USBANCORP, INC.
1994 ANNUAL REPORT AND FORM 10-K
We measure our success by the satisfaction that each customer and
each community derives from a relationship with us. A
progressive total shareholder return is a direct result of our
success in remaining a customer and community focused banking
company.
With majesty and the power of flight, the Eagle has earned the
name, "King of Birds." Since ancient times it has been
recognized as a symbol of strength. Today there is no better
symbol for your Company. Strong, powerful and enduring ... these
are the qualities we demand on your behalf.
Documented here are the results of your Company's achievements
during 1994. Special care has been taken to ensure the
completeness of the information you will read. Selected as the
1992 and 1993 "Best in the Industry" by the National Association
of Investors Corporation, and winner of three Financial World
Magazine Bronze Awards for 1991, 1992, and 1993, your Company's
annual report is a nationally recognized standard within the
industry.
USBANCORP, INC.
1994 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
Service area map 11
Consolidated balance sheet 15
Consolidated statement of income 16
Consolidated statement of changes in
stockholders' equity 17
Consolidated statement of cash flows 18
Notes to consolidated financial statements 21
Statement of management responsibilities 40
Report of Independent public accountant 41
Market price and dividend data 44
Selected five year consolidated financial data 45
Selected quarterly consolidated financial data 46
Management's discussion and analysis 47
Form 10-K 72
USBANCORP Directors and general officers 95
Subsidiaries' directors, general officers,
and advisory boards 96
Office locations 99
Shareholder information 100
Graph analysis for document Annex A
Amended and Restated Bylaws Exhibit 3.2
Agreement between USBANCORP, INC. and Terry K.
Dunkle Exhibit 10.2
Agreement between USBANCORP, INC. and W. Harrison
Vail Exhibit 10.3
Agreement between USBANCORP, INC. and Louis
Cynkar Exhibit 10.4
Agreement between USBANCORP, INC. and Dennis J.
Fantaski Exhibit 10.5
Agreement between USBANCORP, INC. and Orlando B.
Hanselman Exhibit 10.8
Amended and Restated Stock Option Plan Exhibit 10.9
Agreement between USBANCORP, INC. and Ronald W.
Virag Exhibit 10.10
Agreement between USBANCORP, INC. and Kevin J.
O'Neil Exhibit 10.11
<PAGE>1
See annex A for graph analysis
<PAGE>2
USBANCORP, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
% Increase
1994 1993<F1> (Decrease)
FOR THE YEAR (In thousands, except per share and ratio data)
<S> <C> <C> <C>
Net interest income $55,818 $49,485 13
Net income 11,320 12,488 (9)
Net income before acquisition
charge and SFAS #109 benefit 13,202 11,036 20
Performance ratios:
Return on average assets before
acquisition charge and SFAS
#109 benefit 0.87% 0.91% (4)
Return on average equity before
acquisition charge and SFAS
#109 benefit 10.41 10.13 3
Net interest margin 4.03 4.34 (7)
Net charge-offs as a percentage
of average loans, net of unearned
income 0.04 0.13 (69)
Loan loss provision as a
percentage of average loans,
net of unearned income (0.34) 0.34 (200)
Net overhead expense (excluding
acquisition charge) as a
percentage of average assets 2.32 2.51 (8)
PER COMMON SHARE
Net income:
Primary $2.18 $2.78 (22)
Fully diluted 2.18 2.72 (20)
Fully diluted before acquisition
charge and SFAS #109 benefit 2.54 2.41 5
Cash dividends declared 0.97 0.86 13
Dividend payout ratio 44.57% 32.01% 39
Price earnings ratio before
acquisition charge and SFAS
#109 benefit 8.27x 9.85x (16)
AT YEAR END
Total assets $1,788,890 $1,241,521 44
Investment securities:
Available for sale 259,462 428,712 (39)
Held to maturity 524,638 - 100
Loans and loans held
for sale, net of unearned
income 868,004 727,186 19
Allowance for loan losses 15,590 15,260 2
Goodwill and core deposit
intangibles 27,009 2,897 832
Deposits 1,196,246 1,048,866 14
Stockholders' equity 137,136 116,615 18
Trust assets (discretionary
and non-discretionary) 1,027,253 942,587 9
Non-performing assets 7,901 6,498 22
Non-performing assets as a
percentage of loans and
loans held for sale, net
of unearned income, and
other real estate owned 0.91% 0.89% 2
Capital ratios:
Common equity 7.67 9.39 (18)
Total risk-based 13.70 15.97 (14)
Asset leverage 6.64 9.18 (28)
Per common share:
Book value $24.57 $24.67 -
Market value 21.00 23.75 (12)
Market price to book value
ratio 85.47% 96.27% (11)
Assets per employee $2,293 $1,867 23
STATISTICAL DATA
AT YEAR END
(Amounts not rounded)
Full-time equivalent
employees 780 665 17
Branch locations 45 41 10
Common shareholders 6,360 4,702 35
Common shares outstanding 5,582,155 4,726,181 18
<F1> All Preferred shares were either converted to Common Stock or
redeemed by April 7, 1993.
</TABLE>
NASDAQ Symbol: Common Shares-UBAN
<PAGE>3
See Annex A for graph analysis
<PAGE>4
MESSAGE TO THE SHAREHOLDER
Dear Shareholder:
FINANCIAL REVIEW
The year 1994 was a mixed period of strategic triumphs and
financial tribulations. Our pre-tax income, exclusive of the
one-time acquisition charge related to the intra-market purchase
of Johnstown Savings Bank, reached a five year high of $19.7
million, 120% better than 1990; our year-end stock price at
$21.00 per share was 11.5% lower than year-end 1993, but 65%
higher than year-end 1990. Our net interest income recorded a
tenth consecutive year of increase, reaching $55.8 million or 76%
greater than for 1990; our net interest margin percentage
declined by 31 basis points to a recent annual historic low of
4.03%. Our total assets jumped during 1994 by 44% to $1.79
billion at year-end, a corporate record; our net loans and loans
held for sale rose just 19.7% to $868 million at December 31. The
underlying reasons for each of these financial observations are
carefully and comprehensively explained in the "Financial
Condition and Results of Operations" management discussion and
analysis beginning on page 47 of this report. You are encouraged
to read this material to better understand your Company's
performance and the soundness of your investment. And as we all
enter 1995, we now are able to review the year just ended with
the unfettered vision provided by hindsight.
We are not in the business of predicting interest rates, although
much of our net revenues are dependent upon them. Instead, we
manage our banking business to prudently seize occasional market
opportunities when they become available as in our investment
leverage program and to insulate ourselves from excessive rate
volatility through our hedging and well-developed interest rate
risk management discipline. At the writing of our 1993 message to
you, we would not have correctly forecasted six Federal Reserve
rate increases aggregating 250 basis points for 1994; the speed,
frequency, and total of the rate moves would have exceeded our
year-end 1993 expectation, had we boldly and unnecessarily
ventured such a prediction. During mid-year 1994, we began,
however, to reposition your Company for the rising rate
environment in which we find ourselves. We strategically
repositioned our $784 million investment portfolio substantially;
at December 31, 1994, our portfolio has a weighted average
maturity of just 3.8 years (up slightly from 2.8 years at
year-end 1993), a weighted average coupon of 6.84% (up sharply
from 5.45% at December 31, 1993), and a 25% variable rate
composition (up from only 15% at year-end 1993). And today we
have in place $100 million of off-balance sheet hedges through
which we are partially protected from further rate hikes through
September 28, 1995. In review, we would have done more,
longer-term hedging - had we just known the vigor of the Federal
Reserve's anti-inflation quest.
We are in the business of managing an efficient banking delivery
system. At December 31, 1994, we reached assets per employee of
$2.3 million, a five year productivity performance high bettering
1990 by 58%. We lowered our net overhead expense (excluding the
acquisition charge) to average assets to 2.32% from 2.89% in
1990, a third consecutive improving year. In 1993 we told you
that we expected $3.8 million annually in pre-tax savings upon
full integration of the intra-market Johnstown Savings Bank
acquisition. We realized $1.4 million pre-tax of this opportunity
in 1994. More importantly, the net interest margin enhancements,
the 50% employee downsizing, the business re-engineerings, and
the processing conversions are substantially completed entering
1995. The annual pre-tax earnings enhancements are not, however,
going to be $3.8 million pre-tax;
<PAGE>5
commencing in 1995, we estimate them to be closer to $5.0 million
pre-tax. These consolidation economies alone allow for related
recovery of the acquisition's goodwill and core deposit
intangibles in approximately five years. Better still, the
amortization of intangibles are non-cash charges to income and
the savings are real "in your pocket" cash. In hindsight, we
would have been more bullish with our earliest disclosed
intra-market savings estimates.
We began a common stock repurchase plan in July 1994. At the
close of the year, we had repurchased 127,700 of our shares as
treasury stock at a total cost of $3,064,000 or at just under an
average price per share of $24.00, less than our reported book
value per share. Our earnings per share improved because of this
repurchase program. In retrospect, we would have bought more
shares and begun the program earlier.
In hindsight, 1994 was, on balance, a respectable, but not
satisfying year financially for your Company. We positioned
ourselves strategically for continued financial improvement and
the achievement of a progressive total shareholder return in 1995
and beyond. We overcame many challenges and obstacles with the
dedicated support of our shareholders and boards of directors,
the leadership of your management and the committed effort of our
employees. Our fortitude and perseverance were tested by an
unresponsive stock price trend during the latter part of the
year, a trend similar to that observed throughout the banking
industry. But we remain confident in our plans and our people;
and, we will continue our proven strategies with the anticipation
that the market will ultimately rally and reward our progress.
BEYOND THE FINANCES
Your Company is achieving the challenging goal of providing the
progressive total shareholder return investors demand, while
strategically delivering the quality banking services that our
customers expect. This capability results from our success in
applying the resources of a regional $1.8 billion dollar banking
company to a network of small community banks which emphasize
premier quality service delivered on a personal basis. As this
approach guides us into 1995, one of our leading priorities
continues to be the positioning of our banks as invaluable
members within the communities we serve.
Senior management's efforts to position your Company as a
community banking leader are aided by three key elements, all of
which are currently in place: 1) senior management and board
members at each subsidiary live and work within their bank's
service area; 2) each bank offers quality customer service along
with a diverse product line which fosters a total customer
relationship; and 3) each bank is an energetic supporter of
community improvement and creates goodwill within the community
it serves. These three components strengthen the very foundation
that will continue to support future growth and profitability.
The first component of a successful community banking plan
requires active participation in the local community by your
Company's senior management and board of directors. A board
comprised of directors who live and work within the communities
they serve is becoming a rarity within a financial world where
competitors race to grow at all costs. While USBANCORP's holding
company board provides operational support and strategic guidance
for all subsidiaries, each bank's senior officers and local board
are responsible for daily management and the challenge of forging
a stronger bond between the bank and its community. Our
<PAGE>6
bank boards provide the communities we serve with local
decision-making authority, enabling a quick response to community
needs and providing the assurance that senior management and
board members are accessible to customers.
To address the second component of a successful community banking
plan, your Company is focusing energy on providing a diverse and
useful product line, highlighting customer-friendly "packages of
banking services" that involve our customers in multiple banking
relationships. Research confirms that the greater number of
accounts a customer has with a financial institution, the more
loyal the customer becomes to that financial institution.
Products such as the Three Rivers Bank Direct Deposit Plus, the
U.S. National Bank Value+Plus, and the Community Savings Bank
College Account feature deposit and lending products combined
into one account designed to appeal to a specific segment within
each market area. New product introductions follow this same
approach. The Prestige Banking Account, formally introduced in
1994 at all three affiliates, presents the affluent customer with
a banking package which includes an interest-bearing checking
account, a preferred line of credit, a VISA Gold credit card and
special MAC privileges. All three affiliates have also been
promoting bank accounts packaged for low- and moderate-income
families. By meeting income guidelines, customers become eligible
for low interest personal loans, reduced fee or no fee checking
services and smaller down-payment mortgages. Because each
USBANCORP affiliate is managed at the bank level, each product
can include customized pricing for the bank's own customers and
market conditions. The "packaged" account approach is
successfully developing a more loyal customer base and is
enhancing USBANCORP's reputation as a company which responds to
the banking needs of its communities with practical and
affordable products, delivered by employees dedicated to
providing superior customer service.
Your Company measures its success by the satisfaction that each
customer and each community derives from a banking relationship
with us. A progressive total shareholder return is a direct
result of our success in focusing on our customers and the
communities we serve. Defining what it takes to continuously meet
and exceed customer and community desires has been an active
responsibility throughout 1994. Immediately preceding the
affiliation of U.S. National Bank and Johnstown Savings Bank,
your Company conducted an extensive survey of more than 5,000
U.S. National Bank customers. The first goal of the survey was to
generate marketplace intelligence to objectively develop a
platform of important customer quality values. The second
objective was to establish a baseline quality service measurement
system, and then to develop a comprehensive method of measuring
and tracking future changes against this baseline. During the
fourth quarter of 1994, a similar customer survey was initiated
at both Three Rivers Bank and Community Savings Bank. When asked
about customer service, more than 90 percent of survey
respondents from each bank agreed that the service they receive
meets or exceeds their expectations. Additionally, more than half
of the Three Rivers Bank respondents cited specific instances of
extraordinary service. Examples of extraordinary service also
appeared on half of Community Savings Bank responses, and on more
than one-third of U.S. National Bank surveys. All three survey
programs have provided valuable data on our overall customer
service. In addition,
<PAGE>7
the surveys also provide useful feedback on specific community
office performance, which will be used to design training
programs to further enhance highly-rated service areas, and to
strengthen areas where improvement would be beneficial. During
1995, a follow-up survey of each bank's customers will chart our
progress in providing superior quality customer service.
A proactive community plan, the third component of a successful
community bank, is paramount to achieving a positive reputation
within each community. Within your Company's plan is a strong
expectation for employee involvement in community charities and
fund raising efforts. Long-term community action is found in
USBANCORP's leadership and daily involvement in economic
development projects within our service communities. There is a
wealth of valuable experience at all levels within our
organization, and you can be assured that your Company is working
intensely in its communities, whether our employees are
instructing a Junior Achievement class at the local high school
or arranging a financial plan for attracting new businesses to
the community. Your Company's Community Reinvestment Act ("CRA")
initiatives have also succeeded in creating a positive reputation
within each community. Specific CRA achievements are many
including: Three Rivers Bank's sponsorship of a small business
development forum which involved local McKeesport community
leaders; Community Savings Bank's receipt of the Pittsburgh
community's Credit Enhancement Program award; and U.S. National
Bank President and CEO Louis Cynkar's receipt of the Volunteer of
the Year Award from Housing Opportunities, Inc., the local
non-profit organization dedicated to helping low- and
moderate-income families realize the dream of home ownership. As
a contributing and caring corporate citizen, USBANCORP's sincere
commitment to our communities is integral to our corporate
philosophy.
The year 1995 will be an exciting, but challenging year for most
financial institutions. A rising rate environment can decrease an
institution's margin of profit. Therefore, selling more products
and services to our existing customers, and attracting new bank
customers, will become key elements for our continued success. To
ensure that this growth occurs, we have added a full-time sales
department whose members will travel daily to community banking
offices to work with the staff to support a retail sales culture.
Building more customer relationships will be an important goal
for 1995, and this effort will be reinforced by a comprehensive
sales incentive program for all employees.
Each employee enters 1995 with a clearly defined agenda for
enhancing the relationship we share with each customer. The
support provided by a centralized holding company will ensure
that each bank can devote the necessary time and resources to
this quality service agenda. Your Company has developed an
organizational strategy which combines the audit, compliance,
purchasing, accounting, investing, marketing, sales and corporate
planning functions for all entities at the holding company level.
