UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 2000
Transaction Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transaction period from to __
Commission File Number 0-29083
THREE RIVERS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1843375
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2681 Mosside Boulevard, Monroeville, PA 15146-3315
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (412) 666-8063
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
x Yes No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 1, 2000
Common Stock, par value $0.01 6,675,212
per share
<PAGE>1
THREE RIVERS BANCORP, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1.Quarterly Financial Statements
Consolidated Balance Sheets -
September 30, 2000, December 31, 1999,
and September 30, 1999 3
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2000,
and 1999 4
Consolidated Statement of Changes
in Stockholders' Equity -
Nine Months Ended
September 30, 2000 6
Consolidated Statements of Cash Flows -
Nine Months Ended
September 30, 2000, and 1999 7
Notes to Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis
of Consolidated Financial Condition
and Results of Operations 20
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 35
<PAGE>2
THREE RIVERS BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31, September 30,
2000 1999 1999
(Unaudited) (Unaudited)
ASSETS
Cash and due from banks $ 16,858 $ 24,228 $ 20,292
Investment securities available for sale 448,981 522,264 526,516
Loans held for sale - 59 59
Loans 483,173 479,761 469,048
Less: Unearned income 39 58 68
Allowance for loan losses 5,281 5,021 5,600
Net loans 477,853 474,682 463,380
Premises and equipment, net 4,924 5,495 5,294
Accrued income receivable 6,906 7,504 7,059
Goodwill and core deposit intangibles 2,542 2,838 2,937
Bank owned life insurance 12,840 12,411 12,271
Other assets 13,525 16,255 10,329
Net assets of mortgage banking operations
- 10,426 10,656
TOTAL ASSETS $ 984,429 $ 1,076,162 $ 1,058,793
LIABILITIES
Non-interest bearing deposits $ 86,409 $ 84,643 $ 86,066
Interest bearing deposits 536,534 488,052 462,790
Total deposits 622,943 572,695 548,856
Federal funds purchased and securities
sold under agreements to repurchase 12,500 10,000 20,000
Other short-term borrowings 62,726 16,150 58,950
Advances from Federal Home Loan Bank 224,876 409,876 359,876
Long-term debt 1,789 2,368 2,619
Total borrowed funds 301,891 438,394 441,445
Other liabilities 9,255 9,280 9,932
TOTAL LIABILITIES 934,089 1,020,369 1,000,233
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 5,000,000
shares authorized; no shares issued
or outstanding - - -
Common stock, par value $.01 per share;
20,000,000 shares authorized; 6,674,212
shares issued and outstanding at
September 30, 2000; 67 2,015 2,015
not applicable to prior periods
Surplus 22,479 20,454 20,454
Retained earnings 40,190 50,500 49,777
Accumulated other comprehensive income (12,396) (17,176) (13,686)
TOTAL STOCKHOLDERS' EQUITY 50,340 55,793 58,560
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 984,429 $ 1,076,162 $ 1,058,793
See accompanying notes to consolidated financial statements.
<PAGE>3
THREE RIVERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
INTEREST INCOME
Interest and fees on loans:
Taxable $ 9,927 $ 9,383 $ 29,034 $ 27,980
Tax exempt 157 136 529 367
Deposits with banks 7 7 16 19
Investment securities:
Available for sale 7,458 6,981 23,455 17,651
Held to maturity - 1,477 - 6,348
Total Interest Income 17,549 17,984 53,034 52,365
INTEREST EXPENSE
Deposits 6,530 4,681 17,172 14,394
Federal funds purchased and securities
sold under agreements to repurchase 267 267 872 757
Other short-term borrowings 368 483 1,284 1,284
Advances from Federal Home Loan Bank 4,009 5,038 13,442 13,485
Long-term debt 46 74 150 212
Total Interest Expense 11,220 10,543 32,920 30,132
NET INTEREST INCOME 6,329 7,441 20,114 22,233
Provision for loan losses 150 75 450 225
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 6,179 7,366 19,664 22,008
NON-INTEREST INCOME
Trust fees 39 251 189 762
Net realized gains (losses) on
investment securities - 20 (501) 273
Net realized gains (losses) on loans
held for sale - (9) 1 (22)
Wholesale cash processing fees 152 159 417 477
Service charges on deposit accounts 529 466 1,460 1,391
Bank owned life insurance 141 135 429 412
Other income 350 344 1,019 1,048
Total Non-Interest Income 1,211 1,366 3,014 4,341
NON-INTEREST EXPENSE
Salaries and employee benefits 2,405 2,329 7,333 7,014
Net occupancy expense 432 426 1,410 1,397
Equipment expense 380 391 1,222 1,114
Professional fee 353 372 900 976
Supplies, postage, and freight 220 244 740 742
Miscellaneous taxes and insurance 183 146 531 418
FDIC deposit insurance expense 29 49 87 148
Amortization of goodwill and core
deposit intangibles 98 99 296 278
OREO expense 1,134 70 2,500 100
Spin-off costs - - 777 -
Other expense 969 1,165 2,961 3,513
Total Non-Interest Expense $ 6,203 $ 5,291 $ 18,75 $ 15,700
CONTINUED ON NEXT PAGE
<PAGE>4
THREE RIVERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
CONTINUED FROM PREVIOUS PAGE
(In thousands, except per share data)
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
INCOME BEFORE INCOME TAXES $ 1,187 $ 3,441 $ 3,921 $ 10,649
Provision for income taxes 342 1,023 366 3,168
INCOME FROM CONTINUING OPERATIONS 845 2,418 3,555 7,481
Income (loss) from discontinued mortgage
banking operations, net of income taxes - 3 (267) 200
NET INCOME $ 845 $ 2,421 $ 3,288 $ 7,681
PER COMMON SHARE DATA:
Basic:
Income from continuing operations $ 0.13 $ 0.36 $ 0.53 $ 1.12
Net income 0.13 0.36 0.49 1.15
Average shares outstanding 6,674,212 6,651,499 6,671,995 6,675,928
Diluted
Income from continuing operations $ 0.13 $ 0.36 $ 0.53 $ 1.11
Net income 0.13 0.36 0.49 1.14
Average shares outstanding 6,674,224 6,702,089 6,672,247 6,738,639
Cash dividends declared 0.12 N/A 0.24 N/A
See accompanying notes to consolidated financial statements.
<PAGE>5
THREE RIVERS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
Unaudited
Accumulated
Other
Preferred Common Retained Comprehensive
Stock Stock Surplus Earnings Income Total
Balances, January 1,
2000 $ - $ 2,015 $ 20,454 $ 50,500 $ (17,176) $ 55,793
Effect of spin-off from
USBANCORP, Inc. - (1,948) 1,948 - - -
Elimination of equity from
discontinued mortgage
banking operation - - - (10,159) - (10,159)
Stock options exercised
(9,842 shares) - - 77 - - 77
Net Income - - - 3,288 - 3,288
Dividends declared - - - (3,439) - (3,439)
Other comprehensive
income (loss), net
of tax - - - - 4,780 4,780
Balance, September 30,
2000 $ - $ 67 $ 22,479 $ 40,190 $ (12,396) $ 50,340
See accompanying notes to consolidated financial statements.
<PAGE>6
THREE RIVERS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Unaudited
Nine Months Ended
September 30,
2000 1999
OPERATING ACTIVITIES
Net Income $ 3,288 $ 7,681
Loss (income) from discontinued mortgage banking
operations 267 (200)
Income from continuing operations 3,555 7,481
Adjustments to reconcile net income from continuing
operations to net cash provided by operating
activities:
Provision for loan losses 450 225
Depreciation and amortization expense 609 657
Amortization expense of goodwill and core deposit
intangibles 296 278
Net (accretion) amortization of investment securities (274) 763
Net realized losses (gains) on investment securities 501 (273)
Net realized (gains) losses on loans sold (1) 22
Decrease (increase) in accrued income receivable 598 (41)
Increase (decrease) in accrued expense payable 478 (42)
Net decrease (increase) in other assets 382 (2,461)
Net (decrease) increase in other liabilities (1,890) 194
Net cash provided by operating activities 4,704 6,803
INVESTING ACTIVITIES
Purchases of investment securities and other short-term
investments - available for sale (14,895) (251,504)
Purchases of investment securities and other short-term
investments - held to maturity - (13,720)
Proceeds from maturities of investment securities and
other short-term investments - available for sale 37,356 33,217
Proceeds from maturities of investment securities and
other short-term investments - held to maturity - 28,399
Proceeds from sales of investment securities and
other short-term investments - available for sale 57,956 133,284
Long-term loans originated (64,024) (133,906)
Principal collected on long-term loans 50,585 132,284
Loans sold or participated 9,994 293
Net (increase) decrease in credit card receivable and
other short-term loans (116) 892
Net cash received from branch transaction - 10,762
Purchases of premises and equipment (531) (1,546)
Proceeds from sale of premises and equipment 493 109
Net cash provided by (used in) investing activities 76,818 (61,436)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 50,248 (25,033)
Net (decrease) increase in federal funds purchased,
securities sold under agreements to repurchase,
and other short-term borrowings 49,076 37,145
Net principal (paydowns) advances
from Federal Home Loan Bank (185,000) 49,985
Principal borrowings on long-term debt - 43
Repayments of long-term debt (579) -
Cash dividends paid (2,637) (5,831)
Net cash (used in) provided by financing activities (88,892) 56,309
NET CHANGE IN CASH EQUIVALENTS (7,370) 1,676
CASH EQUIVALENTS AT JANUARY 1 24,228 18,616
CASH EQUIVALENTS AT SEPTEMBER 30 $ 16,858 $ 20,292
See accompanying notes to consolidated financial statements.
