UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee Required)
For the fiscal year ended December 31, 1993
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
For the transition period from to
Commission File Number 0-11204
USBANCORP, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
25-1424278
(I.R.S. Employer Identification No.)
Main & Franklin Streets, P.O. Box 430, Johnstown, Pennsylvania 15907-0430
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (814) 533-5300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $2.50 Par Value
(Title of class)
Share Purchase Rights
(Title of class)
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
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference
to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within 60 days prior to
the date of filing. (See definition of affiliate in Rule 405.) $103,223,988.00
as of March 1, 1994.
Note--If a determination as to whether a particular person or entity is an
affiliate cannot be made without involving unreasonable effort and expense,
the aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this Form.
Applicable only to registrants involved in bankruptcy proceedings during the
preceding five years: Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Sections 12, 13, or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No
(Applicable only to corporate registrants) Indicate the number of shares
outstanding of each of the registrant's classes of common stock, as of the
latest practicable date. 4,730,909 shares were outstanding as of January 31,
1994.
Documents incorporated by reference. List hereunder the following documents if
incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) Any annual report to
security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (e) under the Securities Act of
1933. The listed documents should be clearly described for identification
purposes (e.g., annual report to security holders for fiscal year ended
December 24, 1980).
Portions of the annual shareholders' report for the year ended December 31,
1993, are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual shareholders' meeting are
incorporated by reference in Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
Exhibit Index is located on page 60.
<PAGE>59
FORM 10-K INDEX
PART I
Item 1. Business 61
Item 2. Properties 72
Item 3. Legal Proceedings 72
Item 4. Submission of Matters to a Vote of Security Holders 72
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 73
Item 6. Selected Consolidated Financial Data 73
Item 7. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations 73
Item 8. Consolidated Financial Statements and Supplementary Data 73
Item 9. Changes In and Disagreements With Accountants On Accounting
and Financial Disclosure 73
PART III
Item 10. Directors and Executive Officers of the Registrant 73
Item 11. Executive Compensation 73
Item 12. Security Ownership of Certain Beneficial Owners and Management 74
Item 13. Certain Relationships and Related Transactions 74
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules, and
Reports on Form 8-K 75
Signatures 78
<PAGE>60
PART I
ITEM 1. BUSINESS
General
USBANCORP, Inc. (the "Company") is a registered bank holding company organized
under the Pennsylvania Business Corporation Law and is registered under the
Bank Holding Company Act of 1956, as amended (the "BHCA.") The Company became a
holding company upon acquiring all of the outstanding shares of United States
National Bank in Johnstown ("U.S. Bank") on January 5, 1983. The Company also
acquired all of the outstanding shares of Three Rivers Bank and Trust Company
("Three Rivers Bank") in June 1984, McKeesport National ("McKeesport Bank")
on December 1, 1985 (which was subsequently merged into Three Rivers Bank),
and Community Bancorp, Inc. (whose sole direct subsidiary is Community Savings
Bank) in March 1992. In addition, the Company formed United Bancorp Life
Insurance Company ("United Life") in October 1987 and USBANCORP Trust Company
(the "Trust Company") in October 1992. The Company's principal activities
consist of owning and operating its five wholly-owned subsidiary entities. At
December 31, 1993, the Company had, on a consolidated total assets, deposits,
and stockholders' equity of $1.24 billion, $1.05 billion and $117 million,
respectively.
The Company and the subsidiary entities derive substantially all their
income from banking and bank-related services. The Company functions primarily
as a coordinating and servicing unit for its subsidiary entities in general
management, credit policies and procedures, accounting and taxes, loan
review, auditing, investment advisory, compliance, marketing, insurance risk
management, general corporate services, and financial and strategic planning.
The Company, as a bank holding company, is regulated under the BHCA, and
is supervised by the Board of Governors of the Federal Reserve System (the
"Board.") In general, the Act limits the business of bank holding companies
to owning or controlling banks and engaging in such other activities as the
Board may determine to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
USBANCORP Banking Subsidiaries:
U.S. Bank
U.S. Bank is a national banking association organized under the laws of the
United States. Through 17 locations in Cambria, Clearfield, Somerset, and
Westmoreland Counties, Pennsylvania, U.S. Bank conducts a general banking
business. It is a full-service bank offering (i) retail banking services,
such as demand, savings and time deposits, money market accounts, secured and
unsecured loans, mortgage loans, safe deposit boxes, holiday club accounts,
collection services, money orders, and traveler's checks; (ii) lending,
depository and related financial services to commercial, industrial, financial,
and governmental customers, such as real estate-mortgage loans, short- and
medium-term loans, revolving credit arrangements, lines of credit, inventory
and accounts receivable financing, personal and commercial property lease
financing, real estate-construction loans, business savings accounts,
certificates of deposit, wire transfers, night depository, and lock box
services; and (iii) credit card operations through MasterCard and VISA. U.S.
Bank also operates 16 automated bank teller machines ("ATM") through its 24
Hour Banking Network which is linked with MAC and HONOR, regional ATM
networks, and CIRRUS, a national ATM network.
<PAGE>61
U.S. Bank's deposit base is such that loss of one depositor or a related
group of depositors would not have a materially adverse effect on its
business. In addition, the loan portfolio is also diversified so that one
industry or group of related industries does not comprise a material portion
of the loan portfolio.
U.S. Bank's business is not seasonal nor does it have any risks attendant
to foreign sources.
Since U.S. Bank is federally chartered, it is subject to primary
supervision of the Office of the Comptroller of the Currency. U.S. Bank is also
subject to the regulations of the Board of Governors of the Federal Reserve
Bank and the Federal Deposit Insurance Corporation.
The following is a summary of key data and ratios at December 31, 1993:
Headquarters Johnstown, PA
Chartered 1933
Total Assets $511,587,000
(41.2% of the Company's total)
Total Investment Securities Available for Sale $182,453,000
(42.6% of Company's total)
Total Loans (net of unearned income) $289,042,000
(39.8% of the Company's total)
Total Deposits $452,968,000
(43.2% of the Company's total)
Total Net Income before SFAS #109 benefit $4,692,000
(42.5% of the Company's total)
Total Equity to Assets Ratio 8.81%
1993 Return on Average Assets before SFAS #109 benefit 0.89%
Total Full-time Equivalent Employees 306
(46.0% of the Company's total)
Number of Offices 17
(41.4% of the Company's total)
Three Rivers Bank
Three Rivers Bank is a state bank chartered under the Pennsylvania Banking
Code of 1965, as amended (the "Pennsylvania Banking Code.") Through 12
locations in Allegheny and Washington Counties, Pennsylvania, Three Rivers
Bank conducts a general retail banking business consisting of granting
commercial, consumer, construction, mortgage and student loan and offering
checking, interest bearing demand, savings and time deposit services. It also
operates 12 ATMs which are affiliated with MAC, a regional ATM network, and
Plus System, a national ATM network. Three Rivers Bank also offers wholesale
banking services to other banks, merchants, governmental units, and other large
commercial accounts. Such services include balancing services, lock box
accounts, and providing coin and currency. Three Rivers Bank has an
arrangement with Statewide Security Transport, Inc. (which conducts business
under the name of Landmark Security Transport) pursuant to which it also
provides cash collection and deposit services to its customers.
Three Rivers Bank's deposit base is such that loss of one depositor or a
related group of depositors would not have a materially adverse effect on its
business. In addition, the loan portfolio is also diversified so that one
industry or group of related industries does not comprise a material portion
of the loan portfolio.
<PAGE>62
Three Rivers Bank's business is not seasonal nor does it have any risks
attendant to foreign
sources.
As a state chartered, federally-insured bank and trust company which is
not a member of the Federal Reserve System, Three Rivers Bank is subject to
supervision and regular examination by the Pennsylvania Department of Banking
and the Federal Deposit Insurance Corporation. Various federal and state
laws and regulations govern many aspects of its banking operations.
The following is a summary of key data and ratios at December 31, 1993:
Headquarters McKeesport, PA
Chartered 1965
Total Assets $340,123,000
(27.4% of the Company's total)
Total Investment Securities Available for Sale $128,414,000
(30.0% of Company's total)
Total Loans (net of unearned income) $187,552,000
(25.8% of the Company's total)
Total Deposits $304,161,000
(29.0% of the Company's total)
Total Net Income before SFAS #109 benefit $2,783,000
(25.2% of the Company's total)
Total Equity to Assets Ratio 6.82%
1993 Return on Average Assets before SFAS #109 benefit 0.91%
Total Full-time Equivalent Employees 214
(32.2% of the Company's total)
Number of Offices 12
(29.3% of the Company's total)
Community
As part of the Company's strategy of expanding in suburban Pittsburgh, in
March 1992, USBANCORP acquired Community Bancorp, Inc., a bank holding
company regulated under the BHCA and supervised by the Federal Reserve Board,
and its sole direct subsidiary, Community Savings Bank ("Community.")
Community is a Pennsylvania-chartered savings bank registered under the
Pennsylvania Banking Code. Community currently conducts its banking operation
through 12 locations in Allegheny, Washington, and Westmoreland Counties,
Pennsylvania. Traditionally, Community originated and held fixed-rate
residential mortgage loans which were funded primarily by certificates of
deposit and offered a few fee-based services. Under the direction of personnel
transferred to Community from U.S. Bank and Three Rivers Bank, Community has
begun the process of expanding its product offerings through the introduction
of commercial lending and expanded consumer lending and deposit gathering in
order to position it as a full-service community bank.
As part of the Community Acquisition, USBANCORP acquired Community's
direct subsidiaries: Community First Capital Corporation (a special purpose
finance subsidiary), Community First Financial Corporation (a subsidiary
engaged in real estate joint ventures with assets totalling $1.2 million),
and Frontier Consumer Discount Company. In accordance with Federal Reserve
policy, USBANCORP has committed to divest its equity investment in Community
First Financial Corporation within two years of the date of the Community
Acquisition, or such longer period as the Federal Reserve Board may approve.
<PAGE>63
Community's deposit base is such that loss of one depositor or a related
group of depositors would not have a materially adverse effect on its business.
In addition, the loan portfolio contains a high portion of residential mortgage
and consumer loans that have less credit risk associated with them. In addition,
the loan portfolio is also diversified so that one industry or group of related
industries does not comprise a material portion of the loan portfolio.
Community's business is not seasonal nor does it have any risks attendant
to foreign sources.
As a Pennsylvania-chartered, federally-insured savings bank that is not a
member of the Federal Reserve System, Community Savings Bank is subject to
supervision and regular examination by the Pennsylvania Department of Banking
and the FDIC. Various federal and state laws and regulations also govern many
aspects of its banking and bank-related operations.
The following is a summary of key data and ratios at December 31, 1993:
Headquarters Monroeville, PA
Chartered 1890
Total Assets $364,879,000
(29.4% of the Company's total)
Total Investment Securities Available for Sale $91,198,000
(21.3% of Company's total)
Total Loans (net of unearned income) $248,968,000
(34.3% of the Company's total)
Total Deposits $291,737,000
(27.8% of the Company's total)
Total Net Income before SFAS #109 benefit $3,333,000
(30.2% of the Company's total)
Total Equity to Assets Ratio 6.51%
1993 Return on Average Assets before SFAS #1 benefit 0.91%
Total Full-time Equivalent Employees 100
(15.0% of the Company's total)
Number of Offices 12
(29.3% of the Company's total)
USBANCORP Non-Banking Subsidiaries:
United Life
United Life is a captive insurance company organized under the laws of the
State of Arizona. United Life engages in underwriting as reinsurer of credit
life and disability insurance within the Company's six county market area.
Operations of United Life are conducted in each office of the Company's
banking subsidiaries. United Life is subject to supervision regulation by the
Arizona Department of Insurance, the Insurance Department of the Commonwealth
of Pennsylvania, and the Board of Governors of the Federal Reserve Bank. At
December 31, 1993, United Life had total assets of $1.3 million and total
shareholder's equity of $692,000.
USBANCORP Trust Company
USBANCORP Trust Company is a trust company organized under Pennsylvania law in
October 1992. USBANCORP Trust Company was formed to consolidate the trust
functions of U.S. Bank and Three Rivers Bank and to increase market presence.
As a result of this formation, the Trust Company now offers a complete range of
trust services through each of the Company's subsidiary banks. At December 31,
1993, USBANCORP Trust Company had $942.6 million in assets under management
which included both discretionary and non-discretionary assets.
<PAGE>64
Executive Officers
Information relative to current executive officers of the Company or its
subsidiaries is listed in the following table:
Name Age Office with USBANCORP, Inc. and/or Subsidiary
Terry K. Dunkle 52 Chairman, President & Chief Executive
Officer of USBANCORP, Inc. and Chairman of
U.S. Bank, Three Rivers Bank, and Community
Bancorp, Inc.
Orlando B. Hanselman 34 Executive Vice President, Chief Financial
Officer & Manager of Corporate Services of
USBANCORP, Inc.
Louis Cynkar 49 President & Chief Executive Officer of U.S.
Bank
W. Harrison Vail 53 President & Chief Executive Officer of
Three Rivers Bank
Kenneth J. Tyson(1) 63 President of Community Bancorp, Inc. and
Community Savings Bank
Dennis J. Fantaski 49 Executive Vice President & Chief Executive
Officer of Community Bancorp, Inc. and
Community Savings Bank
(1) Mr. Tyson retired as of March 31, 1994.
In July 1993, it was announced that Mr. Dunkle would succeed Clifford A.
Barton as Chairman, President and Chief Executive Officer of USBANCORP. In
April 1988, Mr. Dunkle was appointed as President and Chief Executive Officer
of U.S. Bank and Executive Vice President and Secretary of USBANCORP. Mr. Dunkle
served the five previous years as Executive Vice President of Commonwealth
National Bank in Harrisburg, Pennsylvania. Mr. Hanselman joined U.S. Bank in
January 1987 as Vice President and Chief Financial Officer and received his
present title in February 1994. Prior to joining U.S. Bank, he served as Senior
Accountant and Consultant in the Financial Industry Specialty Group of Price
Waterhouse in Pittsburgh, Pennsylvania. Mr. Cynkar was designated to succeed
Mr. Dunkle as President and Chief Executive Officer of U.S. Bank in July 1993.
Mr. Cynkar joined U.S. Bank in 1986 as Senior Vice President, commercial
lending. Mr. Vail has been President and Chief Executive Officer of Three
Rivers Bank since January 1985. He joined Three Rivers Bank as President on
August 1, 1984. Mr. Tyson has served as President and Chief Executive Officer
of Community since 1969 and Community Bancorp, Inc. since 1988. Mr. Fantaski
was named Chief Executive Officer of Community in March 1993. Prior to
joining Community, Mr. Fantaski was Senior Vice President and head of retail
banking at U.S. Bank from 1988 through 1991.
Monetary Policies
Commercial banks are affected by policies of various regulatory authorities
including the Federal Reserve System. An important function of the Federal
Reserve System is to regulate the national supply of bank credit. Among the
instruments of monetary policy used by the Board of Governors are: open
market operations in U.S. Government securities, changes in discount rate on
member bank borrowings, and changes in reserve requirements on bank deposits.
These means are used in varying combinations to influence overall growth of
bank loans, investments, and deposits, and may also affect interest rate
charges on loans or interest paid for deposits. The monetary policies of the
Board of Governors have had a significant effect on the operating results
of commercial banks in the past and are expected to continue to do so in the
future. In view of changing conditions in the national economy and the money
markets (as well as the effect of actions by
<PAGE>65
monetary and fiscal authorities including the Board of Governors), no
prediction can be made as to possible future changes in interest rates,
deposit levels or loan demand, or as to the impact of such changes on the
business and earnings of the Company and its subsidiary entities.
Competition
The subsidiary entities face strong competition from other commercial banks,
savings banks, savings and loan associations, and several other financial or
investment service institutions for business in the communities they serve.
Several of these institutions are affiliated with major banking and financial
institutions, such as Mellon Bank Corporation and PNC Financial Corporation,
which are substantially larger and have greater financial resources than the
subsidiary entities.
As the financial services industry continues to consolidate, the scope of
potential competition affecting the subsidiary entities will also increase.
For most of the services that the subsidiary entities perform, there is also
competition from credit unions and issuers of commercial paper and money
market funds. Such institutions, as well as brokerage house consumer finance
companies, factors, insurance companies, and pension trusts, are important
competitors for various types of financial services. In addition, personal
and corporate trust investment counseling services are offered by insurance
companies, other firms, and individuals.
Market Area
The Company, headquartered in Johnstown, Pennsylvania, operates through 41
branch offices in six southwestern Pennsylvania counties with a combined
population of approximately 2.2 million: Allegheny, Cambria, Clearfield,
Somerset, Washington, and Westmoreland. With the acquisition of four Integra
branches, the Company's Community and Three Rivers bank subsidiaries have a
combined 24 offices and $700 million asset presence in the Western Region,
largely comprised of the Greater Pittsburgh marketplace.
The economy of western Pennsylvania continues to experience modest
expansion, but at a slower pace than the nation-at-large. Retail sales,
durable goods orders, and consumer real estate activity continue to foster
the expansion. Correspondingly, the statewide seasonally adjusted
unemployment rate for December 1993 fell to 5.8%, representing a 1%
improvement from the adjusted December 1992 unemployment rate. The Company
believes that as the economy continues to expand the conditions in the state
will slowly improve throughout 1994.
The Greater Johnstown economy improved at a slightly faster pace. The
unemployment rate declined 1.9% to 9.0% at December 1993 when compared to the
December 1992 rate. Economic news continues to be encouraging for the region
with slow expansion firmly imbedded. The modernization planned by Veritas
Capital, Inc. in the purchase plan of Bethlehem Steel's Johnstown mills is
progressing. The project could make the Bar, Rod, and Wire mill a
state-of-the-art facility in the industry and enhance employment in the region
by 1,200 or 1.3% within four or five years. Diversification continues to be a
key element to the community's growth. The opening of several new businesses
and facilities has benefited the area by shifting the area's focus from the
historic over-reliance on heavy industry to more light manufacturing and
service related businesses. Examples of this would include the National Drug
Intelligence Center which brought 150 new jobs to the area and expected growth
at Laurel Technologies, Concurrent Technologies, Johnstown Wire Technologies,
and others which are anticipated to generate approximately 200 new jobs in 1994.
This diversification of the local economy is further exemplified by the nature
of the ten largest non-
<PAGE>66
government employers in the region which include: three hospitals; a
state-wide electric utility; a regional food retailer; a steel manufacturer; a
ladies apparel manufacturer; a national life insurance company; and a long
distance trucking company.
The suburban Pittsburgh market area, where Three Rivers Bank and
Community operate, is anticipated to benefit from the planned Station Square
Expansion Project set to begin in March 1994. This project will develop a $4.1
million park on 2.5 acres at Station Square. Armco, Inc. announced plans to
recapitalize its carbon steel venture with Kawasaki Steel Corporation by
selling $590 million in new stock and debt. USX announced that it also will
test the investor market for steel by issuing 4.5 million shares of common
stock. This interest in capital creation clearly shows expansion potential in
the region. It is also expected that the completed expansion and
modernization of the new Pittsburgh International Airport known as "Midfield
Terminal" will continue to contribute to growth in the economy. The economy
is generally well diversified as exemplified by the ten largest non-government
employers in the region which include: two hospitals; USAir; the University of
Pittsburgh; Westinghouse; two money center banks; USX Corporation; a multi-
state grocery retailer; and a multi-state restaurant chain.
The Company believes that the state and regional economy will continue
its diversification and show improvement throughout 1994. Consequently, the
Company's marketplace should continue to display modest strengthening.
Employees
The Company employed approximately 773 persons as of December 31, 1993, in
full and part-time positions. Approximately 213 non-supervisory employees of
U.S. Bank are represented by a union. U.S. Bank and such employees are
parties to a labor contract pursuant to which employees have agreed not to
engage in any work stoppage during the term of the contract which will
expire on October 15, 1994. U.S. Bank has not experienced a work stoppage
since 1979. Management considers relations with employees to be satisfactory.
Commitments and Lines of Credit
The Company's banking subsidiaries are obligated under commercial, standby,
and trade-related irrevocable letters of credit aggregating $5.4 million at
December 31, 1993. In addition, the subsidiary banks have issued lines of
credit to customers generally for periods of up to one year. Borrowings
under such lines of credit are usually for the working capital needs of the
borrower. At December 31, 1993, the Company's banking subsidiaries had unused
loan commitments of approximately $168 million.
Statistical Disclosures for Bank Holding Companies
Certain information regarding statistical disclosure for bank holding
companies pursuant to Guide 3 is provided in the 1993 Annual Report to
Shareholders and such pages are incorporated herein by reference. The
remaining Guide 3 information is included in this Form 10-K as listed below:
I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest
Rates and Interest Differential Information.
This section is presented on pages 44, 45, and 54.
II. Investment Portfolio
Information required by this section is presented on pages 68, 69, and
70.
III.Loan Portfolio
Information required by this section appears on pages 20, 21, 70, and 71.
IV. Summary of Loan Loss Experience
Information required by this section is presented on pages 20, 51, 52,
and 53.
<PAGE>67
V. Deposits
Information required by this section follows on pages 71 and 72.
VI. Return on Equity and Assets
Information required by this section is presented on page 38.
VII. Short-Term Borrowings
Information required by this section does not meet the materiality test
for disclosure and therefore is not presented.
Investment Portfolio
Effective September 30, 1992, USBANCORP designated the entire investment
securities portfolio as "available for sale." All or part of these "available
for sale" assets may be sold at any time for interest rate, prepayment, credit,
or liquidity considerations and other factors as deemed appropriate by
management. These assets are carried on the balance sheet at the lower of their
aggregate amortized cost or market value. Any unrealized net valuation
adjustments will be included in USBANCORP's income statement. While designation
of these assets as "available for sale" may increase income volatility for
financial reporting purposes, management believes designation of these assets
as "available for sale" permits USBANCORP to react more quickly to changing
market conditions and opportunities and more effectively interest rate risk.
(See Investment Securities Available for Sale Policy on page 18 for further
discussion of SFAS #115 impact).
The following table sets forth the book and market value of USBANCORP's
investment portfolio as of the periods indicated:
<TABLE>
<CAPTION>
Investment
Securities Investment
Available for Sale Securities
At December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Book Value:
U.S. Treasury $13,333 $9,647 $9,595
U.S. Agency 72,648 32,490 46,308
State and municipal 44,547 35,619 17,880
Collateralized mortgage
obligations* 251,631 223,711 146,014
Other securities 46,553 65,421 69,975
Total book value of investment
securities and investment securities
available for sale $428,712 $366,888 $289,772
Total market value of investment
securities and investment securities
available for sale $432,315 $369,907 $295,764
<FN>
*At December 31, 1993, approximately 95% of these obligations represented U.S.
Agency issued securities.
</TABLE>
The $61.8 million increase in total investment securities was due
entirely to the redeployment of a significant portion of the $88 million of
acquired Integra deposits and the $24.6 million of funds from the secondary
market common stock issuance into the securities portfolio. Within the
portfolio, the decline in other securities reflects a shift emphasis towards
mortgage-backed securities and collateralized mortgage obligations which
provide a recurrent source of cash flow.
The book value of total investment securities increased from $289.8
million at December 31, 1991, to $366.9 million at December 31, 1992. The
increase in the total investment securities was due to the inclusion of $82.9
million of Community's investment securities which included the securities
purchased with approximately $30 million of proceeds from of fixed-rate
mortgage loans. This increase was partially offset by the cash payment made by
USBANCORP to shareholders of the parent of Community, a reduction in interest
bearing deposits at other institutions, and the continued rapid paydown of
mortgage-backed securities in a low interest rate environment.
<PAGE>68
At December 31, 1993, investment securities having a book value of $83.8
million were pledged as collateral for public funds and other purposes as
required by law.
The Company and its subsidiaries, collectively, did not hold securities
of any single issuer, excluding U.S. Treasury and U.S. Agencies, that exceeded
10% of stockholders' equity at December 31, 1993.
Maintaining investment quality is a primary objective of the Company's
investment policy which, subject to certain minor exceptions, prohibits the
purchase of any investment security below a Moody's Investor Service or
Standard & Poor's rating of "A." At December 31, 1993, 89.2% of the portfolio
was rated "AAA" and 91.0% was rated at least "AA" as compared to 85.4% and
86.5%, respectively, at December 31, 1992. Only 3.2% of the portfolio was rated
below "A" or unrated at December 31, 1993.
The following table sets forth the contractual maturity distribution of
the investment securities available for sale, book and market values, and the
weighted average yield for each type and range of maturity as of December 31,
1993. Yields, which are not presented on a tax-equivalent basis, are based upon
book value and are weighted for the scheduled maturity. Average maturities
are based upon the original contractual maturity dates with the exception of
collateralized mortgage obligations and asset-backed securities for which the
average lives were used. Also, where applicable, put-option dates were used as
the maturity dates. At December 31, 1993, USBANCORP's consolidated investment
securities available for sale had an average contractual maturity of
approximately 10.70 years and an average cash flow payback of approximately
2.81 years. However, as previously discussed, any security may be sold prior to
contractual maturity at the discretion of management.
