<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For Quarter Ended: March 31, 1997 Commission File Number: 0-19345
PENNFIRST BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1659846
- -------------------------------------- -------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
600 Lawrence Avenue, Ellwood City, PA 16117
- -------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
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 April 30, 1997:
Common Stock, $0.01 par value 3,911,030 shares
----------------------------- ----------------
(Class) (Outstanding)
<PAGE>
PENNFIRST BANCORP, INC.
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of March 31, 1997 (Unaudited)
and December 31, 1996.................................. 1
Consolidated Statements of Operations for
the three months ended March 31, 1997 and
1996 (Unaudited)....................................... 2
Consolidated Statements of Cash Flows for
the three months ended March 31, 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 ........................................... 7
PART II--OTHER INFORMATION
Item 1. Legal Proceedings .................................... 13
Item 2. Changes in Securities ................................. 13
Item 3. Defaults Upon Senior Securities ....................... 13
Item 4. Submission of Matters to a Vote of Security
Holders ............................................... 13
Item 5. Other Information ..................................... 14
Item 6. Exhibits and Reports on Form 8-K ...................... 14
Signatures ........................................... 15
</TABLE>
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
As of March 31, 1997 and December 31, 1996
(Dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- ------------
<S> <C> <C>
Assets:
Cash on hand and in banks......................................... $ 2,134 $ 1,884
Interest-earning deposits......................................... 4,208 5,244
Federal funds sold................................................ 1,117 156
Securities available for sale; cost of $352,063 and $347,924...... 348,868 348,129
Securities held to maturity; market value of $95,460 and
$93,561......................................................... 99,223 96,200
Loans receivable, net............................................. 219,875 216,865
Accrued interest receivable....................................... 5,179 5,557
Federal Home Loan Bank stock...................................... 15,003 15,153
Premises and equipment, net....................................... 2,705 2,740
Real estate acquired through foreclosure, net..................... 34 37
Prepaid expenses and other assets................................. 7,891 6,770
----------- ------------
$ 706,237 $ 698,735
----------- ------------
----------- ------------
Liabilities and stockholders' equity:
Liabilities:
Deposits........................................................ $ 336,524 $ 332,889
Advance payments by borrowers for taxes and insurance........... 2,080 1,855
Borrowed funds.................................................. 313,503 309,195
Accrued expenses and other liabilities.......................... 4,184 3,253
----------- ------------
Total liabilities............................................. 656,291 647,192
----------- ------------
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 4,364,023, respectively................................ 44 44
Additional paid-in capital...................................... 26,470 26,465
Retained earnings, substantially restricted..................... 32,707 31,990
Treasury stock, at cost; 452,993 and 462,243 shares............. (5,836) (5,956)
Unearned Employee Stock Ownership Plan shares................... (1,331) (1,136)
Unrealized (loss)/gain on securities available for sale, net.... (2,108) 136
----------- ------------
Total stockholders' equity.................................... 49,946 51,543
----------- ------------
$ 706,237 $ 698,735
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended March 31, 1997 and 1996 (Unaudited)
(Dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Interest income:
Loans receivable.................................................. $ 4,309 $ 3,865
Securities available for sale..................................... 5,927 5,449
Securities held to maturity....................................... 1,479 1,755
Federal Home Loan Bank stock...................................... 236 202
---------- ----------
Total interest income........................................... 11,951 11,271
---------- ----------
Interest expense:
Deposits.......................................................... 3,593 3,694
Borrowed funds.................................................... 4,742 4,139
---------- ----------
Total interest expense.......................................... 8,335 7,833
---------- ----------
Net interest income before provision for loan losses................ 3,616 3,438
Provision for loan losses......................................... 200 284
---------- ----------
Net interest income after provision for loan losses................. 3,416 3,154
---------- ----------
Other operating income:
Loan fees and service charges..................................... 194 165
Gain/(loss) on sales of securities available for sale............. (37) 1
Other non-interest income......................................... 16 20
---------- ----------
Total other operating income.................................... 173 186
---------- ----------
Other operating expenses:
Salaries and personnel............................................ 1,112 1,058