<PAGE>7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
On April 1, 2000, USBANCORP, Inc. executed its approved Board
of Directors plan to split it's banking subsidiaries into two
separate publicly traded companies and Three Rivers Bancorp, Inc.
("Three Rivers Bancorp, Inc." or "the Company") was formed. On this
date, Three Rivers Bank was spun-off from USBANCORP, Inc. and into
the Company.
Under the tax-free spin-off plan, 100% of the shares of Three
Rivers Bancorp, Inc., were distributed as a dividend to the
shareholders of USBANCORP as a 1 for 2 stock dividend based on their
existing USBANCORP ownership. Standard Mortgage Company ("SMC"), a
mortgage banking company, a subsidiary of Three Rivers Bank, was
internally spun-off from Three Rivers Bank to the USBANCORP prior to
consummation of the Three Rivers Bank spin-off. As a result of the
spin-off of SMC, on April 1, 2000, total assets and equity at Three
Rivers Bank decreased by $10,159,000, the net equity of SMC.
For the spin-off of Three Rivers Bank to be considered "tax-
free", USBANCORP, Inc. petitioned to and received from the Internal
Revenue Service a private letter ruling. This private letter ruling
contains certain commitments on the part of the Company including no
change in control for a two-year period and a requirement to raise
capital within one year after the spin-off. The requirement to raise
capital could include issuing capital stock in connection with a
business combination.
2. Basis of Presentation
The consolidated financial statements include the accounts of
Three Rivers Bancorp, Inc. and its wholly-owned subsidiary, Three
Rivers Bank and Trust Company ("Three Rivers Bank"). Intercompany
accounts and transactions have been eliminated in preparing the
consolidated financial statements.
The unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments that are of a normal
recurring nature and are considered necessary for a fair
presentation have been included. They are not, however, necessarily
indicative of the results of consolidated operations for a full-
year.
For further information, refer to the consolidated financial
statements and accompanying notes included in the Company's annual
financial statements for the year ended December 31, 1999, filed
with the Securities and Exchange Commission as part of Three Rivers
Bancorp, Inc.'s Form 10 filing.
<PAGE>8
Basic earnings per share includes, only the weighted average
common shares outstanding. Diluted earnings per share includes, the
weighted average common shares outstanding and any dilutive common
stock equivalent shares in the calculation.
On a consolidated basis, cash equivalents include cash and due
from banks, interest-bearing deposits with banks, and federal funds
sold and securities purchased under agreements to resell. The
Company's results will be included in the consolidated federal
income tax return of USBANCORP, Inc. through March 31, 2000. For
the portion of the year beginning April 1, 2000, the Company will
file its own consolidated federal income tax return with the
Internal Revenue Service. The Company made payments to USBANCORP,
Inc. for federal income taxes of $1,382,000 in the first three
months of 2000 as compared to $2,289,000 for the first nine months
of 1999. During the second and third quarter 2000, the Company made
payments totaling $1,265,000 for federal income taxes. Total
interest expense paid amounted to $32,442,000 in 2000's first nine
months compared to $29,165,000 in the same 1999 period.
3. Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, which is
required to be adopted in years after June 15, 2000. The Company
will adopt the new statement effective January 1, 2001. The
statement will require the Company to recognize all derivatives on
the balance sheet at fair value.
Derivatives that are not designated as hedges must be
adjusted to fair value through earnings. If the derivative is
designated as a hedge, depending on the nature of the hedge,
changes in derivatives' fair value will be either offset against
the changes in fair value or expected future cash flows of the
hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings.
The Company is assessing its hedging methods and strategies
in light of the standard's requirements. The impact of adoption
of the provisions of the statement on the Company's financial
position and results of operations will depend on the financial
position of the Company and the nature, purpose and fair values of
the derivatives in place as of January 1, 2001. Given the dynamic
nature of these considerations, the Company cannot currently
estimate the ultimate impact of adoption. Greater volatility in
earnings and shareholders' equity is likely to occur upon and
subsequent to adoption of the statement. This volatility,
however, is not expected to have a material impact.
<PAGE>9
4. Comprehensive Income
In January 1998, the Company adopted SFAS #130, "Reporting
Comprehensive Income," which established standards for reporting and
displaying comprehensive income and its components in a financial
statement. For the Company, comprehensive income includes net
income and unrealized holding gains and losses from available for
sale investment securities. The changes in other comprehensive
income are reported net of income taxes, as follows (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Net income $ 845 $2,421 $3,288 $ 7,681
Other comprehensive income, before tax:
Unrealized holding gains (losses) on
investment securities 7,040 (6,134) 6,853 (22,459)
Less: reclassification adjustment for gains
(losses) included in net income - 20 (501) 273
Other comprehensive income (loss)
before tax 7,040 (6,154) 7,354 (22,732)
Income tax expense (credit) related to
items of other comprehensive income 2,464 (2,154) 2,574 (7,956)
Other comprehensive income (loss),
net of tax 4,576 (4,000) 4,780 (14,776)
Comprehensive income $5,421 $(1,579) $ 8,068 $ (7,095)
5. Investment Securities
Securities classified as available for sale include securities
which may be sold to effectively manage interest rate risk exposure,
prepayment risk, and other factors (such as liquidity requirements).
These available for sale securities are reported at estimated fair
value with unrealized aggregate appreciation/(depreciation) excluded
from income and credited/(charged) to a separate component of
shareholders' equity on a net of tax basis. The change in the
estimated fair value of the available for sale portfolio does inject
more volatility in the book value of equity, but has no impact on
regulatory capital. The Company presently does not engage in trading
activity. Realized gain or loss on securities sold was computed
upon the adjusted cost of the specific securities sold. The book
and estimated fair values of investment securities are summarized as
follows (in thousands):
Investment securities available for sale:
September 30, 2000
Gross Gross Estimated
Book Unrealized Unrealized Fair
Value Gains Losses Value
U.S. Treasury $ 4,071 $ 14 $ - $ 4,085
U.S. Agency 18,182 - (797) 17,385
State and municipal 31,319 3 (2,019) 29,303
U.S. Agency mortgage-backed
securities 380,147 53 (15,358) 364,842
Other securities<F1> 34,556 5 (1,195) 33,366
Total $468,275 $ 75 $ (19,369) $ 448,981
<F1>Other investment securities include corporate notes and bonds,
asset-backed securities, and equity securities.
<PAGE>10
Maintaining investment quality is a primary objective of the
Company's investment policy which, subject to certain limited
exceptions, prohibits the purchase of any investment security below
a Moody's Investor's Service or Standard & Poor's rating of "A." At
September 30, 2000, 98.0% of the portfolio was rated "AAA" compared
to 98.2% at September 30, 1999. Less than 1.0% of the portfolio was
rated below "A" or unrated on September 30, 2000.
6. Loans and Loans Held for Sale
The loan portfolio of the Company consists of the following
(in thousands):
September 30 December 31 September 30
2000 1999 1999
Commercial $ 48,244 $ 45,861 $ 53,369
Commercial loans secured
by real estate 224,808 207,067 187,189
Real estate - mortgage 182,547 193,850 198,338
Consumer 27,574 33,042 30,211
Loans and loans held for sale 483,173 479,820 469,107
Less: Unearned income 39 58 68
Loans, net of unearned
income $ 483,134 $ 479,762 $ 469,039
Real estate-construction loans were not material at these
presented dates and comprised 2.7% of total loans net of unearned
income at September 30, 2000. The Company has no credit exposure to
foreign countries or highly leveraged transactions.
7. Allowance for Loan Losses and Charge-Off Procedures
As a financial institution which assumes lending and credit
risks as a principal element of its business, the Company
anticipates that credit losses will be experienced in the normal
course of business. Accordingly, the Company consistently applies
a comprehensive methodology and procedural discipline which is
updated on a quarterly basis to determine both the adequacy of the
allowance for loan losses and the necessary provision for loan
losses to be charged against earnings. This methodology includes:
a detailed review of all criticized and impaired loans to determine
if any specific reserve allocations are required on an individual
loan basis. The specific reserve established for these criticized
and impaired loans is based on careful analysis of the loan's
performance, the related collateral value, cash flow considerations
and the financial capability of any guarantor.
the application of formula driven reserve allocations for certain
higher risk commercial and commercial real-estate loans are
calculated by using a three-year migration analysis of net losses
incurred within each risk grade for the entire commercial loan
portfolio. The difference between estimated and actual losses is
reconciled through the dynamic nature of the migration analysis.
<PAGE>11
the application of formula driven reserve allocations to installment
and mortgage loans which are based upon historical charge-off
experience for those loan types. The residential mortgage loan
allocation is based upon the Company's five-year historical average
of actual loan charge-offs experienced in that category. The same
methodology is used to determine the allocation for consumer loans
except the allocation is based upon an average of the most recent
actual three-year historical charge-off experience for consumer
loans.
the application of formula driven reserve allocations is based upon
review of historical losses and qualitative factors, which include
but are not limited to, economic trends, delinquencies,
concentrations of credit, trends in loan volume, experience and
depth of management, examination and audit results, effects of any
changes in lending policies and trends in policy exceptions.