<TABLE>
<CAPTION>
At December 31, 1993
After 1 Year After 5 Years
but but
Within 1 Year Within 5 Years Within 10 Years After 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(In thousands, except yields)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Book Value
U.S. Treasury $4,402 5.82% $7,871 6.22% $1,060 8.38% $-- --% $13,333 6.26%
U.S. Agency 1,000 3.03 46,901 5.50 22,999 6.51 1,748 4.50 72,648 5.76
State and municipal 5,276 3.60 24,546 4.91 14,725 4.87 -- -- 44,547 4.74
Collateralized
mortgage obligations 18,634 6.58 208,259 6.17 24,738 4.85 -- -- 251,631 6.07
Other securities 12,446 5.44 26,944 6.04 1,294 8.83 5,869 6.53 46,553 6.02
Total investment
securities available
for sale $41,758 5.70% $314,521 5.96% $64,816 5.58% $7,617 6.06% $428,712 5.88%
Market Value
U.S. Treasury $4,428 -- $8,011 -- $1,064 -- $-- -- $13,503 --
U.S. Agency 992 -- 47,323 -- 23,349 -- 1,758 -- 73,422 --
State and municipal 5,287 -- 25,405 -- 14,894 -- -- -- 45,586 --
Collateralized
mortgage obligations 18,764 -- 209,406 -- 24,438 -- -- -- 252,608 --
Other securities 12,512 -- 27,313 -- 1,294 -- 6,077 -- 47,196 --
Total investment
securities available
for sale $41,983 -- $317,458 -- $65,039 -- $7,835 -- $432,315 --
</TABLE>
<PAGE>69
During both 1993 and 1992, the Company sold approximately $22 million and
$32 million, respectively, of investment securities available for sale which
resulted in the recognition of net investment security gains of $583,000 and
$393,000 respectively. These gains resulted primarily from the execution of
several investment strategies to capture available market premiums on
mortgage-backed securities which had the characteristics of low remaining
balances and fast prepayment histories.
Loan Portfolio
The following table sets forth the Company's loans by major category as of the
dates set forth below:
<TABLE>
<CAPTION>
At December 31 1993 1992 1991 1990 1989
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial $99,321 $76,667 $122,974 $118,230 $122,320
Commercial loans secured by
real estate 126,044 125,846 * * *
Real estate-mortgage(1) 338,778 298,963 163,985 162,162 159,886
Consumer 167,883 158,342 159,586 187,156 188,846
Loans 732,026 659,818 446,545 467,548 471,052
Less: Unearned income 5,894 10,903 16,394 21,734 25,006
Loans, net of unearned income $726,132 $648,915 $430,151 $445,814 $446,046
<FN>
(1)At December 31, 1993, real estate-construction loans constituted 2.5% of
the Company's total loans, net of unearned income.
*The historical information for this category was not available.
</TABLE>
From December 31, 1992, to December 31, 1993, loans increased by $72.2
million or 10.9% from $659.8 million to $732.0 million. As a result of the low
rate environment, less inflationary fears, and a moderate economic recovery,
each of the Company's banking subsidiaries experienced heightened loan demand
in 1993. Within the loan portfolio, each of the major loan categories
experienced growth in the following amounts since December 31, 1992:
commercial loans up by $22.7 million or 29.5%, real estate-mortgage loans up by
$39.8 million or 13.3%, consumer loans up by $9.5 million or 6.0%, and
commercial loans secured by real estate up by $200,000 or only .2%. The
commercial loan growth resulted from successful business development efforts
in both regions of the Company's marketplace which includes suburban
Pittsburgh and Greater Johnstown. The net growth in mortgage loans (including
home equity) occurred despite the sale of approximately $22 million of 30-year
fixed-rate product that originated during 1993. The majority of the mortgage
growth occurred at Community with approximately 60% of this growth related to
refinancing activity with new customers. The net growth of consumer loans
outstanding is noteworthy since it represents a significant reversal of the
trend of net consumer loan run-off which had occurred throughout 1992.
Improved consumer demand, acquisition of Integra loans, and heavy marketing of
debt consolidation loans, combined with a general stabilizing of indirect auto
loan run-off, were the factors responsible for the increase in consumer loan
balances outstanding.
From December 31, 1991, to December 31, 1992, loans increased by $213.3
million or 47.8% from $446.5 million to $659.8 million. This increase in the
loan portfolio was due to the inclusion of Community's $238.4 million loan
portfolio. Without Community, USBANCORP's loan portfolio decreased from $446.5
million on December 31, 1991, to $421.4 million on December 31, 1992. The
decline in the loan portfolio was due to the softness in consumer and
commercial demand.
<PAGE>70
The amount of loans outstanding by category as of December 31, 1993,
which are due in (i) one year or less, (ii) more than one year through five
years, and (iii) over five years, are shown in the following table. Loan
balances are also categorized according to their sensitivity to changes in
interest rates.
<TABLE>
<CAPTION>
More Than
One Year
One Year Through Over Total
or Less Five Years Five Years Loans
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $41,176 $34,864 $23,281 $99,321
Commercial loans secured by
real estate 33,480 50,957 41,607 126,044
Real estate-mortgage 20,431 64,060 254,287 338,778
Consumer 13,060 119,508 35,315 167,883
Total $108,147 $269,389 $354,490 $732,026
Loans with fixed rate $60,028 $227,712 $236,347 $524,087
Loans with floating rate 48,119 41,677 118,143 207,939
Total $108,147 $269,389 $354,490 $732,026
Percent composition of maturity 14.8% 36.8% 48.4% 100%
Fixed rate loans as a percentage of total loans 71.6%
Floating rate loans as a percentage of total loans 28.4%
</TABLE>
The loan maturity information is based upon original loan terms and is
not adjusted for "rollovers." In the ordinary course of business, loans
maturing within one year may be renewed, in whole or in part, as to principal
amount at interest rates prevailing at the date of renewal.
At December 31, 1993, 71.6% of total loans were fixed-rate compared to
75.0% at December 31, 1992. This decrease was due to a combination of growth
experienced in floating rate commercial loans and management's ongoing effort
to continue to diversify Community's loan portfolio by selling new 30-year
fixed-rate mortgage loans. During 1993, $22 million of this type of loan
product was sold. For additional information regarding intesest sensitivity,
see "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations--Interest Rate Sensitivity."
Deposits
The following table sets forth the average balance of the Company's deposits
and the average rates paid thereon for the past three calendar years:
<TABLE>
<CAPTION>
At December 31 1993 1992 1991
Amount Rate Amount Rate Amount Rate
(In thousands, except rates)
<S> <C> <C> <C> <C> <C> <C>
Demand--non-interest bearing $1,122,699 --% $103,398 --% $94,655 --%
Demand--interest bearing 99,090 2.05 82,705 2.81 58,461 3.91
Savings 231,025 2.40 216,137 3.07 140,296 4.30
Other time 574,182 4.36 510,996 5.22 371,748 6.50
Total deposits $1,026,996 3.61 $913,236 4.40 $665,160 5.70
</TABLE>
<PAGE>71
The Company's deposits increased on average in 1993 by $113.8 million or
12.5% due entirely to the $88 million of acquired Integra deposits and the
inclusion of Community's deposits for the entire year. Trends noted within the
deposit portfolio included increased customer preference in the low rate
environment for money market, savings, and NOW account deposits. Although
these types of core deposit balances are more liquid and sensitive than
certificates of deposit, they do provide a relatively stable and less costly
source of funding for the earning asset base than do certificates of deposit.
Overall, the core deposit base is stable as approximately 97% of total deposits
are considered core accounts. The remaining 3% are certificates of deposit
over $100,000. The Company does not use any volatile funding sources such as
brokered deposits.
The following table indicates the maturities and amounts of certificates
of deposit issued in denominations of $100,000 or more as of December 31, 1993:
<TABLE>
<CAPTION>
Maturing in:
(In thousands)
<S> <C>
Three months or less $15,711
Over three through six months 2,788
Over six through twelve months 2,270
Over twelve months 6,156
Total $26,925
</TABLE>
ITEM 2. PROPERTIES
The principal offices of the Company and U.S. Bank occupy a five-story
building at the corner of Main and Franklin Streets in Johnstown plus several
floors of the building adjacent thereto. The Company occupies the main office
and its subsidiary entities have 31 other locations which are owned in fee.
Ten additional locations are leased with terms expiring March 31, 1994, to
December 31, 2003.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to a number of asserted and unasserted potential legal
claims encountered in the normal course of business. In the opinion of both
management and legal counsel as of January 28, 1994, there is no present basis
to conclude that the resolution of these claims will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted by the Company to its shareholders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report.
<PAGE>72
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Information relating to the Company's Common Stock is presented on pages 28
and 37. As of January 31, 1994, the Company had 4,734 shareholders of its
Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Information required by this section is presented on page 38.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information required by this section is presented on pages 40 to 58.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this section is presented on pages 14 to 32.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
In accordance with Instruction 1 to Item 304 of Regulation S-K, information
requested by this Item of Form 10-K was previously reported on the Company's
Current Report on Form 8-K dated November 26, 1991.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this section relative to Directors of the Registrant
is presented in the Proxy Statement for the Annual Meeting of Shareholders.
Executive officer information has been provided in Item 1.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this section is presented in the Proxy Statement for
the Annual Meeting of Shareholders.
<PAGE>73
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this section is presented in the Proxy Statement for
the Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this section is presented in the Proxy Statement for
the Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
Consolidated Financial Statements Filed:
The consolidated financial statements listed below are from the 1993 Annual
Report to Shareholders and Part II--Item 8. Page references are to said
Annual Report.
Consolidated Financial Statements:Page
USBANCORP, Inc. and Subsidiaries
Consolidated Balance Sheet, 14
Consolidated Statement of Income, 15
Consolidated Statement of Changes in Stockholders' Equity, 16
Consolidated Statement of Cash Flows, 17
Notes to Consolidated Financial Statements, 18
Statement of Management Responsibility, 33
Reports of Independent Public Accountants, 34
Consolidated Financial Statement Schedules:
These schedules are not required or are not applicable under Securities and
Exchange Commission accounting regulations and therefore have been omitted.
Reports on Form 8-K:
Current Report on Form 8-K dated November 19, 1993. USBANCORP, Inc. and
Johnstown Savings Bank had jointly signed a definitive agreement to which
Johnstown Savings Bank would merge with United States National Bank, one of
USBANCORP's three banking subsidiaries.
<PAGE>74
Exhibits:
The exhibits listed below are filed herewith or to other filings.
Exhibit Prior Filing or Sequential
Number Description Page Number Herein
3(a) Articles of Incorporation Exhibit III, Part II to Form S-14
File No. 2-79639
Exhibit 4.2 to Form S-2
File No. 33-685
Exhibit 4.3 to Form S-2
File No. 33-685
3(b) Bylaws Exhibit IV, Part II to Form S-14
File No. 2-79639
4.3 Shareholder Protection Rights Exhibit 4.3 to form S-2
Agreement, dated as of File No. 33-56684
November 10, 1989, between
USBANCORP, Inc. and United
States National Bank in Johnstown,
as Rights Agent.
10.1 Agreement of Reorganization and Exhibit 10.1 to Form S-2
Merger between USBANCORP, Inc. File No. 33-56684
and Community Bancorp, Inc.,
dated November 19, 1991.
10.2 Agreement, dated as of April 22, Exhibit 10.2 to Form S-2
1988, between USBANCORP, Inc. File No. 33-56684
and Terry K. Dunkle.
10.3 Agreement, dated as of June 23, Exhibit 10.3 to Form S-2
1988, between USBANCORP, Inc. File No. 33-56684
and W. Harrison Vail.
10.4 Employment Agreement, dated Exhibit 10.4 to Form S-2
November 19, 1991, between File No. 33-56684
Community Bancorp, Inc. and
Kenneth J. Tyson.
10.5 Purchase and Assumption Exhibilt 10.5 to Form S-2
Agreement, dated November 17, File No. 33-56684
1992, between Three Rivers Bank
& Trust Company Integra National
Bank/Pittsburgh.
10.6 Loan Agreement, dated March 26, Exhibit 10.6 to Form S-2
1992, between USBANCORP, Inc. File No. 33-56684
and Pittsburgh National Bank.
10.7 Collective Bargaining Agreement, Exhibit 10.7 to form S-2
dated October 16, 1991, File No. 33-56684
between United States National
Bank in Johnstown and Steel
Workers of America, AFL-CIO-CLC
Local Union 8204.
10.8 Agreement, dated January 8, Exibit 10.8 to Form S-2
1990, between USBANCORP, Inc. File No. 33-56684
and Brookside Associates, Inc.,
First Carolina Investors, Inc.
Foundation Lyric, Hoffin,
Anstalt, John G. Ogilvie,
Trust Alvant, and Robert G. Wilmers.
10.9 1991 Stock Option Plan, dated Exhibit 10.9 to Form S-2
August 23, 1991. File No. 33-56684
10.10 Installment Sale Agreement, Exhibit 10.10 to Form S-2
dated as of March 1, 1979, File No. 33-56684
between the Cambria County
Industrial Development
Authority, United States
National Bank in Johnstown, and
Somerset Trust Company.
13 1993 Annual Report to Page 1
Shareholders.
22 Subsidiaries of the Registrant. Below
24.1 Consent of Price Waterhouse.
24.2 Consent of Arthur Andersen & Co.
<PAGE>75
USBANCORP, INC.
THIS PAGE IS INTENTIONALLY LEFT BLANK.
<PAGE>76
EXHIBIT A
(22) Subsidiaries of the Registrant
Percent Jurisdiction
Name of Ownership of Organization
United States National Bank 100% United States
in Johnstown of America
Main and Franklin Streets
P.O. Box 520
Johnstown, PA 15907
Three Rivers Bank and 100% Commonwealth of
Trust Company Pennsylvania
633 State Route 51, South
Jefferson Borough
P.O. Box 10915
Pittsburgh, PA 15236
Community Bancorp, Inc. 100% Commonwealth of
2681 Moss Side Boulevard Pennsylvania
Monroeville, PA 15146
United Bancorp Life 100% State of Arizona
Insurance Company
1421 East Thomas Road
Phoenix, AZ 85014
USBANCORP Trust Company 100% Commonwealth of
Main and Franklin Streets Pennsylvania
P.O. Box 520
Johnstown, PA 15907
<PAGE>77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
USBANCORP, Inc.
(Registrant)
Date: March 7, 1994 By:/s/Terry K. Dunkle
TERRY K. DUNKLE
Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 7, 1994:
/s/Terry K. Dunkle Chairman, President
TERRY K. DUNKLE and Chief Executive Officer; Director
/s/Orlando B. Hanselman Executive Vice President, Chief
ORLANDO B. HANSELMAN Financial Officer & Manager of Corporate
Services
/s/Jerome M. Adams /s/Frank J. Pasquerilla
JEROME M. ADAMS, Director FRANK J. PASQUERILLA, Director
/s/Robert A. Allen /s/Jack Sevy
ROBERT A. ALLEN, Director JACK SEVY, Director
/s/Clifford A. Barton /s/Thomas C. Slater
CLIFFORD A. BARTON, Director THOMAS C. SLATER, Director
/s/Michael F. Butler /s/James C. Spangler
MICHAEL F. BUTLER, Director JAMES C. SPANGLER, Director
/s/Louis Cynkar /s/Kenneth J. Tyson
LOUIS CYNKAR, Director KENNETH J. TYSON, Director
/s/Richard W. Kappel /s/W. Harrison Vail
RICHARD W. KAPPEL, Director W. HARRISON VAIL, Director
/s/John H. Kunkle, Jr. /s/Robert L. Wise
JOHN H. KUNKLE, JR., Director ROBERT L. WISE, Director
/s/James F. O'Malley
JAMES F. O'MALLEY, Director
<PAGE>78
USBANCORP, INC.
THIS PAGE IS INTENTIONALLY LEFT BLANK.
<PAGE>79
USBANCORP, INC.
THIS PAGE IS INTENTIONALLY LEFT BLANK.
<PAGE>80
USBANCORP, INC.
DIRECTORS,
GENERAL OFFICERS,
and ADVISORY
BOARDS
COMMUNITY OFFICES
SHAREHOLDER
INFORMATION
<PAGE>81
USBANCORP, INC.
THIS PAGE IS INTENTIONALLY LEFT BLANK.
<PAGE>82
USBANCORP, INC.
Board of Directors
Jerome M. Adams
Senior Partner,
Adams, Myers & Baczkowski
Attorneys-at-Law
Robert A. Allen
Retired Former President,
Sani-Dairy
Clifford A. Barton
Retired Chairman, President
& CEO, USBANCORP, Inc.
Retired Chairman of the Board,
United States National Bank,
Three Rivers Bank
& Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Michael F. Butler
Business Consultant and
Attorney-at-Law
Louis Cynkar
President & CEO,
United States National Bank
Terry K. Dunkle
Chairman, President &
CEO, USBANCORP, Inc.
Chairman of the Board,
United States National Bank,
Three Rivers Bank
& Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Richard W. Kappel
Secretary & Treasurer,
William J. Kappel Co.,
Retail Jewelry Store Chain
John H. Kunkle, Jr.
Retired Former Vice-Chairman
& Director, Commonwealth Land
Title Insurance Co.
James F. O'Malley
Senior Lawyer,
Yost & O'Malley
Attorneys-at-Law
Frank J. Pasquerilla
Chairman of the Board &
Chief Executive Officer,
Crown American
Realty Trust
Jack Sevy
Retired Former Owner/Operator,
New Stanton West
Auto Truck Plaza
Thomas C. Slater
Owner, President &
Director,
Slater Laboratories, Inc.
Clinical Laboratory
James C. Spangler
Retired Former Owner,
Somerset Auction and
Transfer, Inc.
Kenneth J. Tyson
Retired President,
Community Bancorp, Inc. and
Community Savings Bank
W. Harrison Vail
President & CEO,
Three Rivers Bank &
Trust Company
Robert L. Wise
President,
Pennsylvania Electric
Company (Public Utility)
General Officers
Terry K. Dunkle
Chairman, President
& Chief Executive Officer
Orlando B. Hanselman
Executive Vice President,
Chief Financial Officer
& Manager of Corporate Services
Richard L. Barron
Vice President &
Human Resources Director
Ray M. Fisher
Vice President &
Chief Investment Officer
John H. Follansbee III
Vice President, Compliance
Dan L. Hummel
Vice President &
Marketing Director
John J. Legath
Vice President, Community
Reinvestment
Gary M. McKeown
Vice President, Manager of
Credit Policy and Administration
Leslie N. Morgenstern
Vice President, Loan Review
Jeffrey A. Stopko
Vice President,
Chief Accounting Officer
& Comptroller
John Suierveld, Jr.
Vice President &
Chief Auditor
James E. Vennebush
Vice President,
Manager of General Services
<PAGE>83
U.S. BANK
Board of Directors
Robert A. Allen
Retired Former President,
Sani-Dairy
Clifford A. Barton
Retired Chairman, President
& CEO, USBANCORP, Inc.
Retired Chairman of the Board,
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc. and
USBANCORP Trust Company
Michael F. Butler
Business Consultant
and Attorney-at-Law
William F. Casey
President & CEO,
Conemaugh Memorial Hospital
Daniel R. DeVos
President and CEO,
Concurrent Technologies Corporation
Bruce E. Duke III, M.D.
Surgeon, Valley Surgeons
Terry K. Dunkle
Chairman, President &
CEO, USBANCORP, Inc.
Chairman of the Board,
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc. and
USBANCORP Trust Company
James F. O'Malley
Senior Lawyer,
Yost & O'Malley,
Attorneys-at-Law
Rev. Christian R. Oravec
President,
St. Francis College
Frank J. Pasquerilla
Chairman of the Board &
Chief Executive Officer,
Crown American Realty Trust
Fred R. Shaffer
Manager/President,
Findley's Pharmacy, Inc.
Thomas C. Slater
Owner, President &
Director,
Slater Laboratories, Inc.
Clinical Laboratory
James C. Spangler
Retired Former Owner,
Somerset Auction and
Transfer, Inc.
Robert L. Wise
President,
Pennsylvania Electric
Company (Public Utility)
General Officers
Terry K. Dunkle
Chairman of the Board
Louis Cynkar
President &
Chief Executive Officer
James S. Bubenko
Vice President &
Consumer Lending Manager
Leo J. Fronczek
Vice President,
Management Information
Systems
Michael F. Komara
Vice President,
Human Resources
Frank A. Krall
Vice President,
Mortgage Lending
William J. Locher, Jr.
Vice President,
Commercial Loans
Paul E. Lovett, Jr.
Vice President,
Consumer Lending
Kermit L. Miller
Vice President,
Area Manager
Victor L. Tatum
Vice President &
Commercial Equipment
Leasing Manager
William E. Wood
Vice President,
Branch Administration
Directors Emeriti
John N. Crichton
Owen D. Griffith
John L. Williams
Advisory Boards
Carrolltown, Ebensburg, Lovell Park,
Loretto, Nanty Glo, Coalport
(Northern Cambria County/Coalport)
Frank J. Kuzemchak, Chairman
Charles Glasgow
Richard W. Hegarty
Joseph E. Lacue
Joseph E. Stevens, Sr.
Somerset
E. Charles Kaufman, Chairman
James R. Cascio
Fred R. Shaffer
Marlin C. Sherbine
James C. Spangler
Windber, Central City, St. Michael,
University Heights
John F. Hollern, Chairman
Chester F. Fluder
David J. Rizzo
Lloyd E. Zimmerman
Westmont, West End, Seward
Edward J. Cernic, Chairman
Robert A. Cameron
Teresa T. Chianese
David N. Crichton
Max J. Critchfield
Harvey Supowitz
Carl H. Vulcan
Dr. William A. Yates
<PAGE>84
THREE RIVERS BANK
Board of Directors
Jerome M. Adams
Senior Partner,
Adams, Myers, & Baczkowski
Attorneys-at-Law
Clifford A. Barton
Retired Chairman, President
& CEO, USBANCORP, Inc.
Retired Chairman of the Board,
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Janey D. Barton
Retired Vice President
Three Rivers Bank &
Trust Company
Terry K. Dunkle
Chairman, President &
CEO, USBANCORP, Inc.
Chairman of the Board,
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
J. Terrence Farrell
Attorney-at-Law
James R. Ferry
President,
Ferry Electric Company
Electrical Contractor
Charles M. Hammerberg
President,
Hammerberg Construction, Inc.
Michael D. Hanna, Jr.
President, Tippecanoe
Insurance Agency, Inc.
Stephen I. Richman
Senior Partner,
Ceisler, Richman, Smith
Law Firm
Jack Sevy
Retired Former Owner/Operator,
New Stanton West
Auto Truck Plaza, Inc.
W. Harrison Vail
President &
Chief Executive Officer,
Three Rivers Bank &
Trust Company
General Officers
Terry K. Dunkle
Chairman of the Board
W. Harrison Vail
President &
Chief Executive Officer
Louis S. Klippa
Executive Vice President
Chief Operating Officer
& Secretary
Jeryl L. Graham
Senior Vice President
Senior Loan Officer
Harry G. King
Senior Vice President
Community Banking
James F. Ackman
Vice President
Consumer Loans
Robert J. DeGrazia
Vice President
Information Systems
Robert J. Smerker
Vice President
Operations
Mary Pat Soltis
Vice President
Regional Manager
Joseph M. Trifaro, Jr.
Vice President
Regional Manager
Vincent W. Locher
Vice President and
Commercial Loan Officer
Directors Emeriti
J. Paul Farrell
William R. Hoag
Ray A. Liddle
COMMUNITY BANCORP, INC.
Board of Directors
Clifford A. Barton
Retired Chairman, President
& CEO, USBANCORP, Inc.
Retired Chairman of the Board
United States National Bank,
Three Rivers Bank,
Community Bancorp, Inc., and
USBANCORP Trust Company
Terry K. Dunkle
Chairman, President &
CEO, USBANCORP, Inc.
Chairman of the Board
United States National Bank,
Three Rivers Bank,
Community Bancorp, Inc., and
USBANCORP Trust Company
Dennis J. Fantaski
Executive Vice President
Chief Executive Officer &
Secretary
James R. Ferry
President,
Ferry Electric Company
Electrical Contractor
Richard W. Kappel
Secretary & Treasurer
William J. Kappel Co.,
Retail Jewelry Store Chain
John H. Kunkle, Jr.
Vice Chairman--Retired,
Commonwealth Land Title
Insurance Company
Thomas J. McCaffrey
Grubb & Ellis Company
William C. McNary
Financial Consultant--Retired,
CIGNA Individual
Financial Services Co.
Carl E. Nickel
Owner
Carl E. Nickel Company
Edward W. Seifert
Attorney at Law
Partner, Reed, Smith, Shaw,
& McClay
Kenneth J. Tyson
Retired President,
Community Bancorp,
Inc., and Community
Savings Bank
General Officers
Terry K. Dunkle
Chairman of the Board
Dennis J. Fantaski
President &
Chief Executive Officer
Anthony D. Denunzio
Senior Vice President
Marketing
Thomas J. Chunchick
Vice President
Retail Banking
Fred Geisler
Vice President
Mortgage Lending
Robert L. Rogers
Vice President
Commercial Loans
Delbert O. Hague
Vice President
Residential Lending
<PAGE>85
USBANCORP TRUST COMPANY
Board of Directors
Jerome M. Adams
Senior Partner,
Adams, Myers & Baczkowski
Attorneys-at-Law
Clifford A. Barton
Retired Chairman, President
& CEO, USBANCORP, Inc.
Retired Chairman of the Board,
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
John N. Crichton
Chairman, Concurrent
Technologies Corporation
Louis Cynkar
President & CEO,
United States National Bank
Terry K. Dunkle
Chairman, President &
CEO, USBANCORP, Inc.
Chairman of the Board,
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Richard W. Kappel
Secretary & Treasurer,
William J. Kappel Co.,
Retail Jewelry Store Chain
John H. Kunkle, Jr.