Occupancy and equipment........................................... 246 256
Federal insurance premiums........................................ 10 194
Data processing................................................... 104 95
Other............................................................. 561 285
---------- ----------
Total other operating expenses.................................. 2,033 1,888
---------- ----------
Net income before income taxes...................................... 1,556 1,452
Provision for income taxes........................................ 411 437
---------- ----------
Net income.......................................................... $ 1,145 $ 1,015
---------- ----------
---------- ----------
Net income per share................................................ $ 0.29 $ 0.25
---------- ----------
---------- ----------
Dividends per share................................................. $ 0.09 $ 0.09
---------- ----------
---------- ----------
Weighted average shares and equivalents outstanding................. 3,887,078 4,043,232
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
PENNFIRST BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended March 31, 1997 and 1996 (Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Operating activities:
Net income............................................................. $ 1,145 $ 1,015
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization...................................... 84 106
Provision for losses............................................... 207 294
Amortization of premiums and accretion of discounts................ 117 324
Loss/(gain) on sales of securities available for sale.............. 37 (1)
Decrease/(increase) in accrued interest receivable................. 378 (556)
Increase in prepaid expenses and other assets...................... (35) (38)
Increase in accrued expenses and other liabilities................. 1,226 627
Other.............................................................. 13 9
--------- ---------
Net cash provided by operating activities............................ 3,172 1,780
--------- ---------
Investing activities:
Loan originations and purchases........................................ (14,553) (16,411)
Purchases of:
Securities available for sale........................................ (25,516) (63,972)
Securities held to maturity.......................................... (5,970) (8,489)
Principle repayments of:
Loans................................................................ 11,343 13,948
Securities available for sale........................................ 11,540 16,471
Securities held to maturity.......................................... 2,827 2,925
Proceeds from the sale of securities available for sale................ 9,774 27,610
Proceeds from maturities of:
Securities available for sale........................................ -- 650
Securities held to maturity.......................................... 25 5,140
Redemption/(purchase) of Federal Home Loan Bank stock.................. 150 (1,050)
Purchases of premises and equipment.................................... (49) (89)
--------- ---------
Net cash used in investing activities................................ (10,429) (23,267)
--------- ---------
Financing activities:
Net increase/(decrease) in deposits.................................... 3,635 (987)
Net increase in borrowed funds......................................... 4,308 23,548
Proceeds received from exercise of stock options....................... 35 136
Dividends paid......................................................... (351) (360)
Payments to acquire treasury stock..................................... -- (348)
Stock purchased by Employee Stock Ownership Plan (ESOP)................ (242) (96)
Principal repayment of ESOP loan....................................... 47 60
--------- ---------
Net cash provided by financing activities............................ 7,432 21,953
--------- ---------
Net increase in cash equivalents......................................... 175 466
Cash equivalents at beginning of period.................................. 7,284 6,794
--------- ---------
Cash equivalents at end of period........................................ $ 7,459 $ 7,260
--------- ---------
--------- ---------
Supplemental information:
Interest paid.......................................................... $ 7,611 $ 7,327
Income taxes paid...................................................... 6 77
Non-cash transactions:
Transfers from loans receivable to real estate acquired through
foreclosure........................................................ -- 15
Dividends declared but not paid...................................... 352 352
</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 thrift holding company. The
consolidated financial statements include the accounts of the Company and its
direct and indirect wholly owned subsidiaries, ESB Bank, F.S.B. (the "Bank"),
PennFirst Financial Services, Inc. and AMSCO, Inc.
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 month period ended March 31, 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. SUBSEQUENT EVENT
On September 16, 1996, the Company entered into an Agreement and Plan of
Reorganization with Troy Hill Bancorp, Inc. ("THBC"), pursuant to which THBC
was to be merged with and into the Company with the Company as the surviving
corporation.
On April 3, 1997, the Company, following the receipt of all required
regulatory and stockholder approvals, completed the acquisition of THBC.
