TROY HILL
                                  BANCORP, INC.


                                     ANNUAL
                                     REPORT
                                      1996


 

<PAGE>
Dear Stockholder:
 
We are pleased to report that the Company's net earnings increased from $919,000
in fiscal 1995 to $1.1 million in fiscal 1996.  In addition,  the  Company's net
interest  income  increased  from $3.0 million in fiscal 1995 to $3.4 million in
fiscal 1996.  The Company's  return on average assets during the 12 months ended
June 30, 1996 amounted to 1.34%,  which  compares  favorably  with other savings
institutions  and thrift  holding  companies  located in our market area.  Total
assets of the Company increased to $92.2 million at June 30, 1996, up from $75.1
million at June 30, 1995.
 
During  fiscal 1996,  the Company  significantly  increased its  origination  of
permanent and construction  loans secured by both residential and nonresidential
real estate.  As a result,  net loans  receivable  (not including loans held for
sale) increased from $53.2 million at June 30, 1995 to $74.6 million at June 30,
1996.  The  growth in the  Company's  total  assets was  primarily  funded by an
increase in advances  from the Federal  Home Loan Bank of  Pittsburgh  and, to a
lesser extent, growth in the Company's deposit accounts. The Company was able to
accomplish  its objective of  controlled  growth while  maintaining  the Savings
Bank's regulatory capital at a level which significantly  exceeds all regulatory
capital requirements. At June 30, 1996, the ratio of the Company's stockholders'
equity to total assets amounted to 19.57%.
 
The Company has paid a quarterly  dividend since its initial public  offering in
June 1994.  In addition,  during  fiscal 1995,  the company  repurchased  56,208
shares of its common stock.  Since the initial public offering,  the Company has
explored  all  available   avenues  in  order  to  improve  its  operations  and
profitability  while  maintaining the strict asset quality  standards which have
been a tradition at Troy Hill.
 
The Board of Directors and  management of the Company are committed to build and
enhance  stockholder  value. In that regard,  on September 16, 1996, the Company
entered into an Agreement  and Plan of  Reorganization  (the  "Agreement")  with
PennFirst Bancorp, Inc. ("PennFirst"),  a Pennsylvania-chartered  thrift holding
company which is  headquartered in Ellwood City,  Pennsylvania.  Pursuant to the
Agreement, the Company will merge with and into PennFirst (the "Merger") and the
Savings Bank will operate as a separate  subsidiary  of PennFirst  for a minimum
period of one year. Each  shareholder of the Company will be entitled to receive
$21.15 in either  cash or shares of  PennFirst  common  stock for each  share of
Company  common  stock,  subject  to an  overall  requirement  that  40%  of the
outstanding  Company  common stock be exchanged for cash.  The Merger is subject
to, among other  things,  the receipt of all requisite  regulatory  approvals as
well  as the  approval  of the  respective  shareholders  of  PennFirst  and the
Company.  In connection  therewith,  a Special  Meeting of  Shareholders  of the
Company is expected to be called for the purpose of approving  the Merger during
the second or third quarter of fiscal 1997.

We thank you for your continued support as stockholders of the Company.  We also
thank our  directors,  officers and  employees  for their  dedicated  efforts in
accomplishing these results.

                                     Sincerely,

                                     /s/Ellry N. Davis
                                     -----------------
                                     Ellry N. Davis
                                     President and Chief Executive Officer


<PAGE>
                                    BUSINESS
 
General
 
Troy Hill Bancorp,  Inc. (the  "Company") is a  Pennsylvania  corporation  and a
unitary thrift holding  company  registered  under the Home Owners' Loan Act, as
amended.  The Company is the parent  company of Troy Hill  Federal  Savings Bank
("Troy Hill").
 
Troy Hill is a federally chartered,  stock savings bank conducting business from
two  full-service  offices located in the Troy Hill section of Pittsburgh and in
Wexford,  Pennsylvania. Its deposits are insured to the maximum extent permitted
by law by the Savings Association Insurance Fund ("SAIF"), which is administered
by the Federal Deposit Insurance Corporation ("FDIC").
 
At June 30, 1996,  the Company had total  consolidated  assets of $92.2 million,
total consolidated  deposits of $54.0 million and stockholders'  equity of $18.0
million.
 
The Company is primarily engaged in attracting  deposits from the general public
through  its  offices  and using  such  deposits,  together  with  other  funds,
primarily  to  originate   loans   secured  by  first  liens  on   single-family
(one-to-four  units) and multi-family (over four units) residential  properties,
nonresidential  real  estate,   construction  loans  on  primarily   residential
properties and consumer loans. The Company also invests in securities  issued by
the United States Government and agencies thereof, municipal debt securities and
corporate obligations.  The Company derives its income principally from interest
earned on loans,  mortgage-backed  securities and  investments  and, to a lesser
extent,  from fees received in connection with the origination and sale of loans
and for other services.  The Company's  primary expenses are interest expense on
deposits, FHLB advances and general operating expenses. Funds for activities are
provided  primarily by deposits,  amortization  and  prepayments  of outstanding
loans and mortgage-backed  securities,  sales of loans and other sources. During
the years ended June 30, 1996,  1995 and 1994,  the Company earned $1.1 million,
$919,000 and $1.1 million, respectively.
 
Troy Hill is a community oriented savings  institution which emphasizes customer
service and convenience  within its market area and has traditionally  offered a
wide  variety  of  products  and  services  to its retail  customers.  Troy Hill
currently  emphasizes the  origination of  single-family  residential  loans and
construction  loans  for  single-family  residential  properties.  Troy Hill has
focused on such traditional thrift lending,  while emphasizing asset quality and
maintaining  strong capital levels.  Highlights of Troy Hill's strategy  include
the following:
 
Strong  Capital  Levels--Troy  Hill seeks to maintain  high levels of regulatory
capital to give it maximum  flexibility in the changing  regulatory  environment
and to respond to changes in market and economic  conditions.  At June 30, 1996,
Troy Hill's  tangible,  core and risk-based  capital  ratios were  approximately
15.9%, 15.9% and 24.3%, respectively, which exceeded the minimum requirements of
1.5%,  3.0%  and  8.0%  by  $12.7  million,  $11.4  million  and  $9.8  million,
respectively.
 
Strong  Earnings--For  the years  ended  June 30,  1996,  1995,  and  1994,  the
Company's net earnings  (which  include Troy Hill as the Company's  predecessor)
amounted to $1.1 million, $919,000 and $1.1 million,  respectively. The increase
in net  earnings  since 1995 is due  primarily to an increase of $401,000 in net
interest income.
                                       2
<PAGE>
Noninterest  Expense  Ratios--For  the years ended June 30, 1996, 1995 and 1994,
the Company's  ratio of  noninterest  expense to average total assets was 2.09%,
2.35% and 2.31%, respectively.  The decrease in such ratio during the year ended
June 30, 1996 was due  primarily to a greater  increase in average  total assets
over the increase in noninterest expense.
 
Core  Deposits--As of June 30, 1996, $18.8 million or 34.9% of Troy Hill's total
deposits consisted of passbook  accounts,  money market deposit accounts and NOW
accounts. Of this amount, approximately $12.3 million or 22.8% of total deposits
consisted  of  passbook  accounts.  Management  considers  these  types  of core
deposits to be more stable and lower cost funds than certificates of deposit and
outside borrowings.
 
Asset  Quality--Troy  Hill adheres to a lending  strategy  that  emphasizes  the
origination  of  permanent  and  construction  loans  secured  by  single-family
residential  properties  within it's primary  market area.  As of June 30, 1996,
1995 and 1994, Troy Hill's ratios of non-performing  assets to total assets were
1.57%,  3.09% and 2.03%,  respectively.  The decrease in  non-performing  assets
since fiscal 1995 was  primarily the result of an increase in loan volume and an
increase in charge-offs of non-performing  construction loans during 1996. Total
net charge-offs for the past three fiscal years have aggregated  $279,000 and at
June 30, 1996,  Troy Hill's  allowance for loan losses amounted to .81% of total
loans outstanding.
 
Regulation
 
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").  Troy Hill, as a federally chartered savings bank,
is subject to examination and comprehensive regulation by the OTS, which is Troy
Hill's  chartering   authority  and  primary   regulator,   and  the  FDIC,  the
administrator  of the  SAIF.  Troy  Hill  is also  subject  to  certain  reserve
requirements established by the Board of Governors of the Federal Reserve System
("FRB") and is a member of the Federal  Home Loan Bank  ("FHLB") of  Pittsburgh,
which is one of the 12 regional banks comprising the FHLB System.
 
             


















                           

                                       3
<PAGE>




                           SELECTED FINANCIAL DATA
                                 (Unaudited)
                            (Dollars in Thousands)
 
The following  selected financial and other data of the Company does not purport
to be  complete  and is  qualified  in its  entirety  by  reference  to the more
detailed financial information contained elsewhere herein.



<TABLE>
<CAPTION>
                                                                        June 30,
                                                     -----------------------------------------------
                                                      1996      1995      1994      1993      1992
                                                     -------   -------   -------   -------   -------
<S>                                                  <C>       <C>       <C>       <C>       <C>
Selected Financial Condition and Other Data:
Total assets.......................................  $92,183   $75,091   $64,087   $57,595   $59,904
Interest-bearing deposits in other financial
  institutions.....................................       --        --        --     2,463     1,287
Investment and mortgage-backed securities-available
  for sale.........................................   11,731    10,831        --        --        --
Investment securities-held to maturity.............       --     7,301     9,975     3,926     2,988
Mortgage-backed securities, net....................       --        --     5,902     3,254     3,208
Loans receivable, net..............................   74,552    53,180    39,074    41,205    46,353
Loans held for sale................................       --       272        --       687        --
Deposits...........................................   53,960    50,610    42,410    46,725    49,560
FHLB advances......................................   18,583     5,750     3,000     3,000     3,000
Stockholders' equity...............................   18,040    17,216    17,600     6,873     5,976
Full service offices...............................        2         2         1         1         1

</TABLE>
        




















                                        4
<PAGE>
<TABLE>
<CAPTION>
                                                                   Year Ended June 30,
                                                      ----------------------------------------------
                                                       1996      1995      1994      1993      1992
                                                      ------    ------    ------    ------    ------
<S>                                                   <C>       <C>       <C>       <C>       <C>
Selected Operating Data:
Total interest income..............................   $6,469    $5,151    $4,490    $5,346    $4,988
Total interest expense.............................    3,072     2,155     1,935     2,409     2,813
                                                      ------    ------    ------    ------    ------
     Net interest income...........................    3,397     2,996     2,555     2,937     2,175
Provision for loan losses..........................      220        10        80       380       102
                                                      ------    ------    ------    ------    ------
     Net interest income after provision for loan
        losses.....................................    3,177     2,986     2,475     2,557     2,073
Noninterest income.................................      210       121       338        81        68
Noninterest expense................................    1,700     1,599     1,323       999       868
                                                      ------    ------    ------    ------    ------
Earnings before income taxes and cumulative effect
  of accounting change.............................    1,687     1,508     1,490     1,639     1,273
Income taxes.......................................      599       589       611       742       487
                                                      ------    ------    ------    ------    ------
Earnings before cumulative effect of accounting
  change...........................................    1,088       919       879       897       786
Cumulative effect of change in accounting for
  income taxes.....................................       --        --       200        --        --
                                                      ------    ------    ------    ------    ------
Net earnings.......................................   $1,088    $  919    $1,079    $  897    $  786
                                                      ======    ======    ======    ======    ======
Earnings per share(1)..............................   $ 1.09    $  .89        --        --        --
</TABLE>
        

























                                        5
<PAGE>
<TABLE>
<CAPTION>
                                                                At or For the Year Ended June 30,
                                                          ----------------------------------------------
                                                           1996      1995      1994      1993      1992
                                                          ------    ------    ------    ------    ------
<S>                                                       <C>       <C>       <C>       <C>       <C>
Selected Operating and Other Ratios(2):
Performance Ratios:
Return on average assets(3)............................     1.34%     1.35%     1.89%     1.53%     1.47%
Return on average equity(3)............................     6.04      5.21     14.15     13.99     14.17
Interest rate spread(4)................................     3.16      3.54      4.21      4.64      3.66
Net interest margin(4).................................     4.27      4.61      4.67      5.09      4.17
Average interest-earning assets to average
  interest-bearing liabilities.........................   128.54    133.15    113.36    110.90    109.30
Net interest income after provision for loan and lease
  losses
  to total noninterest expense.........................   186.88    186.74    187.07    255.96    238.82
Noninterest expense to average total assets............     2.09      2.35      2.31      1.70      1.62
Asset Quality Ratios:
Non-performing loans to total loans at end of
  period(5)............................................     1.22      3.39      2.67      1.53      0.51
Non-performing assets to total assets at end of
  period(5)............................................     1.57      3.09      2.03      1.24      0.46
Allowance for loan and lease losses to total loans
  outstanding
  at end of period.....................................      .81      1.15      1.45      1.34      0.50
Allowance for loan and lease losses to total
  non-performing loans
  at end of period.....................................    66.73     33.55     54.39     87.85     97.07
Capital Ratios:
Average equity to average assets.......................    22.14     25.94     13.32     10.91     10.37
Equity to assets at end of period......................    19.57     22.93     27.46     11.93      9.98
</TABLE>
---------------
(1) Earnings per share have been stated only for fiscal 1995 and 1996 because
    of Troy Hill's conversion to stock form on June 24, 1996. See Note 1 to
    the Consolidated Financial Statements.
 
(2) With the exception of end of period ratios, all ratios are based on
    month-end or quarter-end balances during the periods. Management does not
    believe that the use of month-end or quarter-end balances instead of daily
    average balances has caused any material differences in the information
    presented.
 
(3) Return on average assets and return on average equity before cumulative
    effect of accounting change amounted to 1.54% and 11.53%, respectively,
    for the year ended June 30, 1994.
 
(4) Interest rate spread represents the difference between the weighted
    average yield on interest-earning assets and the weighted average rate on
    interest-bearing liabilities. Net interest margin represents net interest
    income as a percentage of average interest-earning assets.
 