Retired Former Vice Chairman
& Director, Commonwealth Land
Title Insurance Co.
Darryl L. Myers
President & CEO,
USBANCORP Trust Company
Rev. Christian R. Oravec
President,
St. Francis College
Kenneth J. Tyson
Retired President,
Community Bancorp,
Inc. and Community
Savings Bank
W. Harrison Vail
President & CEO,
Three Rivers Bank &
Trust Company
Robert L. Wise
President,
Pennsylvania Electric
Company (Public Utility)
General Officers
Terry K. Dunkle
Chairman of the Board
Darryl L. Myers
President &
Chief Executive Officer
Orlando B. Hanselman
Treasurer
Anne G. Bump
Vice President &
Employee Benefits Officer
Judith A. Duchene
Vice President &
Trust Portfolio Manager
James C. McGough
Vice President &
Institutional Investment
Sales Officer
David L. Mordan
Vice President &
Manager of Financial Services
Mildred L. Nelson
Vice President &
Trust Officer
James T. Vaughan
Vice President &
Senior Trust Officer
James M. Young
Vice President &
Chief Investment Officer
William E. Wood
Vice President,
Branch Administration
Trust Company Offices
Main and Franklin Streets, 11th Floor
U.S. Bank Building
P.O. Box 520
Johnstown, Pennsylvania 15907-0520
600 Fifth Avenue, 2nd Floor
Three Rivers Bank and
Trust Company Building
McKeesport, Pennsylvania 15132-2500
2681 Moss Side Boulevard, First Floor
Community Savings Building
Monroeville, Pennsylvania 15146-3394
<PAGE>86
U.S. BANK
OFFICE LOCATIONS
*Main Office Downtown
216 Franklin Street
P.O. Box 520
Johnstown, PA 15907-0520
(814) 533-5300
*Westmont Office
1738 Lyter Drive
Johnstown, PA 15905-1207
(814) 255-6836
*University Heights Office
1404 Eisenhower Boulevard
Johnstown, PA 15904-3280
(814) 266-9691
West End Office
163 Fairfield Avenue
Johnstown, PA 15906-2392
(814) 533-5436
*Carrolltown Office
109 S. Main Street
P.O. Box 507
Carrolltown, PA 15722-0507
(814) 344-6501
Ebensburg Office
High & Center Streets
P.O. Box 209
Ebensburg, PA 15931-0209
(814) 472-8706
*Lovell Park Office
New Germany Road
& Park Avenue
R.D. 3, Box 598
Ebensburg, PA 15931-9004
(814) 472-5200
Nanty Glo Office
928 Roberts Street
Nanty Glo, PA 15943-1303
(814) 749-9227
Nanty Glo Drive-In
1383 South Shoemaker Street
Nanty Glo, PA 15943-1254
(814) 749-0955
Loretto Office
180 St. Mary's Street
P.O. Box 116
Loretto, PA 15940-0116
(814) 472-8452
St. Michael Office
Locust Street
P.O. Box C
St. Michael, PA 15951-0393
(814) 495-5514
Coalport Office
Main Street
P.O. Box 356
Coalport, PA 16627-0356
(814) 672-5303
*Seward Office
# 1, Roadway Plaza
Seward, PA 15954-9501
(814) 446-5655
Windber Office
1501 Somerset Avenue
Windber, PA 15963-1745
(814) 467-4591
Central City Office
104 Sunshine Avenue
Central City, PA 15926-1129
(814) 754-4141
*Somerset Office
108 W. Main Street
Somerset, PA 15501-2035
(814) 445-4193
*Derry Office
112 South Chestnut Street
Derry, PA 15627-1938
(412) 537-9180
(412) 694-8887
THREE RIVERS BANK
OFFICE LOCATIONS
*Boston Office
1701 Boston Hollow Road
McKeesport, PA 15135-1217
(412) 664-8765
*Century III Office
269 Clairton Boulevard
Pittsburgh, PA 15236-1499
(412) 382-1006
*Franklin Mall Office
1500 W. Chestnut Street
Washington, PA 15301-5871
(412) 228-0065
*Glassport Office
600 Monongahela Avenue
Glassport, PA 15045-1608
(412) 664-8760
*Jefferson Borough Office
Route 51, South
P.O. Box 10915
Pittsburgh, PA 15236-0915
(412) 382-1000
*Liberty Boro Office
3107 Liberty Way
McKeesport, PA 15133-2198
(412) 664-8707
*McKeesport Office
500 Fifth Avenue
McKeesport, PA 15132-2500
(412) 664-8700
*Motor Bank
1415 Fifth Avenue
McKeesport, PA 15132-2427
(412) 664-8755
*Port Vue Office
1194 Romine Avenue
McKeesport, PA 15133-3596
(412) 664-8975
*Rainbow Village Office
1 Rainbow Village
Shopping Center
White Oak, PA 15131-2415
(412) 664-8771
*South Strabane Office
590 Washington Road
Washington, PA 15301-9621
(412) 225-9800
*University Office
2016 Eden Park Boulevard
McKeesport, PA 15132-7619
(412) 664-8780
*Remote 24-Hour Banking Locations
*Main Office, 216 Franklin Street, Johnstown
*Richland Mall, Elton Road, Johnstown
*Lee Hospital, Main Street, Johnstown
*Century III Mall, West Mifflin
*Sheetz, Broad Street, Johnstown
*The Galleria, Johnstown
*Sheetz, Graham Avenue, Windber
*Hills, Clairton Road, West Mifflin
*Shop & Save, Ohio Avenue, Glassport
*Wal-Mart, Oak Spring Road, Washington
*Washington Mall, Oak Springs Road, Washington
COMMUNITY
SAVINGS BANK
OFFICE LOCATIONS
*Lawrenceville
4319 Butler Street
Pittsburgh, PA 15201-3094
(412) 681-8390
*New Kensington
2 Feldarelli Square
2360 Freeport Road
New Kensington, PA 15068-4669
(412) 335-9811
*North Side
401 East Ohio Street
Pittsburgh, PA 15212-5588
(412) 231-4300
*Northway Mall
1102 Northway Mall
Pittsburgh, PA 15237-3098
(412) 364-8692
*Moon Township
914 Narrows Run Road
Coraopolis, PA 15108-2306
(412) 262-2210
*Monroeville
2681 Moss Side Boulevard
Monroeville, PA 15146-3394
(412) 856-8410
*North Versailles
Great Valley Shopping Center
500 Lincoln Highway
North Versailles, PA 15137-1524
(412) 829-1360
*Baldwin
Brownsville Plaza
5253 Brownsville Road
Pittsburgh, PA 15236-2796
(412) 655-2217
*Carrick
1817 Brownsville Road
Pittsburgh, PA 15210-3999
(412) 881-3500
*Bethel Park
2739 South Park Road
Bethel Park, PA 15102-3805
(412) 835-2100
*Finleyville
3576 Sheridan Avenue
Finleyville, PA 15332-1018
(412) 348-6626
*Jeannette
401 Clay Avenue
Jeannette, PA 15644-2124
(412) 527-1501
*24-Hour Banking Available
<PAGE>87
SHAREHOLDER INFORMATION
Securities Markets
USBANCORP, Inc. Common Stock is publicly traded and quoted on the NASDAQ
National Market System. The common stock is traded under the symbol of
"UBAN." The listed market makers for the stock are:
Bear Stearns & Co., Inc.
245 Park Avenue
New York, NY 10167
Telephone: (212) 272-4506
Boenning & Scattergood, Inc.
200 Four Falls
Corporate Center
Suite 212
West Conshohocken, PA 19428
Telephone: (800) 883-8383
Gruntal & Co., Incorporated
14 Wall Street
New York, NY 10005
Telephone: (212) 267-8800
Herzog, Heine, Geduld, Inc.
26 Broadway
First Floor
New York, NY 10004
Telephone: (212) 908-4156
Janney Montgomery Scott, Inc.
1801 Market Street_10th Floor
Philadelphia, PA 19103
Telephone: (215) 665-6500
Legg Mason Wood Walker, Inc.
227 Franklin Street
P.O. Box 1207
Johnstown, PA 15907-1207
Telephone: (814) 535-5551
Merrill Lynch
Equity Markets Group
North Tower
World Financial Center
New York, NY 10281-1305
Telephone: (212) 449-4162
(1)Not a NASDAQ Dealer
(1)Anthony Misciagna & Co., Inc.
6 Bird Cage Walk
Hollidaysburg, PA 16648
Telephone: (800) 343-5149
F. J. Morrissey & Co., Inc.
1700 Market Street
Suite 1420
Philadelphia, PA 19103-3913
Telephone: (215) 563-8500
Oppenheimer & Co., Inc.
Oppenheimer Tower
One World Financial Center
New York, NY 10281
Telephone: (212) 667-7000
Parker/Hunter, Inc.
416 Main Street
Johnstown, PA 15901
Telephone: (814) 535-8403
Ryan, Beck & Co., Inc.
80 Main Street
West Orange, NJ 07052
Telephone: (800) 325-7926
Sandler O'Neill & Partners, L.P.
2 World Trade Center
104th Floor
New York, NY 10048
Telephone: (800) 635-6860
Sherwood Securities Corp.
One Exchange Plaza
New York, NY 10006
Telephone: (800) 435-1235
Troster Singer Corporation, Inc.
10 Exchange Place
Jersey City, NJ 07302
Telephone: (212) 422-2400
Wheat First Securities
100 Pasquerilla Plaza
P.O. Box 96
Johnstown, PA 15907
Telephone: (814) 535-1516
Form 10-K
USBANCORP, Inc.'s Annual Report to the Securities and Exchange Commission on
Form 10-K is integrated within this Annual Report.
Corporate Offices
The corporate offices of USBANCORP, Inc. are located in the United States
National Bank Building at Main and Franklin Streets, Johnstown, PA 15901.
Mailing address: P. O. Box 430
Johnstown, PA 15907
(814) 533-5300
Agents
The transfer agent and registrar for USBANCORP, Inc.'s common stock is
USBANCORP Trust Company.
Shareholder Data
As of January 31, 1994, there were 4,734 shareholders of common stock and
4,730,909 shares outstanding. Of the total shares outstanding, approximately
237,000 or 5% are held by insiders (directors and executive officers) while
approximately 1,455,000 or 31% are held by institutional investors (mutual
funds, employee benefit plans, etc.).
Dividend Reinvestment
Shareholders seeking information about USBANCORP, Inc.'s dividend reinvestment
plan should contact Betty L. Jakell, Executive Office, at (814) 533-5158.
Information
Analysts, investors, shareholders, and others seeking financial data about
USBANCORP, Inc. or any of its subsidiaries--annual and quarterly reports,
proxy statements, 10-K, 10-Q, 8-K, and call reports are asked to contact
Orlando B. Hanselman, Executive Vice President, Chief Financial Officer &
Manager of Corporate Services at (814) 533-5319.
<PAGE>88
USBANCORP, INC.
1993 ANNUAL REPORT
AND FORM 10-K
CONTENTS
Financial Highlights at a Glance 2
Financial Highlights 3
Shareholder Information at a Glance 4
Message to the Shareholder 5
Johnstown Savings Bank Acquisition Pro Formas 10
Service Area Map 11
Consolidated Balance Sheet 14
Consolidated Statement of Income 15
Consolidated Statement of Changes in Stockholders' Equity 16
Consolidated Statement of Cash Flows 17
Notes to Consolidated Financial Statements 18
Statement of Management Responsibility 33
Reports of Independent Public Accountants 34
Market Price and Dividend Data 37
Selected Five-Year Consolidated Financial Data 38
Selected Quarterly Consolidated Financial Data 39
Management's Discussion and Analysis 40
Form 10-K 59
USBANCORP Directors and General Officers 83
Subsidiaries' Directors, General Officers, and Advisory Boards 84
Office Locations 87
Shareholder Information 88
<PAGE>1
FINANCIAL HIGHLIGHTS -- AT A GLANCE
(six graphs)
<PAGE>2
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
FOR THE YEAR %Increase
1993(2) 1992(1) (Decrease)
(In thousands, except per share and ratio data)
<S> <C> <C> <C>
Net interest income $49,485 $44,441 11
Net income 12,488 8,883 41
Net income before SFAS #109 benefit 11,036 8,883 24
Performance ratios:
Return on average assets before
SFAS #109 benefit 0.91% 0.85% --
Return on average equity before
SFAS #109 benefit 10.13 11.41 --
Net interest margin 4.34 4.58 --
Net charge-offs as a percentage of
average loans, net of unearned income 0.13 0.58 --
Loan loss provision as a percentage of
average loans, net of unearned income 0.34 0.36 --
Net overhead expense as a percentage of
average assets 2.51 2.68 --
PER COMMON SHARE
Net income:
Primary $2.78 $2.67 4
Fully diluted before SFAS #109 benefit 2.41 2.53 (5)
Fully diluted after SFAS #109 benefit 2.72 2.53 8
Cash dividends declared 0.86 0.75 15
Dividend payout ratio 32.01% 24.44% --
Price earnings ratio before SFAS #109 benefit 9.85x 8.70x 13
AT YEAR END
Total assets $1,241,521 $1,139,855 9
Investment securities available for sale 428,712 366,888 17
Loans and loans held for sale,
net of unearned income 727,186 648,915 12
Allowance for loan losses 15,260 13,752 11
Deposits 1,048,866 997,591 5
Stockholders' equity 116,615 82,971 41
Trust assets (discretionary and
non-discretionary) 942,587 649,564 45
Non-performing assets 6,498 10,291 (37)
Total non-performing assets as a percentage of
loans and loans held for sale, net of unearned
income and other real estate owned 0.89% 1.58% --
Capital ratios:
Common equity 9.39 6.07 --
Total risk-based 15.97 12.54 --
Tangible asset leverage 9.18 7.08 --
Per common share:
Book value $24.67 $23.08 7
Market value 23.75 22.00 8
Market price to book value ratio 96.27% 95.32% --
Assets per employee $1,867 $1,770 5
STATISTICAL DATA
AT YEAR END (Amounts not rounded)
Full-time equivalent employees 665 644 3
Branch locations 41 38 8
Common shareholders 4,702 4,484 5
Preferred shareholders -- 419 --
Common shares outstanding 4,726,181 2,982,124 58
Preferred shares outstanding -- 552,000 --
<FN>
(1) Includes the results of operations of Community Bancorp, Inc. from March
23, 1992.
(2) All Preferred shares were either converted to Common or redeemed by April
7, 1993.
NASDAQ Symbol:
Common Shares--UBAN
</TABLE>
<PAGE>3
SHAREHOLDER INFORMATION -- AT A GLANCE
(six graphs)
<PAGE>4
MESSAGE TO THE
SHAREHOLDER
Dear Shareholder:
Building upon success was the challenge your management team faced when
entering 1993. Time is proving that our steady and consistent approach to
enhancing shareholder value is the best way to ensure continued growth for your
Company. It has been gratifying to reach new goals; and for 1993, we can report
achievements such as increasing earnings, building non-interest income,
generating loan growth, and raising the common dividend. We began 1993 with
challenges and have once again set an elevated standard for 1994.
FINANCIAL AND STRATEGIC HIGHLIGHTS
I am pleased to report that earnings for the year ended December 31, 1993,
reached a record high of $12,488,000 or $2.72 per share on a fully diluted
basis. Your Company's 1993 net income included a $1,452,000 non-recurring
federal income tax benefit due to the adoption of Statement of Financial
Accounting Standards NO.109, "Accounting for Income Taxes." Before this
one-time benefit, 1993 net income totaled $11,036,000 or $2.41 per fully
diluted share compared to reported net income of $8,883,000 or $2.53 for the
year ended December 31, 1992.
Your Company's overall improved net income in 1993 included a consistent
uptrending of quarterly earnings during the year. This pattern of increased
core earnings growth reflects improved performance in several key areas:
- - Non-interest income for the full year ended December 31, 1993, was
$10,150,000 and reflects an approximate 22% growth over 1992. This key area of
primarily non-interest sensitive fee income includes enhanced earnings from
trust income, deposit service charges, wholesale cash processing operations,
and gains from fixed-rate mortgage loan sales. The performance of our Trust
Company is particularly noteworthy as it continued its profitable expansion
throughout western Pennsylvania including the Greater Pittsburgh marketplace.
Specifically, trust assets (both discretionary an non-discretionary) totaled
$943 million at December 31, 1993, an increase of 45% since the prior year end.
- - Strong loan growth was experienced at each of the banking subsidiaries
during 1993. Total loans outstanding equaled $727 million at December 31, 1993,
representing an increase of $78 million or 12% from the December 31, 1992,
level. Your Company's balance sheet liquidity will continue to provide the
banking subsidiaries with the financial capacity to profitably fund these
growing customer borrowing needs, a result of the current modest economic
recovery which is anticipated to gain momentum during 1994.
- - Your Company's asset quality continues to be a source of strength. Even
with the loan growth mentioned above, total non-performing assets declined
during 1993 and totaled only $6.5 million or .89% of total loans at December 31,
1993. For each non-accrual loan dollar, our management maintained a loan loss
reserve of $2.88 at year end.
- - A continued diligent focus on controlling and reducing non-interest
expense, combined with the growth in non-interest income discussed earlier,
resulted in the Company's net overhead to average assets ratio declining from
2.68% in 1992 to a record low of 2.51% in 1993. The Company's net overhead to
net interest income ratio also showed comparable improvement as it declined
from 62.80% in 1992 to 61.80% in 1993. The successful conversion to one
centralized data processing
<PAGE>5
system for the Western Region in the fourth quarter of 1993 was one example of
a significant economy of scale benefit achieved by yout Company, which will
generate annual pre-tax savings approximating $300,000 beginning in 1994. Your
Company's management is committed to further reducing the net overhead to net
interest income ratio to its long-term strategic plan goal of 55% and will
continue to make progress in this goal achievement during 1994. Due to economy
of scale benefits, such as this conversion, each of our two subsidiaries in
the Western Region should be below the 55% goal by year-end 1994.
Along with this improved core financial performance, your Company was
also able to achieve several long-term strategic successes during 1993.
Foremost among these successes was an over-subscribed secondary offering of
1,150,000 new common shares at a price of $24.50 which generated net proceeds
to your Company of approximately $26 million. Management had expected to
utilize the majority of these new funds to retire the Company's outstanding
preferred stock. Since preferred shareholders elected to convert 90% of the
outstanding preferred stock into the Company's common stock, however, there was
a need for only $1.4 million of cash to redeem the unconverted preferred shares.
Additionally, $2 million of the offering proceeds was downstreamed as a
capital infusion into Three Rivers Bank in connection with the acquisition of
the Integra branches to adequately capitalize the deposits acquired.
Consequently, the retention of the majority of the funds from the secondary
offering allowed our common stock market capitalization to reach approximately
$117 million--a level well above the $100 million benchmark at which we receive
much heightened following and purchase interest in our common stock by
institutional owners and nationally recognized bank stock analysts. Your
Company will continue to make diligent efforts to look for ways to better
leverage this capital strength in 1994. Possible alternatives include the
acquisition of a whole organization--such as the Johnstown Savings Bank
acquisition which is expected to be consummated by the end of the second
quarter of 1994--or individual branch locations, and a higher dividend payout.
The Company will also implement its February 25th announced common stock buyback
program to better leverage its capital strength.
Another key strategic success was the continuation of an increasing
quarterly cash dividend to you our shareholders. As a result of the increased
core earnings performance, the Board of Directors declared a 10% increase in
the quarterly cash dividend in 1993. This increase to $.22 per share became
effective for the last three quarters of 1993 and made the total 1993 cash
dividend $.86 per share compared to $.75 per share in 1992. This increase
in the dividend, your Company's fifth increase since 1990, is consistent with
our five-year Capital Plan. This rising common dividend, combined with an
increase in the market value of our common stock, further demonstrates our
ongoing commitment to a progressive total shareholder return which amounted
to approximately 11.8% in 1993 compared to a total return for the Standard &
Poor's ("S&P") 500 Index of 10.0%. Interestingly, your Company's total
shareholder return for the period 1988-1993 was 163.7% compared to the S&P's
500 Index total return of 125.6%-an historic record of achievement and a
challenge to better in the future.
PUTTING A STRATEGIC PLAN INTO ACTION FOR OUR CUSTOMERS
At your Company, transforming a strategic plan into quality financial services
and delivering these services through competently trained banking
professionals is fundamental to the creation of a progressive total
shareholder return. Successful
<PAGE>6
financial companies incorporate several imperative ingredients that ultimately
lead to business prosperity and shareholder value. These ingredients were
first outlined in the 1988 Strategic Plan for USBANCORP, Inc.. Today, the
strategic plan, community involvement, total shareholder return, and quality
customer service are bound together more tightly than ever before. The
fundamental actions inspired by this original strategic plan have become part
of the corporate plans for each of the affiliates. "Doing the little things
better" has been our abbreviated mission statement for each subsidiary, and
in 1994 we promise to embellish this theme for each customer--demonstrating
conclusively that we ultimately deliver the best possible customer service.
Fundamental to achieving quality customer service is a corporate culture
that gets its strength from shared values, beliefs, expectations, and
attitudes. Rising from this common focus are customer benefits that will
continue to position your Company as a leader in the community--both for
financial services and community involvement. Delivering first rate customer
service during banking transactions is the most obvious element. The leader's
role also includes an enthusiastic approach towards civic and charitable
community involvement and the development of new products designed to meet
the changing needs of our diverse customer base. This active culture of
community involvement is leading to a more positive image through corporate
sponsorship and employee involvement with civic and charitable organizations.
These organizations are as nationally recognized as the United Way, American
Red Cross, and chambers of commerce, or more hometown such as the Lawrenceville
Boys and Girls Club, White Oak PTA, Cambria County Meals-On-Wheels, and the
Coalport VFW Ladies Auxiliary.
A quality service initiative at U.S. National Bank was in full operation
during 1993. Each employee received an average of 15 hours of quality service
skills training that not only highlighted more effective external customer
interaction skills, but also skills that fostered improved internal teamwork.
The internal teamwork element of this quality service program remains
integral as it leads to a cooperative atmosphere among all employees.
Together we direct our energies to accomplish a common set of goals at every
level of the organization. In 1994, this corporate quality service initiative,
while being introduced to our western affiliates, becomes the practice at
U.S. National Bank. The end result is an employee team trained and motivated
to live up to the role as a community leader.
Recognizing the importance of this employee role, your Company has
invested more than 1,000 hours of formal corporate training for management
and customer service employees at U.S. National Bank. The data center
conversion involving Three Rivers Bank and Community Savings Bank was a
success largely due to a comprehensive training program that prepared every
employee for the changes brought on by this consolidation of services. A
unique "Community Conversion College" was attended by all Community Savings
Bank employees to make them as comfortable as possible with the improved data
system. In total, Three Rivers Bank and Community Savings Bank invested more
than 1,500 hours of formal training. Your Company also recognizes the
importance of a sound mind and body. During 1993, the first corporate sponsored
Wellness Program began to encourage employee participation in physical
activity. Two-thirds of all U.S. National Bank employees took advantage of
one or more of the Wellness Program events in 1993. The program's goal is to
encourage employees to live healthier lifestyles, both on and off the job,
ultimately leading to healthier and more productive employees.
<PAGE>7
PRODUCT AND SERVICE NEWS
An active product support culture is apparent as a result of new product
introductions in 1993 designed to fill customer and social responsibility needs.
We directed specific attention towards products which enhance the
subsidiaries' presence in the community in 1993. For example, Three Rivers
Bank introduced the TRUE Account followed later in the year by National Bank's
First Account and CHAMP Mortgage Loan program. These products include features
such as a basic checking service and affordable loan options, making them
ideal for approved low-to-moderate income customers. The most recent federal
banking regulators' reviews prove our success in this area as both Three
Rivers Bank and U.S. National Bank enter 1994 with an "outstanding" Community
Reinvestment Act ("CRA") review rating. This is the highest ranking a bank
can receive for its community involvement and lending practices.
Another new product introduction was the Tax Advantage Pathroad Account.
This USBANCORP Trust Company service features tax-free investments which are
regularly reviewed and redirected via asset allocation_the investment
management approach used for the original Pathroad Account. Due in part to
newly introduced investment products such as the Tax Advantage Pathroad and
Pathroad Accounts, USBANCORP Trust Company is now beyond the $900 million
milestone for trust assets under management.
Consolidation to achieve more cost effectiveness led to the creation of
the combined Three Rivers Bank and Community Savings Bank Retail Loan and
Operation Centers. Opened in August 1992 at the McKeesport Office, the Retail
Loan Center approves, processes, collects, and maintains files for all direct
and indirect consumer loans originated at the western affiliates. The Loan
Center also handles collections for the mortgage loan portfolios at each
institution. The Operation Center, located at the Three Rivers Bank Jefferson
Borough Office, opened in October 1993 to provide immediate answers to
customer banking inquiries via a toll-free service number. Both the Loan and
Operation Centers are consolidating services as a result of the successful 1993
data systems conversion at Community Savings Bank.
Three Rivers Bank enlarged its branch network with the addition of four
offices of Integra Bank acquired during the first quarter of 1993. The
offices are located in Glassport, Liberty Borough, Port Vue, and White Oak
in Allegheny County. The White Oak Office was later consolidated into the
nearby Rainbow Village Office of Three Rivers Bank. The deposits of the
four acquired offices totalled nearly $90 million. This 1993 acquisition was
valuable to your Company by increasing our presence in the Greater Pittsburgh
suburban area by 20%, at a modest deposit premium price of 1.40%.