Under the terms of the agreement each shareholder of THBC received $21.15 for
each share of THBC common stock owned and had the option of receiving the
consideration as either all cash or all Company stock. The acquisition was
accounted for under the purchase method of accounting.
At March 31, 1997, THBC had total consolidated assets of $107.8 million,
total consolidated liabilities of $89.2 million, including total consolidated
deposits of $53.5 million, and total consolidated stockholders' equity of
$18.6 million. THBC reported consolidated net income of $326,000 for the nine
months ended March 31, 1997.
Upon consummation of the acquisition, THBC's wholly owned savings bank
subsidiary, Troy Hill Federal Savings Bank, began operating as a wholly owned
subsidiary of the Company.
4
<PAGE>
3. SECURITIES
The securities available for sale and securities held to maturity
portfolios consist of the following:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -------------------------------------------------------------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available for sale:
March 31, 1997:
U.S. government securities................................ $ 27,492 $ -- $ (1,016) $ 26,476
Municipal securities...................................... 53,477 269 (543) 53,203
FHLMC preferred stock..................................... 250 1 -- 251
Mortgage backed securities................................ 270,844 1,189 (3,095) 268,938
-------------- ----------- ----------- -----------
$ 352,063 $ 1,459 $ (4,654) $ 348,868
-------------- ----------- ----------- -----------
-------------- ----------- ----------- -----------
December 31, 1996:
U.S. government securities................................ $ 32,489 $ 19 $ (612) $ 31,896
Municipal securities...................................... 56,084 679 (225) 56,538
FHLMC preferred stock..................................... 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:
March 31, 1997:
U.S. government securities................................ $ 20,474 $ -- $ (496) $ 19,978
Municipal securities...................................... 569 12 -- 581
Mortgage backed securities................................ 78,180 -- (3,279) 74,901
-------------- ----------- ----------- -----------
$ 99,223 $ 12 $ (3,775) $ 95,460
-------------- ----------- ----------- -----------
-------------- ----------- ----------- -----------
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>
MARCH 31, DECEMBER 31,
(IN THOUSANDS) 1997 1996
- ------------------------------------------------------------------ -------------- ----------
<S> <C> <C>
Mortgage loans:
Residential--single family...................................... $ 129,670 $ 126,854
Residential--multi family....................................... 3,555 3,516
Commercial real estate.......................................... 20,833 20,473
Construction.................................................... 19,304 20,942
-------------- ----------
173,362 171,785
Other loans:
Consumer loans.................................................. 45,554 45,486
Commercial business............................................. 9,265 9,656
-------------- ----------
228,181 226,927
Less:
Allowance for loan losses....................................... 3,512 3,309
Deferred loan fees and net discounts............................ 346 380
Loans in process................................................ 4,448 6,373
-------------- ----------
$ 219,875 $ 216,865
-------------- ----------
-------------- ----------
</TABLE>
5
<PAGE>
5. DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS) MARCH 31, 1997 DECEMBER 31, 1996
---------------------------------- --------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
TYPE OF ACCOUNTS RATE AMOUNT % RATE AMOUNT %
- ----------------------------------------- ----------------- ---------- ------- -------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing...................... -- $ 3,981 1.2% -- $ 5,082 1.5%
Interest-bearing demand deposits......... 2.71% 137,270 40.8% 2.72% 137,807 41.4%
Time depostis............................ 5.71% 195,273 58.0% 5.67% 190,000 57.1%
-------- ----- ------- -----
4.42% $336,524 100.0% 4.36% $ 332,889 100.0%
-------- ----- ------- -----
-------- ----- ------- -----
</TABLE>
6. BORROWED FUNDS
Borrowed funds consist of the following:
<TABLE>
(DOLLAR AMOUNTS IN THOUSANDS) MARCH 31, 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....................... 6.17% $176,335 6.17% $158,335
Due beyond 12 months but within 5 years.... 6.11% 120,729 5.98% 135,721
Due beyond 5 years but within 10 years..... 8.82% 1,072 8.82% 1,072
Due beyond 10 years........................ 6.62% 393 6.61% 394
-------- -------
298,529 295,522
Treasury tax and loan note payable......... -- 119 -- 223
Reverse repurchase agreements.............. 5.73% 14,855 5.58% 13,450
-------- -------
$313,503 $309,195
-------- -------
-------- -------
</TABLE>
6
<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 by $7.5 million or 1.1% to
$706.2 million at March 31, 1997 from $698.7 million at December 31, 1996. This
increase was primarily due to increases of $3.8 million or 0.8% in securities
(both available for sale and held to maturity), $3.0 million or 1.4% in loans
receivable, $1.1 million or 16.6% in prepaid expenses and other assets and
$175,000 or 2.4% in cash and cash equivalents (which consist of cash,
interest-earning deposits and federal funds sold). The increase in total assets
reflects a corresponding increase in total liabilities of $9.1 million or 1.4%
and a decrease in stockholders' equity of $1.6 million or 3.1%. The increase in
total liabilities included a $4.3 million or 1.4% increase in borrowed funds and
a $3.6 million or 1.1% increase in total deposits.