(5) Non-performing loans consist of non-accrual loans and loans that are
    contractually past due 90 days or more but still accruing interest, and
    non-performing assets consist of non-performing loans and real estate
    acquired by foreclosure or deed-in lieu thereof.
                                   6
<PAGE>
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
General
 
The  operating  results of the Company  depend  primarily  upon its net interest
income,  which is determined  by the  difference  between  interest and dividend
income on interest-earning assets, principally loans, mortgage-backed securities
and investment securities, and interest expense on interest-bearing liabilities,
which principally  consist of deposits and borrowings.  The Company's net income
also is affected by its provision  for loan losses,  as well as the level of its
noninterest income,  including loan service charges,  gain on sale of loans, and
other  income,  and its  noninterest  expenses,  such as salaries  and  employee
benefits,  occupancy expense,  federal deposit insurance and miscellaneous other
expenses, and income taxes.
 
In general,  financial  institutions  are  vulnerable to an increase in interest
rates to the extent that  interest-bearing  liabilities  mature or reprice  more
rapidly  than  interest-earning  assets.  The lending  activities  of  financial
institutions,  including Troy Hill, have historically emphasized the origination
of long-term,  fixed-rate  loans secured by  single-family  residences,  and the
primary source of funds of such  institutions  has been deposits,  which largely
mature or are subject to repricing  within a short  period of time.  This factor
has historically  caused the income earned by Troy Hill on its loan portfolio to
adjust more slowly to changes in  interest  rates than its cost of funds.  While
having  liabilities  that  reprice  more  frequently  than  assets is  generally
beneficial to net interest income in times of declining  interest rates, such an
asset/liability  mismatch  is  generally  detrimental  during  periods of rising
interest rates. To reduce the effect of adverse changes in interest rates on its
operations,  the  Company has  implemented  the asset and  liability  management
policies described below.
 
Asset and Liability Management
 
The Company maintains a program designed to monitor its 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 the  Company's  interest-earning  assets and the
repricing or maturity of its interest-bearing  liabilities.  As described below,
the  Company's  asset and  liability  management  policies  have  increased  the
Company's  interest rate  sensitivity  primarily by shortening the maturities of
the Company's  interest-earning assets. To the extent possible, the Company also
attempts  to extend the  maturities  of its  interest-bearing  liabilities.  The
Company's  Board of Directors  establishes  and monitors the Company's asset and
liability management policies.
 
The  Company  has  adopted a strategy  designed  to improve  the  interest  rate
sensitivity of its assets relative to its  liabilities.  The primary elements of
this strategy include: (i) maintaining a high level of liquid assets that can be
reinvested in higher  yielding  investments  should  interest  rates rise;  (ii)
emphasizing  investment  in (A)  shorter-term  (15  years or  less),  fixed-rate
single-family  residential loans and (B) residential construction and commercial
real estate loans, which generally have adjustable interest rates and/or shorter
maturities than traditional single-family residential loans; (iii) to the extent
market  conditions   permit,   increasing  the  origination  of  adjustable-rate


  
                                     7
<PAGE>
single-family  residential loans ("ARMs"), (iv) maintaining the weighted average
maturity of the  Company's  investment  portfolio  at five years or less and (v)
selling of newly originated loans with maturities of greater than fifteen years.
 
As of June 30, 1996, the implementation of these asset and liability initiatives
resulted in the  following:  (i) $15.7 million or 21.0% of the  Company's  total
loan  portfolio  had  adjustable  interest  rates or  maturities of less than 12
months; (ii) $3.6 million or 69.5% of the Company's portfolio of mortgage-backed
securities  were  secured  by  ARMs;  and  (iii)  $2.5  million  or 21.3% of the
Company's investment securities portfolio had scheduled maturities of five years
or less.
 
Changes in Financial Condition
 
General.  At June 30, 1996,  the  Company's  assets  totaled $92.2  million,  as
compared to $75.1  million at June 30,  1995.  Total  assets  increased by $17.1
million or 22.8% from June 30, 1995 to June 30, 1996.  The increase is primarily
due to the  increase  of $21.4  million or 40.2% in loans  receivable  which was
primarily due to increased relationships with real estate brokers. This increase
was  offset  by  a  decrease  of  $6.4  million  or  35.3%  in  investment   and
mortgage-backed  securities  (including securities available for sale) which was
the  result of the  Company  selling a portion  of its  investments  to fund the
increase in loans.
 
Investments in Debt and Equity Securities. In May 1993, the Financial Accounting
Standards Board released SFAS No. 115,  "Accounting  for Certain  Investments in
Debt and Equity Securities". SFAS No. 115 addresses the accounting and reporting
for investments in equity securities that have readily  determinable fair values
and all  investments in debt  securities.  Investments are to be classified into
the following  three  categories:  1) Debt  Securities  that the Company has the
positive  intent  and  ability to hold to  maturity  are  classified  as held to
maturity  securities  and  reported  at  amortized  cost;  2)  Debt  and  Equity
Securities that are bought and held principally for the purpose of resale in the
near future are  classified  as trading  securities  and reported at fair value,
with unrealized  gains and losses included in current period  earnings;  3) Debt
and Equity  Securities not  classified as either held to maturity  securities or
trading  securities are classed as available for sale securities and reported at
fair value, with unrealized gains and losses excluded from earnings and reported
as a separate  component of  stockholders'  equity,  net of deferred taxes.  The
Company adopted SFAS No. 115 as of July 1, 1994.
 
In November  1995,  the Financial  Accounting  Standards  Board (FASB) issued "A
Guide to Implementation  of Statement 115 on Accounting for Certain  Investments
in Debt and Equity  Securities,  Questions and Answers." This guide  permitted a
one-time   reassessment  of  the   appropriateness  of  the  classifications  of
securities as available for sale or held for  investment.  In December 1995, the
Company transferred  approximately $6.9 million of investment  securities with a
market  value  of $6.8  million  from  the  held  to  maturity  category  to the
securities available for sale category. Concurrent with this redesignation,  all
but  approximately  $1.7 million of the  securities  transferred  were sold at a
realized loss of $5,000.



             



                                        8
<PAGE>
As a matter of policy,  the Company generally  emphasizes  lending activities in
order to enhance the weighted average yield on its interest-earning  assets and,
thus, its results of operations.  Investment  securities  (excluding  securities
available for sale), which consist of U.S. Government and agency obligations and
corporate obligations,  decreased by $5.3 million or 72.0% during the year ended
June 30, 1996, due primarily to the one-time transfer of securities  referred to
in the preceding paragraph.
 
Approximately $751,000 of equity securities were purchased by the Company during
the fiscal year ended June 30, 1996 due to the tax  benefits  and higher  yields
associated  with these  items.  The  portfolio  of equity  securities  primarily
consist of cumulative  preferred  equity stocks and are  classified as available
for sale.
 
Mortgage-Backed Securities.  Mortgage-backed securities, which consist primarily
of securities  which are insured or guaranteed by the Federal Home Loan Mortgage
Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA") or the
Government  National  Mortgage  Association  ("GNMA"),  were all  classified  as
available for sale at June 30, 1996. Such  securities  decreased by $1.9 million
or 28.7% during the year ended June 30, 1996.  The decrease  during  fiscal 1996
reflected principal repayments and the selling of mortgage-backed  securities to
finance the increase in loan volume.
 
Loans Receivable. Loans receivable (including loans classified as held for sale)
amounted  to  $74.6  million  and  $53.5  million  at June 30,  1996  and  1995,
respectively.  Loans  receivable  (including  loans classified as held for sale)
increased by $21.1  million or 39.5%  during the year ended June 30,  1996.  The
increase is due to generally lower interest rates which produced a higher market
demand.  The Company also  increased its  origination  of  nonresidential  loans
secured  primarily by undeveloped land due primarily to an increasing  number of
relationships with real estate brokers.
 
Allowance for Loan Losses.  At June 30, 1996,  the Company's  allowance for loan
losses  totaled  $660,000,  which  represented a $7,000  decrease from the level
maintained  at June  30,  1995.  At  June  30,  1996,  the  Company's  allowance
represented  approximately  .81% of the gross loan portfolio.  At that date, the
ratio of  total  non-performing  loans to total  loans  amounted  to  1.22%,  as
compared to 3.41% at June 30, 1995. This decrease in non-performing loans during
the year  ended  June 30,  1996 was due to an  increase  in loan  volume  and an
increase  in  charge-offs  of  non-performing   construction   loans.   Although
management  of the Company  believes  that its allowance for loan losses at June
30, 1996 was adequate  based on facts and  circumstances  available to it, there
can be no  assurances  that  future  additions  to such  allowance  will  not be
necessary in future periods,  which could adversely affect the Company's results
of operations.
 
Deposits.  Deposits totaled $54.0 million at June 30, 1996, as compared to $50.6
million at June 30, 1995. Deposit accounts subject to daily repricing (passbook,
money market deposit and NOW accounts) decreased by $21,000 or .1% from June 30,
1995 to June 30, 1996. During the same period, certificates of deposit increased
by $3.4 million or 10.6%.  This  increase is primarily  due to the opening of an
additional  full-service  branch  office  during  fiscal  1995.  Troy  Hill  has
generally not engaged in sporadic  increases or decreases in interest rates paid
or offered  the  highest  rates  available  in its  deposit  market  except upon
specific occasions when market conditions have created  opportunities to attract
longer-term deposits.


                                      9
<PAGE>
Borrowings.  Borrowings,  which  consist  primarily of advances from the FHLB of
Pittsburgh,  amounted  to $18.6  million  and $5.8  million at June 30, 1996 and
1995,  respectively.  The weighted  average rate on FHLB  advances was 6.06% and
5.40% during the years ended June 30, 1996 and 1995, respectively.
 
Stockholders' Equity.  Stockholders' equity increased from $17.2 million at June
30, 1995 to $18.0  million at June 30, 1996.  This  increase was due to the $1.1
million of net earnings  recognized during the year which was offset by $350,000
of  dividends  paid to the  stockholders  and a decrease in the market  value of
$111,000 in securities available for sale.
 
Results of Operations
 
General.  The Company  reported net earnings of $1.1 million,  $919,000 and $1.1
million for fiscal 1996, 1995 and 1994, respectively. Net earnings during fiscal
1996  increased  by  $169,000  or 18.4% when  compared  to June 30,  1995.  This
increase in net earnings resulted  primarily from an increase of $401,000 in net
interest income and a $89,000 increase in total  noninterest  income,  which was
partially  offset by a $210,000  increase in the  provision  for loan losses,  a
$10,000  increase  in  income  taxes  and  an  increase  of  $101,000  in  total
noninterest  expense.  Net earnings during fiscal 1995 increased $40,000 or 4.6%
(before the $200,000  cumulative  effect of the change in accounting  for income
taxes  recognized  during the fiscal year ended June 30, 1994).  The increase in
net  earnings  resulted  primarily  from an increase of $441,000 in net interest
income,  a  $70,000  decline  in the  provision  for loan  losses  and a $22,000
decrease in income taxes,  which was partially offset by a $276,000  increase in
total  noninterest  expense.  and a decrease of  $217,000  in total  noninterest
income.
 
Net Interest Income. Net interest income is determined by 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.
 
Average  Balances,  Net Interest  Income and Yields  Earned and Rates Paid.  The
following  table  presents for the periods  indicated the total dollar amount of
interest from average  interest-earning assets and the resultant yields, as well
as the interest expense on average interest-bearing liabilities,  expressed both
in dollars and rates,  and the net  interest  margin.  All average  balances are
based on month-end or quarter-end balances. Management does not believe that the
use of month-end or quarter-end  balances  instead of daily average balances has
caused any material differences in the information presented.


        












                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                               Year Ended June 30,
                             ----------------------------------------------------------------------------------------
                                         1996                           1995                          1994
                             ----------------------------   ----------------------------   --------------------------
                             Average              Yield/    Average              Yield/    Average            Yield/
                             Balance    Interest  Rate(1)   Balance    Interest  Rate(1)   Balance   Interest Rate(1)
                             --------   -------   -------   --------   -------   -------   -------   ------   -------
<S>                          <C>        <C>         <C>     <C>        <C>         <C>     <C>       <C>        <C>
Interest-earning assets:
  Loans receivable(2)......  $61,934    $5,334      8.61 %  $46,194    $3,957      8.57 %  $39,489   $3,655     9.26 %
  Mortgage-backed
     securities(3).........    6,360       443      6.97      7,857       493      6.27      4,069      256     6.29
  Investment
     securities(3)(4)......    8,957       568      6.34      9,865       575      5.83      7,782      400     5.14
  Interest bearing deposits
     and other.............    2,396       124      5.18      2,823       126      4.46      4,547      179     3.94
                             -------    ------      ----    -------    ------      ----     ------   ------     ----  
  Total interest-earning
     assets................   79,647    $6,469      8.12 %   66,739    $5,151      7.72 %   55,890   $4,490     8.03 %
                             -------    ======      ====    -------    ======      ====     ------   ======     ==== 
Non-interest-earning
  assets...................    1,665                          1,284                          1,330
                             -------                        -------                        -------
  Total assets.............  $81,310                        $68,023                        $57,220
                             =======                        =======                        =======
Interest-bearing
  liabilities:
  Deposits.................  $52,269    $2,484      4.75 %  $45,440    $1,902      4.19 %  $45,561   $1,736     3.81 %
  FHLB advances and
     other.................    9,695       588      6.06      4,684       253      5.40      3,740      199     5.32
  Total interest-bearing
     liabilities...........   61,964    $3,072      4.96 %   50,124    $2,155      4.30 %   49,301   $1,935     3.92 %
                             -------    ======      ====    -------    ======      ====    -------   ======     ==== 
Non-interest-bearing
  liabilities..............    1,342                            251                            296
                             -------                        -------                        -------
  Total liabilities........   63,306                         50,375                         49,597
                             -------                        -------                        -------
Stockholders' equity.......   18,004                         17,648                          7,623
                             -------                        -------                        -------
  Total liabilities and
     stockholders'
     equity................  $81,310                        $68,023                        $57,220
                             =======                        =======                        =======
Net interest income;
  interest
  rate spread..............             $3,397      3.16 %             $2,996      3.42 %            $2,555     4.11 %
                                        ======      ====               ======      ====              ======     ====  
Net interest margin(5).....                         4.27 %                         4.49 %                       4.57 %
                                                    ====                           ====                         ====  
Average interest-earning
  assets  to average
  interest-bearing
  liabilities..............                       128.54 %                       133.15 %                     113.36 %
                                                  ======                         ======                       ====== 
</TABLE>
                                       11
<PAGE>
---------------
 
(1) At June 30, 1996,  the yields  earned and rates paid were as follows:  loans
    receivable, 8.20%; mortgage-backed securities, 6.98%; investment securities,
    6.05%; other interest-earning  assets, 5.54%; total interest-earning assets,
    7.87%;  deposits,   4.63%;  FHLB  advances,  5.78%;  total  interest-bearing
    liabilities, 4.92%; and interest rate spread, 2.95%.
 
