depositary for such Preferred Security, in each case to
the extent applicable to such transaction and as in effect from time to time.
"Bank" has the meaning specified in the Preamble to this Trust Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in the
premises adjudging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking liquidation or reorganization of or in respect of such
Person under the United States Bankruptcy Code of 1978, as amended, or any other
similar applicable federal or state law, and the continuance of any such decree
or order unvacated and unstayed for a period of 90 days; or the commencement of
an involuntary case under the United States Bankruptcy Code of 1978, as amended,
in respect of such Person, which shall continue undismissed for a period of 90
days or entry of an order for relief in such case; or the entry of a decree or
order of a court having jurisdiction in the premises for the appointment on the
ground of insolvency or bankruptcy of a receiver, custodian, liquidator, trustee
or assignee in bankruptcy or insolvency of such Person or of its property, or
for the winding up or liquidation of its affairs, and such decree or order shall
have remained in force unvacated and unstayed for a period of 60 days; or
(b) the institution by such Person of proceedings to be adjudicated a
voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy
proceeding against it, or the filing by such Person of a petition or answer or
consent seeking liquidation or reorganization under the United States Bankruptcy
Code of 1978, as amended, or other similar applicable Federal or State law, or
the consent by such Person to the filing of any such petition or to the
appointment on the ground of insolvency or bankruptcy of a receiver or custodian
or liquidator or trustee or assignee in bankruptcy or insolvency of such Person
or of its property, or shall make a general assignment for the benefit of
creditors.
"Bankruptcy Laws" has the meaning specified in Section 1009.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Depositor to have been duly adopted by the
Depositor's Board of Directors, or such committee of the Board of Directors or
officers of the Depositor to which authority to act on behalf of the Board of
Directors has been delegated, and to be in full force and effect on the date of
such certification, and delivered to the appropriate Trustee.
"Business Day" means a day other than a Saturday or Sunday, a day on which
banking institutions in the Borough of Manhattan, The City of New York, or the
State of Delaware are authorized or required by law, executive order or
regulation to remain closed, or a day on which the Property Trustee's Corporate
Trust Office or the Corporate Trust Office of the Debenture Trustee is closed
for business.
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"Capital Treatment Event" has the meaning specified in Section 1.1 of the
Indenture.
"Certificate Depositary Agreement" means the agreement among the Trust, the
Depositor and DTC, as the initial Clearing Agency, dated as of the Closing Date,
substantially in the form attached as Exhibit B, as the same may be amended and
supplemented from time to time.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Change in 1940 Act Law" shall have the meaning set forth in the definition
of "Investment Company Event."
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act. DTC shall be the initial Clearing
Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, or any successor statute,
in each case as amended from time to time.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $10 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein. Common Securities rank pari
passu with the Preferred Securities; provided, however, that upon the occurrence
of an Event of Default, the right of holders of Common Securities to payment in
respect of (i) distributions, and (ii) payments upon liquidation, redemption and
otherwise are subordinated to the right of holders of Preferred Securities.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached as Exhibit C.
"Corporate Trust Office" means (i) when used with respect to the Property
Trustee, the principal corporate trust office of the Property Trustee located in
New York, New York, and (ii) when used with respect to the Debenture Trustee,
the principal corporate trust office of the Debenture Trustee located in New
York, New York.
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"Debenture Event of Default" means an "Event of Default" as defined in
Section 7.1 of the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
"Debenture Tax Event" means a "Tax Event" as specified in Section 1.1 of
the Indenture.
"Debenture Trustee" means The Bank of New York, a banking corporation
organized under the laws of the State of New York, and any successor thereto, as
trustee under the Indenture.
"Debentures" means the aggregate principal amount of the Depositor's ____%
Junior Subordinated Deferrable Interest Debentures due 2027, issued pursuant to
the Indenture.
"Definitive Preferred Securities Certificates" means the Preferred
Securities Certificates issued in certificated, fully registered form
(non-global) as provided in Section 503A.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Delaware Code Sections 3801 et seq. as it may be amended from time to
time.
"Delaware Trustee" means the Person identified as the "Delaware Trustee" in
the preamble to this Trust Agreement solely in its capacity as Delaware Trustee
of the Trust and not in its individual capacity, or its successor in interest in
such capacity, or any successor Trustee appointed as herein provided.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Depositary" means with respect any Global Preferred Security issuable or
issued in whole or in part in the form of one or more Global Preferred Security,
the Person designated as Depositary by the Depositor.
"Distribution Date" has the meaning specified in Section 401(a).
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 401(b).
"DTC" means The Depository Trust Company.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
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(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust or the Property Trustee in the payment of any
Distribution when it becomes due and payable, and continuation of such default
for a period of 30 days; or
(c) default by the Trust or the Property Trustee in the payment of any
Redemption Price of any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Trustees in this Trust Agreement (other than a
covenant or warranty a default in the performance of which or the breach of
which is dealt with in clause (b) or (c), above) and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the defaulting Trustee or Trustees by the
Holders of at least 25% in aggregate liquidation preference of the Outstanding
Preferred Securities a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and the failure by the Depositor to appoint a successor property Trustee
within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, or any successor
statute, in each case as amended from time to time.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit D, as amended from time to time.
"Expiration Date" has the meaning specified in Section 901.
"Extended Interest Payment Period" has the meaning specified in Section 4.1
of the Indenture.
"Global Preferred Securities Certificate" means a Preferred Securities
Certificate evidencing ownership of Global Preferred Securities.
"Global Preferred Security" means a Preferred Security, the ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 503A.
"Guarantee" means the Preferred Securities Guarantee Agreement executed and
delivered by the Depositor, as guarantor, and The Bank of New York, as Preferred
Guarantee Trustee, contemporaneously with the execution and delivery of this
Trust Agreement, for the benefit of the Holders of the Preferred Securities, as
amended from time to time.
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"Indenture" means the Indenture, dated as of ____________, 1997 between the
Depositor and the Debenture Trustee, as trustee, as amended or supplemented from
time to time.
"Investment Company Act," means the Investment Company Act of 1940, or any
successor statute, in each case as amended from time to time.
"Investment Company Event" has the meaning specified in Section 1.1 of the
Indenture.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to the principal amount of
Debentures to be contemporaneously redeemed in accordance with the Indenture and
the proceeds of which shall be used to pay the Redemption Price of such Trust
Securities; and (b) with respect to a distribution of Debentures to Holders of
Trust Securities in connection with a termination or liquidation of the Trust,
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holder to whom such Debentures are distributed. Each
Debenture distributed pursuant to clause (b) above shall carry with it
accumulated interest in an amount equal to the accumulated and unpaid interest
then due on such Debentures.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be distributed
to Holders of Trust Securities in connection with a dissolution and liquidation
of the Trust pursuant to Section 904(a).
"Liquidation Distribution" has the meaning specified in Section 904(d).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, Chief Executive Officer, President or a Vice President and by the Chief
Financial Officer, the Treasurer or an Assistant Treasurer or the Controller or
an Assistant Controller or the Secretary or an Assistant Secretary, of the
Depositor, and delivered to the appropriate Trustee. One of the officers signing
an Officers' Certificate given pursuant to Section 816 shall be the principal
executive, financial or accounting officer of the Depositor. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
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(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of legal counsel, who may
be counsel for the Trust, the Property Trustee, or the Depositor, but not an
employee of any thereof, and who shall be reasonably acceptable to the Property
Trustee.
"Original Trust Agreement" has the meaning specified in the Recitals to
this Trust Agreement.
"Outstanding", when used with respect to Preferred Securities, means, as of
the date of determination, all Preferred Securities theretofore executed and
delivered under this Trust Agreement, except:
(a) Preferred Securities theretofore canceled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(b) Preferred Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Preferred Securities; provided that, if
such Preferred Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Trust Agreement; and
(c) Preferred Securities which have been paid or in exchange for or in
lieu of which other Preferred Securities have been executed and delivered
pursuant to Sections 504, 505 and 511a; provided, however, that in determining
whether the Holders of the requisite Liquidation Amount of the Outstanding
Preferred Securities have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, Preferred Securities owned by the
Depositor, any Trustee or any Affiliate of the Depositor or any Trustee shall be
disregarded and deemed not to be Outstanding, except that (a) in determining
whether any Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Preferred Securities
that such Trustee actually knows to be so owned shall be so disregarded and (b)
the foregoing shall not apply at any time when all of the outstanding Preferred
Securities are owned by the Depositor, one or more of the Trustees and/or any
such Affiliate. Preferred Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Administrative Trustees the pledgee's right so to act with
respect to such Preferred Securities and that the pledgee is not the Depositor
or any Affiliate of the Depositor.
"Owners" means each Person who is the beneficial owner of a beneficial
interest in a Global Preferred Security as reflected in the records of the
Clearing
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Agency or, if a Clearing Agency participant is not the Owner, then as reflected
in the records of a Person maintaining an account with such Clearing Agency
(directly or indirectly, in accordance with the rules of such Clearing Agency).
"Paying Agent" means any paying agent or co-paying agent appointed pursuant
to Section 509 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee with the Bank in its trust department
for the benefit of the Securityholders in which all amounts paid in respect of
the Debentures shall be held and from which the Property Trustee shall make
payments to the Securityholders in accordance with Sections 401 and 402.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Security" means an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $10 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Preferred Securities Certificate", means a certificate evidencing
ownership of Preferred Securities, substantially in the form attached as Exhibit
E.
"Property Trustee" means the Person identified as the "Property Trustee,"
in the Preamble to this Trust Agreement solely in its capacity as Property
Trustee of the Trust and not in its individual capacity, or its successor in
interest in such capacity, or any successor property trustee appointed as herein
provided.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Debenture Redemption Date and the stated maturity of the
Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, paid by the Depositor upon the concurrent
redemption of a Like Amount of Debentures, allocated on a pro rata basis (based
on Liquidation Amounts) among the Trust Securities.
"Relevant Trustee" shall have the meaning specified in Section 810.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 504.
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"Securityholder" or "Holder" means a Person in whose name a Trust Security
or Securities is registered in the Securities Register; any such Person is a
beneficial owner within the meaning of the Delaware Business Trust Act.
"Trust" means PennFirst Capital Trust I, a Delaware business trust created
and continued hereby.
"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including all exhibits hereto, including, for all purposes of
this Trust Agreement and any such modification, amendment or supplement, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Trust Agreement and any such modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as
in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939, as amended, is
amended after such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures; (b) any cash on deposit in, or
owing to, the Payment Account; and (c) all proceeds and rights in respect of the
foregoing and any other property and assets for the time being held or deemed to
be held by the Property Trustee pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Preferred
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trustees" means, collectively, the Property Trustee, the Delaware Trustee
and the Administrative Trustees.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
__________, 1997, including exhibits, among the Trust, the Depositor and the
Underwriter named therein.
ARTICLE II
ESTABLISHMENT OF THE TRUST
Section 201. Name.
The Trust created and continued hereby shall be known as "PennFirst Capital
Trust I," as such name may be modified from time to time by the Administrative
Trustees following written notice to the Holders of Trust Securities and the
other Trustees, in which name the Trustees may
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engage in the transactions contemplated hereby, make and execute contracts and
other instruments on behalf of the Trust and sue and be sued.
Section 202. Office of the Delaware Trustee; Principal Place of Business.
The address of the Property Trustee in the State of Delaware is c/o The
Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware
19711, Attention: Corporate Trust Department, or such other address in the State
of Delaware as the Delaware Trustee may designate by written notice to the
Securityholders and the Depositor. The principal executive office of the Trust
is c/o PennFirst Bancorp, Inc., 600 Lawrence Avenue, Ellwood City, Pennsylvania
16117.
Section 203. Initial Contribution of Trust Property; Organizational Expenses.
The Trustees acknowledge receipt in trust from the Depositor in connection
with the Original Trust Agreement of the sum of $10.00, which constituted the
initial Trust Property. The Depositor shall pay organizational expenses of the
Trust as they arise or shall, upon request of any Trustee, promptly reimburse
such Trustee for any such expenses paid by such Trustee. The Depositor shall
make no claim upon the Trust Property for the payment of such expenses.
Section 204. Issuance of the Preferred Securities.
The Depositor on behalf of the Trust and pursuant to the Original Trust
Agreement, executed and delivered the Underwriting Agreement. Contemporaneously
with the execution and delivery of this Trust Agreement, an Administrative
Trustee, on behalf of the Trust, shall execute in accordance with Section 502
and deliver in accordance with the Underwriting Agreement, Preferred Securities
Certificates, registered in the name of the Persons entitled thereto, in an
aggregate amount of 2,000,000 Preferred Securities having an aggregate
Liquidation Amount of $20,000,000 against receipt of the aggregate purchase
price of such Preferred Securities of $20,000,000, which amount such
Administrative Trustee shall promptly deliver to the Property Trustee. If the
underwriters exercise their Option and there is an Option Closing Date (as such
terms are defined in the Underwriting Agreement), then an Administrative
Trustee, on behalf of the Trust, shall execute in accordance with Section 502
and deliver in accordance with the Underwriting Agreement, additional Preferred
Securities Certificates, registered in the name of the Persons entitled thereto,
in an aggregate amount of up to 300,000 Preferred Securities having an aggregate
Liquidation Amount of up to $3,000,000 against receipt of the aggregate purchase
price of such Preferred Securities of $3,000,000, which amount such
Administrative Trustee shall promptly deliver to the Property Trustee.
Section 205. Issuance of The Common Securities; Subscription And Purchase of
Debentures.
(a) Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502 and
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deliver to the Depositor, Common Securities Certificates, registered in the name
of the Depositor in an aggregate amount of Common Securities having an aggregate
Liquidation Amount of $_______ against payment by the Depositor of such amount,
which amount such Administrative Trustee shall promptly deliver to the Property
Trustee. Contemporaneously therewith, an Administrative Trustee on behalf of
the Trust, shall subscribe to and purchase from the Depositor corresponding
amounts of Debentures, registered in the name of the Property Trustee on behalf
of the Trust and having an aggregate principal amount equal to $__________
(being the sum of the amounts delivered to the Property Trustee pursuant to (i)
the second sentence of Section 204; and (ii) the first sentence of Section
205(a)), and, in satisfaction of the purchase price for such Debentures, the
Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum
of $__________.
(b) If the underwriters exercise the Option and there is an Option Closing
Date, then an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502 and deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
Common Securities having an aggregate Liquidation Amount of up to $_______
against payment by the Depositor of such amount. Contemporaneously therewith, an
Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase
from the Depositor corresponding amounts of Debentures, registered in the name
of the Trust and having an aggregate principal amount of up to $_________, and,
in satisfaction of the purchase price of such Debentures, the Property Trustee,
on behalf of the Trust, shall deliver to the Depositor the amount received from
one of the Administrative Trustees pursuant to the last sentence of Section 204
(being the sum of the amounts delivered to the Property Trustee pursuant to (i)
the third sentence of Section 204; and (ii) the first sentence of this Section
205(b)).
Section 206. Declaration of Trust.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Trust Securities and use the proceeds from such sale to acquire the Debentures;
and (b) to engage in those activities necessary, convenient or incidental
thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to
have all the rights, powers and duties to the extent set forth herein, and the
Trustees hereby accept such appointment. The Property Trustee hereby declares
that it shall hold the Trust Property in trust upon and subject to the
conditions set forth herein for the benefit of the Securityholders. The
Administrative Trustees shall have all rights, powers and duties set forth
herein and in accordance with applicable law with respect to accomplishing the
purposes of the Trust. The Delaware Trustee shall be one of the Trustees of the
Trust for the sole and limited purpose of fulfilling the requirements of
Section 3807 of the Delaware Business Trust Act.
Section 207. Authorization to Enter Into Certain Transactions.
(a) The Trustees shall conduct the affairs of the Trust in accordance with
the terms of this Trust Agreement. Subject to the limitations set forth in
paragraph (b) of this Section 207
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and Article VIII, and in accordance with the following provisions (i) and (ii),
the Administrative Trustees shall have the authority to enter into all
transactions and agreements determined by the Administrative Trustees to be
appropriate in exercising the authority, express or implied, otherwise granted
to the Administrative Trustees under this Trust Agreement, and to perform all
acts in furtherance thereof, including without limitation, the following:
(i) As among the Trustees, each Administrative Trustee shall have the
power and authority to act on behalf of the Trust with respect to the
following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute, deliver
and perform on behalf of the Trust, the Expense Agreement, Certificate
Depositary Agreement and such other agreements or documents as may be
necessary or desirable in connection with the purposes and function of
the Trust;
(C) assisting in the registration of the Preferred Securities
under the Securities Act of 1933, as amended, and under state
securities or blue sky laws, and the qualification of this Trust
Agreement as a trust indenture under the Trust Indenture Act;
(D) assisting in the listing of the Preferred Securities upon
The Nasdaq Stock Market's National Market or such securities exchange
or exchanges as shall be determined by the Depositor and the
registration of the Preferred Securities under the Exchange Act, and
the preparation and filing of all periodic and other reports and other
documents pursuant to the foregoing;
(E) the sending of notices (other than notices of default) and
other information regarding the Trust Securities and the Debentures to
the Securityholders in accordance with this Trust Agreement;
(F) the appointment of a Paying Agent, authenticating agent and
Securities Registrar in accordance with this Trust Agreement;
(G) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust and the preparation,
execution and filing of the certificate of cancellation with the
Secretary of State of the State of Delaware;
(H) to take all action that may be necessary or appropriate for
the preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust under
the laws of the State of Delaware and of each other jurisdiction in
which such existence is necessary to
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protect the limited liability of the Holders of the Preferred
Securities or to enable the Trust to effect the purposes for which the
Trust was created;
(I) assisting in the registration or listing of the Preferred
Securities with DTC or upon such other trading facilities or
exchanges as shall be determined by the Depositor and the preparation
and filing of all periodic and other reports and other documents
pursuant to the foregoing; and
(J) the taking of any action incidental to the foregoing as the
Administrative Trustees may from time to time determine is necessary
or advisable to give effect to the terms of this Trust Agreement for
the benefit of the Securityholders (without consideration of the
effect of any such action on any particular Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the power,
duty and authority to act on behalf of the Trust with respect to the
following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other payments
made in respect of the Debentures in the Payment Account;
(D) the distribution of amounts owed to the Securityholders in
respect of the Trust Securities in accordance with the terms of this
Trust Agreement;
(E) the exercise of all of the rights, powers and privileges of
a holder of the Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance with
the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust and the execution of
the certificate of cancellation with the Secretary of State of the
State of Delaware;
(I) after an Event of Default, the taking of any action
incidental to the foregoing as the Property Trustee may from time to
time determine is necessary or advisable to give effect to the terms
of this Trust Agreement and protect and
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conserve the Trust Property for the benefit of the Securityholders
(without consideration of the effect of any such action on any
particular Securityholder);
(J) registering transfers of the Trust Securities in accordance
with this Trust Agreement; and
(K) except as otherwise provided in this Section 207(a)(ii), the
Property Trustee shall have none of the duties, liabilities, powers or
the authority of the Administrative Trustees set forth in Section
207(a)(i).