The result is an efficient internal delivery system of critical
"back room" operations, reduced expenses through economies of
scale, plus clear and consistent overall policy direction. In
this manner, we are able to enhance our customer service at the
community bank level, while many of the staff functions are more
efficiently maintained within the holding company.
<PAGE>8
THE 1995 OUTLOOK
We start 1995 with our strategies formulated, a strong,
supportive financial foundation, numerous challenges identified,
and a common stock price which has rebounded to above $22.00 per
share (an approximate 5% improvement just since December 31,
1994). It is our intent to vigorously pursue the following key
strategies during this year:
We will continue to prudently leverage capital through investment
securities purchased by borrowings until the marginal return dips
below 1.50% pre-tax. We will not, however, leverage below an
asset leverage ratio of 6% corporately or at any individual
entity.
We will continue our commitment to a progressive total
shareholder return by maintaining our common dividend at a
slightly higher level than peer. We want to ensure market
recognition of USBANCORP, Inc. as an attractive yielding bank
investment.
We will intensify our past practice of searching for earnings
accretive acquisitions of whole institutions, branches, and
select business lines. Our focus in acquisition efforts will
continue to be timeliness of earnings accretion and our search
will center within the market we presently serve as well as
contiguous counties in western Pennsylvania.
We will initiate more frequent business line profitability
analyses. It is expected that we will have a comprehensive,
automated transfer pricing system fully functional by the end of
1995. We will decisively act upon the results of these analyses,
improving product pricing or lowering delivery costs where
possible and curtailing business lines that are severable and no
longer contributing to an acceptable, progressive total
shareholder return. We have already identified the indirect auto
lending business segment and our recently acquired mortgage
banking subsidiary as two areas which require substantial
re-engineering to meet our return objectives.
We will continue our focus of delivering a diverse and useful
product line and building a base of customers with multiple
banking relationships. Our line personnel will continue to
distinguish themselves by providing quality service that results
in measurable satisfaction beyond customers' expectations and the
standards of our peers.
We will continue to be model corporate citizens within the
communities we serve. We will be involved in our communities and
supportive of important neighborhood programs.
These strategies will be implemented with our characteristic
intensity and resolve.
We enter 1995 realizing that we face significant, anticipated
challenges:
There will be intensified deposit pricing pressures. We will be
challenged to increase the rate we pay on our core, generally
price inelastic, deposits including NOW accounts, passbooks, and
statement savings. The February 1, 1995, Federal Reserve 50 basis
point rate increase, the seventh since the beginning of 1994
aggregating a total 300 basis point climb, has begun to push
beyond the limit of price
<PAGE>9
inelasticity on core accounts, in contrast to the constant
inelasticity which we enjoyed throughout 1994. Our deposit mix
will pose a further challenge as our customers continue to pursue
higher yield by shifting from lower cost core accounts to
long-term, fixed-rate certificates of deposit with a higher rate.
Consequently, our net interest margin, although generally
expected to modestly improve from the fourth quarter 1994 level
of 3.66%, will continue to be tested, especially if the Federal
Reserve's fight against inflation did not end on February 1.
There will be business mix pressures given our 43% (of total
loans outstanding) fixed-rate, long-term residential mortgage
concentration. We will seek all prudent methods to bring our
lending mix to a preferred 33% consumer, 33% commercial, and 33%
mortgage blend. This lending diversification challenge will be
substantial, especially if the Federal Reserve succeeds in
measurably slowing the economy and loan demand, and the thirty
year treasury rate remains above 7.25%. We anticipate that our
efforts in this area will extend beyond 1995.
There will be lending growth pressures. In 1994, excluding the
effects of any acquisitions or the sale of the student loan
portfolio, we increased loans outstanding by $32 million or 4.4%.
We will be challenged to underwrite 5% loan growth in 1995.
Competitive challenges, the re-engineering of our indirect loan
operations, and a successful Federal Reserve effort at slowing
economic growth, if achieved in 1995, will all exacerbate these
pressures.
While recognizing the magnitude of these identified challenges,
and realizing that other unforeseeable travails will reveal
themselves throughout this year, we are cautiously optimistic
that 1995, by most measures, will be better than our respectable
1994. We also recognize that hindsight one year hence may again
prove to be a valued teacher.
In conclusion, I want to thank our dedicated employees and
directors for their tireless efforts and you, our shareholder,
for your support.
\S\TERRY K. DUNKLE
Terry K. Dunkle
Chairman, President & CEO
USBANCORP, Inc.
<PAGE>10
Service area map reflecting the six counties served by USBANCORP,
Inc.
<PAGE>11
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<PAGE>12
USBANCORP, INC.
FINANCIAL STATEMENTS
<PAGE>13
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<PAGE>14
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At December 31 1994 1993
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $48,841 $38,606
Interest bearing deposits with banks 5,050 4,809
Federal funds sold and securities
purchased under agreements to resell - 7,000
Investment securities:
Available for sale (market value
$432,315 on December 31, 1993) 259,462 428,712
Held to maturity (market value
$501,485 on December 31, 1994) 524,638 -
Assets held in trust for
collateralized mortgage obligation 9,104 13,815
Loans held for sale 18,077 1,054
Loans 853,759 732,026
Less: Unearned income 3,832 5,894
Less: Allowance for loan losses 15,590 15,260
Net loans 834,337 710,872
Premises and equipment 19,100 16,960
Accrued income receivable 16,894 8,892
Purchased mortgage servicing rights 11,452 -
Goodwill and core deposit intangibles 27,009 2,897
Other assets 14,926 7,904
TOTAL ASSETS $1,788,890 $1,241,521
LIABILITIES
Non-interest bearing deposits $144,013 $137,411
Interest bearing deposits 1,052,233 911,455
Total deposits 1,196,246 1,048,866
Federal funds purchased and
securities sold under agreements
to repurchase 143,289 12,648
Other short-term borrowings 75,295 270
Advances from Federal Home Loan Bank 200,094 31,285
Collateralized mortgage obligation 8,251 12,674
Long-term debt 5,806 3,445
Other liabilities 22,773 15,718
TOTAL LIABILITIES 1,651,754 1,124,906
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, 1994,
and 1993 - -
Common stock, par value $2.50
per share; 12,000,000 shares
authorized; 5,582,155 shares
issued and outstanding on December 31,
1994; 4,726,181 shares issued and
outstanding on December 31, 1993 14,275 11,815
Treasury stock, 127,700 shares at cost (3,064) -
Surplus 92,923 70,720
Retained earnings 40,355 34,080
Net unrealized holding losses
on available for sale securities (7,353) -
TOTAL STOCKHOLDERS' EQUITY 137,136 116,615
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,788,890 $1,241,521
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>15
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
(In thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $64,461 $59,605 $57,210
Tax exempt 2,039 1,110 1,045
Deposits with banks 121 127 324
Federal funds sold and
securities purchased under
agreements to resell 94 383 426
Investment securities:
Available for sale 15,531 23,164 22,571
Held to maturity 19,645 - -
Assets held in trust for
collateralized mortgage
obligation 920 1,346 1,214
Total Interest Income 102,811 85,735 82,790
INTEREST EXPENSE
Deposits 34,283 32,623 35,643
Federal funds purchased and
securities sold under
agreements to repurchase 4,545 322 268
Other short-term borrowings 804 37 13
Advances from Federal Home
Loan Bank 6,006 1,163 463
Collateralized mortgage
obligation 1,024 1,508 1,301
Long-term debt 331 597 661
Total Interest Expense 46,993 36,250 38,349
NET INTEREST INCOME 55,818 49,485 44,441
Provision for loan losses (2,765) 2,400 2,216
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 58,583 47,085 42,225
NON-INTEREST INCOME
Trust fees 3,023 2,578 2,054
Net realized gains on
loans held for sale 763 593 737
Net realized gains (losses)
on investment securities
and investment securities
available for sale (3,972) 583 393
Wholesale cash processing fees 1,237 1,281 1,189
Service charges on deposit
accounts 2,779 2,771 1,916
Net mortgage servicing fees 1,130 - -
Other income 3,227 2,344 2,057
Total Non-Interest Income 8,187 10,150 8,346
NON-INTEREST EXPENSE
Salaries and employee benefits 23,311 19,952 18,038
Net occupancy expense 4,133 3,393 2,929
Equipment expense 3,089 2,608 2,158
Professional fees 2,303 2,167 2,238
Supplies, postage, and freight 2,383 1,998 2,010
Miscellaneous taxes and insurance 1,215 1,128 1,048
FDIC deposit insurance expense 2,576 2,157 2,040
Acquisition charge 2,437 - -
Amortization of goodwill and
core deposit intangibles 1,805 831 675
Other expense 6,267 6,481 5,112
Total Non-Interest Expense 49,519 40,715 36,248
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 17,251 16,520 14,323
Provision for income taxes 5,931 5,484 5,440
BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 11,320 11,036 8,883
Cumulative effect of change
in accounting principle-adoption
of SFAS #109 - 1,452 -
NET INCOME $11,320 $12,488 $8,883
NET INCOME APPLICABLE TO
COMMON STOCK $11,320 $12,385 $7,710
PER COMMON SHARE DATA:
Primary:
Net income $2.18 $2.78 $2.67
Average number of common
shares outstanding 5,191,885 4,456,820 2,888,145
Fully Diluted:
Income before cumulative effect of
change in accounting principle $2.18 $2.41 $2.53
Net income 2.18 2.72 2.53
Average number of shares
outstanding 5,191,885 4,588,622 3,515,217
Cash Dividends Declared $0.97 $0.86 $0.75
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>16
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Preferred Common Retained Holding
Stock Stock Surplus Earnings Losses Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at 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
1994
Net income for the year 1994 - - - 11,320 - 11,320
Dividend reinvestment and
stock purchase plan - 47 408 - - 455
Stock options exercised - 18 123 - - 141
Common stock issued to acquire
Johnstown Savings Bank
(957,857 shares at $25.125
per share) - 2,395 21,672 - - 24,067
Net unrealized holding losses on
available for sale securities - - - - (7,353) (7,353)
Cash dividends declared:
Common stock ($0.22 per share
on 4,737,321 shares; $0.25 per
share on 4,745,247 shares;
$0.25 per share on 5,648,550
shares;
and $0.25 per share
on 5,617,055 shares) - - - (5,045) - (5,045)
Treasury stock, 127,700
shares at cost - (3,064) - - - (3,064)
Balance December 31, 1994 $- $11,211 $92,923 $40,355 $(7,353) $137,136
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>17
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $11,320 $12,488 $8,883
Adjustments to reconcile
net income to net cash
provided by operating activities:
Provision for loan losses (2,765) 2,400 2,216
Depreciation and amortization
expense 2,346 2,873 2,430
Amortization expense of goodwill
and core deposit intangibles 1,805 831 675
Amortization expense of purchased
mortgage servicing rights 746 - -
Net amortization (accretion) of
investment securities (163) 996 801
Net realized losses (gains) on
investment securities 3,972 (583) (393)
Net realized gains on loans
and loans held for sale (763) (593) (737)
Increase (decrease) in accrued
income receivable (6,145) 471 1,314
Increase (decrease) in accrued
expense payable 1,040 2,097 (1,221)
Net cash provided by
operating activities 11,393 20,980 13,968
INVESTING ACTIVITIES
Purchase of investment securities
and other short-term investments (616,095) (296,777) (218,654)
Proceeds from maturities of
investment securities and
other short-term investments 115,474 204,899 177,383
Proceeds from sales of investment
securities and other short-term
investments 320,237 29,641 31,515
Long-term loans originated (323,409) (355,716) (264,629)
Mortgage loans held for sale (14,014) (1,054) -
Principal collected on long-term
loans 250,391 259,071 280,313
Loans purchased or participated - (1,058) (8,661)
Loans sold or participated 78,547 22,131 32,089
Net increase in credit card
receivables and other short-term
loans (6,262) (1,944) (543)
Purchases of premises and
equipment (2,081) (2,431) (1,171)
Sale/retirement of premises and
equipment 17 12 70
Net decrease in assets held in
trust for collateralized
mortgage obligation 4,711 4,767 3,134
Net cash received through
acquisition of
Community Bancorp, Inc. - - 14,725
Increase due to JSB acquisition:
Investment securities (190,092) - -
Loans (118,150) - -
Loans held for sale (4,063) - -
Premises and equipment (2,422) - -
Accrued income received (1,857) - -
Purchased mortgage service rights (10,360) - -
Goodwill and core deposit
intangibles (25,917) - -
Other assets (8,115) - -
Net decrease in other assets 3,182 1,381 409
Net cash (used) provided by
investing activities $(550,278) $(137,078) $(145,980)
</TABLE>
(continued on next page)
See accompanying notes to consolidated financial statements.
<PAGE>18
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from sales of
certificates of deposit $(383,260) $(254,222) $(369,775)
Payments for maturing
certificates of deposit (379,456) (315,062) (435,637)
Net (decrease) increase in
demand and savings deposits (65,324) 35,578 67,815
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 164,227 1,752 (10,510)
Net principal borrowings
(repayments) on advances from
Federal Home Loan Bank and
long-term debt 101,504 10,109 (4,437)
Preferred stock cash dividends
paid - (397) (1,173)
Redemption of preferred stock - (1,368) -
Common stock dividends paid (4,679) (3,557) (1,959)
Proceeds from dividend
reinvestment and
stock purchase plan 596 637 518
Purchases of treasury stock (3,064) - -
Secondary common stock offering
(net of expenses) - 25,988 -
Increase due to JSB acquisition:
Certificates of deposit 102,959 - -
Demand and savings deposits 105,941 - -
Other short-term borrowings 41,439 - -
Advances from Federal Home
Loan Bank 65,243 - -
Due to JSB shareholders 19,701 - -
Capital 24,067 - -
Other liabilities 7,512 - -
Cash cost of JSB acquisition (19,498) - -
Net decrease in other liabilities (2,067) (348) (5,113)
Net cash provided (used) by
financing activities 542,361 84,091 (20,721)
NET (DECREASE) INCREASE IN
CASH EQUIVALENTS 3,476 (32,007) 39,227
CASH EQUIVALENTS AT JANUARY 1 50,415 82,422 43,195
CASH EQUIVALENTS AT DECEMBER 31 $53,891 $50,415 $82,422
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>19
This page is intentionally left blank
<PAGE>20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AT AND FOR THE YEARS
ENDED DECEMBER 31, 1994, 1993 AND 1992
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 eliminated in
preparing the consolidated financial statements.
Investment Securities:
Effective January 1, 1994, the Company adopted SFAS #115,
"Accounting for Certain Investments in Debt and Equity
Securities," which specifies a methodology for the classification
of securities as either held to maturity, available for sale, or
as trading assets. Securities are classified at the time of
purchase as investment securities held to maturity if it is
management's intent and the Company has the ability to hold the
securities until maturity. These held to maturity securities are
carried on the Company's books at cost, adjusted for amortization
of premium and accretion of discount on a straight-line basis,
which is not materially different from the level yield method.
Alternatively, securities are classified as available for sale if
it is management's intent at the time of purchase to hold the
securities for an indefinite period of time and/or to use the
securities as part of the Company's asset/liability management
strategy. Securities classified as available for sale include
securities which may be sold to effectively manage interest rate
risk exposure, prepayment risk, and other factors (such as
liquidity requirements). These available for sale securities are
reported at fair value with unrealized aggregate appreciation
(depreciation) excluded from income and credited (charged) to a
separate component of shareholders' equity on a net of tax basis.
Any security classified as trading assets are reported at fair
value with unrealized aggregate appreciation (depreciation)
included in current income on a net of tax basis. The Company
presently does not engage in trading activity. The increase in
the carrying value of the available for sale portfolio upon
adoption of SFAS #115 was approximately $2.6 million.