After completion of this process, a formal meeting of the Loan
Loss Reserve Committee is held to evaluate the adequacy of the
allowance and establish the provision level for the next quarter.
The Company believes that the procedural discipline, systematic
methodology, and comprehensive documentation of this quarterly
process is in full compliance with all regulatory requirements and
provides appropriate support for accounting purposes.
When it is determined that the prospects for recovery of the
principal of a loan have significantly diminished, the loan or the
determined uncollectible portion is immediately charged against the
allowance account; subsequent recoveries, if any, are credited to
the allowance account. In addition, non-accrual and large delinquent
loans are reviewed monthly to determine potential losses. Consumer
loans are considered losses when they are 90 days past due, except
loans that are insured for credit loss.
The Company's policy is to individually review, as
circumstances warrant, each of its commercial and commercial
mortgage loans to determine if a loan is impaired. At a minimum,
credit reviews are mandatory for all commercial and commercial
mortgage loans with balances in excess of $500,000 within each
calendar year. The Company has also identified two pools of small
dollar value homogeneous loans which are evaluated collectively for
impairment. These separate pools are for residential mortgage loans
and consumer loans. Individual loans within these pools are
reviewed and removed from the pool if factors such as significant
delinquency in payments of 90 days or more, bankruptcy, or other
negative economic concerns indicate impairment.
<PAGE>12
An analysis of the changes in the allowance for loan losses
follows (in thousands, except ratios):
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Balance at beginning of period $ 5,064 $ 5,590 $ 5,021 $ 6,104
Charge-offs:
Commercial - 5 184 682
Real estate-mortgage - 31 146 208
Consumer 14 38 66 76
Total charge-offs 14 74 396 966
Recoveries:
Commercial 75 - 89 200
Real estate-mortgage - - 98 15
Consumer 6 9 19 22
Total recoveries 81 9 206 237
Net (recoveries) charge-offs (67) 65 190 729
Provision for loan losses 150 75 450 225
Balance at end of period $ 5,281 $ 5,600 $ 5,281 $ 5,600
As a percent of average loans,
net of unearned income:
Annualized net (recoveries)
charge-offs (0.06)% 0.06% 0.05% 0.21%
Annualized provision for loan
losses 0.13% 0.06% 0.13% 0.07%
Allowance as a percent of loans,
net of unearned income at
period end 1.09% 1.19% 1.09% 1.19%
Total classified loans $ 10,626 $ 18,674 $ 10,626 $18,674
8. Components of Allowance for Loan Losses
For impaired loans, the measurement of impairment may be based
upon: 1) the present value of expected future cash flows discounted
at the loan's effective interest rate; 2) the observable market
price of the impaired loan; or 3) the fair value of the collateral
of a collateral dependent loan.
The Company had loans totaling $593,000 at September 30, 2000,
and $6,928,000 at September 30, 1999, being specifically identified
as impaired and a corresponding allocation reserve of $50,000 at
September 30, 2000 and $500,000 at September 30, 1999. The average
outstanding balance for loans being specifically identified as
impaired was $600,000 for the first nine months of 2000 compared to
$5,194,000 for the first nine months of 1999. All of the impaired
loans are collateral dependent, therefore the fair value of the
collateral of the impaired loans is evaluated in measuring the
impairment. There was no interest income recognized on impaired
loans during the first nine months of 2000 or 1999.
The following table sets forth the allocation of the allowance
for loan losses among various categories. This allocation is
determined by using the consistent quarterly procedural discipline
which was discussed above. This allocation, however, is not
necessarily indicative of the specific amount or specific loan
category in which future losses may ultimately occur (in thousands,
except percentages):
<PAGE>13
September 30, 2000 December 31, 1999 September 30, 1999
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category Category Category
Amount to Loans Amount to Loans Amount to Loans
Commercial $ 514 10.0% $ 914 9.6% $ 800 11.4%
Commercial
loans secured
by real estate 2,474 46.5 1,285 43.2 1,028 39.9
Real Estate -
mortgage 315 37.8 519 40.4 188 42.3
Consumer 164 5.7 185 6.8 205 6.4
Allocation to
general risk 1,814 - 2,118 - 3,379 -
Total $ 5,281 100.0% $ 5,021 100.0% $ 5,600 100.0%
Although real estate-mortgage loans comprise approximately 38%
of the Company's total loan portfolio, only $315,000 or 6.0% of the
total allowance for loan losses is allocated against this loan
category. The real estate-mortgage loan allocation is based upon
the Company's five-year historical average of actual loan charge-
offs experienced in that category. The disproportionately higher
allocations for commercial loans and commercial loans secured by
real estate reflect the increased credit risk associated with this
type of lending and the Company's historical loss experienced in
these categories.
At September 30, 2000, management of the Company believes the
allowance for loan losses is adequate to cover estimated losses
within the Company's loan portfolio. Although the allowance is
allocated to specific components of the loan portfolio, it is
available to cover any losses regardless of the component of the
loan portfolio.
9. Non-performing Assets
Non-performing assets are comprised of (i) loans which are on
a non-accrual basis, (ii) loans which are contractually past due 90
days or more as to interest or principal payments some of which are
insured for credit loss, and (iii) other real estate owned (real
estate acquired through foreclosure and in-substance foreclosures).
All loans, except for loans that are insured for credit loss, are
placed on non-accrual status upon becoming 90 days past due in
either principal or interest. In addition, if circumstances
warrant, the accrual of interest may be discontinued prior to 90
days. In all cases, payments received on non-accrual loans are
credited to principal until full recovery of principal has been
recognized; it is only after full recovery of principal that any
additional payments received are recognized as interest income. The
only exception to this policy is for residential mortgage loans
wherein interest income is recognized on a cash basis as payments
are received.
<PAGE>14
The following table presents information concerning non-
performing assets (in thousands, except percentages):
September 30 December 31 September 30
2000 1999 1999
Non-accrual loans $ 2,271 $ 2,056 $ 8,173
Loans past due 90 days or more - 154 387
Other real estate owned 3,836 6,866 422
Total non-performing assets $ 6,107 $ 9,076 $ 8,982
Total non-performing assets as
a percent of loans, net of
unearned income, and other
real estate owned 1.25% 1.92% 1.91%
The Company is unaware of any additional loans which are
required to either be charged-off or added to the non-performing
asset totals disclosed above. Other real estate owned is recorded
at the lower of 1)fair value minus estimated costs to sell, or
2)carrying cost.
The following table sets forth, for the periods indicated, (i)
the gross interest income that would have been recorded if non-
accrual loans had been current in accordance with their original
terms and had been outstanding throughout the period or since
origination if held for part of the period, (ii) the amount of
interest income actually recorded on such loans, and (iii) the net
reduction in interest income attributable to such loans (in
thousands).
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Interest income due in accordance
with original terms $ 13 $ 142 $ 40 $ 168
Interest income recorded (2) - (6) (7)
Net reduction in interest income $ 11 $ 142 $ 34 $ 161
10. Off-Balance Sheet Hedge Instruments
Policies
The Company uses various interest rate contracts, such as
interest rate swaps, caps and floors, to help manage interest rate
and market valuation risk exposure, which is incurred in normal
banking activities. These interest rate contracts function as
hedges against specific assets or liabilities in the Consolidated
Balance Sheet. Unrealized gains or losses on these hedge
transactions are deferred. It is the Company's policy not to
terminate hedge transactions prior to expiration date.
<PAGE>15
For interest rate swaps, the interest differential to be paid
or received is accrued by the Company and recognized as an
adjustment to interest income or interest expense of the underlying
assets or liabilities being hedged. Because only interest payments
are exchanged, the cash requirement and exposure to credit risk are
significantly less than the notional amount.
Any premium or transaction fee incurred to purchase interest
rate caps or floors is deferred and amortized to interest income or
interest expense over the term of the contract. Unamortized
premiums related to the purchase of caps and floors are included in
"other assets" on the Consolidated Balance Sheet. A summary of the
off-balance sheet derivative transactions outstanding as of
September 30, 2000, are as follows:
Borrowed Funds Hedges
The Company, through its prior affiliation with USBANCORP, Inc.,
entered into several interest rate swaps to hedge short-term
borrowings used to leverage the balance sheet. Specifically, FHLB
advances which reprice between daily and one year are being used to
fund fixed-rate agency mortgage-backed securities with durations
ranging from three to five years. Under the swap agreements, the
Company pays a fixed-rate of interest and receives a floating-rate,
which resets either monthly, quarterly, or annually. For the $40
million interest rate cap, the Company only receives payment from
the counter party if the federal funds rate goes above the 5.00%
strike rate. The following table summarizes the interest rate swap
transactions which impacted the Company's first nine months of 2000
performance:
Fixed Floating Impact
Notional Start Termination Rate Rate Repricing On Interest
Amount Date Date Paid Received Frequency Expense
$30,000,000 10-25-99 10-25-00 6.17% 6.31% Quarterly $ (32,725)
40,000,000 10-25-99 10-25-01 6.41% 6.31% Quarterly 30,033
40,000,000 5-01-99 4-30-00 5.00% 5.75% Monthly (87,411)
$(90,103)
The $40 million dollar swap, which matured April 30, 2000, was
not replaced with any other swap agreement.
The Company believes that its exposure to credit loss in the
event of non-performance by any of the counterparties in the
interest rate swap agreements is remote.