Cash on Hand, Interest-Earning Deposits and Federal Funds Sold. Cash and
cash equivalents increased a combined $175,000 or 2.4% to $7.5 million at March
31, 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 withdraws, new loan originations, security purchases and repayments of
borrowed funds.
Securities. The Company's securities portfolios increased by $3.8 million
or 0.8 % to $448.1 million at March 31, 1997 from $444.3 million at December 31,
1996. This net increase was attributable to $31.5 million of purchases,
partially offset by $14.4 million of maturities and repayments of principal,
$9.8 million of securities sold during the period and an increase in unrealized
losses, net of income taxes, on securities available for sale of $2.2 million
during the period.
Loans Receivable. Net loans receivable increased $3.0 million or 1.4% to
$219.9 million at March 31, 1997 from $216.9 million at December 31, 1996.
Included in this increase was an increase of $1.6 million in mortgage loans and
a decrease of $1.9 million in loans in process. Partially offsetting these
factors contributing to the increase in loans receivable was a decrease in other
loans of $323,000 and an increase in the allowance for loan losses of $203,000.
Nonperforming Assets. Nonperforming assets include nonaccrual loans and
real estate acquired through foreclosure. Nonperforming assets amounted to $4.1
million or 0.6% of total assets at March 31, 1997 and December 31, 1996.
Prepaid expenses and other assets. Prepaid expenses and other assets
increased $1.1 million or 16.6% to $7.9 million at March 31, 1997 from $6.8
million at December 31, 1996. This increase can be attributed to an increase in
deferred income tax assets of $1.2 million.
Deposits. Total deposits increased $3.6 million or 1.1% to $336.5 million
at March 31, 1997 from $332.9 million at December 31, 1996. This increase was
primarily attributable to an increase of $5.3 million in time deposits,
partially offset by decreases of $1.1 million in noninterest-bearing deposits
and $537,000 in interest-bearing demand deposit accounts.
Borrowed Funds. Borrowed funds increased $4.3 million or 1.4% to $313.5
million at March 31, 1997 from $309.2 million at December 31, 1996. This
increase is primarily the result of the Company utilizing Federal Home Loan Bank
("FHLB") advances to fund the increase in loans receivable and securities.
Stockholders' Equity. Stockholders' equity decreased by $1.6 million or
3.1% to $49.9 million at March 31, 1997 from $51.5 million at December 31,
1996. This decrease was primarily the result a $2.2 million increase in
unrealized losses on securities available for sale and $352,000 in dividends
declared during the period. Partially offsetting these decreases was net
income of $1.1 million for the first three months of 1997.
7
<PAGE>
RESULTS OF OPERATIONS
General. The Company recorded net income of $1.1 million for the three
months ended March 31, 1997, as compared to net income of $1.0 million for the
same period in the prior year. The $130,000 or 12.8% increase in net income for
the three-month period ended March 31, 1997, as compared to the three months
ended March 31, 1996, was primarily attributable to an increase in net interest
income of $178,000 or 5.2% and a decrease in the provision for loan losses of
$84,000 or 29.6%, partially offset by an increase in other operating expenses of
$145,000 or 7.7%.