(2) Includes non-accrual loans and loans classified as held for sale.
 
(3) Includes investment and mortgage-backed  securities  classified as available
    for sale.
 
(4) Yields on investment securities have been computed on a tax-equivalent basis
    utilizing a 34% federal income tax statutory rate.
 
(5) Net   interest   margin  is  net   interest   income   divided   by  average
    interest-earning assets.
 
                                     






































                                       12
<PAGE>
Rate/Volume Analysis.  The following table describes the extent to which changes
in  interest  rates  and  changes  in  volume  of  interest-related  assets  and
liabilities  have affected the Company's  interest income and expense during the
periods   indicated.   For  each   category  of   interest-earning   assets  and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume  (change in volume  multiplied  by prior year rate),  (ii)
changes in rate  (change in rate  multiplied  by prior year  volume),  and (iii)
total change in rate and volume. The combined effect of changes in both rate and
volume  has been  allocated  proportionately  to the  change due to rate and the
change due to volume.
<TABLE>
<CAPTION>
 
                                                                Year Ended June 30,
                                           -------------------------------------------------------------
                                                   1996 vs 1995                     1995 vs. 1994
                                           ----------------------------      ---------------------------
                                               Increase                         Increase
                                              (Decrease)                       (Decrease)
                                                Due To          Total            Due To          Total
                                           ----------------    Increase      ---------------    Increase
                                            Rate     Volume    (Decrease)     Rate     Volume   (Decrease)
                                           ------    ------    --------      ------    -----    --------
<S>                                        <C>       <C>        <C>          <C>       <C>       <C>
Interest-earnings assets:
  Loans receivable(1)...................   $  22     $1,355     $1,377       $(236)   $538       $302
  Mortgage-backed securities(2).........      50       (100)       (50)         (1)    238        237
  Investment securities(2)..............      48        (55)        (7)         58     117        175
  Interest-bearing deposits in other
     banks..............................      --         --         --          --     (47)       (47)
  Other interest-earning assets.........      19        (21)        (2)         22     (28)        (6)
                                           -----     ------     ------       -----    -----      ---- 
        Total interest-earning assets...   $ 139     $1,179     $1,318       $(157)   $818       $661
                                           =====     ======     ======       =====    ====       ==== 
Interest-bearing liabilities:
  Deposits..............................   $ 276     $  306     $  582       $ 171     $ (5)     $166
  FHLB advances.........................      (7)       347        340           7       56        63
  Other interest-bearing liabilities....      (3)        (2)        (5)        (10)       1        (9)
                                           ------    ------     ------       -----     ----      ---- 
        Total interest-bearing
           liabilities..................   $ 266     $  651     $  917       $ 168     $ 52      $220
                                           =====     ======     ======       =====     ====      ==== 
Increase (decrease) in net interest
  income................................   $(127)    $  528     $  401       $(325)    $766      $441 
                                           =====     ======     ======       =====     ====      ==== 
                                            
</TABLE>
---------------
 
(1) Includes loans classified as held for sale.
 
(2) Includes investment and mortgage-backed securities classified as available
    for sale.


        


                                       13
<PAGE>
The Company's net interest  income  increased by $401,000 or 13.4% during fiscal
1996 and increased by $469,000 or 18.0% during fiscal 1995.  The increase in net
interest  income  during  fiscal  1996 was the result of an increase in interest
income  primarily due to an increase in the average balance of loans  receivable
which was offset by an increase in interest expense due primarily to an increase
in the average  rate paid on deposits  and on interest  paid to the Federal Home
Loan Bank of Pittsburgh on borrowed  money.  The increase in net interest income
during  fiscal 1995 was the result of an increase in interest  income  primarily
due to an increase in the average balance of loans  receivable,  mortgage-backed
securities  and  investment  securities  which  offset an  increase  in interest
expense due primarily to an increase in the average rate paid on deposits.
 
Interest  Income.  Interest  income on loans  increased by $1.4 million or 34.8%
during  fiscal 1996,  and  increased  $302,000 or 8.3% during  fiscal 1995.  The
increase  during fiscal 1996 was due to a $15.7 million  increase in the average
balance of loans  receivable  and an increase  of 4 basis  points in the average
yield  earned  thereon  (100 basis  points  equals 1%). The increase in interest
income on loans  during  fiscal 1995 was due to a $6.7  million  increase in the
average balance of loans receivable which offset a decline of 69 basis points in
the average yield earned thereon.
 
Interest  income on  mortgage-backed  securities  decreased  by $50,000 or 10.1%
during fiscal 1996,  and increased by $237,000 or 92.6% during fiscal 1995.  The
decrease  during  fiscal 1996 was due to a decrease  in the  average  balance of
mortgage-backed  securities of $1.5 million  which was partially  offset by a 70
basis point  increase in the  average  yield  earned  thereon.  The  increase in
interest income on mortgage-backed  securities during fiscal 1995 was due to the
reinvestment  of a portion of the proceeds of the Company's  stock offering into
mortgage-backed securities, which resulted in an increase in the average balance
of such  securities  of $3.8 million,  which was  partially  offset by a 2 basis
point decline in the average yield earned thereon.
 
Interest  and  dividends on  investment  securities  and other  interest-earning
assets  (consisting   primarily  of  U.S.  Government  and  agency  obligations,
municipal debt securities, corporate obligations,  interest-bearing deposits and
FHLB of  Pittsburgh  stock)  decreased by $9,000 or 1.3% during  fiscal 1996 and
increased by $122,000 or 21.1% during  fiscal 1995.  The decrease  during fiscal
1996 was due primarily to a $1.3 million decrease in the average balance of such
investments,  which was  partially  offset by an increase of 125 basis points in
the average  yield  earned  thereon.  The  increase  during  fiscal 1995 was due
primarily to a $1.6 million  increase in the average balance of such investments
together  with an  increase  of 129 basis  points in the  average  yield  earned
thereon.
 
Interest  Expense.  Interest expense on deposits,  the largest  component of the
Company's  interest-bearing  liabilities,  increased by $582,000 or 30.6% during
fiscal 1996 and increased by $166,000 or 9.6% during  fiscal 1995.  The increase
during fiscal 1996 was due to an increase of 57 basis points in the average rate
paid  thereon,  and a $6.8 million  increase in the average  balance of deposits
outstanding. The increase in interest expense on deposits during fiscal 1995 was
due to an increase of 37 basis  points in the average rate paid  thereon,  which
offset a slight  decline in the  average  balance of deposits  outstanding.  The
decrease in the average balance of deposits during fiscal 1995 was due primarily
to  disintermediation   (the  outflow  of  deposits  into  competing  investment
products),  and the result of the customers of the Troy Hill  withdrawing  their



                                       14
<PAGE>
deposit  accounts to purchase  common stock of the Company.  The increase in the
average  rate  paid  on  deposits  during  fiscal  1996  and  1995  was due to a
competitive market and rising interest rates.
 
Interest  expense on  advances  and other  borrowings  increased  by $335,000 or
132.4%  during fiscal 1996 and increased by $54,000 or 27.1% during fiscal 1995.
The  increase  during  fiscal  1996 was due to a $5.7  million  increase  in the
average  balance  of FHLB  advances  and an  increase  of 4 basis  points in the
average yield earned theron. The increase in such expense during fiscal 1995 was
due to an increase in the average  balance of FHLB advances  which were utilized
to fund the increase in loan demand.
 
Provisions  for Loan Losses.  Provisions for loan losses are charged to earnings
to bring the total  allowance to a level  considered  appropriate  by management
based on historical experience, the volume and type of lending conducted by Troy
Hill, the status of past due principal and interest  payments,  general economic
conditions,  particularly  as they relate to Troy Hill's market area,  and other
factors related to the collectibility of Troy Hill's loan portfolio.
 
The  Company  established  provisions  for loan and lease  losses  of  $220,000,
$10,000  and  $80,000  during  fiscal  1996,  1995 and 1994,  respectively.  The
provisions during fiscal 1996 and 1994 were due, in part, to losses  experienced
with  respect to certain  commercial  leases which Troy Hill had  purchased  and
losses on certain single-family  construction loans during the fourth quarter of
1996. In addition, the Company determined to increase its allowance for loan and
lease losses due to its increased origination of residential construction loans,
which  generally  involve a higher  level of risk as compared  to  single-family
residential  lending (and  therefore  have the inherent risk of higher levels of
losses) and increased loan charge-offs by $184,000 in fiscal 1996.
 
Noninterest  Income.  Total  noninterest  income  increased  by $89,000 or 73.6%
during  fiscal 1996 due  primarily to a $51,000  increase in the gain on sale of
loans and a $31,000 decrease in loss on the sale of investment securities. Total
noninterest  income  decreased  by  $217,000  or 64.2%  during  fiscal  1995 due
primarily to a $189,000  decrease in gain on sale of loans and a $36,000 loss on
sales of  investment  securities  recognized  during the year.  The  increase in
noninterest  income during fiscal 1996 was due primarily to an increase in sales
of loans  to  financial  institutions.  The  decrease  in gain on sales of loans
during  fiscal  1995 was due to an increase  in market  rates of interest  which
resulted in a decline in loan demand with respect to 30-year mortgage loans.
 
Noninterest  Expense.  Total  noninterest  expense increased by $101,000 or 6.3%
during fiscal 1996, as compared to the prior fiscal year. The primary reason for
the  increase was due to a $92,000  increase in salaries and employee  benefits.
This increase was partially offset by a $14,000 decrease in miscellaneous  other
operating  expenses  (consisting  primarily of office  supplies and services and
legal and professional fees). Total noninterest expense increased by $276,000 or
20.9% during  fiscal  1995,  due  primarily  to a $161,000 or 26.8%  increase in
salaries  and  employee   benefits,   and  a  $127,000  or  28.2%   increase  in
miscellaneous  other operating expenses.  The increase in employee  compensation
and  benefits  during  fiscal 1996 and 1995 was due to the hiring of  additional
employees and the funding of the Company's employee stock benefit plans.
 

              



                                       15
<PAGE>
Income Taxes. The Company incurred income tax expense of $599,000,  $589,000 and
$611,000  during  fiscal  1996,  1995  and  1994,  respectively.  The  Company's
effective tax rate amounted to 35.5%,  39.1% and 41.0% during fiscal 1996,  1995
and 1994, respectively. The varied tax expense reflects, among other things, the
continued but varied profitability of the Company.
 
The Company  adopted SFAS No. 109 as of July 1, 1993.  The general  objective of
SFAS No. 109 is to recognize  annually  the deferred tax assets and  liabilities
which  will  arise  from  future  tax  consequences  of  events  that  have been
recognized in the Company's financial  statements or tax returns. As a result of
the adoption of SFAS No. 109, the Company  recognized  $200,000 in income during
the year ended June 30, 1994  representing the cumulative  effect of this change
in accounting principle.
 
Liquidity and Capital Resources
 
The Company's liquidity,  represented by cash and cash equivalents, is a product
of its  operating,  investing and financing  activities.  The Company's  primary
sources of funds are deposits, borrowings, amortization, prepayments, maturities
of outstanding  loans,  mortgage-backed  securities  and investment  securities,
sales of loans,  available for sale securities and other short-term  investments
and funds provided from  operations.  While  scheduled loan and  mortgage-backed
securities  amortization  and  maturing  investment  securities  and  short-term
investments are relatively  predictable sources of funds, deposit flows and loan
prepayments  are  greatly   influenced  by  general  interest  rates,   economic
conditions and  competition.  The Company manages the pricing of its deposits to
maintain a steady deposit balance. In addition, the Company invests excess funds
in  overnight  deposits  and  other  short-term  interest-earning  assets  which
provides  liquidity to meet lending  requirements.  The Company has been able to
generate  enough cash through an increase in advances from the Federal Home Loan
Bank of  Pittsburgh  and to a lesser  extent,  growth in the  Company's  deposit
accounts.  At June 30,  1996,  the  Company  had $18.6  million  of  outstanding
advances  from the FHLB of  Pittsburgh  and a line of credit of $4.9  million of
which  $400,000  is unused.  Furthermore,  Troy Hill has  access to the  Federal
Reserve Bank discount window.
 
Liquidity  management  is  both a  daily  and  long-term  function  of  business
management.  Excess  liquidity is generally  invested in short-term  investments
such as overnight  deposits.  On a longer-term  basis,  the Company  maintains a
strategy of investing in various lending products.  The Company uses its sources
of funds  primarily to meet its ongoing  commitments,  to pay  maturing  savings
certificates  and savings  withdrawals,  fund loan  commitments  and  maintain a
portfolio of investment and  mortgage-backed  securities.  At June 30, 1996, the
total approved loan  commitments  outstanding  amounted to $3.4 million.  At the
same date, commitments under unused lines of credit amounted to $7.8 million and
the  unadvanced   portion  of  construction  loans  approximated  $5.2  million.
Certificates of deposit scheduled to mature in one year or less at June 30, 1996
totaled  $21.6  million.  Management  believes  that a  significant  portion  of
maturing deposits will remain with Troy Hill.
 
Federally  insured savings  institutions are required to maintain minimum levels
of regulatory capital.  The OTS has established capital standards  applicable to
all savings institutions.  These standards generally must be as stringent as the
comparable  capital  requirements  imposed on  national  banks.  The OTS also is
authorized  to impose  capital  requirements  in excess  of these  standards  on
individual institutions on a case-by-case basis.
 