The Company monitors and controls all off-balance sheet
derivative products with a comprehensive Board of Director approved
hedging policy. This policy permits a total maximum notional amount
outstanding of $300 million for interest rate swaps, and interest
rate caps/floors. The Company had no interest rate floors
outstanding at September 30, 2000, or September 30, 1999.
<PAGE>16
11. Goodwill and Core Deposit Intangible Assets
The Company's balance sheet shows both tangible assets (such
as loans, buildings, and investments) and intangible assets (such as
goodwill). The Company now carries $2.5 million of core deposit
intangible assets on its balance sheet. $1.4 million of this core
deposit intangible was established in the first quarter of 1999 with
the purchase of a branch. As of September 30, 2000, the Company's
goodwill has been fully amortized. A reconciliation of the
Company's intangible asset balances is as follows (in thousands):
Balance at December 31, 1999 $ 2,838
Amortization expense (296)
Balance at September 30, 2000 $ 2,542
The Company is amortizing core deposit intangibles over
periods ranging from five to ten years.
The straight-line method of amortization is being used.
It is important to note that this intangible
amortization expense is not a future cash outflow. The following
table reflects the future amortization expense of the intangible
assets (in thousands):
Remaining 2000 $ 96
2001 380
2002 380
2003 380
2004 380
2005 and after 926
12. Federal Home Loan Bank Borrowings
Total FHLB borrowings consist of the following at September
30, 2000, (in thousands, except percentages):
Type Maturing Amount Weighted
Average
Rate
Open Repo Plus Overnight $ 62,726 6.77%
Advances and 2000 60,000 6.61
wholesale 2001 58,876 6.40
repurchase 2002 6,000 7.25
agreements 2005 50,000 7.06
2010 and after 50,000 5.99
Total Advances and 224,876 6.53
wholesale repurchase
agreements
Total FHLB Borrowings $287,602 6.59%
<PAGE>17
All of the above borrowings bear a fixed-rate of interest,
with the only exceptions being the Open Repo Plus advances whose
rate can change daily. All FHLB stock along with an interest in
mortgage loans and mortgage-backed securities, with an aggregate
statutory value equal to the amount of the advances, have been
pledged as collateral with the Federal Home Loan Bank of Pittsburgh
to support these borrowings.
13. Capital
The Company is subject to various capital requirements
administered by the federal banking agencies. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Company must meet specific capital guidelines
that involve quantitative measures of the Company's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
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 the Company to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital to
risk-weighted assets, and of Tier 1 capital to average assets.
Management believes that as of September 30, 2000, the Company meets
all capital adequacy requirements to which it is subject.
As of September 30, 2000, and 1999, as well as, December 31,
1999, the Federal Reserve categorized the Company as "Well
Capitalized" under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Company must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table. There are no conditions
or events since notification that management believes have changed
the Company's classification category. The table below is stated
showing the pro forma effect of the discontinued operations (equity
has been reduced by the discontinued operations that were dividended
to USBANCORP, Inc. on April 1, 2000.)
To Be Well
Capitalized Under
For Capital Prompt Corrective
As of September 30, 2000 Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(In thousands, except ratios)
Total Capital (to Risk
Weighted Assets)
Three Rivers Bancorp, Inc. $65,475 12.58 $41,625 8.00 $52,031 10.00
Three Rivers Bank 65,057 12.50 41,624 8.00 52,031 10.00
Tier 1 Capital (to Risk
Weighted Assets)
Three Rivers Bancorp, Inc. 60,194 11.57 20,813 4.00 31,219 6.00
Three Rivers Bank 59,776 11.49 20,812 4.00 31,218 6.00
Tier 1 Capital (to Average
Assets)
Three Rivers Bancorp, Inc. 60,194 6.14 39,193 4.00 48,991 5.00
Three Rivers Bank 59,776 6.10 39,192 4.00 48,990 5.00
14. Subsequent Events
On November 6, 2000, the Company sold the REO
property located in Spartansburg, South Carolina.
This REO property was previously written down to fair market value.
As a result of previous write-downs, no gain or loss was recognized
from the transaction. The property, which had a book value of $3.7
million, is a component of other assets in the above financial
statements. This transaction was financed through the Bank.
<PAGE>19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
("M.D.& A.")
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND DECEMBER
31, 1999
...BALANCE SHEET OVERVIEW... The Company's total consolidated
assets were $984 million at September 30, 2000, compared with $1.076
billion at December 31, 1999, which represents a decrease of $92
million. During the first nine months of 2000, total loans and
loans held for sale increased $3.4 million as loan originations
exceeded principal paydowns. Total investment securities decreased
$73.3 million during the first nine months of 2000 as a result of
the Company selling $58 million from the portfolio in addition to
normal principal repayments. Cash and due from banks decreased $7.4
million, or 30.4%, during the first nine months of 2000. The use of
this cash, combined with the proceeds from investment security sales
and principal repayments as well as from increased deposits were
used to reduce borrowings. The remainder of the decrease in total
assets results primarily from the dividend payment to USBANCORP,
Inc. for the net assets of the Company's mortgage banking
subsidiary.
Total deposits increased by $50.2 million, or 8.8%, since December
31, 1999 and were used to provide partial funding for the repayment
of FHLB borrowings. The Company's total borrowed funds position
decreased $136.5 million, or 31.1%, during the period. Total equity
declined by $5.5 million due to the dividend payment to USBANCORP,
Inc. of $10.2 million representing the net assets of the Company's
discontinued mortgage banking subsidiary. This payment, however,
was partially offset by a $4.8 million increase to equity as a
result of a decrease in the unrealized investment security holding
losses, net of tax, over the period.
.....LOAN QUALITY.....The following table sets forth information
concerning Three Rivers Bancorp's loan delinquency and other non-
performing assets. At all dates presented, the Company had no
troubled debt restructurings which involved forgiving a portion of
interest or principal on any loans at a rate materially less than
that of market rates: (in thousands, except percentages):
September 30 December 31 September 30
2000 1999 1999
Total loan delinquency (past due
30 to 89 days) $ 4,245 $ 4,011 $ 4,101
Total non-accrual loans 2,271 2,056 8,173
Total non-performing assets<F1> 6,107 9,076 8,982
Loan delinquency, as a percentage
of total loans, net of unearned
income 0.88% 0.84% 0.87%
Non-accrual loans, as a percentage
of total loans, net of unearned income 0.47% 0.43% 1.74%
Non-performing assets, as a
percentage of total loans,
net of unearned income,
and other real estate owned 1.25% 1.92% 1.91%
<F1>Non-performing assets are comprised of (i) loans that are
on a non-accrual basis, (ii) loans that are contractually past due
90 days or more as to interest and principal payments some of which
are insured for credit loss, and (iii) other real estate owned. All
loans, except for loans that are insured for credit loss, are placed
on non-accrual status upon becoming 90 days past due in either
principal or interest.
<PAGE>20
Between September 30, 2000, and December 31, 1999, total loan
delinquency increased $234,000, causing the delinquency ratio to
increase four basis points to 0.88%. Total non-performing assets
decreased by $3.0 million since December 31,1999 causing the non-
performing assets to total loans, net of unearned income and OREO,
ratio to decrease to 1.25%. The decrease in non-performing assets
is primarily due to a $2.2 million write down during the first nine
months of 2000 for a property foreclosed on during the third quarter
of 1999. This property, which represents a commercial construction
project classified as other real estate owned, was written down to
estimated net realizable value, and was sold in the
fourth quarter of 2000 (see Note 14).
.....ALLOWANCE FOR LOAN LOSSES.....The following table sets forth
changes in the allowance for loan losses and certain ratios for the
periods ended (in thousands, except percentages):
September 30 December 31 September 30
2000 1999 1999
Allowance for loan losses $ 5,281 $ 5,021 $ 5,600
Allowance for loan losses as
a percentage of each of
the following:
total loans, net of
unearned income 1.09% 1.05% 1.19%
total delinquent loans
(past due 30 to 89 days) 124.41 125.18 136.55
total non-accrual loans 232.54 244.21 68.52
total non-performing loans 81.05 82.76 45.62
Since December 31, 1999, the balance in the allowance for loan
losses has increased $260,000 while the balance of total loans
increased by $3.4 million. The increase in the allowance for loan
losses is the result of the increase in outstanding loan levels, as
well as a shift of the loan portfolio from 1-4 family mortgage loans
to loans that are more commercial in nature. The Company's
allowance for loan losses at September 30, 2000, was 233% of non-
accrual loans.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
.....PERFORMANCE OVERVIEW..... Three Rivers Bancorp, Inc. was spun
off from USBANCORP, Inc. on April 1, 2000. Accordingly, the
following results represent the first two quarters in which Three
Rivers Bancorp, Inc has operated as an independent company.
The Company's income from continuing operations for the third
quarter of 2000 totaled $845,000 or $0.13 per share on a diluted
basis. The third quarter 2000 results are lower when compared with
the $2.4 million or $0.36 per diluted share for the third quarter of
1999.
The Company's return on equity (ROE) averaged 6.97% for the
third quarter of 2000 compared to 18.95% ROE in the third quarter of
1999.
Net interest income decreased by $1.1 million, or 14.9%, as a
result of rising interest rates causing compression in the net
interest margin from 3.02% in the third quarter of 1999 to 2.68% in
the third quarter of 2000.