(b) So long as this Trust Agreement remains in effect, the Trust (or the
Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees shall not (i) acquire any investments or
engage in any activities not authorized by this Trust Agreement; (ii) sell,
assign, transfer, exchange, mortgage, pledge, setoff or otherwise dispose of any
of the Trust Property or interests therein, including to Securityholders, except
as expressly provided herein; (iii) take any action that would cause the Trust
to fail or cease to qualify as a "grantor trust" for United States federal
income tax purposes; (iv) incur any indebtedness for borrowed money or issue any
other debt; or (v) take or consent to any action that would result in the
placement of a Lien on any of the Trust Property. The Administrative Trustees
shall defend all claims and demands of all Persons at any time claiming any Lien
on any of the Trust Property adverse to the interest of the Trust or the
Securityholders in their capacity as Securityholders.
(c) In connection with the issuance and sale of the Preferred Securities,
the Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation and filing by the Trust with the Commission and
the execution on behalf of the Trust of a registration statement on the
appropriate form in relation to the Preferred Securities and the
Debentures, including any amendments thereto;
(ii) the determination of the states in which to take appropriate
action to qualify or, register for sale all or part of the Preferred
Securities and to do any and all such acts, other than actions which must
be taken by or on behalf of the Trust, and advise the Trustees of actions
they must take on behalf of the Trust, and prepare for execution and filing
any documents to be executed and filed by the Trust or on behalf of the
Trust, as the Depositor deems necessary or advisable in order to comply
with the applicable laws of any such States;
(iii) the preparation for filing by the Trust and execution on
behalf of the Trust of an application to The Nasdaq Stock Market's National
Market or a national stock exchange or other organizations for listing upon
notice of issuance of any Preferred Securities and to file or cause an
Administrative Trustee to file thereafter with such
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exchange or organization such notifications and documents as may be
necessary from time to time;
(iv) the preparation for filing by the Trust with the Commission and
the execution on behalf of the Trust of a registration statement on Form
8-A relating to the registration of the Preferred Securities under Section
12(b) or 12(g) of the Exchange Act, including any amendments thereto;
(v) the negotiation of the terms of, and the execution and delivery
of, the Underwriting Agreement providing for the sale of the Preferred
Securities; and
(vi) the taking of any other actions necessary or desirable to carry
out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrative
Trustees are authorized and directed to conduct the affairs of the Trust and to
operate the Trust so that the Trust shall not be deemed to be an "investment
company" required to be registered under the Investment Company Act, shall be
classified as a "grantor trust" and not as an association taxable as a
corporation for United States federal income tax purposes and so that the
Debentures shall be treated as indebtedness of the Depositor for United States
federal income tax purposes. In this connection, subject to Section 1002, the
Depositor and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law or this Trust Agreement, that each of the
Depositor and the Administrative Trustees determines in their discretion to be
necessary or desirable for such purposes.
Section 208. Assets of Trust.
The assets of the Trust shall consist of the Trust Property.
Section 209. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Securityholders in accordance with
this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
Section 301. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and any agent of the Property Trustee
shall have exclusive control and sole right of withdrawal with respect to the
Payment Account for the purpose of making
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deposits and withdrawals from the Payment Account in accordance with this Trust
Agreement. All monies and other property deposited or held from time to time in
the Payment Account shall be held by the Property Trustee in the Payment Account
for the exclusive benefit of the Securityholders and for distribution as herein
provided, including (and subject to) any priority of payments provided for
herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
Section 401. Distributions.
The Trust Securities represent undivided beneficial interests in the Trust
Property, and Distributions (including Additional Amounts) will be made on the
Trust Securities at the rate and on the dates that payments of interest
(including of Additional Interest, as defined in the Indenture) are made on the
Debentures. Accordingly:
(a) Distributions on the Trust Securities shall be cumulative, and shall
accumulate whether or not there are funds of the Trust available for the payment
of Distributions. Distributions shall accumulate from __________, 1997, and,
except during any Extended Interest Payment Period with respect to the
Debentures, shall be payable quarterly in arrears on March 1, June 1, September
1 and December 1 each year, commencing on March 1, 1998. If any date on which a
Distribution is otherwise payable on the Trust Securities is not a Business Day,
then the payment of such Distribution shall be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay) except that, if such Business Day is in the next succeeding
calendar year, payment of such Distribution shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date (each date on which distributions are payable in accordance with
this Section 401(a), a "Distribution Date").
(b) Assuming payments of interest on the Debentures are made when due (and
before giving effect to Additional Amounts, if applicable), Distributions on the
Trust Securities shall be payable at a rate of ____% per annum of the
Liquidation Amount of the Trust Securities. The amount of Distributions payable
for any full period shall be computed on the basis of a 360 day year of twelve
30-day months. The amount of Distributions for any partial period shall be
computed on the basis of the number of days elapsed in a 360 day year of twelve
30 day months. During any Extended Interest Payment Period with respect to the
Debentures, Distributions on the Preferred Securities shall be deferred for a
period equal to the Extended Interest Payment
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Period. The amount of Distributions payable for any period shall include the
Additional Amounts, if any.
(c) Distributions on the Trust Securities shall be made by the Property
Trustee solely from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand and
immediately available in the Payment Account for the payment of such
Distributions.
(d) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities on the relevant record date, which shall be
15th day of the preceding month in which the Distribution is payable.
Section 402. Redemption.
(a) On each Debenture Redemption Date and on the stated maturity of the
Debentures the Trust shall be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee in the
name of and at the expense of the Trust by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date to
each Holder of Trust Securities to be redeemed, at such Holder's address
appearing in the Securities Register. The Property Trustee shall have no
responsibility for the accuracy of any CUSIP number contained in such notice.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the aggregate Liquidation Amount of the
particular Trust Securities to be redeemed;
(v) that, on the Redemption Date, the Redemption Price shall become
due and payable upon each such Trust Security to be redeemed and that
Distributions thereon shall cease to accumulate on and after said date with
respect to each such Trust Security; and
(vi) the place or places where the Trust Securities are to be
surrendered for the payment of the Redemption Price.
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(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be payable on each Redemption Date only to the extent
that the Trust has immediately available funds then on hand and available in the
Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of any
Preferred Securities, then, by 10:00 a.m., New York City time, on the Redemption
Date, subject to Section 402(c), the Property Trustee will, so long as the
Preferred Securities are in book-entry-only form, irrevocably deposit with the
Clearing Agency for the Preferred Securities funds sufficient to pay the
applicable Redemption Price and will give such Clearing Agency irrevocable
instructions and authority to pay the Redemption Price to the Holders thereof.
If the Preferred Securities are no longer in book-entry-only form, the Property
Trustee, subject to Section 402(c), will provide the Paying Agent with
irrevocable instructions and authority to pay the Redemption Price to the
Holders thereof upon surrender of their Preferred Securities Certificates.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Securities called for redemption shall be payable
to the Holders of such Trust Securities as they appear on the Securities
Register for the Trust Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of
Securityholders holding Trust Securities so called for redemption shall cease,
except the right of such Securityholders to receive the Redemption Price and any
Distribution payable on or prior to the Redemption Date, but without interest,
and such Securities shall cease to be Outstanding. In the event that any date on
which any Redemption Price is payable is not a Business Day, then payment of the
Redemption Price payable on such date shall be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case, with the same force and effect as if made on such date. In the event
that payment of the Redemption Price in respect of any Trust Securities called
for redemption is improperly withheld or refused and not paid either by the
Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust
Securities shall continue to accumulate, at the then applicable rate, from the
Redemption Date originally established by the Trust for such Trust Securities to
the date such Redemption Price is actually paid, in which case the actual
payment date shall be the date fixed for redemption for purposes of calculating
the Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall be made
to the record holders thereof as they appear on the Securities Register for the
Trust Securities on the relevant record date, which shall be one Business Day
prior to the relevant Redemption Date; provided, however, in the event that the
Preferred Securities do not remain in book-entry form, the relevant record date
shall be the date 15 days prior to the relevant Redemption Date.
(f) Subject to Section 403(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the
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Common Securities and the Preferred Securities. The particular Preferred
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Property Trustee from the Outstanding Preferred
Securities not previously called for redemption, by such method (including,
without limitation, by lot) as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $10 or an integral multiple of $10 in excess thereof), of the
Liquidation Amount of Preferred Securities of a denomination larger than $10.
The Property Trustee shall promptly notify the Securities Registrar in writing
of the Preferred Securities selected for redemption and, in the case of any
Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of this Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of
Preferred Securities shall relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, to the portion of the Liquidation
Amount of Preferred Securities which has been or is to be redeemed.
Section 403. Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if applicable)
on, and the Redemption Price of, the Trust Securities, as applicable, shall be
made, subject to Section 402(f), pro rata among the Common Securities and the
Preferred Securities based on the Liquidation Amount of the Trust Securities,
provided, however, that if on any Distribution Date or Redemption Date any Event
of Default resulting from a Debenture Event of Default shall have occurred and
be continuing, no payment of any Distribution (including Additional Amounts, if
applicable) on, or Redemption Price of, any Common Security, and no other
payment on account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions (including Additional Amounts, if applicable) on all
Outstanding Preferred Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full amount
of such Redemption Price on all Outstanding Preferred Securities then called for
redemption, shall have been made or provided for, and all funds immediately
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions (including Additional Amounts, if applicable) on,
or the Redemption Price of, Preferred Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting from a
Debenture Event of Default, the Holder of Common Securities shall be deemed to
have waived any right to act with respect to any such Event of Default under
this Trust Agreement until the effect of all such Events of Default with respect
to the Preferred Securities shall have been cured, waived or otherwise
eliminated. Until any such Event of Default under this Trust Agreement with
respect to the Preferred Securities shall have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
Holders of the Preferred Securities and not the Holder of the Common Securities,
and only the Holders of the Preferred Securities shall have the right to direct
the Property Trustee to act on their behalf.
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Section 404. Payment Procedures.
Payments of Distributions (including Additional Amounts, if applicable)
in respect of the Preferred Securities shall be made by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Securities Register or, if the Preferred Securities are held by a Clearing
Agency, such Distributions shall be made to the Clearing Agency in
immediately available funds, which will credit the relevant accounts on the
applicable Distribution Dates. Payments in respect of the Common Securities
shall be made in such manner as shall be mutually agreed between the Property
Trustee and the Common Securityholder.
Section 405. Tax Returns And Reports.
The Administrative Trustees shall prepare (or cause to be prepared), at
the Depositor's expense, and file all United States federal, state and local
tax and information returns and reports required to be filed by or in respect
of the Trust. In this regard, the Administrative Trustees shall (a) prepare
and file (or cause to be prepared and filed) the appropriate Internal Revenue
Service Form required to be filed in respect of the Trust in each taxable
year of the Trust; and (b) prepare and furnish (or cause to be prepared and
furnished) to each Securityholder the appropriate Internal Revenue Service
form required to be furnished to such Securityholder or the information
required to be provided on such form. The Administrative Trustees shall
provide the Depositor with a copy of all such returns and reports promptly
after such filing or furnishing. The Property Trustee shall comply with
United States federal withholding and backup withholding tax laws and
information reporting requirements with respect to any payments to
Securityholders under the Trust Securities.
Section 406. Payment of Taxes, Duties, Etc. of The Trust.
Upon receipt under the Debentures of Additional Interest, the Property
Trustee, at the written direction of an Administrative Trustee or the
Depositor, shall promptly pay any taxes, duties or governmental charges of
whatsoever nature (other than withholding taxes) imposed on the Trust by the
United States or any other taxing authority.
Section 407. Payments Under Indenture.
Any amount payable hereunder to any Holder of Preferred Securities shall
be reduced by the amount of any corresponding payment such Holder (or any
related Owner) has directly received under the Indenture pursuant to Section
512(b) or (c) hereof.
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ARTICLE V
TRUST SECURITIES CERTIFICATES
Section 501. Initial Ownership.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 203 and until the issuance of the Trust Securities, and
at any time during which no Trust Securities are outstanding, the Depositor
shall be the sole beneficial owner of the Trust.
Section 502. The Trust Securities Certificates.
(a) The Preferred Securities Certificates shall be issued in minimum
denominations of $10 Liquidation Amount and integral multiples of $10 in
excess thereof, and the Common Securities Certificates shall be issued in
denominations of $10 Liquidation Amount and integral multiples thereof. The
Trust Securities Certificates shall be executed on behalf of the Trust by
manual, facsimile or imprinted signature of at least one Administrative
Trustee and the Property Trustee shall authenticate and register the
Preferred Securities Certificates, except as provided in Section 503. Trust
Securities Certificates bearing the signatures of individuals who were, at
the time when such signatures shall have been affixed, authorized to sign on
behalf of the Trust, shall be validly issued and entitled to the benefits of
this Trust Agreement, notwithstanding that such individuals or any of them
shall have ceased to be so authorized prior to the delivery of such Trust
Securities Certificates or did not hold such offices at the date of delivery
of such Trust Securities Certificates. A transferee of a Trust Securities
Certificate shall become a Securityholder, and shall be entitled to the
rights and subject to the obligations of a Securityholder hereunder, upon due
registration of such Trust Securities Certificate in such transferee's name
pursuant to Sections 504 and 511a.
(b) Upon their original issuance, Preferred Securities Certificates
shall be issued in the form of one or more fully registered Global Preferred
Securities Certificates which will be deposited with or on behalf of the
Depositary and registered in the name of the Depositary's nominee. Unless
and until it is exchangeable in whole or in part for the Preferred Securities
in definitive form, a global security may not be transferred except as a
whole by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor of such Depositary or a nominee
of such successor.
(c) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive
Common Securities Certificate.
Section 503. Execution And Delivery of Trust Securities Certificates.
On the Closing Date and on the date on which the Underwriters exercise
the option to purchase additional Preferred Securities, as applicable (the
"Option Closing Date"), the Administrative Trustees shall cause Trust
Securities Certificates, in an aggregate Liquidation
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Amount as provided in Sections 204 and 205, to be executed by manual,
facsimile or imprinted signature on behalf of the Trust by at least one of
the Administrative Trustees and delivered to the Property Trustee and upon
such delivery, the Property Trustee shall authenticate and register the
Preferred Securities Certificates and make available for delivery such
Preferred Securities Certificates upon the written order of the Depositor,
executed by its Chairman of the Board, Chief Executive Officer or President
or any Vice President and the Chief Financial Officer, Treasurer or an
Assistant Treasurer or Secretary or Assistant Secretary without further
corporate action by the Depositor, in authorized denominations.
Section 503a. Global Preferred Securities.
(a) Each Global Preferred Security issued under this Trust Agreement
shall be registered in the name of the Clearing Agency designated by the
Depositor for the related Global Preferred Securities or a nominee thereof
and delivered to such Clearing Agency or a nominee thereof or custodian
therefor.
(b) Notwithstanding any other provision in this Trust Agreement, no
Global Preferred Securities may be exchanged in whole or in part for
Preferred Securities registered, and no transfer of Global Preferred
Securities in whole or in part may be registered, in the name of any Person
other than the Clearing Agency for such Global Preferred Securities or a
nominee thereof unless (a) the Clearing Agency advises the Property Trustee
in writing that the Clearing Agency is no longer willing or able to properly
discharge its responsibilities with respect to the Global Preferred
Securities, and the Administrative Trustees are unable to locate a qualified
successor, (b) the Trust at its option advises the Clearing Agency in writing
that it elects to eliminate the global system through the Clearing Agency,
(c) after the occurrence of a Debenture Event of Default or (d) pursuant to
the following sentence. All or any portion of a Global Preferred Security
may be exchanged for a Preferred Security that has a like aggregate principal
amount and is not a Global Preferred Security upon 20 days' prior written
request made by the Clearing Agency or its authorized representative to the
Property Trustee; provided, however that no Definitive Preferred Security
shall be issued in an amount representing less than $100,000 in Aggregate
Liquidation Amount Preferred Securities. Upon the occurrence of any event
specified in clause (a), (b) or (c) above, the Administrative Trustees shall
notify the Clearing Agency and the Clearing Agency shall notify all Owners of
beneficial interests in Global Preferred Securities, the Delaware Trustee,
the Property Trustee and the Administrative Trustees of the occurrence of
such event and of the availability of the Definitive Preferred Securities to
such Owners requesting the same; provided, however, that no Definitive
Preferred Securities shall be issued in an amount representing less than $10
in aggregate Liquidation Amount of Preferred Securities. Upon surrender to
the Administrative Trustees of the typewritten Preferred Securities
Certificate or certificates representing the Global Preferred Securities held
by the Clearing Agency, accompanied by registration instructions, the
Administrative Trustees, or any one of them, shall execute a Definitive
Preferred Securities Certificate in accordance with the instructions of the
Clearing Agency. Neither the Securities Registrar nor the Trustees shall be
liable for any delay in delivery of such instructions and may conclusively
rely on, and shall be protected in relying on, such instructions. Upon the
issuance of the Definitive Preferred Securities Certificate, the
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Trustees shall recognize the Holder of a Definitive Preferred Securities
Certificate as a Securityholder. Definitive Preferred Securities
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to the Administrative Trustees,
as evidenced by the execution thereof by the Administrative Trustees or any
one of them.
(c) If any Global Preferred Security is to be exchanged for Definitive
Preferred Securities Certificates or cancelled in part, or if Definitive
Preferred Securities Certificates are to be exchanged in whole or in part for
a Global Preferred Security, then either (i) such Global Preferred Security
shall be so surrendered for exchange or cancellation as provided in this
Article V or (ii) the aggregate Liquidation Amount represented by such Global
Preferred Security shall be reduced, subject to Section 502, or increased, by
an amount equal to the Liquidation Amount represented by that portion of the
Global Preferred Security to be so exchanged or cancelled, or equal to the
Liquidation Amount represented by such Definitive Preferred Securities
Certificates to be so exchanged for beneficial interests in the Global
Preferred Security represented thereby, as the case may be, by means of an
appropriate adjustment made on the records of the Securities Registrar,
whereupon the Property Trustee, in accordance with the Applicable Procedures,
shall instruct the Clearing Agency or its authorized representative to make a
corresponding adjustment to its records. Upon surrender to the
Administrative Trustees or the Securities Registrar of the Global Preferred
Security by the Clearing Agency, accompanied by registration instructions,
the Administrative Trustees, or any one of them, shall execute the Definitive
Preferred Securities Certificates in accordance with the instructions of the
Clearing Agency and Section 502 hereof; provided, however, that no Definitive
Preferred Securities Certificates shall be issued in an amount representing
less than $100,000 in Aggregate Liquidation Amount of Preferred Securities.
None of the Securities Registrar, the Trustees or the Administrative Trustees
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Preferred Securities
Certificates, the Trustees and Administrative Trustees shall recognize the
Holders of the Definitive Preferred Securities Certificates as
Securityholders. The Definitive Preferred Securities Certificates shall be
printed, lithographed or engraved or may be produced in any other manner as
is reasonably acceptable to the Administrative Trustees, as evidenced by the
execution thereof by the Administrative Trustees or any one of them.