                                       16
<PAGE>
Savings  institutions  must satisfy three  different  OTS capital  requirements.
Under these standards,  savings  institutions must maintain  "tangible"  capital
equal to at least 1.5% of adjusted  total  assets,  "core"  capital  equal to at
least 3% of adjusted total assets and "total" capital (a combination of core and
"supplementary"  capital) equal to at least 8% of  "risk-weighted"  assets.  For
purposes  of the  regulation,  core  capital is defined as common  stockholders'
equity (including  retained earnings),  noncumulative  perpetual preferred stock
and  related  surplus,  minority  interests  in the  equity  accounts  of  fully
consolidated subsidiaries, certain nonwithdrawable accounts and pledged deposits
and qualifying  supervisory  goodwill.  Core capital is generally reduced by the
amount of a savings institution's intangible assets, although limited exceptions
to the  deduction  of  intangible  assets are provided  for  purchased  mortgage
servicing rights, qualifying supervisory goodwill and certain other intangibles,
all of which are  currently  not  relevant  to the  calculation  of Troy  Hill's
regulatory capital. Tangible capital is core capital less all intangible assets,
with a limited exception for purchased  mortgage  servicing  rights.  Failure to
meet minimum capital requirements can initiate certain mandatory--and,  possibly
additional  discretionary--actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements.
 
Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require Troy Hill to maintain minimum amounts and ratios (set forth in the table
below) of Tangible  and Core  Capital (as defined in the  regulations)  to total
assets and of Total Capital (as defined) to  risk-weighted  assets (as defined).
Management  believes,  as of June 30,  1996,  that Troy Hill  meets all  capital
adequacy requirements to which it is subject.
 
As of June 30,  1996,  the most  recent  notification  from the Office of Thrift
Supervision  (OTS)  categorized  Troy  Hill  as  "well  capitalized"  under  the
regulatory  framework for prompt  corrective  action. To be categorized as "well
capitalized,"  Troy  Hill  must  maintain  minimum  Total  Risk-based,  Core and
Tangible ratios as set forth in the accompanying  table. There are no conditions
or events since that  notification  that  management  believes  have changed the
institution's category.
<TABLE>
<CAPTION>
                                                                                     To be well
                                                                                     capitalized
                                                                                        under
                                                                                       prompt
                                                               For capital           corrective
                                                                adequacy               action
                                           Actual               purposes             provisions
                                      ----------------       ---------------       ---------------
                                      Amount     Ratio       Amount    Ratio       Amount    Ratio
                                      -------    -----       ------    -----       ------    -----
                                                             (in thousands)
    <S>                               <C>        <C>         <C>        <C>       <C>        <C>                      
    As of June 30, 1996:
      Risk-based Capital...........   $14,506    24.30%      $4,775     8.00%     $5,969     10.00%
      Core Capital.................    14,010    15.89       2,646      3.00       5,292      6.00
      Tangible Capital.............    14,010    15.89       1,322      1.50       4,407      5.00
    As of June 30, 1995:
      Risked-based Capital.........    14,639    33.79       3,466      8.00       4,333     10.00
      Core Capital.................    13,996    19.45       2,159      3.00       4,318      6.00
      Tangible Capital.............    13,996    19.45       1,080      1.50       3,560      5.00
</TABLE>
           
                                       17
<PAGE>
Corporate Reorganization
 
On  September  16,  1996,  the Company  entered  into an  Agreement  and Plan of
Reorganization (the "Agreement") with PennFirst Bancorp, Inc.  ("PennFirst"),  a
Pennsylvania-chartered  thrift holding company which is headquartered in Ellwood
City,  Pennsylvania.  Pursuant to the Agreement, the Company will merge with and
into PennFirst and Troy Hill will operate as a separate  subsidiary of PennFirst
for a minimum  period of one  year.  Each  shareholder  of the  Company  will be
entitled to receive  $21.15 in either cash or shares of  PennFirst  common stock
for each share of Company common stock,  subject to an overall  requirement that
40% of the outstanding Company common stock be exchanged for cash. The Merger is
subject  to,  among  other  things,  the  receipt  of all  requisite  regulatory
approvals as well as the approval of the  respective  shareholders  of PennFirst
and the Company. In connection  therewith,  a Special Meeting of Shareholders of
PennFirst  and the Company is expected to be called for the purpose of approving
the Merger during the second or third quarter of fiscal 1997.
 
Impact of Inflation and Changing Prices
 
The financial  statements of the Company and 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 the Company's assets and liabilities are
critical to the maintenance of acceptable performance levels.
 
       






















                                       18
<PAGE>

KPMG Peat Marwick LLP

   One Mellon Bank Center     Telephone 412 391 9710        Telefax 412 391 8963
   Pittsburgh, PA 15219       Telex 7106642199 PMM & CO PGH



                          Independent Auditors' Report



The Board of Directors
Troy Hill Bancorp, Inc.:

We have audited the accompanying  consolidated  statement of financial condition
of Troy Hill Bancorp, Inc. and subsidiary (the Company) as of June 30, 1996, and
the related  consolidated  statement of earnings,  stockholders' equity and cash
flows for the year then ended. These consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  based on our  audit.  The
accompanying  financial  statements of the Company as of June 30, 1995,  and for
each of the years in the  two-year  period  then  ended  were  audited  by other
auditors  whose report  thereon dated August 11, 1995,  expressed an unqualified
opinion with an  explanatory  paragraph for changes in accounting for investment
securities in 1995 and income taxes in 1994 on those statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the 1996 consolidated  financial  statements  referred to above
present  fairly in all material  respects,  the financial  position of Troy Hill
Bancorp,  Inc. and  subsidiary as of June 30, 1996,  and the results of its cash
flows for the year then ended in conformity with generally  accepted  accounting
principles.

                                              KPMG Peat Marwick LLP


Pittsburgh, Pennsylvania
August 16, 1996, except as to
      note 18, which is as of 
      September 16, 1996
 
         







                                       19
<PAGE>
<TABLE>
<CAPTION>
                                      TROY HILL BANCORP, INC.
                          Consolidated Statements of Financial Condition
                                      June 30, 1996 and 1995
                                          (In thousands)
 
                                                                         1996              1995
                                                                        -------           ------
<S>                                                                     <C>             <C>
                               Assets
Cash and due from banks..............................................   $ 2,869            1,469
Investment and mortgage-backed securities--available for sale
  (amortized cost of $11,819 and $10,750) (note 2)...................    11,731           10,831
Investment securities--held to maturity (market value of $7,134)
  (note 3)...........................................................        --            7,301
Loans held for sale..................................................        --              272
Loans receivable, net (notes 1, 4 and 5).............................    74,552           53,180
Premise and equipment, net (note 6)..................................       653              602
Federal Home Loan Bank stock at cost (note 8)........................       929              286
Real estate owned....................................................       462              330
Accrued interest receivable (notes 2 and 4)..........................       546              470
Deferred income tax benefit (note 10)................................       359              288
Other assets.........................................................        82               62
                                                                        -------           ------
     Total assets....................................................   $92,183           75,091
                                                                        =======           ======
                Liabilities and Stockholders' Equity
Liabilities:
  Savings deposits (note 7)..........................................    53,960           50,610
  Advances from Federal Home Loan Bank (note 9)......................    18,583            5,750
  Advances by borrowers for taxes and insurance......................     1,185              986
  Accrued expenses and other liabilities.............................       415              529
                                                                        -------           ------
     Total liabilities...............................................    74,143           57,875
Stockholders' equity (notes 1, 9, 10 and 13):
  Preferred stock, no par value, 5,000,000 shares authorized and
     unissued........................................................        --               --
  Common stock, $.01 par value, 10,000,000 shares authorized,
     1,124,125 shares issued.........................................        11               11
  Additional paid-in capital.........................................    10,614           10,591
  Retained earnings, substantially restricted........................     9,395            8,657
  Treasury stock--at cost, 56,208 shares at June 30, 1996 and 1995...      (703)            (703)
  Shares acquired by the recognition and retention plan..............      (463)            (543)
  Unearned ESOP shares...............................................      (756)            (850)
  Unrealized gain (loss) on investment and mortgage-backed securities
     available for sale, net of taxes................................       (58)              53
                                                                        -------           ------
        Total stockholders' equity...................................    18,040           17,216
                                                                        -------           ------
        Total liabilities and stockholders' equity...................   $92,183           75,091
                                                                        =======           ======
 
                   See accompanying notes to consolidated financial statements.
</TABLE>
         


                                       20
<PAGE>
<TABLE>
<CAPTION>
                                      TROY HILL BANCORP, INC.
                                Consolidated Statements of Earnings
                             Years Ended June 30, 1996, 1995 and 1994
                                          (In thousands)
 
                                                                      1996        1995       1994
                                                                    --------      -----      -----
<S>                                                                  <C>          <C>        <C>
Interest income:
  Loans..........................................................    $5,334       3,957      3,655
  Investment securities..........................................       568         575        400
  Mortgage-backed securities.....................................       443         493        256
  Interest-bearing deposits and other............................       124         126        179
                                                                     ------       -----      -----
     Total interest income.......................................     6,469       5,151      4,490
Interest expense:
  Interest on savings deposits (note 7)..........................     2,484       1,902      1,736
  Interest on advances and other borrowings......................       588         253        199
                                                                     ------       -----      -----
     Total interest expense......................................     3,072       2,155      1,935
                                                                     ------       -----      -----
     Net interest income.........................................     3,397       2,996      2,555
Provision for loan losses (note 4)...............................       220          10         80
                                                                     ------       -----      -----
     Net interest income after provision for loan losses.........     3,177       2,986      2,475
Noninterest income:
  Loan fees and service charges..................................        47          45         39
  Gain on sales of loans.........................................       126          75        264
  Loss on sales of investment securities.........................        (5)        (36)        --
  Other..........................................................        42          37         35
                                                                     ------       -----      -----
     Total noninterest income....................................       210         121        338
Noninterest expense:
  Salaries and employee benefits (note 11).......................       854         762        601
  Premises and occupancy expense.................................       164         160        164
  Federal deposit insurance......................................       119         100        108
  Other operating (note 12)......................................       563         577        450
                                                                     ------       -----      -----
     Total noninterest expense...................................     1,700       1,599      1,323
                                                                     ------       -----      -----
     Earnings before income taxes and cumulative effect of change
       in
        accounting principle.....................................     1,687       1,508      1,490
Provision for income taxes (notes 1 and 10)......................       599         589        611
                                                                     ------      -----      -----
     Earnings before cumulative effect of change in accounting
       principle.................................................     1,088         919        879
Cumulative effect of change in accounting principle (notes 1 and
  10)............................................................        --          --        200
                                                                     ------       -----      -----
     Net earnings................................................    $1,088         919      1,079
                                                                     ======       =====      =====
Earnings per share (note 1)......................................    $ 1.09         .89        N/A
                                                                     ======       =====      =====
                   See accompanying notes to consolidated financial statements.
</TABLE>
                                      21
<PAGE>
<TABLE>
<CAPTION>
                                                       TROY HILL BANCORP, INC.
                                           Consolidated Statements of Stockholders' Equity
                                              Years Ended June 30, 1996, 1995 and 1994
                                                           (In thousands)
 
                                                                    Shares acquired              Unrealized
                                   Additional                       by recognition    Unearned   gain (loss)       Total
                           Common   paid-in    Retained  Treasury    and retention      ESOP    on investment  stockholders'
                           stock    capital    earnings   stock          plan          shares    securities       equity
                           ------  ----------  --------  --------  -----------------  --------  -------------  -------------
<S>                         <C>      <C>         <C>        <C>            <C>         <C>          <C>           <C>
Balance at June 30,
  1993....................  $ --         --      6,873       --             --            --           --           6,873
Net earnings..............    --         --      1,079       --             --            --           --           1,079
Common stock issued.......    11     10,581         --       --             --          (944)          --           9,648
                            ----     ------      -----      ----           ---          ----          ---          ------ 
Balance at June 30,
  1994....................    11     10,581      7,952       --             --          (944)          --          17,600
Net earnings..............    --         --        919       --             --            --           --             919
Adoption of SFAS 115,
  unrealized loss on
  available for sale
  securities net of tax...    --         --         --       --             --            --         (150)           (150)
Cash dividend declared at
  $.21 per share..........    --         --       (214)      --             --            --           --            (214)
Change in market value of
  securities available for
  sale, net of deferred
  taxes...................    --         --         --       --             --            --          203             203
Stock acquired for
  recognition and
  retention plan..........    --         --         --       --           (543)           --           --            (543)
Principal payment on ESOP
  debt....................    --         10         --       --             --            94           --             104
Acquisition of treasury
  stock...................    --         --         --     (703)            --            --           --            (703)
                            ----     ------      -----      ----           ---          ----          ---          ------ 
Balance at June 30,
  1995....................    11     10,591      8,657     (703)          (543)         (850)          53          17,216
Net earnings..............    --         --      1,088       --             --            --           --           1,088
Cash dividend declared at
  $.36 per share..........    --         --       (350)      --             --            --           --            (350)
Change in market value of
  securities available for
  sale, net of tax........    --         --         --       --             --            --         (111)           (111)
Amortization of
  recognition and
  retention plan awards...    --         --         --       --             80            --           --              80
Principal payment on ESOP
  debt....................    --         23         --       --             --            94           --             117
                            ----     ------      -----      ----           ---          ----          ---          ------ 
Balance at June 30,
  1996....................  $ 11     10,614      9,395     (703)          (463)         (756)         (58)         18,040
                            ====     ======      =====     ====           ====          ====         ====          ====== 
                                    See accompanying notes to consolidated financial statements.
</TABLE>
                                       22
<PAGE>
<TABLE>
<CAPTION>
                                      TROY HILL BANCORP, INC.
                               Consolidated Statements of Cash Flows
                             Years Ended June 30, 1996, 1995 and 1994
                                          (In thousands)
                                                                      1996       1995      1994
                                                                   ----------   -------   -------
<S>                                                                 <C>         <C>       <C>
Cash flows from operating activities:
  Net earnings...................................................   $  1,088        919     1,079
  Adjustments to reconcile net earnings to net cash provided
     by operating activities:
     Provision for loan losses...................................        220         10        80
     Origination of loans for sale...............................     (8,504)    (1,064)   (7,234)
     Proceeds from sale of loans.................................      8,902        792     7,921
     Depreciation and amortization...............................         70         72        67
     Other.......................................................         81        140       (12)
     Amortization of deferred loan origination fees and accretion
       of discounts..............................................       (141)      (161)     (245)
     Deferred income tax benefit.................................        (24)       (41)     (196)
     Decrease (increase) in accrued interest receivable..........        (76)       (94)       42
     (Increase) decrease in other assets.........................        (20)        12       (35)
     (Decrease) increase in other liabilities....................       (155)        81       119
                                                                   ----------   -------   -------
           Net cash provided by operating activities.............      1,441        666     1,586
Cash flows from investing activities:
  Net decrease in interest-bearing deposits in other financial
     institutions................................................         --         --     2,463
  Purchases of investment securities held to maturity............         --       (766)  (11,894)
  Sale of investment securities available for sale...............      6,691      5,662     1,752
  Purchases of investment securities available for sale..........     (2,647)    (7,799)       --
  Principal repayments of mortgage-backed securities available
     for sale....................................................      2,189        691     1,442
  Net decrease (increase) in loans...............................    (21,897)   (14,164)    2,285
  Proceeds from sale of real estate owned........................        314         --        --
  (Purchase) redemptions of Federal Home Loan Bank stock.........       (643)        36         5
  Purchases of premises and equipment............................       (121)       (59)      (86)
                                                                   ----------   -------   -------
           Net cash used in investing activities.................    (16,114)   (16,399)   (4,033)
Cash flows from financing activities:
  Net (decrease) increase in savings deposits....................   $  3,350      8,200    (4,315)
  Net (decrease) increase in advances by borrowers for taxes and
     insurance...................................................        199        239       (29)
  Proceeds from issuance of common stock, net....................         --         --     9,648
  Proceeds from FHLB advances....................................     26,083      5,750        --
  Payment of FHLB advances.......................................    (13,250)    (3,000)       --
  Dividends paid.................................................       (309)      (214)       --
  Purchase of shares for retention plan..........................         --       (543)       --
  Purchase of treasury stock.....................................         --       (703)       --
                                                                   ----------   -------   -------
           Net cash provided by financing activities.............     16,073      9,729     5,304
                                                                   ----------   -------   -------
Net (decrease) increase in cash..................................      1,400     (6,004)    2,857
Cash and cash equivalents at beginning of year...................      1,469      7,473     4,616
                                                                   ----------   -------   -------
Cash and cash equivalents at end of year.........................   $  2,869      1,469     7,473
                                                                   ===========  =======   =======
                                                23
<PAGE>
<CAPTION>
                                      TROY HILL BANCORP, INC.
                               Consolidated Statements of Cash Flows
                             Years Ended June 30, 1996, 1995 and 1994
                                          (In thousands)
                                            (continued)
 