<PAGE>21
The Company's equity base has been
adversely affected by a drop in other comprehensive income due to a
decline in value of the Company's available for sale securities
portfolio as well as from the reduction due to the dividend of the
mortgage banking subsidiary on April 1, 2000. The following table
summarizes some of the Company's key performance indicators (in
thousands, except per share and ratios):
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
Income from continuing operations $ 845 $2,418
Diluted earnings per share 0.13 0.36
Return on average equity 6.97% 18.95%
Return on average assets 0.34% 0.92%
Average diluted common
shares outstanding 6,674 6,702
.....NET INTEREST INCOME AND MARGIN.....The Company's net interest
income represents the amount by which interest income on earning
assets exceeds interest paid on interest bearing liabilities. Net
interest income is a primary source of the Company's earnings; it is
affected by interest rate fluctuations as well as changes in the
amount and mix of earning assets and interest bearing liabilities.
It is the Company's philosophy to strive to optimize net interest
income performance in varying interest rate environments. The
following table compares the Company's net interest income
performance for the third quarter of 2000 to the third quarter of
1999 (in thousands, except percentages):
Three Months Ended
September 30,
2000 1999 $ Change % Change
Interest income $ 17,549 $ 17,984 (435) (2.4)
Interest expense 11,220 10,543 677 6.4
Net interest income 6,329 7,441 (1,112) (14.9)
Tax-equivalent adjustment 115 233 (118) (50.6)
Net tax-equivalent
interest income $ 6,444 $ 7,67 (1,230) (16.0)
Net interest margin 2.68% 3.02% (0.34)% N/M
N/M - Not meaningful
Three Rivers Bancorp's net interest income on a tax-equivalent
basis decreased by $1.2 million, or 16.0%, due primarily to
compression of the net interest margin percentage. Total average
earning assets decreased $59.1 million during the third quarter 2000
compared to the same period of 1999. This resulted from a $73.1
million, or 13.4%, decrease in investment securities, which was
partially offset by an increase in total loans of $14.2 million, or
3.1%.
The income reduction from this decrease in earning assets was
coupled with a 34 basis point decline in the net interest margin to
2.68%. The drop in the net interest margin reflects a 21 basis
point increase in the earning asset yield, but was more than offset
by a 70 basis point increase in the cost of funds. During the third
quarter, the Company used the cash flow from mortgage backed
securities to pay down FHLB Borrowings, which reduced interest rate
risk and decreased further margin compression as a result of the
leverage program the Company has had in place over the last five
years.
<PAGE>22
A leverage program is one strategy the Company may use to
leverage its capital. The maximum amount of leveraging the Company
can perform is controlled by internal policy requirements to
maintain a minimum asset leverage ratio of no less than 6.0% (see
further discussion under Capital Resources) and to limit net
interest income variability to plus or minus 7.5% and net income
variability to plus or minus 15% over a twelve month period. (See
further discussion under Interest Rate Sensitivity).
...COMPONENT CHANGES IN NET INTEREST INCOME...Regarding the separate
components of net interest income, the Company's total tax-
equivalent interest income for the third quarter of 2000 decreased
by $553,000 or 3.0% when compared to the same 1999 period. This
decrease was due to the $59.1 million or 5.9% decrease in total
average earning assets. Within the earning asset base, the yield on
the total loan portfolio increased by 33 basis points to 8.34% due
to the upward repricing of floating-rate loans and the shift in the
loan portfolio to the higher yielding commercial and commercial real
estate loans. The yield on total investment securities increased by
three basis points to 6.35% due the slow down of prepayments and the
corresponding decrease in the amortization of premiums.
The Company's total interest expense for the third quarter of
2000 increased by $677,000, or 6.4% when compared to the same 1999
period. This higher interest expense was due to a 70 basis point
increase in the yield on interest bearing liabilities, to an average
of 5.33% for the third quarter of 2000. This, however, was
partially offset by the decrease in average interest bearing
liabilities of $67.7 million, or 7.5%.
The decrease in interest-bearing liabilities results from a
decrease in borrowed funds of $125.4 million, or 29.4%, which was
partially offset by an increase in total deposits of $57.7 million,
or 12.1%. The increase in total deposits is primarily the result of
special rate incentives offered by the Bank to increase the
certificate of deposit portfolio. As a result, certificate of
deposits increased $73.7 million, or 23.9%. The proceeds received
from investment security principal and interest receipts as well as
from the growth of the deposit base were used to pay down the higher
costing borrowings as well as to fund loan originations. FHLB
advances had an average cost of 6.09% in the third quarter of 2000
which was 65 basis points higher than their cost in the prior year
third quarter and 124 basis points greater than the average cost of
deposits which was 4.85% in the third quarter. Overall, the
Company's total cost of funds increased by 70 basis points to 5.33%.
It is recognized that interest rate risk does exist from this
use of borrowed funds to leverage the balance sheet. To neutralize
a portion of this risk, the Company has executed a total of $110
million of off-balance sheet hedging transactions which help fix the
variable funding costs associated with the use of short-term
borrowings to fund earning assets. (See further discussion under
Note 9.) The Company also has asset liability policy parameters
which limit the maximum amount of borrowings to 40% of total assets.
For the third quarter of 2000, the level of short-term borrowed
funds and FHLB advances to total assets averaged 30.5%. At quarter
end the Company had borrowed funds to total assets of 30.7%, which
is within the parameters set by the Board of Directors of the Company.
The Company plans to
continue to use cash flow from mortgage-backed securities and
increasing deposits to pay down borrowings during the next several
quarters.
<PAGE>23
The table that follows provides an analysis of net interest
income on a tax-equivalent basis setting forth (i) average assets,
liabilities, and stockholders' equity, (ii) interest income earned
on interest earning assets and interest expense paid on interest
bearing liabilities, (iii) average yields earned on interest earning
assets and average rates paid on interest bearing liabilities, (iv)
Three Rivers Bancorp's interest rate spread (the difference between
the average yield earned on interest earning assets and the average
rate paid on interest bearing liabilities), and (v) Three Rivers
Bancorp's net interest margin (net interest income as a percentage
of average total interest earning assets). For purposes of this
table, loan balances include non-accrual loans and interest income
on loans includes loan fees or amortization of such fees which have
been deferred, as well as, interest recorded on non-accrual loans as
cash is received. Additionally, a tax rate of approximately 35% is
used to compute tax equivalent yields.
<TABLE>
<CAPTION>
Three Months Ended September 30 (In thousands, except percentages)
2000 1999
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans and loans held
for sale, net of
unearned income $ 476,653 $ 10,122 8.34% $ 462,471 $ 9,552 8.01%
Deposits with banks 599 7 4.45 857 7 3.10
Federal funds sold 32 - 1.67 - - -
Total investment securities 474,059 7,535 6.35 547,152 8,658 6.32
Total interest earning
assets/interest income 951,343 17,664 7.37 1,010,480 18,217 7.16
Non-interest earning assets:
Cash and due from banks 14,961 17,295
Premises and equipment 5,153 5,363
Other assets 16,069 22,409
Allowance for loan losses (5,164) (5,588)
TOTAL ASSETS $ 982,362 $1,049,959
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand $ 41,901 $ 78 0.74% $ 43,625 $ 107 0.97%
Savings 64,010 364 2.26 67,817 324 1.90
Money markets 47,446 383 3.21 57,927 431 2.96
Other time 382,131 5,705 5.94 308,387 3,821 4.91
Total interest bearing
deposits 535,488 6,530 4.85 477,756 4,681 3.89
Short term borrowings:
Federal funds purchased,
securities sold under
agreements to repurchase
and other short-term
borrowings 38,089 635 6.52 55,778 750 5.26
Advances from Federal
Home Loan Bank 261,131 4,009 6.09 367,914 5,038 5.44
Long-term debt 1,900 46 9.81 2,828 74 10.24
Total interest bearing
liabilities/interest expense 836,608 11,22 5.33 904,276 10,543 4.63
Non-interest bearing liabilities:
Demand deposits 87,897 85,135
Other liabilities 9,372 9,441
Stockholders' equity 48,485 51,107
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 982,362 $1,049,959
Interest rate spread 2.04 2.53
Net interest income
net interest margin 6,444 2.68% 7,674 3.02%
Tax-equivalent adjustment (115) (233)
Net Interest Income $6,329 $7,441
</TABLE>
<PAGE>24
...PROVISION FOR LOAN LOSSES.....The Company's provision for loan
losses for the third quarter of 2000 totaled $150,000 or 0.13% of
average total loans which represented a $75,000 increase from the
provision level experienced in the 1999 third quarter. The Company
recognized net loan recoveries of $67,000, or 0.06% of average loans
in the third quarter of 2000. The higher provision in 2000 was due
to continued growth of the commercial and commercial mortgage loan
portfolio. The Company applies a consistent methodology and
procedural discipline to evaluate the adequacy of the allowance for
loan losses at on a quarterly basis. (See further discussion in Note
6 to the consolidated financial statements herein and the Allowance
for Loan Losses section of the MD&A.)
.....NON-INTEREST INCOME.....Non-interest income for the third
quarter of 2000 totaled $1.2 million which represented a $155,000,
or 11.3%, decrease when compared to the same 1999 quarter. This
decrease was primarily due to the following items:
a $212,000 decrease in trust fees as the Company has entered into an
agreement in which it receives a flat monthly fee for trust
referrals, and no longer has its own trust department.
this decrease in trust fees, however, was partially offset by a
$63,000 increase in service charges on deposit accounts as a result
of the Company amending its fee structure.