Prior to this adoption, the securities portfolio was classified
as available for sale, and carried at the lower of amortized cost
or market value. Any unrealized holding period adjustments were
reflected in "Net unrealized gain or loss on investment
securities available for sale" on the Consolidated Statement of
Income. Realized gain or loss on securities sold is computed upon
the adjusted cost of the specific securities sold.
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 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. 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.
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.
Realized gains and losses are calculated by the specific
identification method and are included in "Net realized gain or
loss on loans held for sale"; unrealized net valuation
adjustments (if any) are recorded in the same line item 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 lives of the 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
<PAGE>21
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 nonperforming
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 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.
Purchased Mortgage Servicing Rights:
Purchased mortgage servicing rights associated with loan
servicing acquired in the secondary mortgage market are
capitalized. The amount capitalized upon the purchase of mortgage
servicing rights is equal to the price paid to unaffiliated
sellers. The purchased mortgage servicing rights are amortized as
an adjustment of future servicing income using a method that
approximates the interest method over the life of the related
loans, adjusted for estimated prepayments.
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 for 1993 and 1992 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, all 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 $3,210,000 in federal income tax payments in
1994; $4,300,000 in 1993; and $3,986,000 in 1992. The Company
made total interest expense payments of $45,953,000 in 1994;
$34,153,000 in 1993; and $40,942,000 in 1992.
Income Taxes:
As discussed in Note 13, the Company adopted Statement of
Financial Accounting Standards #109, "Accounting for Income
Taxes" on January 1, 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.
Interest Rate Contracts:
The Company uses various interest rate contracts, such as
interest rate swaps, caps and floors, to help manage interest
rate and market valuation risk exposure, which is incurred in
normal recurrent banking activities. These interest rate
contracts function as hedges against specific assets or
liabilities on the Company's Balance Sheet. Gains or losses on
these hedge transactions are deferred and recognized as
adjustments to interest income or interest expense of the
underlying assets or liabilities over the hedge period.
For interest rate swaps, the interest differential to be paid or
received is accrued by the Company and recognized as an
adjustment to interest income or interest expense of the
underlying assets or liabilities being hedged. Since only
interest payments are exchanged, the cash requirement and
exposure to credit risk are significantly less than the notional
amount.
Any premium or transaction fee incurred to purchase interest rate
caps or floors are deferred and amortized to interest income or
interest expense over the term of the contract. Unamortized
premiums related to the purchase of caps and floors are included
in other assets on the Consolidated Balance Sheet.
<PAGE>22
2. CASH AND DUE FROM BANKS
Cash and due from banks at December 31, 1994, and 1993, included
$10,781,000 and $11,857,000, 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 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Total $5,050 $4,809 $7,958
</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 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Maturing within
three months $5,050 $4,809 $7,958
Total $5,050 $4,809 $7,958
</TABLE>
4. INVESTMENT SECURITIES
The book and market values of investment securities are
summarized as follows:
Investment securities available for sale:
<TABLE>
<CAPTION>
Gross Gross
Book Unrealized Unrealized Market
At December 31, 1994 Value Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $23,411 $ - $(494) $22,917
U.S. Agency 31,372 3 (1,971) 29,404
State and municipal 1,479 1 (123) 1,357
U.S. Agency
mortgage-backed
securities 175,215 29 (5,490) 169,754
Other securities 37,087 1 (1,058) 36,030
Total $268,564 $34 $(9,136) $259,462
</TABLE>
Other investment securities include corporate notes and bonds,
asset-backed securities, and equity securities.
Investment securities held to maturity:
<TABLE>
<CAPTION>
Gross Gross
Book Unrealized Unrealized Market
At December 31, 1994 Value Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $398 $ - $(7) $391
U.S. Agency 35,879 - (2,622) 33,257
State and municipal 125,489 825 (6,410) 119,904
U.S. Agency
mortgage-backed
securities 360,146 2,491 (17,378) 345,259
Other securities 2,726 10 (62) 2,674
Total $524,638 $3,326 $(26,479) $501,485
</TABLE>
Other investment securities include corporate notes and bonds,
asset-backed securities, and equity securities.
Investment securities available for sale:
<TABLE>
<CAPTION>
Gross Gross
Book Unrealized Unrealized Market
At December 31, 1993 Value Gains Losses Value
(In thousands)
<S> <S> <S> <S> <S>
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
Mortgage-backed
securities<F1> 251,631 2,379 (1,402) 252,608
Other securities<F2> 46,553 680 (37) 47,196
Total $428,712 $5,264 $(1,661) $432,315
<F1>Approximately 95% of these obligations represent U.S. Agency
issued securities.
<F2>Other investment securities include corporate notes and bonds,
asset-backed securities, and equity securities.
</TABLE>
In April of 1994, the Company transferred $139 million of
securities from available for sale into held to maturity. The
unrealized holding loss on the securities at the date of transfer
amounted to $2.8 million and is being amortized over the
remaining life of the securities as an adjustment of yield.
<PAGE>23
All purchased investment securities are recorded on settlement
date which is not materially different from the trade date.
Realized gains and losses are calculated by the specific
identification method and are included in "Net realized gain or
loss on investment securities."
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, 1994, 96.1% of the portfolio was rated "AAA"
and 97.0% "AA" or higher as compared to 89.2% and 91.0%,
respectively, at December 31, 1993. Only 0.5% of the portfolio
was rated below "A" or unrated on December 31, 1994.
The book value of securities pledged to secure public and trust
deposits, as required by law, was $275,210,000 at December 31,
1994, and $83,769,000 at December 31, 1993. The Company realized
$1,029,000 and $827,000 of gross investment security gains and
$5,001,000 and $244,000 of gross investment security losses on
available for sale securities in 1994 and 1993, respectively.
The average maturity distribution at amortized cost of the
investment securities available for sale and held to maturity at
December 31, 1994, was $40,974,000 and $7,790,000 within one
year; $190,825,000 and $310,358,000 within one to five years;
$31,498,000 and $160,655,000 within five to ten years; and
$5,267,000 and $45,835,000 after ten years, respectively. Refer
to page 84 for more detailed maturity distribution schedules.
5. LOANS
The loan portfolio of the Company consisted of the following:
<TABLE>
<CAPTION>
At December 31 1994 1993
(In thousands)
<S> <C> <C>
Commercial $116,702 $99,321
Commercial loans secured by
real estate 168,238 126,044
Real estate-mortgage 407,177 338,778
Consumer 161,642 167,883
Loans 853,759 732,026
Less: Unearned income 3,832 5,894
Loans, net of unearned
income $849,927 $726,132
</TABLE>
Real estate construction loans were not material at these
presented dates and comprised 2.3% and 2.5% of total loans net of
unearned income at December 31, 1994, and 1993, respectively. 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
$14,955,000 and $15,074,000 at December 31, 1994, and 1993,
respectively. An analysis of these related party loans follows:
<TABLE>
Year ended December 31 1994 1993
(In thousands)
<S> <C> <C>
Balance January 1 $15,074 $12,824
New loans 17,414 22,886
Payments (17,533) (20,636)
Balance December 31 $14,955 $15,074
</TABLE>
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses
follows:
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Balance January 1 $15,260 $13,752 $13,003
Addition due to
acquisition 3,422 - 2,122
Provision for loan losses (2,765) 2,400 2,216
Recoveries on loans
previously charged-off 771 869 869
Loans charged-off (1,098) (1,761) (4,458)
Balance December 31 $15,590 $15,260 $13,752
</TABLE>
In the fourth quarter 1994, the Company recognized a one-time
non-recurring negative loan loss provision of $4,000,000. This
action caused the provision for the full year 1994 to be
$(2,765,000). For further comprehensive discussion see "Allowance
for Loan Losses and Provision" within the Management's Discussion
and Analysis.
Effective January 1, 1995, the Company adopted SFAS #114,
"Accounting by Creditors for Impairment of a Loan." SFAS #114
defines the term "impaired loan" and indicates the method used to
measure the impairment. The measurement of impairment may be
based upon: 1) the present value of expected future cash flows
discounted at the loan's effective interest rate; 2) the
observable market price of the impaired loan; or 3) the fair
value of the collateral of a collateral dependent loan. The
adoption of this standard is not expected to have a material
impact on the Company's financial statements.
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 that 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>24
The following table presents information concerning
non-performing assets:
<TABLE>
<CAPTION>
At December 31 1994 1993 1992 1991 1990
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Non-accrual loans $5,446 $5,304 $5,596 $3,358 $2,456
Insured loans
past due 90
days or more 1,357 203 1,573 600 472
Other real
estate owned:
Foreclosed
properties 1,098 991 934 787 970
In-substance
foreclosures - - 2,188 - -
Total
non-performing
assets $7,901 $6,498 $10,291 $4,745 $3,898
Total
non-performing
assets as a
percent of
loans and loans
held for sale,
net of unearned
income, and
other real
estate owned 0.91% 0.89% 1.58% 1.10% 0.87%
</TABLE>
The Company is unaware of any additional loans which are required
to either be charged-off or added to the nonperforming 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 1994 1993 1992 1991 1990
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income
due in accordance
with original terms $509 $753 $882 $678 $520
Interest income
recorded (588) (442) (110) (209) (296)
Net reduction
(increase) in
interest income $(79) $311 $772 $469 $224
</TABLE>
8. PREMISES AND EQUIPMENT
An analysis of premises and equipment follows:
<TABLE>
<CAPTION>
At December 31 1994 1993
(In thousands)
<S> <C> <C>
Land $2,149 $1,675
Premises 21,071 18,228
Furniture and equipment 14,483 15,348
Leasehold improvements 3,093 1,060
Total at cost 40,796 36,311
Less: Accumulated
depreciation 21,696 19,351
Net book value $19,100 $16,960
</TABLE>
<PAGE>25
The related depreciation charged against income is as follows:
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Premises $1,034 $930 $755
Furniture and equipment 1,068 985 887
Leasehold improvements 150 91 87
Total depreciation $2,252 $2,006 $1,729
</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>
1994 1993 1992
Amount Rate Amount Rate Amount Rate
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
At year-end $218,584 5.96% $12,918 2.34% $11,166 2.51%
Average
during year 112,846 4.79% 14,486 2.48% 10,452 2.69
Maximum
month-end
balance 225,269 - 28,590 - 12,005 -
</TABLE>
Average amounts outstanding during the year represent daily
averages. Average interest rates represent interest expense
divided by the related average balances.
Included in the year-end balance were $69,000,000 Flexline
overnight borrowings and $107,455,000 reverse repurchase
agreements from the Federal Home Loan Bank.
Also included in the above borrowings is a $17,539,000
outstanding balance on a $25 million mortgage warehouse line of
credit at Standard Mortgage Corporation (a mortgage banking
subsidiary of Community). This line of credit bears interest at a
rate of 1.625% on the used portion for which a compensating
balance is maintained and prime rate on the used portion for
which no compensating balance is maintained. This line of credit,
which expires July 1, 1995, is secured by Standard Mortgage
Corporation inventory, servicing rights, and commitments.
Compensating balances held by the lender are used in determining
the interest rates charged on the mortgage warehouse lines of
credit and a bank note (discussed in Footnote 11). These
balances, which are derived from customer escrow balances,
amounts of collections in transit on loans serviced and corporate
cash balances, can further decrease the interest rate charged on
the line of credit if the compensating balance is maintained at a
level greater than the used portion of the line.
These borrowing transactions range from overnight to six months
in maturity. The average maturity was sixty-eight days at the end
of 1994, two days at the end of 1993, and eight days at the end
of 1992.
<PAGE>26
10. INTEREST EXPENSE ON DEPOSITS
Interest expense on deposits consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Interest bearing demand $1,653 $2,030 $2,320
Savings 4,806 5,546 6,638
Other time 27,824 25,047 26,685
Total interest on deposits $34,283 $32,623 $35,643
</TABLE>
The aggregate amount of certificates of deposit in denominations
of $100,000 or more at December 31, 1994, 1993, and 1992, and the
related interest expense for the three years then ended are
presented below:
<TABLE>
<CAPTION>
At or for the year ended
December 31 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Certificates of deposit
in denominations of
$100,000 or more $30,246 $26,925 $29,499
Related interest expense 1,238 1,175 1,462
</TABLE>
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, 1994
Weighted
Maturing Average Yield Balance
(In thousands)
<S> <C> <C>
1995 6.21% $149,000
1996 5.58 21,000
1997 5.57 1,913
1998 5.86 6,750
1999 6.09 1,250
2000 and after 7.36 20,181
Total advances $200,094
</TABLE>
Total Federal Home Loan Bank borrowing exposure at December 31,
1994, was $376,549,000. Total Federal Home Loan Bank borrowings
consist of the above listed advances, $69,000,000 Flexline
overnight borrowings, and $107,455,000 reverse repurchase
agreements.
<TABLE>
<CAPTION>
At December 31, 1993
Weighted
Maturing Average Yield Balance
(In thousands)
<S> <C> <C>
1994 4.14% $10,000
1996 5.23 14,095
1998 6.07 3,000
2001 9.00 4,190
Total advances $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 10.25%.
Assets held in trust for the collateralized mortgage obligation
consist of the following:
<TABLE>
<CAPTION>
At December 31 1994 1993
(In thousands)
<S> <C> <C>
FHLMC securities $8,194 $12,325
Accrued interest receivable on FHLMC 376 311
Funds held by trustee 534 1,179
Total $9,104 $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.
<PAGE>27
Long-Term Debt:
The Company's long-term debt consisted of the following:
<TABLE>
<CAPTION>
At December 31 1994 1993
(In thousands)
<S> <C> <C>
Bank notes $5,599 $3,124
Other 207 321
Total long-term debt $5,806 $3,445
</TABLE>
One bank note evidences a $4 million loan to partially finance
the acquisition of Community Bancorp, Inc.,which has a current
principal balance of $1,988,000. 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.
The other bank note evidences a $9 million non-revolving
commercial loan commitment at Standard Mortgage Corporation of
Georgia of which the current outstanding balance of $3,611,000 is
payable monthly in fixed principal installments of $144,000
through January 15, 1997. The commercial loan bears interest at
3% on the used portion for which a compensating balance is
maintained and Prime Rate for which no compensating balance is
maintained. This loan is secured by Standard Mortgage Corporation
mortgage inventory, servicing rights, and commitments.
Scheduled maturities of long-term debt for the years subsequent
to December 31, 1994, are $2,825,000 in 1995; $2,505,000 in 1996;
$446,000 in 1997; and $30,000 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 of its 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 in SFAS #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 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 methodologies used, the
estimated fair values, and recorded book balances at December 31,
1994, and 1993, were as follows:
Financial instruments actively traded in a secondary market have
been valued using quoted available market prices.
<TABLE>
<CAPTION>
1994 1993
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
<S> <C> <C> <C> <C>
Federal funds
sold $ - $ - $7,000 $7,000
Investment
securities
(including
assets held in
trust for
collateralized
mortgage
obligation) 770,169 793,204 446,720 442,527
</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>
1994 1993
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
<S> <C> <C> <C> <C>
Deposits with
stated
maturities $558,694 $566,973 $461,215 $459,718
Short-term
borrowings 367,584 367,584 22,918 22,918
Long-term debt
(including
collateralized
mortgage
obligation and
non-current
portion of
FHLB advances) 62,886 65,151 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>
1994 1993
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
<S> <C> <C> <C> <C>
Deposits with
no stated
maturities $629,273 $629,273 $589,148 $589,148
</TABLE>
<PAGE>28
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>
1994 1993
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
<S> <C> <C> <C> <C>
Net loans
(including
loans held
for sale) $820,301 $852,414 $721,181 $711,926
</TABLE>
Purchased mortgage servicing rights have been valued by an
independent third party using a methodology which incorporates a
discounted after-tax cash flow of the servicing (loan servicing
fees and other related ancillary fee income less the costs of
servicing the loans). This valuation also assumes current PSA
prepayment speeds which are based upon industry data collected on
mortgage prepayment trends.