(d) Every Definitive Preferred Security executed and delivered upon
registration of, transfer of, or in exchange for or in lieu of, a Global
Preferred Security or any portion thereof, whether pursuant to this Article V
or Article IV or otherwise, shall be executed and delivered in the form of,
and shall be, a Global Preferred Security, unless such Definitive Preferred
Security is registered in the name of a Person other than the Clearing Agency
for such Global Preferred Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as registered owner of a Global
Preferred Security, shall be the Holder of such Global Preferred Security for
all purposes under this Trust Agreement and the Global Preferred Security,
and Owners with respect to a Global Preferred Security shall hold such
interests pursuant to the Applicable Procedures. The Securities Registrar
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and the Trustees shall be entitled to deal with the Clearing Agency for all
purposes of this Trust Agreement relating to the Global Preferred Securities
(including the payment of the Liquidation Amount of and Distributions on the
beneficial interests in Global Preferred Securities represented thereby and
the giving of instructions or directions to Owners of Global Preferred
Securities represented thereby) as the sole Holder of the Global Preferred
Securities represented thereby and shall have no obligations to the Owners
thereof. Neither the Property Trustee nor the Securities Registrar shall
have any liability in respect of any transfers effected by the Clearing
Agency.
The rights of the Owners of the Global Preferred Securities shall be
exercised only through the Clearing Agency and shall be limited to those
established by law, the Applicable Procedures and agreements between such
Owners and the Clearing Agency and/or the Clearing Agency Participants.
Pursuant to the Certificate Depository Agreement, unless and until Definitive
Preferred Securities Certificate are issued pursuant to Section 503B, the
initial Clearing Agency will make global transfers among the Clearing Agency
Participants and receive and transmit payments on the Preferred Securities to
such Clearing Agency Participants.
Section 504. Registration of Transfer and Exchange of Preferred Securities
Certificates
(a) The Property Trustee shall keep or cause to be kept, at the office
or agency maintained pursuant to Section 508, a register or registers for the
purpose of registering Trust Securities Certificates and transfers and
exchanges of Preferred Securities Certificates (herein referred to as the
"Securities Register") in which the registrar and transfer agent (the
"Securities Registrar"), subject to such reasonable regulations as it may
prescribe, shall provide for the registration of Preferred Securities
Certificates and Common Securities Certificates (subject to Section 510 in
the case of the Common Securities Certificates) and registration of transfers
and exchanges of Preferred Securities Certificates as herein provided. The
Property Trustee shall be the initial Securities Registrar.
Upon surrender for registration of transfer of any Preferred Securities
Certificate at the office or agency maintained pursuant to Section 508, the
Administrative Trustees or any one of them shall execute and the Property
Trustee shall authenticate and make available for delivery, in the name of
the designated transferee or transferees, one or more new Preferred
Securities Certificates in authorized denominations of a like aggregate
Liquidation Amount dated the date of execution by such Administrative Trustee
or Trustees. The Securities Registrar shall not be required to register the
transfer of any Preferred Securities that have been called for redemption. At
the option of a Holder, Preferred Securities Certificates may be exchanged
for other Preferred Securities Certificates in authorized denominations of
the same class and of a like aggregate Liquidation Amount upon surrender of
the Preferred Securities Certificates to be exchanged at the office or agency
maintained pursuant to Section 508.
Every Preferred Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Property Trustee and the
Securities Registrar duly executed by the Holder or his attorney duly
authorized in writing. Each Preferred Securities Certificate surrendered for
registration of transfer
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or exchange shall be canceled and subsequently disposed of by the Property
Trustee in accordance with its customary practice. The Trust shall not be
required to (i) issue, register the transfer of, or exchange any Preferred
Securities during a period beginning at the opening of business 15 calendar
days before the date of mailing of a notice of redemption of any Preferred
Securities called for redemption and ending at the close of business on the
day of such mailing; or (ii) register the transfer of or exchange of any
Preferred Securities so selected for redemption, in whole or in part, except
the unredeemed portion of any such Preferred Securities being redeemed in
part.
No service charge shall be made for any registration of transfer or
exchange of Preferred Securities Certificates, but the Securities Registrar
may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer or exchange of
Preferred Securities Certificates.
(b) Trust Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Trust Agreement.
To the fullest extent permitted by law, any transfer or purported transfer of
any Trust Security not made in accordance with this Trust Agreement shall be
null and void.
(i) A Trust Security that is not a Global Preferred Security may be
transferred, in whole or in part, to a Person who takes delivery in the
form of another Trust Security that is not a Global Security as provided in
Section 504(a).
(ii) Subject to this Section 504, Preferred Securities shall be freely
transferable.
(iii)A beneficial interest in Global Preferred Security may be
exchanged for a Preferred Security that is not a Global Preferred Security
as provided in Section 503A.
Section 505. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities Certificate shall be surrendered to
the Securities Registrar, or if the Securities Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any Trust
Securities Certificate, and (b) there shall be delivered to the Securities
Registrar and the Administrative Trustees such security or indemnity as may
be required by them to save each of them harmless, then in the absence of
notice that such Trust Securities Certificate shall have been acquired by a
bona fide purchaser, the Administrative Trustees, or any one of them, on
behalf of the Trust shall execute by manual, facsimile or imprinted signature
and the Property Trustee in the case of a Preferred Securities Certificate
shall authenticate and make available for delivery, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Trust Securities
Certificate, a new Trust Securities Certificate of like class, tenor and
denomination. In connection with the issuance of any new Trust Securities
Certificate under this Section 505, the Administrative Trustees or the
Securities Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Trust Securities Certificate issued pursuant to this Section
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505 shall constitute conclusive evidence of an undivided beneficial interest
in the assets of the Trust, as if originally issued, whether or not the lost,
stolen or destroyed Trust Securities Certificate shall be found at any time.
Section 506. Persons Deemed Securityholders.
The Trustees, the Paying Agent, the Securities Registrar and Depositor
shall treat any Persons in whose name any Trust Securities are issued as the
owner of such Trust Securities for the purpose of receiving Distributions and
for all other purposes whatsoever, and neither the Trust, the Trustees, the
Administrative Trustees, the Securities Registrar nor the Depositor shall be
bound by any notice to the contrary.
Section 507. Access to List of Securityholders' Names And Addresses.
At any time when the Property Trustee is not also acting as the
Securities Registrar, the Administrative Trustees or the Depositor shall
furnish or cause to be furnished to the Property Trustee a list, in such form
as the Property Trustee may reasonably require, of the names and addresses of
the Securityholders as of the most recent record date (a) within one Business
Day after January 1 and June 30 of each year; and (b) promptly after receipt
by any Administrative Trustee or the Depositor of a request therefor from the
Property Trustee in order to enable the Property Trustee to discharge its
obligations under this Trust Agreement, in each case to the extent such
information is in the possession or control of the Administrative Trustees or
the Depositor and is not identical to a previously supplied list or has not
otherwise been received by the Property Trustee in its capacity as Securities
Registrar. The rights of Securityholders to communicate with other
Securityholders with respect to their rights under this Trust Agreement or
under the Trust Securities, and the corresponding rights of the Trustee shall
be as provided in the Trust Indenture Act. Each Holder and each Owner shall
be deemed to have agreed not to hold the Depositor, the Property Trustee or
the Administrative Trustees accountable by reason of the disclosure of its
name and address, regardless of the source from which such information was
derived.
Section 508. Maintenance of Office or Agency.
The Property Trustee shall designate, with the consent of the
Administrative Trustees, which consent shall not be unreasonably withheld, an
office or offices or agency or agencies where Preferred Securities
Certificates may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Trustees in respect of the Trust
Securities Certificates may be served. The Property Trustee initially
designates its corporate trust office at 101 Barclay Street, Floor 21 West,
New York, New York Attn: Corporate Trust Trustee Administration, as the
principal corporate trust office for such purposes. The Property Trustee
shall give prompt written notice to the Depositor, the Administrative
Trustees and to the Securityholders of any change in the location of the
Securities Register or any such office or agency.
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Section 509. Appointment of Paying Agent.
The Paying Agent shall make Distributions to Securityholders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrative Trustees. Any Paying Agent shall have
the revocable power to withdraw funds from the Payment Account for the
purpose of making the Distributions referred to above. The Property Trustee
may revoke such power and remove the Paying Agent if such Trustee determines
in its sole discretion that the Paying Agent shall have failed to perform its
obligation under this Trust Agreement in any material respect. The Paying
Agent shall initially be the Property Trustee, and any co-paying agent chosen
by the Property Trustee, and acceptable to an Administrative Trustees and the
Depositor. Any Person acting as Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Administrative Trustee and
the Property Trustee. In the event that the Property Trustee shall no longer
be the Paying Agent or a successor Paying Agent shall resign or its authority
to act be revoked, the Property Trustee shall appoint a successor that is
reasonably acceptable to the Administrative Trustees to act as Paying Agent
to execute and deliver to the Trustees an instrument in which such successor
Paying Agent or additional Paying Agent shall agree with the Trustees that as
Paying Agent, such successor Paying Agent or additional Paying Agent shall
hold all sums, if any, held by it for payment to the Securityholders in trust
for the benefit of the Securityholders entitled thereto until such sums shall
be paid to such Securityholders. The Paying Agent shall return all unclaimed
funds to the Property Trustee and, upon removal of a Paying Agent, such
Paying Agent shall also return all funds in its possession to the Property
Trustee. The provisions of Sections 801, 803 and 806 shall apply to the
Property Trustee also in its role as Paying Agent, for so long as the
Property Trustee shall act as Paying Agent and, to the extent applicable, to
any other paying agent appointed hereunder. Any reference in this Trust
Agreement to the Paying Agent shall include any co-paying agent unless the
context requires otherwise.
Section 510. Ownership of Common Securities by Depositor.
On the Closing Date, the Depositor shall acquire and retain beneficial
and record ownership of the Common Securities. To the fullest extent
permitted by law, any attempted transfer of the Common Securities (other than
a transfer pursuant to Section 12.1 of the Indenture) shall be void. The
Administrative Trustees shall cause each Common Securities Certificate issued
to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT
TRANSFERABLE EXCEPT TO A SUCCESSOR IN INTEREST TO THE DEPOSITOR IN COMPLIANCE
WITH APPLICABLE LAW AND SECTION 510 OF THIS TRUST AGREEMENT."
Section 511. Notices to Clearing Agency.
To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, for so long as Preferred Securities are
represented by a Global Preferred Securities Certificate, the Trustees shall
give all such notices and communications specified herein to be given to the
Clearing Agency, and shall have no obligations to the Owners.
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Section 511a. Definitive Preferred Securities Certificate And Temporary
Preferred Securities.
(a) If (a) the Clearing Agency advises the Trustees in writing that the
Clearing Agency is no longer willing or able to discharge properly its
responsibilities with respect to the Preferred Security, and the Depositor is
unable to locate a qualified successor, (b) the Trust at its option advises
the Trustees in writing that it elects to terminate the book-entry system
through the Clearing Agency or (c) after the occurrence of a Debenture Event
of Default, Holders of a beneficial interest in Preferred Security
representing beneficial interests aggregating at least a majority of the
Liquidation Amount advise the Administrative Trustees in writing that the
continuation of a book-entry system though the Clearing Agency is no longer
in the best interest of the Holders of Preferred Securities, then the
Administrative Trustees shall notify the Clearing Agency and the Clearing
Agency shall notify the Holders of Preferred Securities and the other
Trustees of the occurrence of such event and of the availability of a
Definitive Preferred Security to Holders of such class requesting the same.
(b) Pending the preparation of permanent Definitive Preferred Securities
Certificates, an Administrative Trustee may cause to be executed and
delivered on behalf of the Trust temporary Preferred Securities (the
"Temporary Preferred Securities"), which Temporary Preferred Securities are
printed, lithographed, typewritten, mimeographed or otherwise produced, in
any authorized denomination, substantially of the tenor of the Definitive
Preferred Securities Certificates in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations of
the officers executing such Temporary Preferred Securities may determine, as
evidenced by their execution thereof.
If Temporary Preferred Securities are issued, an Administrative Trustee
will cause Definitive Preferred Securities Certificates to be prepared
without unreasonable delay. After the preparation of the Definitive
Preferred Securities Certificates, the Temporary Preferred Securities shall
be exchangeable for Definitive Preferred Securities Certificates upon
surrender of the Temporary Preferred Securities at any office or agency of
the Depositor designated herein, without charge to the Holder. Upon
surrender for cancellation of any one or more Temporary Preferred Securities,
the Depositor shall execute and an Administrative Trustee shall execute by
manual, facsimile or imprinted signature and the Property Trustee shall
authenticate and make available for delivery in exchange therefor a like
principal amount of Definitive Preferred Securities Certificates of
authorized denominations. Until so exchanged the Temporary Preferred
Securities shall in all respects be entitled to the same benefits as
Definitive Preferred Securities Certificates.
Section 512. Rights of Securityholders.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 209,
and the Securityholders shall not have any right or title therein other than
the undivided beneficial interest in the assets of the Trust conferred by
their Trust Securities and they shall have no right to call for any partition
or
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division of property, profits or rights of the Trust except as described
below. The Trust Securities shall be personal property giving only the rights
specifically set forth therein and in this Trust Agreement. The Trust
Securities shall have no preemptive or similar rights. When issued and
delivered to Holders of the Trust Securities against payment of the purchase
price therefor, the Trust Securities shall be fully paid and nonassessable,
undivided beneficial interests in the assets of the Trust. The Holders of the
Trust Securities, in their capacities as such, shall be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the
State of Delaware.
(b) For so long as any Preferred Securities remain Outstanding, if, upon
a Debenture Event of Default, the Debenture Trustee fails or the holders of
not less than 25% in principal amount of the outstanding Debentures fail to
declare the principal of all of the Debentures to be immediately due and
payable, the Holders of at least 25% in Liquidation Amount of the Preferred
Securities then Outstanding shall have such right to make such declaration by
a notice in writing to the Depositor, the Property Trustee and the Debenture
Trustee; and upon any such declaration such principal amount of and the
accrued interest on all of the Debentures shall become immediately due and
payable, provided that the payment of principal and interest on such
Debentures shall remain subordinated to the extent provided in the Indenture.
At any time after such declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as provided in the
Indenture, the Holders of a majority in Liquidation Amount of the Preferred
Securities, by written notice to the Property Trustee, the Depositor and the
Debenture Trustee, may rescind and annul such declaration and its
consequences if:
(i) the Depositor has paid or deposited with the Debenture Trustee a
sum sufficient to pay
(A) all overdue installments of interest on all of the
Debentures,
(B) any accrued Additional Interest on all of the Debentures,
(C) the principal of (and premium, if any, on) any Debentures
which have become due otherwise than by such declaration of
acceleration and interest and Additional Interest thereon at the rate
borne by the Debentures, and
(D) all sums paid or advanced by the Debenture Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Debenture Trustee and the Property Trustee, their
agents and counsel; and
(ii) all Events of Default with respect to the Debentures, other than
the non-payment of the principal of the Debentures which has become due
solely by such acceleration, have been cured or waived as provided in the
Indenture.
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If the Property Trustee fails to annul any such declaration and waive
such default, the Holders of at least a majority in Liquidation Amount of the
Preferred Securities shall also have the right to rescind and annul such
declaration and its consequences by written notice to the Depositor, the
Property Trustee and the Debenture Trustee, subject to the satisfaction of
the conditions set forth in clause (i) and (ii) of this Section 512.
The Holders of at least a majority in Liquidation Amount of the Preferred
Securities may, on behalf of the Holders of all the Preferred Securities,
waive any past default under the Indenture, except a default in the payment
of principal and interest (unless such default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee)
or a default in respect of a covenant or provision which under the Indenture
cannot be modified or amended without the consent of the holder of each
outstanding Debenture. No such rescission shall affect any subsequent
default or impair any right consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, by Holders of the
Preferred Securities all or part of which is represented by Global Preferred
Securities, a record date shall be established for determining Holders of
Outstanding Preferred Securities entitled to join in such notice, which
record date shall be at the close of business on the day the Property Trustee
receives such notice. The Holders on such record date, or their duly
designated proxies, and only such Persons, shall be entitled to join in such
notice, whether or not such Holders remain Holders after such record date;
provided, that, unless such declaration of acceleration, or rescission or
annulment, as the case may be, shall have become effective by virtue of the
requisite percentage having joined in such notice prior to the day which is
90 days after the record date, such notice of declaration of acceleration, or
rescission and annulment, as the case may be, shall automatically and without
further action by any Holder be cancelled and of no further effect. Nothing
in this paragraph shall prevent a Holder, or a proxy of a Holder, from
giving, after expiration of such 90-day period, a new written notice of
declaration of acceleration, or rescission and annulment thereof, as the case
may be, that is identical to a written notice which has been cancelled
pursuant to the proviso to the preceding sentence, in which event a new
record date shall be established pursuant to the provisions of this Section
512.
(c) For so long as any Preferred Securities remain Outstanding, upon a
Debenture Event of Default arising from the failure to pay interest or
principal on the Debentures, any Holders of Preferred Securities then
Outstanding shall, to the fullest extent permitted by law and subject to the
terms of this Trust Agreement and the Indenture, have the right to institute
a proceeding directly against the Depositor for enforcement of payment to
such Holder of principal of or interest on the Debentures having a principal
amount equal to the Liquidation Amount of the Preferred Securities of such
Holder.
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Section 513. CUSIP Numbers.
The Depositor in issuing the Debentures may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to holders; provided that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Debentures or as contained in any notice of
a redemption and that reliance may be placed only on the other identification
numbers printed on the Debentures, and any such redemption shall not be
affected by any defect in or omission of such numbers. The Depositor will
promptly notify the Property Trustee of any change in the CUSIP numbers.
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
Section 601. Limitations on Voting Rights.
(a) Except as provided in this Section 601, in Sections 512, 810 and
1002 and in the Indenture and as otherwise required by law, no Holder of
Preferred Securities shall have any right to vote or in any manner otherwise
control the administration, operation and management of the Trust or the
obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Trust Securities Certificates, be construed so
as to constitute the Securityholders from time to time as partners or members
of an association.
(b) So long as any Debentures are held by the Property Trustee, the
Trustees shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or executing
any trust or power conferred on the Debenture Trustee with respect to such
Debentures; (ii) waive any past default which is waivable under Article VII
of the Indenture; (iii) exercise any right to rescind or annul a declaration
that the principal of all the Debentures shall be due and payable; or (iv)
consent to any amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of at least a majority in
Liquidation Amount of all Outstanding Preferred Securities; provided,
however, that where a consent under the Indenture would require the consent
of each Holder of Outstanding Debentures affected thereby, no such consent
shall be given by the Property Trustee without the prior written consent of
each Holder of Preferred Securities. The Trustees shall not revoke any action
previously authorized or approved by a vote of the Holders of the Outstanding
Preferred Securities, except by a subsequent vote of the Holders of the
Outstanding Preferred Securities. The Property Trustee shall notify each
Holder of Outstanding Preferred Securities of any notice of default received
from the Debenture Trustee with respect to the Debentures. In addition to
obtaining the foregoing approvals of the Holders of the Preferred Securities,
prior to taking any of the foregoing actions, the Administrative Trustees
shall provide to the Property Trustee, at the expense of the Depositor, an
Opinion of Counsel to the effect that the Trust shall continue to be
classified as a grantor trust
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and not as an association taxable as a corporation for United States federal
income tax purposes on account of such action.