All of our customers enjoy easy access to our products and services
because of improvements made to our facilities in 1993, as our subsidiaries
worked to achieve compliance with the Americans with Disabilities Act
("ADA"). The most obvious provision of this government regulation is in the
area of public accommodations. Bank facilities have been reviewed for
compliance with the ADA; modifications have been made to accommodate disabled
customers. These modifications include easy access doorways, ramps, and other
facility alterations designed to eliminate barriers for the disabled.
<PAGE>8
SUCCESSOR MANAGEMENT
In addition to my February 1994 succession of the retired Clifford A. Barton
as chairman, president & CEO, there have been four other notable management
changes since the beginning of 1993. These changes include:
Kenneth J. Tyson, president and chief executive officer of Community
Savings Bank, resigned as the bank's CEO in March 1993. Mr. Tyson remained as
president until his retirement in March 1994.
Dennis J. Fantaski, executive vice president and chief operating officer,
succeeded Mr. Tyson as CEO and later as president of Community Savings Bank.
Mr. Fantaski has 16 years of banking experience and has held various
management positions. He was senior vice president and head of retail banking
at U.S. National Bank, and prior to that Mr. Fantaski held management
positions in residential real estate, personal banking, and corporate banking
at Dollar Bank in Pittsburgh.
The new U.S. National Bank president and CEO is Louis Cynkar, previously
senior vice president and head of the bank's commercial and retail banking
units. Mr. Cynkar has more than 30 years of banking experience, 24 of which
were spent with the former Equibank of Pittsburgh where he rose through the
ranks to become senior vice president of commercial lending. He joined U.S.
National Bank in 1986 as senior vice president of commercial lending. In
1991, he was promoted to senior vice president and head of both the
commercial and retail banking groups within U.S. National Bank. His thorough
knowledge of the operation of U.S. National Bank and his devotion to the
community served by the bank will make for a smooth transition in 1994.
In February 1994, Orlando B. Hanselman was promoted to executive vice
president, chief financial officer & manager of corporate services within
USBANCORP. In his new role, Mr. Hanselman is responsible for the direction and
strategic efforts of finance, accounting, investments, marketing, CRA,
investor relations, and facilities management. Mr. Hanselman joined the
holding company in 1987 after five years of public accounting with Price
Waterhouse in Pittsburgh. In 1989, Mr. Hanselman was promoted to senior vice
president, treasurer & chief financial officer. Mr. Hanselman has been a
major contributor to the direction and strength of USBANCORP. His commitment
to shareholder interests and his diverse talents continue to be valuable
within the new management team.
In conclusion, I want to thank our dedicated employees and directors for
their efforts and you, our shareholder, for your support. I would also like
to express deepest appreciation to Cliff Barton for his seven years of
dedicated service and visionary leadership. We enjoyed a year of record
performance in 1993; together we look forward to building up successes of
our past as we focus on a new year of business and achievement at USBANCORP.
/s/Terry K. Dunkle
Terry K. Dunkle
Chairman, President & CEO
USBANCORP, Inc.
<PAGE>9
JOHNSTOWN SAVINGS BANK ("JSB") ACQUISITION 1993 PRO FORMAS -- AT A
GLANCE
(four graphs)
<PAGE>10
SERVICE AREA MAP
<PAGE>11
THIS PAGE IS INTENTIONALLY LEFT BLANK.
<PAGE>12
USBANCORP, INC.
FINANCIAL STATEMENTS
(title page)
<PAGE>13
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
At December 31 1993 1992
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $38,606 $37,114
Interest bearing deposits with banks 4,809 7,958
Federal funds sold and securities purchased
under agreements to resell 7,000 37,350
Investment securities available for sale
(market value of $432,315 on December 31, 1993,
and $369,907 on December 31, 1992) 428,712 366,888
Assets held in trust for collateralized
mortgage obligation 13,815 18,582
Fixed-rate mortgage loans held for sale 1,054 --
Loans 732,026 659,818
Less: Unearned income 5,894 10,903
Less: Allowance for loan losses 15,260 13,752
Net loans 710,872 635,163
Premises and equipment 16,960 15,139
Accrued income receivable 8,892 9,363
Other assets 10,801 12,298
TOTAL ASSETS $1,241,521 $1,139,855
LIABILITIES
Non-interest bearing deposits $137,411 $129,703
Interest bearing deposits 911,455 867,888
Total deposits 1,048,866 997,591
Federal funds purchased and securities sold under
agreements to repurchase 12,648 10,222
Other short-term borrowings 270 944
Advances from Federal Home Loan Bank 31,285 11,200
Collateralized mortgage obligation 12,674 16,686
Long-term debt 3,445 9,409
Other liabilities 15,718 10,832
TOTAL LIABILITIES 1,124,906 1,056,884
Commitments and contingent liabilities (Note 16)
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 2,000,000 shares authorized;
there were no shares issued and outstanding on
December 31, 1993; 552,000 shares issued and
outstanding at December 31, 1992 -- 13,800
Common stock, par value $2.50 per share; 6,000,000 shares
authorized; 4,726,181 shares issued and outstanding on
December 31, 1993; 2,982,124 shares issued and
outstanding on December 31, 1992 11,815 7,456
Surplus 70,720 36,022
Retained earnings 34,080 25,693
TOTAL STOCKHOLDERS' EQUITY 116,615 82,971
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,241,521 $1,139,855
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>14
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Year Ended December 31 1993 1992 1991
(In thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $59,605 $57,210 $43,003
Tax exempt 1,110 1,045 1,087
Deposits with banks 127 324 712
Federal funds sold and securities purchased
under agreements to resell 383 426 820
Investment securities and investment securities
available for sale:
Taxable 21,494 21,395 20,569
Tax exempt 1,670 1,176 255
Assets held in trust for collateralized mortgage obligation 1,346 1,214 --
Total Interest Income 85,735 82,790 66,446
INTEREST EXPENSE
Deposits 32,623 35,643 32,507
Federal funds purchased and securities
sold under agreements to repurchase 322 268 505
Other short-term borrowings 37 13 119
Advances from Federal Home Loan Bank 1,163 463 --
Collateralized mortgage obligation 1,508 1,301 --
Long-term debt 597 661 407
Total Interest Expense 36,250 38,349 33,538
NET INTEREST INCOME 49,485 44,441 32,908
Provision for loan losses 2,400 2,216 900
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 47,085 42,225 32,008
NON-INTEREST
INCOME
Trust fees 2,578 2,054 1,633
Net realized gains on loans held for sale 593 737 --
Net realized gains (losses) on investment securities
and investment securities available for sale 583 393 (50)
Wholesale cash processing fees 1,281 1,189 1,032
Service charges on deposit accounts 2,771 1,916 1,376
Other income 2,344 2,057 2,044
Total Non-Interest Income 10,150 8,346 6,035
NON-INTEREST
EXPENSE
Salaries and employee benefits 19,952 18,038 14,655
Net occupancy expense 3,393 2,929 2,505
Equipment expense 2,608 2,158 1,815
Professional fees 2,167 2,238 1,640
Supplies, postage, and freight 1,998 2,010 1,735
Miscellaneous taxes and insurance 1,128 1,048 972
FDIC deposit insurance expense 2,157 2,040 1,381
Other expense 7,312 5,787 4,159
Total Non-Interest Expense 40,715 36,248 28,862
INCOME
BEFORE INCOME TAXES, EXTRAORDINARY ITEM,
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 16,520 14,323 9,181
Provision for income taxes 5,484 5,440 2,873
BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 11,036 8,883 6,308
Extraordinary item--reduction of federal income taxes due
to utilization of net operating loss carryforward -- -- 1,004
Cumulative effect of change in accounting
principle--adoption of SFAS #109 1,452 -- --
NET INCOME $12,488 $8,883 $7,312
NET INCOME APPLICABLE TO COMMON STOCK $12,385 $7,710 $6,139
PER COMMON SHARE DATA:
Primary:
Income before extraordinary item and cumulative
effect of change in accounting principle $2.45 $2.67 $2.00
Net income 2.78 2.67 2.39
Average number of common shares outstanding 4,456,820 2,888,145 2,561,175
Fully Diluted:
Income before extraordinary item and cumulative
effect of change in accounting principle $2.41 $2.53 $1.97
Net income 2.72 2.53 2.29
Average number of shares outstanding 4,588,622 3,515,217 3,188,247
Cash Dividends Declared $0.86 $0.75 $0.55
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>15
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Preferred Common Retained
Stock Stock Surplus Earnings Total
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $13,800 $6,381 $29,446 $15,423 $65,050
1991
Net income for the year 1991 -- -- -- 7,312 7,312
Dividend reinvestment and
stock purchase plan -- 39 203 -- 242
Cash dividends declared:
Preferred stock ($2.125 per
share on 552,000 shares) -- -- -- (1,173) (1,173)
Common stock ($0.10
per share on 2,555,924
shares; $0.15 per share on
2,559,548 shares; $0.15
per share on 2,564,134
shares; and $0.15 per share
on 2,567,486 shares) -- -- -- (1,408) (1,408)
Balance December 31, 1991 13,800 6,420 29,649 20,154 70,023
1992
Net income for the year 1992 -- -- -- 8,883 8,883
Dividend reinvestment and
stock purchase plan -- 61 420 -- 481
Stock options exercised -- 4 33 -- 37
Common shares issued to
acquire Community Bancorp,
Inc. (388,213 shares at
$17.75 per share) -- 971 5,920 -- 6,891
Cash dividends declared:
Preferred stock ($2.125 per
share on 552,000 shares) -- -- -- (1,173) (1,173)
Common stock ($0.15 per
share on 2,572,089 shares;
$0.20 per share on
2,967,099 shares; $0.20
per share on 2,973,361
shares; and $0.20 per share
on 2,979,665 shares) -- -- -- (2,171) (2,171)
Balance December 31, 1992 13,800 7,456 36,022 25,693 82,971
1993
Net income for the year 1993 -- -- -- 12,488 12,488
Dividend reinvestment and
stock purchase plan -- 56 495 -- 551
Stock options exercised -- 13 73 -- 86
Preferred stock converted to
common stock (12,468) 1,415 11,053 -- --
Preferred stock redeemed (1,332) -- (36) -- (1,368)
Secondary common stock
issuance of 1,150,000
shares net of issuance costs -- 2,875 23,113 -- 25,988
Cash dividends declared:
Preferred stock dividends
paid on conversion -- -- -- (103) (103)
Common stock ($0.20 per
share on 4,436,257 shares;
$0.22 per share on
4,708,461 shares;
$0.22 per share on
4,715,686 shares; and
$0.22 per share on
4,720,535 shares) -- -- -- (3,998) (3,998)
Balance December 31, 1993 $-- $11,815 $70,720 $34,080 $116,615
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>16
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Year Ended December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 12,488 $ 8,883 $ 7,312
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,400 2,216 900
Depreciation and amortization expense 2,873 2,430 2,078
Net amortization of investment securities
and investment securities available for sale 996 801 452
Net realized (gains) losses on investment securities
and investment securities available for sale (583) (393) 50
Net realized gains on sale of loans held for sale (593) (737) --
Decrease (increase) in accrued income receivable 471 1,314 (68)
Increase (decrease) in accrued expense payable 2,097 (1,221) 63
Net cash provided by operating activities 20,149 13,293 10,787
INVESTING ACTIVITIES
Purchase of investment securities, investment
securities available for sale, and
other short-term investments (296,777) (218,654) (152,692)
Proceeds from maturities of investment securities,
investment securities available for sale, and
other short-term investments 204,899 177,383 94,295
Proceeds from sales of investment securities,
investment securities available for sale, and
other short-term investments 29,641 31,515 3,845
Long-term loans originated (355,716) (264,629) (146,664)
Fixed-rate mortgage loans held for sale (1,054) -- --
Loans purchased or participated (1,058) (8,661) (4,114)
Principal collected on long-term loans 259,071 280,313 165,779
Loans sold or participated 22,131 32,089 1,938
Net increase in credit card receivables and other
short-term loans (1,944) (543) (1,606)
Purchases of premises and equipment (2,431) (1,171) (1,314)
Sale of premises and equipment 12 70 129
Net decrease in assets held in trust for
collateralized mortgage obligation 4,767 3,134 --
Net decrease (increase) in other assets 2,212 1,084 (1,310)
Net cash received through acquisition of
Community Bancorp, Inc. -- 14,725 --
Net cash (used) provided by investing activities (136,247) 46,655 (41,714)
FINANCING ACTIVITIES
Proceeds from sales of certificates of deposit 254,222 369,775 442,965
Payments for maturing certificates of deposit (315,062) (435,637) (440,305)
Net increase (decrease) in demand and savings deposits 35,578 67,815 (138)
Net cash received through Integra Branches Acquisition 76,537 -- --
Net increase (decrease) in federal funds purchased,
securities sold under agreements to repurchase,
and other short-term borrowings 1,752 (10,510) 1,296
Net principal borrowings (repayments) on advances from
Federal Home Loan Bank and long-term debt 10,109 (4,437) (305)
Preferred stock cash dividends paid (397) (1,173) (1,173)
Redemption of preferred stock (1,368) -- --
Common stock cash dividends paid (3,557) (1,959) (1,280)
Proceeds from dividend reinvestment and
stock purchase plan 637 518 242
Secondary common stock offering (net of expenses) 25,988 -- --
Net (decrease) increase in other liabilities (348) (5,113) 956
Net cash provided (used) by financing activities 84,091 (20,721) 2,258
NET (DECREASE) INCREASE IN CASH EQUIVALENTS (32,007) 39,227 (28,669)
CASH EQUIVALENTS AT JANUARY 1 82,422 43,195 71,864
CASH EQUIVALENTS AT DECEMBER 31 $50,415 $82,422 $43,195
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AT AND FOR THE YEARS
ENDED DECEMBER 31, 1993, 1992, AND 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business:
USBANCORP, Inc. (the "Company") and its subsidiaries' operations relate
primarily to commercial banking activities which represent one industry segment.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, United States National Bank in Johnstown ("U.S.
Bank"), Three Rivers Bank and Trust Company ("Three Rivers Bank"), Community
Bancorp, Inc. ("Community"), USBANCORP Trust Company ("Trust Company"), and
United Bancorp Life Insurance Company ("United Life"). Intercompany accounts
and transactions have been eliminatedin preparing the consolidated financial
statements.
Investment Securities and Investment Securities Available for Sale:
Prior to September 30, 1992, investment securities have been stated at cost
adjusted for amortization of premium and accretion of discount. Both accretion
and amortization are determined by the straight-line method which is not
materially different from the level yield method. Effective September 30,
1992, the investment portfolio was reclassified as "available for sale." Since
that date, the portfolio has been carried at the lower amortized cost or
market value. Any unrealized adjustments are reflected in "N loss on
investment securities available for sale" on the Consolidated Realized gain
or loss on securities sold is computed based upon the ad securities sold.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") #115, "Accounting for Certain
Investments in Debt and Equity Securities." This Statement addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities.
Management does not believe that the adoption of this statement material impact
on the results of operations or the financial positive adoption of this
statement in the first quarter of 1994, management plans to rec tax-free
municipal securities as "held to maturity" and carry them at amortize investment
securities portfolio will continue to be classified as "availibility carried at
market value.
Loans:
Interest income is recognized using methods which approximate a level yield
related to principal amounts outstanding. The subsidiaries immediately
discontinue the accrual of interest income when loans, except for loans that
are insured for credit loss, become 90 days past due in either principal or
interest. In addition, if circumstances warrant, the accural of interest may be
discontinued prior to 90 days. In all cases, payments received loans are
credited to principal until full recovery of principal has after full
recovery of principal that any additional payments received are recognized as
interest income. A non-accrual loan is placed on accrual status after becoming
current and remaining current for twelve consecutive payments (except for
residential mortgage loans which have to become current and remain current for
six consecutive payments) and upon the approval of the Credit Committee
and/or Board Discount/Loan Committee with final approval resting with the
Chief Financial Officer.
Loan Fees:
Loan origination and commitment fees, net of associated direct costs, are
deferred and amortized into interest and fees on loans over the loan or
commitment period. Fee
amortization is determined by either the straight-line method, or the effective
interest method, which do not differ materially.
Fixed-Rate Mortgage Loans Held For Sale:
All newly originated 30-year fixed-rate residential mortgage loans are
classified as "held for sale." It is management's intent to periodically
sell these residential mortgage loans and retain servicing rights for the
remaining lives; this strategy will be executed in an effort to help neutralize
long-term interest rate risk. The residential mortgage loans held for sale are
carried at the lower of aggregate cost or market value. At December 31, 1993,
the cost of these loans approximated market value. Realized gains and losses
will be calculated by the specific identification method and will be included
in "Net realized gain or loss on loans held for sale"; unrealized net
valuation adjustments (if any) will be recorded in "Net unrealized gain or
loss on loans held for sale" on the Consolidated Statement of Income.
Premises and Equipment:
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is charged to operations over the estimated useful
lives of the premises and equipment using the straight-line method. Useful
lives of up to 45 years for buildings and up to 12 years for equipment are
utilized. Leasehold improvements are amortized using the straight-line
method over the terms of the respective leases or useful live improvements,
whichever is shorter. Maintenance, repairs, and minor alterations are charged
to current operations as expenditures are incurred.
Allowance for Loan Losses and Charge-off Procedures:
As a financial institution which assumes lending and credit risks as a
principal element in its business, the Company anticipates that credit
losses will be experienced in the normal course of business. Accordingly,
management of the Company makes a quarterly determination as to an
appropriate provision from earnings necessary to maintain an allowance for
loan losses which would be adequate for potential yet undetermined losses.
The amount charged against earnings is based upon several factors including, at
a minimum, each of the following:
- - A continuing review of delinquent, classified and non-performing loans,
large loans, and overall portfolio quality. This continuous review assesses
the risk characteristics of both individual loans and the total loan
portfolio.
- - Regular examinations and reviews of the loan portfolio by representatives
of the regulatory authorities.
- - Analytical review of loan charge-off experience, delinquency rates, and
other relevant historical and peer statistical ratios.
<PAGE>18
- - Management's judgment with respect to local and general economic
conditions and their impact on the existing loan portfolio.
When it is determined that the prospects of recovery of the principal of
a loan have significantly diminished, the loan is immediately charged against
the allowance account and subsequent recoveries, if any, are credited to the
allowance account. Loans are charged-off promptly upon determination that a loss
is anticipated. 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.
Trust Fees:
All trust fees are recorded on the cash basis which approximates the accrual
basis for such income.
Earnings Per Common Share:
Primary earnings per share amounts are computed by dividing net income, after
deducting preferred stock dividend requirements, by the weighted average number
of common stock and common stock equivalent shares outstanding. Fully diluted
earnings per share amounts are calculated assuming that the Series A $2.125
Cumulative Convertible Non-Voting Preferred Stock was converted at the
beginning of the year into 1.136 shares of the Company's Common Stock and
that no preferred dividends were paid. By April 7, 1993, a Preferred Stock
was either redeemed or converted to the Company's Common Stock.
Consolidated Statement of Cash Flows:
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; for the Company, cash equivalents
include short-term investments. The Company made $4,300,000 in federal income
tax payments in 1993; $3,986,000 in 1992; and $3,336,000 in 1991. The Company
made total interest expense payments of $34,153,000 in $40,942,000 in 1992;
and $33,475,000 in 1991.
Income Taxes:
As discussed in Note 13, the Company adopted Statement of Financial Accounting
Standards #109, "Accounting for Income Taxes" in the first quarter of 1993.
Under SFAS #109, deferred tax assets or liabilities are computed based on the
difference between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred income tax expenses or
credits are based on the changes in the asset or liability from period to
period. Prior to 1993, deferred income tax expenses or credits were recorded to
reflect the tax consequences of timing differences between the recording of
income and expenses for financial reporting purposes and for purposes of
filing federal income tax returns at income tax rates in effect when the
difference arose.
2. CASH AND DUE FROM BANKS
Cash and due from banks at December 31, 1993, and 1992, included $11,857,000
and $10,384,000, respectively, of reserves required to be maintained under
Federal Reserve Bank regulations.
3. INTEREST BEARING DEPOSITS WITH BANKS
The book value of interest bearing deposits with domestic banks are as
follows:
<TABLE>
<CAPTION>
At December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Total $4,809 $7,958 $6,606
</TABLE>
The Company had no such deposits in foreign banks nor in foreign branches of
United States banks.
The maturity of interest bearing deposits with banks at book value is
summarized as follows:
<TABLE>
<CAPTION>
At December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Maturing within
three months $4,809 $7,958 $--
Maturing after three
but within six months -- -- 3,098
Maturing after six
months but
within one year -- -- 3,508
Maturing after one year -- -- --
Total $4,809 $7,958 $6,606
</TABLE>
4. INVESTMENT SECURITIES AND INVESTMENT SECURITIES
AVAILABLE FOR SALE
Beginning September 30, 1992, the entire investment security portfolio as
described in the table below was reclassified as "available for sale." All or
part of the investment security portfolio may be sold at any time for
interest rate, prepayment, credit, liquidity considerations, or other factors
as determined appropriate by management. The investment security portfolio is
carried at the lower of aggregate amortized cost or market value; any necessary
adjustments are recorded in the Income Statement. Prior to September 30, 1992,
there were no investment securities categorized as "available for sale."
The book and market values of investment securities "available for sale"
and carried at the lower of amortized cost or market value are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Book Unrealized Unrealized Market
At December 31, 1993 Value Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $13,333 $186 $(16) $13,503
U.S. Agency 72,648 890 (116) 73,422
State and municipal 44,547 1,129 (90) 45,586
Collateralized
mortgage
obligations* 251,631 2,379 (1,402) 252,608
Other securities** 46,553 680 (37) 47,196
Total $428,712 $5,264 $(1,661) $432,315
</TABLE>
<PAGE>19
<TABLE>
<CAPTION>
Gross Gross
Book Unrealized Unrealized Market
At December 31, 1992 Value Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $9,647 $182 $(17) $9,812
U.S. Agency 32,490 732 (86) 33,136
State and municipal 35,619 526 (69) 36,076
Collateralized
mortgage
obligations* 223,711 3,374 (1,654) 225,431
Other securities** 65,421 400 (369) 65,452
Total $366,888 $5,214 $(2,195) $369,907
<FN>
**U.S. Agency issued securities represented 95% and 91% of these obligations
at December 31, 1993 and 1992, respectively.
**Other investment securities include corporate notes and bonds, asset-backed
securities, and equity securities.
</TABLE>
There was no trading within the investment portfolio during the periods
presented. Prior to the Company classifying its investment portfolio as
"available for sale" on September 30, 1992, the Company's policy limited any
investment security sale before its maturity primarily to the infrequent
occurrences which required protection of the investment portfolio quality.
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 Investors Service or
Standard & Poor's rating of "A." At December 31, 1993, 89.2% of the portfolio
was rated "AAA" and 91.0% "AA" or higher as compared to 85.4% and
86.5%, respectively, at December 31, 1992. Only 3.2% of the portfolio was
rated below "A" or unrated on December 31, 1993.
The book value of securities pledged to secure public and trust deposits,
as required by law, was $83,769,000 at December 31, 1993, and $61,062,000 at
December 31, 1992. The Company realized $827,000 and $472,000 of gross
investment security gains and $244,000 and $79,000 of gross investment security
losses in 1993 and 1992, respectively.
5. LOANS
The loan portfolio of the Company consisted of the following:
<TABLE>
<CAPTION>
At December 31 1993 1992
(In thousands)
<S> <C> <C>
Commercial $99,321 $76,667
Commercial loans secured by
real estate 126,044 125,846
Real estate-mortgage 338,778 298,963
Consumer 167,883 158,342
Loans 732,026 659,818
Less: Unearned income 5,894 10,903
Loans, net of unearned income $726,132 $648,915
</TABLE>
Real estate construction loans were not material at these presented dates
and comprised 2.5% of total loans net of unearned income at December 31, 1993.
The Company has no credit exposure to foreign countries or highly leveraged
transactions. Additionally, the Company has no significant industry lending
concentrations.
In the ordinary course of business, the subsidiaries have transactions,
including loans, with their officers, directors, and their affiliated
companies. These transactions were on substantially the same terms as those
prevailing at the time for comparable transactions with unaffiliated parties
and do not involve more than the normal credit risk. These loans totaled
$15,074,000 and $12,824,000 at December 31, 1993, and 1992, respectively.
An analysis of these related party loans follows:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992
(In thousands)
<S> <C> <C>
Balance January 1 $12,824 $12,771
New loans 22,886 5,572
Payments (20,636) (5,519)
Balance December 31 $15,074 $12,824
</TABLE>
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Balance January 1 $13,752 $13,003 $12,470
Addition due to acquisi-
tion of Community
Bancorp, Inc. -- 2,122 --
Provision for loan losses 2,400 2,216 900
Recoveries on loans
previously charged-off 869 869 864
Loans charged-off (1,761) (4,458) (1,231)
Balance December 31 $15,260 $13,752 $13,003
</TABLE>
7. NON-PERFORMING ASSETS
Non-performing assets are comprised of (i) loans which are on a non-accrual
basis, (ii) consumer loans which are contractually past due 90 days or more as
to interest or principal payments and 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 are insured for credit
loss, are placed on non-accrual status immediately 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.
<PAGE>20
The following table presents information concerning non-performing assets:
<TABLE>
<CAPTION>
At December 31 1993 1992 1991 1990 1989
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Non-accrual loans $5,304 $5,596 $3,358 $2,456 $3,364
Insured loans past due 90 days or more 203 1,573 600 472 194
Other real estate owned:
Foreclosed properties 991 934 787 970 654
In-substance foreclosures -- 2,188 -- -- --
Total non-performing assets $6,498 $10,291 $4,745 $3,898 $4,212
Total non-performing assets as a percent
of loans and loans held for sale, net
of unearned income, and other real
estate owned 0.89% 1.58% 1.10% 0.87% 0.94%
</TABLE>
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 fair value or carrying cost
based upon appraisals.