<TABLE>
<CAPTION>
1994 1993
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
<S> <C> <C> <C> <C>
Purchased
mortgage
servicing
rights $14,881 $11,452 $ - $ -
</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 1994 of 3.47% vs. a peer average of 3.29% as of
September 30, 1994), management believes the relationship value
of these deposits is significant. Based upon the Company's most
recent acquisitions and other limited secondary market
transactions involving similar deposits, management estimates the
relationship value of these funding liabilities to range between
$41 million to $87 million less than their estimated fair value
shown at December 31, 1994. The estimated fair value of
off-balance sheet financial instruments, used for hedging
purposes, is estimated by obtaining quotes from brokers. These
values represent the estimated amount the Company would receive
or pay, to terminate the agreements, considering current interest
rates, as well as, the creditworthiness of the counterparties. At
December 31, 1994, the notional value of the Company's
off-balance sheet financial instruments (interest rate swaps and
caps) totalled $110 million with an estimated fair value of
$61,000. There is no material difference between the notional
amount and the estimated fair value of the remaining off-balance
sheet items which total $161.8 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
The provision for federal income taxes (before SFAS #109 benefit)
is summarized below:
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Current $4,748 $5,387 $5,330
Deferred 1,183 97 110
Income tax provision
prior to cumulative effect
of change in accounting
principle $5,931 $5,484 $5,440
</TABLE>
<PAGE>29
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 1994 1993 1992
Amount Rate Amount Rate Amount Rate
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Tax expense based
on federal statutory
rate $5,938 34.4% $5,682 34.4% $4,870 34.0%
State income taxes 570 3.3 484 2.9 390 2.7
Tax exempt income (1,736) (10.1) (785) (4.7) (675) (4.7)
Goodwill and
acquisition related
costs 557 3.2 - - - -
Basis differential
of loan sales - - - - 187 1.0
Other 602 3.6 103 0.6 668 5.0
Total provision for
income taxes before
cumulative effect of
change in accounting
principle $5,931 34.4% $5,484 33.2% $5,440 38.0%
</TABLE>
The disposition of certain marketable securities acquired in the
acquisition of Johnstown Savings Bank caused a loss of
approximately $10 million for tax reporting purposes. This loss
was the primary factor that reduced 1994 taxable income to a
level that generated an alternative minimum tax liability of
approximately $1,050,000. This minimum tax is expected to be
recovered in future years and has been included in net deferred
tax assets at December 31, 1994.
Deferred income taxes result from temporary 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 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Provision for possible
loan losses $1,083 $(501) $1405
Lease accounting 113 68 (397)
Accretion of discounts
on securities, net 551 324 (157)
Investment write-downs 22 - -
Core deposit and
purchased mortgage
servicing intangibles (139) - -
Deposit liability
write-down (220) - -
Deferred loan fees 76 240 -
Basis differential of
loan sales - - 59
Other, net (303) (34) 200
Total $1,183 $97 $110
</TABLE>
<PAGE>30
At December 31, 1994, and 1993, deferred taxes are included 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 1994 1993
(In thousands)
<S> <C> <C>
Deferred Assets:
Provision for loan losses $5,456 $5,341
Investment security write-
downs due to SFAS #115 4,821 -
Deferred loan fees 737 703
Tax credits and carryovers 1,570 -
Other 8 32
Total assets 12,592 6,076
Deferred Liabilities:
Core deposit and purchased
mortgage servicing
intangibles (2,494) -
Deposit liability write-down (1,263) -
Accumulated depreciation (1,198) (1,172)
Accretion of discount (973) (422)
Lease accounting (616) (503)
Other (293) -
Total liabilities (6,837) (2,097)
Valuation allowance (325) (325)
Net deferred assets $5,430 $3,654
</TABLE>
The increase in net deferred assets during 1994 was attributed to
the following:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Investment write-downs due to
adoption of SFAS #115 $3,927
Acquisition of Johnstown Savings Bank (2,018)
Alternative minimum tax credit 1,050
Deferred provision for income taxes (1,183)
Net increase $1,776
</TABLE>
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards #109, "Accounting for Income
Taxes." SFAS #109 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-recurring net benefit of $1,452,000 or $0.35 per share on a
fully diluted basis. The effect of this standard on income tax
expense (exclusive of the cumulative effect adjustment) for the
year ended December 31, 1993, was not material.
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 funding
policy has been to contribute annually an amount within the
statutory range of allowable minimum and maximum 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
(including shares of USBANCORP, Inc. common stock), mutual funds,
and short-term cash equivalent instruments.
Net periodic pension cost for the plan is as follows:
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Service cost $424 $372 $341
Interest cost 362 339 298
Deferred asset gain (loss) (371) 42 (138)
Amortization of transition
asset (17) (17) (17)
Amortization of
unrecognized prior
service cost (23) (23) (23)
Actual return on plan assets 17 (421) (253)
Amortization of gain - (9) (37)
Net periodic pension cost $392 $283 $171
</TABLE>
A reconciliation of the funded status of the plan to the recorded
net pension liability is as follows:
<TABLE>
<CAPTION>
At December 31 1994 1993
(In thousands)
<S> <C> <C>
Fair value of plan assets $4,306 $4,817
Projected benefit obligation (5,234) (5,729)
Unfunded projected benefit
obligation (928) (912)
Unrecognized net transition
asset (311) (328)
Unrecognized prior service
cost (477) (490)
Unrecognized net loss (gain) (264) 95
Net pension liability $(1,980) $(1,635)
</TABLE>
The actuarial present value of benefit obligations is as follows:
<TABLE>
<CAPTION>
At December 31 1994 1993
(In thousands)
<S> <C> <C>
Accumulated benefit obligation $3,583 $3,999
Vested benefit obligation $3,470 $3,831
</TABLE>
<PAGE>31
The following rate assumptions were used in the plan accounting:
<TABLE>
<CAPTION>
Jan. 1, Dec. 31, Jan. 1, Dec. 31,
Measurement Date 1994 1994 1993 1993
<S> <C> <C> <C> <C>
Discount rate
(weighted-average) 6.50% 7.75% 7.50% 6.50%
Rate of compensation
increases 3.50 4.00 4.00 3.50
Expected long-term
rate of return on
plan assets
(weighted-average) 7.50 8.00 8.00 7.50
</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 $584,000 in 1994; $489,000 in 1993; and
$500,000 in 1992. 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 and Community Savings Bank
(the Western Region Subsidiaries):
The Western Region Subsidiaries have 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. The Western Region Subsidiaries'
plan funding policy has been to contribute annually an amount
within the statutory range of allowable minimum and maximum
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
(including shares of USBANCORP, Inc. common stock), mutual funds,
and short-term cash equivalent instruments.
Net periodic pension cost for the plan is as follows:
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Service cost $346 $162 $110
Interest cost 302 114 81
Deferred asset gain (loss) (160) 54 (18)
Amortization of transition
obligation 3 3 3
Amortization of unrecognized
prior service cost 54 27 -
Actual return on plan assets (84) (144) (70)
Amortization of loss 17 - -
Net periodic pension cost $478 $216 $106
</TABLE>
A reconciliation of the funded status of the plan to the recorded
net pension liability is as follows:
<TABLE>
<CAPTION>
At December 31 1994 1993
(In thousands)
<S> <C> <C>
Fair value of plan assets $3,404 $1,288
Projected benefit obligation (4,487) (2,946)
Unfunded projected benefit
obligation (1,083) (1,658)
Unrecognized net transition
obligation 26 29
Unrecognized prior service cost 735 789
Unrecognized net loss 82 846
Adjustment to recognize
minimum required liability - (818)
Net pension liability $(240) $(812)
</TABLE>
The actuarial present value of benefit obligations is as follows:
<TABLE>
<CAPTION>
At December 31 1994 1993
(In thousands)
<S> <C> <C>
Accumulated benefit obligation $3,484 $2,147
Vested benefit obligation $3,273 $2,093
</TABLE>
The following rate assumptions were used in the plan accounting:
<TABLE>
<CAPTION>
Jan. 1, Dec. 31, Jan. 1, Dec. 31,
Measurement Date 1994 1994 1993 1993
<S> <C> <C> <C> <C>
Discount rate
(weighted-average) 6.50% 7.75% 7.50% 6.50%
Rate of compensation
increases 3.50 4.00 4.00 3.50
Expected long-term rate
of return on plan assets
(weighted-average) 7.50 8.00 8.00 7.50
</TABLE>
The above pension disclosures include the information for the
supplemental plan for certain management employees which was
implemented July 1, 1993.
Additionally, prior to July 1, 1993, eligible Community employees
participated in a non-contributory defined multi-employer pension
plan. The net pension cost for contributions made to the plan
amounted to $80,000 for the six month period in 1993. Effective
July 1, 1993, Community's employees were merged into the Three
Rivers Bank pension plan.
<PAGE>32
The Western Region Subsidiaries also have a trusteed 401(k) plan
with contributions made by Western Region Subsidiaries matching
those by eligible employees up to a maximum of 50% of the first
6% of their annual salary. All employees of the Western Region
Subsidiaries who work over 1,000 hours per year are eligible to
participate in the plan beginning on January 1 following six
months of service. The Western Region Subsidiaries contribution
to this 401(k) plan was $79,000 in 1994; $27,000 in 1993; and
$24,000 in 1992.
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, 1994, is as follows:
<TABLE>
<CAPTION>
Year Future Minimum Lease Payments
(In thousands)
<S> <C>
1995 $1,215
1996 873
1997 730
1998 354
1999 and thereafter (in total) 627
</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
$540,000, $493,000, and $414,000 in 1994, 1993, and 1992,
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, the total commitment
amounts do not necessarily represent future cash requirements.
The banking subsidiaries evaluate each customer's
creditworthiness on a case-by-case basis. Collateral 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 issuing letters of
credit is essentially the same as that involved in extending
loans to customers. Letters of credit are issued both on an
unsecured and secured basis. Collateral securing these types of
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 $161,826,000
and standby letters of credit of $6,419,000 as of December 31,
1994.
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 board 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 (amounts not rounded):
<TABLE>
<CAPTION>
Shares Shares Option
Under Available Price
Option For Option Per Share
<S> <C> <C> <C>
Balance at December 31, 1992 27,334 99,000
Options granted 27,500 (27,500) 22.560
Options exercised (5,000) - 17.250
Options canceled or expired - -
Balance at December 31, 1993 49,834 71,500
Options granted 25,500 (25,500) 23.875
Options granted 5,000 (5,000) 25.000
Options granted 2,500 (2,500) 21.250
Options exercised (2,967) - 17.250
Options exercised (4,000) - 22.560
Options canceled or expired - -
Balance at December 31, 1994 75,867 38,500
</TABLE>
<PAGE>33
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's Common Stock. Shareholders of only 53,283 shares opted
to redeem their shares resulting in a redemption payout of
approximately $1.4 million; shareholders of 498,717 shares
(approximately 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 Dividend Reinvestment and Common Stock Purchase
Plan provides each record holder of Common Stock with a simple
and convenient method of purchasing additional shares without
payment of any brokerage commissions, service charges or other
similar expense. A participant in the Plan may purchase shares of
Common Stock by electing either to (1) reinvest dividends on all
of his or her shares of Common Stock or (2) to make optional cash
payments of not less than $10 each purchase up to a maximum of
$2,000 per month and continue to receive regular dividend
payments on his or her other shares. Participants who enroll to
reinvest dividends may also make optional cash payments of not
less than $10 each purchase up to a maximum of $2,000 per month.
A participant may withdraw from the Plan at any time.
Shares purchased under the Plan will be acquired at a three
percent (3%) discount from the average market price.
In the case of purchases from USBANCORP, Inc. of treasury or
newly-issued shares of Common Stock, the average market price is
determined by averaging the high and low sale price of the Common
Stock as reported on the NASDAQ on the relevant investment date.
At December 31, 1994, the Company had 263,048 unissued reserved
shares available under the Plan. In the case of purchases of
shares of Common Stock on the open market, the average market
price will be the weighted average purchase price of shares
purchased for the Plan in the market for the relevant investment
date.
20. SHAREHOLDER RIGHTS PLAN
Each share of the Company's Common Stock had attached to it one
right (a "Right") issued pursuant to a Shareholder Protection
Rights Agreement, dated November 10, 1989 (the "Rights
Agreement"). Each Right 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
became exercisable if a person, group, or other entity acquired
or announced a tender offer for 20% or more of the Company's
Common Stock. They could also have been exercised if a person or
group who had become a beneficial owner of at least 10% of the
Company's Common Stock was 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 would 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 excluded from the
definition of beneficial owner, holders of revocable proxies,
employee benefit plans of the Company or its subsidiaries and the
Trust Company. After the Rights became exercisable, the Rights
(other than rights held by a 20% beneficial owner or an "adverse
person") would 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 was 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 had been
acquired or the Board of Directors had designated a holder of the
Company's Common Stock an adverse person. The Rights expired on
November 10, 1994.
On February 24, 1995, the Company's Board of Directors adopted a
Shareholder Rights Plan which is substantially similar to and
replaces the previous Rights Agreement which expired on November
10, 1994. The only significant difference from the previous
Rights Agreement is that under the new plan each right will
initially entitle shareholders to buy one unit of a newly
authorized series of junior participating preferred stock at an
exercise price of $65.00. The rights attached to shares of
USBANCORP common stock outstanding on March 15, 1995, and will
expire in ten years. The Rights Plan 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.
<PAGE>34
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 had
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 by March 22, 1995, or such longer period as
the Federal Reserve Board may approve.
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 acquisition cost
was $21,709,000. The acquisition was accounted for by the
purchase accounting method and, accordingly, Community's assets
and liabilities have been adjusted to their 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 year ended December 31, 1992, after giving effect to the pro
forma adjustments as of the beginning of the period, are as
follows:
<TABLE>
<CAPTION>
Year ended December 31 1992
(In thousands, except per share data)
<S> <C>
Net interest income $46,272
Provision for loan losses 2,754
Non-interest income 8,061
Non-interest expense 37,716
Provision for income taxes 4,948
Net income $8,915
Net income per fully diluted
common share $2.47
</TABLE>
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 of 1.4% or $1.2 million.
23. JOHNSTOWN SAVINGS BANK ("JSB")
ACQUISITION
For financial reporting purposes, the Merger ("Merger") with JSB
was consummated and control was passed to USBANCORP on June 30,
1994. USBANCORP merged JSB with and into U.S. Bank, a
wholly-owned subsidiary of USBANCORP, with U.S. Bank surviving
the Merger. The separate existence of JSB ceased, and all
property, rights, powers, duties, obligations, and liabilities of
JSB were automatically transferred to U.S. Bank, in accordance
with Federal and Pennsylvania law. Immediately following the
Merger, U.S. Bank caused the intracompany sale by Standard
Mortgage Corporation of Georgia, a wholly-owned subsidiary of
JSB, of all its assets, subject to all of its liabilities, to SMC
Acquisition Corporation, an indirect subsidiary of Community. SMC
Acquisition Corporation was renamed Standard Mortgage Corporation
of Georgia and is a mortgage banking company organized under the
laws of the State of Georgia and originates, sells, and services
residential mortgage loans.