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 $3.6 million for the three
months ended March 31, 1997, as compared to $3.4 million for the same period in
the prior year. This $178,000 or 5.2% increase in net interest income was
attributable to an increase in interest income of $680,000 or 6.0%, partially
offset by a $502,000 or 6.4% increase in interest expense.
Interest Income. Interest income was $12.0 million for the three months
ended March 31, 1997, as compared to $11.3 million for the same period in the
prior year. The $680,000 or 6.0% increase in interest income was primarily
attributable to increases in interest income recorded on loans receivable and
securities.
Interest income from loans receivable increased $444,000 or 11.5% for the
three months ended March 31, 1997, as compared to the same period in the prior
year due primarily to an increase in loans outstanding during the respective
periods. Average loans outstanding increased $33.0 million or 17.9% to $217.7
million for the quarter ended March 31, 1997 from $184.7 million for the same
period in the prior year. Partially offsetting the increase in interest income
on loans receivable due to the increased average balance of loans receivable,
was a decrease in the net yield on loans between periods of 45 basis points to
7.92% for the three months ended March 31, 1997, from 8.37% for the same period
in the prior year.
Interest income from securities and other interest-earning assets (including
U.S. Government and agency obligations, municipal obligations, mortgage-backed
securties, interest-earning deposits, FHLB stock and federal funds sold) was
$7.6 million for the three months ended March 31, 1997, as compared to $7.4
million for the three months ended March 31, 1996. The $236,000 or 3.2% increase
was attributable to a higher average yield realized on the securities portfolio,
partially offset by lower average balances invested during the three months
ended March 31, 1997, as compared to the same period in the prior year. The net
yield on the securities portfolios between periods increased 34 basis points to
6.95% for the three months ended March 31, 1997, from 6.61% for the same period
in the prior year. Average securities outstanding decreased $3.2 million or 1.0%
to $447.1 million for the quarter ended March 31, 1997 from $450.3 million for
the same period in the prior year.
Interest Expense. Interest expense for the three months ended March 31,
1997 was $502,000 or 6.4% higher than that for the corresponding three month
period in the prior year. This increase was attributable to an increase in
interest paid on borrowed funds, partially offset by a decrease in interest
incurred on deposits.
Interest expense on deposits decreased by $101,000 or 2.7% for the three
months ended March 31, 1997, as compared to the same period in the prior
year. This decrease was attributable to both a reduction in the average
balance of interest-bearing deposits and to a lower cost of deposits for the
three months ended March 31, 1997 as compared with the same period in the
prior year. The average balance of interest bearing deposits decreased $3.5
million or 1.0% to $332.1 million for the three months ended March 31, 1997,
compared to $335.6 million for the same period in the prior year. The
weighted average cost of
8
<PAGE>
these deposits decreased slightly by four basis points to 4.39% for the three
months ended March 31, 1997, compared to 4.43% for the same period in the
prior year.
Interest expense on borrowed funds increased by $603,000 or 14.6% for the
three months ended March 31, 1997, as compared to the same period in the prior
year. Interest expense on borrowed funds increased due to an increase in the
average amount of FHLB advances outstanding between periods. The average balance
of borrowed funds increased $42.4 million or 15.8% to $311.0 million for the
three months ended March 31, 1997, compared to $268.6 million for the same
period in the prior year. The weighted average cost of borrowed funds remained
relatively consistent between the two periods at approximately 6.20%.
Provision for Loan Losses. Provisions for loan losses were $200,000 for the
three months ended March 31, 1997, as compared to $284,000 for the same period
last fiscal year. This $84,000 or 29.6% decrease 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 collectability of the loan
portfolio. As a result of the provision during the three months ended March 31,
1997, the Company's total allowance for losses on loans at March 31, 1997
amounted to $3.5 million or 1.54% 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 March 31, 1997 was
86.4%, as compared to 81.0% at December 31, 1996.