(c) If any proposed amendment to the Trust Agreement provides for, or
the Trustees otherwise propose to effect, (i) any action that would adversely
affect in any material respect the powers, preferences or special rights of
the Preferred Securities, whether by way of amendment to the Trust Agreement
or otherwise; or (ii) the dissolution, winding-up or termination of the
Trust, other than pursuant to the terms of this Trust Agreement, then the
Holders of Outstanding Preferred Securities as a class shall be entitled to
vote on such amendment or proposal and such amendment or proposal shall not
be effective except with the approval of the Holders of at least a majority
in Liquidation Amount of the Outstanding Preferred Securities. No amendment
to this Trust Agreement may be made if, as a result of such amendment, the
Trust would cease to be classified as a grantor trust or would be classified
as an association taxable as a corporation for United States federal income
tax purposes.
Section 602. Notice of Meetings.
Notice of all meetings of the Preferred Securityholders, stating the
time, place and purpose of the meeting, shall be given by the Property
Trustee pursuant to Section 1008 to each Preferred Securityholder of record,
at his registered address, at least 15 days and not more than 90 days before
the meeting. At any such meeting, any business properly before the meeting
may be so considered whether or not stated in the notice of the meeting. Any
adjourned meeting may be held as adjourned without further notice.
Section 603. Meetings of Preferred Securityholders.
(a) No annual meeting of Securityholders is required to be held. The
Administrative Trustees, however, shall call a meeting of Securityholders to
vote on any matter in respect of which Preferred Securityholders are entitled
to vote upon the written request of the Preferred Securityholders of 25% of
the Outstanding Preferred Securities (based upon their aggregate Liquidation
Amount) and the Administrative Trustees or the Property Trustee may, at any
time in their discretion, call a meeting of Preferred Securityholders to vote
on any matters as to which the Preferred Securityholders are entitled to vote.
(b) Preferred Securityholders of record of 50% of the Outstanding
Preferred Securities (based upon their aggregate Liquidation Amount), present
in person or by proposal shall constitute a quorum at any meeting of
Securityholders.
(c) If a quorum is present at a meeting, an affirmative vote by the
Preferred Securityholders of record present, in person or by proxy, holding
more than a majority of the Preferred Securities (based upon their aggregate
Liquidation Amount) held by the Preferred Securityholders of record present,
either in person or by proxy, at such meeting shall constitute the action of
the Securityholders unless this Trust Agreement requires a greater number of
affirmative votes.
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Section 604. Voting Rights.
Securityholders shall be entitled to one vote for each $10 of Liquidation
Amount represented by their Trust Securities in respect of any matter as to
which such Securityholders are entitled to vote.
Section 605. Proxies, Etc.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Administrative
Trustees, or with such other officer or agent of the Trust as the
Administrative Trustees may direct, for verification prior to the time at
which such vote shall be taken. When Trust Securities are held jointly by
several Persons, any one of them may vote at any meeting in person or by
proxy in respect of such Trust Securities, but if more than one of them shall
be present at such meeting in person or by proxy, and such joint owners or
their proxies so present disagree as to any vote to be cast, such vote shall
not be received in respect of such Trust Securities. A proxy purporting to be
executed by or on behalf of a Securityholder shall be deemed valid unless
challenged at or prior to its exercise, and, the burden of proving invalidity
shall rest on the challenger. No proxy shall be valid more than three years
after its date of execution.
Section 606. Securityholder Action by Written Consent.
Any action which may be taken by Securityholders at a meeting may be
taken without a meeting if Securityholders holding a majority of all
Outstanding Trust Securities (based upon their aggregate Liquidation Amount)
entitled to vote in respect of such action (or such larger proportion thereof
as shall be required by any express provision of this Trust Agreement) shall
consent to the action in writing (based upon their aggregate Liquidation
Amount).
Section 607. Record Date For Voting And Other Purposes.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate
in any Distribution on the Trust Securities in respect of which a record date
is not otherwise provided for in this Trust Agreement, or for the purpose of
any other action, the Administrative Trustees may from time to time fix a
date, not more than 90 days prior to the date of any meeting of
Securityholders or the payment of any Distribution or other action as the
case may be, as a record date for the determination of the identity of the
Securityholders of record for such purposes.
Section 608. Acts of Securityholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided or permitted by this Trust Agreement to be
given, made or taken by Securityholders may be embodied in and evidenced by
one or more instruments of substantially
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similar tenor signed by such Securityholders in person or by an agent duly
appointed in writing, and, except as otherwise expressly provided herein,
such action shall become effective when such instrument or instruments are
delivered to an Administrative Trustee. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Securityholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Trust
Agreement and (subject to Section 801) conclusive in favor of the Trustees,
if made in the manner provided in this Section 608.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner which any Trustee receiving the
same deems sufficient.
(c) The ownership of Preferred Securities shall be proved by the
Securities Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Securityholder of any Trust Security shall bind
every future Securityholder of the same Trust Security and the Securityholder
of every Trust Security issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof in respect of anything done, omitted
or suffered to be done by the Trustees or the Trust in reliance thereon,
whether or not notation of such action is made upon such Trust Security.
(e) Without limiting the foregoing, a Securityholder entitled hereunder
to take any action hereunder with regard to any particular Trust Security may
do so with regard to all or any part of the Liquidation Amount of such Trust
Security or by one or more duly appointed agents each of which may do so
pursuant to such appointment with regard to all or any part of such
Liquidation Amount.
Section 609. Inspection of Records.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection and copying by
Securityholders and their authorized representatives during normal business
hours for any purpose reasonably related to such Securityholder's interest as
a Securityholder.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 701. Representations And Warranties of The Property Trustee And The
Delaware Trustee.
The Property Trustee and the Delaware Trustee, each severally on behalf
of and as to itself, as of the date hereof, hereby represents and warrants
for the benefit of the Depositor and the Securityholders that:
(a) the Property Trustee is a New York banking corporation, duly
organized, validly existing and in good standing under the laws of the State
of New York;
(b) the Property Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust
Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Trust Agreement;
(c) the Delaware Trustee is a Delaware banking corporation, duly
organized, validly existing and in good standing in the State of Delaware;
(d) the Delaware Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust
Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and
delivered by the Property Trustee and the Delaware Trustee and constitutes
the valid and legally binding agreement of the Property Trustee and the
Delaware Trustee enforceable against each of them in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors rights and to general equity principles;
(f) the execution, delivery and performance by the Property Trustee and
the Delaware Trustee of this Trust Agreement has been duly authorized by all
necessary corporate or other action on the part of the Property Trustee and
Delaware Trustee and does not require any approval of stockholders of the
Property Trustee or the Delaware Trustee and such execution delivery and
performance shall not (i) violate the charter or by-laws of the Property
Trustee or the Delaware Trustee; (ii) violate any provision of, or
constitute, with or without notice or lapse of time, a default under, or
result in the creation or imposition of, any Lien on any properties included
in the Trust Property pursuant to the provisions of any indenture, mortgage,
credit agreement, license or other agreement or instrument to which the
Property Trustee or the Delaware Trustee is a party or by which it is bound;
or (iii) violate any law, governmental rule or regulation of the State of New
York or the State of Delaware, as the case may be, governing
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the banking or trust powers of the Property Trustee or the Delaware Trustee
(as appropriate in context) or any order, judgment or decree applicable to
the Property Trustee or the Delaware Trustee;
(g) neither the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation
of any of the transactions by the Property Trustee or the Delaware Trustee
contemplated herein or therein requires the consent or approval of, the
giving of notice to, the registration with or the taking of any other action
with respect to any governmental authority or agency under any existing New
York or Delaware law governing the banking or trust powers of the Property
Trustee or the Delaware Trustee, as the case may be; and
(h) there are no proceedings pending or, to the best of each of the
Property Trustee's and the Delaware Trustee's knowledge, threatened against
or affecting the Property Trustee or the Delaware Trustee in any court or
before any governmental authority, agency or arbitration board or tribunal
which, individually or in the aggregate, would materially and adversely
affect the Trust or would question the right, power and authority of the
Property Trustee or the Delaware Trustee, as the case may be, to enter into
or perform its obligations as one of the Trustees under this Trust Agreement.
Section 702. Representations And Warranties of Depositor.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued on the Closing Date or the
Option Closing Date, if applicable, on behalf of the Trust have been duly
authorized and, shall have been, duly and validly executed, issued and
delivered by the Administrative Trustees pursuant to the terms and provisions
of, and in accordance with the requirements of, this Trust Agreement and the
Securityholders shall be, as of such date, entitled to the benefits of this
Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Trust (or the Trustees on behalf of the Trust) under the laws of the
State of Delaware or any political subdivision thereof in connection with the
execution, delivery and performance by the Bank or the Property Trustee, as
the case may be, of this Trust Agreement.
ARTICLE VIII
TRUSTEES
Section 801. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Trustees shall be as provided
by this Trust Agreement and, in the case of the Property Trustee, by the
Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Trust Agreement shall require the Trustees to expend or risk
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their own funds or otherwise incur any financial liability in the performance
of any of their duties hereunder, or in the exercise of any of their rights
or powers, if they shall have reasonable grounds for believing that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it. No Administrative Trustee shall be liable for its
act or omissions hereunder except as a result of its own gross negligence or
bad faith or willful misconduct. The Property Trustee's liability shall be
determined under the Trust Indenture Act. Whether or not therein expressly so
provided, every provision of this Trust Agreement relating to the conduct or
affecting the liability of or affording protection to the Trustees shall be
subject to the provisions of this Section 801. To the extent that, at law or
in equity, an Administrative Trustee has duties (including fiduciary duties)
and liabilities relating thereto to the Trust or to the Securityholders, such
Administrative Trustee shall not be liable to the Trust or to any
Securityholder for such Trustee's good faith reliance on the provisions of
this Trust Agreement. The provisions of this Trust Agreement, to the extent
that they restrict the duties and liabilities of the Administrative Trustees
otherwise existing at law or in equity, are agreed by the Depositor and the
Securityholders to replace such other duties and liabilities of the
Administrative Trustees.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and
proceeds from the Trust Property and only to the extent that there shall be
sufficient revenue or proceeds from the Trust Property to enable the Property
Trustee or a Paying Agent to make payments in accordance with the terms
hereof. With respect to the relationship of each Securityholder and the
Trustee, each Securityholder, by its acceptance of a Trust Security, agrees
that it shall look solely to the revenue and proceeds from the Trust Property
to the extent legally available for distribution to it as herein provided and
that the Trustees are not personally liable to it for any amount
distributable in respect of any Trust Security or for any other liability in
respect of any Trust Security. This Section 801(b) does not limit the
liability of the Trustees expressly set forth elsewhere in this Trust
Agreement or, in the case of the Property Trustee, in the Trust Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer of the Property
Trustee, unless it shall be proved that the Property Trustee was negligent
in ascertaining the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a majority in Liquidation
Amount of the Trust Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee,
or exercising any trust or power conferred upon the Property Trustee under
this Trust Agreement;
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(iii) the Property Trustee's sole duty with respect to the custody,
safe keeping and physical preservation of the Debentures and the Payment
Account shall be to deal with such Property in a similar manner as the
Property Trustee deals with similar property for its own account, subject
to the protections and limitations on liability afforded to the Property
Trustee under this Trust Agreement and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest on any
money received by it except as it may otherwise agree in writing with the
Depositor and money held by the Property Trustee need not be segregated
from other funds held by it except in relation to the Payment Account
maintained by the Property Trustee pursuant to Section 301 and except to
the extent otherwise required by law; and
(v) the Property Trustee shall not be responsible for monitoring the
compliance by the Administrative Trustees or the Depositor with their
respective duties under this Trust Agreement, nor shall the Property
Trustee be liable for the negligence, default or misconduct of the
Administrative Trustees or the Depositor.
Section 802. Certain Notices.
(a) Within 90 days after the occurrence of any Event of Default actually
known to the Property Trustee, the Property Trustee shall transmit, in the
manner and to the extent provided in Section 1008, notice of such Event of
Default to the Securityholders, the Administrative Trustees and the
Depositor, unless such Event of Default shall have been cured or waived.
(b) The Administrative Trustees shall transmit, to the Securityholders
and the Property Trustee in the manner and to the extent provided in Section
1008, notice of the Depositor's election to begin or further extend an
Extended Interest Payment Period on the Debentures (unless such election
shall have been revoked) within the time specified for transmitting such
notice to the holders of the Debentures pursuant to the Indenture as
originally executed.
Section 803. Certain Rights of Property Trustee.
Subject to the provisions of Section 801:
(a) the Property Trustee may conclusively rely and shall be protected in
acting or refraining from acting in good faith upon any resolution, Opinion
of Counsel, certificate, written representation of a Holder or transferee,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties;
(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action;
or (ii) in construing any of the
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provisions of this Trust Agreement the Property Trustee finds the same
ambiguous or inconsistent with other provisions contained herein; or (iii)
the Property Trustee is unsure of the application of any provision of this
Trust Agreement, then, except as to any matter as to which the Preferred
Securityholders are entitled to vote under the terms of this Trust Agreement,
the Property Trustee shall deliver a notice to the Depositor requesting
written instructions of the Depositor as to the course of action to be taken
and the Property Trustee shall take such action, or refrain from taking such
action, as the Property Trustee shall be instructed in writing to take, or to
refrain from taking, by the Depositor, provided, however, that if the
Property Trustee does not receive such instructions of the Depositor within
10 Business Days after it has delivered such notice, or such reasonably
shorter period of time set forth in such notice (which to the extent
practicable shall not be less than 2 Business Days), it may, but shall be
under no duty to, take or refrain from taking such action not inconsistent
with this Trust Agreement as it shall deem advisable and in the best
interests of the Securityholders, in which event the Property Trustee shall
have no liability except for its own bad faith, negligence or willful
misconduct;
(c) any direction or act of the Depositor or the Administrative Trustees
contemplated by this Trust Agreement shall be sufficiently evidenced by an
Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the Property
Trustee shall deem it desirable that a matter be established before
undertaking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence
of bad faith on its part, request and conclusively rely upon an Officers'
Certificate which, upon receipt of such request, shall be promptly delivered
by the Depositor or the Administrative Trustees;
(e) the Property Trustee shall have no duty to see to any recording,
filing or registration of any instrument (including any financing or
continuation statement) or any filing under tax or securities laws or any
re-recording, refiling, or reregistration thereof;
(f) the Property Trustee may consult with counsel of its choice (which
counsel may be counsel to the Depositor or any of its Affiliates) and the
advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon and in accordance with such
advice, the Property Trustee shall have the right at any time to seek
instructions concerning the administration of this Trust Agreement from any
court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement,
unless such Securityholders shall have offered to the Property Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction;
(h) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice,
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request, consent, order, approval, bond, debenture, note or other evidence of
indebtedness or other paper or document, unless requested in writing to do so
by one or more Securityholders, but the Property Trustee may make such
further inquiry or investigation into such facts or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys, provided that the Property Trustee shall be
responsible for its own negligence or recklessness with respect to selection
of any agent or attorney appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the
Property Trustee (i) may request written instructions from the Holders of the
Trust Securities which written instructions may only be given by the Holders
of the same proportion in Liquidation Amount of the Trust Securities as would
be entitled to direct the Property Trustee under the terms of the Trust
Securities in respect of such remedy, right or action; (ii) may refrain from
enforcing such remedy or right or taking such other action until such
instructions are received; and (iii) shall be protected in acting in
accordance with such written instructions; and
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement. No provision of
this Trust Agreement shall be deemed to impose any duty or obligation on the
Property Trustee to perform any act or acts or exercise any right, power,
duty or obligation conferred or imposed on it, in any jurisdiction in which
it shall be illegal, or in which the Property Trustee shall be unqualified or
incompetent in accordance with applicable law, to perform any such act or
acts, or to exercise any such right, power, duty or obligation. No permissive
power or authority available to the Property Trustee shall be construed to be
a duty.
Section 804. Not Responsible For Recitals or Issuance of Securities.
The Recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be
accountable for the use or application by the Depositor of the proceeds of
the Debentures.
Section 805. May Hold Securities.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 808 and 813 and except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with
the Trust with the same rights it would have if it were not a Trustee or such
other agent.
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Section 806. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Trustees from time to time such compensation as the
Trustees and the Depositor may agree in writing for all services rendered by
them hereunder (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this
Trust Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to such Trustee's negligence,
bad faith or willful misconduct (or, in the case of the Administrative
Trustees, any such expense, disbursement or advance as may be attributable to
its, his or her gross negligence, bad faith or willful misconduct); and
(c) to indemnify each of the Trustees or any predecessor Trustee for,
and to hold the Trustees harmless against, any and all loss, damage, claim,
liability, penalty or expense, including taxes (other than taxes based on the
income of the Trustee) incurred without negligence or willful misconduct on
its part, arising out of or in connection with the acceptance or
administration of this Trust Agreement, including the costs and expenses of
defending itself against any claim or liability in connection with the
acceptance, exercise or performance of any of its powers or duties hereunder,
except any such expense, disbursement or advance as may be attributable to
such Trustee's negligence, bad faith or willful misconduct (or, in the case
of the Administrative Trustees, any such expense, disbursement or advance as
may be attributable to its, his or her gross negligence, bad faith or willful
misconduct).
The provisions of this Section 806 shall survive the termination of this
Trust Agreement or the earlier resignations or removal of any Trustee.
No Trustee may claim any Lien or charge on any Trust Property as a result
of any amount due pursuant to this Section 806.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 7.1(a)(iv), Section 7.1(a)(v) or
7.1(a)(vi) of the Indenture, the expenses (including reasonable charges and
expenses of its counsel) and the compensation for the services are intended
to constitute expenses of administration under any applicable Bankruptcy Law.
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Section 807. Corporate Property Trustee Required; Eligibility of Trustees.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that
is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000. If any such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of its supervising or examining authority, then for the purposes
of this Section 807, the combined capital and surplus of such Person shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Property Trustee with
respect to the Trust Securities shall cease to be eligible in accordance with
the provisions of this Section 807, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article VIII.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to the
Trust Securities. The Delaware Trustee shall either be (i) a natural person
who is at least 21 years of age and a resident of the State of Delaware; or
(ii) a legal entity with its principal place of business in the State of
Delaware and that otherwise meets the requirements of applicable Delaware law
that shall act through one or more persons authorized to bind such entity.
Section 808. Conflicting Interests.
If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trust shall
either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act and
this Trust Agreement.
Section 809. Co-trustees And Separate Trustee.
(a) Unless an Event of Default shall have occurred and be continuing, at
any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of the Trust
Property may at the time be located, the Depositor shall have power to
appoint, and upon the written request of the Property Trustee, the Depositor
shall for such purpose join with the Property Trustee in the execution,
delivery and performance of any instruments and agreements necessary or
proper to appoint, one or more Persons approved by the Property Trustee
either to act as co-trustee, jointly with the Property Trustee, of all or any
part of such Trust Property, or to the extent required by law to act as
separate trustee of any such property, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such Person or
Persons in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section 809.