The Merger was treated as a purchase for financial accounting
purposes. The recorded purchase price was based on the average of
the closing price of USBANCORP Common Stock ("UBAN") on the
NASDAQ/NMS for the ten trading days immediately preceding July
11, 1994, the final closing date of the transaction. The ten day
average of USBANCORP's Common Stock was $25.125, which resulted
in a total cost of the acquisition being $43.8 million, which was
represented by the issuance of 957,857 common shares and $19.7
million in cash. Accounting for the acquisition as a purchase,
USBANCORP recognized newly created core deposit intangibles of
$5.7 million and goodwill of $20.2 million and began realizing
net income immediately from July 1, 1994. Furthermore, the
Company incurred approximately $2.4 million of additional
restructuring expenses during 1994 as a result of the JSB
acquisition including employee severance, data processing
conversion costs, marketing and advertising expenses, and other
costs. These costs are included in the line item titled
"Acquisition charge" in the accompanying Consolidated Statement
of Income.
<PAGE>35
The pro forma combined results of operations of the Company for
the years ended December 31, 1994, and 1993, after giving effect
to the pro forma adjustments as of the beginning of the periods,
are as follows:
<TABLE>
<CAPTION>
Year ended December 31 1994 1993
(In thousands, except per share data)
<S> <C> <C>
Net interest income $61,466 $58,024
Provision for loan losses (2,307) 3,502
Non-interest income 10,635 16,574
Non-interest expense 56,581 52,693
Provision for income taxes 6,133 6,219
Net income $11,694 $12,184
Net income per fully diluted
common share $2.06 $2.19
</TABLE>
24. GOODWILL AND CORE DEPOSIT
INTANGIBLE ASSETS
USBANCORP's balance sheet shows both tangible assets (such as
loans, buildings, and investments) and intangible assets (such as
goodwill). The Company now carries $20.7 million of goodwill and
$6.3 million of core deposit intangible assets on its balance
sheet. The majority of these intangible assets came from the 1994
Johnstown Savings Bank acquisition ($25.9 million) and the 1993
Integra Branches acquisition ($1.2 million).
Intangible assets are typically created when companies pay a
premium over book value to make acquisitions of businesses and
use the "purchase" method of accounting. There are two types of
intangibles. Identifiable intangibles are those that relate to
the fair market value of specific customer relationships.
Acquisitions of items such as core deposit liabilities and
mortgage servicing rights create this type of intangible. The
current value of future revenues attributable to such
relationships is used in order to establish the amount of
identifiable intangibles. A second category of intangibles is
goodwill. Goodwill represents the excess of the purchase price
(premium) over the fair market value of the assets (including
identifiable intangibles) and liabilities acquired.
USBANCORP believes these intangible assets represent real value
to the Company. For example, the total intangible assets created
with the JSB acquisition amounted to $20.2 million in goodwill
and $5.7 million in core deposit intangibles. The Company paid
this premium for JSB and believes its franchise value has been
strengthened by the acquisition for several reasons:
JSB's customer base, branch locations, and approximately $200
million of stable low cost core deposits allowed the Company to
obtain a 25% market share leadership position in Cambria County -
one of its primary markets.
the intra-market consolidation opportunities are expected to
provide for significant future ongoing earnings enhancements.
Under accounting rules, intangibles are amortized over a period
of time and eventually disappear as an asset on the balance
sheet. The Company is amortizing core deposit intangibles over
periods ranging from five to ten years while goodwill is being
amortized over a 15 year life. The straight line method of
amortization is being used for both of these categories of
intangibles. It is important to note that this intangible
amortization expense is not a future cash flow item. The
following table reflects the future amortization expense of the
intangible assets:
<TABLE>
<CAPTION>
Year Expense
(In thousands)
<S> <C>
1995 $2,493
1996 2,408
1997 2,408
1998 2,222
1999 2,066
2000 and after 15,412
</TABLE>
A reconciliation of the Company's intangible asset balances for
1994 is as follows:
<TABLE>
<CAPTION>
At December 31
(In thousands)
<S> <C>
Total goodwill and core deposit
intangible assets at December 31, 1993 $2,897
Goodwill and core deposit intangibles
resulting from JSB acquisition 25,917
Intangible amortization expense
through December 31, 1994 (1,805)
Total goodwill and core deposit
intangible assets at December 31, 1994 $27,009
</TABLE>
The value of these intangibles is reassessed regularly by the
Company. If it is determined that the value of any asset is
permanently impaired, appropriate adjustments to the book value
of that asset are made.
25. OFF-BALANCE SHEET HEDGE INSTRUMENTS
The Company enters into off-balance sheet hedging transactions to
help manage interest rate and market valuation risk exposure
which is incurred in normal recurrent banking activities. A
summary of the off-balance sheet hedging transactions completed
to date are as follows:
<PAGE>36
CMO Liability Hedge:
During the first quarter of 1994, the Company entered into an
interest rate swap agreement with a notional amount of $10
million and a termination date of February 11, 1997. Under the
terms of the swap agreement, the Company will receive a fixed
interest rate of 5% and pay a floating interest rate defined as
the 90 day Libor which resets quarterly. The counterparty in this
unsecured transaction is PNC Bank.
This swap agreement was initiated to hedge interest rate risk in
a declining, stable, or modestly rising rate environment.
Specifically, this transaction hedges the CMO liability on the
Company's Balance Sheet by effectively converting the fixed
percentage cost to a variable rate cost. This hedge also offsets
market valuation risk since any change in the market value of the
swap agreement correlates in the opposite direction with a change
in the market value of the CMO liability. Overall, this swap
agreement favorably reduced interest expense by $29,000 in 1994.
Leverage Program Hedge:
On September 28, 1994, the Company completed hedging transactions
with a notional amount of $100 million. The counterparty in these
unsecured transactions is Mellon Bank. The $100 million notional
amount was comprised of the following:
a $50 million interest rate swap agreement whereby the Company
pays a one year fixed interest rate of 6.08% and receives 90 day
Libor which resets quarterly. The termination date of this swap
agreement is September 28, 1995.
a $50 million interest rate cap on 90 day Libor whereby the cap
amounts to 5.25% for the period covering September 28, 1994,
through March 28, 1995, and then 5.75% for the period from March
29, 1995, through September 28, 1995. The cost of this cap was 63
basis points or $315,000 and is being amortized as an interest
expense over the life of the cap. At December 31, 1994, the
unamortized premium amounted to $236,000.
The Company purchased these derivative products to hedge an
interest rate mismatch that existed between the investment
securities portfolio and short-term Federal Home Loan Bank
borrowings. This mismatch was created upon consummation of the
balance sheet leverage program (see further discussion in M.D.&A.
on page 49) which increased the negativity of the Company's
static GAP ratios and the variability of the net interest income
under alternative rate scenarios. This hedge reduced interest
rate risk since after the hedge was put in place, the Company's
negative six-month static GAP was reduced by $100 million and
presently totals negative $96 million or 5.4% of total assets.
The interest rate swap portion of this hedge also offsets market
valuation risk since any change in the market value of the swap
agreement correlates in the opposite direction with any change in
the market value of the securities portfolio. These off-balance
sheet derivative hedge transactions increased interest expense by
approximately $200,000 in 1994.
The Company believes that its exposure to credit loss in the
event of non-performance by any of the counterparties is remote.
The Company monitors and controls all off-balance sheet
derivative products with a comprehensive Board of Director
approved hedging policy. In addition to interest rate swaps and
caps, the policy also allows for the use of interest rate floors.
The Company has not instituted the use of interest rate floors as
of December 31, 1994.
26. 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>
<CAPTION>
BALANCE SHEET
At December 31 1994 1993
(In thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,532 $2,923
Investment securities
available for sale 15,720 22,002
Equity investment in banking
subsidiaries 137,635 93,769
Equity investment in non-banking
subsidiaries 1,934 1,951
Other assets 1,276 1,030
TOTAL ASSETS $159,097 $121,675
LIABILITIES
Short-term borrowings $17,669 $ -
Long-term debt 1,988 3,124
Other liabilities 2,304 1,936
TOTAL LIABILITIES 21,961 5,060
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 14,275 11,815
Treasury stock (3,064) -
Surplus 92,923 70,720
Retained earnings 40,355 34,080
Net unrealized holding losses on
available for sale securities (7,353) -
TOTAL STOCKHOLDERS' EQUITY 137,136 116,615
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $159,097 $121,675
</TABLE>
<PAGE>37
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
(In thousands)
<S> <C> <C> <C>
INCOME
Inter-entity management fees $3,332 $2,988 $2,649
Dividends from subsidiaries 5,530 3,927 11,328
Interest and dividend income 1,062 1,015 68
Net realized losses on
investment securities (99) - -
Total Income 9,825 7,930 14,045
EXPENSE
Interest expense 535 313 260
Salaries and employee benefits 2,670 2,201 2,222
Other expense 1,924 939 974
Total Expense 5,129 3,453 3,456
INCOME BEFORE
INCOME TAXES
AND EQUITY IN
UNDISTRIBUTED INCOME
OF SUBSIDIARIES 4,696 4,477 10,589
Provision for income taxes 5 (74) -
Equity in undistributed
income of subsidiaries 6,619 7,955 (1,706)
INCOME BEFORE
CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING
PRINCIPLE 11,320 12,358 8,883
Cumulative effect of
change in accounting
principle (adoption
of SFAS #109) - 130 -
NET INCOME $11,320 $12,488 $8,883
STATEMENT OF CASH FLOWS
Year ended December 31 1994 1993 1992
(In thousands)
OPERATING ACTIVITIES
Net income $11,320 $12,488 $8,883
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in undistributed
income of subsidiaries (6,619) (7,955) 1,706
Net cash provided by
operating activities 4,701 4,533 10,589
INVESTING AND
FINANCING ACTIVITIES
Preferred stock cash
dividends paid - (397) (1,173)
Common stock cash
dividends paid (4,679) (3,557) (1,959)
Proceeds from issuance of
common stock 596 637 518
Secondary common
stock offering - 25,988 -
Redemption of
preferred stock - (1,368) -
Purchase of
investment securities - (22,002) -
Purchase of treasury stock (3,064) - -
Borrowings to fund JSB
acquisition 16,669 - -
Borrowings to fund
Community acquisition - - 4,000
Increase in borrowings 1,000 - -
Cash cost of JSB
acquisition (19,498) - -
Cash cost of
Community acquisition - - (14,106)
Investment in subsidiaries - (2,100) (1,260)
Other - net 3,884 (241) 1,069
Net cash used by investing
and financing activities (5,092) (3,040) (12,911)
NET INCREASE (DECREASE)
IN CASH EQUIVALENTS (391) 1,493 (2,322)
CASH EQUIVALENTS AT
JANUARY 1 2,923 1,430 3,752
CASH EQUIVALENTS AT
DECEMBER 31 $2,532 $12,923 $1,430
</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 to
their 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, 1994,
the subsidiary banks were
<PAGE>38
permitted to upstream an additional $13,559,000 in cash dividends
and to loan on a secured basis $2,532,000 to the Company. The
subsidiary banks also had a combined $129,213,000 of restricted
surplus and retained earnings at December 31, 1994.
The Company also had available at December 31, 1994,$1.5 million
of a total $2.5 million line of credit from a non-affiliated
correspondent bank. This line of credit is unsecured and is
subject to annual review on September 30, 1995. Future drawdowns
on this line would be at short-term rates tied to 90 day Libor.
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, 1994, the Company
and each of its banking subsidiaries exceeded their respective
regulatory requirements.
<PAGE>39
STATEMENT OF MANAGEMENT RESPONSIBILITY
January 27, 1995
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 LLP and the Company's internal auditors have direct
access to the Audit Committee.
\s\Terry K. Dunkle
Terry K. Dunkle
Chairman,
President & CEO
\s\Orlando B. Hanselman
Orlando B. Hanselman
Executive Vice President,
Chief Financial Officer
& Manager of Corporate Services
<PAGE>40
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, PA 15222-5498
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
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, 1994 and 1993, and the related consolidated
statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994.
Those 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.
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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of USBANCORP, Inc. and subsidiaries as of December 31,
1994 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 13 to the Consolidated Financial
Statements, effective January 1, 1994, and 1993, the Company
changed its method of accounting for investments in debt and
equity securities and income taxes, respectively.
\s\Arthur Andersen LLP
Pittsburgh, Pennsylvania
January 27, 1995
(except for the matter discussed
in Note 20 as to which the date
is February 24, 1995).
<PAGE>41
This page is intentionally left blank
<PAGE>42
USBANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
<PAGE>43
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, 1994:
<S> <C> <C> <C>
First Quarter $24.50 $23.25 $0.22
Second Quarter 25.75 22.50 0.25
Third Quarter 26.00 23.50 0.25
Fourth Quarter 24.25 19.50 0.25
Year ended December 31, 1993:
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
</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 period
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
</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>44
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
At or for the year ended December 31 1994 1993<F1> 1992 1991 1990
(Dollars in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Summary of Income Statement Data:
Total interest income $102,811 $85,735 $82,790 $66,446 $70,469
Total interest expense 46,993 36,250 38,349 33,538 38,763
Net interest income 55,818 49,485 44,441 32,908 31,706
Provision for loan losses (2,765) 2,400 2,216 900 915
Net interest income
after provision
for loan losses 58,583 47,085 42,225 32,008 30,791
Total non-interest income 8,187 10,150 8,346 6,035 5,340
Total non-interest expense 49,519 40,715 36,248 28,862 27,198
Income before income taxes,
extraordinary item, and
cumulative effect of change in
accounting principle 17,251 16,520 14,323 9,181 8,933
Provision for income taxes 5,931 5,484 5,440 2,873 2,745
Income before extraordinary
item and cumulative effect
of change in accounting
principle 11,320 11,036 8,883 6,308 6,188
Extraordinary item-utilization
of tax loss carryforward - - - 1,004 1,474
Cumulative effect of change in
accounting principle - 1,452 - - -
Net income $11,320 $12,488 $8,883 $7,312 $7,662
Net income applicable
to common stock $11,320 $12,385 $7,710 $6,139 $6,489
Per Common Share Data:
Primary Earnings:
Net income $2.18 $2.78 $2.67 $2.39 $2.55
Income before extraordinary item,
cumulative effect of change in
accounting principle,
and acquisition charge 2.54 2.45 2.67 2.00 1.97
Fully Diluted Earnings:
Net income 2.18 2.72 2.53 2.29 2.41
Income before extraordinary item,
cumulative effect of change in
accounting principle,
and acquisition charge 2.54 2.41 2.53 1.97 1.95
Cash dividends declared 0.97 0.86 0.75 0.55 0.15
Book value at period end 24.57 24.67 23.08 21.71 19.85
Balance Sheet and Other Data:
Total assets $1,788,890 $1,241,521 $1,139,855 $784,036 $774,403
Loans and loans held
for sale, net of unearned income 868,004 727,186 648,915 430,151 445,814
Allowance for loan losses 15,590 15,260 13,752 13,003 12,470
Investment securities
available for sale 259,462 428,712 366,888 - -
Investment securities
held to maturity 524,638 - - 289,772 235,722
Deposits 1,196,246 1,048,866 997,591 676,698 674,176
Long-term debt 5,806 3,445 9,409 5,888 6,193
Stockholders' equity 137,136 116,615 82,971 70,023 65,050
Full-time equivalent employees<F1> 780 665 644 523 535
Selected Financial Ratios:
Return on average total
equity before extraordinary
item, SFAS #109 benefit and
acquisition charge 10.41% 10.13% 11.41% 9.39% 10.00%
Return on average assets
before extraordinary
item, SFAS #109 benefit and
acquisition charge 0.87 0.91 0.85 0.83 0.82
Loans and loans held for sale,
net of unearned income,
as a percent of deposits,
at period end 72.56 69.33 65.05 63.57 66.13
Ratio of average total
equity to average assets 8.39 8.96 7.48 8.85 8.18
Common stock cash dividends
as a percent of net income
applicable to common stock 44.57 32.28 28.16 22.94 5.90
Common and preferred stock
cash dividends as a percent
of net income 44.57 32.84 37.64 35.30 20.31
Interest rate spread 3.47 3.72 3.93 3.69 3.46
Net interest margin 4.03 4.34 4.58 4.69 4.56
Allowance for loan losses
as a percentage of loans and
loans held for sale, net of
unearned income, at period end 1.80 2.10 2.12 3.02 2.80
Non-performing assets as a
percentage of loans and loans
held for sale and other real
estate owned, at period end 0.91 0.89 1.58 1.10 0.87
Net charge-offs as a percentage
of average loans and loans held
for sale 0.04 0.13 0.58 0.08 0.17
Ratio of earnings to fixed charges
and preferred dividends<F2>:
Excluding interest on deposits 2.34x 5.26x 4.05x 4.54x 3.87x
Including interest on deposits 1.37 1.45 1.36 1.26 1.22
One Year GAP ratio, at period end 0.79 1.10 1.14 1.06 0.97
<F1>Full-time equivalent employees in 1994 include 115 employees as a
result of JSB acquisition. 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.