.....NON-INTEREST EXPENSE.....Non-interest expense for the third
quarter of 2000 totaled $6.2 million which represented a $912,000,
or 17.2%, increase when compared to the same 1999 quarter. This
increase was primarily due to the following items:
a net $76,000 increase in salary and employee benefits resulted from
the spin-off necessitating new positions and the elimination of
others.
a $1.1 million increase in OREO expense, which is primarily the
result of a $1.1 million write down of an Other Real Estate Owned
property that was acquired through a foreclosure on a commercial
real estate loan.
the above increases in the components of non-interest expense are
partially offset by a $196,000, or 16.8%, decrease in other expenses
during the third quarter 2000 compared to the third quarter 1999.
The decrease is primarily the result of a decrease in advertising
expenditures of $83,000 and a reduction of expenses incurred for
services provided by USBANCORP, Inc. of $136,000.
<PAGE>25
.....INCOME TAX EXPENSE.....The Company's provision for income taxes
for the third quarter of 2000 decreased $681,000 to $342,000 from
September 30, 1999 as a result of the lower level of pre-tax income.
The Company's tax-free asset holdings consist primarily of
municipal investment securities, bank owned life insurance, and
commercial loan tax anticipation notes. Net deferred income taxes
of $8.3 million have been provided as of September 30, 2000, on the
differences between taxable income for financial and tax reporting
purposes.
.....NET OVERHEAD BURDEN.....The Company's efficiency ratio (non-
interest expense divided by total revenue) increased to 81.1% for
the three months ended September 30, 2000 compared to 57.6% for the
same period of 1999. Factors contributing to the higher efficiency
ratio in 2000 included the compression experienced in the net
interest margin and an increased level of non-interest expenses,
which included $1.1 million of OREO expenses.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
.....PERFORMANCE OVERVIEW..... At March 31, 2000, Three Rivers Bank
was a wholly owned subsidiary of USBANCORP, Inc. On April 1, 2000,
USBANCORP, Inc. executed its approved Board of Directors plan to
split USBANCORP, Inc.'s banking subsidiaries into two separate
publicly traded companies.
Under the tax-free spin-off plan, 100% of the shares of Three
Rivers Bancorp, Inc, were distributed as a dividend to the
shareholders of the USBANCORP as a 1 for 2 stock dividend based on
their existing USBANCORP ownership. Standard Mortgage Company
(SMC), a mortgage banking company and subsidiary of Three Rivers
Bank, was internally spun-off from Three Rivers Bank to USBANCORP
prior to consummation of the Three Rivers Bank spin-off. As a result
of the spin-off, the pre-tax results of the first nine months of
2000 were negatively affected by $777,000 of spin-off related costs,
which negatively effected after-tax earnings per share by $0.08.
During the first quarter of 2000, the Internal Revenue Service
completed its examination of USBANCORP, Inc.'s federal income tax
returns (of which the Company was included) through the 1997 tax
year. As a result of a change in the estimate of the Company's
income tax liability, the Company reversed tax expense accruals of
$750,000, resulting in an income tax provision for the first nine
months of 2000 of only $366,000.
The Company's income from continuing operations and exclusive
of the aforementioned spin-off costs for the nine months ended
September 30, 2000, totaled $4.1 million or $0.62 per share on a
diluted basis. The results of the first nine months of 2000 are
lower when compared with the $7.5 million or $1.11 per diluted share
for the first nine months of 1999.
The Company's return on equity (ROE) averaged 10.16% for the
first nine months of 2000 compared to 17.47% ROE reported in the
first nine months of 1999.
Net interest income decreased by $2.1 million or 9.5% as a
result of rising interest rates causing compression in the net
interest margin from 3.09% in the first nine months of 1999 to 2.78%
in the same period of 2000. The Company's equity base has been
adversely effected by a drop in other comprehensive income due to a
decline in value of the Company's available for sale securities
portfolio. The following table summarizes some of the Company's key
performance indicators (in thousands, except per share and ratios):
<PAGE>26
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
Income from continuing operations $ 3,555 $ 7,481
Diluted earnings per share 0.53 1.11
Return on average equity 10.16% 17.47%
Return on average assets 0.47% 0.98%
Average diluted common
shares outstanding 6,672 6,739
.....NET INTEREST INCOME AND MARGIN.....The Company's net interest
income represents the amount by which interest income on earning
assets exceeds interest paid on interest bearing liabilities. Net
interest income is a primary source of the Company's earnings; it is
affected by interest rate fluctuations as well as changes in the
amount and mix of earning assets and interest bearing liabilities.
It is the Company's philosophy to strive to optimize net interest
income performance in varying interest rate environments. The
following table compares the Company's net interest income
performance for the nine months ended September 30, 2000 to the nine
months ended September 30, 1999 (in thousands, except percentages):
Nine Months Ended
September 30,
2000 1999 $ Change % Change
Interest income $ 53,034 $ 52,365 669 1.3
Interest expense 32,920 30,132 2,788 9.3
Net interest income 20,114 22,233 (2,119) (9.5)
Tax-equivalent adjustment 445 706 (261) (37.0)
Net tax-equivalent
interest income $ 20,559 $ 22,939 (2,380) (10.4)
Net interest margin 2.78% 3.09% (0.31)% N/M
N/M - Not meaningful
Three Rivers Bancorp net interest income on a tax-equivalent
basis decreased by $2.4 million, or 10.4%, due primarily to
compression of the net interest margin. Total average earning
assets were $8.3 million, or 0.8%, lower in the first nine months of
2000 due to a $20.9 million, or 4.0%, decrease in investment
securities. This decrease, however, was partially offset by a $12.5
million, or 2.7%, increase in total loans. The Company was able to
achieve solid loan growth in commercial and commercial real estate
loans of $32 million, or 13.5%, when compared to the first nine
months of 1999. During the same period the comparably lower
yielding residential real estate loans decreased by $16 million or
8%.
Although average earning assets decreased, the Company was
able to obtain an income benefit in total interest income as a
result of investing in higher yielding assets, while divesting in
those that yielded less. The income benefit from this change in the
composition of earning assets was more than offset by a 31 basis
point decline in the net interest margin to 2.78%. The drop in the
net interest margin reflects an 11 basis point increase in the
earning asset yield, but was more than offset by a 48 basis point
increase in the cost of funds.
<PAGE>27
The Company has, however, in the
first nine months of 2000, sold $58 million in securities to help
reduce interest rate risk and decrease further margin compression as
a result of the leverage program Three Rivers Bank has had in place
over the last five years.
The overall growth in the earning asset base was one strategy
used by the Company to leverage its capital. The maximum amount of
leveraging the Company can perform is controlled by internal policy
requirements to maintain a minimum asset leverage ratio of no less
than 6.0% (see further discussion under Capital Resources) and to
limit net interest income variability to plus or minus 7.5% and net
income variability to plus or minus 15% over a twelve month period.
(See further discussion under Interest Rate Sensitivity).
...COMPONENT CHANGES IN NET INTEREST INCOME...Regarding the separate
components of net interest income, the Company's total tax-
equivalent interest income for the first nine months of 2000
increased by $408,000 or 0.8% when compared to the same 1999 period.
This increase resulted from the increased investment in the higher
yielding loan portfolio while divesting in the lower yielding
investment security portfolio. The positive effects of this
repositioning, however, were partially offset by the $8.3 million,
or 0.8%, decrease in average earning assets over the comparable
periods. Within the earning asset base, the yield on the total loan
portfolio increased by 16 basis points to 8.23% due to the upward
repricing of floating-rate loans and the shift in the loan portfolio
to the higher yielding commercial and commercial real estate loans.
The yield on total investment securities increased by four basis
points to 6.36% due to the slow down of prepayments and the
corresponding decrease in the amortization of premiums.
The Company's total interest expense for the nine months ended
September 30, 2000 increased by $2.8 million or 9.3% when compared
to the same 1999 period. This higher interest expense was due to a
48 basis point increase in the rate paid on interest bearing
liabilities, to an average of 5.09% for the first nine months of
2000. The higher interest rate paid, however, was partially offset
by a $10.6 million, or 1.2%, decrease in average interest bearing
liabilities. The decline in interest bearing liabilities included
a $27 million decrease in FHLB Advances, which was partially offset
by growth in total deposits of $24 million, or 5.0%. The funding
from deposit growth, along with cash flow from investment securities
were used to paydown the higher costing borrowings. FHLB advances
had an average cost of 5.87% in the first nine months of 2000, which
was 45 basis points higher than their cost in the prior year first
nine months and 138 basis points greater than the average cost of
deposits, which was 4.49% in the first nine months of 2000.
Overall, the Company's total cost of funds increased by 48 basis
points to 5.09
It is recognized that interest rate risk does exist from this
use of borrowed funds to leverage the balance sheet. To neutralize
a portion of this risk, the Company has executed a total of $110
million of off-balance sheet hedging transactions which help fix the
variable funding costs associated with the use of short-term
borrowings to fund earning assets. (See further discussion under
Note 9.) The Company also has asset liability policy parameters,
which limit the maximum amount of borrowings to 40% of total assets.
For the nine months ended September 30, 2000, the level of short-
term borrowed funds and FHLB advances to total assets averaged
35.0%. At September 30, 2000, the Company had borrowed funds to
total assets of 30.7%, which is within the parameters set by the
Company. The Company plans to use cash flow from mortgage-backed
securities and increasing deposits to pay down borrowings during the
next several quarters.