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:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991 1990 1989
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income due in accordance
with original terms $753 $882 $678 $520 $759
Interest income recorded (442) (110) (209) (296) (189)
Net reduction in interest income $311 $772 $469 $224 $570
</TABLE>
8. PREMISES AND EQUIPMENT
An analysis of premises and equipment follows:
<TABLE>
<CAPTION>
At December 31 1993 1992
(In thousands)
<S> <C> <C>
Land $1,675 $1,675
Premises 18,228 16,419
Furniture and equipment 15,348 13,377
Leasehold improvements 1,060 1,020
Total at cost 36,311 32,491
Less: Accumulated depreciation 19,351 17,352
Net book value $16,960 $15,139
</TABLE>
<PAGE>21
The related depreciation charged against income is as follows:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Premises $930 $755 $731
Furniture and equipment 985 887 819
Leasehold improvements 91 87 77
Total depreciation $2,006 $1,729 $1,627
</TABLE>
9. FEDERAL FUNDS PURCHASED, SECURITIES SOLD UNDER AGREEMENTS TO
REPURCHASE, AND OTHER SHORT-TERM BORROWINGS
The outstanding balances and related information for federal funds purchased,
securities sold under agreements to repurchase, and other short-term borrowings
are summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
Amount Rate% Amount Rate% Amount Rate%
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
At year end $12,918 2.34% $11,166 2.51% $21,676 3.91%
Average during year 14,486 2.48 10,452 2.69 11,786 5.29
Maximum month-end balance 28,590 --% 12,005 -- 21,676 --
Average amounts outstanding during the year represent daily averages.
Average interest rates represent interest expense divided by the related average
balances.
These borrowing transactions range from overnight to three months in
maturity. The average maturity was two days at the end of 1993 and eight days at
the end of 1992.
10. INTEREST EXPENSE ON DEPOSITS
Interest expense on deposits consisted of the following:
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Interest bearing demand $2,030 $2,320 $2,288
Savings 5,546 6,638 6,037
Other time 25,047 26,685 24,182
Total interest on deposits $32,623 $35,643 $32,507
</TABLE>
The aggregate amount of certificates of deposit in denominations of $100,000
or more at December 31, 1993, 1992, and 1991 and the related interest expense
for the three years then ended are presented below:
<TABLE>
<CAPTION>
At or for the year ended
December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Certificates of deposit in
denominations of
$100,000 or more $26,925 $29,499 $32,272
Related interest expense 1,175 1,462 2,735
</TABLE>
<PAGE>22
11. ADVANCES FROM FEDERAL HOME LOAN BANK, COLLATERALIZED
MORTGAGE OBLIGATION, AND LONG-TERM DEBT
Advances from Federal Home Loan Bank:
Advances from Federal Home Loan Bank consist of the following:
<TABLE>
<CAPTION>
At December 31, 1993
(In thousands)
<S> <C>
3.59% due February 23, 1994 $5,000
4.68% due October 21, 1994 5,000
5.12% due January 28, 1996 2,000
4.82% due February 20, 1996 5,000
4.30% due September 10, 1996 5,000
8.55% due September 10, 1996 2,095
6.07% due January 28, 1998 3,000
9.00% due September 10, 2001 4,190
$31,285
</TABLE>
All Federal Home Loan Bank stock and an interest in unspecified mortgage
loans, 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.
Collateralized Mortgage Obligation:
The collateralized mortgage obligation was issued through Community First
Capital Corporation ("CFCC"), a wholly- owned, single-purpose finance
subsidiary of Community Savings Bank. Community Savings Bank transferred in 1988
Federal Home Loan Mortgage Corporation ("FHLMC") securities with a book value of
approximately $31,500,000 to CFCC which were then used as collateral for
issuance of bonds with a par value of $27,787,000 in the form of a
collateralized mortgage obligation.
There are four classes of bonds, including one class of zero coupon
bonds, which mature in the years 2000 through 2018; however, payments of the
bonds may occur prior to maturity in accordance with certain provisions of the
Trust Indenture between CFCC and the trustee. The remaining bonds have a
weighted average adjusted effective rate of 10.20%.
Assets held in trust for the collateralized mortgage obligation of
$12,674,000 at December 31, 1993, consist of the following:
<TABLE>
<CAPTION>
At December 31, 1993
(In thousands)
<S> <C>
FHLMC securities $12,325
Accrued interest receivable on FHLMC 311
Funds held by trustee 1,179
$13,815
</TABLE>
Under provisions of the Trust Indenture, the bonds are fully collateralized by
the FHLMC securities and funds held by the trustee. Funds held by the trustee
represent payments received on FHLMC securities, collateral reserves, and
reinvestment of earnings on such funds which have not been applied to pay
principal and interest on the bonds. These funds are restricted to assure
payment on the bonds in accordance with the Indenture.
Long-Term Debt:
The Company's long-term debt consisted of the following:
<TABLE>
<CAPTION>
At December 31 1993 1992
(In thousands)
<S> <C> <C>
Mortgage bonds $-- $5,375
Bank note 3,124 3,852
Other 321 182
Total long-term debt $3,445 $9,409
</TABLE>
Mortgage bonds represented Cambria County Industrial Development
Authority Bonds at an average rate of 6.87% over the life of the bond issue.
These bonds were issued on March 29, 1979, to finance U.S. Bank's Main Office
Headquarter's facility, which served as security for the bonds, and required
annual debt service payments through the year 2004.
On October 1, 1993, the Company redeemed all remaining outstanding
principal on the bonds which totalled $5,075,000. The bonds were redeemed at par
value with no early redemption penalties which was in accordance with the
provisions of the indenture agreement since the bonds had already been
outstanding in excess of the minimum required time period of ten years.
The bank note evidences a $4,000,000 loan to partially finance the
acquisition of Community Bancorp, Inc.. The loan originally was payable in equal
quarterly amounts of principal and interest of approximately $196,000 through
April 1999 and had a fixed annual interest rate of 9.50%. On August 31, 1993,
the Company refinanced this note and shortened the maturity date to July 31,
1996, and reduced the interest rate to one that floats at the Prime Rate.
The Company paid a prepayment premium of $170,000 to effect these favorable
modifications to the original note.
Scheduled maturities of long-term debt for each of the five years
subsequent to December 31, 1993, are $1,275,000 in 1994; $1,234,000 in 1995;
$878,000 in 1996; $13,000 in 1997; and $45,000 in 1998.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards #107, "Disclosures about Fair
Value of Financial Instruments," requires all entities to disclose the estimated
fair value ofits financial instrument assets and liabilities. For the Company,
as for most financial institutions, approximately 95% of its assets and
liabilities are considered financial instruments as defined #107. Many of the
Company's financial instruments, however, lack an available trading market as
characterized by a willing buyer and willing seller engaging in an exchange
transaction.Therefore, significant
<PAGE>23
estimations and present value calculations were used by the Company for the
purpose of this disclosure.
Estimated fair values have been determined by the Company using the best
available data, as generally provided in the Company's FRY-9C Regulatory Reports
, and an estimation methodology suitable for each category of financial
instruments. Management believes that cash, cash equivalents, and loans and
deposits with floating interest rates have estimated fair values which
approximate the recorded book balances. The estimation method used, the
estimated fair values, and recorded book balances at December 31, 1993, were
as follows:
- - Financial instruments actively traded in a secondary market have been
valued using quoted available market prices.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
(In thousands)
<S> <C> <C>
Federal funds sold $7,000 $7,000
Investment securities available
for sale (including assets held
in trust for collateralized
mortgage obligation) 446,720 442,527
</TABLE>
- - Financial instruments with stated maturities have been valued using a
present value discounted cash flow with a discount rate approximating
current market for similar assets and liabilities.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
(In thousands)
<S> <C> <C>
Deposits with stated maturities $461,215 $459,718
Short-term borrowings 22,918 22,918
Long-term debt (including
collateralized mortgage
obligation and non-current
portion of FHLB advances) 36,989 37,404
</TABLE>
- - Financial instrument liabilities with no stated maturities have an
estimated fair value equal to both the amount payable on demand and the
recorded book balance.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
(In thousands)
<S> <C> <C>
Deposits with no
stated maturities $589,148 $589,148
</TABLE>
- - The net loan portfolio has been valued using a present value discounted
cash flow. The discount rate used in these calculations is based upon the
treasury yield curve adjusted for non-interest operating costs, credit
loss, and assumed prepayment risk.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Value Book Balance
(In thousands)
<S> <C> <C>
Net loans (including loans held
for sale) $721,181 $711,926
</TABLE>
Changes in assumptions or estimation methodologies may have a material
effect on these estimated fair values.
The Company's remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has been customary
with historical cost accounting. No disclosure of the relationship value of
the Company's deposits is required by SFAS #107. Because of the Company's stable
core deposit base (which comprises 97% of total deposits), its non-use of
volatile funding sources such as brokered deposits, and a peer comparable
cost of deposits (actual cost in 1993 of 3.61% vs. a peer a of 3.44% as of
September 30, 1993), management believes the relationship deposits is
significant. Based upon limited secondary market transactions involving similar
deposits, management estimates the relationship value of these funding
liabilities to range between $14 million to $30 million less than their
estimated fair value shown above. There is no material difference between
the notational amount and the estimated fair value of off-balance sheet items
which total $173.8 million and are primarily comprised of unfunded loan
commitments which are generally priced at market at the time of funding.
Management is concerned that reasonable comparability of these disclosed
fair values between financial institutions may not be likely due to the wide
range of permitted valuation techniques and numerous estimates which must be
made given the absence of active secondary markets for many of the financial
instruments. This lack of uniform valuation methodologies also introduces a
greater degree of subjectivity to these estimated fair values.
13. INCOME TAXES
During the first quarter of 1993 the Company adopted Statement of Financial
Accounting Standards #109, "Accounting for Income Taxes." SFAS $NO109 utilizes
the liability method and deferred taxes are determined based on the estimated
future tax effects of differences between the financial statement and income tax
bases of assets and liabilities given the provisions of the enacted tax laws.
This adoption resulted in the recognition of a non-rec net benefit of $1,452,000
or $0.35 per share on a fully diluted basis. The ef standard on income tax
expense (exclusive of the cumulative effect adjustment) for December 31, 1993,
was not material.
The provision for federal income taxes (before SFAS $NO109 benefit) is
summarized
below:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Current $5,387 $5,330 $3,871
Deferred 97 110 (2,002)
Charge in lieu of
federal income taxes -- -- 1,004
Income tax provision prior
to extraordinary item $5,484 $5,440 $2,873
</TABLE>
The remaining net operating loss ("NOL") carryforward of $2,952,000 was
utilized to reduce federal income tax expense for financial reporting purposes
in 1991.
<PAGE>24
The reconciliation between the federal statutory tax rate and the Company's
effective consolidated income tax rate is as follows:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991
Amount Rate Amount Rate Amount Rate
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Tax expense based on federal statutory rate $5,682 34.4% $4,870 34.0% $3,122 34.0%
State income taxes 484 2.9 390 2.7 -- --
Basis differential of loan sales -- -- 187 1.0 -- --
Tax exempt income (785) (4.7) (675) (4.7) (445) (4.8)
Other 103 0.6 668 5.0 196 2.1
Total provision for income taxes before
extraordinary item $5,484 33.2% $5,440 38.0% $2,873 31.3%
</TABLE>
Deferred income taxes result from timing differences in the recognition of
revenue and expense for tax and financial reporting purposes. The following
table presents the impact on income tax expense of the principal timing
differences and the tax effect of each:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Provision for possible loan losses $(501) $405 $(189)
Lease accounting 68 (397) (255)
Accretion of discounts on securities, net 324 (157) 150
Deferred taxes not recorded due to NOL
carryforward -- -- (931)
Basis differential on security sales -- 59 (359)
Deferred loan fees 240 -- --
Other, net (34) 200 (418)
Total $97 $110 $(2,002)
</TABLE>
At December 31, 1993 and 1992, deferred taxes are included in the other assets
line item in the accompanying consolidated balance sheet. The following table
highlights the major components comprising the deferred tax assets and
liabilities for each of the periods presented:
<TABLE>
<CAPTION>
At December 31 1993 1992
(In thousands)
<S> <C> <C>
Deferred Assets:
Provision for loan losses $5,341 $3,268
Deferred loan fees 703 922
Other 32 --
Total assets 6,076 4,190
Deferred Liabilities:
Accumulated depreciation (1,172) (1,188)
Accretion of discount (422) (481)
Lease accounting (503) --
Other -- (222)
Total liabilities (2,097) (1,891)
Valuation Allowance (325) --
Net deferred assets $3,654 $2,299
</TABLE>
<PAGE>25
In August 1993, Congress passed the Omnibus Budget Reconciliation Act of
1993 which increased the corporate tax rate from 34% to 35% on income greater
than $10 million. As a result of this increase in the tax rate, the Company
recognized an approximate $100,000 addition to the net deferred tax asset. This
caused a corresponding benefit to the provision for income taxes.
14. PENSION AND PROFIT SHARING PLANS
U.S. Bank:
U.S. Bank has a trusteed, noncontributory defined benefit pension plan
covering all employees who work at least 1,000 hours per year for U.S. Bank or
the Company and who have not yet reached age 60 at their employment date. The
benefits of the plan are based upon the employee's years of service and average
annual earnings for the highest five consecutive calendar years during the
final ten-year period of employment. U.S. Bank's plan fun been to contribute
annually an amount within the statutory range of allowance actuarially
determined tax-deductible contributions. Plan assets are primarily debt
securities (including U.S. Agency and Treasury securities, corporate notes and
bonds), listed common stocks, mutual funds, and short-term cash equivalent
instruments.
Net periodic pension cost for the plan is as follows:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Service cost $372 $341 $363
Interest cost 339 298 333
Deferred asset gain (loss) 42 (138) 260
Amortization of transition asset (17) (17) (17)
Amortization of unrecognized
prior service cost (23) (23) (20)
Actual return on plan assets (421) (253) (641)
Amortization of gain (9) (37) (9)
Net periodic pension cost $283 $171 $269
</TABLE>
A reconciliation of the funded status of the plan to the recorded net
pension liability is as follows:
<TABLE>
<CAPTION>
At December 31 1993 1992
(In thousands)
<S> <C> <C>
Fair value of plan assets $4,817 $4,855
Projected benefit obligation (5,729) (4,552)
Overfunded (unfunded) projected
benefit obligation (912) 303
Unrecognized net transition asset (328) (345)
Unrecognized prior service cost (490) (512)
Unrecognized net loss (gain) 95 (793)
Net pension liability $(1,635) $(1,347)
</TABLE>
The actuarial present value of benefit obligations is as follows:
<TABLE>
<CAPTION>
At December 31 1993 1992
(In thousands)
<S> <C> <C>
Accumulated benefit obligation $3,999 $3,138
Vested benefit obligation $3,831 $2,804
</TABLE>
The following rate assumptions were used in the plan accounting:
<TABLE>
<CAPTION>
Jan. 1, Dec. 31, Jan. 1, Dec. 31,
Measurement Date 1993 1993 1992 1992
<S> <C> <C> <C> <C>
Discount rate
(weighted-average) 7.50% 6.50% 7.50% 7.50%
Rate of compensation
increases 4.00 3.50 4.00 4.00
Expected long-term rate
of return on plan assets
(weighted-average) 8.00 7.50 8.00 8.00
</TABLE>
The above pension disclosures include the information for the
supplemental plan for certain management employees which was implemented January
1, 1992.
U.S. Bank also has a trusteed deferred profit sharing plan with
contributions made by U.S. Bank based upon income as defined in the plan. All
employees of U.S. Bank and the Company who work over 1,000 hours per year
participate in the plan beginning on January 1 following six months of service.
Contributions to this profit sharing plan were $489, 1993; $500,000 in 1992; and
$474,000 in 1991. Plan assets are primarily debt securities including U.S.
Agency and Treasury securities, corporate notes and bonds), listed common stocks
(including shares of USBANCORP, Inc. common stock), mutual funds, and short-term
cash equivalent instruments.
Three Rivers Bank:
Three Rivers Bank has a trusteed, noncontributory defined benefit pension plan
covering all employees who work at least 1,000 hours per year and who have not
yet reached age 60 at their employment date. The benefits of the plan are based
upon the employee's years of service and average annual earnings for the highest
five consecutive calendar years during the final ten-year period of employment.
Three Rivers Bank's plan funding policy has been to contribute annually an
amount within the statutory range of allowable minimum an determined
tax-deductible contributions. Plan assets are primarily debt securities
(including U.S. Agency and Treasury securities, corporate notes and bonds),
listed common stocks , mutual funds, and short-term cash equivalent instruments.
<PAGE>26
Net periodic pension cost for the plan is as follows:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
Service cost $162 $110 $72
Interest cost 114 81 94
Deferred asset gain (loss) 54 (18) 50
Amortization of transition obligation 3 3 3
Amortization of unrecognized
prior service cost 27 -- --
Actual return on plan assets (144) (70) (133)
Amortization of loss -- -- 6
Net periodic pension cost $216 $106 $92
</TABLE>
A reconciliation of the funded status of the plan to the recorded net pension
(liability) prepaid asset is as follows:
<TABLE>
<CAPTION>
At December 31 1993 1992
(In thousands)
<S> <C> <C>
Fair value of plan assets $1,288 $1,163
Projected benefit obligation (2,946) (1,256)
Unfunded projected benefit obligation (1,658) (93)
Unrecognized net transition obligation 29 33
Unrecognized prior service cost 789 _
Unrecognized net loss 846 162
Adjustment to recognize
minimum required liability (818) _
Net pension (liability) prepaid asset $(812) $102
</TABLE>
The bank recognized in 1993 an intangible asset of $818,000 related to
the adjustment to recognize the minimum required liability due to unrecognized
prior service costs from amendments to plan benefits in 1993.
The actuarial present value of benefit obligations is as follows:
<TABLE>
<CAPTION>
At December 31 1993 1992
(In thousands)
<S> <C> <C>
Accumulated benefit obligation $2,147 $1,035
Vested benefit obligation $2,093 $1,013
</TABLE>
The following rate assumptions were used in the plan accounting:
<TABLE>
<CAPTION>
Jan. 1, Dec. 31, Jan. 1, Dec. 31,
Measurement Date 1993 1993 1992 1992
<S> <C> <C> <C> <C>
Discount rate
(weighted-average) 7.50% 6.50% 7.50% 7.50%
ate of compensation
increases 4.00 3.50 4.00 4.00
Expected long-term rate
of return on plan assets
(weighted-average) 8.00 7.50 8.00 8.00
</TABLE>
The above pension disclosures include the information for the
supplemental plan for certain management employees which was implemented July 1,
1993.
Three Rivers Bank also has a trusteed 401(k) plan with contributions made
by Three Rivers Bank matching those by eligible employees up to a maximum of 1%
of their annual salary. All employees of Three Rivers Bank who work over 1,000
hours per year are eligible to participate in the plan beginning on January 1
following six months of service. Three Rivers Bank's contribution to this 401(k)
plan was $27,000 in 1993; $24,000 in 1992;and $20,000 in 1991.
Community:
Eligible Community employees participated in a non-contributory defined
multi-employer pension plan through June 30, 1993. The net pension cost for
contributions made to the plan amounted to $80,000 for the six month period in
1993 and $40,000 for the 1992 plan year. Effective July 1, 1993, the Company
began the process of merging Community's employees into Three Rivers Bank
pension plan. It is the Company's intent to recognize the transfer in the 1994
financial statements. It is anticipated by management, based upon advice from
the Company's actuary, that this transfer will have no significant impact on the
bank's financial statements.
Except for the above pension benefits provided by each subsidiary, the Company
has no significant additional exposure for any other post-retirement benefits.
15. LEASE COMMITMENTS
The Company's obligation for future minimum lease payments on operating leases
at December 31, 1993, is as follows:
<TABLE>
<CAPTION>
Year Future Minimum Lease Payments
(In thousands)
<S> <C>
1994 $644
1995 456
1996 308
1997 276
1998 and thereafter (in total) 604
</TABLE>
In addition to the amounts set forth above, certain of the leases require
payments by the Company for taxes, insurance, and maintenance.
Rent expense included in total non-interest expense amounted to $493,000,
$414,000, and $364,000 in 1993, 1992, and 1991, respectively.
16. COMMITMENTS AND CONTINGENT LIABILITIES
The Company's banking subsidiaries incur off-balance sheet risks in the normal
course of business in order to meet the financing needs of their customers.
These risks derive from commitments to extend credit and standby letters of
credit. Such commitments and standby letters of credit involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
consolidated financial statements.
Commitments to extend credit are obligations to lend to a customer as
long as there is no violation of any condition established in the loan
agreement. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, commitment amounts
do not necessarily represent future cash requirements. The banking subsidiaries
evaluate each customer's creditworthiness on a case-by-case basis. Collat-
<PAGE>27
eral which secures these types of commitments is the same as for other types
of secured lending such as accounts receivable, inventory, and fixed assets.
Standby letters of credit are conditional commitments issued by the
banking subsidiaries to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public and private
borrowing arrangements, including normal business activities, bond financings
, and similar transactions. The credit risk involved in letters of credit is
essentially the same as that involved in extending loan of credit are issued
both on an unsecured and secured basis. Collateral securing transactions is
similar to collateral securing the subsidiary banks' commercial loans.
The Company's exposure to credit loss in the event of nonperformance by
the other party to these commitments to extend credit and standby letters of
credit is represented by their contractual amounts. The banking subsidiaries use
the same credit and collateral policies in making commitments and conditional
obligations as for all other lending. The Company had outstanding various
commitments to extend credit approximating $168,477,000 and standby letters of
credit of $5,367,000 as of December 31, 1993.
Additionally, the Company is also subject to a number of asserted and
unasserted potential claims encountered in the normal course of business. In the
opinion of management and legal counsel, neither the resolution of these claims
nor the funding of these credit commitments will have a material adverse effect
on the Company's consolidated financial position or results of operation.
17. INCENTIVE STOCK OPTION PLAN
In 1991, the Company's board of directors adopted an Incentive Stock Option
Plan authorizing the grant of options covering 128,000 shares of common stock.
Under the Plan, options can be granted (the "Grant Date") to employees with
executive, managerial, technical, or professional responsibility, as selected by
a committee of the board of directors. The option price at which a stock option
may be exercised shall be a price as determined by the committee, but shall not
be less than 100% of the fair market value per share of common stock on the
Grant Date. The maximum term of any option granted under the Plan cannot exceed
10 years. The following stock option activity was recognized:
<TABLE>
<CAPTION>
Shares Shares Option
Under Available Price
Option For Option Per Share
<S> <C> <C> <C>
Balance at December 31, 1991 29,000 99,000
Options granted -- --
Options exercised (1,666) -- 17.25
Options canceled or expired -- --
Balance at December 31, 1992 27,334 99,000
Options granted 27,500 (27,500) 22.56
Options exercised (5,000) -- 17.25
Options canceled or expired -- --
Balance at December 31, 1993 49,834 71,500
</TABLE>
On or after the first anniversary of the Grant Date, one-third of such
options may be exercised. On or after the second anniversary of the Grant Date,
two-thirds of such options may be exercised minus the aggregate number of such
options previously exercised. On or after the third anniversary of the Grant
Date, the remainder of the options may be exercised.
18. PREFERRED STOCK
On November 20, 1992, the Board of Directors authorized the redemption of all
outstanding shares of the Company's Series A $2.125 Cumulative Convertible
Non-Voting Preferred Stock. The redemption date was established as April 7,
1993. The Preferred Stock redemption presented shareholders with the choice of
either redeeming their shares at the redemption price of $25.638 per share or
converting their shares into 1.136 shares of the Company Stock. Shareholders of
only 53,283 shares opted to redeem their shares resuume redemption payout of
approximately $1.4 million; shareholders of 498,717 shares 90%) elected to
convert their shares. This conversion resulted in the issuance of 566,543 new
common shares.
19.DIVIDEND REINVESTMENT PLAN
The Company's revised Dividend Reinvestment and Common Stock Purchase Plan
provides each holder of Common Stock and Series A Preferred Stock (the "Eligible
Securities") with a method of purchasing additional common shares without
payment of any brokerage commission, service charge, or other similar expense. A
participant in the Plan may elect either to reinvest dividends on all of his
shares of Eligible Securities and/or to make optional co payments of not less
than $10 each purchase up to a maximum of $2,000 per quarter and continue to
receive regular dividend payments on his other shares. A participant may
withdraw from the Plan at any time.
The price of shares purchased by a participant in the Plan will be 100%
of the average of the daily high and low sales prices of the shares quoted on
the NASDAQ National Market System on the investment date. Since such additional
shares of Common Stock will be purchased directly from the Company, the Company
will receive additional funds for general corporate purposes. At December 31,
1993, the Company had 281,923 unissued reserved shares under the Plan.