<F2>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.
</TABLE>
<PAGE>45
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain unaudited quarterly
consolidated financial data regarding the Company:
<TABLE>
<CAPTION>
1994 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $31,099 $29,462 $21,184 $21,066
Non-interest income (350) 3,402 2,479 2,656
Total operating
income 30,749 32,864 23,663 23,722
Interest expense 16,408 13,781 8,639 8,165
Provision for loan
losses (3,800) 225 405 405
Non-interest
expense 12,760 13,267 12,852 10,640
Income before
income taxes 5,381 5,591 1,767 4,512
Provision for
income taxes 1,708 1,887 863 1,473
Net income $3,673 $3,704 $904 $3,039
Net income
applicable
to common stock $3,673 $3,704 $904 $3,039
Primary Earnings
Per Common Share:
Net income $0.65 $0.65 $0.19 $0.64
Fully Diluted Earnings
Per Common Share:
Income before
acquisition charge 0.65 0.65 0.59 0.64
Net income 0.65 0.65 0.19 0.64
Cash Dividends
Declared Per
Common Share 0.25 0.25 0.25 0.22
</TABLE>
<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>
<PAGE>46
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 YEARS ENDED
DECEMBER 31, 1994, 1993, AND 1992
RECENT ACQUISITION HISTORY...The following represents a brief
summary of the acquisitions which impacted the Company's
financial performance over the three year period from January 1,
1992, through December 31, 1994. For a more comprehensive
discussion on each of these acquisitions, see Notes to Financial
Statements 21, 22, and 23.
Community Bancorp, Inc.: The acquisition of Community Bancorp,
Inc. was effective March 23, 1992, and, accordingly, impacted the
Company's financial performance for approximately nine months in
1992 and the full year in both 1993 and 1994. At the acquisition
date, Community Bancorp had total assets of $368 million, total
loans of $261 million, and total deposits of $321 million.
Community Bancorp added 12 community offices to the Company's
branch network in the suburban Pittsburgh marketplace. The total
cost of the Community Bancorp, Inc. acquisition was $21.7
million.
Integra Branches: On April 2, 1993, the Company's Three Rivers
Bank subsidiary acquired four branch offices located in the
suburban Pittsburgh marketplace from Integra National Bank. In
connection with the transaction, Three Rivers Bank assumed
approximately $89 million of deposit liabilities and purchased
$12 million of assets, approximately $10 million of which were
consumer loans. For the deposit liabilities assumed, Three Rivers
Bank paid Integra a deposit premium of 1.4% or $1.2 million. This
acquisition impacted the Company's financial performance for
approximately nine months in 1993 and the full year in 1994.
Johnstown Savings Bank: The acquisition of JSB for financial
reporting purposes was effective June 30, 1994, and, accordingly,
impacted the Company's financial performance for six months in
1994. At the acquisition date, JSB had total assets of $367
million, total loans of $125.6 million, and total deposits of
$209 million. JSB was immediately merged into the Company's U.S.
Bank subsidiary, which is also based in Johnstown, Pennsylvania,
giving U.S. Bank an approximate 25% deposit market share
leadership position in Cambria County. JSB also had a
wholly-owned mortgage banking subsidiary, Standard Mortgage
Company of Georgia, which U.S. Bank sold on an intracompany basis
immediately following the merger to Community Bancorp, Inc..
Standard Mortgage Company services approximately $1.2 billion of
mortgage loans and has purchased mortgage servicing rights
totalling $11.5 million.
The total cost of the JSB acquisition was $43.8 million. This
cost excludes a $1,882,000 after-tax acquisition restructuring
charge. JSB initially had six branch
<PAGE>47
office locations in the Greater Johnstown marketplace. Late in
the third quarter of 1994, two of these offices were merged into
U.S. Bank's retail delivery system to achieve economy of scale
benefits.
PERFORMANCE OVERVIEW...The Company's net income for 1994 was
$11,320,000 or $2.18 on a fully diluted per share basis compared
to net income of $12,488,000 or $2.72 per fully diluted share for
1993 and net income of $8,883,000 or $2.53 per fully diluted
share for 1992. The Company's 1994 net income includes a
$1,882,000 after-tax acquisition restructuring charge related to
the June 30, 1994, completed intra-market purchase of Johnstown
Savings Bank. This previously disclosed acquisition charge
included expense recognition for one-time integration costs such
as employee severance, data processing conversion, and marketing
and communication costs. Excluding this acquisition charge, 1994
net income was $13,202,000 or $2.54 per fully diluted share. The
Company's 1993 net income included a $1,452,000 non-recurring
benefit due to the adoption of SFAS #109, "Accounting for Income
Taxes." Before the SFAS #109 benefit, 1993 net income was
$11,036,000 or $2.41 per fully diluted share. The Company's 1992
results were not impacted by any unusually large non-recurring or
extraordinary items.
When 1994 is compared with 1993, before the acquisition charge
and SFAS #109 benefit, the Company's net income increased by
$2,166,000 or 19.6% while fully diluted earnings per share
increased by a lesser amount of $0.13 or 5.4%. The Company's
return on average assets declined modestly by four basis points
to 0.87% while the return on average equity increased by 28 basis
points to 10.41%. The Company's improved net income was due to a
negative loan loss provision and increased net interest income
resulting from the JSB acquisition and the implementation of a
balance sheet leveraging program. These positive items were
partially offset by increased non-interest expense caused largely
by the JSB acquisition and lower non-interest income due to the
realization of approximately $4 million of losses on available
for sale investment security transactions. In conjunction with
the JSB acquisition, the Company also issued 957,857 new shares
of common stock which contributed to the 13.1% increase in
weighted average fully diluted shares outstanding to 5.192
million. The impact of these additional shares was the primary
reason that the fully diluted EPS growth rate was lower than the
net income growth rate experienced in 1994.
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 $0.12 or 4.7%.
Similar trends were noted for two other key performance ratios as
the Company's return on assets before the SFAS #109 benefit
improved by six basis points to 0.91% while the return on equity
before the SFAS #109 benefit declined by 128 basis points to
10.13%. The increase in net income was attributed to the
Company's ability to enhance Community's net income and the
accretive impact of the purchase of 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 February 1993 secondary common stock
offering. 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
<PAGE>48
temporary dilutive effect of these additional shares was the
major factor responsible for the $0.12 decline in fully diluted
earnings per share and the 128 basis point drop in return on
average equity experienced in 1993.
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 1994 1993 1992
(In thousands, except per share
data and ratios)
<S> <C> <C> <C>
Net income $11,320 $12,488 $8,883
Net income
(before acquisition charge
and SFAS #109 benefit) 13,202 11,036 8,883
Fully diluted earnings
per share 2.18 2.72 2.53
Fully diluted earnings
per share (before acquisition
charge and SFAS #109 benefit) 2.54 2.41 2.53
Return on average assets 0.75% 1.03% 0.85%
Return on average assets
(before acquisition charge
and SFAS #109 benefit) 0.87 0.91 0.85
Return on average equity 8.92 11.46 11.41
Return on average equity
(before acquisition charge
and SFAS #109 benefit) 10.41 10.13 11.41
Average fully diluted
common shares outstanding 5,192 4,589 3,515
</TABLE>
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 1994 1993 1992
(In thousands, except ratios)
<S> <C> <C> <C>
Interest income $102,811 $85,735 $82,790
Interest expense 46,993 36,250 38,349
Net interest income 55,818 49,485 44,441
Tax-equivalent adjustment 1,746 740 808
Net tax-equivalent
interest income $57,564 $50,225 $45,249
Net interest margin 4.03% 4.34% 4.58%
</TABLE>
When 1994 is compared to 1993, USBANCORP's net interest income on
a tax-equivalent basis increased by $7,339,000 or 14.6% while the
net interest margin percentage declined by 31 basis points to
4.03%. The increased net interest income was due primarily to a
higher volume of earning assets resulting from the JSB
acquisition and a balance sheet leverage program. For 1994, total
average earning assets were $274 million higher than 1993. Net
interest income was also enhanced by approximately $500,000 of
non-accrual loan interest recoveries. While the leverage program
and the JSB acquisition did cause an increase in net interest
income, these same two factors also contributed to a compression
in the Company's net interest margin percentage which is fully
explained in the following discussion.
DYNAMIC LEVERAGE PROGRAM...In the second half of 1994, management
fully implemented a previously disclosed program designed to
better leverage the Company's balance sheet and equity. This
dynamic leverage program consists of the ongoing purchase and
replacement of an aggregate $122 million pool of "AAA" credit
quality investment securities. The pool is presently composed of
15 year fixed- and adjustable-rate mortgage-backed securities,
seven year balloons, U.S. Treasury securities and municipal
bonds. At December 31, 1994, approximately 39% of the pool is
adjustable-rate and 61% fixed-rate with a
<PAGE>49
duration of approximately 3.6 years. This project is funded
through the Federal Home Loan Bank using one-year term funds tied
to 90 day Libor, 30 and 90 day wholesale reverse repurchase
agreements and overnight funds. The dynamic leverage pool will
remain in existence as long as the incremental spread between new
investments purchased into the pool and the latest funding cost,
net of hedging results, exceeds 150 basis points.
While this leverage program favorably increased net interest
income dollars by $1.2 million it did, however, contribute to a
lower net interest margin percentage since the average spread
earned on the funds deployed in the leverage program approximated
196 basis points compared to the Company's more typical net
interest spread of approximately 350 basis points. The following
table isolates the impact that the leverage program had on some
of the Company's key performance items in 1994:
<TABLE>
<CAPTION>
1994 Excluding Net Impact of
Actual 1994 Leverage Program LeverageProgram
(In thousands, except ratios)
<S> <C> <C> <C>
Net tax-equivalent
interest income $57,564 $56,368 $1,196
Net interest margin 4.03% 4.12% (0.09)%
Average earnings assets $1,429,959 $1,368,959 $61,000
Return on average equity
(before acquisition charge) 10.41% 9.78% 0.63%
</TABLE>
It is recognized that interest rate risk does exist, particularly
in the recently rising interest rate environment, from this
dynamic leverage program. To neutralize this risk, management
executed $150 million of hedging transactions late in the third
quarter which helped fix the variable funding costs associated
with this program through September 28, 1995 (see further
discussion under Note 25). While the initial cost of these hedge
transactions negatively impacted the Company's fourth quarter net
interest margin performance by approximately $400,000, they did
lock-in a minimum 150 basis point positive spread on the dynamic
leverage program through the hedge maturity dates.
JSB ACQUISITION...The Company's core net interest margin
performance was also negatively impacted by the JSB acquisition
and its lower net interest margin performance (i.e., During the
first half of 1994 prior to the acquisition, JSB's net interest
margin approximated 3.20% compared to the Company's 4.33% NIM
performance for that same period). This lower margin performance
at JSB can be attributed to its more typical savings bank balance
sheet mix; this mix includes a greater proportion of fixed-rate
residential and commercial mortgage loans and more reliance on
certificates of deposit, rather than non-interest bearing demand
deposits, as a funding source. The Company was able to improve
JSB's net interest margin performance by approximately 70 basis
points and its annual pre-tax net interest margin dollars by
approximately $2.9 million as a result of an investment portfolio
repositioning strategy executed in the months immediately
following the acquisition. The Company elected to sell $175
million or 90% of JSB's securities portfolio, which was comprised
primarily of collateralized mortgage obligations yielding
approximately 5.50%, and replace it with Federal Agency mortgage
pass through securities yielding approximately 7.2% with a
similar average life of approximately 3.5 years. The Company
prefers mortgage pass through securities because these
instruments have more predictable cash flows and less market
valuation risk than collateralized mortgage obligations. No gain
or loss was recognized on the sale of these securities for book
purposes since they had already been marked to market through
purchase accounting at the acquisition date.
<PAGE>50
When analyzing the Company's net interest margin percentage
performance on a quarterly basis during 1994, a declining
trendline was observed throughout the year as the net interest
margin declined from a high of 4.43% in the first quarter to a
low of 3.66% in the fourth quarter. The most significant
quarterly NIM drop of 34 basis points occurred between the third
and fourth quarters. As previously mentioned, the JSB acquisition
and leverage program were primary elements contributing to the
margin decline in the second half of the year. Other factors
responsible for the fourth quarter decline were:
the $200,000 initial cost associated with instituting the $100
million off-balance sheet hedge program.
the $200,000 cost associated with extending $50 million of
overnight borrowings with the FHLB into a one year fixed-rate
advance which matures on September 28, 1995.
a liability funding mix shift as deposit balances in low cost
savings accounts declined by approximately $35 million in the
fourth quarter of 1994. Specifically, $11 million of these
deposits shifted into higher, fixed-rate certificates of deposit
with maturities exceeding one year at an increased cost to the
Company of approximately 400 basis points. The remaining $24
million of these deposits were replaced with borrowed FHLB funds
at a similarly higher rate. This unfavorable funding mix shift
reduced net interest income by approximately $400,000, but does
provide the Company with certain additional margin protection
from any near-term rate increases.
One factor contributing to the deposit mix shift was the
implementation of a Customer's Choice certificate of deposit
program in the fourth quarter of 1994. This program was executed
in an effort to both slow deposit run-off and further grow the
deposit base with funds at incremental costs currently lower than
comparable Federal Home Loan Bank funding alternatives.
Additionally, this program provided the Company's community
office employees with a viable product to sell during a period in
which pricing was not increased on lower cost core accounts. The
program was successful during the six week period it was in place
as it generated $38 million of total deposits of which $13
million or 34% represented new funds from outside the
organization. The average fixed cost of these deposits was 6.22%
with an average term of approximately 18 months. This extension
of the liability base also allowed the Company to reduce the
negativity of its six month and one year static GAP positions.
For the first quarter of 1995, the Company generally expects the
net interest margin to modestly improve from the 3.66% recent
quarterly performance. This general expectation is based upon the
following:
late in the fourth quarter of 1994, the Company repositioned its
investment portfolio by selling $81 million of available for sale
securities with a weighted average coupon of approximately 6.02%
and remaining maturity of 29 months. Securities in the amount of
$77 million were purchased with a weighted average coupon of
approximately 8.80% and a maturity of 49 months. The approximate
275 basis point yield improvement on this repositioning strategy
will generate $2.1 million of additional pre-tax earnings for
each of the next three years. The yield improvement for the
remaining 13 months may differ due to the variable rate
composition of the securities.
the $100 million of off-balance sheet hedge transaction
associated with the leverage program will provide a locked-in
first quarter net margin benefit of $266,000.