                                                                      1996       1995      1994
                                                                   ----------   -------   -------
<S>                                                                 <C>         <C>       <C>
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
     Interest on deposits and borrowings.........................   $  3,019      2,149     1,965
                                                                   ===========  =======   =======
     Income taxes................................................   $    690        545       658
                                                                   ===========  =======   =======
  Noncash investing and financing transactions:
     Transfers from loans to real estate acquired through
       foreclosure...............................................   $    446        374        16
                                                                   ===========  =======   =======
     Transfer of securities held to maturity to available for
       sale......................................................   $  6,950         --        --
                                                                   ===========  =======   =======
 
         See accompanying notes to consolidated financial statements.
</TABLE>
 
                                     






























                                       24
<PAGE>
                           TROY HILL BANCORP, INC.
 
                  Notes to Consolidated Financial Statements
 
                         June 30, 1996, 1995 and 1994
 
(1) Summary of Accounting Policies
 
Troy Hill Bancorp, Inc. and subsidiary (the Company) is primarily engaged in the
business of attracting  retail  deposits from the general  public and using such
funds to invest in residential  and commercial  mortgage  loans.  The Company is
subject to competition  from other financial  institutions.  The Company is also
subject to the  regulations of certain federal  agencies and undergoes  periodic
examinations by those regulatory authorities.
 
The following  comprise the  significant  accounting  policies which the Company
follows in preparing and presenting their consolidated financial statements:
 
   Conversion to Stock Form
 
On  June  24,  1994,  Troy  Hill  Federal  Savings  and  Loan  Association  (the
Association) completed its conversion from a federally chartered, mutual savings
and loan association to a federally chartered,  stock savings bank known as Troy
Hill Federal  Savings Bank (Troy Hill),  followed by the issuance of all of Troy
Hill's outstanding common shares to the Company, a newly formed holding company.
The financial  statements  for the periods prior to June 24, 1994,  are those of
the Association prior to the conversion and reorganization.
 
   Principles of Consolidation
 
The accompanying  consolidated  financial statements include the accounts of the
Company and its wholly owned subsidiary, Troy Hill. All significant intercompany
transactions have been eliminated.
 
   Basis of Presentation
 
The  financial  statements  have been  prepared  in  conformity  with  generally
accepted  accounting   principles.   In  preparing  the  financial   statements,
management  is  required  to make  estimates  and  assumptions  that  affect the
reported  amounts of assets and  liabilities  as of the date of the statement of
financial  condition  and revenues and expenses for the period.  Actual  results
could differ significantly from those estimates.
 
   Loans Held for Sale
 
Mortgage loans  originated and intended for sale are carried at lower of cost or
market determined in the aggregate.
 
   Investment and Mortgage-Backed Securities Available for Sale
 
On July 1, 1994, the Company adopted Statement of Financial Accounting Standards
No. 115 (SFAS  115),  "Accounting  for  Certain  Investments  in Debt and Equity
Securities."  SFAS 115 addresses the accounting and reporting for investments in
equity securities that have readily determinable fair values and all investments
in debt  securities.  Those  investments are classified in three  categories and
accounted for based on the respective  classification.  Debt securities that the


                                       25
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

Company has the positive  intent and ability to hold to maturity are  classified
as held to maturity and reported at amortized cost.  Debt and equity  securities
that are bought and held principally for the purpose of selling them in the near
term are  classified  as trading  securities  and  reported at fair value,  with
unrealized  gains and  losses  included  currently  in  income.  Debt and equity
securities  classified  as neither  held to maturity or trading  securities  are
classified  as available  for sale and reported at fair value,  with  unrealized
gains and losses  excluded  from income and reported as a separate  component of
stockholders' equity, net of income taxes. The Company did not classify any debt
or equity securities as trading  securities in 1996 or 1995. In periods prior to
July 1, 1994, investments  securities and mortgage-backed  securities are stated
at cost,  adjusted for amortization of premiums and accretion of discounts using
the level yield method.
 
Gains  and  losses  on  sales  of  securities  are  recognized  on the  specific
identification method.  Purchases and sales of securities are accounted for on a
settlement  date basis which is not  materially  different than use of the trade
date basis.
 
   Loans Receivables
 
Loans  receivable are carried at unpaid principal  balances,  less the allowance
for loan losses and net deferred  loan  origination  fees.  Interest on loans is
credited  to income as earned.  Interest  earned on loans for which no  payments
were received during the month is accrued.  Uncollectible interest on loans that
are  contractually  past due is charged off or an allowance is established based
on management's periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued. Income is subsequently
recognized  only to the extent cash payments are received until, in management's
judgment,  the  borrower's  ability  to make  periodic  interest  and  principal
payments  is back to  normal,  in which  case the loan is  returned  to  accrual
status.  If the  collection  of principal  is in doubt in whole or in part,  all
payments received on nonaccrual loans are credited to principal until such doubt
is  eliminated.  Monthly  mortgage loan payments are adjusted  annually to cover
insurance and tax requirements.
 
Loan  origination  fees received,  net of certain direct  origination  costs are
deferred on a loan-by-loan basis and amortized to interest income using a method
which   approximates  the  interest   method,   giving  effect  to  actual  loan
prepayments.
 
On July 1, 1995, the Company adopted SFAS No. 114,  "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan--Income  Recognition and  Disclosures,"  which provide  guidelines for
measuring and reporting  impairment  losses on loans. A loan is considered to be
impaired  when it is  probable  that the  Company  will be unable to collect all
principal  and interest  amounts due according to the  contractual  terms of the
loan agreement. All nonperforming loans, excluding consumer and lease loans, are
considered  to be impaired  loans.  Impaired  loans are  required to be measured
based upon the present  value of expected  future cash flows,  discounted at the
loan's  initial  effective  interest rate, or at the loan's market price or fair



                                       26
<PAGE>
                             TROY HILL BANCORP, INC.
 
              Notes to Consolidated Financial Statements--Continued

value  of the  collateral  if the  loan is  collateral  dependent.  If the  loan
valuation is less than the recorded  value of the loan,  an  impairment  reserve
must be established  for the difference by either an allocation of the allowance
for loan losses or by a provision for loan losses,  depending on the adequacy of
the  allowance  for loan  losses.  As of June 30, 1996,  there were  $170,000 of
nonperforming consumer, single family residential and lease loans that have been
collectively evaluated for impairment. Estimated impairment losses for the loans
are based on various  factors  including past loss  experience,  recent economic
conditions,  portfolio  delinquency  rates and the fair value of the  underlying
collateral.  Impairment loans at June 30, 1996, were $105,000 that had a related
impairment reserve of $16,000. Average impaired loans during the year ended June
30, 1996,  were  $269,000.  During the year, the Company  recognized  $15,000 of
interest  revenue on impaired loans,  all of which was recognized using the cash
basis method of income recognition.
 
   Provision for Loan Losses
 
Provisions  for  estimated  losses on loans are charged to earnings in an amount
that  results  in an  allowance  for loan  losses  sufficient,  in  management's
judgment,  to cover anticipated losses based on management's periodic evaluation
of known and inherent risks in the loan portfolio, past and expected future loss
experience of the Company, current economic conditions, adverse situations which
may affect a specific  borrower's  ability to repay,  the estimated value of any
underlying collateral and other relevant factors.
 
Material  estimates that are particularly  susceptible to significant  change in
the  near-term  relate to the  determination  of the  allowance for loan losses.
Management  believes  that the  allowance  for loan  losses is  adequate.  While
management  uses  available  information  to recognize  losses on loans,  future
additions  to the  allowance  may be  necessary  based on  changes  in  economic
conditions.  In addition,  various regulatory  agencies,  as an integral part of
their examination process,  periodically review the Company's allowance for loan
losses.  Such agencies can require the Company to adjust the allowance  based on
their  judgments  about  information  available  to  them at the  time of  their
examination.
 
   Real Estate Owned
 
Real estate owned (properties acquired by foreclosure or voluntarily conveyed by
delinquent  borrowers in lieu of foreclosure) are recorded as of the acquisition
date at the  lower  of  cost  or fair  value  less  estimated  costs  to sell as
established  by  a  current   appraisal.   Costs  relating  to  development  and
improvement  of the  property are  capitalized,  whereas  costs  relating to the
holding of such real estate are expensed as incurred. Subsequent to acquisition,
valuations are periodically  performed by management;  and the carrying value of
the real estate  acquired is  subsequently  adjusted by establishing a valuation
allowance  and  recording  a charge to  operations  if the  carrying  value of a
property  exceeds its estimated fair value less estimated  costs to sell.  Gains
and losses from the sale of real estate are  recognized  upon sale and are based
upon the net carrying value of the related property.



                                 
                                       27
<PAGE>
                             TROY HILL BANCORP, INC.
 
              Notes to Consolidated Financial Statements--Continued

   Premises and Equipment
 
Premises  and  equipment  are  stated  at cost  less  accumulated  depreciation.
Depreciation   for   financial   reporting   purposes  is  computed   using  the
straight-line  method over the estimated  useful lives of the related  assets of
five to forty years. Accelerated methods are used for income tax purposes.
 
   Interest on Savings Deposits
 
Interest on savings  deposits  is accrued and charged to expense  monthly and is
paid or credited in accordance with the terms of the respective accounts.
 
   Income Taxes
 
Deferred  taxes  are  provided  for under  the  asset  and  liability  method of
accounting for income taxes. Under the asset and liability method,  deferred tax
assets  and  liabilities   are  recognized  for  the  future  tax   consequences
attributable to differences  between the financial statement carrying amounts of
existing  assets and liabilities  and their  respective tax bases.  Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered  or settled.  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.
 
   Cash Equivalents
 
For purposes of reporting cash flows, cash and cash equivalents consists of cash
and due from banks.
 
   Earnings Per Share
 
Earnings  per share (EPS) is computed  by  dividing  net income by the  weighted
average number of common shares and common stock equivalents  outstanding during
the year.  Such shares  amounted to 995,480 and  1,035,235  at June 30, 1996 and
1995. Shares outstanding for 1996 and 1995, do not include ESOP shares that were
purchased  and  unallocated  during 1996 and 1995 in  accordance  with SOP 93-6,
"Employers'  Accounting for Employee Stock Ownership  Plans." Shares granted but
not yet issued under the Company's stock option plan are considered common stock
equivalents for earnings per share calculations.
 
For fiscal year ended June 30, 1994,  the  provisions of  Accounting  Principles
Board Opinion No. 15,  "Earnings  Per Share," are not  applicable as the Company
converted to the stock form of ownership in June 1994.




     





                                  28
<PAGE>
                            TROY HILL BANCORP, INC.
 
              Notes to Consolidated Financial Statements--Continued

   Reclassifications
 
Certain items previously reported have been reclassified to conform to the
current year's reporting format.
 
(2) Investment and Mortgage-Backed Securities Available for Sale
 
The  amortized  cost,  gross  unrealized  gains,  gross  unrealized  losses  and
estimated market value of investment and  mortgage-backed  securities  available
for sale are as follows at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
 
                                                                         1996
                                                -------------------------------------------------------
                                                                 Gross           Gross        Estimated
                                                Amortized     unrealized      unrealized       market
                                                  cost           gains          losses          value
                                                ---------     -----------     -----------     ---------
                                                                    (in thousands)
<S>                                              <C>             <C>             <C>           <C>
    U.S. agency securities...................    $ 2,532           --              (80)          2,452
    Collateralized mortgage obligations......        500           --              (11)            489
    Mortgage-backed securities...............      4,613           68              (15)          4,666
    Corporate equity securities..............      4,174           46              (96)          4,124
                                                 -------          ---             ----          ------ 
                                                 $11,819          114             (202)         11,731
                                                 =======          ===             ====          ====== 
 
                                                                         1995
                                                -------------------------------------------------------
                                                                 Gross           Gross        Estimated
                                                Amortized     unrealized      unrealized       market
                                                  cost           gains          losses          value
                                                ---------     -----------     -----------     ---------
                                                                    (in thousands)
    U.S. agency securities...................    $ 1,000           12               --           1,012
    Collateralized mortgage obligations......        500           --              (17)            483
    Mortgage-backed securities...............      6,451          138               (3)          6,586
    Corporate equity securities..............      2,799           45              (94)          2,750
                                                 -------          ---             -----         ------  
                                                 $10,750          195             (114)         10,831
                                                 =======          ===             ====          ====== 
</TABLE>


      







                                 29
<PAGE>
                            TROY HILL BANCORP, INC.
 