<PAGE>28
20. SHAREHOLDER RIGHTS PLAN
Each share of the Company's Common Stock has attached to it one right (a
"Right") issued pursuant to a Shareholder Protection Rights Agreement, dated
November 10, 1989, (the "Rights Agreement"). Each Right will initially entitled
a holder to buy one-tenth of a share of the Company's Series B Preferred Stock
at a price of $40.00, subject to adjustment (the "Exercise Price"). The Rights
become exercisable if a person, group, or other entities acquires or announces a
tender offer for 20% or more of the Company's Common Stock. They can also be
exercised if a person or group who has become a beneficial owner of at least
10% of the Company's Common Stock is declared by the board of directors to be an
"adverse person" (as defined in the Rights Agreement). Under the Rights
Agreement, any person, group, or entity will be deemed a beneficial owner of the
Company's Common Stock if such person, group, or entity would be
deemed to beneficially own the Company's Common Stock under the rules of the
Securities and Exchange Commission which generally require that such person,
group, or entity have, or have the right to acquire within sixty days, voting or
dispositive power of the Company's Common Stock; provided, however, that the
Rights Agreement excludes from the definition of beneficial owner, holders of
revocable proxies, employee benefit plans of the Company its subsidiaries
and the Trust Company. After the Rights become exercisable, the Rights (other
than Rights held by a 20% beneficial owner or an "adverse person") will entitle
the holders to purchase, under certain circumstances, either the Company's
Common Stock or common stock of the potential acquirer having a value equal to
twice the Exercise Price. The Company is generally entitled to redeem the Rights
at $.01 per Right at any time until the twentieth business day following public
announcement that a 20% position has been acquired or the board of directors
has designated a holder of the Company's Common Stock an adverse person. The
Rights expire on November 10, 1994. The Rights Agreement may have the effect of
deterring or discouraging a non-negotiated tender or exchange offer for the
Company, the acquisition of a large block of the Company's Common Stock, and the
removal of the Company's management.
21. COMMUNITY BANCORP, INC. MERGER
Effective as of the beginning of business on March 23, 1992, the Company
merged Community Bancorp, Inc. with and into a newly formed subsidiary of the
Company with Community surviving the merger. Community Bancorp, Inc., a
Pennsylvania corporation, is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, whose sole direct subsidiary is
Community (formerly Community Savings Association), a Pennsylvania-chartered
FDIC-insured savings bank. Community has the following direct subsidiaries:
Community First Capital Corporation (a special purpose finance subsidiary),
Community First Financial Corporation (a subsidiary engaged in real estate joint
ventures), and Frontier Consumer Discount Company. In accordance with Federal
Reserve Board policy, the Company has committed to divest its equity investment
in Community First Financial Corporation within two years after the effective
date or such longer period as the Federal Reserve Board. The Company acquired
all of the outstanding common stock and stock options of Community Bancorp, Inc.
with Community Bancorp, Inc. shareholders receiving $14.1 million in cash and
388,213 shares of the Company's common stock. The total cost was $21,709,000.
The acquisition has been accounted for by the purchase method and, accordingly,
Community's assets and liabilities have been adjusted estimated fair values at
the effective date. The fair value of Community's net assets acquired exceeded
the purchase price by $2,677,000 which reduced the value assigned to the
premises and equipment of Community. The results of operations of Community for
the period from March 23, 1992, through December 31, 1992, amounting to
$2,980,000 of net income, was included in the Company's 1992 income statement.
The pro forma combined results of operations of the Company for the years
ended December 31, 1992 and 1991, after giving effect to the pro forma
adjustments as of the beginning of the periods, are as follows:
<TABLE>
<CAPTION>
Year ended December 31 1992 1991
(In thousands, except per share data)
<S> <C> <C>
Net interest income $46,272 $41,767
Provision for loan losses (2,754) (1,757)
Non-interest income 8,061 7,613
Non-interest expense (37,716) (35,451)
Provision for income taxes (4,948) (4,015)
Income before extraordinary item $8,915 $8,157
Income before extraordinary item
per common share:
Primary $2.60 $2.47
Fully diluted 2.47 2.28
<PAGE>29
22. BRANCHES ACQUISITION
On April 2, 1993, the Company's Three Rivers Bank subsidiary and Integra
National Bank/Pittsburgh consummated the acquisition of four Integra branch
offices ("Integra") located in the suburban Pittsburgh market area pursuant to a
Purchase and Assumption Agreement (the "Agreement"). In connection with the
transaction, Three Rivers Bank assumed $88.6 million in deposit liabilities and
purchased $12.1 million of assets; these assets consisted of: home equity and
other consumer loans; vault cash; furniture, fixtures, and equipment; real
estate together with improvements; and safe deposit box business. In addition,
Three Rivers Bank assumed certain other liabilities including contracts that
relate to the operation of the branches and real estate leases relating to one
branch and one ATM. In consideration for the assumption of the deposit
liabilities, Three Rivers Bank paid Integra a deposit premium million.
23. PARENT COMPANY FINANCIAL INFORMATION
The Parent Company functions primarily as a coordinating and servicing unit
for all subsidiary entities. Provided services include general management,
credit policies and procedures, accounting and taxes, loan review, auditing,
investment advisory, compliance, marketing, insurance risk management, general
corporate services, and financial and strategic planning. The following
financial information relates only to the Company operations
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET
At December 31 1993 1992
(In thousands)
<S> <C> <C>
ASSETS
Short-term investments $23 $--
Investment securities available for sale 24,902 1,430
Equity investment in banking
subsidiaries 95,029 85,030
Equity investment in non-banking
subsidiaries 691 566
Other assets 1,030 1,751
TOTAL ASSETS $121,675 $88,777
LIABILITIES
Long-term debt $3,124 $3,852
Other liabilities 1,936 1,954
TOTAL LIABILITIES 5,060 5,806
STOCKHOLDERS' EQUITY
Preferred stock -- 13,800
Common stock 11,815 7,456
Surplus 70,720 36,022
Retained earnings 34,080 25,693
TOTAL STOCKHOLDERS' EQUITY 116,615 82,971
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $121,675 $88,777
</TABLE>
<PAGE>30
<TABLE>
STATEMENT OF INCOME
<CAPTION>
Year ended December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
INCOME
Inter-entity management fees $2,988 $2,649 $2,641
Dividends from subsidiaries 3,927 11,328 2,991
Interest and dividend income 1,015 68 171
Total Income 7,930 14,045 5,803
EXPENSE
Interest expense on long-term debt 313 260 --
Salaries and employee benefits 2,201 2,222 1,557
Other expense 939 974 780
Total Expense 3,453 3,456 2,337
INCOME BEFORE
INCOME TAXES
AND EQUITY IN
UNDISTRIBUTED INCOME
OF SUBSIDIARIES 4,477 10,589 3,466
Provision for income taxes (74) -- (103)
Equity in undistributed
income of subsidiaries 7,955 (1,706) 3,929
INCOME BEFORE
EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT
OF CHANGE IN
ACCOUNTING PRINCIPLE 12,358 8,883 7,292
Extraordinary item--
reduction of federal income
taxes due to utilization
of net operating
loss carryforward -- -- 20
Cumulative effect of change
in accounting principle
(adoption of SFAS #109) 130 -- --
NET INCOME $12,488 $8,883 $7,312
</TABLE>
<TABLE>
STATEMENT OF CASH FLOWS
<CAPTION>
Year ended December 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $12,488 $8,883 $7,312
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
income of subsidiaries (7,955) 1,706 (3,929)
Net cash provided by operating
activities 4,533 10,589 3,383
INVESTING AND
FINANCING ACTIVITIES
Preferred stock cash dividends paid (397) (1,173) (1,173)
Common stock cash dividends paid (3,557) (1,959) (1,280)
Proceeds from issuance of
common stock 637 518 242
Secondary common stock offering 25,988 -- --
Redemption of preferred stock (1,368) -- --
Purchase of investment securities (22,002) -- --
Borrowings to fund
Community Acquisition -- 4,000 --
Cash cost of
Community Acquisition -- (14,106) --
Investment in subsidiaries (2,100) (1,260) --
Other--net (241) 1,069 (297)
Net cash used by investing and
financing activities (3,040) (12,911) (2,508)
NET INCREASE (DECREASE)
IN CASH EQUIVALENTS 1,493 (2,322) 875
CASH EQUIVALENTS AT
JANUARY 1 1,430 3,752 2,877
CASH EQUIVALENTS AT
DECEMBER 31 $2,923 $1,430 $3,752
</TABLE>
The ability of subsidiary banks to upstream cash to the Company is
restricted by regulations. Federal law prevents the Company from borrowing from
its subsidiary banks unless the loans are secured by specified assets. Further,
such secured loans are limited in amount to ten percent of the subsidiary banks'
capital and surplus. In addition, the subsidiary banks are subject to legal
limitations on the amount of dividends that can be paid shareholder. The
dividend limitation generally restricts dividend payments to a bank's retained
net income for the current and preceding two calendar years. Cash may also be
upstreamed to the Parent Company by the subsidiary banks as an inter-entity
management fee; these fees must be based upon the fair market value of services
provided by the Company. At December 31, 1993, the subsidiary banks were
permitted to upstream an additional $10,799,000 in cash dividends on a secured
basis $2,923,000 to the Company. The subsidiary banks also had a combined
$81,230,000 of restricted surplus and retained earnings at December 31, 1993.
The Company also had available at December 31, 1993, a $1 million unused
line of credit from a non-affiliated correspondent bank. This line of credit is
unsecured and is subject to annual review on September 30, 1994. Future
drawdowns on this line, if any, would be at a rate of "Prime." Additionally,
there is an annual commitment fee of 1/4% on any unused portion of the
line.
Based on the risk-based capital guidelines of the Board of Governors of
the Federal Reserve System, a bank holding company such as the Company, is
required to maintain a Tier 1 capital to risk-adjusted assets ratio of 4.00% and
total capital to risk-adjusted assets of 8.00%. At December 31, 1993, the
Company and each of its banking subsidiaries exceeded their respective
regulatory requirements.
<PAGE>31
24. SUBSEQUENT EVENT (unaudited)
The Company and Johnstown Savings Bank announced on January 18, 1994, that
they have reached agreement on revised terms to the definitive agreement
pursuant to which Johnstown Savings Bank ("JSB") would merge with United States
National Bank in Johnstown. The definitive agreement was signed by the parties
on November 10, 1993, and provided for the payment to JSB stockholders at the
closing of the merger .528 share of the Company's common stock and $11.03
in cash for each JSB share outstanding based upon an assumed market value of
the Company's common stock of $25.50. With a 55% stock and 45% cash split,
this represented a transaction value of approximately $47.5 million or $24.50
per JSB common share.
On December 20, 1993, the Company proposed that the definitive agreement
be amended to the effect that JSB stockholders would receive at closing .464
share of the Company's common stock and $9.68 in cash for each JSB share
outstanding based on an assumed market value of $25.50 for the Company's common
stock. At the average closing price of the Company's common stock for the ten
trading days immediately preceding the December 20th announcement, this
modification translated into an indicated transaction value or $21.02 per JSB
common share.
After negotiations, the parties executed an amendment to the definitive
agreement which provides that the Company will pay $10.13 in cash and a fraction
of a share of the Company's common stock based upon a formula relating to the
average closing price for the Company's common stock on the NASDAQ National
Market System for the ten trading days immediately preceding the closing date.
If the average closing price for the Company's common stock on the closing date
of the merger: (a) is less than or equal to $24.50 then the stock component
of the merger consideration will be .505 of a share of the stock; (b) is greater
than or equal to $25.50, then the stock component of will be .485 of a share
of the Company's common stock; and (c) is greater than but less than $25.50
per share, then the stock component of the merger considered determined by
dividing $22.50 by the average closing price and multiplying the resulting
amount by 55%. JSB has the right to terminate the amended agreement in the event
that the average closing price of the Company's common stock for the ten trading
days immediately preceding the closing is less than $20.50 per share.
At the time the amendment was signed by the parties, final for each party
provided a written opinion to the Boards of Directors of the Company and
Johnstown Savings Bank that the revised merger consideration set forth in the
amendment was fair from a financial point of view to the Company and the
stockholders of JSB.
The amendment further permitted JSB to seek bids for the merger or
acquisition of JSB from other interested parties until February 17, 1994. If any
bid exceeded the consideration provided for in the amendment, then JSB's Board
of Directors would have been free to terminate its agreement with the Company
and enter into an agreement with such bidder with no liability to the Company.
The Company's option to acquire up to 19.9% of the outstanding shares of JSB
was suspended during this marketing period.
On February 18, 1994, the Company and JSB announced the expiration of the
marketing period where JSB had the ability to seek a merger with a third party
at a higher price per share than agreed to by the Company. Johnstown Savings
Bank has informed the Company that it did not enter into a merger agreement with
another party and that by the terms of the agreement JSB will proceed with
the USBANCORP merger. Based upon a February 17, 1994, USBANCORP closing stock
price of $24.00, this would imply an acquisition cost approximately $43.3
million.
The transaction is subject to regulatory approvals and to the approvals
of the stockholders of the Company and Johnstown Savings Bank.
<PAGE>32
STATEMENT OF MANAGEMENT RESPONSIBILITY
January 28, 1994
To the Stockholders and
Board of Directors of
USBANCORP, Inc.
Management of USBANCORP, Inc. and its subsidiaries have prepared the
consolidated financial statements and other information in the "Annual Report
and Form 10-K" in accordance with generally accepted accounting principles and
are responsible for its accuracy.
In meeting its responsibility, management relies on internal accounting
and related control 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 proprietary 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. Arthur Andersen & Co. and the Company's internal auditors have direct
access to the Audit Committee.
/s/Terry K. Dunkle /s/Orlando B. Hanselman
Terry K. Dunkle Orlando B. Hanselman
Chairman, Executive Vice President,
President & CEO Chief Financial Officer
& Manager of Corporate Services
<PAGE>33
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of USBANCORP, Inc.:
We have audited the accompanying consolidated balance sheets of USBANCORP,
Inc. (a Pennsylvania corporation) and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The financial
statements of USBANCORP, Inc. as of December 31, 1991, was audited by other
auditors whose report, dated February 12, 1992, expressed an unqualified opinion
on that statement.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of USBANCORP, Inc. and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 13 to the Consolidated Financial Statements,
effective January 1, 1993, the Company changed its method of accounting for
income taxes.
/s/Arthur Andersen & Co.
Pittsburgh, Pennsylvania
January 28, 1994
(except for the matter discussed
in Note 24 as to which the date
is February 18, 1994).
February 12, 1992
To the Stockholders and Board of Directors of USBANCORP, Inc.
In our opinion, the consolidated statement of income, of cash flow, and of
changes in stockholders' equity for the year ended December 31, 1991, present
fairly, in all material respects, the results of operations and cash flows of
USBANCORP, Inc. and its subsidiaries (the "Company") for the year ended December
31, 1991, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of the Company
for any period subsequent to December 31, 1991.
/s/Price Waterhouse
600 Grant Street
Pittsburgh, Pennsylvania 15219
<PAGE>34
USBANCORP, INC.
MANAGEMENT'S DISCUSSION
AND ANALYSIS
FORM 10-K
<PAGE>35
THIS PAGE IS INTENTIONALLY LEFT BLANK.
<PAGE>36
MARKET PRICE AND DIVIDEND DATA
Common Stock
USBANCORP's Common Stock is traded on the NASDAQ National Market System under
the symbol "UBAN." The following table sets forth the high and low closing
prices and the cash dividends declared per share for the periods indicated:
<TABLE>
<CAPTION>
CLOSING PRICES Cash Dividends
High Low Declared
Year Ended December 31, 1993:
<S> <C> <C> <C>
First Quarter $26.50 $24.25 $0.20
Second Quarter 23.50 22.25 0.22
Third Quarter 26.50 22.25 0.22
Fourth Quarter 27.50 23.25 0.22
Year Ended December 31, 1992:
First Quarter $20.25 $17.00 $0.15
Second Quarter 20.25 18.75 0.20
Third Quarter 22.25 19.75 0.20
Fourth Quarter 23.00 20.50 0.20
</TABLE>
Preferred Stock
USBANCORP's Series A $2.125 Cumulative Convertible Preferred Stock was traded
in the over-the-counter market and was quoted on the NASDAQ National Market
System under the symbol "UBANP." The following table sets forth the range of the
high and low bid prices and the cash dividends declared per share for the
periods indicated:
<TABLE>
<CAPTION>
BID PRICES Cash Dividends
High Low Declared
Year Ended December 31, 1993:
<S> <C> <C> <C>
First Quarter $28.50 $24.50 $0.53125
Year Ended December 31, 1992:
First Quarter $27.50 $25.00 $0.53125
Second Quarter 27.25 25.00 0.53125
Third Quarter 28.50 25.50 0.53125
Fourth Quarter 28.50 25.00 0.53125
</TABLE>
The bid prices set forth in the above table for the Preferred Stock reflect
prices between dealers, do not include retail markups, markdowns, or commissions
, and do not necessarily represent actual transactions. All Preferred Shares
were converted to the Company's Common Stock or redeemed by April 7, 1993.
<PAGE>37
<TABLE>
<CAPTION>
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA
At or for the Year ended December 31, 1993 1992(1) 1991 1990 1989
(Dollars in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Summary of Income Statement Data:
Total interest income $85,735 $82,790 $66,446 $70,469 $69,237
Total interest expense 36,250 38,349 33,538 38,763 39,138
Net interest income 49,485 44,441 32,908 31,706 30,099
Provision for loan losses 2,400 2,216 900 915 945
Net interest income after provision
for loan losses 47,085 42,225 32,008 30,791 29,154
Total non-interest income 10,150 8,346 6,035 5,340 5,391
Total non-interest expense 40,715 36,248 28,862 27,198 27,783
Income before income taxes, extraordinary
item, and cumulative effect of change in
accounting principle 16,520 14,323 9,181 8,933 6,762
Provision for income taxes 5,484 5,440 2,873 2,745 1,957
Income before extraordinary item and
cumulative effect of change in
accounting principle 11,036 8,883 6,308 6,188 4,805
Extraordinary item--utilization of tax
loss carryforward -- -- 1,004 1,474 1,711
Cumulative effect of change in
accounting principle 1,452 -- -- -- --
Net income $12,488 $8,883 $7,312 $7,662 $6,516
Net income applicable to common stock $12,385 $7,710 $6,139 $6,489 $5,343
Per Common Share Data:
Primary Earnings:
Income before extraordinary item and
cumulative effect of change in
accounting principle $2.45 $2.67 $2.00 $1.97 $1.43
Net income 2.78 2.67 2.39 2.55 2.10
Fully Diluted Earnings:
Income before extraordinary item and
cumulative effect of change in
accounting principle 2.41 2.53 1.97 1.95 AD(9)
Net income 2.72 2.53 2.29 2.41 2.06
Cash dividends declared 0.86 0.75 0.55 0.15 --
Book value at period end(2) 24.67 23.08 21.71 19.85 17.43
Balance Sheet and Other Data:
Total assets $1,241,521 $1,139,855 $784,036 $774,403 $751,228
Loans and loans held for sale,
net of unearned income 727,186 648,915 430,151 445,814 446,046
Allowance for loan losses 15,260 13,752 13,003 12,470 12,315
Investment securities and investment
securities available for sale(3) 428,712 366,888 289,772 235,722 195,978
Deposits 1,048,866 997,591 676,698 674,176 658,817
Long-term debt 3,445 9,409 5,888 6,193 6,299
Stockholders' equity 116,615 82,971 70,023 65,050 58,827
Full-time equivalent employees 665* 644* 523 535 556
Selected Financial Ratios:
Return on average total equity before
extraordinary item and SFAS #109 benefit 10.13% 11.41% 9.39% 10.00% 8.60%
Return on average assets before
extraordinary item and SFAS #109 benefit 0.91 0.85 0.83 0.82 0.65
Loans and loans held for sale,
net of unearned income, as a percent of
deposits, at period end 69.33 65.05 63.57 66.13 67.70
Ratio of average total equity to
average assets 8.96 7.48 8.85 8.18 7.53
Common stock cash dividends as a percent of
net income applicable to common stock 32.28 28.16 22.94 5.90 --
Common and preferred stock cash dividends
as a percent of net income 32.84 37.64 35.30 20.31 18.00
Interest rate spread(4) 3.72 3.93 3.69 3.46 3.23
Net interest margin(5) 4.34 4.58 4.69 4.56 4.35
Allowance for loan losses as a percentage of
loans and loans held for sale, net of
unearned income, at period end 2.10 2.12 3.02 2.80 2.76
Non-performing assets as a percentage of
loans and loans held for sale and other
real estate owned, at period end(6) 0.89 1.58 1.10 0.87 0.94
Net charge-offs as a percentage of
average loans 0.13 0.58 0.08 0.17 0.28
Ratio of earnings to fixed charges and
preferred dividends(7):
Excluding interest on deposits 5.26x 4.05x 4.54x 3.87x 3.17x
Including interest on deposits 1.45 1.36 1.26 1.22 1.17
GAP ratio, at period end(8) 1.10 1.14 1.06 0.97 1.00
<FN>
(1) Includes the results of operation of Community for the period from March
23, 1992.
(2) Common stockholders' equity (total stockholders' equity less preferred
stock at redemption value) divided by outstanding common shares at period end.
(3) At September 30, 1992, USBANCORP classified its investment portfolio as
"available for sale."
(4) Represents the difference between the average yield earned on interest
earning assets, computed on a tax-equivalent basis, and the average rate paid on
interest bearing liabilities.
(5) Represents net interest income, computed on a tax-equivalent basis, as a
percentage of average total interest earning assets.
(6) See Note 7 of the Notes to the Company's Consolidated Financial
Statements.
(7) The ratio of earnings to fixed charges and preferred dividends is computed
by dividing the sum of income before taxes, fixed charges, and preferred
dividends by the sum of fixed charges and preferred dividends. Fixed charges
represent interest expense and are shown as both excluding and including
interest on deposits.
(8) Represents rate sensitive assets (interest earning assets which will
mature or reprice within one year) divided by rate sensitive liabilities
(interest bearing liabilities which will mature or reprice within one year).
(9) Anti-dilutive.
*Full-time equivalent employees in 1993 include 18 employees as a result of
the Integra Branches Acquisition.
Full-time equivalent employees in 1992 include 127 employees as a result of
the Community Acquisition.
</TABLE>
<PAGE>38
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain unaudited quarterly consolidated
financial data regarding the Company:
<TABLE>
<CAPTION>
1993 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $21,138 $21,847 $22,076 $20,674
Non-interest income 2,353 2,603 2,729 2,465
Total operating income 23,491 24,450 24,805 23,139
Interest expense 8,734 9,329 9,414 8,773
Provision for loan losses 600 600 600 600
Non-interest expense 9,894 10,340 10,656 9,825
Income before income taxes and
cumulative effect of change in
accounting principle 4,263 4,181 4,135 3,941
Provision for income taxes 1,346 1,333 1,400 1,405
Income before cumulative effect of change
in accounting principle 2,917 2,848 2,735 2,536
Adoption of SFAS #109 -- -- -- 1,452
Net income $2,917 $2,848 $2,735 $3,988
Net income applicable to common stock $2,917 $2,848 $2,735 $3,885
Primary Earnings Per Common Share:
Net income $0.62 $0.60 $0.58 $1.06
Fully Diluted Earnings Per Common Share:
Income before SFAS #109 benefit 0.62 0.60 0.58 0.61
Net income 0.62 0.60 0.58 0.96
Cash Dividends Declared Per
Common Share 0.22 0.22 0.22 0.20
</TABLE>
<TABLE>
<CAPTION>
1992 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $21,283 $22,181 $23,022 $16,304
Non-interest income 3,018 1,883 1,787 1,658
Total operating income 24,301 24,064 24,809 17,962
Interest expense 9,396 10,282 11,085 7,586
Provision for loan losses 705 705 561 245
Non-interest expense 10,033 9,201 9,328 7,686
Income before income taxes 4,167 3,876 3,835 2,445
Provision for income taxes 1,856 1,457 1,356 771
Net income $2,311 $2,419 $2,479 $1,674
Net income applicable to common stock $2,018 $2,126 $2,186 $1,380
Primary Earnings Per Common Share:
Net income $0.68 $0.72 $0.74 $0.53
Fully Diluted Earnings Per Common Share:
Net income 0.65 0.67 0.69 0.52
Cash Dividends Declared Per
Common Share 0.20 0.20 0.20 0.15
</TABLE>
<PAGE>39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ("M. D. & A.")
The following discussion and analysis of financial condition and results of
operations of USBANCORP should be read in conjunction with the consolidated
financial statements of USBANCORP, including the related notes thereto,
included elsewhere herein.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED
DECEMBER 31, 1993, 1992, AND 1991
PERFORMANCE OVERVIEW...The Company's net income for 1993 was $12,488,000 or
$2.72 on a fully diluted per share basis compared to net income of $8,883,000
or $2.53 per fully diluted share for 1992 and net income of $7,312,000 or
$2.29 per fully diluted share for 1991. The Company's current year net income
includes a $1,452,000 or $.35 per fully diluted share non-recurring benefit
due to the adoption of Statement of Financial Accounting Standards NO.109,
"Accounting for Income Taxes." (See further discussion under "Income Tax
Expense.")
Before the SFAS $NO109 benefit, 1993 net income was $11,036,000 or $2.41 per
fully diluted share. Similarly, the 1991 net income included a $1,004,000 or
$.31 per fully diluted share extraordinary income tax benefit resulting from
the full utilization of all remaining net operating loss carryforward. Before
this extraordinary item, 1991 net income was $6,308,000 or $1.97 per fully
diluted share. The Company's 1992 results were not impact extraordinary items.