These expected net interest margin enhancements may, however, be
negated by additional funding cost increases given the February
1, 1995, Federal Reserve
<PAGE>51
action to increase interest rates by 50 basis points, the
possible continued customer deposit mix shift from lower cost
core accounts into higher fixed cost certificates of deposit, and
the potential implementation by the Company of additional hedges
during the first quarter.
When 1993 is compared to 1992, USBANCORP's tax equivalent 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 Integra Branches and
Community Savings Bank acquisitions and the $24.6 million in net
funds provided from the secondary common stock offering. For
1993, total average earning assets were $167 million higher than
1992. The contraction in the net interest margin can best be
explained by the following factors:
The full year impact of the Community Savings acquisition and its
lower NIM performance which averaged in the 3.80% to 4.00% range
during 1993. This margin performance was lower than the net
interest margin operating performance of approximately 4.60%
experienced at the Company's other banking subsidiaries. This
lower margin performance at Community can be attributed to its
more typical savings bank balance sheet mix; this mix includes a
greater portion of one- to four-family fixed-rate 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 (at
December 31, 1994, it was 21%), compared to only 4% at March 31,
1992. A decline in the dependence on real estate loans was
experienced as Community's real estate loan portfolio composition
percentage decreased from 82% to 74% between these same two
dates. This decline resulted from the sale of primarily all new
30 year fixed-rate residential mortgage loans originated during
1993 totalling approximately $22 million at a gain of $593,000.
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
market 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 a major factor contributing to the
contraction in the net interest margin percentage.
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>52
<TABLE>
<CAPTION>
Year ended December 31 1994 1993 1992
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 $809,695 $67,114 8.29% $708,690 $61,027 8.61% $623,087 $58,635 9.41%
Deposits with banks 2,974 121 4.08 4,885 127 2.60 6,584 324 4.92
Federal funds sold and
securities purchased under
agreements to resale 2,330 94 4.06 12,850 383 2.98 12,601 426 3.38
Investment securities:
Available for sale 276,225 15,531 5.62 413,558 23,592 5.70 331,354 22,999 6.94
Held to maturity 327,910 20,777 6.38 - - - - - -
Total investment
securities 604,135 36,308 6.03 413,558 23,592 5.70 331,354 2,999 6.94
Assets held in trust for
collateralized mortgage
obligation 10,825 920 8.50 16,342 1,346 8.24 15,229 1,214 7.97
Total interest earning
assets/interest income 1,429,959 104,557 7.31 1,156,325 86,475 7.48 988,855 83,598 8.45
Non-interest earning assets:
Cash and due from banks 42,609 32,181 29,083
Premises and equipment 18,014 16,345 15,453
Other assets 39,446 24,776 20,925
Allowance for loan losses (17,488) (14,292) (13,782)
TOTAL ASSETS $1,512,540 $1,215,335 $1,040,534
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand $106,665 $1,653 1.55% $99,090 $2,030 2.05% $82,705 $2,320 2.81%
Savings 248,265 4,806 1.94 231,025 5,546 2.40 216,137 6,638 3.07
Other time 632,040 27,824 4.40 574,182 25,047 4.36 510,996 26,685 5.22
Total interest bearing
deposits 986,970 34,283 3.47 904,297 32,623 3.61 809,838 35,643 4.40
Federal funds purchased,
securities sold under
agreements to repurchase
and other short-term
borrowings 112,846 5,349 4.79 14,486 359 2.48 10,452 281 2.69
Advances from Federal
Home Loan Bank 109,098 6,006 5.51 23,711 1,163 4.90 6,115 463 7.57
Collateralized mortgage
obligation 9,861 1,024 10.38 14,189 1,508 10.63 14,194 1,301 9.17
Long-term debt 5,010 331 6.58 7,560 597 7.90 8,360 661 7.91
Total interest bearing
liabilities/
interest expense 1,223,785 46,993 3.84 964,243 36,250 3.76 848,959 38,349 4.52
Non-interest bearing
liabilities:
Demand deposits 138,428 122,699 103,398
Other liabilities 23,468 19,440 10,298
Stockholders' equity 126,859 108,953 77,879
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $1,512,540 $1,215,335 $1,040,534
Interest rate spread 3.47 3.72 3.93
Net interest income/net
interest margin 57,564 4.03% 50,225 4.34% 45,249 4.58%
Tax-equivalent adjustment (1,746) (740) (808)
Net interest income $55,818 $49,485 $44,441
</TABLE>
<PAGE>53
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 inbased 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>
1994 vs. 1993 1993 vs. 1992
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 $8,234 $(2,147) $6,087 $6,278 $(3,886) $2,392
Deposits with banks 13 (19) (6) (70) (127) (197)
Federal funds sold and
securities purchased
under agreements to
resell (519) 230 (289) 9 (52) (43)
Investment securities 11,297 1,419 12,716 1,179 (586) 593
Assets held in trust for
collateralized
mortgage obligation (470) 44 (426) 90 42 132
Total interest income 18,555 (473) 18,082 7,486 (4,609) 2,877
Interest paid on:
Interest bearing
demand deposits 172 (549) (377) 794 (1,084) (290)
Savings deposits 472 (1,212) (740) 504 (1,596) (1,092)
Other time deposits 2,545 232 2,777 4,928 (6,566) (1,638)
Federal funds purchased
and securities sold
under agreements to
repurchase, and other
short-term borrowings 4,388 602 4,990 98 (20) 78
Advances from Federal
Home Loan Bank 4,681 162 4,843 798 (98) 700
Collateralized mortgage
obligation (449) (35) (484) - 207 207
Long-term debt (178) (88) (266) (63) (1) (64)
Total interest expense 11,631 (888) 10,743 7,059 (9,158) (2,099)
Change in net
interest income $6,924 $415 $7,339 $427 $4,549 $4,976
</TABLE>
Regarding the separate components of net interest income, the
Company's total tax equivalent interest income for 1994 increased
by $18.1 million or 20.9% when compared to 1993. This increase
was due to the previously mentioned $274 million increase in
average earning assets which caused interest income to rise by
$18.6 million between years. This positive factor was partially
offset by an unfavorable rate variance of $473,000 as a reduced
loan portfolio yield more than offset an improved yield for the
total investment security portfolio causing the Company's total
earning asset yield to drop by 17 basis points to 7.31%. The full
year impact was felt in 1994 of the trend of accelerated customer
refinancing of mortgage loans during the latter part of 1993.
This trend combined with limited new consumer loan growth caused
the Company's total loan portfolio yield to drop 32 basis points
to 8.29%. This drop more than offset the benefit of a 33 basis
point increase in the total investment security portfolio yield
to 6.03%. This improved security yield reflected only the partial
year benefit of the following strategic initiatives executed
during 1994 in an attempt to generate increased earnings from the
securities portfolio by taking additional managed and controlled
interest rate risk:
the securities purchased in conjunction with the $122 million
dynamic leverage program.
<PAGE>54
the sale and repositioning of $175 million or 90% of JSB's
investment security portfolio.
the sale late in the fourth quarter of 1994 of $81 million of
available for sale securities with a weighted average coupon
(WAC) of 6.02% and weighted average maturity (WAM) of 29 months
generated a $4 million loss. The proceeds from this sale were
used to purchase $77 million of securities with a WAC of 8.80%
and a WAM of 49 months.
At December 31, 1994, as a result of these strategic initiatives
the balance in the investment securities portfolio totalled $784
million with a WAC of 6.84% and WAM of 3.8 years compared to a
total securities balance of $429 million at December 31, 1993,
with a WAC of 5.45% and a WAM of 2.8 years. The Company is now
positioned to garner the full year benefits of these strategies
in 1995.
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
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 as the Company's
earning assets repriced downward in conjunction with the national
decline in interest rates. Specifically, the yield on the loan
portfolio decreased 80 basis points to 8.61% while the yield on
total investment securities and investment securities available
for sale dropped 124 basis points to 5.70%. The national and
local market trend of accelerated customer refinancing of
mortgage loans contributed materially to the declining yields
experienced in both of these portfolios. Finally, the increased
dependence on investment securities as a funding use negatively
impacted the earning asset mix in 1993.
The Company's total interest expense for 1994 increased by $10.7
million or 29.6% when compared to 1993. This increase was also
caused by a $260 million increase in average interest bearing
liabilities resulting from the previously mentioned JSB
acquisition and FHLB borrowings used to fund the leverage
program. These increased FHLB borrowings also negatively impacted
the liability mix and overall cost of funds because the cost of
these borrowings averaged 5.12% for 1994 compared to the
Company's core cost of deposits of 3.47%. This 3.47% cost of core
deposits represented a 14 basis point decline from the prior year
and was the primary factor responsible for the $888,000 favorable
variance in 1994.
This decline in deposit costs is primarily a result of management
repricing all deposit categories downward in the declining
interest rate environment experienced during 1993 and generally
maintaining those low rates for non-certificate of deposit
products during the rising rate environment experienced in 1994
(see further discussion under Interest Rate Sensitivity on page
65 regarding future limitations on the Company's ability to
continue to maintain these low core deposit rates). It has been
management's ongoing pricing strategy to position USBANCORP's
core savings deposit rates within the lower 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 this rate positioning strategy has on the deposit base
size and funds availability provided that the rates offered are
not appreciably below competition.
During the second half of 1994, the Company positioned its
certificate of deposit pricing within the upper half of deposit
rates offered by commercial banks in its market area. This
increase in certificate of deposit pricing was done for several
reasons: to help retain customers immediately after the JSB
acquisition during a critical period which included a computer
system conversion, to try to encourage customer deposit term
extension in a rising interest rate environment, and to use
<PAGE>55
lower cost deposits as a source of funds to replace higher cost
and more rate sensitive FHLB borrowings which were being used to
fund a portion of JSB's acquired balance sheet. As a result of
the rising interest rate environment and the increased
certificate of deposit pricing, the Company did begin to
experience a shift of funds out of low cost savings accounts and
into certificates of deposit during the fourth quarter of 1994.
Specifically, approximately $11 million of funds shifted into
fixed cost certificates of deposit with maturities generally
exceeding one year with an increased cost to the Company of
approximately 400 basis points. The combination of all these
price and liability composition movements caused USBANCORP's
average cost of interest bearing liabilities to increase by eight
basis points from 3.76% during 1993 to 3.84% during 1994.
The Company's total interest expense for 1993 decreased by $l $7.1 million
of interest expense generated
from a $115 million increase in average interest bearing
liabilities. This negative factor was more than offset by a $9.2
million favorable variance which resulted primarily from
management repricing all deposit categories downward in a
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.
Regarding the deposit mix, the Company 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 the low interest rate environment. The Company
also used an additional $17.6 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.
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 are used on a continuing
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>
At December 31 1994 1993 1992
(In thousands, except percentages)
<S> <C> <C> <C>
Total loan delinquency
(past due 30 to 89 days) $12,832 $10,428 $8,743
Total non-accrual loans 5,446 5,304 5,596
Total non-performing assets<F1> 7,901 6,498 10,291
Loan delinquency as a percentage
of total loans and loans held
for sale, net of unearned income 1.48% 1.43% 1.35%
Non-accrual loans as a percentage
of total loans and loans held
for sale, net of unearned income 0.63 0.73 0.86
Non-performing assets as a
percentage of total loans
and loans held for sale,
net of unearned income,
and other real estate owned 0.91 0.89 1.58
<F1>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>
<PAGE>56
At December 31, 1994, non-accrual loans as a percentage of total
loans and loans held for sale, net of unearned income, were
0.63%. Total non-performing assets as a percentage of total loans
and loans held for sale, net of unearned income, and other real
estate owned were 0.91% at this same year-end 1994 date. 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 1.48% at
December 31, 1994, and increased modestly 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, 1994, all identified potential problem loans were
included in the preceding table.
ALLOWANCE AND PROVISION 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 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-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 review 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.
<PAGE>57
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 1994 1993 1992 1991 1990
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year: $15,260 $13,752 $13,003 $12,470 $12,315
Addition due to acquisitions 3,422 - 2,122 - -
Charge-offs:
Commercial 352 383 2,286 443 935
Real estate-mortgage 155 628 1,141 18 467
Consumer 591 750 1,031 770 1,010
Total charge-offs 1,098 1,761 4,458 1,231 2,412
Recoveries:
Commercial 199 338 291 332 861
Real estate-mortgage 100 27 166 157 405
Consumer 472 504 412 375 386
Total recoveries 771 869 869 864 1,652
Net charge-offs 327 892 3,589 367 760
Provision for loan losses (2,765) 2,400 2,216 900 915
Balance at end of year $15,590 $15,260 $13,752 $13,003 $12,470
Loans and loans held
for sale, net of unearned income:
Average for the year $809,695 $708,690 $623,087 $435,462 $447,932
At December 31 868,004 727,186 648,915 430,151 445,814
As a percent of average loans
and loans held for sale:
Net charge-offs 0.04% 0.13% 0.58% 0.08% 0.17%
Provision for loan losses (0.34) 0.34 0.36 0.21 0.20
Allowance for loan losses 1.93 2.15 2.21 2.99 2.78
Allowance as a percent of each
of the following:
Total loans and loans held
for sale, net of unearned
income 1.80 2.10 2.12 3.02 2.80
Total delinquent loans (past
due 30 to 89 days) 121.49 146.34 157.29 150.00 171.40
Total non-accrual loans 286.27 287.71 245.75 387.22 507.74
Total non-performing assets 197.32 234.84 133.63 274.00 319.90
Allowance as a multiple of net
charge-offs 47.68x 17.11x 3.83x 35.43x 16.41x
</TABLE>
The Company recorded a negative provision for loan losses of $2.8
million in 1994 compared to loan loss provisions of $2.4 million
in 1993 and $2.2 million in 1992. When expressed as a percentage
of average loans, the provision averaged (.34%) in 1994, .34% in
1993, and .36% in 1992. When 1994 is compared to 1993, this
represents a net favorable shift of $5.2 million.
The overall negative provision for 1994 resulted from a one-time
non-recurring negative provision of $4 million recognized in the
fourth quarter. This negative provision was driven by the
continuing improvement of the Company's asset quality including
reduced levels of net loan charge-offs. Specifically, since 1987,
USBANCORP, Inc. has meticulously adhered to a publicly disclosed
procedural discipline in determining both the necessary provision
for loan losses to be taken from earnings and the adequacy of the
allowance for loan losses. Based upon management's judgment and
evaluation of this systematic procedural methodology, the Company
has reduced its quarterly provision for loan losses three times
since the beginning of 1993. Despite these expense reductions,
and due to both nominal loan charge-offs and ongoing work-out
successes and recoveries, the provision for loan losses has
exceeded net charge-offs each quarter since June 30, 1992.
Indeed, for the full year 1994 net charge-offs again dropped to
$327,000 or only .04% of total loans. In recognition of this well
established trend, the Company's increasingly diversified loan
mix and geographic presence, stabilized and improving regional
economies, completed credit integration of all recent
acquisitions and the continuing
<PAGE>58
adequacy of the allowance for loan losses subsequent to the
non-recurring negative provision, it was management's and the
Board of Director's judgment that the interests of the Company's
shareholders and customers were best served by this immediate,
one-time negative provision.
Subsequent to the non-recurring negative provision, management
believes the Company's allowance is adequate at each subsidiary
bank for losses inherent in the portfolio and its allowance
coverage is generally comparable with peer institutions. The
allowance for loan losses at December 31, 1994, was 1.80% of
total loans and 197% of non-performing assets; according to the
most recent bank analysis prepared by SNL Securities, the peer
average for banks throughout the country between $1 and $5
billion in assets is an allowance to non-performing assets ratio
of 128%. Consistent with the Company's historic practice of
maintaining a surplus in the allowance for loan losses of at
least 20% of the systematically determined minimum requirement,
the unallocated general reserve amount was $6.6 million or 74% of
the total required need at December 31, 1994. There can be no
assurance that if asset quality deteriorates in future periods
material additions to the allowance for loan losses will not be
required; management currently estimates, however, that the 1995
provision for loan losses will approximate $500,000.