If the
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Depositor does not join in such appointment within 15 days after the receipt
by it of a request so to do, or in case a Debenture Event of Default has
occurred and is continuing, the Property Trustee alone shall have power to
make such appointment. Any co-trustee or separate trustee appointed pursuant
to this Section 809 shall either be (i) a natural person who is at least 21
years of age and a resident of the United States; or (ii) a legal entity with
its principal place of business in the United States that shall act through
one or more persons authorized to bind such entity.
(b) Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged, and delivered
by the Depositor.
(c) Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:
(i) The Trust Securities shall be executed and delivered and all
rights, powers, duties and obligations hereunder in respect of the custody
of securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder, shall be
exercised, solely by such Trustees and not by such co-trustee or separate
trustee.
(ii) The rights, powers, duties and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by
such appointment shall be conferred or imposed upon and exercised or
performed by the Property Trustee or by the Property Trustee and such
co-trustee or separate trustee jointly, as shall be provided in the
instrument appointing such co-trustee or separate trustee, except to the
extent that under any law of any jurisdiction in which any particular act
is to be performed, the Property Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties
and obligations shall be exercised and performed by such co-trustee or
separate trustee.
(iii) The Property Trustee at any time, by an instrument in
writing executed by it, with the written concurrence of the Depositor, may
accept the resignation of or remove any co-trustee or separate trustee
appointed under this Section 809, and, in case a Debenture Event of Default
has occurred and is continuing, the Property Trustee shall have the power
to accept the resignation of, or remove, any such co-trustee or separate
trustee without the concurrence of the Depositor. Upon the written request
of the Property Trustee, the Depositor shall join with the Property Trustee
in the execution, delivery and performance of all instruments necessary or
proper to effectuate such resignation or removal. A successor to any
co-trustee or separate trustee so resigned or removed may be appointed in
the manner provided in this Section 809.
(iv) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Property Trustee or any
other trustee hereunder.
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(v) The Property Trustee shall not be liable by reason of any act of
a co-trustee or separate trustee.
(vi) Any Act of Holders delivered to the Property Trustee shall be
deemed to have been delivered to each such co-trustee and separate trustee.
Section 810. Resignation And Removal; Appointment of Successor.
(a) No resignation or removal of any Trustee (the "Relevant Trustee")
and no appointment of a successor Trustee pursuant to this Article VIII shall
become effective until the acceptance of appointment by the successor Trustee
in accordance with the applicable requirements of Section 811.
(b) Subject to the immediately preceding paragraph, the Relevant Trustee
may resign at any time with respect to the Trust Securities by giving written
notice thereof to the Securityholders. If the instrument of acceptance by the
successor Trustee required by Section 811 shall not have been delivered to
the Relevant Trustee within 30 days after the giving of such notice of
resignation, the Relevant Trustee may petition, at the expense of the
Depositor, any court of competent jurisdiction for the appointment of a
successor Relevant Trustee with respect to the Trust Securities.
(c) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by act of the Common
Securityholder. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee or the Delaware Trustee, or both of them,
may be removed at such time by Act of the Holders of a majority in
Liquidation Amount of the Preferred Securities, delivered to the Relevant
Trustee (in its individual capacity and on behalf of the Trust). An
Administrative Trustee may be removed by the Common Securityholder at any
time. In no event will the Holders of the Preferred Securities have the right
to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in the Common Securityholder. If an
instrument of acceptance by a Successor Trustee required by Section 8.11
shall have not been delivered to the Relevant Trustee within 30 days after
the giving of such notice of removal, the Relevant Trustee may petition, at
the expense of the Depositor, any court of competent jurisdiction for the
appointment of a Successor Relevant Trustee with respect to the Trust
Securities.
(d) If any Trustee shall resign, be removed or become incapable of
acting as Trustee, or if a vacancy shall occur in the office of any Trustee
for any cause, at a time when no Debenture Event of Default shall have
occurred and be continuing, the Common Securityholder, by act of the Common
Securityholder delivered to the retiring Trustee, shall promptly appoint a
successor Trustee or Trustees with respect to the Trust Securities and the
Trust, and the successor Trustee shall comply with the applicable
requirements of Section 811. If the Property Trustee or the Delaware Trustee,
as the case may be, shall resign, be removed or become incapable of
continuing to act as the Property Trustee at a time when a Debenture Event of
Default shall have occurred and is continuing, the Preferred Securityholders,
by Act of the
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Securityholders of a majority in Liquidation Amount of the Preferred
Securities then Outstanding delivered to the retiring Relevant Trustee, shall
promptly appoint a successor Relevant Trustee or Trustees with respect to the
Trust Securities and the Trust, and such successor Trustee shall comply with
the applicable requirements of Section 811. If an Administrative Trustee
shall resign, be removed or become incapable of acting as Administrative
Trustee, at a time when a Debenture Event of Default shall have occurred and
be continuing, the Common Securityholder, by Act of the Common Securityholder
delivered to an Administrative Trustee, shall promptly appoint a successor
Administrative Trustee or Administrative Trustees with respect to the Trust
Securities and the Trust, and such successor Administrative Trustee or
Administrative Trustees shall comply with the applicable requirements of
Section 811. If no successor Relevant Trustee with respect to the Trust
Securities shall have been so appointed by the Common Securityholder or the
Preferred Securityholders and accepted appointment in the manner required by
Section 811, any Securityholder who has been a Securityholder of Trust
Securities on behalf of himself and all others similarly situated may
petition a court of competent jurisdiction for the appointment of a successor
Trustee with respect to the Trust Securities.
(e) The Administrative Trustee shall give notice of each resignation and
each removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 1008 and shall give notice
to the Depositor. Each notice shall include the name of the successor
Relevant Trustee and the address of its Corporate Trust Office if it is the
Property Trustee.
(f) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee who is a natural person
dies or becomes, in the opinion of the Depositor, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by (a) the unanimous act of the remaining Administrative
Trustees if there are at least two of them; or (b) otherwise by the Depositor
(with the successor in each case being a Person who satisfies the eligibility
requirement for Administrative Trustees as forth in Section 807).
Section 811. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Relevant Trustee
with respect to the Trust Securities and the Trust, the retiring Relevant
Trustee and each successor Relevant Trustee with respect to the Trust
Securities shall execute and deliver an instrument hereto wherein each
successor Relevant Trustee shall accept such appointment and which shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to
the Trust Securities and the Trust and, upon the execution and delivery of
such instrument, the resignation or removal of the retiring Relevant Trustee
shall become effective to the extent provided therein and each such successor
Relevant Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring
Relevant Trustee with respect to the Trust Securities and the Trust, but, on
request of the Trust or any successor Relevant Trustee such retiring Relevant
Trustee shall upon payment of its
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charges hereunder, duly assign, transfer and deliver to such successor
Relevant Trustee all Trust Property, all proceeds thereof and money held by
such retiring Relevant Trustee hereunder with respect to the Trust Securities
and the Trust.
(b) Upon request of any such successor Relevant Trustee, the Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Relevant Trustee all such rights, powers and
trusts referred to in the immediately preceding paragraph, as the case may be.
(c) No successor Relevant Trustee shall accept its appointment unless at
the time of such acceptance such successor Relevant Trustee shall be
qualified and eligible under this Article VIII.
Section 812. Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of such Relevant Trustee,
shall be the successor of such Relevant Trustee hereunder, provided such
Person shall be otherwise qualified and eligible under this Article VIII,
without the execution or filing of any paper or any further act on the part
of any of the parties hereto.
Section 813. Preferential Collection of Claims Against Depositor or Trust.
If and when the Property Trustee shall be or become a creditor of the
Depositor or the Trust (or any other obligor upon the Debentures or the Trust
Securities), the Property Trustee shall be subject to and shall take all
actions necessary in order to comply with the provisions of the Trust
Indenture Act regarding the collection of claims against the Depositor or
Trust (or any such other obligor).
Section 814. Reports by Property Trustee.
(a) The Property Trustee shall transmit to Securityholders such reports
concerning the Property Trustee and its actions under this Trust Agreement as
may be required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant thereto. If required by Section 313(a) of the Trust
Indenture Act, the Property Trustee shall, within sixty days after each May
15 following the date of the Trust Agreement, deliver to Securityholders a
brief report, dated as of such May 15, which complies with the provisions of
such Section 313(a).
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Property Trustee with The Nasdaq Stock Market's
National Market, and each national securities exchange or other organization
upon which the Trust Securities are listed, and also with
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the Commission so long as the Preferred Securities are registered under the
Securities Exchange Act and the Depositor.
Section 815. Reports to The Property Trustee.
The Depositor and the Administrative Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information
as required by Section 314 of the Trust Indenture Act (if any) and the
compliance certificate required by Section 314(a) of the Trust Indenture Act
in the form in the manner and at the times required by Section 314 of the
Trust Indenture Act.
Delivery of such reports, information and documents to the Property
Trustee is for information purposes only and the Property Trustee's receipt
of such shall not constitute constructive notice of any information contained
therein or determinable from information contained therein, including the
Depositor's compliance with any of its covenants hereunder (as to which the
Property Trustee is entitled to rely exclusively on Officers' Certificates).
Section 816. Evidence of Compliance With Conditions Precedent.
Each of the Depositor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with
any conditions precedent, if any, provided for in this Trust Agreement that
relate to any of the matters set forth in Section 314(c) of the Trust
Indenture Act. Any certificate or opinion required to be given by an officer
pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in
the form of an Officers' Certificate.
Section 817. Number of Trustees.
(a) The number of Trustees shall be five, provided that the Holder of
all of the Common Securities by written instrument may increase or decrease
the number of Administrative Trustees. The Property Trustee and the Delaware
Trustee may be the same Person.
(b) If a Trustee ceases to hold office for any reason and the number of
Administrative Trustees is not reduced pursuant to Section 817(a), or if the
number of Trustees is increased pursuant to Section 817(a), a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance
with Section 810.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not
operate to dissolve, terminate or annul the Trust. Whenever a vacancy in the
number of Administrative Trustees shall occur, until such vacancy is filled
by the appointment of an Administrative Trustee in accordance with Section
810, the Administrative Trustees in office, regardless of their number (and
notwithstanding any other provision of this Agreement), shall have all the
powers granted to the Administrative
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Trustees and shall discharge all the duties imposed upon the Administrative
Trustees by this Trust Agreement.
Section 818. Delegation of Power.
(a) Any Administrative Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his
or her power for the purpose of executing any documents contemplated in
Section 207(a); and
(b) The Administrative Trustees shall have power to delegate from time
to time to such of their number or to the Depositor the doing of such things
and the execution of such instruments either in the name of the Trust or the
names of the Administrative Trustees or otherwise as the Administrative
Trustees may deem expedient, to the extent such delegation is not prohibited
by applicable law or contrary to the provisions of the Trust, as set forth
herein.
Section 819. Voting.
Except as otherwise provided in this Trust Agreement, the consent or
approval of the Administrative Trustees shall require consent or approval by
not less than a majority of the Administrative Trustees, unless there are
only two, in which case both must consent.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
Section 901. Dissolution Upon Expiration Date.
Unless earlier dissolved, the Trust shall automatically dissolve on
__________, 2027 (the "Expiration Date") subject to distribution of the Trust
Property in accordance with Section 904.
Section 902. Early Dissolution.
The first to occur of any of the following events is an "Early
Termination Event" upon the occurrence of which the Trust shall be dissolved:
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by the
Depositor at any time (which direction is wholly optional and within the
discretion of the Depositor) to dissolve the Trust and distribute the
Debentures to Securityholders in exchange for the Preferred Securities in
accordance with Section 904;
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<PAGE>
(c) the redemption of all of the Preferred Securities in connection with
the redemption of all of the Debentures; and
(d) an order for dissolution of the Trust shall have been entered by a
court of competent jurisdiction.
Section 903. Termination.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur
of the following: (a) the distribution by the Property Trustee to
Securityholders upon the liquidation of the Trust pursuant to Section 904, or
upon the redemption of all of the Trust Securities pursuant to Section 402,
of all amounts required to be distributed hereunder upon the final payment of
the Trust Securities; (b) the payment of any expenses owed by the Trust; (c)
the discharge of all administrative duties of the Administrative Trustees,
including the performance of any tax reporting obligations with respect to
the Trust or the Securityholders; and (d) the filing of a Certificate of
Cancellation by the Administrative Trustees under the Delaware Business Trust
Act.
Section 904. Liquidation.
(a) If an Early Termination Event specified in clause (a), (b), or (d)
of Section 902 occurs or upon the Expiration Date, the Trust shall be
liquidated by the Trustees as expeditiously as the Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of
the Trust as provided by applicable law, to each Securityholder a Like Amount
of Debentures, subject to Section 904(d). Notice of liquidation shall be
given by the Property Trustee by first-class mail, postage prepaid, mailed
not later than 30 nor more than 60 days prior to the Liquidation Date to each
Holder of Trust Securities at such Holder's address appearing in the
Securities Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities shall no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange shall be deemed to
represent a Like Amount of Debentures;
(iii) provide such information with respect to the mechanics by
which Holders may exchange Trust Securities Certificates for Debentures,
or, if Section 904(d) applies, receive a Liquidation Distribution, as the
Administrative Trustees shall deem appropriate;
(iv) state the CUSIP number; and
(v) state the office or agency of the Trust where Securities should
be surrendered.
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(b) Except where Section 902(c) or 904(d) applies, in order to effect
the liquidation of the Trust and distribution of the Debentures to
Securityholders, the Property Trustee shall establish a record date for such
distribution (which shall be not more than 45 days prior to the Liquidation
Date) and, either itself acting as exchange agent or through the appointment
of a separate exchange agent, shall establish such procedures as it shall
deem appropriate to effect the distribution of Debentures in exchange for the
Outstanding Trust Securities Certificates.
(c) Except where Section 902(c) or 904(d) applies, after the Liquidation
Date, (i) the Trust Securities shall no longer be deemed to be Outstanding;
(ii) certificates representing a Like Amount of Debentures shall be issued to
holders of Trust Securities Certificates upon surrender of such certificates
to the Administrative Trustees or their agent for exchange; (iii) the
Depositor shall use its reasonable efforts to have the Debentures listed on
The Nasdaq Stock Market's National Market or SmallCap Market or on such other
securities exchange or other organization as the Preferred Securities are
then listed or traded; (iv) any Trust Securities Certificates not so
surrendered for exchange shall be deemed to represent a Like Amount of
Debentures, accruing interest at the rate provided for in the Debentures from
the last Distribution Date on which a Distribution was made on such Trust
Securities Certificates until such certificates are so surrendered (and until
such certificates are so surrendered, no payments of interest or principal
shall be made to holders of Trust Securities Certificates with respect to
such Debentures): and (v) all rights of Securityholders holding Trust
Securities shall cease, except the right of such Securityholders to receive
Debentures upon surrender of Trust Securities Certificates.
(d) In the event that, notwithstanding the other provisions of this
Section 904, whether because of an order for dissolution entered by a court
of competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the Administrative Trustees not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
wound-up or terminated, by the Property Trustee in such manner as the
Property Trustee determines. In such event, Securityholders shall be entitled
to receive out of the assets of the Trust available for distribution to
Securityholders, after satisfaction of liabilities to creditors of the Trust
as provided by applicable law, an amount equal to the Liquidation Amount per
Trust Security plus accumulated and unpaid Distributions thereon to the date
of payment (such amount being the "Liquidation Distribution"). If, upon any
such winding-up or termination, the Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then, subject to the next succeeding
sentence, the amounts payable by the Trust on the Trust Securities shall be
paid on a pro rata basis (based upon Liquidation Amounts). The Holder of the
Common Securities shall be entitled to receive Liquidation Distributions upon
any such winding-up or termination pro rata (determined as aforesaid) with
Holders of Preferred Securities, except that, if a Debenture Event of Default
has occurred and is continuing, the Preferred Securities shall have a
priority over the Common Securities.
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<PAGE>
Section 905. Mergers, Consolidations, Amalgamations or Replacements of The
Trust.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, except pursuant to this Section
905 or Section 904. At the request of the Depositor, with the consent of the
Administrative Trustees and without the consent of the Holders of the
Preferred Securities, the Property Trustee or the Delaware Trustee, the Trust
may merge with or into, consolidate, amalgamate, be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety a
trust organized as such under the laws of any state; provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of the
Trust with respect to the Preferred Securities; or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as
the Preferred Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Preferred Securities rank in
priority with respect to distributions and payments upon liquidation,
redemption and otherwise; (ii) the Depositor expressly appoints a trustee of
such successor entity possessing substantially the same powers and duties as
the Property Trustee as the holder of the Debentures; (iii) the Successor
Securities are registered or listed, or any Successor Securities shall be
registered or listed upon notification of issuance, on any national
securities exchange or other organization on which the Preferred Securities
are then registered or listed (including, if applicable, the Nasdaq Stock
Market's National Market), if any; (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Preferred Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the holders of
the Preferred Securities (including any Successor Securities) in any material
respect; (vi) such successor entity has a purpose substantially identical to
that of the Trust, (vii) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Depositor has received an
Opinion of Counsel to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders of the Preferred
Securities (including any Successor Securities) in any material respect: and
(b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity
shall be required to register as an "investment company" under the Investment
Company Act, and (viii) the Depositor or any permitted successor or assignee
owns all of the common securities of such successor entity and guarantees the
obligations of such successor entity under the Successor Securities at least
to the extent provided by the Guarantee. Notwithstanding the foregoing, the
Trust shall not, except with the consent of Holders of 100% in Liquidation
Amount of the Preferred Securities, consolidate, amalgamate, merge with or
into, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to any other Person or permit any other
Person to consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease would cause the Trust or the successor entity to be classified as other
than a grantor trust for United States federal income tax purposes.
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<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 1001. Limitation of Rights of Securityholders.
The death, incapacity, dissolution, bankruptcy or termination of any
Person having an interest, beneficial or otherwise, in Trust Securities shall
not operate to terminate this Trust Agreement, nor dissolve, terminate or
annul the Trust, nor entitle the legal representatives or heirs of such
Person or any Securityholder for such Person, to claim an accounting, take
any action or bring any proceeding in any court for a partition or winding-up
of the arrangements contemplated hereby, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.
Section 1002. Amendment.
(a) This Trust Agreement may be amended from time to time by the
Trustees and the Depositor, without the consent of any Securityholders, (i)
as provided in Section 811 with respect to acceptance of appointment by a
successor Trustee; (ii) to cure any ambiguity, correct or supplement any
provision herein or therein which may be inconsistent with any other
provision herein or therein, or to make any other provisions with respect to
matters or questions arising under this Trust Agreement, that shall not be
inconsistent with the other provisions of this Trust Agreement; or (iii) to
modify, eliminate or add to any provisions of this Trust Agreement to such
extent as shall be necessary to ensure that the Trust shall be classified for
United States federal income tax purposes as a grantor trust at all times
that any Trust Securities are outstanding or to ensure that the Trust shall
not be required to register as an "investment company" under the Investment
Company Act; provided, however, that in the case of clause (ii), such action
shall not adversely affect in any material respect the interests of any
Securityholder, and any such amendments of this Trust Agreement shall become
effective when notice thereof is given to the Securityholders.