              Notes to Consolidated Financial Statements--Continued

The   amortized   cost  and   approximate   market  value  of   investment   and
mortgage-backed  securities available for sale by contractual maturities at June
30,  1996,  are shown  below.  Actual  maturities  will  generally  differ  from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
 
<TABLE>
<CAPTION>
                                                                             1996
                                                                   -------------------------
                                                                                  Estimated
                                                                   Amortized       market
                                                                     cost           value
                                                                   ---------     -----------
                                                                        (in thousands)
        <S>                                                         <C>            <C>
        After one but within five years.........................    $ 1,285          1,247
        After five but within ten years.........................      1,247          1,205
                                                                    -------         ------ 
                                                                      2,532          2,452
        Collateralized mortgage obligations.....................        500            489
        Mortgage-backed securities..............................      4,613          4,666
        Corporate equity securities.............................      4,174          4,124
                                                                   --------         ------ 
                                                                    $11,819         11,731
                                                                    =======         ====== 
</TABLE>
 
Sale of investment and mortgage-backed  securities available for sale during the
years ended June 30, 1996 and 1995,  resulted  in  proceeds  of  $6,691,000  and
$5,662,000,  respectively. Gross realized gains of $17,000 and $60,000 and gross
realized losses of $22,000 and $96,000, respectively,  were recorded. There were
no sales of securities during the year ended June 30, 1994.
 
Accrued income receivable on securities  available for sale and held to maturity
was approximately $108,000 and $166,000 at June 30, 1996 and 1995, respectively.
 
In November  1995,  the Financial  Accounting  Standards  Board (FASB) issued "A
Guide to Implementation  of Statement 115 on Accounting for Certain  Investments
in Debt and Equity  Securities,  Questions and Answers." This guide  permitted a
one-time   reassessment  of  the   appropriateness  of  the  classifications  of
securities as available for sale or held for  investment.  On December 31, 1995,
the Company transferred approximately $6.9 million of investment securities with
a  market  value of $6.8  million  from the  held to  maturity  category  to the
securities available for sale category. Concurrent with this redesignation,  all
but  approximately  $1.7 million of the  securities  transferred  were sold at a
realized loss of $5,000.




      


                                       30
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued
 
(3) Investment Securities Held to Maturity
 
The  amortized  cost,  gross  unrealized  gains,  gross  unrealized  losses  and
approximate  market  value of  investment  securities  held to maturity  were as
follows at June 30, 1995:
<TABLE>
<CAPTION>
                                                                         1995
                                                -------------------------------------------------------
                                                                 Gross           Gross        Estimated
                                                Amortized     unrealized      unrealized       market
                                                  cost           gains          losses          value
                                                ---------     -----------     -----------     ---------
                                                                    (in thousands)
<S>                                              <C>              <C>             <C>          <C>
    U.S. agency securities...................    $ 2,843           --             (106)         2,737
    Obligations of state and political
      subdivisions...........................      4,200           11              (50)         4,161
    Corporate bonds..........................        258           --              (22)           236
                                                                   --
                                                 -------                           ----          ----- 
                                                 $ 7,301           11             (178)         7,134
                                                 =======           ==             ====          ===== 
</TABLE>



       


























                                       31
<PAGE>
                            TROY HILL BANCORP, INC.
 
              Notes to Consolidated Financial Statements--Continued

(4) Loans Receivable and Allowance for Loan Losses
 
Loans receivable at June 30, 1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
                                                                     1996          1995
                                                                    -------       ------
                                                                        (in thousands)
<S>                                                                 <C>          <C>
        First mortgage loans:
          One- to four-family residential........................   $50,587       38,489
          Multi-family residential...............................     5,297          530
          Nonresidential.........................................     7,641        4,186
          Construction...........................................    13,678       11,629
                                                                    -------       ------
                                                                     77,203       54,834
        Commercial leases........................................       597          525
        Consumer loans:
          Loans secured by savings accounts......................        96           78
          Home equity and second mortgage........................     3,187        2,585
          Automobile.............................................         8           17
                                                                    -------       ------
                                                                      3,291        2,680
        Less:
          Deferred loan origination fees.........................       655          635
          Loans in process.......................................     5,224        3,557
          Allowance for loan losses..............................       660          667
                                                                    -------       ------
                                                                      6,539        4,859
                                                                    -------       ------
                                                                    $74,552       53,180
                                                                    =======       ======
</TABLE>
 
The Company's lending efforts have  historically  focused on one- to four-family
residential  and  construction  real  estate  loans,  primarily  in the  western
Pennsylvania area. Generally,  such loans have been underwritten on the basis of
80% loan to value ratio or mortgage insurance was required. The Company, as with
any lending  institution,  is subject to the risk that real estate  values could
deteriorate in its primary  lending area thereby  impairing  collateral  values.
Management believes,  however,  that real estate values in the Company's primary
lending area are currently stable.






   





                                    32
<PAGE>

                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued
 
In the normal  course of business,  the Company has made loans to directors  and
officers.  An analysis of aggregate  loan  activity  with related  parties is as
follows:
<TABLE>
<CAPTION>
 
                                                                             Year ended
                                                                           June 30, 1996
                                                                           --------------
                                                                           (in thousands)
        <S>                                                                     <C>
        Loans outstanding at beginning of period:
          Loans originated ........................................             $228
          Repayments ..............................................                5
        Loans outstanding at end of period ........................               31
                                                                                ----
                                                                                $202
                                                                                ====
</TABLE>
 
A summary of the activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
                                                                           June 30,
                                                                  ---------------------------
                                                                  1996        1995       1994
                                                                  -----       ----       ----
                                                                         (in thousands)
    <S>                                                           <C>         <C>        <C>      
    Balance at beginning of year...............................   $ 667       700        629
    Charge-offs................................................    (227)      (43)        (9)
    Provision charged to operations............................     220        10         80
                                                                  -----       ----       --- 
    Balance at end of year.....................................   $ 660       667        700
                                                                  =====       ===        === 
</TABLE>
 
There were no significant recoveries during any of the periods presented.
 
Nonaccrual loans totaled $170,000,  $334,000 and $565,000 at June 30, 1996, 1995
and 1994, respectively.  Interest income that would have been recorded under the
original terms of such loans approximated  $23,000,  $41,000 and $54,000 for the
years ended June 30, 1996, 1995 and 1994, respectively.
 
Accrued  interest  receivable  at June 30,  1996  and  1995,  was  approximately
$438,000 and $306,000, respectively.




       


                                       33
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

(5) Commitments and Contingencies
 
The Company is a party to financial instruments with  off-balance-sheet  risk in
the normal  course of business  to meet the  financing  needs of its  customers.
These financial  instruments  include commitments to extend credit through loans
approved,  but not yet funded,  and lines of credit.  The Company  uses the same
credit policy in making  commitments and conditional  obligations as it does for
on-balance   sheet   instruments.   The  Company   evaluates   each   customer's
credit-worthiness  on an individual basis, and the amount of collateral is based
upon the credit  evaluation.  The  commitments  to extend credit  generally have
fixed expiration dates or other termination clauses and may require payment of a
fee. As some of the commitments may not be utilized, or utilized in amounts less
than the  total  committed,  the total  commitment  amounts  do not  necessarily
represent  future  cash  requirements.  As of June 30,  1996,  the  Company  had
outstanding  commitments to originate and fund first  mortgage and  construction
loans of $3,407,000,  of which $407,000 were at variable rates.  Unused lines of
credit approximated $7,750,000 at June 30, 1996.
 
At June 30,  1996 and 1995,  the Company  had not  entered  into any  derivative
instruments with  significant  off-balance-sheet  risk, such as futures,  swaps,
options or similar investments.
 
The undercapitalized status of the FDIC's Savings Association Insurance Fund has
resulted in the  introduction of federal  legislation to  recapitalize  the SAIF
which, if enacted,  would require thrifts like Troy Hill Bancorp,  Inc. to pay a
one-time charge of seventy-five to eighty cents for every one hundred dollars of
deposits to recapitalize the depleted insurance fund. Based on total deposits of
$49,434,000  at March  31,  1995,  this  could  result in a  one-time  charge of
approximately  $371,000  to $395,000 on a pre-tax  basis  ($245,000  to $261,000
after tax) to the Company during 1997.
 
(6) Premises and Equipment
 
Premises and equipment consist of the following at June 30:
<TABLE>
<CAPTION>
 
                                                                       1996        1995
                                                                      ------       -----
                                                                        (in thousands)
        <S>                                                           <C>          <C>
        Buildings and improvements.................................   $  626         566
        Furniture, fixtures and equipment..........................      456         390
        Land and land improvements.................................      122         122
                                                                      ------       -----
                                                                       1,204       1,078
             Less accumulated depreciation.........................      551         476
                                                                      ------       -----
                                                                      $  653         602
                                                                      ======       =====
</TABLE>
        


                                       34
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

(7) Savings Deposits
 
Savings deposits consisted of the following at June 30:
<TABLE>
<CAPTION>
 
                                                       1996                         1995
                                               --------------------         --------------------
                                               Weighted                     Weighted
                                               average                      average
                                                 rate       Amount            rate       Amount
                                               --------     -------         --------     -------
                                                         (Dollar amounts in thousands)
<S>                                              <C>        <C>               <C>        <C>
    Deposit accounts:
      Passbook accounts.....................     3.03%      $12,276            3.05%     $12,629
      NOW accounts..........................     1.24         4,201            2.52        3,542
      Money market demand deposit...........     2.52         2,359            2.52        2,686
                                                            -------                      -------
            Total transaction accounts......                 18,836                       18,857
    Certificates of deposit:
      2.01 to 4.00..........................     3.93            16            3.73        1,162
      4.01 to 6.00..........................     5.26        25,614            5.18       14,724
      6.01 to 8.00..........................     6.89         9,464            6.68       15,214
      8.01 to 10.00.........................     9.00            30            8.90          610
      10.01 and over........................       --            --           10.18           43
                                                            -------                      -------
                                                             35,124                       31,753
                                                            -------                      -------
            Total...........................     4.63%      $53,960            4.79%     $50,610
                                                            =======                      =======
</TABLE>
The aggregate  amount of certificates of deposit with a minimum  denomination of
$100,000  totaled  approximately  $1.9 million and $1.7 million at June 30, 1996
and 1995, respectively.
 
Noninterest-bearing  checking accounts included in NOW and money market accounts
amounted to $715,000 and $134,000 at June 30, 1996 and 1995, respectively.
 
The scheduled  contractual  maturities of certificates of deposit are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
                                                                       1996        1995
                                                                      -------     ------
<S>                                                                   <C>         <C>
        Within one year............................................   $21,599     18,767
        Beyond one year but within two years.......................     8,673      3,350
        Beyond two years but within three years....................     2,880      7,107
        Thereafter.................................................     1,972      2,529
                                                                      -------     ------
             Total.................................................   $35,124     31,753
                                                                      =======     ======
</TABLE>
                                       35
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

Interest expense on deposits for the years ended June 30 is summarized as
follows:
<TABLE>
<CAPTION>
 
                                                                       June 30,
                                                            ------------------------------
                                                             1996        1995        1994
                                                            ------       -----       -----
                                                                    (in thousands)
<S>                                                         <C>          <C>         <C>
        Passbook accounts................................   $  370         416         457
        NOW accounts.....................................       70          72          71
        Money market.....................................       62          72          87
        Certificates of deposit..........................    1,982       1,342       1,121
                                                            ------       -----       -----
                                                            $2,484       1,902       1,736
                                                            ======       =====       =====
</TABLE>
 
(8) Federal Home Loan Bank Stock
 
The Company is a member of the  Federal  Home Loan Bank System and, as a member,
maintains an  investment  in the capital  stock of the Federal Home Loan Bank of
Pittsburgh. The investment is based on a predetermined formula and is carried at
cost.
 
(9) Advances from Federal Home Loan Bank
 
At June 30, 1996 and 1995,  maturities  and interest  rates of advances from the
Federal Home Loan Bank of Pittsburgh are as follows:
<TABLE>
<CAPTION>


                                                    1996                         1995
                                            ---------------------         -------------------
                    Years of                Interest                      Interest
                    maturity                  rates       Amount           rates       Amount
        ---------------------------------   ---------     -------         --------     ------
                                                      (Dollar amounts in thousands)
<S>                                         <C>           <C>               <C>        <C>
         1996............................          --%    $    --           6.69%      $2,750
         1997............................   5.54-5.91      11,500             --          --
         1998............................   5.43-6.15       3,500           6.90        1,000
         1999............................        6.10       2,583           6.85        1,000
         2000............................        6.30       1,000           7.05        1,000
                                                          -------                       ------
                                                          $18,583                       $5,750
                                                          =======                       ====== 
</TABLE>



                                       36
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

The  Company  also has a line of credit of $4.9  million  of which  $400,000  is
unused with  interest  on  borrowings  computed at federal  funds rate plus .34%
which matures in fiscal 1997. All borrowings  are  collateralized  by investment
securities and mortgage loans.
 
(10) Income Taxes
 
The Company  adopted SFAS No. 109 as of July 1, 1993. The  cumulative  effect of
this change in method on prior periods increased net earnings by $200,000 and is
reported separately in the consolidated statement of earnings for the year ended
June 30, 1994.
 