Other Operating Income. Other operating income was $173,000 for the three
months ended March 31, 1997, as compared to $186,000 for the same period in the
prior year. This $13,000 or 7.0% decrease was due primarily to a loss on the
sale of securities realized during the first quarter of this year of $37,000,
partially offset by an increase in loan fees and other service charges of
$29,000.
Other Operating Expenses. Total other operating expenses were $2.0 million
for the three months ended March 31, 1997, as compared to $1.9 million for the
same period in the prior year. This $145,000 or 7.7% increase was primarily the
result of an increase in salaries and personnel expenses, data processing
expenses and other expenses, partially offset by a decrease in occupancy and
equipment expenses and federal deposit insurance premiums between periods.
Salary and personnel expenses increased by $54,000 or 5.1% for the three
months ended March 31, 1997, as compared to the same period in the prior year
due primarily to normal salary and benefit increases between periods.
Occupancy and equipment expenses decreased by $10,000 or 3.9% for the three
months ended March 31, 1997, as compared to the same period in the prior year
primarily due to a decrease in depreciation and amortization expenses.
Federal insurance premiums decreased by $184,000 for the three months ended
March 31, 1997, as compared to the same period in the prior year due primarily
to the one-time Savings Association Insurance Fund recapitalization charge
incurred in September 1996 that in turn reduced federal deposit insurance
premiums of all savings banks going forward.
Data processing expenses increased by $9,000 or 9.5% for the three months
ended March 31, 1997, as compared to the same period in the prior year. This
increase is primarily attributable to differences in the volume of transactions
processed during the respective periods.
9
<PAGE>
Other miscellaneous expenses (which consist primaily of goodwill
amortization, professional fee expenses, advertising expenses, postage expenses
and suppy expenses) increased by $276,000 or 96.8% for the three months ended
March 31, 1997, as compared to the same period in the prior year due primarily
to a litigation settlement recognized during the first quarter of 1996.
Income Taxes. For the three months ended March 31, 1997 the Company
recorded provisions for income taxes of $411,000 as compared to $437,000 for the
same period in the prior year. This $26,000 or 5.9% decrease was due to lower
federal income taxes incurred during the current period, partially offset by an
increase in state income taxes.
ASSET AND LIABILITY MANAGMENT
The Company maintains a program designed to preserve a relatively low
exposure to material and prolonged increases in interest rates. 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 increased 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.
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 March 31, 1997, the implementation of these asset and liability
initiatives resulted in the following: (i) $132.7 million or 58.2% of the
Company's total loan portfolio had adjustable interest rates or maturities of 12
months or less; (ii) $81.6 million or 57.9% of the Company's portfolio of
single-family residential mortgage loans (including residential construction
loans) consisted of ARMs and (iii) $139.0 million or 40.0% 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 March 31, 1997, the
Company's interest-earning assets maturing or repricing within one year totaled
$285.0 million while the Company's interest-bearing liabilities maturing or
repricing within one-year totaled $376.3 million, providing a deficiency of
interest-earning assets over interest-bearing liabilities of $91.3 million or a
negative 12.9% of total assets. At March 31, 1997, the percentage of the
Company's assets to liabilities maturing or repricing within one year was 75.7%.
The Company's one-year GAP has not changed
10
<PAGE>
significantly when compared to a negative 10.4% of total assets at December
31, 1996. 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 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 March 31, 1997, The
Company'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 3% over a 24-month
period.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required by the Office of Thrift Supervision (OTS) to maintain
minimum levels of liquidity to assure its 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 Bank's liquidity ratios fluctuate depending primarily upon deposit
flows but have been consistently maintained at levels in excess of the required
percentage. At March 31, 1997, the Bank's liquidity ratio was approximately
10.8%.
The Company's primary source of funds generally have been deposits obtained
through the Bank's offices, borrowings from the FHLB and, to a lesser extent,
amortization and prepayments of outstanding loans and maturing investment
securities. During the three months ended March 31, 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 Bank had outstanding loan
commitments totaling $11.6 million, unused lines of credit totaling $12.3
million and $4.4 million of undisbursed loans in process.