(b) Except as provided in Section 601(c) or Section 1002(c) hereof, any
provision of this Trust Agreement may be amended by the Trustees and the
Depositor (i) with the consent of Trust Securityholders representing not less
than a majority (based upon Liquidation Amounts) of the Trust Securities then
Outstanding; and (ii) upon receipt by the Trustees of an Opinion of Counsel
to the effect that such amendment or the exercise of any power granted to the
Trustees in accordance with such amendment shall not affect the Trust's
status as a grantor trust for United Status federal income tax purposes or
the Trust's exemption from status of an "investment company" under the
Investment Company Act.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Securityholder (such consent
being obtained in accordance with Section 603 or 606 hereof), this Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount
of any Distribution required to be made in respect of the Trust Securities as
of a specified
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<PAGE>
date; or (ii) restrict the right of a Securityholder to institute suit for
the enforcement of any such payment on or after such date; notwithstanding
any other provision herein, without the unanimous consent of the
Securityholders (such consent being obtained in accordance with Section 603
or 606 hereof), this paragraph (c) of this Section 1002 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption
from status of an "investment company" under the Investment Company Act or to
fail or cease to be classified as a grantor trust for United States federal
income tax purposes.
(e) In the event that any amendment to this Trust Agreement is made, the
Administrative Trustees shall promptly provide to the Depositor a copy of
such amendment.
(f) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects
its own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in
compliance with this Trust Agreement.
Section 1003. Separability.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
Section 1004. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST
AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES).
Section 1005. Payments Due on Non-business Day.
If the date fixed for any payment on any Trust Security shall be a day
that is not a Business Day, then such payment need not be made on such date
but may be made on the next succeeding day which is a Business Day (except as
otherwise provided in Sections 401(a) and 402(d)), with the same force and
effect as though made on the date fixed for such payment, and no distribution
shall accumulate thereon for the period after such date.
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<PAGE>
Section 1006. Successors.
This Trust Agreement shall be binding upon and shall inure to the benefit
of any successor to the Depositor, the Trust or the Relevant Trustee(s),
including any successor by operation of law. Except as contemplated by
Article XII of the Indenture and pursuant to which the assignee agrees in
writing to perform the Depositor's obligations hereunder, the Depositor shall
not assign its obligations hereunder.
Section 1007. Headings.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
Section 1008. Reports, Notices And Demands.
Any report, notice, demand or other communication which by any provision
of this Trust Agreement is required or permitted to be given or served to or
upon any Securityholder or the Depositor may be given or served in writing by
deposit thereof, first-class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (a) in the case
of a Preferred Securityholder, to such Preferred Securityholder as such
Securityholder's name and address may appear on the Securities Register; and
(b) in the case of the Common Securityholder or the Depositor, to PennFirst
Bancorp, Inc., 600 Lawrence Avenue, Ellwood City, Pennsylvania 16117,
Attention: President, facsimile no.: (412) 758-0576. Such notice, demand or
other communication to or upon a Securityholder shall be deemed to have been
sufficiently given or made, for all purposes, upon hand delivery, mailing or
transmission.
Any notice, demand or other communication which by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Trust, the Property Trustee, the Delaware Trustee or the Administrative
Trustees shall be given in writing addressed (until another address is
published by the Trust) as follows: (a) with respect to the Property Trustee
to The Bank of New York, 101 Barclay Street, 21W, New York, New York 10286,
Attention: Corporate Trust Trustee Administration; (b) with respect to the
Delaware Trustee, to The Bank of New York (Delaware), c/o The Bank of New
York, 101 Barclay Street, Floor 21 West, New York, New York 10286; and (c)
with respect to the Administrative Trustees, to them at the address above for
notices to the Depositor, marked "Attention: Administrative Trustees of
PennFirst Capital Trust I." Such notice, demand or other communication to or
upon the Trust or the Property Trustee shall be deemed to have been
sufficiently given or made only upon actual receipt of the writing by the
Trust or the Property Trustee.
Section 1009. Agreement Not to Petition.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been dissolved in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the
United States
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Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws" or
otherwise join in the commencement of any proceeding against the Trust under
any Bankruptcy Law. In the event the Depositor takes action in violation of
this Section 1009, the Property Trustee agrees, for the benefit of
Securityholders, that at the expense of the Depositor (which expense shall be
paid prior to the filing), it shall file an answer with the bankruptcy court
or otherwise properly contest the filing of such petition by the Depositor
against the Trust or the commencement of such action and raise the defense
that the Depositor has agreed in writing not to take such action and should
be stopped and precluded therefrom. The provisions of this Section 1009 shall
survive the termination of this Trust Agreement.
Section 1010. Trust Indenture Act; Conflict With Trust Indenture Act.
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall,
to the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a trustee
for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Trust Agreement by
any of the provisions of the Trust Indenture Act, such required provision
shall control. If any provision of this Trust Agreement modifies or excludes
any provision of the Trust Indenture Act which may be so modified or
excluded, the latter provision shall be deemed to apply to this Trust
Agreement as so modified or to be excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
Section 1011. Acceptance of Terms of Trust Agreement, Guarantee And Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY
OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE
UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A
BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF
THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER
TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT
OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND
PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE
AS AMONG THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS.
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PENNFIRST BANCORP, INC., as Depositor
By:
-------------------------------------------
Name: Charlotte A. Zuschlag
Title: President and Chief Executive Officer
THE BANK OF NEW YORK, as Property Trustee
By:
-------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By:
-------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
ADMINISTRATIVE TRUSTEES
By:
-------------------------------------------
Name: Charlotte A. Zuschlag
Title: As Administrative Trustee
By:
-------------------------------------------
Name: Frank D. Martz
Title: As Administrative Trustee
By:
-------------------------------------------
Name: Charles P. Evanoski
Title: As Administrative Trustee
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Exhibit 4.5
Certificate Number Number of Preferred Securities
P-_____ _______
CUSIP NO. _____
Certificate Evidencing Preferred Securities
of
PennFirst Capital Trust I
_____% Cumulative Trust Preferred Securities
(liquidation amount $10 per Preferred Security)
PennFirst Capital Trust I, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that (the
"Holder") is the registered owner of _____preferred securities of the Trust
representing an undivided beneficial interest in the assets of the Trust and
designated the PennFirst Capital Trust I _____% Cumulative Trust Preferred
Securities (liquidation amount $10 per Preferred Security)(the "Preferred
Securities"). The Preferred Securities are transferable on the books and
records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer
as provided in Section 504 of the Trust Agreement (as defined below). The
designations, rights, privileges, restrictions, preferences and other terms
and provisions of the Preferred Securities are set forth in, and the
Preferred Securities represented hereby are issued and shall in all respects
be subject to the terms and provisions of, the Amended and Restated Trust
Agreement of the Trust dated as of _______________, 1997, as the same may be
amended from time to time (the "Trust Agreement"), including the designation
of the terms of Preferred Securities as set forth therein. The Holder is
entitled to the benefits of the Guarantee Agreement, as amended, entered into
by PennFirst Bancorp, Inc., a Pennsylvania corporation, and The Bank of New
York, as guarantee trustee, dated as of _______________, 1997 (the
"Guarantee"), to the extent provided therein. The Trust will furnish a copy
of the Trust Agreement and the Guarantee to the Holder without charge upon
written request to the Trust at its principal place of business or registered
office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
<PAGE>
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this _____ day of __________, 1997.
PENNFIRST CAPITAL TRUST I
By:
---------------------------
Name: Charlotte A. Zuschlag
Title: Administrative Trustee
This is one of the Preferred Securities referred to in the Trust
Agreement.
Dated: THE BANK OF NEW YORK
as Trustee
By:
---------------------------
Authorized Signatory
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfer this Security
certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignees social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------ agent to transfer this Security certificate on
the books of the Company. The agent may substitute another to act for him or
her.
Date:______________________________
Signature:______________________________________________________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: ___________________________________________________________
- ---------------------
Signature must be guaranteed by an "eligible guarantor institution"
that is a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities and
Exchange Act of 1934, as amended.
<PAGE>
Exhibit 4.6
PREFERRED SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
PENNFIRST BANCORP, INC.
AND
THE BANK OF NEW YORK
, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION 1
Section 1.1 Definitions and Interpretation 1
ARTICLE II TRUST INDENTURE ACT 5
Section 2.1 Trust Indenture Act; Application 5
Section 2.2 Lists of Holders of Securities 5
Section 2.3 Reports by the Preferred Guarantee Trustee 6
Section 2.4 Periodic Reports to Preferred Guarantee Trustee 6
Section 2.5 Evidence of Compliance with Conditions Precedent 6
Section 2.6 Events of Default; Waiver 6
Section 2.7 Event of Default; Notice 7
Section 2.8 Conflicting Interests 7
ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE
TRUSTEE 7
Section 3.1 Powers And Duties of The Preferred Guarantee
Trustee 7
Section 3.2 Certain Rights of Preferred Guarantee Trustee 9
Section 3.3 Not Responsible For Recitals or Issuance of
Guarantee 11
ARTICLE IV PREFERRED GUARANTEE TRUSTEE 11
Section 4.1 Preferred Guarantee Trustee; Eligibility 11
Section 4.2 Appointment, Removal and Resignation of Preferred
Guarantee Trustees 12
ARTICLE V GUARANTEE 13
Section 5.1 Guarantee 13
Section 5.2 Waiver of Notice and Demand 13
Section 5.3 Obligations Not Affected 13
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<PAGE>
Section 5.4 Rights of Holders 15
Section 5.5 Guarantee of Payment 15
Section 5.6 Subrogation 15
Section 5.7 Independent Obligations 15
ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION 16
Section 6.1 Limitation of Transactions 16
Section 6.2 Ranking 16
ARTICLE VII TERMINATION 16
Section 7.1 Termination 16
ARTICLE VIII INDEMNIFICATION 17
Section 8.1 Exculpation 17
Section 8.2 Indemnification 17
ARTICLE IX MISCELLANEOUS 18
Section 9.1 Successors and Assigns 18
Section 9.2 Amendments 18
Section 9.3 Notices 18
Section 9.4 Benefit 19
Section 9.5 Governing Law 19
</TABLE>
-ii-
<PAGE>
CROSS REFERENCE TABLE
SECTION OF TRUST INDENTURE
ACT OF 1939, AS AMENDED SECTION OF GUARANTEE AGREEMENT
- -------------------------- ------------------------------
310(a) 4.1 (a)
3 10(b) 4.1 (a), 2.8
310(c) Not Applicable
31 l(a) 2.2(b)
31 1 (b) 2.2(b)
31 1 (c) Not Applicable
312(a) 2.2(a)
312(b) 2.2(b)
313 2.3
314(a) 2.4
314(b) Not Applicable
314(c) 2.5
314(d) Not Applicable
314(e) 1.1,2.5,3.2
314(f) 2.1,3.2
315(a) 3. 1 (d)
315(b) 2.7
315(c) 3.1
315(d) 3. 1 (d)
316(a) 1.1,2.6, 5.4
316(b) 5 3
317(a) 3.1
317(b) Not Applicable
318(a) 2. 1 (a)
318(b) 2.1
318(c) 2. 1 (b)
Note: This Cross-Reference Table does not constitute part of this Agreement
and shall not affect the interpretation of any of its terms or
provisions.
<PAGE>
PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred Securities
Guarantee"), dated as of , 1997, is executed and delivered by PENNFIRST
BANCORP, INC., a Pennsylvania corporation (the "Guarantor"), and THE BANK OF NEW
YORK, a New York banking corporation, as trustee (the "Preferred Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Preferred Securities (as defined herein) of PennFirst Capital Trust I, a
Delaware statutory business trust (the "Trust").
RECITALS
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust
Agreement"), dated as of , 1997, among the trustees of the Trust named
herein, the Guarantor, as depositor, and the holders from time to time of
undivided beneficial interests in the assets of the Trust, the Trust is issuing
on the date hereof preferred securities, having an aggregate liquidation amount
of $10, designated the % Cumulative Trust Preferred Securities (the
"Preferred Securities") representing undivided beneficial ownership interests in
the assets of the Trust and having the terms set forth in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Trust and the
proceeds thereof, will be used to purchase the Junior Subordinated Deferrable
Interest Debentures due 2027 (the "Junior Subordinated Debentures") of the
Guarantor which will be deposited with The Bank of New York, as Property Trustee
under the Trust Agreement, as trust assets; and
WHEREAS, as an incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of the Preferred Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions and Interpretation.
In this Preferred Securities Guarantee, unless the context otherwise
requires:
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(a) capitalized terms used in this Preferred Securities Guarantee but not
defined in the preamble above have the respective meanings assigned to them in
this Section 1.1;
(b) terms defined in the Trust Agreement in effect on the date of execution
of this Preferred Securities Guarantee have the same meaning when used in this
Preferred Securities Guarantee unless otherwise defined herein;
(c) a term defined anywhere in this Preferred Securities Guarantee has the
same meaning throughout;
(d) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Preferred Securities Guarantee to Articles and
Sections are to Articles and Sections of this Preferred Securities Guarantee,
unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when used
in this Preferred Securities Guarantee, unless otherwise defined in this
Preferred Securities Guarantee or unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a day on which federal or state
banking institutions in the Borough of Manhattan, The City of New York, or the
State of Delaware are authorized or required by law, executive order or
regulation to close or a day on which the Corporate Trust Office of the
Preferred Guarantee Trustee is closed for business.
"Corporate Trust Office" means the office of the Preferred Guarantee Trustee
at which the corporate trust business of the Preferred Guarantee Trustee shall,
at any particular time, be principally administered, which office at the date of
execution of this Agreement is located at The Bank of New York, 101 Barclay
Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust
Trustee Administration.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the % Junior Subordinated Debentures due 2027, of the
Debenture Issuer held by the Property Trustee of the Trust.
"Debenture Issuer" means the Guarantor.
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"Debt" means with respect to any person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent: (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Persons evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such person whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of derivative products,
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another Person and all dividends
of another Person the payments of which, in either case, such Person has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise.
"Event of Default" means a default by the Guarantor on any of its payment or
other obligations under this Preferred Securities Guarantee.
"Guarantor" means PennFirst Bancorp, Inc., a Pennsylvania corporation.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent
not paid or made by the Trust: (i) any accrued and unpaid Distributions (as
defined in the Trust Agreement) that are required to be paid on such
Preferred Securities, to the extent the Trust shall have funds available
therefor, (ii) the redemption price, including all accrued and unpaid
Distributions to the date of redemption (the "Redemption Price"), to the
extent the Trust has funds available therefor, with respect to any Preferred
Securities called for redemption by the Trust, and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Trust (other than
in connection with the distribution of Junior Subordinated Debentures to the
Holders in exchange for Preferred Securities as provided in the Trust
Agreement or a redemption of all of the Preferred Securities), the lesser of
(a) the aggregate of the liquidation amount and all accrued and unpaid
Distributions on the Preferred Securities to the date of payment, to the
extent the Trust shall have funds available therefor (the "Liquidation
Distribution"), and (b) the amount of assets of the Trust remaining available
for distribution to Holders in liquidation of the Trust.
"Holder" shall mean any holder, as registered on the books and records of
the Trust, of any Preferred Securities; provided, however, that, in determining
whether the holders of the requisite percentage of Preferred Securities have
given any request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor or any Affiliate of the Guarantor.
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"Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of
the Preferred Guarantee Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives, nominees, custodians or agents of
the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of , 1997, among the
Debenture Issuer and The Bank of New York, as trustee, and any supplemental
indenture thereto pursuant to which certain subordinated debt securities of the
Debenture Issuer are to be issued to the Property Trustee of the Trust.
"Junior Subordinated Debentures" shall have the meaning set forth in the
Recitals hereto.
"Liquidation Distribution" has the meaning provided therefor in the
definition of Guarantee Payments. "Majority in liquidation amount of the
Preferred Securities" means the holders of more than 50% of the liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date upon
which the voting percentages are determined) of all of the Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two authorized officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has read
the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
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"Preferred Guarantee Trustee" means The Bank of New York, until a Successor
Preferred Guarantee Trustee has been appointed and has accepted such appointment
pursuant to the terms of this Preferred Securities Guarantee and thereafter
means each such Successor Preferred Guarantee Trustee.
"Redemption Price" has the meaning provided therefor in the definition of
Guarantee Payments.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer of the Preferred Guarantee Trustee, including any
vice-president, any assistant vice-president, any assistant secretary, any
assistant treasurer or other officer customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officers knowledge of and familiarity with
the particular subject.
"Senior Indebtedness" shall have the meaning set forth in Section 16.1 of
the Indenture.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application.
(a) This Preferred Securities Guarantee is subject to the provisions of the
Trust Indenture Act that are required to be part of this Preferred Securities
Guarantee and shall, to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Preferred Securities
Guarantee limits, qualifies or conflicts with the duties imposed by Section 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
Section 2.2 Lists of Holders of Securities.
(a) The Guarantor shall provide the Preferred Guarantee Trustee with a list,
in such form as the Preferred Guarantee Trustee may reasonably require, of the
names and addresses of the Holders of the Preferred Securities ("List of
Holders") as of such date, (i)
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within one Business Day after January 1 and June 30 of each year, and (ii) at
any other time within 30 days of receipt by the Guarantor of a written
request for a List of Holders as of a date no more than 15 days before such
List of Holders is given to the Preferred Guarantee Trustee; provided, that
the Guarantor shall not be obligated to provide such List of Holders at any
time the List of Holders does not differ from the most recent List of Holders
given to the Preferred Guarantee Trustee by the Guarantor. The Preferred
Guarantee Trustee may destroy any List of Holders previously given to it on
receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations under
Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
Section 2.3 Reports by the Preferred Guarantee Trustee.
The Preferred Guarantee Trustee shall provide to the Holders of the
Preferred Securities such reports as are required by Section 313 of the Trust
Indenture Act, if any, in the form and in the manner provided by Section 313 of
the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with
the requirements of Section 313(d) of the Trust Indenture Act.
Section 2.4 Periodic Reports to Preferred Guarantee Trustee.
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as required by Section 314 (if any) and the
compliance certificate required by Section 314 of the Trust Indenture Act in the
form, in the manner and at the times required by Section 314 of the Trust
Indenture Act. Delivery of such reports, information and documents to the
Preferred Guarantee Trustee is for informational purposes only and the Preferred
Guarantee Trustee's receipt of such shall not constitute constructive notice of
any information contained therein or determinable from information contained
herein, including the Guarantor's compliance with any of its covenants hereunder
(as to which the Preferred Guarantee Trustee is entitled to rely exclusively on
Officer's Certificates).
Section 2.5 Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Preferred Securities Guarantee that relate to any of the matters set
forth in Section 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given by an officer pursuant to Section 314(c) may be
given in the form of an Officers' Certificate.
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Section 2.6 Events of Default; Waiver.
The Holders of a Majority in liquidation amount of Preferred Securities may,
by vote, on behalf of the Holders of all of the Preferred Securities, waive any
past Event of Default and its consequences. Upon such waiver, any such Event of
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured, for every purpose of this Preferred Securities
Guarantee, but no such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent thereon.