When 1993 is compared with 1992, the Company's net income before the SFAS
#109 benefit increased by $2,153,000 or 24.2% while fully diluted earnings per
share decreased by $.12 or 4.7%. Similar trends were noted for two other key
performance ratios as the Company's return on assets before the SFAS $NO109
benefit improved by six-basis points to .91% while the return on equity before
the SFAS $NO109 benefit declined by 128 basis points 10.13%. The increase in
net income is attributed to the Company's ability to continue to enhance
Community's net income and the accretive impact of the purchase of the four
Integra branch offices. Additionally, net income and return on assets increased
due to continued core growth in non-interest income, increased gains realized on
the sale of investment securities available for sale, and the interest
earnings generated on $24.6 million of net funds provided from the Company's
secondary common stock offering completed in February 1993. This secondary
common stock offering resulted in the issuance of 1,150,000 new shares of the
Company's common stock causing a 30.5% increase in weighted average fully
diluted shares outstanding to approximately 4.59 million. The initial temporary
dilutive effect of these additional shares was the major factor responsible for
the $.12 decline in fully diluted earnings per share 128 basis point drop in
return on average equity experienced in 1993.
When 1992 is compared with 1991, each of the Company's key performance
indicators demonstrated improvement on a before extraordinary item basis. These
increased financial results reflect the accretive impact of the Community
Acquisition, increased gains realized on the sale of fixed-rate mortgage
loans held for sale and investment securities available for sale, and core
growth in non-interest income. The more significant 202 basis point increase
in return on equity as compared to the two-basis point improvement in return on
assets was due to increased
<PAGE>40
leveraging of the Company's capital as a result of the Community Acquisition.
The following table summarizes some of the Company's key performance
indicators for each of the past three years:
<TABLE>
<CAPTION>
Year Ended December 31 1993 1992 1991
(In thousands, except ratios)
<S> <C> <C> <C>
Net income $12,488 $8,883 $7,312
Net income (before extraordinary tax benefits) 11,036 8,883 6,308
Fully diluted earnings per share 2.72 2.53 2.29
Fully diluted earnings per share
(before extraordinary tax benefits) 2.41 2.53 1.97
Return on average assets 1.03% 0.85% 0.96%
Return on average assets
(before extraordinary tax benefits) 0.91 0.85 0.83
Return on average equity 11.46 11.41 10.88
Return on average equity
(before extraordinary tax benefits) 10.13 11.41 9.39
</TABLE>
IMPACT OF THE ACQUISITIONS...The Community Acquisition was consummated on
March 23, 1992, and was a key factor responsible for the Company's improved
earnings. The 1993 results include Community for the entire year compared to
only slightly over nine months for 1992. The 1993 earnings reflect a net income
contribution of $3,333,000 (before the favorable effect of SFAS NO.109) from
Community compared to a $2,980,000 net income contribution from Community for
1992. This net income increase of $353,000 resulted primarily from the
additional days of ownership and increased fee income as Community's total
non-interest income grew at an annualized rate of 13% in 1993.
The Integra Branches Acquisition, consummated on April 2, 1993, also had
a favorable impact on 1993 earnings. Due to conversion related expenses and lags
in the timing of settlement of investment security purchases, the net income
benefit that the Integra Branches Acquisition contributed for the second quarter
of 1993 amounted to approximately $70,000. This net income contribution from
Integra doubled to approximately $140,000 for each of the third and fourth
quarters making the total 1993 income contribution from this acquisition
$350,000.
In addition to the overall net income comparison mentioned above, these
acquisitions also caused a material increase in average earning assets, average
interest bearing liabilities, and the major income and expense line item
components. In addition to the increase in aggregate balances of average earning
assets andaverage interest bearing liabilities, the also a significant change
in balance sheet composition and loan loss reserve coverage. The following
discussion identifies the principal effects of the acquisitions, as well as,
underlying trends affecting USBANCORP.
NET INTEREST INCOME AND MARGIN...The following table summarizes the Company's
net interest income performance for each of the past three years:
<TABLE>
<CAPTION>
Year Ended December 31 1993 1992 1991
(In thousands, except ratios)
<S> <C> <C> <C>
Interest income $85,735 $82,790 $66,446
Interest expense 36,250 38,349 33,538
Net interest income 49,485 44,441 32,908
Tax-equivalent adjustment 740 808 541
Net tax-equivalent interest income $50,225 $45,249 $33,449
Net interest margin 4.34% 4.58% 4.69%
</TABLE>
<PAGE>41
When 1993 is compared to 1992, USBANCORP's net interest income increased
by $5.0 million or 11.0% while the net interest margin percentage declined by 24
basis points to 4.34%. The increased net interest income was due primarily to a
higher volume of earning assets resulting from the previously mentioned
acquisitions and the $24.6 million in net funds provided from the secondary
common stock offering. For 1993, total average earning a $167 million higher
than 1992. The contraction in the net interest margin percentage can be best
explained by the following factors:
- - The Company, through asset restructurings and effective asset liability
management practices, has stabilized Community's net interest margin in the
3.80% to 4.00% range while reducing Community's overall exposure to interest
rate risk. This current net interest margin represents an improvement over
Community's pre-acquisition net interest margin performance which averaged
2.84% for the fiscal year ended September 30, 1991. It is, however, lower
than the net interest margin operating performance of approximately 4.60%
experienced at the Company's other banking subsidiaries margin performance at
Community can be attributed to its more typical savings bank balance
sheet mix; this mix includes a greater proportion of one-to-four family
residential mortgage loans and more reliance on certificates of deposit, rather
than non-interest bearing demand deposit accounts, as a funding source. It is
the Company's intent to gradually improve Community's margin to a higher
operating level by diversifying the loan mix to include more rate sensitive and
shorter maturity commercial and consumer loans. This diversification of the loan
portfolio has already begun as commercial loans comprised 15% of Community's
total loan portfolio at December 31, 1993, compare only 4% at March 31, 1992. A
similar decline in the dependence on real estate was experienced as
Community's real estate loan portfolio composition percentage decreased from
82% to 74% between these same two dates. Continued pursuit of this loan mix
diversification strategy should allow the Company to further improve Community's
net interest margin from the current 3.80% to 4.00% level.
- - Since only $10 million of loans were acquired with the Integra branch
offices, the majority of the $88 million of acquired Integra deposits were
redeployed into investment securities. Additionally, $24.6 million of funds
provided from the secondary common stock issuance were also invested in the
securities portfolio. This initial dependence on the investment portfolio as
the primary source of return on these acquired deposits and stock issuance
proceeds was also a major factor contributing to the contraction in the
net interest margin percentage. It is management's intent to use a portion of
this excess investment portfolio liquidity to more profitably fund anticipated
loan growth in order to improve the net interest margin; this should be
achievable since the yield on currently originated loans ranges from 100 to
225 basis points more than the average fourth quarter 1993 yield of 5.54% in
the investment portfolio. This margin improvement, however, will be gradual
since the earning asset yield will continue to be negatively impacted by
regularly scheduled maturities and prepayments of higher yielding loans and
securities purchased or originated several years ago; the downward magnitude of
the repricing on these older earning assets will exceed the repricing benefits
experienced on the liability side of the balance sheet since the short-term
certificates of deposit and low cost core savings accounts have generally
already been repriced to current market rates.
<PAGE>42
When 1992 is compared with 1991, the Company's net interest income
increased by $11.8 million or 35.3% while the net interest margin percentage
declined by 11 basis points to 4.58%. The inclusion of Community's net interest
income of $11.7 million was the principal reason for the increase. Likewise,
the contraction in the net interest margin percentage was also attributed to
Community for the same reasons previously mentioned. The amount of the margin
contraction in 1992 was not as significant as that experienced in 1993 since
several of the asset restructuring strategies were not executed until the
fourth quarter of 1992. Additionally, a significant portion of the initial
favorable impact of deposit rate reductions designed to make Community's
pricing more consistent with bank competition and the Company's other
subsidiaries was experienced in 1992.
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) USBANCORP'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) USBANCORP'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 once the principal has been fully paid.
<PAGE>43
<TABLE>
<CAPTION>
Year ended December 31
1993 1992 1991
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net of
unearned income $708,690 $61,027 8.61% $623,087 $58,635 9.41% $435,462 $44,571 10.24%
Deposits with banks 4,885 127 2.60 6,584 324 4.92 8,409 712 8.47
Federal funds sold
and securities
purchased under
agreements to resale 12,850 383 2.98 12,601 426 3.38 14,613 820 5.61
Investment securities
and investment
securities available
for sale:
Taxable 376,461 21,494 5.71 307,127 21,395 6.97 249,846 20,569 8.23
Tax-exempt 37,097 2,098 5.65 24,227 1,604 6.62 4,872 315 6.4
Total investment
securities and
investment securities
available for sale 413,558 23,592 5.70 331,354 22,999 6.94 254,718 20,884 8.20
Assets held in trust
for collateralized
mortgage obligation 16,342 1,346 8.24 15,229 1,214 7.97 -- -- --
Total interest earning
assets/interest income 1,156,325 86,475 7.48 988,855 83,598 8.45 713,202 66,987 9.39
Non-interest earning assets:
Cash and due from
banks 32,181 29,083 28,167
Premises and
equipment 16,345 15,453 15,854
Other assets 24,776 20,925 15,252
Allowance for loan
losses (14,292) (13,782) (12,889)
TOTAL ASSETS $1,215,335 $1,040,534 $759,586
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing
demand $99,090 $2,030 2.05% $82,705 $2,320 2.81% $58,461 $2,288 3.91%
Savings 231,025 5,546 2.40 216,137 6,638 3.07 140,296 6,037 4.30
Other time 574,182 25,047 4.36 510,996 26,685 5.22 371,748 24,182 6.50
Total interest
bearing deposits 904,297 32,623 3.61 809,838 35,643 4.40 570,505 32,507 5.70
Federal funds purchased,
securities sold
under agreements
to repurchase and
other short-term
borrowings 14,486 359 2.48 10,452 281 2.69 11,786 624
Advances from
Federal Home
Loan Bank 23,711 1,163 4.90 6,115 463 7.57 -- --
Collateralized
mortgage
obligation 14,189 1,508 10.63 14,194 1,301 9.17 -- --
Long-term debt 7,560 597 7.90 8,360 661 7.91 5,943 407
Total interest bearing
liabilities/interest
expense 964,243 36,250 3.76 848,959 38,349 4.52 588,234 33,538 5.70
Non-interest bearing liabilities:
Demand deposits 122,699 103,398 94,655
Other liabilities 19,440 10,298 9,501
Stockholders' equity 108,953 77,879 67,196
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $1,215,335 $1,040,534 $759,586
Interest rate spread 3.72 3.93 3.69
Net interest income/net
interest margin 50,225 4.34% 45,249 4.58% 33,449 4.69%
Tax-equivalent
adjustment (740) (808) (541)
Net interest income $49,485 $44,441 $32,908
</TABLE>
<PAGE>44
Net interest income may also be analyzed by segregating the volume and
rate components of interest income and interest expense. The table below sets
forth an analysis of volume and rate changes in net interest income on a
tax-equivalent basis. For purposes of this table, changes in interest income
and interest expense are allocated to volume and rate categories based upon the
respective percentage changes in average balances and average rates. Changes
in net interest income that could not be specifically identified as either a
rate or volume change were allocated proportionately to changes in volume and
changes in rate.
<TABLE>
<CAPTION>
1993 vs. 1992 1992 vs. 1991
Increase (decrease) Increase (decrease)
due to change in: due to change in:
Average Average Average Average
Volume Rate Total Volume Rate Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans, net of unearned income $6,278 $(3,886) $2,392 $17,300 $(3,236) $14,064
Deposits with banks (70) (127) (197) (132) (256) (388)
Federal funds sold and
securities purchased under
agreements to resell 9 (52) (43) (101) (293) (394)
Investment securities and
investment securities
available for sale:
Taxable 497 (398) 99 2,511 (1,685) 826
Tax-exempt 682 (188) 494 1,281 8 1,289
Assets held in trust for
collateralized mortgage
obligation 90 42 132 1,214 -- 1,214
Total interest income 7,486 (4,609) 2,877 22,073 (5,462) 16,611
Interest paid on:
Interest bearing demand
deposits 794 (1,084) (290) 101 (69) 32
Savings deposits 504 (1,596) (1,092) 1,278 (677) 601
Other time deposits 4,928 (6,566) (1,638) 5,286 (2,783) 2,503
Federal funds purchased and
securities sold under
agreements to repurchase,
and other short-term
borrowings 98 (20) 78 (59) (284) (343)
Advances from Federal
Home Loan Bank 798 (98) 700 463 -- 463
Collateralized mortgage
obligation -- 207 207 1,301 -- 1,301
Long-term debt (63) (1) (64) 184 70 254
Total interest expense 7,059 (9,158) (2,099) 8,554 (3,743) 4,811
Change in net interest income $427 $4,549 $4,976 $13,519 $(1,719) $11,800
</TABLE>
Regarding the separate components of net interest income, the Company's
total interest income for 1993 increased by $2.9 million or 3.6% when compared
to 1992. This increase was due entirely to the previously mentioned $167 million
increase in the total volume of average earning assets which resulted in a $7.5
million increase in interest income between years. This positive factor was
offset by an unfavorable rate variance of $4.6 million a the Company's earning
assets have repriced downward in conjunction with the in interest rates.
Specifically, the yield on the loan portfolio has decreased 8.61% while the
yield on total investment securities and investment securities available for
sale as dropped 124 basis points to 5.70%. The national and local market trend
of accelerated customer refinancing of mortgage loans has contributed materially
to the declining yields experienced in both of these portfolios. Finally, the
previously mentioned increased dependence on investment securities as a
funding use has negatively impacted the earning asset mix.
<PAGE>45
The Company's total interest income increased $16.6 million or 24.8% for
the year ended December 31, 1992, compared to the same 1991 period as a
result of the Community Acquisition, which added $24.7 million of total interest
income. Excluding the Community Acquisition, USBANCORP's total interest income
decreased by $8.1 million or 12.1% over the prior year ended December 31, 1991.
This decrease was a result of a decline in interest rates that was partially
offset by a shift in the composition of average earning response to the
declining rate environment and reduced consumer and commercial loan demand,
USBANCORP shifted its average portfolio composition from short-term investments
such as interest bearing deposits with banks, federal funds sold and securities
purchased under agreements to resell to investments with longer average
maturities and higher yields. An emphasis was placed on the purchase of short
average life mortgage- and asset-backed securities which source of monthly cash
flow.
The Company's total interest expense for 1993 decreased by $2.1 million
or 5.5% when compared to 1992. This decline occurred despite an additional $7.1
million of interest expense generated from a $115 million increase in the volume
of average interest bearing liabilities. This negative factor was more than
offset by a $9.2 million favorable rate variance which resulted primarily from
management repricing all deposit categories downward declining interest rate
environment. The magnitude of the downward repricing was more pronounced at
Community as their deposit rate structure was reduced to levels more consistent
with bank competition and the Company's other banking subsidiaries. It has been
management's ongoing pricing strategy to position USBANCORP's deposit rates
within the lowest quartile of deposit rates offered by commercial banks in its
market area. Management believes that a constant level of high service
quality mitigates the impact of incremental downward rate movement deposit base
size and funds availability provided that the rates offered are not appreciably
below competition. Regarding the deposit mix, the Company has experienced a
shift of funds from short-term certificates of deposit into more liquid interest
bearing demand and savings accounts due to the narrowing of the rate spread
between these products and customer preference for liquidity in this low
interest rate environment. The Company has also used an add million (average
balance) of advances from the Federal Home Loan Bank to extend the liability
maturity base at Community in order to better manage interest rate risk.
These price and liability composition movements allowed USBANCORP to lower
the average cost of interest bearing liabilities by 76 basis points from
4.52% in 1992 to 3.76% in 1993.
USBANCORP's total interest expense increased to $38.3 million for 1992
from $33.5 million for 1991 as a result of the Community Acquisition. Excluding
the Community Acquisition, USBANCORP's total interest expense decreased $8.2
million for 1992 compared to 1991 primarily as a result of a decline in interest
rates, implementation of management's strategy of reducing deposit rates, and
lessening reliance on high cost certificates of deposit in excess of $100,000 by
$10.8 million. USBANCORP also experienced a shift from long-term into short-term
deposits due to the previously mentioned customer preference for liquidity in
the low rate environment that prevailed during the period. These price and
deposit composition movements, combined with the economic climate of declining
interest rates, allowed USBANCORP to lower the average cost of interest bearing
liabilities from 5.70% during 1991 to 4.52% during 1992.
PROVISIONS FOR LOAN LOSSES...USBANCORP's provision for loan losses in 1993,
1992, and 1991 was $2.4 million, $2.2 million, and $900,000, respectively. When
expressed as a percentage of average loans, the provision has averaged .34% for
1993, .36% for 1992, and .21% for 1991. The $200,000 or 9.0% increase in the
<PAGE>46
provision between 1993 and 1992 was due to the inclusion of a full year's
provision at Community. Similarly, the increase between 1991 and 1992 was
primarily because of a $1.3 million provision for loan losses made at Community.
As a result of these increased provision levels in 1992 and 1993, Community was
able to build its level of loan loss reserves to conform with USBANCORP's policy
and make its reserve coverage more consistent with banking industry levels.
Net charge-offs for 1993 were $892,000 or 0.13% of average loans and
loans held for sale compared to $3.6 million or 0.58% in 1992, and $367,000 or
0.08% in 1991. The 1993 amount represents a more recurrent net charge-off level
for the Company. The higher 1992 net charge-offs resulted primarily from
portfolio cleanup at Community immediately following the acquisition. The
provision for loan losses less net charge-offs in 1993 add $1.5 million to the
allowance for loan losses which increased to $15.3 million at December 31,
1993. (See additional discussion under "Allowance for Loan Losses.")
NON-INTEREST INCOME...Non-interest income for 1993 totalled $10.2 million
which represented a $1.8 million or 21.6% increase over 1992. This increase was
primarily due to an $855,000 increase in service charges on deposit accounts, a
$524,000 increase in trust fees, a $190,000 increase in realized gains on the
sale of investment securities classified as "available for sale," and a $92,000
increase in wholesale cash processing fees. These positive factors were
partially offset by a$144,000 decrease in gains realized on classified as "held
for sale."
The $855,000 or 44.6% increase in deposit service charges resulted partly
from higher deposit levels due to the acquisitions. Additionally, the other
significant part of this increase was due to the benefits of a revised deposit
service charge pricing strategy implemented at Community on March 1, 1993. As a
result of implementation of this pricing strategy, deposit service charges at
Community increased by approximately $400,000 in 1993. During the course of
1993, management has noted that customers at Community have adjusted their
savings patterns to minimize the impact of the new service charge pricing; and
consequently, as a result of these customer adjustments, management expects the
recurring benefit to decline to $300,000 annually. This new deposit service
charge pricing strategy has raised Community's fee structure to a level
commensurate with its banking competition and the Company's other banking
subsidiaries.
The $524,000 or 25.5% increase in trust fees resulted primarily from
continued successful business development efforts as total trust assets
(discretionary and non-discretionary) have grown by 45.1% since December 31,
1992, to $943 million at December 31, 1993. Specifically, corporate trust assets
grew by $98 million or 44%, employee benefit assets grew by $60 million or
26%, and personal trust assets grew by $75 million or 29% growth in personal
trust assets was fueled by the continued successful sales of the Pathroad
Account, a competitively priced mutual fund product. Trust income for 1993 was
also enhanced by a $75,000 increase in estate fees making the core trust fee
growth rate for the current period approximately 22%. This core trust fee growth
is prompted by the expansion of the Company's business throughout western
Pennsylvania including the Greater Pittsburgh marketplace. The Trust staff's
marketing skills combined with their ability to deliver quality service has
been the key to the Company's growth rate; and, while there can be no assurances
of continuation of this approximate 22% average annual trust fee growth
experienced over the past four years, these factors provide a foundation for
future growth of this important source of non-interest sensitive fee income.
The increase in realized gains on the sale of investment securities
available for sale resulted from the execution of several investment strategies
to capture available
<PAGE>47
market premiums on various mortgage-backed securities which had the
characteristics of low remaining balances and fast prepayment histories. Also,
the $92,000 increase in wholesale cash processing fees resulted from continued
growth in the customer base. Even though it was a $144,000 reduction from 1992,
the Company realized $593,000 in gains from the sale of approximately $22
million of 30-year fixed-rate residential mortgage loans which were originated
during 1993. These loans were classified as "held for sale" in accordance with
a previously disclosed strategy by the Company to sell new 30-year fixed-rate
mortgage products in an effort to help neutralize long-term interest rate risk.
Servicing rights amounting to approximately 35 basis points on the loan balance
outstanding were retained on these sold loans in order to provide the Company
with a recurrent source of fee income. Given the Company loan pricing strategy
of offering zero point mortgage loans at a slight pre-market rates,
management expects to generate modest gains from fixed rate mortgage sales each
quarter. The amount of the gain may, however, vary depending upon the volume of
new 30-year mortgage loan activity and market conditions at the time of sale.
Total non-interest income of $8.3 million increased by $2.3 million or
38.3% between 1991 and 1992. This increase in non-interest income was primarily
due to the Community Acquisition which added $1.45 million in non-interest
income and gains on sales of investments of $393,000. Of the $1.45 million of
non-interest income from Community, $737,000 resulted a gain recognized on the
sale of fixed rate mortgage loans.
Non-interest income, excluding net gains on the disposition of investment
securities available for sale and loans held for sale, increased by
approximately 19% for the year ended December 31, 1992, compared to the same
period for 1991. This increase in non-interest income was primarily due to an
increase in trust fees, wholesale cash processing fees, and service charges
on deposit accounts. Trust fees grew to $2.1 million or successful business
development efforts in both the personal trust and employee benefits areas.
The increase in wholesale cash processing fees was the result of the election by
several customers to be assessed actual fees instead of maintaining compensating
balances and overall growth in the customer base. The increase in service charge
income on deposit accounts was primarily due to higher volume of fees combined
with growth of a packaged deposit product.
NON-INTEREST EXPENSE...Total non-interest expense of $40.7 million increased
by $4.5 million or 12.3% when compared to 1992. This increase was primarily
caused by the following items:
- - a $1.5 million increase in other expense due in part to a loss on the
disposition of another real estate owned property which had a book value of
approximately $3.1 million. The Company initially took a $550,000 charge in
the second quarter of 1993 to write-down the property to its estimated fair
market value. When the property was finally sold in the fourth quarter of 1993,
the Company recovered $263,000 of the initial write-down making the net loss on
the transaction $287,000. Also contributing to expense increase was $183,000 of
amortization expense of the core deposit premium purchased. Integra deposits and
approximately $50,000 of final expenses related this same acquisition.
Additionally, there were approximately $300,000 of non-recurring expenses
incurred for a computer conversion at Community from an outside data processing
contractor toan in-house computer processing system at Three Rivers Bank
in the fourth quarter of 1993. Management expects to fully recover these
one-time conversion costs in 1994 as the efficiencies generated from a
centralized western region data
<PAGE>48
processing center is expected to generate $300,000 of ongoing annual
savings. Finally, in the fourth quarter of 1993, the Company also charged-off
$73,000 of remaining debt issuance costs due to the early retirement of the
mortgage bonds used to finance U.S. Bank's Main Office headquarter's facility.
This charge will be fully recovered in 1994 through improved net interest margin
performance as short-term investments and investment securities yielding
approximately 4.50% were liquidated to retire this $5,075,000 debt that had an
average cost of approximately 7%.
- - a $1,914,000 or 10.6% increase in salaries and employee benefits due to
planned wage increases approximating 4%, an additional 30 (average) full-time
equivalent employees due to the previously mentioned acquisitions and increased
group hospitalization expense.
- - a $464,000 or 15.8% increase in net occupancy expense due to the
additional branch facilities acquired, higher maintenance and repair costs, and
a $100,000 increase in depreciation expense due to a purchase price allocation
adjustmentrelated to Community.
Total non-interest expense of $36.2 million increased by $7.4 million or
25.6% for 1992 compared to 1991. Of this increase, $6.3 million was a result of
the Community Acquisition. The remaining increase of $1.1 million was primarily
due to increases in salaries and employee benefits, net occupancy expense,
equipment expense, professional fees, and FDIC deposit insurance expense.
Non-interest expense in 1992 included approximately $400,000 of non-recurring
expenses for fees paid to productivity consultants.
NET OVERHEAD BURDEN...Although non-interest expense has increased as a result
of the Community and Integra Branches Acquisitions, these acquisitions have
contributed favorably to lowering USBANCORP's net overhead ratios.
Specifically, the Company's ratio of net overhead expense (non-interest expense
less non-interest income) to net interest income has shown continued improvement
as it averaged 61.8% in 1993 compared to 62.8% in 1992 and 69.4% in 1991.
Furthermore, when the 1993 ratio is compared to the 1988 aver 83.8%, this
reflects a more dramatic decrease. Similarly, the Company's net overhead to
average assets ratio has improved from 3.01% in 1991 to 2.68% in 1992 to a
record low of 2.51% in 1993. Employee productivity has also increased annually
for each of the past five years as total assets per employee has increased
noticeably from $1.35 million in 1989 to $1.87 million in a 38% improvement. The
improvement in each of these net overhead measures demonstrates management's
ongoing commitment to achieving productivity enhancement operational
efficiencies, and economy of scale benefits. Management has targeted a goal of
reducing the Company's net overhead expense to net interest income ratio to 55%
over the five year strategic planning forecast. The successful acquisition of
JSB should allow the Company to reach this goal even sooner than originally
planned.