At March 31, 1997, certificates of deposits amounted to $195.3 million or
58.0% of the Company's total consolidated deposits, including $123.7 million
which were scheduled to mature by March 31, 1998. At the same date, the total
amount of FHLB advances which were scheduled to mature by March 31, 1997 was
$176.3 million. Management of the Company believes that it has adequate
resources to fund all of these commitments, that all of these commitments will
be funded by March 31, 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 Bank 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 March 31, 1997, the Bank was in compliance
with all regulatory capital requirements with tangible, core and risk-based
capital ratios of 6.0%, 6.0 % and 19.2 %, respectively.
11
<PAGE>
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 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 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 consolidated financial statements.
12
<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
On March 18, 1997, the Company held a Special Meeting of Stockholders to
consider and vote upon the Agreement and Plan of Reorganization dated as of
September 16, 1996, by and between the Company and THBC, and a related
Agreement of Merger.
Approval of THBC Merger (Proposal One)
FOR AGAINST ABSTAIN
--------- --------- ---------
2,910,245 78,740 15,708
No other matters were considered at this special meeting.
On April 15,1997, the Company held its Annual Meeting of Stockholders.
Nominees for three director positions were elected. All other matters
submitted to a vote of stockholders were also approved, and the stockholder
votes thereon are summarized as follows:
Election of Directors (Proposal One)
DIRECTOR FOR WITHHELD TERM/EXPIRATION
-------- ---------- --------- -----------------
Charles Delman............... 3,119,507 118,115 Three Years/2000
Edmund C. Smith.............. 3,120,815 116,807 Three Years/2000
William B. Salsgiver......... 3,110,759 126,863 Two Years/1999
Adoption of 1997 Stock Option Plan (Proposal Two)
FOR AGAINST ABSTAIN
--------- --------- ---------
2,970,204 215,544 51,874
Ratification of Appointment of KPMG Peat Marwick LLP
as Independent Public Accountants for the Company for 1997 (Proposal Three)
FOR AGAINST ABSTAIN
--------- --------- ---------
3,184,065 40,665 12,892
No other proposals were considerd at the annual meeting.
13
<PAGE>
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 February 10, 1997 to report
the issuance of a press release announcing earnings for the quarter and
year ended December 31, 1996.
b. Form 8-K--The Company filed a Form 8-K dated March 20, 1997 to report a
$0.09 per share quarterly cash dividend.
14
<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: 5/12/97 By: /s/ Charlotte A. Zuschlag
-----------------------------
Charlotte A. Zuschlag
President and Chief Executive Officer
Date: 5/12/97 By: /s/ Charles P. Evanoski
-----------------------------
Charles P. Evanoski
Senior Vice President and
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,134
<INT-BEARING-DEPOSITS> 4,208
<FED-FUNDS-SOLD> 1,117
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 348,868
<INVESTMENTS-CARRYING> 99,223
<INVESTMENTS-MARKET> 95,460
<LOANS> 223,387
<ALLOWANCE> 3,512
<TOTAL-ASSETS> 706,237
<DEPOSITS> 336,524
<SHORT-TERM> 191,309
<LIABILITIES-OTHER> 6,264
<LONG-TERM> 122,194
0
0
<COMMON> 44
<OTHER-SE> 49,902
<TOTAL-LIABILITIES-AND-EQUITY> 706,237
<INTEREST-LOAN> 4,309
<INTEREST-INVEST> 7,406
<INTEREST-OTHER> 236
<INTEREST-TOTAL> 11,951
<INTEREST-DEPOSIT> 3,593
<INTEREST-EXPENSE> 8,335
<INTEREST-INCOME-NET> 3,616
<LOAN-LOSSES> 200
<SECURITIES-GAINS> (37)
<EXPENSE-OTHER> 2,033
<INCOME-PRETAX> 1,556
<INCOME-PRE-EXTRAORDINARY> 1,145
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,145
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
<YIELD-ACTUAL> 2.35
<LOANS-NON> 4,063
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,309
<CHARGE-OFFS> 1
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 3,512
<ALLOWANCE-DOMESTIC> 3,512
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