Income tax expense (benefit) consists of the following:


<TABLE>
<CAPTION>
 
                                                                    Years ended June 30,
                                                                   ----------------------
                                                                   1996     1995     1994
                                                                   ----     ----     ----
                                                                      (in thousands)
<S>                                                                <C>      <C>      <C>
        Current-federal.........................................   $515     522      502
        Current-state...........................................    108     107      105
        Deferred................................................    (24)    (40 )      4
                                                                   ----     ----     ----
                                                                   $599     589      611
                                                                   ====     ===      === 
</TABLE>


In addition to income taxes  applicable to income  before  taxes,  the following
income tax benefit (expense) was recorded:


<TABLE>
<CAPTION>
 
                                                                         1996       1995
                                                                         ----       ----
                                                                         (in thousands)
<S>                                                                      <C>        <C>
        Stockholders' equity for the tax effect of unrealized net
          (gain) loss on securities available for sale............       $48        (28)
                                                                         ===        === 
          
</TABLE>
        

      


                                       37
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

A reconciliation of income tax expense computed at the federal statutory rate of
34% and actual income tax expense is as follows:
<TABLE>
<CAPTION>
                                                                   Years ended June 30,
                                                                --------------------------
                                                                1996       1995       1994
                                                                ----       ----       ----
                                                                      (in thousands)
<S>                                                             <C>        <C>        <C>
        Statutory income tax rate............................   34.0%      34.0       34.0
        State taxes, net of federal benefit..................    4.2        4.7        4.6
        Other, net...........................................   (2.7)        .4        2.4
                                                                ----       ----       ----
                                                                35.5%      39.1       41.0
                                                                ====       ====       ====
</TABLE>
 
The tax effects of temporary  differences  representing  the  components  of the
Company's net deferred income tax assets at June 30 are as follows:
<TABLE>
<CAPTION>
 
                                                                        1996       1995
                                                                        ----       ----
                                                                        (in thousands)
<S>                                                                     <C>         <C>
        Allowance for loan losses....................................   $240        167
        Deferred loan fees...........................................    126        152
        Accrued employee benefits....................................     34         86
        Securities available for sale................................     20         --
                                                                        ----       ----
             Total deferred income tax assets........................    420        405
        Securities available for sale................................     --        (28)
        Accrued interest receivable..................................    (27)       (53)
        Depreciation.................................................    (34)       (36)
                                                                        ----       ----
             Total deferred income tax liabilities...................    (61)      (117)
                                                                        ----       ----
             Net deferred income tax assets..........................   $359        288
                                                                        ====       ==== 
</TABLE>
The Company has not  established  a valuation  allowance  as it is  management's
belief that it has adequate current taxable income and carrybacks to realize the
net deferred income tax assets.
 
Under  certain  provisions  of the Internal  Revenue code (the Code),  qualified
thrift  institutions are permitted to deduct from taxable income a provision for
bad debts based on either actual bad debt  experience or a percentage of taxable
income  before such  deduction.  The  deduction  percentage,  subject to certain
minimum tax provisions and other limitations, is 8%.


 
                                      38
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued
 
The Company and its subsidiaries  file a consolidated  federal income tax return
on a June 30 fiscal year end basis.  The Company is permitted  under the code to
deduct an annual  addition  to a reserve  for bad debts in  determining  taxable
income,  subject  to certain  limitations.  Bad debt  deductions  for income tax
purposes  are  included  in taxable  income of later  years only if the bad debt
reserve is used  subsequently for purposes other than to absorb bad debt losses.
Because the Company does not intend to use the reserve for purpose other than to
absorb  losses,  no  deferred  income  taxes have been  provided  prior to 1987.
Retained  earnings  at  June  30,  1996,  includes  approximately  $1.8  million
representing  such bad debt  deductions for which no deferred  income taxes have
been provided.
 
On August 20, 1996,  President  Clinton signed  legislation which will eliminate
the percentage of taxable income bad debt deduction for thrift  institutions for
tax years beginning after December 31, 1995. This new legislation  also requires
a thrift to generally  recapture the excess of its current tax reserves over its
1987 base year reserves.  As the Company has previously  provided deferred taxes
on this amount, no additional financial statement tax expense should result from
this new legislation.
 
(11) Employee Benefit Plans
 
The Company maintains a defined benefit pension plan covering  substantially all
of its  employees.  The  Company  makes  contributions  to the plan equal to the
amount that is tax  deductible  under the  Internal  Revenue  Code.  Plan assets
consist primarily of certificates of deposit issued by Troy Hill.
 
Pension  cost  for  the  years  ended  June  30 is  comprised  of the  following
components:
<TABLE>
<CAPTION>
                                                               1996       1995       1994
                                                               ----       ----       ----
                                                                     (in thousands)
<S>                                                            <C>        <C>        <C>               
        Service cost........................................   $ 29        31         28
        Interest cost on projected benefit obligation.......     28        24         20
        Return on plan assets...............................    (20)      (14)       (14)
        Net amortization and deferral.......................    (12)      (13)       (12)
                                                               ----       ----       ----
        Pension cost........................................   $ 25        28         22
                                                               ====       ===        === 
</TABLE>






       




                                       39
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

The following sets forth the plan's funded status and the amounts  recognized in
the Company's  consolidated  statements of financial  condition at June 30, 1996
and 1995:
<TABLE>
<CAPTION>
                                                                       1996        1995
                                                                       -----       ----
                                                                        (in thousands)
<S>                                                                    <C>        <C>
        Vested benefit obligation...................................   $ 272        205
        Nonvested...................................................       1          6
                                                                       -----       ----
        Accumulated benefit obligation..............................     273        211
        Future compensation increases...............................     133        150
                                                                       -----       ----
        Projected benefit obligation................................     406        361
        Plan assets at fair value...................................    (394)      (313)
                                                                       -----       ----
        Projected benefit obligation in excess of plan assets.......      12         48
        Unrecognized net loss.......................................     (47)       (50)
        Unrecognized transition asset...............................      76         81
                                                                       -----       ----
        Pension liability recognized in consolidated statement of
          financial condition.......................................   $  41         79
                                                                       =====       ==== 
 
Actuarial assumptions used in all periods presented were as follows:
 
        Discount rate...............................................       8%         8
        Rate of increase in future compensation levels..............       6          6
        Expected return on assets...................................       8          8
</TABLE>
In conjunction  with the conversion to the stock form of ownership,  the Company
implemented a tax  qualified  Employee  Stock  Ownership  Plan (ESOP).  The ESOP
provides  retirement benefits for substantially all full-time employees who have
completed one year of service.  The ESOP acquired 89,930 shares of the Company's
common stock at a cost of $944,000,  which was financed  through a loan with the
Company.  The loan  obligation of the ESOP is considered  deferred  compensation
and, accordingly,  has been recorded as a reduction of stockholders' equity. The
loan from the Company will be repaid over a ten-year  period from  contributions
to the  ESOP by the  Company.  The  shares  acquired  by the  ESOP are held in a
suspense  account and will be released to the ESOP for allocation to the various
plan  participants  as the loan is reduced.  There were 10,576 and 11,096 shares
committed  to be released  to the ESOP at June 30, 1996 and 1995,  respectively.
Unallocated ESOP shares at June 30, 1996, amounted to 68,258 shares with a total
fair value of approximately $921,000.
 
The Company accounts for the ESOP in accordance with Statement of Position 93-6,
"Employers'  Accounting  for  Employee  Stock  Ownership  Plans."  As shares are
committed to be released,  the Company reports compensation expense equal to the
current  market price of the shares and the shares  become  outstanding  for EPS
computations.  Dividends on unallocated  ESOP shares are recorded as a reduction
of debt and accrued interest.

                                       40
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

Compensation  expense for the ESOP was  approximately  $150,000 and $123,000 for
the years ended June 30, 1996 and 1995, respectively.
 
In connection  with the  conversion to the stock form of ownership,  the Company
has  adopted a  Recognition  and  Retention  Plan and Trust  (RRP).  The RRP has
acquired 44,965 shares of the Company's common stock. Shares of the common stock
granted to officers and directors generally vest over a five-year period and are
restricted until vested.  The Company has granted,  under the RRP, 32,597 shares
during the year ended June 30, 1995. No shares were awarded in 1996. The Company
accrues  compensation expense for the shares granted over the respective vesting
periods.  Compensation expense for the RRP for the years ended June 30, 1996 and
1995, amounted to approximately $80,000 and $56,000, respectively.
 
The Company has implemented  stock option plans for officers,  directors and key
employees.  A total of 112,412  shares of the  Company's  common  stock has been
reserved for future issuance.  Options granted may be incentive or nonqualified,
and such  options  vest over  periods  ranging  between six months (for  options
granted to  nonemployee  directors) to five years (for employees of the Company)
and expire ten years  after  issuance.  Options to  purchase  25,290  shares and
44,963  shares were  granted in fiscal 1995 at a price of $11.13 to  nonemployee
directors and certain employees,  respectively. At June 30, 1996, 34,286 options
were exercisable.  No options have been exercised. There were no options granted
in fiscal 1996.
 
(12) Other Operating Expenses
 
The components of other operating expenses follows:


<TABLE>
<CAPTION>
                                                                  Years ended June 30,
                                                               --------------------------
                                                               1996       1995       1994
                                                               ----       ----       ----
                                                                    (in thousands)
<S>                                                            <C>        <C>        <C>
        Office supplies and services........................   $ 85        84         78
        Legal and professional..............................     66       168         89
        Data processing.....................................     69        62         63
        Advertising.........................................     33        45         41
        Other...............................................    290       218        179
                                                               ----       ----       ----
             Total..........................................   $563       577        450
                                                               =====      ====       ====
</TABLE>



      




                                       41
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

(13) Regulatory Capital
 
Troy Hill is subject to various regulatory capital requirements  administered by
the federal baking  agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory--and,  possibly additional  discretionary--actions by
regulators  that, if  undertaken,  could have a direct  material  effect on Troy
Hill's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective action, Troy Hill must meet specific
capital  guidelines  that involve  quantitative  measures of Troy Hill's assets,
liabilities and certain  off-balance-sheet  items as calculated under regulatory
accounting  practices.  Troy Hill's capital amounts and classifications are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings and other factors.
 
Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require Troy Hill to maintain minimum amounts and ratios (set forth in the table
below) of Tangible  and Core  Capital (as defined in the  regulations)  to total
assets and of Total Capital (as defined) to  risk-weighted  assets (as defined).
Management  believes,  as of June 30,  1996,  that Troy Hill  meets all  capital
adequacy requirements to which it is subject.
 
As of June 30,  1996,  the most  recent  notification  from the Office of Thrift
Supervision  (OTS)  categorized  Troy  Hill  as  "well  capitalized"  under  the
regulatory  framework for prompt  corrective  action. To be categorized as "well
capitalized,"  Troy  Hill  must  maintain  minimum  Total  Risk-based,  Core and
Tangible ratios as set forth in the accompanying  table. There are no conditions
or events since that  notification  that  management  believes  have changed the
institution's category.
 
Troy Hill's actual  capital  amounts and ratios are also presented in the table.
There is no deduction from capital for interest rate risk.
<TABLE>
<CAPTION>
                                                                                     To be well
                                                                                     capitalized
                                                                                        under
                                                                                       prompt
                                                               For capital           corrective
                                                                adequacy               action
                                           Actual               purposes             provisions
                                      ----------------       ---------------       ---------------
                                      Amount     Ratio       Amount    Ratio       Amount    Ratio
                                      -------    -----       ------    -----       ------    -----
                                                             (in thousands)
<S>                                   <C>        <C>        <C>         <C>       <C>        <C>
    As of June 30, 1996:
      Risk-based Capital...........   $14,506    24.30%     $4,775      8.00%     $5,969     10.00%
      Core Capital.................    14,010    15.89       2,646      3.00       5,292      6.00
      Tangible Capital.............    14,010    15.89       1,322      1.50       4,407      5.00
    As of June 30, 1995:
      Risked-based Capital.........    14,639    33.79       3,466      8.00       4,333     10.00
      Core Capital.................    13,996    19.45       2,159      3.00       4,318      6.00
      Tangible Capital.............    13,996    19.45       1,080      1.50       3,560      5.00
</TABLE>
                                       42
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

OTS  regulations  impose  limitations  on all  capital  distributions.  The rule
establishes  three tiers of institutions.  An institution that exceeds all fully
phased-in capital  requirements before and after a proposed capital distribution
("Tier 1 Bank"),  may after prior  notice but  without the  approval of the OTS,
make capital  distribution  during a calendar  year up to 100 percent of its net
income to date during the  calendar  year plus the amount  that would  reduce by
one-half its "surplus  capital ratio" (the excess  capital over fully  phased-in
capital requirements) at the beginning of the calendar year. Troy Hill is a Tier
1 Bank and  accordingly  had  available  at June 30,  1996,  approximately  $4.2
million for available  distribution.  In October 1995, a capital distribution of
$1.0 million was made to the Company by Troy Hill.
 
(14) Disclosures About Fair Value of Financial Instruments
 
Statement of Financial  Accounting  Standards  No. 107,  "Disclosure  about Fair
Value of Financial  Instruments,"  (SFAS 107), requires disclosure of fair value
information  about  financial  instruments,  whether  or not  recognized  in the
consolidated  statements  of financial  condition as of June 30, 1996.  SFAS 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not  represent  the  underlying  value of the Company.  The carrying  amounts
reported in the consolidated  statements of financial condition approximate fair
value for cash and due from banks.
 
Investment and mortgage-backed  securities  available for sale at June 30, 1996,
are  carried at market  value.  Fair values are based on quoted  market  prices,
dealer quotes and prices obtained from independent  pricing  services.  Refer to
note 2 of the  financial  statements  for the  detail on  breakdowns  by type of
investment products.
 
The estimated  fair value of loans  exceeded the net carrying  value at June 30,
1996, by approximately $842,000. Loans with comparable characteristics including
collateral and repricing structures were segregated for valuation purposes. Each
loan pool was  separately  valued  utilizing a  discounted  cash flow  analysis.
Projected  monthly cash flows were  discounted  to present  value using a market
rate  for  comparable  loans.   Characteristics  of  comparable  loans  included
remaining term,  coupon  interest and estimated  prepayment  speeds.  Delinquent
loans  were  evaluated  separately  given  the  impact  delinquency  has  on the
projected  future cash flow of the loan and the  approximate  discount or market
rate.