<PAGE>28
The table that follows provides an analysis of net interest
income on a tax-equivalent basis setting forth (i) average assets,
liabilities, and stockholders' equity, (ii) interest income earned
on interest earning assets and interest expense paid on interest
bearing liabilities, (iii) average yields earned on interest earning
assets and average rates paid on interest bearing liabilities, (iv)
Three Rivers Bancorp's interest rate spread (the difference between
the average yield earned on interest earning assets and the average
rate paid on interest bearing liabilities), and (v) Three Rivers
Bancorp's net interest margin (net interest income as a percentage
of average total interest earning assets). For purposes of this
table, loan balances include non-accrual loans and interest income
on loans includes loan fees or amortization of such fees which have
been deferred, as well as, interest recorded on non-accrual loans as
cash is received. Additionally, a tax rate of approximately 35% is
used to compute tax equivalent yields.
<TABLE>
<CAPTION>
Nine Months Ended September 30 (In thousands, except percentages)
2000 1999
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans and loans held
for sale, net of
unearned income $ 474,953 $ 29,681 8.23% $ 462,426 $ 28,439 8.07%
Deposits with banks 1,125 16 1.84 1,052 19 2.39
Federal funds sold and
securities purchased
under agreements
to resale 12 - 1.99 - - -
Total investment securities 497,874 23,782 6.36 518,780 24,613 6.32
Total interest earning
assets/interest income 973,964 53,479 7.29 982,258 53,071 7.18
Non-interest earning assets:
Cash and due from banks 15,607 16,504
Premises and equipment 5,277 4,989
Other assets 15,129 24,570
Allowance for loan losses (5,090) (5,898)
TOTAL ASSETS $1,004,887 $1,022,423
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand $ 42,030 $ 246 0.78% $ 44,315 $ 323 0.97%
Savings 63,901 999 2.09 66,727 891 1.79
Money markets 50,012 1,168 3.12 58,513 1,306 2.98
Other time 352,550 14,759 5.56 314,551 11,874 5.05
Total interest bearing
deposits 508,493 17,172 4.49 484,106 14,394 3.98
Short term borrowings:
Federal funds purchased,
securities sold under
agreements to repurchase and
other short-term borrowings 46,262 2,154 6.12 53,818 2,041 5.13
Advances from Federal
Home Loan Bank 305,763 13,443 5.87 332,505 13,485 5.42
Long-term debt 2,092 151 9.62 2,756 212 10.40
Total interest bearing
liabilities/interest expense 862,610 32,920 5.09 873,185 30,132 4.61
Non-interest bearing liabilities:
Demand deposits 86,224 82,443
Other liabilities 9,385 9,694
Stockholders' equity 46,668 57,101
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,004,887 $1,022,423
Interest rate spread 2.20 2.57
Net interest income/
net interest margin 20,559 2.78% 22,939 3.09%
Tax-equivalent adjustment (445) (706)
Net Interest Income $20,114 22,233
</TABLE>
<PAGE>29
...PROVISION FOR LOAN LOSSES.....The Company's provision for loan
losses for the first nine months of 2000 totaled $450,000 or 0.13%
of average total loans which represented a $225,000 increase from
the provision level experienced in the same period for 1999. The
Company's net loan charge-offs amounted to $190,000 or 0.05% of
average loans in the first nine months of 2000. The higher provision
in 2000 was due to continued growth of the commercial and commercial
mortgage loan portfolio. The Company applies a consistent
methodology and procedural discipline to evaluate the adequacy of
the allowance for loan losses on a quarterly basis. (See further
discussion in Note 6 and the Allowance for Loan Losses section of
the MD&A.)
.....NON-INTEREST INCOME.....Non-interest income for the first nine
months of 2000 totaled $3.0 million, which represented a $1.3
million or 30.6% decrease when compared to the same 1999 period.
This decrease was primarily due to the following items:
a $774,000 decrease in gains realized on investment security sales,
the first quarter of 2000 had losses on sales of the investment
portfolio of $501,000 as the Company sold approximately $58 million
in securities and used the proceeds to pay down short-term advances
at the FHLB.
a $573,000 decrease in trust fees as the Company has entered into an
agreement in which it receives a flat monthly fee for trust
referrals, and no longer has its own trust department.
a $60,000 or 12.6% decrease in wholesale cash processing fees to
$417,000, as the Company has experienced a decrease in the number of
wholesale customers.
These decreases, however, were partially offset by an increase in
service charges on deposit accounts of $69,000, or 5.0% as a result
of the Company amending its fee structure.
.....NON-INTEREST EXPENSE.....Non-interest expense for the first
nine months of 2000 totaled $18.8 million which represented a $3.1,
or 19.5%, increase when compared to the same 1999 period. This
increase was primarily due to the following items:
as a result of the spin-off, the Company had $777,000 of non-
recurring spin-off costs. The expense is primarily the result of
stock registration and professional fees.
<PAGE>30
a net $319,000 increase in salary and employee benefits resulted
from the spin-off necessitating new positions and the elimination of
others at the beginning of the second quarter.
a $2.4 million increase in OREO expense, which is primarily the
result of a $2.3 million write down of an Other Real Estate Owned
property, that was acquired through a foreclosure on a commercial
real estate loan.
the above increases in the components of non-interest expense are
partially offset by a $552,000, or 15.7%, decrease in other expenses
for the first nine months of 2000 as compared to the same period in
1999. The decrease is the result of a decrease in advertising
expenditures of $250,000 and a reduction of expenses incurred for
services provided by USBANCORP, Inc. of $376,000.
.....INCOME TAX EXPENSE.....The Company's provision for income taxes
for the first nine months of 2000 was $366,000 reflecting a change
in estimate of the Company's income tax liability of approximately
$750,000 as a result of closing tax years through 1997. The
Company's tax-free asset holdings consist primarily of municipal
investment securities, bank owned life insurance, and commercial
loan tax anticipation notes. Net deferred income taxes of $8.3
million have been provided as of September 30, 2000, on the
differences between taxable income for financial and tax reporting
purposes.
.....NET OVERHEAD BURDEN.....The Company's efficiency ratio (non-
interest expense divided by total revenue) increased to 79.6% in the
first nine months of 2000 compared to 57.9% for the same period of
1999. Factors contributing to the higher efficiency ratio in 2000
included the compression experienced in the net interest margin and
an increased level of non-interest expenses which included spin-off
costs and OREO expense.
INTEREST RATE SENSITIVITY
Asset/liability management involves managing the risks associated
with changing interest rates and the resulting impact on the
Company's net interest income, net income and capital. The
management and measurement of interest rate risk at Three Rivers
Bancorp is performed by using the following tools: 1) simulation
modeling which analyzes the impact of interest rate changes on net
interest income, net income and capital levels over specific future
time periods. The simulation modeling forecasts earnings under a
variety of scenarios that incorporate changes in the absolute level
of interest rates, the shape of the yield curve, prepayments and
changes in the volumes and rates of various loan and deposit
categories. The simulation modeling also incorporates all off
balance sheet hedging activity as well as assumptions about
reinvestment and the repricing characteristics of certain assets and
liabilities without stated contractual maturities; 2)static "GAP"
analysis which analyzes the extent to which interest rate sensitive
assets and interest rate sensitive liabilities are matched at
specific points in time; and 3) market value of portfolio equity
sensitivity analysis. The overall interest rate risk position and
strategies are reviewed by senior management and the Company's Board
of Directors on an ongoing basis.
<PAGE>31
The following table presents a summary of the Company's static
GAP positions (in thousands, except for the GAP ratios):
September 30 December 31 September 30
2000 1999 1999
Six month cumulative GAP
RSA........................ $ 239,775 $ 270,835 $ 258,266
RSL....................... (258,713) (487,774) (389,180)
Off-balance sheet
hedges............... 40,000 (70,000) 40,000
GAP....................... $ (58,938) $ (146,939) $ (170,914)
GAP ratio.............. 0.80X 0.65X 0.60X
GAP as a % of total
assets................ (5.99)% (13.65)% (16.27)%
One year cumulative GAP
RSA...................... $ 323,631 $ 357,263 $ 359,272
RSL...................... (352,314) (664,707) (479,760)
Off-balance sheet
hedges.............. 40,000 (40,000) -
GAP...................... $ (68,683) $ (267,444) $ (120,488)
GAP ratio.............. 0.82X 0.57X 0.75X
GAP as a % of total
assets............... (6.98)% (24.85)% (11.47)%
When September 30, 2000, is compared to December 31, 1999,
both the Company's six month and one year cumulative GAP ratios
became less negative due primarily to a decrease in the Company's
short-term FHLB borrowings.
Management places primary emphasis on simulation modeling to
manage and measure interest rate risk. The Company's asset
liability management policy seeks to limit net interest income
variability over the first twelve months of the forecast period to
plus or minus 7.5% and net income variability to plus or minus 15.0%
based upon varied economic rate forecasts which include interest
rate movements of up to 200 basis points and alterations of the
shape of the yield curve. Additionally, the Company also uses
market value sensitivity measures to further evaluate the balance
sheet exposure to changes in interest rates. Market value of
portfolio equity sensitivity analysis captures the dynamic aspects
of long-term interest rate risk across all time periods by
incorporating the net present value of expected cash flows from the
Company's assets and liabilities. The Company monitors the trends
in market value of portfolio equity sensitivity analysis on a
quarterly basis.