INCOME TAX EXPENSE...As discussed earlier, the Company adopted Statement of
Financial Accounting Standards $NO109, "Accounting For Income Taxes," in the
first quarter of 1993. This adoption resulted in the recording of a deferred
tax asset of $1,452,000 and a corresponding credit to the income statement as a
cumulative effect of change in accounting principle. Excluding this
non-recurring benefit, the Company's provision for income taxes was $5.5 million
reflecting an effective tax rate of 33.2%. This represented a tax expense
increase of $44,000 over 1992 due solely to the higher pre-tax income since the
effective tax rate between years declined as a result of increased tax-free
asset holdings.
<PAGE>49
The provision for income taxes was $5.4 million for 1992 compared to $2.9
million for 1991. The increase in the provision for income taxes in 1992 was
primarily due to the Community Acquisition and its higher effective combined
income tax rate. In addition, in 1991, the Company recognized a benefit of $1.0
million due to utilization of all remaining net operating loss carry forward.
SIGNIFICANT NON-RECURRING INCOME AND EXPENSE...In 1993, USBANCORP
recognized the net unfavorable effect of several non-recurring items
aggregating approximately $367,000. The largest items were $350,000 of expenses
related to the Community data processing and Integra branch conversions, a
$287,000 loss on an other real estate owned property, a $73,000 write-off of
bond issuance costs, and $343,000 of realized gains from fixed-rate mortgage
loan sales. (While heavily affected by economic and market circumstances, it
is management's expectation to generate recurrent annual income of $250,000
from its ongoing program of selling new 30-year fixed rate mortgage loans.
Accordingly, $343,000 of the total $593,000 of realized gains from fixed-rate
mortgage loan sales in 1993 are considered non-recurring.)
In 1992, USBANCORP recognized the net favorable effect of several
non-recurring items aggregating approximately $138,000. The largest items were a
$737,000 gain from fixed-rate mortgage loan sales and $400,000 of expenses
incurred for productivity consultants. In 1991, USBANCORP recognized the net
unfavorable effect of several non-recurring items aggregating approximately
$325,000, including a $300,000 negative interest accrual adjustment resulting
from certain clerical errors.
BALANCE SHEET...The Company's total consolidated assets were $1.242 billion at
December 31, 1993, compared with $1.140 billion at December 31, 1992, which
represents an increase of $102 million or 8.9%. This asset growth was funded
primarily by $51.3 million of increased deposits, $24.6 million of net cash
provided from the Company's secondary common stock offering in February 1993
(see further discussion under "Capital Resources") and $20 million of
advances from the Federal Home Loan Bank. These funds have been invested in the
loan and investment security portfolios which have increased by $73.3 million
and $61.8 million, respectively, since December 31, 1992. A $30.4 million
reduction in the Company's overnight federal funds sold position also was used
to fund the observed investment security and loan growth. This planned reduction
in the Company's overnight federal funds sold position resulted from
management's strategy to shift to a federal funds purchased position to enhance
the net interest margin by better leveraging the investment securities portfolio
in this low interest rate environment.
As a result of the low rate environment, less inflationary fears,
improved consumer confidence, and a moderate economic recovery, each of the
Company's banking subsidiaries experienced heightened loan demand in 1993.
Within the loan portfolio, each of the major loan categories experienced net
growth in the following amounts since December 31, 1992:commercial loans up
by $22.7 million or 29.5%, real estate-mortgage loans up by $39.8 million or
13.3%, consumer loans up by $9.5 million or 6.0%, and commercial loans secured
by real estate up by $200,000 or only .2%. The commercial loan growth resulted
from successful business development efforts in both regions of the Company's
marketplace which includes suburban Pittsburgh and Greater Johnstown. The net
growth in mortgage loans (including home equity) occurred despite the sale of
approximately $22 million of 30-year fixed-rate product that originated during
1993. The majority of the mortgage growth occurred at Community with
approximately 60% of this growth related to refinancing activity customers. The
net growth of consumer loans outstanding is noteworthy since it represents a
significant reversal
<PAGE>50
of the trend of net consumer loan run-off which had occurred throughout 1992.
Improved consumer demand, acquisition of Integra loans, and heavy marketing of
debt consolidation loans, combined with a general stabilizing of indirect auto
loan run-off, were the factors responsible for the increase in consumer loan
balances.
LOAN QUALITY...USBANCORP's written lending policies require underwriting, loan
documentation, and credit analysis standards to be met prior to funding any
loan. After the loan has been approved and funded, continued periodic credit
review is required. Annual credit reviews are mandatory for all commercial loans
in excess of $100,000 and for all commercial mortgages in excess of $250,000. In
addition, due to the secured nature of residential mortgages and the smaller
balances of individual installment loans, sampling techniques on acontinuing
basis for credit reviews in these loan areas.
The following table sets forth information concerning USBANCORP's loan
delinquency and other non-performing assets:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
At December 31 1993 1992 1991
(In thousands, except percentages)
Total loan delinquency
(past due 30 to 89 days) $10,428 $8,743 $8,667
Total non-accrual loans 5,304 5,596 3,358
Total non-performing assets(1) 6,498 10,291 4,745
Loan delinquency as a percentage
of total loans and loans held
for sale, net of unearned income 1.43% 1.35% 2.01%
Non-accrual loans as a percentage
of total loans and loans held for
sale, net of unearned income 0.73 0.86 0.78
Non-performing assets as a percentage
of total loans and loans held for
sale, net of unearned income, and
other real estate owned 0.89 1.58 1.10
<FN>
(1)Non-performing assets are comprised of (i) loans that are on a non-accrual
basis, (ii) consumer loans that are contractually past due 90 days or more as
to interest and principal payments and which are insured for credit loss, and
(iii) other real estate owned, including in-substance foreclosures. All loans,
except for loans that are insured for credit loss, are placed on non-accrual
status immediately upon becoming 90 days past due in either principal or
interest.
</TABLE>
At December 31, 1993, non-accrual loans and non-performing assets as a
percentage of total loans and loans held for sale, net of unearned income, and
other real estate owned were 0.73% and 0.89%, respectively. The decreases from
December 31, 1992, in each of these categories were due primarily to the
Company's ongoing loan work-out program which has been implemented at each
banking subsidiary. Overall, total loan delinquency (past due 30 to 89 days)
as a percentage of total loans, net of unearned income, totalled 1.43% at
December 31, 1993, and was relatively stable between years.
Potential problem loans consist of loans which are included in performing
loans, but for which potential credit problems of the borrowers have caused
management to have concerns as to the ability of such borrowers to comply with
present repayment terms. At December 31, 1993, all identified potential problem
loans were included in the preceding table.
ALLOWANCE FOR LOAN LOSSES...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, management of the Company makes a quarterly determination as to an
appropriate provision from earnings necessary to maintain an allowance for loan
losses that is adequate for potential yet undetermine losses. The amount
charged against earnings is based upon several factors including, at a
minimum, each of the following:
<PAGE>51
- - a continuing review of delinquent, classified and non-accrual loans,
large loans, and overall portfolio quality. This continuous review assesses the
risk characteristics of both individual loans and the total loan portfolio.
- - regular examinations and reviews of the loan portfolio by representatives
of the regulatory authorities.
- - analytical review of loan charge-off experience, delinquency rates, and
other relevant historical and peer statistical ratios.
- - management's judgment with respect to local and general economic
conditions and their impact on the existing loan portfolio.
When it is determined that the prospects for recovery of the principal of
a loan have significantly diminished, the loan 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.
USBANCORP has no credit exposure to foreign countries, foreign borrowers
or highly leveraged transactions.
The following table sets forth changes in the allowance for loan losses
and certain ratios for the periods ended:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991 1990 1989
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year: $13,752 $13,003 $12,470 $12,315 $12,607
Addition due to acquisition of
Community -- 2,122 -- -- --
Charge-offs:
Commercial 383 2,286 443 935 757
Real estate-mortgage 628 1,141 18 467 335
Consumer 750 1,031 770 1,010 1,290
Total charge-offs 1,761 4,458 1,231 2,412 2,382
Recoveries:
Commercial 338 291 332 861 761
Real estate-mortgage 27 166 157 405 43
Consumer 504 412 375 386 341
Total recoveries 869 869 864 1,652 1,145
Net charge-offs 892 3,589 367 760 1,237
Provision for loan losses 2,400 2,216 900 915 945
Balance at end of year $15,260 $13,752 $13,003 $12,470 $12,315
Loans and loans held for sale,
net of unearned income:
Average for the year $708,690 $623,087 $435,462 $447,932 $447,713
At December 31 727,186 648,915 430,151 445,814 446,046
As a percent of average loans and
loans held for sale:
Net charge-offs 0.13% 0.58% 0.08% 0.17% 0.28%
Provision for loan losses 0.34 0.36 0.21 0.20 0.21
Allowance for loan losses 2.15 2.21 2.99 2.78 2.75
Allowance as a percent of each
of the following:
Total loans and loans held for sale,
net of unearned income 2.10 2.12 3.02 2.80 2.76
Total delinquent loans
(past due 30 to 89 days) 146.34 157.29 150.00 171.40 202.20
Total non-accrual loans 287.71 245.75 387.22 507.74 366.08
Total non-performing assets 234.84 133.63 274.00 319.90 292.40
Allowance as a multiple of
net charge-offs 17.11x 3.83x 35.43x 16.41x 9.96x
</TABLE>
When December 31, 1993, is compared to December 31, 1992, the allowance
coverage ratios for non-accrual loans and non-performing assets increased due to
the previously discussed improvement in the Company's asset quality combined
<PAGE>52
with an increased balance in the allowance for loan losses. The December 31,
1993, allowance to total loans and loans held for sale, net of unearned income,
ratio of 2.10% declined by only two basis points from the December 31, 1992,
level of 2.12% despite the $78.3 million of growth experienced in the loan
portfolio. Community's non-performing assets declined by $1.3 million to
$3.0 million at December 31, 1992, due to $1.1 million of loans charged-off
against the allowance for loan losses during the second quarter of 1992. A
substantial portion of Community's loan charge-offs were commercial loans. These
charge-offs, which had been identified as part of the Company's pre-acquisition
due diligence, were offset by a loan loss provision of $1.3 million at Community
for the period ended December 31, 1992.
Typically, as in the case of Community, the loan portfolio of a savings
and loan association or savings bank contains a high proportion of secured
residential mortgage and consumer loans which are generally believed to have
less credit risk as compared to commercial loans. Over 80% of Community's loan
portfolio is residential mortgage and consumer loans historically have a lower
charge-off to loans percentage compared to commercial USBANCORP's policies
require greater allowance coverage for its subsidiaries than was required at
Community prior to its acquisition; in order to make the allowance coverage of
the loan portfolio consistent with USBANCORP's policy and general banking
industry levels, management increased the provision for loan losses at Community
in both 1992 and 1993 to build the reserve to conform with USBANCORP policy
requirements. At December 31, 1993 and 1992, management believed the allowance
for loan losses was adequate at each subsidiary bank inherent in the portfolio
at those dates. However, there can be no assurance the quality deteriorates in
future periods material additions to the allowance for loan losses will not be
required.
USBANCORP's management is unable to determine in what loan category
future charge-offs and recoveries may occur. The following schedule sets forth
the allocation of the allowance for loan losses among various categories. The
portion of the allowance allocated to general risk to protect the Company
against potential yet undetermined losses increased by $2.2 million to $7.6
million or 50% of the total allowance at December 31, 1993. This allocation is
based upon historical experience. The entire allowance for loan losses is
available to absorb future loan losses in any loan category.
<TABLE>
<CAPTION>
At December 31 1993 1992 1991 1990 1989
Percent of Percent of Percent of Percent of Percent o
Loans in Loans in Loans in Loans in Loans
Each Each Each Each Each
Category Category Category Category Category
Amount to Loans Amount to Loans Amount to Loans Amount to Loans Amount to Loans
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $1,637 13.6% $1,653 11.6% $4,963 27.6% $3,371 25.3% $3,568 26.0%
Commercial loans
secured by
real estate 4,073 17.2 4,416 19.1 * * *
Real estate-
mortgage 279 46.3 244 45.3 1,274 36.7 1,202 34.7 2,226 3.9
Consumer 1,636 22.9 2,002 24.0 1,169 35.7 1,870 40.0 1,949 40.1
Allocation to
general risk 7,635 5,437 5,597 6,027 4,572
Total $15,260 $13,752 $13,003 $12,470 $12,315
<FN>
*The historical information for this category was not available.
</TABLE>
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. The management and measurement of interest rate
risk at USBANCORP is performed by using the following tools: 1) Static "GAP"
<PAGE>53
analysis which analyzes the extent to which interest rate sensitive assets and
interest rate sensitive liabilities are matched at specific points in time; 2)
simulation modeling which analyzes the impact of interest rates changes on net
interest income and capital levels over specific future time periods by
projecting the yield performance of assets and liabilities in numerous varied
interest rate environments.
For static GAP analysis, USBANCORP typically defines interest rate
sensitive assets and liabilities as those that reprice within one year.
Maintaining an appropriate match is one method of avoiding wide fluctuations in
net interest margin during periods of changing interest rates. The difference
between rate sensitive assets and rate sensitive liability known as the
"interest sensitivity GAP." A positive GAPoccurs when rate sensitive assets
exceed rate sensitive liabilities repricing in the same time period and a
negative GAP occurs when rate sensitive liabilities exceed rate sensitive assets
repricing in the same time period. A GAP ratio (rate sensitive assets divided
by rate sensitive liabilities) of one indicates a statistically perfect match.
A GAP ratio of less than one suggests that a financial institution may be
better positioned to take advantage of declining interest rates rather than
increasing interest rates, and a GAP ratio of more than one suggests the
converse. Since 1987, USBANCORP has generally endeavored to one year GAP
position thereby minimizing the impact (either positive or changing interest
rates on both net interest income and capital levels.
The following table presents a summary of the Company's static GAP
positions at December 31, 1993:
<TABLE>
<CAPTION>
Over Over
3 Months 6 Months
3 Months Through Through Over
Interest Sensitivity Period or Less 6 Months 1 Year 1 Year Total
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Loans $148,799 $47,812 $63,311 $464,182 $724,104
Investment securities available
for sale and assets held in trust
for collateralized mortgage
obligation 80,998 34,586 88,063 235,629 439,276
Short-term assets 15,076 1,259 2,325 -- 18,660
Total $244,873 $83,657 $153,699 $699,811 $1,182,040
Rate sensitive liabilities:
Deposits:
Non-interest bearing deposits $-- $-- $-- $136,261(1) $136,261
NOW and Super NOW 48,893 -- -- 52,982 101,875
Money market 45,431 -- -- 71,221 116,652
Other savings 29,310 -- -- 203,401 232,711
Certificates of deposit of $100,000
or more 15,711 2,788 2,270 6,156 26,925
Other time deposits 102,192 91,261 72,224 168,067 433,744
Total deposits 241,537 94,049 74,494 638,088 1,048,168
Borrowings 18,950 1,077 7,154 3,072 60,253
Total $260,487 $95,126 $81,648 $671,160 $1,108,421
Interest sensitivity GAP:
Interval (15,614) (11,469) 72,051 28,651 $--
Cumulative $(15,614) $(27,083) $44,968 $73,619 $73,619
Period GAP ratio 0.94x 0.88x 1.88x 1.04x
Cumulative GAP ratio 0.94 0.92 1.10 1.07
Ratio of cumulative GAP to
total rate sensitive assets (1.32)% (2.29)% 3.80% 6.23%
<FN>
(1)USBANCORP considers its non-interest bearing deposit accounts to be stable
core deposits and accordingly have classified such deposits in the "over one
year" category to properly reflect their non-sensitivity to rate changes.
</TABLE>
There are some inherent limitations in using static GAP analysis to
measure and manage interest rate risk. For instance, certain assets and
liabilities may have similar maturities or periods to repricing but the
magnitude or degree of the repricing may vary significantly with changes in
market interest rates. As a result of these GAP
<PAGE>54
limitations, management places considerable emphasis on simulation modeling to
manage and measure interest rate risk. At December 31, 1993, these eight varied
economic interest rate simulations indicated that the variability of USBANCORP's
net interest income over the next twelve month period was below the Company's
$PM5% policy limit given positive or negative interest rate changes of up to 250
basis points; indeed these simulations show the greatest variability, $MI3.0%,
in an economic scenario of an extreme immediate 250 basis point decline in
interest rates.
Beginning September 30, 1992, USBANCORP's investment portfolio was
reclassified as "available for sale." This classification provides management
with greater flexibility to more actively manage the securities portfolio to
better achieve overall balance sheet rate sensitivity goals. Furthermore, it is
USBANCORP's intent to continue to diversify Community's loan portfolio to
increase liquidity and rate sensitivity and to better manage USBANCORP's
long-term interest rate risk.Specific rate sensitivity strategies were executed
in 1992 as approximately $30 million of Community's fixed rate mortgage loans
were sold with the proceeds reinvested into rate sensitive investment securities
with a significantly shorter weighted average maturity. This long-term interest
rate risk reduction strategy continued during 1993 a additional $22 million
of newly originated 30-year fixed rate mortgage loans were sold. Community
retained all servicing rights and will recognize fee income over the remaining
lives of the loans sold at an average rate of approximately 35 basis points on
the loan balances outstanding. The Company plans to continue to originate and
sell future fixed rate 30-year mortgages to help manage interest rate risk
and provide a source of recurrent servicing fee income.
LIQUIDITY...Financial institutions must maintain liquidity to meet day-to-day
requirements of depositor and borrower customers, take advantage of market
opportunities, and provide a cushion against unforeseen needs. Liquidity needs
can be met by either reducing assets or increasing liabilities. Normal sources
of asset liquidity are provided by short-term investment securities, time
deposits with banks, federal funds sold, banker's acceptances, and commercial
paper. These assets totaled $151 million at December 31, 1993, compared to $176
million at December 31, 1992. Maturing and repaying loans, as well as, the
monthly cash flow associated with certain asset- and mortgage-backed securities
are other sources of asset liquidity.
Liability liquidity can be met by attracting deposits with competitive
rates, using repurchase agreements, buying federal funds, or utilizing the
facilities of the Federal Reserve or the Federal Home Loan Bank systems.
USBANCORP's subsidiaries utilize a variety of these methods of liability
liquidity. At December 31, 1993, USBANCORP's subsidiaries had approximately
$89.6 million of unused lines of credit available under arrangements with
correspondent banks compared to $88.6 million at December lines of credit
enable USBANCORP's subsidiaries to purchase funds for short-term needs at
current market rates. Additionally, each of the Company's subsidiary banks
are members of the Federal Home Loan Bank which provides the opportunity to
obtain intermediate to longer-term advances up to approximately 80% of their
investment in assets secured by one to four family residential real estate;
based upon December 31, 1993, balances, this would suggest available FHLB
borrowing capacity of approximately $504 million. Furthermore, USBANCORP had
available at December 31, 1993, an unused $1 million unsecured line of credit.
Liquidity can be further analyzed by utilizing the Consolidated Statement
of Cash Flows. Cash equivalents decreased by $32 million from December 31, 1992,
to December 31, 1993. Both the financing and investing activities were
augmentedby the net $76.5 million in cash received from the Integra branches
acquired. Financing activities were also impacted by the net $24.6 million from
the secondary
<PAGE>55
common stock offering and the $10 million increase in advances from the
Federal Home Loan Bank. There was a decrease in net cash provided by
investing activities at December 31, 1993, primarily due to a net increase
in loans of $78.6 million and a net increase in the investment security
portfolio of $62.2 million. These increases were due to the redeployment of
Integra funds along with a reduction in the Company's short-term liquid assets.
EFFECTS OF INFLATION...USBANCORP's asset and liability structure is primarily
monetary in nature. As such, USBANCORP's assets and liabilities tend to move
in concert with inflation. While changes in interest rates may have an impact
on the financial performance of the banking industry, interest rates do not
necessarily move in the same direction or in the same magnitude as prices of
other goods and services and may frequently reflect goverment policy
initiatives or economic factors not measured by a price index.
CAPITAL RESOURCES...Total shareholders' equity at December 31, 1993, was
$116.6 million. This represented an increase of $33.6 million or 40.5% from
the December 31, 1992, level due to the completion of the secondary common
stock offering and from the retention of earnings (net of dividends paid)
during 1993. On February 10, 1993, USBANCORP completed the sale of 1,150,000
shares of common stock at an offering price of $24.50 per share. This
provided the Company with $26 million in proceeds after payment of related
issuance expenses. Approximately $1.4 million of the offering proceeds were
used to redeem the remaining unconverted Series A Preferred Stock on April 7,
1993. Of the offering proceeds, $2 million was downstreamed as a capital
infusion into Three Rivers Bank on April 5, 1993, in connection with the
Integra Branches Acquisition to adequately capitalize the $88 million of
deposits acquired. The remaining offering proceeds of $22.6 million will be
used by USBANCORP for general corporate purposes and other accepted
shareholder total return enhancement strategies. Specifically, in 1994 the
Company will use approximately $20 million of these funds to assist in the
financing of the JSB acquisition. The following table highlights the
Company's compliance with the required regulatory capital ratios for each of
the periods presented:
<TABLE>
<CAPTION>
At December 31 1993 1992
Amount Ratio Amount Ratio
(In thousands, except ratios)
<S> <C> <C> <C> <C>
Risk Adjusted Capital Ratios
Tier 1 capital $1,113,718 14.72% $1,180,483 11.29%
Tier 1 capital minimum 30,893 4.00% 28,518 4.00
Excess $1,182,825 10.72% $1,151,965 7.29%
Total capital 123,372 15.97 89,395 12.54
Total capital minimum 61,787 8.00 57,036 8.00
Excess $1,161,585 7.97% $1,132,359 4.54%
Total risk adjusted assets $1,772,333 $1,712,944
Asset Leverage Ratio
Tier 1 capital 113,718 9.18 80,483 7.08
Minimum requirement 61,931 5.00 56,868 5.00
Excess $1,151,787 4.18% $1,123,615 2.08%
Total adjusted assets $1,238,624 $1,137,367
</TABLE>
<PAGE>56
As the previous table indicates, the Company exceeds all regulatory
capital ratios for each of the periods presented. The significant increase in
each of the regulatory capital ratios at December 31, 1993, was a direct
result of the successful secondary common stock offering discussed earlier.
Furthermore, each of the Company's subsidiary banks are considered "well
capitalized" under all applicable FDIC regulations. While remaining committed
to maintaining this "well capitalized" designation, the Company will
prudently pursue throughout 1994 appropriate strategies to improve its
leveraging and use of capital to enhance total shareholder return.
The Company's declared common stock cash dividend per share was $.86 for
1993 which was a 14.7% increase over the $.75 per share dividend for 1992.
The current dividend yield on the Company's common stock now approximates
3.5% compared to an average Pennsylvania bank holding company yield of
approximately 2.5%. The Company remains committed to a progressive total
shareholder return which includes a competitive common dividend yield.
FUTURE OUTLOOK...The Company will look to build upon the successes achieved in
1993 as we begin to address the challenges and opportunities of 1994. Numerous
strategies are being explored to ensure that the Company continues to provide
a progressive total shareholder return. Paramount among the challenges faced
is the Company's desire to better leverage its capital strength. The
successful acquisition of JSB, which is expected to be consummated by the end of
the second quarter of 1994, will be a key element in helping to leverage the
Company's capital base. The Company will also leverage its capital base by a
more extensive use of the borrowing capabilities available from the Federal
Home Loan Bank now that each of its subsidiary banks is a member. In 1994,
USBANCORP will also execute its announced treasury stock repurchase
program with the intent, dependent upon market circumstances, to buy back up
to 5% of the total common shares outstanding. Management will continue to
re-evaluate its dividend policies throughout the year in an ongoing effort to
ensure a competitive dividend yield. Each of these actions will be directed
to the goal of improved capital usage and leverage.
The Company also expects to improve its core financial performance by
focusing on several key areas in 1994: continued diversification of the
earning asset mix emphasizing more reliance on loans rather than investments
as a source of return; restructuring of the investment portfolio to obtain
yield enhancements while maintaining credit quality and adequate liquidity;
careful, policy-controlled use of hedging tools such as derivative products to
aid in the overall management of interest rate and market value risk;
continued growth of key non-interest income generating businesses such as the
Trust Company, mortgage servicing, and the wholesale cash processing division;
diligent control of non-interest expense growth with ongoing focus on
achieving further productivity improvements; and reduced loan loss provision
levels provided that the Company continues to maintain better than peer asset
quality and net charge-off levels. Successful execution of these strategies
will provide for growth in earnings per share which the Company believes is a
critical element to enhancing total shareholder value. Without the JSB
acquisition, which will initially be moderately dilutive to earnings per share
(exclusive of certain non-recurring acquisition charges) and book value, and
prior to consideration of the effect of the SFAS NO.109 benefit in 1993,
management generally expects to recognize an earnings per share improvement
of between 7.5% and 10.0% in 1994.
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Overall corporate performance in 1994 will be greatly affected by the
consummation of the JSB acquisition which is expected to occur during the
second quarter of 1994. USBANCORP anticipates recognizing approximately six
months of earnings in 1994 from this latest acquisition; for the year ended
December 31, 1993, JSB reported net income of $3,361,000. The Company
will also recognize monthly after-tax purchase accounting net charges of
approximately $120,000. Additionally, non-recurring acquisition expenses,
including such items as severance and professional fees, will be recognized in
the quarter of consummation and are estimated to approximate $1,700,000
after-tax. Finally, the Company will issue approximately 982,000 additional
common shares to effect the merger. Each of these items in significant
impact to the financial performance reported by USBANCORP during 1994.
Management continues to believe that the JSB acquisition will become accretive
to the Company's earnings during 1996 once all cost reductions and earnings
enhancement opportunities have been successfully identified and implemented.
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