                                      







         
                                       43
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

The carrying amounts and estimated fair values of deposits at June 30, 1996, are
as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                  Estimated
                                                                   Carrying         fair
                                                                    value           value
                                                                   --------       ---------
<S>                                                                <C>              <C>
        Password accounts.......................................   $ 12,276         12,276
        NOW accounts............................................      4,201          4,201
        Money market demand deposit(MMDA).......................      2,359          2,359
        Time deposits...........................................     35,124         34,764
                                                                   --------       ---------
             Total deposits.....................................   $ 53,960         53,600
                                                                    =======       ========
</TABLE>
The carrying amounts of NOW and MMDA accounts and passbook accounts  approximate
their fair  values.  The fair value  estimates  above do not include the benefit
that  results  from the  low-cost  funding  provided by the deposit  liabilities
compared  to the cost of  borrowing  funds in the  market.  Fair values for time
deposits are estimated  using a discounted  cash flow  calculation  that applies
contractual  cost currently  being offered in the existing  portfolio to current
market rates being offered locally for deposits of similar remaining maturities.
The  mark-to-market  valuation  adjustment  for the  portfolio  consists  of the
present  value of the  difference  of these two cash  flows,  discounted  at the
assumed market rate of the corresponding maturity.
 
The estimated  fair value of borrowed  funds at June 30, 1996,  was  $18,594,000
with a carrying amount of $18,583,000.  Variable rate advances were estimated to
approximate  their  carrying  amounts.  The fixed rate  advances  were valued by
comparing their contractual cost to the prevailing market cost.
 
At June 30, 1996, the Company had no  off-balance-sheet  commitments to purchase
investment securities or mortgage-backed securities.
 
The fair  value of  commitments  to extend  credit is  estimated  using the fees
currently  charged to enter into  similar  agreements,  taking into  account the
remaining  terms of the  agreements  and the present  credit  worthiness  of the
counterparties.  For fixed rate loan  commitments  fair value also considers the
difference  between current levels of interest rates and the committed rates. At
the reporting  date,  the carrying value and estimated fair value on commitments
to extend credit were not material.
 
(15) Reorganization and Conversion to Stock Form
 
During fiscal 1994,  Troy Hill Federal Savings and Loan  Association's  Board of
Directors  adopted a plan of conversion (the Plan) whereby the Association would
convert to the stock form of  ownership,  followed by the issuance of all of the
Association's  outstanding  stock to a newly formed holding  company,  Troy Hill
Bancorp,  Inc. The  conversion  was completed on June 24, 1994,  and the Company
issued 1,124,125 shares of its common stock.  Costs of the common stock offering
of $649,000 were deducted from the offering proceeds.

                                       44
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

At the  completion  of the  conversion  to stock form,  Troy Hill  established a
liquidation account in the amount of retained earnings set forth in the offering
prospectus  utilized  in  the  conversion.   The  liquidation  account  will  be
maintained  for the benefit of eligible  savings  account  holders who  maintain
deposit  accounts  in Troy Hill  after  conversion.  In the event of a  complete
liquidation (and only in such event),  each eligible savings account holder will
be entitled to receive a liquidation  distribution from the liquidation  account
in the amount of the then current  adjusted  balance of deposit  accounts  held,
before  any  liquidation  distribution  may be made with  respect  to the common
shares.  Except for the  repurchase  of stock and payment of  dividends  by Troy
Hill,  the  existence  of the  liquidation  account will not restrict the use or
further application of such retained earnings.
 
Troy Hill may not declare or pay a cash  dividend on, or  repurchase  any of its
common shares if the effect thereof would cause Troy Hill's stockholders' equity
to be reduced below either the amount  required for the  liquidation  account or
the regulatory capital requirements for insured institutions.
 
(16) Condensed Financial  Information of Troy Hill Bancorp, Inc. (Parent Company
Only)

For 1994, the results of operations and cash flows are for the period of June 24
through June 30.
<TABLE>
<CAPTION>
                                Balance Sheets
                                                                                  June 30,
                                                                            --------------------
                                                                             1996          1995
                                                                            -------       ------
                                                                               (in thousands)
<S>                                                                         <C>          <C>
                                 Assets
Cash.....................................................................   $    99          104
Investments available for sale...........................................     3,877        2,750
Investment in subsidiary.................................................    14,005       14,080
Other assets.............................................................       255          466
                                                                            -------       ------
     Total assets........................................................   $18,236       17,400
                                                                            =======       ======
                  Liabilities and Stockholders' Equity
Accrued expenses and other liabilities...................................       196          184
Common stock.............................................................        11           11
Additional paid-in capital...............................................    18,547       18,523
Retained earnings........................................................     1,462          725
Treasury stock, at cost..................................................      (703)        (703)
Shares acquired by the recognition and retention plan....................      (463)        (543)
Shares acquired by Employee Stock Ownership Plan.........................      (756)        (850)
Unrealized gain (loss) on available for sale investments.................       (58)          53
                                                                            -------       ------
     Total stockholders' equity..........................................    18,040       17,216
                                                                            -------       ------
     Total liabilities and stockholders' equity..........................   $18,236       17,400
                                                                            =======       ======
</TABLE>
                                       45
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued

                            Statements of Earnings
<TABLE>
<CAPTION>
                                                                      For the period ended June
                                                                                 30,
                                                                     ----------------------------
                                                                      1996        1995       1994
                                                                     ------       ----       ----
                                                                            (in thousands)
<S>                                                                  <C>          <C>        <C>
Interest and dividend income......................................   $  355       376          4
Dividend from subsidiary..........................................      235        --         --
Other income......................................................        2        40         --
                                                                     ------       ----       ----
     Total income.................................................      592       416          4
Operating expenses................................................      188       185         --
                                                                     ------       ----       ----
  Income before tax expense and equity in undistributed
     net income of subsidiary.....................................      404       231          4
Income tax (benefit) expense......................................       (4)       61         --
                                                                     ------       ----       ----
     Income before benefit in undistributed net income
        of subsidiary.............................................      408       170          4
Equity in undistributed net income of subsidiary..................      680       749         16
                                                                     ------       ----       ----
     Net earnings.................................................   $1,088       919         20
                                                                     ======       =====      =====
</TABLE>
 
                                       
























                                       46
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued
<TABLE>
<CAPTION>

 
                           Statements of Cash Flows
 
                                                                   For the period ended June 30,
                                                                 ---------------------------------
                                                                  1996          1995         1994
                                                                 -------       ------       ------
                                                                          (in thousands)
<S>                                                              <C>           <C>          <C>
Cash flows from operating activities:
  Net earnings................................................   $ 1,088          919           20
  Shares committed to be released by ESOP.....................        94          104           --
  Net gain on sale of investments.............................        (3)         (40)          --
  Decrease (increase) in other assets.........................        87         (447)          (4)
  Increase in accrued liabilities.............................        12          184           --
  Equity in undistributed net income of subsidiary............      (680)        (749)         (16)
  Other.......................................................        65           --           --
                                                                 -------       ------       ------
     Net cash used in operating activities....................       663          (29)          --
Cash flows from investing activities:
  Purchase of subsidiary stock................................        --           --       (5,296)
  Dividend from subsidiary....................................       765           --           --
  Purchase of investment securities...........................    (1,252)      (3,397)          --
  Sale of investment securities...............................       128          638           --
                                                                 -------       ------       ------
     Net cash used in investing activities....................   $  (359)      (2,759)      (5,296)
                                                                 =======       ======       ======
Cash flows from financing activities:
  Proceeds from issuance of common stock, net.................   $    --           --        9,648
  Purchase of shares for recognition and retention plan.......        --         (543)          --
  Purchase of Treasury stock..................................        --         (703)          --
  Cash dividends paid.........................................      (309)        (214)          --
                                                                 -------       ------       ------
     Net cash provided by (used in) financing activities......      (309)      (1,460)       9,468
                                                                 -------       ------       ------
Net increase (decrease) in cash...............................        (5)      (4,248)       4,352
Cash at beginning of period...................................       104        4,352           --
                                                                 -------       ------       ------
Cash at end of period.........................................   $    99          104        4,352
                                                                 =======       ======       ======
</TABLE>











                                       47
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued
 
(17) Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
 
                                                                     Three months ended
                                                     --------------------------------------------------
                                                     September 30    December 31    March 31    June 30
                                                     ------------    -----------    --------    -------
                                                            (in thousands, except per share data)

<S>                                                     <C>             <C>           <C>        <C>
1996:
  Interest income.................................      $1,523          1,621         1,645      1,698
  Interest expense................................         737            804           761        789
                                                        ------          -----         -----      ----- 
  Net interest income before provision for loan
     losses.......................................         786            817           884        909
  Provisions for loan losses......................          30             30            30        130
  Noninterest income..............................          57             32            55         67
  Noninterest expense.............................         384            402           437        477
                                                        ------          -----         -----      ----- 
  Earnings before income taxes....................         429            417           472        369
  Provision for income taxes......................         167            159           187         86
                                                        ------          -----         -----      ----- 
     Net earnings.................................      $  262            258           285        283
                                                        ======          =====         =====      ===== 
Earnings per share (1)............................      $  .25            .26           .29        .27
                                                        ======         ======         =====      ===== 
1995:
  Interest income.................................      $1,159          1,226         1,339      1,428
  Interest expense................................         449            472           576        658
                                                        ------          -----         -----      ----- 
  Net interest income before provision for loan
     losses.......................................         710            754           763        770
  Provisions for loan losses......................          --             --            10         --
  Noninterest income..............................          53            (33)           25         76
  Noninterest expense.............................         370            413           425        392
                                                        ------          -----         -----      ----- 
  Earnings before income taxes....................         393            308           353        454
  Provision for income taxes......................         145            137           130        177
                                                        ------          -----         -----      ----- 
     Net earnings.................................      $  248            169           223        277
                                                        ======          =====         =====      ===== 
Earnings per share (1)............................      $  .24            .17           .22        .26
                                                        ======          =====         =====      ===== 
</TABLE>
---------------
 
(1) Quarterly  earnings per share may vary from annual earnings per share due to
rounding.




                                       48
<PAGE>
                           TROY HILL BANCORP, INC.
 
            Notes to Consolidated Financial Statements--Continued
 
(18) Corporate Reorganization
 
On September  16, 1996,  the Company  entered into a definitive  agreement to be
acquired  by  PennFirst  Bancorp,  Inc.  ("PennFirst").   Under  the  agreement,
PennFirst  will pay  $21.15  in cash and  stock  for  each  common  share of the
Company.  The  acquisition  is  subject to various  regulatory  and  shareholder
approvals and is expected to close in March 1997.

                              STOCK INFORMATION
 
The  conversion  of Troy Hill from the mutual to the stock form of  organization
and the  concurrent  formation of the Company as the parent  holding  company of
Troy Hill  (collectively,  the  "Conversion")  was completed  effective June 24,
1994. In connection with the Conversion,  the Company issued 1,124,125 shares of
common  stock to certain  depositors  and  borrowers  of Troy Hill,  an employee
benefit plan of the Company and certain members of the general public.
 
At  September  20,  1996,  the  Company  had  1,067,917  shares of common  stock
outstanding which were held by approximately 356 stockholders.
 
The Company'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  "THBC." The bid and ask quotations for
the common stock on September 20, 1996 were:
 
                           Bid                Ask
                         -------            -------
                          $19.75            $20.25
 
The  following  table set forth the high and low market  prices for the  periods
indicated.


<TABLE>
<CAPTION>
                                                              Market Price
                                                           -------------------
                         Quarter Ended                      High         Low
       -------------------------------------------------   ------       ------
       <S>                                                 <C>          <C>                                  
       September 30, 1994...............................   $11.88       $11.58
       December 31, 1994................................    11.18        11.11
       March 31, 1995...................................    11.41        11.16
       June 30, 1995....................................    12.18        11.86
       September 30, 1995...............................    13.25        11.50
       December 31, 1995................................    13.50        12.25
       March 31, 1996...................................    13.75        13.00
       June 30, 1996....................................    14.00        12.75
</TABLE>





                                       49
<PAGE>
Cash dividends have been reviewed, determined and paid on a quarterly basis. The
Company  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.  The Company has paid cash dividends
on the following dates:
 
                                                      Cash Dividends
    Record Date                Payment Date             Per Share
--------------------        ------------------        --------------
September 15, 1994          October 14, 1994              $ 0.05
December 15, 1994           January 13, 1995                0.05
March 31, 1995              April 17, 1995                  0.05
June 15, 1995               July 14, 1995                   0.06
September 30, 1995          October 13, 1995                0.06
December 31, 1995           January 12, 1996                0.10
March 31, 1996              April 12, 1996                  0.10
June 30, 1996               July 12, 1996                   0.10
 
                                    





































                                       50
<PAGE>

 
                            DIRECTORS AND OFFICERS
 
                                  Directors
 
                               Harry B. Thaner
              Chairman of the Board of the Company and Troy Hill
 
                                Ellry N. Davis
                    President and Chief Executive Officer
                         of the Company and Troy Hill
 
                               Raymond K. Aiken
                    President and Chief Operating Officer
                           of Lockhart Chemical Co.
 
                               Joseph W. Snyder
                  Senior Buyer of Equitable Resources, Inc.
 
                               Edwin A. Thaner
                      Owner of E. A. Thaner & Associates
 
                              Executive Officers
 
                               Harry B. Thaner
                            Chairman of the Board
 
                                Ellry N. Davis
                    President and Chief Executive Officer
 
                               Marilyn Scripko
                                Vice-President
 
                               Lawrence C. Kerr
                                  Treasurer
 
                               Nancy H. Kufner
                                  Secretary
 
                                      

















                                       51
<PAGE>
 
                               OFFICE LOCATIONS
 
Main Office
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212

Branch Office
11279 Perry Highway
Wexford, Pennsylvania 15090
 
                            CORPORATE INFORMATION
 
Corporate Headquarters
 
Troy Hill Bancorp, Inc.
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212
(412) 231-8238
 
Transfer Agent and Registrar
 
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
 
Independent Auditors
 
KPMG Peat Marwick LLP
One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
 
Special Legal Counsel
 
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W., 12th Floor
Washington, D.C. 20005
 
Annual Meeting
 
October 30, 1996, 10:00 a.m.
The Holiday Inn
4859 McKnight Road
Pittsburgh, Pennsylvania
 
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:
 
Ellry N. Davis
President and Chief Executive Officer
Troy Hill Bancorp, Inc.
1706 Lowrie Street
Pittsburgh, Pennsylvania 15212
                                      52