The following table presents an analysis of the sensitivity
inherent in the Company's net interest income, net income and market
value of portfolio equity. The interest rate scenarios in the table
compare the Company's base forecast or most likely rate scenario at
September 30, 2000, to scenarios which reflect ramped increases and
decreases in interest rates of 200 basis points along with
performance in a stagnant rate scenario with interest rates held
flat at the September 30, 2000, levels. The Company's most likely
rate scenario is based upon published economic consensus estimates.
Each rate scenario contains unique prepayment and repricing
assumptions which are applied to the Company's expected balance
sheet composition which was developed under the most likely
interest rate scenario.
<PAGE>32
Variability of Change In
Interest Rate Net Interest Variability of Market Value of
Scenario Income Net Income Portfolio Equity
Base 0% 0% 0%
Flat 0.2 0.6 (10.5)
200bp increase (5.6) (18.0) (42.9)
200bp decrease 1.2 3.8 58.2
As indicated in the table, the maximum negative variability of
Three Rivers Bancorp's net interest income and net income over the
next twelve month period was (5.6%) and (18.0%) respectively, under
an upward rate shock forecast reflecting a 200 basis point increase
in interest rates. The variability of market value of portfolio
equity was (42.9%) under this interest rate scenario. The off-
balance sheet borrowed funds hedge transactions also helped reduce
the variability of forecasted net interest income, net income, and
market value of portfolio equity in a rising interest rate
environment. Finally, this sensitivity analysis is limited by the
fact that it does not include any balance sheet repositioning
actions the Company may take should severe movements in interest
rates occur such as lengthening or shortening the duration of the
securities portfolio or entering into additional off-balance sheet
hedging transactions. These actions would likely reduce the
variability of each of the factors identified in the above table in
the more extreme interest rate shock forecasts.
LIQUIDITY
Liquidity can be analyzed by utilizing the Consolidated Statement of
Cash Flows. Cash equivalents decreased by $7.4 million from
December 31, 1999 to September 30, 2000. During the first nine
months of 2000 there was $76.8 million of net cash provided by
investing activities and $4.7 million of net cash provided by
operating activities. This was more than offset by $88.9 million of
net cash used by financing activities. Within investing activities,
sales of investment securities exceeded cash proceeds needed for
security purchases by $43 million. Cash advanced for new loan
fundings totaled $64 million and exceeded the cash received from
loan principal payments by $13 million. Within financing
activities, net deposits increased by $50 million due primarily to
growth in certificates of deposits. Notwithstanding the decrease
in cash equivalents, management believes that the Company maintains
overall liquidity sufficient to satisfy its deposit requirements and
meet its customers' credit needs.
CAPITAL RESOURCES
As presented in Note 13 the Company exceeds all regulatory capital
ratios at September 30, 2000. Furthermore, the Company is
considered "well capitalized" under all applicable FDIC regulations.
It is the Company's intent to maintain the FDIC "well capitalized"
classification to ensure the lowest deposit insurance premium. All
risk based capital ratios included in this presentation are
presented on pro forma basis, after the internal spin-off of
Standard Mortgage Corporation from the Company to USBANCORP, Inc.
<PAGE>33
Three Rivers Bank declared and paid Common Stock dividends of
$1.8 million in the first quarter of 2000, which were the last
dividends that will be paid to USBANCORP, Inc. as part of the
dividends to the Company's former parent company. The Company's
Board of Directors believes that dividends are a key component of
total shareholder return, particularly for retail shareholders.
During the second and third quarter of 2000, the Company declared a
$0.12 per share dividend. The second quarter dividend was paid
during the third quarter while the third quarter dividend was paid
early in the fourth quarter.
FORWARD LOOKING STATEMENT
This Form 10-Q contains various forward-looking statements and
includes assumptions concerning the Company's beliefs, plans,
objectives, goals, expectations, estimates,
intentions, operations, future results, and prospects, including
statements that include the words "may," "could," "should," "would,"
"believe," "expect," "anticipate," "estimate," "intend," "plan" or
similar expressions. These forward-looking statements are based
upon current expectations and are subject to risk and uncertainties.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company provides the
following cautionary statement identifying important factors (some
of which are beyond the Company's control) which could cause the
actual results or events to differ materially from those set forth
in or implied by the forward-looking statements and related
assumptions.
Such factors include the following: (i) risk resulting from
the spin-off and the operation of Three Rivers Bancorp as a separate
independent company, (ii) the effect of changing regional and
national economic conditions; (iii) the effects of trade, monetary
and fiscal policies and laws, including interest rate policies of
the Board of Governors of the Federal Reserve System; (iv)
significant changes in interest rates and prepayment speeds; (v)
inflation, stock and bond market, and monetary fluctuations; (vi)
credit risks of commercial, real estate, consumer, and other lending
activities; (vii) changes in federal and state banking and financial
services laws and regulations; (viii) the presence in the Company's
market area of competitors with greater financial resources than the
Company; (ix) the timely development of competitive new products and
services by the Company and the acceptance of those products and
services by customers and regulators (when required); (x) the
willingness of customers to substitute competitors' products and
services for those of the Company and vice versa; (xi) changes in
consumer spending and savings habits; (xii) unanticipated regulatory
or judicial proceedings; and (xiii) other external developments
which could materially impact the Company's operational and
financial performance.
The foregoing list of important factors is not exclusive, and
neither such list nor any forward-looking statement takes into
account the impact that any future acquisition may have on the
Company and on any such forward-looking statement.
<PAGE>34
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are being filed as a part of
this Quarterly Report on Form 10-Q:
15.1 Independent Accountants Review Report
27.1 Financial Data Schedule.
(b) Reports on Form 8-K: The following reports on Form 8-K were
filed during the quarter ended September 30, 2000:
None
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Three Rivers Bancorp, Inc.
Registrant
Date: November 13, 2000 \s\ Terry K. Dunkle
Terry K. Dunkle
Chairman, President and
Chief Executive Officer
Date: November 13, 2000 \s\ Anthony M.V. Eramo
Anthony M.V. Eramo
Vice President and
Chief Financial Officer
<PAGE>35
STATEMENT OF MANAGEMENT RESPONSIBILITY
October 19, 2000
To the Stockholders and
Board of Directors of
Three Rivers Bancorp, Inc.
Management of Three Rivers Bancorp, Inc. and its subsidiaries
have prepared the consolidated financial statements and other
information in the Form 10-Q in accordance with generally
accepted accounting principles and are responsible for its
accuracy.
In meeting its responsibilities, management relies on internal
accounting and related control and monitoring systems, which
include selection and training of qualified personnel,
establishment and communication of accounting and administrative
policies and procedures, appropriate segregation of
responsibilities, and programs of internal audit. These systems
are designed to provide reasonable assurance that financial
records are reliable for preparing financial statements and
maintaining accountability for assets, and that assets are
safeguarded against unauthorized use or disposition. Such
assurance cannot be absolute because of inherent limitations in
any internal control system.
Management also recognizes its responsibility to foster a climate
in which Company affairs are conducted with the highest ethical
standards. The Company's Code of Conduct, furnished to each
employee and director, addresses the importance of open internal
communications, potential conflicts of interest, compliance with
applicable laws, including those related to financial disclosure,
the confidentiality of propriety information, and other items.
There is an ongoing program to assess compliance with these
policies.
The Audit Committee of the Company's Board of Directors consists
solely of outside directors. The Audit Committee meets
periodically with management and the independent accountants to
discuss audit, financial reporting, and related matters. The
Company's external and internal auditors have direct access to
the Audit Committee.
\s\Terry K. Dunkle \s\Anthony M.V. Eramo
Terry K. Dunkle Anthony M.V. Eramo
Chairman, President & Vice President &
Chief Executive Officer Chief Financial Office
<PAGE>36
Independent Accountants' Review Report
The Audit Committee of the Board of Directors
Three Rivers Bancorp, Inc.
We have reviewed the accompanying consolidated balance sheet of
Three Rivers Bancorp, Inc. (Three Rivers) as of September 30,
2000, and the related consolidated statements of income, for the
three and nine month periods then ended, and the consolidated
statements of cash flows and changes in stockholders' equity for
the nine month period then ended. These consolidated financial
statements are the responsibility of Three Rivers' management. We
did not make a similar review of the consolidated balance sheet
as of September 30, 1999, and the related consolidated statements
of income for the three and nine month periods then ended and the
consolidated statements of cash flows for the nine month period
then ended.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally
accepted in the United States, which will be performed for the
full year with the objective of expressing an opinion regarding
the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
consolidated balance sheet of Three Rivers as of September 30,
2000, and the related consolidated statements of income, for the
three and nine month periods then ended, and the consolidated
statements of cash flows and changes in stockholders' equity for
the nine month period then ended for them to be in conformity
with accounting principles generally accepted in the United
States.
The accompanying consolidated balance sheet of Three Rivers
Bancorp, Inc. as of December 31, 1999, was audited by other
auditors whose report dated January 28, 2000, expressed an
unqualified opinion on that statement.
/s/ Ernst & Young
Pittsburgh Pennsylvania
October 19, 2000
<PAGE>37
October 19, 2000
The Audit Committee of the Board of Directors
Three Rivers Bancorp, Inc.
We are aware of the incorporation by reference in the
Registration Statement (Nos. 333-39160 and 333-39166) of Three
Rivers Bancorp, Inc. of our report dated October 19, 2000
relating to the unaudited consolidated interim financial
statements of Three Rivers Bancorp, Inc. that are included in its
Form 10-Q for the quarter ended September 30, 2000.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
<PAGE>38