Section 2.7 Event of Default; Notice.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default actually known to a Responsible Officer of the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such notice;
provided, that the Preferred Guarantee Trustee shall be protected in withholding
such notice if and so long as a Responsible Officer of the Preferred Guarantee
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of
any Event of Default unless the Preferred Guarantee Trustee shall have received
written notice, or of which a Responsible Officer of the Preferred Guarantee
Trustee charged with the administration of the Trust Agreement shall have
obtained actual knowledge.
Section 2.8 Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in this
Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
Section 3.1 Powers and Duties of the Preferred Guarantee Trustee.
(a) This Preferred Securities Guarantee shall be held by the Preferred
Guarantee Trustee for the benefit of the Holders of the Preferred Securities,
and the Preferred Guarantee Trustee shall not transfer this Preferred Securities
Guarantee to any Person except a Holder of Preferred Securities exercising his
or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee
Trustee on acceptance by such Successor Preferred Guarantee Trustee of its
appointment to act as Successor Preferred Guarantee Trustee. The right, title
and interest of the Preferred Guarantee Trustee shall automatically
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vest in any Successor Preferred Guarantee Trustee, and such vesting and
cessation of title shall be effective whether or not conveyancing documents
have been executed and delivered pursuant to the appointment of such
Successor Preferred Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer of the
Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Preferred Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6) and is actually known to a Responsible Officer of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such
of the rights and powers vested in it by this Preferred Securities Guarantee,
and use the same degree of care and skill in its exercise thereof, as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be construed
to relieve the Preferred Guarantee Trustee from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) prior to the occurrence of any Event of Default and after the curing
or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Preferred Guarantee
Trustee shall be determined solely by the express provisions of this
Preferred Securities Guarantee, and the Preferred Guarantee Trustee
shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Preferred
Securities Guarantee, and no implied covenants or obligations shall
be read into this Preferred Securities Guarantee against the
Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Preferred
Guarantee Trustee, the Preferred Guarantee Trustee may conclusively
rely, as to the truth of the statements and the correctness of the
opinions expressed herein, upon any certificates or opinions
furnished to the Preferred Guarantee Trustee and conforming to the
requirements of this Preferred Securities Guarantee; but in the case
of any such certificates or opinions that by any provision hereof are
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specifically required to be furnished to the Preferred Guarantee
Trustee, the Preferred Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Preferred Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer of the Preferred
Guarantee Trustee, unless it shall be proved that the Preferred Guarantee
Trustee was negligent in ascertaining the pertinent facts upon which such
judgment was made;
(iii) the Preferred Guarantee Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in accordance
with the written direction of the Holders of not less than a Majority in
liquidation amount of the Preferred Securities relating to the time, method
and place of conducting any proceeding for any remedy available to the
Preferred Guarantee Trustee, or exercising any trust or power conferred upon
the Preferred Guarantee Trustee under this Preferred Securities Guarantee;
and
(iv) no provision of this Preferred Securities Guarantee shall require
the Preferred Guarantee Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers, if the Preferred
Guarantee Trustee shall have reasonable grounds for believing that the
repayment of such funds or liability is not reasonably assured to it under
the terms of this Preferred Securities Guarantee or indemnity, reasonably
satisfactory to the Preferred Guarantee Trustee, against such risk or
liability is not reasonably assured to it.
Section 3.2 Certain Rights of Preferred Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) the Preferred Guarantee Trustee may conclusively rely, and shall be
fully protected in acting or refraining from acting upon, any resolution,
certificate, statement, instrument, opinion, report notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Guarantor contemplated by this
Preferred Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate;
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(iii) whenever, in the administration of this Preferred Securities
Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a
matter be proved or established before taking, suffering or omitting any
action hereunder, the Preferred Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on its
part, request and conclusively rely upon an Officers' Certificate which,
upon receipt of such request, shall be promptly delivered by the Guarantor;
(iv) the Preferred Guarantee Trustee shall have no duty to see to any
recording, filing or registration of any instrument (or any rerecording,
refiring or reregistration thereof);
(v) the Preferred Guarantee Trustee may consult with counsel of its
situation, and the advice or opinion of such counsel with respect to legal
matters shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and
in accordance with such advice or opinion. Such counsel may be counsel to
the Guarantor or any of its Affiliates and may include any of its employees.
The Preferred Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Preferred Securities
Guarantee from any court of competent jurisdiction;
(vi) the Preferred Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Preferred
Securities Guarantee at the request or direction of any Holder, unless such
Holder shall have provided to the Preferred Guarantee Trustee such security
and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee,
against the costs, expenses (including attorneys' fees and expenses and the
expenses of the Preferred Guarantee Trustee's agents, nominees or
custodians) and liabilities that might be incurred by it in complying with
such request or direction, including such reasonable advances as may be
requested by the Preferred Guarantee Trustee; provided that, nothing
contained in this Section 3.2(a)(vi) shall be taken to relieve the Preferred
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this Preferred
Securities Guarantee;
(vii) the Preferred Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Preferred Guarantee
Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit;
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(viii) the Preferred Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents, nominees, custodians or attorneys, and the Preferred
Guarantee Trustee shall not be responsible for any misconduct or negligence
on the part of any agent or attorney appointed with due care by it
hereunder;
(ix) any action taken by the Preferred Guarantee Trustee or its agents
hereunder shall bind the Holders of the Preferred Securities, and the
signature of the Preferred Guarantee Trustee or its agents alone shall be
sufficient and effective to perform any such action. No third party shall be
required to inquire as to the authority of the Preferred Guarantee Trustee
to so act or as to its compliance with any of the terms and provisions of
this Preferred Securities Guarantee, both of which shall be conclusively
evidenced by the Preferred Guarantee Trustee's or its agent's taking such
action;
(x) whenever in the administration of this Preferred Securities
Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right
or taking any other action hereunder, the Preferred Guarantee Trustee
(i) may request written instructions from the Holders of a Majority in
liquidation amount of the Preferred Securities, (ii) may refrain from
enforcing such remedy or right or taking such other action until such
written instructions are received, and (iii) shall be protected in
conclusively relying on or acting in accordance with such instructions.
(b) No provision of this Preferred Securities Guarantee shall be deemed to
impose any duty or obligation on the Preferred Guarantee Trustee to perform any
act or acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in which the
Preferred Guarantee Trustee shall be unqualified or incompetent in accordance
with applicable law, to perform any such act or acts or to exercise any such
right, power, duty or obligation. No permissive power or authority available to
the Preferred Guarantee Trustee shall be construed to be a duty.
Section 3.3 Not Responsible for Recitals or Issuance of Guarantee.
The Recitals contained in this Guarantee shall be taken as the statements of
the Guarantor, and the Preferred Guarantee Trustee does not assume any
responsibility for their correctness. The Preferred Guarantee Trustee makes no
representation as to the validity or sufficiency of this Preferred Securities
Guarantee.
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ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
Section 4.1 Preferred Guarantee Trustee; Eligibility.
(a) There shall at all times be a Preferred Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws of the
United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the Securities
and Exchange Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000, and
subject to supervision or examination by Federal, State, Territorial or
District of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority referred to above, then, for the purposes
of this Section 4.1 (a)(ii), the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition as published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1 (a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Preferred Guarantee Trustee and Guarantor shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act.
Section 4.2 Appointment, Removal and Resignation of Preferred Guarantee
Trustees.
(a) Subject to Section 4.2(c), the Preferred Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor except during an
Event of Default.
(b) The Preferred Guarantee Trustee may be removed for cause at any time by
Act (within the meaning of Section 608 of the Trust Agreement) of the Holders of
at least a Majority in liquidation amount of the Preferred Securities, delivered
to the Preferred Guarantee Trustee.
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(c) The Preferred Guarantee Trustee shall not be removed in accordance with
Sections 4.2(a) and 4.2(b) until a Successor Preferred Guarantee Trustee has
been appointed and has accepted such appointment by written instrument executed
by such Successor Preferred Guarantee Trustee and delivered to the Guarantor.
(d) The Preferred Guarantee Trustee appointed to office shall hold office
until a Successor Preferred Guarantee Trustee shall have been appointed or until
its removal or resignation. The Preferred Guarantee Trustee may resign from
office (without need for prior or subsequent accounting) by an instrument in
writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.
(e) If no Successor Preferred Guarantee Trustee shall have been appointed
and accepted appointment as provided in this Section 4.2 within 60 days after
delivery of an instrument of resignation, the resigning Preferred Guarantee
Trustee may petition any court of competent jurisdiction for appointment of a
Successor Preferred Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Preferred Guarantee Trustee.
(f) No Preferred Guarantee Trustee shall be liable for the acts or omissions
to act of any Successor Preferred Guarantee Trustee.
(g) Upon termination of this Preferred Securities Guarantee or removal or
resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the
Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued to
the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
Section 5.1 Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by the Trust), as and when due, regardless of any defense, right of set-off or
counterclaim that the Trust may have or assert. The Guarantor's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Trust to pay such
amounts to the Holders.
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Section 5.2 Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Trust or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
Section 5.3 Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor under
this Preferred Securities Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any portion
of the Distributions, Redemption Price, Liquidation Distribution or any other
sums payable under the terms of the Preferred Securities or the extension of
time for the performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Junior Subordinated Debentures);
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Trust granting indulgence or extension of any
kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred Securities;
(f) any failure or omission to receive any regulatory approval or consent
required in connection with the Preferred Securities (or the common equity
securities issued by the Trust), including the failure to receive any regulatory
approval required in connection with the redemption of the Preferred Securities;
-14-
<PAGE>
(g) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(h) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the foregoing.
Section 5.4 Rights of Holders.
(a) The Guarantor expressly acknowledges that: (i) this Guarantee will be
deposited with the Preferred Guarantee Trustee to be held for the benefit of the
Holder; (ii) the Preferred Guarantee Trustee has the right to enforce this
Preferred Securities Guarantee; and (iii) Holders of a Majority in liquidation
amount of the Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Preferred
Guarantee Trustee in respect of this Preferred Securities Guarantee or
exercising any trust or power conferred upon the Preferred Guarantee Trustee
under this Preferred Securities Guarantee.
(b) Any Holder of Preferred Securities may institute a legal proceeding
directly against the Guarantor to enforce its rights under this Preferred
Securities Guarantee, without first instituting a legal proceeding against the
Trust, the Preferred Guarantee Trustee or any other Person.
Section 5.5 Guarantee of Payment.
This Preferred Securities Guarantee creates a guarantee of payment and not
of collection. This Preferred Securities Guarantee will not be discharged except
by payment of the Guarantee Payments in full (without duplication of amounts
theretofore paid by the Trust).
Section 5.6 Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the Holders
of Preferred Securities against the Trust in respect of any amounts paid to
such Holders by the Guarantor under this Preferred Securities Guarantee;
provided, however, that the Guarantor shall not (except to the extent
required by mandatory provisions of law) be entitled to enforce or exercise
any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under
this Preferred Securities Guarantee, if, at the time of any such payment, any
amounts are due and unpaid under this Preferred Securities Guarantee. If any
amount shall be paid to the Guarantor
-15-
<PAGE>
in violation of the preceding sentence, the Guarantor agrees to hold such
amount in trust for the Holders and to pay over such amount to the Holders.
Section 5.7 Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are independent of
the obligations of the Trust with respect to the Preferred Securities, and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (h), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
Section 6.1 Limitation Of Transactions.
So long as any Preferred Securities remain outstanding, if there shall have
occurred an Event of Default under this Preferred Securities Guarantee, an Event
of Default under the Trust Agreement or during an Extended Interest Payment
Period (as defined in the Indenture), then (a) the Guarantor shall not, and
shall not permit any Subsidiary to, declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
the reclassification of any class of the Company's capital stock into another
class of capital stock, (ii) dividends or distributions payable in any class of
the Company's common stock, (iii) any declaration of a dividend in connection
with the implementation of a shareholder rights plan, or the issuance of stock
under any such plan in the future, or the redemption or repurchase of any such
rights pursuant thereto and (iv) purchases of the Company's common stock related
to the rights under any of the Company's benefit plans for its or its
subsidiaries' directors, officers or employees), and (b) the Guarantor shall
not, and shall not permit any Subsidiary to, make any payment of interest or
principal on or repay, repurchase or redeem any debt securities issued by the
Guarantor which rank PARI PASSU with or junior to the Junior Subordinated
Debentures; and (c) the Guarantor shall not redeem, purchase or acquire less
than all of the outstanding Debentures or any of the Preferred Securities.
Section 6.2 Ranking.
This Preferred Securities Guarantee will constitute an unsecured obligation
of the Guarantor and will rank (i) subordinate and junior in right of payment to
all other Senior Indebtedness of the Guarantor, (ii) PARI PASSU with the most
senior preferred securities or preference stock now or hereafter issued by the
Guarantor and with any guarantee now or hereafter entered into by the Guarantor
in respect to any preferred securities or preference stock of any Affiliate of
the Guarantor, and (iii) senior to the Guarantor's common stock.
-16-
<PAGE>
ARTICLE VII
TERMINATION
Section 7.1 Termination.
This Preferred Securities Guarantee shall terminate upon (i) full payment of
the Redemption Price of all Preferred Securities, (ii) upon full payment of the
amounts payable in accordance with the Trust Agreement upon liquidation of the
Trust, or (iii) upon distribution of the Junior Subordinated Debentures to the
Holders of the Preferred Securities. Notwithstanding the foregoing, this
Preferred Securities Guarantee shall continue to be effective or shall be
reinstated, as the case may be, if at any time any Holder of Preferred
Securities must restore payment of any sums paid under the Preferred Securities
or under this Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Exculpation.
(a) No Indemnified Person shall be liable, reasonable or accountable in
damages or otherwise to the Guarantor or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith in accordance with this Preferred Securities
Guarantee and in a manner that such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by this
Preferred Securities Guarantee or by law, except that an Indemnified Person
shall be liable for any such loss, damage or claim incurred by reason of such
Indemnified Person's negligence or willful misconduct with respect to such acts
or omissions.
(b) An Indemnified Person shall be fully protected in relying in good faith
upon the records of the Guarantor and upon such information, opinions, reports
or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
Section 8.2 Indemnification.
The Guarantor agrees to indemnify each Indemnified Person for, and to hold
each Indemnified Person harmless against, any and all loss, liability or
expense, including taxes (other than taxes based on the income of the Guarantee
Trustee) incurred without
-17-
<PAGE>
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of the trust or trusts hereunder, including the
costs and expenses (including reasonable legal fees and expenses) of
defending itself against, or investigating, any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee. The
provisions of this Section shall survive the termination of the Guarantee
Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Successors and Assigns.
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the
Holders of the Preferred Securities then outstanding, except in connection
with a consolidation, merger or sale involving the Guarantor that is
permitted under Article XII of the Indenture and pursuant to which the
assignee agrees in writing to perform the Guarantees obligations hereunder,
and any purported assignment that is not in accordance with these provisions
shall be void.
Section 9.2 Amendments.
Except with respect to any changes that do not materially adversely affect
the rights of Holders (in which case no consent of Holders will be required),
this Preferred Securities Guarantee may only be amended with the prior approval
of the Holders of at least a Majority in liquidation amount of the Preferred
Securities. The provisions of Article VI of the Trust Agreement with respect to
meetings of Holders of the Preferred Securities apply to the giving of such
approval.
Section 9.3 Notices.
All notices provided for in this Preferred Securities Guarantee shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by first-class mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee
Trustee's mailing address set forth below (or such other address as the
Preferred Guarantee Trustee may give notice of to the Holders of the Preferred
Securities):
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<PAGE>
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile No. (212) 815-5915
Attention: Corporate Trust Trustee Administration
(b) If given to the Guarantor, at the Guarantor's mailing address set forth
below (or such other address as the Guarantor may give notice of to the Holders
of the Preferred Securities):
PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
Facsimile No. (412) 758-0576
Attention: President
(c) If given to any Holder of Preferred Securities, at the address set forth
on the books and records of the Trust.
All such notices shall be deemed to have been given when received in person,
telecopied with receipt confirmed, or mailed by first class mail, postage
prepaid except that if a notice or other document is refused delivery or cannot
be delivered because of a changed address of which no notice was given, such
notice or other document shall be deemed to have been delivered on the date of
such refusal or inability to deliver.
Section 9.4 Benefit.
This Preferred Securities Guarantee is solely for the benefit of the Holders
of the Preferred Securities and, subject to Section 3.1(a), is not separately
transferable from the Preferred Securities.
Section 9.5 Governing Law.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
-19-
<PAGE>
This Preferred Securities Guarantee is executed as of the day and year first
above written.
PENNFIRST BANCORP, INC. as
Guarantor
By: ______________________________
Name: Charlotte A. Zuschlag
Title: President and
Chief Executive Officer
THE BANK OF NEW YORK, as
Preferred Guarantee Trustee
By: _______________________________
Name: _______________________________
Title:_______________________________
-20-
<PAGE>
EXHIBIT 5.1
Law Offices
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
12th Floor
734 15th Street, N.W.
Washington, D.C. 20005
Telephone (202) 347-0300
November 7, 1997
Board of Directors
PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
Re: Registration Statement on Form S-2
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act"), of up to $23,000,000 aggregate principal amount of
Junior Subordinated Deferrable Interest Debentures (the "Junior Subordinated
Debentures") of PennFirst Bancorp, Inc., a Pennsylvania corporation (the
"Corporation"), up to $23,000,000 aggregate liquidation amount of Cumulative
Trust Preferred Securities (the "Trust Preferred Securities") of PennFirst
Capital Trust I, a business trust created under the laws of the State of
Delaware (the "Issuer"), and the Guarantee with respect to the Trust
Preferred Securities (the "Guarantee") to be executed and delivered by the
Corporation for the benefit of the holders from time to time of the Trust
Preferred Securities, we, as your counsel, have examined such corporate
records, certificates and other documents, and such questions of law, as we
have considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, when:
(i) the Registration Statement relating to the Junior Subordinated
Debentures, the Trust Preferred Securities and the Guarantee has become
effective under the Act;
(ii) the Guarantee Agreement relating to the Guarantee with respect to
the Trust Preferred Securities of the Issuer has been duly executed and
delivered;
(iii) the Junior Subordinated Debentures have been duly executed
and authenticated in accordance with the Indenture and issued and delivered
as contemplated in the Registration Statement; and
<PAGE>
(iv) the Trust Preferred Securities have been duly executed in
accordance with the Amended and Restated Trust Agreement of the Issuer and
issued and delivered as contemplated in the Registration Statement,
the Junior Subordinated Debentures and the Guarantee relating to the Trust
Preferred Securities of the Issuer will constitute valid and legally binding
obligations of the Corporation, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
We understand that you have received an opinion regarding the Trust
Preferred Securities from Richards, Layton & Finger, P.A., special Delaware
counsel for the Corporation and the Issuer. We are expressing no opinion with
respect to the matters contained in such opinion.
Also, we have relied as to certain matters on information obtained from
public officials, officers of the Corporation and other sources believed by us
to be responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the heading "Validity
of Securities" in the 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 Act.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P
By: /s/ Kenneth B. Tabach
----------------------------
Kenneth B. Tabach, a Partner
<PAGE>
[Letterhead of Richards, Layton & Finger]
November 7, 1997
PennFirst Capital Trust I
c/o PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
Re: PennFirst Capital Trust I
Ladies and Gentlemen:
We have acted as special Delaware counsel for PennFirst Bancorp, Inc., a
Pennsylvania corporation (the "Company"), and PennFirst Capital Trust I, a
Delaware business trust (the "Trust"), in connection with the matters set forth
herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated as of November 5, 1997
(the "Certificate"), as filed in the office of the Secretary of State of the
State of Delaware (the "Secretary of State") on November 5, 1997;
(b) The Trust Agreement of the Trust, dated as of November 5, 1997,
among the Company and the trustees of the Trust named therein;
<PAGE>
PennFirst Capital Trust I
November 7, 1997
Page 2
(c) The Registration Statement on Form S-2 (the "Registration
Statement"), including a preliminary prospectus (the "Prospectus") relating
to the __% Cumulative Trust Preferred Securities of the Trust, representing
undivided beneficial interests in the assets of the Trust (each, a "Preferred
Security" and collectively, the "Preferred Securities"), as proposed to be
filed by the Company and the Trust with the Securities and Exchange
Commission on or about November 7, 1997;
(d) A form of Amended and Restated Trust Agreement of the Trust, to
be entered into among the Company, as depositor, the trustees of the Trust
named therein and the holders, from time to time, of undivided beneficial
interests in the assets of the Trust (including Exhibits A, C and E thereto)
(the "Trust Agreement"), attached as an exhibit to the Registration
Statement; and
(e) A Certificate of Good Standing for the Trust, dated November 7,
1997, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents
other than the documents listed in paragraphs (a) through (e) above. In
particular, we have not reviewed any document (other than the documents
listed in paragraphs (a) through (e) above) that is referred to in or
incorporated by reference into the documents reviewed by us. We have assumed
that there exists no provision in any document that we have not reviewed that
is inconsistent with the opinions stated herein. We have conducted no
independent factual investigation of our own but rather have relied solely
upon the foregoing documents, the statements and information set forth
therein and the additional matters recited or assumed herein, all of which we
have assumed to be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii)
the conformity with the originals of all documents submitted to us as copies
or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement and the Certificated are in full force and effect and have not been
amended, (ii) except to the extent provided in paragraph 1 below, the due
creation or due organization or due formation, as the case may be, and valid
existence in good standing of each party to the documents examined by us
under the laws of the jurisdiction governing its creation, organization or
formation, (iii) the legal capacity of natural persons who are parties to the
<PAGE>
PennFirst Capital Trust I
November 7, 1997
Page 3
documents examined by us, (iv) that each of the parties to the documents
examined by us has the power and authority to execute and deliver, and to
perform its obligations under, such documents, (v) the due authorization,
execution and delivery by all parties thereto of all documents examined by
us, (vi) the receipt by each Person to whom a Preferred Security is to be
issued by the Trust (collectively, the "Preferred Security Holders") of a
Preferred Securities Certificate and the payment for the Preferred Security
acquired by it, in accordance with the Trust Agreement and the Registration
Statement, and (vii) that the Preferred Securities are issued to the
Preferred Security Holders in accordance with the Trust Agreement and the
Registration Statement. We have not participated in the preparation of the
Registration Statement and assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our
opinions are rendered only with respect to Delaware laws and rules,
regulations and orders thereunder which are currently in effect.
Based upon the foregoing, and upon our examination of such questions
of law and statutes of the State of Delaware as we have considered necessary
or appropriate, and subject to the assumptions, qualifications, limitations
and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act.
2. The Preferred Securities will represent valid and, subject to
the qualifications set forth in paragraph 3 below, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended
to stockholders of private corporations for profit organized under the
General Corporation Law of the State of Delaware. We note that Preferred
Security Holders may be obligated to make payments under the Trust Agreement.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In
addition, we hereby consent to the use of our name under the heading
"Validity of Securities" in the Prospectus. In giving the foregoing
consents, we do not thereby admit that we come within the category of Persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission
<PAGE>
PennFirst Capital Trust I
November 7, 1997
Page 4
thereunder. Except as stated above, without our prior written consent, this
opinion may not be furnished or quoted to, or relied upon by, any other
Person for any purpose.
Very truly yours,
/s/Richards, Layton & Finger
BJK/BJ/bj
<PAGE>
EXHIBIT 8
Law Offices
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
12th Floor
734 15th Street, N.W.
Washington, D.C. 20005
Telephone (202) 347-0300
November 7, 1997
Board of Directors
PennFirst Bancorp, Inc.
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
Re: Registration Statement on Form S-2
Ladies and Gentlemen:
As special federal tax counsel to PennFirst Capital Trust I (the "Issuer")
and PennFirst Bancorp, Inc. in connection with the issuance by the Issuer of up
to $23,000,000 of its Cumulative Trust Preferred Securities pursuant to the
prospectus (the "Prospectus") contained in the Registration Statement, and
assuming the operative documents described in the Prospectus will be performed
in accordance with the terms described therein, we hereby confirm to you our
opinion as set forth under the heading "Certain Federal Income Tax Consequences"
in the Prospectus, subject to the limitations set forth therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the heading "Certain
Federal Income Tax Consequences" in the 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 Act.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P
By: /s/ Kenneth B. Tabach
------------------------------
Kenneth B. Tabach, a Partner
<PAGE>
EXHIBIT 12
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Including Interest on Deposits)
The Corporation's ratios of earnings to fixed charges (including interest
on deposits) for the periods indicated were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income..................................... $ 4,032 $ 1,814 $ 2,830 $ 3,968 $ 3,859 $ 3,282 $ 2,304
Extraordinary items, net of tax................ -- -- -- -- -- -- --
Cumulative effect of changes in accounting
principle.................................... -- -- -- -- -- (125) --
Income tax expense............................. 1,446 364 703 1,967 2,461 1,902 1,420
--------- --------- --------- --------- --------- --------- ---------
Pretax earnings............................... $ 5,478 $ 2,178 $ 3,533 $ 5,935 $ 6,320 $ 5,059 $ 3,724
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Fixed charges:
Portion of rental expense which approximates
the interest factor.......................... -- -- -- -- -- -- --
Interest Expense............................... 28,040 24,240 32,629 30,219 22,159 14,585 13,365
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges........................... $ 28,040 $ 24,240 $ 32,629 $ 30,219 $ 22,159 $ 14,585 $ 13,365
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings (for ratio calculation)............... $ 33,518 $ 26,418 $ 36,162 $ 36,154 $ 28,479 $ 19,644 $ 17,089
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of earnings to fixed charges............. 1.20 x 1.09 x 1.11 x 1.20x 1.29 x 1.35 x 1.28x
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed
charges, "earnings" represent net income (loss) before extraordinary items and
cumulative effect of changes in accounting principles plus applicable income
taxes and fixed charges. Fixed charges, excluding interest on deposits, include
gross interest expense (other than on deposits) and the portion deemed
representative of the interest factor of rent expense, net of income from
subleases. Fixed charges, including gross interest on deposits, include all
interest expense and the portion deemed representative of the interest factor of
rent expense.
1 OF 2
<PAGE>
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(Excluding Interest on Deposits)
The Corporation's ratios of earnings to fixed charges (excluding interest on
deposits) for the periods indicated were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income...................................... $ 4,032 $ 1,814 $ 2,830 $ 3,968 $ 3,859 $ 3,282 $ 2,304
Extraordinary items, net of tax................. -- -- -- -- -- -- --
Cumulative effect of changes in accounting
principle..................................... -- -- -- -- -- (125) --
Income tax expense.............................. 1,446 364 703 1,967 2,461 1,902 1,420
--------- --------- --------- --------- --------- --------- ---------
Pretax earnings................................. $ 5,478 $ 2,178 $ 3,533 $ 5,935 $ 6,320 $ 5,059 $ 3,724
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Fixed charges:
Portion of rental expense which approximates the
interest factor............................... -- -- -- -- -- -- --
Interest on borrowed funds...................... 15,829 13,377 18,201 15,498 10,961 6,362 3,085
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges............................. $ 15,829 $ 13,377 $ 18,201 $ 15,498 $ 10,961 $ 6,362 $ 3,085
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings (for ratio calculation)................ $ 21,307 $ 15,555 $ 21,734 $ 21,433 $ 17,281 $ 11,421 $ 6,809
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of earnings to fixed charges.............. 1.35 x 1.16 x 1.19 x 1.38x 1.58 x 1.80 x 2.21 x
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed
charges, "earnings" represent net income (loss) before extraordinary items and
cumulative effect of changes in accounting principles plus applicable income
taxes and fixed charges. Fixed charges, excluding interest on deposits, include
gross interest expense (other than on deposits) and the portion deemed
representative of the interest factor of rent expense, net of income from
subleases. Fixed charges, including gross interest on deposits, include all
interest expense and the portion deemed representative of the interest factor of
rent expense.
2 OF 2
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-2 of PennFirst Bancorp, Inc. and the related Prospectus of our
report dated January 23, 1997, with respect to the consolidated financial
statements of PennFirst Bancorp, Inc. and subsidiaries as of December 31,
1996 and 1995, and for each of the years in the three-year period ended
December 31, 1996, which report is included in the Annual Report to
Stockholders which is incorporated by references in the Annual Report on Form
10-K filed by PennFirst Bencorp. Inc. for the year ended December 31, 1996,
and to the reference to our firm under the heading "Experts" in the
Registration Statement and the related Prospectus.
/s/KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
November 7, 1997
<PAGE>
Exhibit 25.1
===========================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) / /
------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
------------------------
PENNFIRST BANCORP, INC.
(Exact name of obligor as specified in its charter)
Pennsylvania 25-1659846
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
(Address of principal executive offices) (Zip code)
------------------------
Junior Subordinated Deferrable Interest Debentures
(Title of the indenture securities)
============================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- -------------------------------------------------------------------------------
Name Address
- -------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
2
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in The City of New
York, and State of New York, on the 5th day of November, 1997.
THE BANK OF NEW YORK
By: /S/MARY BETH A. LEWICKI
--------------------------------
Name: MARY BETH A. LEWICKI
Title: ASSISTANT VICE PRESIDENT
4
<PAGE>
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business
June 30, 1997, published in accordance with a call made by the
Federal Reserve Bank of this District pursuant to the provisions
of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 7,769,502
Interest-bearing balances .......... 1,472,524
Securities:
Held-to-maturity securities ........ 1,080,234
Available-for-sale securities ...... 3,046,199
Federal funds sold and Securities pur-
chased under agreements to resell..... 3,193,800
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................35,352,045
LESS: Allowance for loan and
lease losses ..............625,042
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve.... 34,726,574
Assets held in trading accounts ...... 1,611,096
Premises and fixed assets (including
capitalized leases) ................ 676,729
Other real estate owned .............. 22,460
Investments in unconsolidated
subsidiaries and associated
companies .......................... 209,959
Customers' liability to this bank on
acceptances outstanding ............ 1,357,731
Intangible assets .................... 720,883
Other assets ......................... 1,627,267
-----------
Total assets ......................... $57,514,958
-----------
-----------
LIABILITIES
Deposits:
In domestic offices ................ $26,875,596
Noninterest-bearing ......11,213,657
Interest-bearing .........15,661,939
In foreign offices, Edge and
Agreement subsidiaries, and IBFs... 16,334,270
Noninterest-bearing .........596,369
Interest-bearing .........15,737,901
Federal funds purchased and Securities
sold under agreements to repurchase. 1,583,157
Demand notes issued to the U.S.
Treasury ........................... 303,000
Trading liabilities .................. 1,308,173
Other borrowed money:
With remaining maturity of one year
or less .......................... 2,383,570
With remaining maturity of more than
one year through three years...... 0
With remaining maturity of more than
three years ...................... 20,679
Bank's liability on acceptances exe-
cuted and outstanding .............. 1,377,244
Subordinated notes and debentures .... 1,018,940
Other liabilities .................... 1,732,792
-----------
Total liabilities .................... 52,937,421
-----------
EQUITY CAPITAL
Common stock ........................ 1,135,284
Surplus ............................. 731,319
Undivided profits and capital
reserves .......................... 2,721,258
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ 1,948
Cumulative foreign currency transla-
tion adjustments .................. (12,272)
-----------
Total equity capital ................ 4,577,537
-----------
Total liabilities and equity
capital ........................... $57,514,958
------------
------------
I, Robert E. Keilman, Senior Vice President and Comptroller
of the above-named bank do hereby declare that this Report of
Condition has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System
and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of
this Report of Condition and declare that it has been examined by
us and to the best of our knowledge and belief has been prepared
in conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true and correct.
Thomas A. Renyi Directors
J. Carter Bacot
Alan R. Griffith
<PAGE>
Exhibit 25.2
- -------------------------------------------------------------------------------
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) / /
--------------------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
--------------------------------------
PENNFIRST CAPITAL TRUST I
(Exact name of obligor as specified in its charter)
Delaware Applied for
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
(Address of principal executive offices) (Zip code)
--------------------------------------
Trust Preferred Securities
(Title of the indenture securities)
- -------------------------------------------------------------------------------
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- ---------------------------------------------------------------------------
Name Address
- ---------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
2
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 5th day of November, 1997.
THE BANK OF NEW YORK
By: /S/MARY BETH A. LEWICKI
----------------------------
Name: MARY BETH A. LEWICKI
Title: ASSISTANT VICE PRESIDENT
4
<PAGE>
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business
June 30, 1997, published in accordance with a call made by the
Federal Reserve Bank of this District pursuant to the provisions
of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 7,769,502
Interest-bearing balances .......... 1,472,524
Securities:
Held-to-maturity securities ........ 1,080,234
Available-for-sale securities ...... 3,046,199
Federal funds sold and Securities pur-
chased under agreements to resell..... 3,193,800
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................35,352,045
LESS: Allowance for loan and
lease losses ..............625,042
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve.... 34,726,574
Assets held in trading accounts ...... 1,611,096
Premises and fixed assets (including
capitalized leases) ................ 676,729
Other real estate owned .............. 22,460
Investments in unconsolidated
subsidiaries and associated
companies .......................... 209,959
Customers' liability to this bank on
acceptances outstanding ............ 1,357,731
Intangible assets .................... 720,883
Other assets ......................... 1,627,267
-----------
Total assets ......................... $57,514,958
-----------
-----------
LIABILITIES
Deposits:
In domestic offices ................ $26,875,596
Noninterest-bearing ......11,213,657
Interest-bearing .........15,661,939
In foreign offices, Edge and
Agreement subsidiaries, and IBFs... 16,334,270
Noninterest-bearing .........596,369
Interest-bearing .........15,737,901
Federal funds purchased and Securities
sold under agreements to repurchase. 1,583,157
Demand notes issued to the U.S.
Treasury ........................... 303,000
Trading liabilities .................. 1,308,173
Other borrowed money:
With remaining maturity of one year
or less .......................... 2,383,570
With remaining maturity of more than
one year through three years...... 0
With remaining maturity of more than
three years ...................... 20,679
Bank's liability on acceptances exe-
cuted and outstanding .............. 1,377,244
Subordinated notes and debentures .... 1,018,940
Other liabilities .................... 1,732,792
-----------
Total liabilities .................... 52,937,421
-----------
EQUITY CAPITAL
Common stock ........................ 1,135,284
Surplus ............................. 731,319
Undivided profits and capital
reserves .......................... 2,721,258
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ 1,948
Cumulative foreign currency transla-
tion adjustments .................. (12,272)
-----------
Total equity capital ................ 4,577,537
-----------
Total liabilities and equity
capital ........................... $57,514,958
------------
------------
I, Robert E. Keilman, Senior Vice President and Comptroller
of the above-named bank do hereby declare that this Report of
Condition has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System
and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of
this Report of Condition and declare that it has been examined by
us and to the best of our knowledge and belief has been prepared
in conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true and correct.
Thomas A. Renyi Directors
J. Carter Bacot
Alan R. Griffith
<PAGE>
Exhibit 25.3
===========================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) / /
-----------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
------------------------
PENNFIRST BANCORP, INC.
(Exact name of obligor as specified in its charter)
Pennsylvania 25-1659846
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
600 Lawrence Avenue
Ellwood City, Pennsylvania 16117
(Address of principal executive offices) (Zip code)
------------------------
Guarantee of Trust Preferred Securities of
PennFirst Capital Trust I
(Title of the indenture securities)
=============================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
-----------------------------------------------------------------------------
Name Address
-----------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such affilia-
tion.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and
17 C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
2
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 5th day of November, 1997.
THE BANK OF NEW YORK
By: /S/ MARY BETH A. LEWICKI
-------------------------------
Name: MARY BETH A. LEWICKI
Title: ASSISTANT VICE PRESIDENT
4
<PAGE>
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business
June 30, 1997, published in accordance with a call made by the
Federal Reserve Bank of this District pursuant to the provisions
of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 7,769,502
Interest-bearing balances .......... 1,472,524
Securities:
Held-to-maturity securities ........ 1,080,234
Available-for-sale securities ...... 3,046,199
Federal funds sold and Securities pur-
chased under agreements to resell..... 3,193,800
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................35,352,045
LESS: Allowance for loan and
lease losses ..............625,042
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve.... 34,726,574
Assets held in trading accounts ...... 1,611,096
Premises and fixed assets (including
capitalized leases) ................ 676,729
Other real estate owned .............. 22,460
Investments in unconsolidated
subsidiaries and associated
companies .......................... 209,959
Customers' liability to this bank on
acceptances outstanding ............ 1,357,731
Intangible assets .................... 720,883
Other assets ......................... 1,627,267
-----------
Total assets ......................... $57,514,958
-----------
-----------
LIABILITIES
Deposits:
In domestic offices ................ $26,875,596
Noninterest-bearing ......11,213,657
Interest-bearing .........15,661,939
In foreign offices, Edge and
Agreement subsidiaries, and IBFs... 16,334,270
Noninterest-bearing .........596,369
Interest-bearing .........15,737,901
Federal funds purchased and Securities
sold under agreements to repurchase. 1,583,157
Demand notes issued to the U.S.
Treasury ........................... 303,000
Trading liabilities .................. 1,308,173
Other borrowed money:
With remaining maturity of one year
or less .......................... 2,383,570
With remaining maturity of more than
one year through three years...... 0
With remaining maturity of more than
three years ...................... 20,679
Bank's liability on acceptances exe-
cuted and outstanding .............. 1,377,244
Subordinated notes and debentures .... 1,018,940
Other liabilities .................... 1,732,792
-----------
Total liabilities .................... 52,937,421
-----------
EQUITY CAPITAL
Common stock ........................ 1,135,284
Surplus ............................. 731,319
Undivided profits and capital
reserves .......................... 2,721,258
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ 1,948
Cumulative foreign currency transla-
tion adjustments .................. (12,272)
-----------
Total equity capital ................ 4,577,537
-----------
Total liabilities and equity
capital ........................... $57,514,958
------------
------------
I, Robert E. Keilman, Senior Vice President and Comptroller
of the above-named bank do hereby declare that this Report of
Condition has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System
and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of
this Report of Condition and declare that it has been examined by
us and to the best of our knowledge and belief has been prepared
in conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true and correct.
Thomas A. Renyi Directors
J. Carter Bacot
Alan R. Griffith