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 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.
USBANCORP 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. 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 1994 1993 1992 1991 1990
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
Amount to Loans<F2> 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 $1,894 13.4% $1,637 13.6% $1,653 11.6% $4,963 27.6% $3,371 25.3%
Commercial loans
secured by real estate 5,278 19.3 4,073 17.2 4,416 19.1 <F1> <F1>
Real estate-mortgage 339 48.8 279 46.3 244 45.3 1,274 36.7 1,202 34.7
Consumer 1,436 18.5 1,636 22.9 2,002 24.0 1,169 35.7 1,870 40.0
Allocation to
general risk 6,643 7,635 5,437 5,597 6,027
Total $15,590 $15,260 $13,752 $13,003 $12,470
<F1>The historical information for this category was not available.
<F2>Includes loans held for sale.
</TABLE>
NON-INTEREST INCOME...Non-interest income for 1994 totalled $8.2
million which represented a $2 million or 19.3% decrease when
compared to 1993. This decrease was primarily due to the
following items:
the realization of a $4 million loss on investment securities
available for sale in 1994 compared to a $583,000 gain realized
in 1993 (a net unfavorable shift of $4.6 million). The 1994 loss
resulted primarily from an investment portfolio
<PAGE>59
repositioning strategy executed late in the fourth quarter which
was designed to enhance future net interest income performance.
Specifically, $81 million of available for sale securities with a
weighted average coupon of 6.02% and weighted average maturity of
29 months were sold at a $4 million loss. The proceeds from this
sale were used to purchase $77 million of securities with a WAC
of 8.80% and a WAM of 49 months. The approximate 275 basis point
yield improvement on this repositioning strategy will generate
$2.1 million of additional pre-tax earnings for each of the next
three years. The yield improvement for the remaining 13 months
may differ due to the variable rate composition of the
securities. Other investment security strategies executed in 1994
included the second quarter sale of certain collateralized
mortgage obligations in an effort to reduce the market valuation
risk of the available for sale portfolio, enhance yield
performance and reduce cash flow volatility. The losses from this
repositioning strategy were almost offset by gains generated from
a sales strategy executed in the first quarter to capture
available market premiums on securities with a remaining maturity
of generally less than one year.
the inclusion of $1.1 million of net mortgage servicing income
generated from a mortgage banking subsidiary acquired with the
JSB acquisition. This amount resulted from $1.9 million of
mortgage servicing fees net of $746,000 of amortization expense
of the cost of purchased mortgage servicing rights. As of
December 31, 1994, this mortgage banking subsidiary was servicing
$1.2 billion of mortgage loans. SMC's servicing portfolio has
benefited from recent increases in interest rates as the value of
the servicing portfolio typically increases in a rising interest
rate environment due to slower mortgage prepayment speeds. Recent
valuations of the portfolio caused SMC to reduce the monthly
amortization expense of the purchased mortgage servicing rights
(PMSRs) by approximately $50,000 in the fourth quarter due to
extension of the servicing lives. This reduction will favorably
impact the 1995 pre-tax performance of SMC by approximately
$500,000. The following chart highlights some of the key
information related to SMC's mortgage servicing portfolio:
<TABLE>
<CAPTION>
December 31, 1994 June 30, 1994
(In thousands, except percentages
and prepayment data)
<S> <C> <C>
Purchased balance $991,269 $888,167
Fair value of PMSRs based upon discounted
cash flow of servicing portfolio 14,881 10,434
Fair value as a percentage of purchased balance 1.50% 1.17%
PSA prepayment speed 145 179
Weighted average portfolio interest rate 8.03% 8.13%
</TABLE>
A rollforward of the PMSRs since acquisition date is as follows:
(In thousands)
Balance as of July 1, 1994 $10,434
Acquisition of servicing rights 1,764
Amortization of servicing rights (746)
Balance as of December 31, 1994 $11,452
<PAGE>60
a $445,000 or 17.3% increase in trust fees to $3 million in 1994.
This core trust fee growth is prompted by the profitable
expansion of the Company's business throughout western
Pennsylvania including the Greater Pittsburgh marketplace. Total
trust assets (discretionary and non-discretionary) have grown by
$85 million or 9% since December 31, 1993, and now total over $1
billion at December 31, 1994. The Trust staff's marketing skills
combined with their proven ability to deliver quality service has
been the key to the Company's growth rate, which has ranged
between 17%-25% annually for each of the past four years. While
there can be no assurances of continuation of this trend, these
factors provide a foundation for future growth of this important
source of fee income.
the realization of a $763,000 gain on loan and servicing sales in
1994 compared to a $593,000 gain for 1993. The $170,000 increase
between periods was due entirely to a $200,000 gain recognized on
the sale of the Company's $17 million student loan portfolio
which more than offset reduced gains generated on $60 million of
fixed-rate mortgage loan sales in 1994.
an $883,000 increase in other income due primarily to additional
fee income resulting from the JSB acquisition. Examples of fee
income sources demonstrating increases are: credit card charges,
other mortgage banking processing fees, ATM transaction charges,
and bond handling fees. Other income was also supplemented by an
$88,000 gain realized on the liquidation of a real estate joint
venture and a $70,000 increase in premium income on credit life
and disability insurance sales to consumer loan customers.
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 the sale of loans 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. 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) grew
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%. A portion of
the growth in personal trust assets was fueled by the continued
successful sales of the Pathroad Account, a competitively priced
mutual fund product. 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
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.
<PAGE>61
NON-INTEREST EXPENSE...Total 1994 non-interest expense of $49.5
million increased by $8.8 million or 21.6% when compared to 1993
due in part to the recognition of a $2.4 million pre-tax
acquisition restructuring charge associated with the Company's
acquisition of Johnstown Savings Bank. Excluding this charge,
total non-interest expense increased by $6.4 million or 15.6%
when 1994 is compared to 1993. The acquisition of JSB has been
the primary reason for the increase experienced in each of the
expense line items and is evidenced by the following more
significant changes:
a $3,359,000 or 16.8% increase in salaries and employee benefits
expense due entirely to planned wage increases approximating 4%,
69 additional average full-time equivalent employees resulting
from the JSB and Integra Branches acquisitions and a $343,000
increase in pension/profit sharing expense.
a $1,221,000 increase in net occupancy and equipment expense as a
result of the additional branch facilities and equipment acquired
with the JSB and Integra branches acquisitions and higher
utilities and repair/maintenance expenses due in part to the
harsh winter early in 1994.
a $974,000 increase in amortization expense due entirely to the
amortization of the goodwill and core deposit intangibles
resulting from the JSB and Integra branches acquisition (see
further discussion in Note 24).
a $419,000 increase in FDIC deposit insurance expense caused by
the additional deposits associated with the acquisitions.
a $214,000 decrease in other expense due to reduced other real
estate owned expense and economy of scale benefits derived from
the elimination of outside data processing fees, as Community's
data processing is now performed internally at the centralized
Western Region Operations Center.
When 1993 is compared to 1992, total non-interest expense of
$40.7 million increased by $4.5 million or 12.3%. This increase
was primarily caused by the following items:
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 employees due to the previously mentioned
Integra branches and CSB acquisitions and increased group
hospitalization expense.
a $1.4 million increase in other expense due in part to a
$287,000 loss on the disposition of real estate owned property,
approximately $300,000 of non-recurring expenses incurred for a
computer conversion at Community from an outside data processing
contractor to an in-house computer processing system at Three
Rivers Bank, and the charge-off of $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 headquarters facility.
a $464,000 or 15.8% increase in net occupancy expense due to the
additional branch facilities acquired with the Integra and CSB
acquisitions and higher maintenance and repair costs.
<PAGE>62
NET OVERHEAD BURDEN...Excluding the JSB acquisition charge and
$3.8 million of net security losses from the fourth quarter
investment portfolio repositioning strategy, the Company's net
overhead to average assets ratio averaged 2.32% in 1994. This
represents the third consecutive year that this ratio has
declined from a high of 3.01% in 1991. The Company's net overhead
to tax equivalent net interest income ratio has remained
relatively stable at approximately 61% over the past three years
after dropping from a high of 69% in 1991. Employee productivity
ratios continue to demonstrate improvement as total assets per
employee were $2.3 million at the end of 1994, a 22.8%
improvement over the 1993 year-end total of $1.9 million assets
per employee, and a 29.5% increase over the 1992 amount of $1.8
million. The improvement in these net overhead measures
demonstrates management's commitment to effectively integrating
acquisitions to achieve productivity enhancements, operational
efficiencies and economy of scale benefits. The Company continues
to target a 55% net overhead expense to tax-equivalent net
interest income ratio goal.
JSB INTEGRATION BENEFITS...During the second half of 1994, the
Company began the process of integrating JSB into its U.S. Bank
subsidiary in order to begin realizing as soon as possible the
previously disclosed $3.8 million of annual pre-tax savings
opportunities expected from this intra-market consolidation.
Specific cost savings/revenue generating actions completed during
the third and fourth quarters of 1994 included: a computer
conversion from JSB's outside data processing service bureau to
U.S. Bank's internal data processing system, the consolidation of
two JSB branches into the Company's existing retail delivery
system, the consolidation of back room check clearing and item
processing operations, the consolidation of several
administrative functions such as executive administration,
accounting and internal audit, the transfer of all subsidiary
banks' mortgage servicing to the newly acquired Standard Mortgage
Corporation, an investment portfolio repositioning strategy that
resulted in the sale of approximately 90% of JSB's securities
portfolio (see complete discussion under JSB acquisition on page
50), and the downward repricing of several deposit products. The
favorable pre-tax benefits recognized during the second half of
1994 due to these initiatives amounted to approximately $1.4
million. Since the majority of these initiatives were not
completed until late in the third quarter and early in the fourth
quarter, the Company expects, based upon the strategies in place
at year-end 1994, to realize annual pre-tax benefits of
approximately $5 million beginning in 1995. The improved total
pre-tax benefits from the integration reflect better than
expected net interest margin enhancements at JSB, as the Company
fully expects to garner each dollar of its initial estimated
annual cost savings. Overall, the Company has retained
approximately 60 employees or just 50% of the original JSB total
(excluding Standard Mortgage Corporation) of 120 full-time
equivalent employees.
INCOME TAX EXPENSE...The Company's provision for income taxes for
1994 was $5.9 million reflecting an effective tax rate of 34.4%.
The Company's 1993 income tax provision was $5.5 million or an
effective tax rate of 33.2%. The JSB acquisition was responsible
for the modest increase in the Company's effective tax rate due
to nondeductible expenses for goodwill and other acquisition
costs.
<PAGE>63
The Company's effective tax rate, however, did benefit by
approximately 5% over that same time period due to increased
tax-free asset holdings. The tax-free asset holdings consist of
municipal investment securities with a duration of approximately
four years and commercial loan tax anticipation notes which
generally have a maturity of one year. For 1994, total tax-free
asset holdings were $65 million higher on average than 1993 and
amounted to $124 million.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards #109, "Accounting For Income
Taxes." 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 for 1993 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.
SIGNIFICANT UNCOMMON PRE-TAX INCOME AND EXPENSE...As mentioned
throughout this M.D.& A., the Company recognized in 1994 the net
unfavorable effect of several uncommon items aggregating
approximately $2.2 million pre-tax. The largest pre-tax items
were the $2.4 million JSB acquisition charge, the $4 million
negative loan loss provision, $4 million of investment security
losses resulting from the repositioning strategy and a $200,000
gain on the sale of the student loan portfolio.
In 1993, USBANCORP recognized the net unfavorable pre-tax effect
of several uncommon 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 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. In 1992, USBANCORP recognized the net
favorable pre-tax effect of several items aggregating
approximately $138,000.
BALANCE SHEET...The Company's total consolidated assets were
$1.789 billion at December 31, 1994, compared with $1.242 billion
at December 31, 1993, which represents an increase of $547
million or 44.1%. The June 30, 1994, acquisition of Johnstown
Savings Bank accounted for $367 million or 67.1% of the growth
between periods. The cost of the JSB acquisition was $43.8
million. In conjunction with the acquisition, 957,857 new shares
of UBAN common stock were issued at a per share price of $25.125
which caused a $24.1 million increase in total equity. Since the
acquisition has been accounted for under the purchase method of
accounting, the December 31, 1994, balances for the newly created
core deposit intangibles and goodwill totalled $5.4 million and
$19.6 million, respectively.
Excluding JSB, the previously discussed $122 million dynamic
leverage program explained the majority of the remaining growth
in assets. This program was designed to enhance the Company's
return on equity by leveraging the investment securities
portfolio through the use of funding sources available from the
Federal Home Loan Bank. Specifically, total securities have
increased by $165.3 million while federal funds purchased, other
short term borrowings, and FHLB advances have grown by a total of
$248 million. The growth in borrowings exceeded the securities
portfolio growth because borrowings were also needed to maintain
the funding of the loan portfolio since total deposits declined
by $43 million or 4.1% since December 31, 1993. The decline in
deposits can be attributed to management's application of the
previously discussed pricing philosophy which emphasizes
<PAGE>64
profitable net interest margin management rather than increased
deposit size. This deposit pricing strategy was maintained during
a period of aggressively increasing competitive deposit rates
particularly in the Greater Pittsburgh suburban area. Regarding
the JSB acquisition, the Company used quality customer service to
achieve its goal of retaining over 90% of the total deposits
acquired in this intra-market consolidation.
Excluding the $125.6 million of loans acquired with the JSB
acquisition and the $17 million of student loans sold, total
loans and loans held for sale also increased by $32.2 million or
4.4% since year-end 1993. This growth occurred primarily in the
second and third quarters of 1994 and reflects the economic
stability and diversification of both regions of the Company's
marketplace - Greater Johnstown and suburban Pittsburgh. The
majority of the loan growth occurred in the commercial loan
portfolio which grew by $11.5 million or 11.6%. The Company
experienced increased demand for both taxable and tax-free
commercial loans in 1994. Total real estate loans (including home
equity products) also grew modestly by 3.7% during 1994 despite
the Company's practice of selling all newly originated 30 year
fixed-rate mortgage loans amounting to approximately $60 million
in 1994. This commercial and mortgage loan growth more than
offset reduced consumer loan balances caused largely by the sale
of the Company's $17 million student loan portfolio late in the
second quarter of 1994. Management elected to divest of this line
of business since future profitability will be adversely impacted
by scheduled changes in regulations and servicing requirements.
Consumer loan balances have also been negatively impacted by
intense competitive pressures in the indirect auto loan business
segment. Several finance companies and credit unions have been
offering below market auto loan rates in an effort to develop
business during a 1994 period of strong consumer demand for
automobile purchases. The Company, while maintaining a commitment
to profitably price this product in this competitive environment,
has consequently struggled to maintain both indirect and direct
auto loan balances.
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 and
capital. The management and measurement of interest rate risk at
USBANCORP is performed by using the following tools: 1) static
"GAP" analysis which analyzes the extent to which interest rate
sensitive assets and interest rate sensitive liabilities are
matched at specific points in time; 2) simulation modeling which
analyzes the impact of interest rate 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 six months or 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 liabilities is
known as the "interest sensitivity GAP." A positive GAP occurs
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.
<PAGE>65
The following table presents a summary of the Company's static
GAP positions at December 31, 1994:
<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 $180,338 $53,780 $98,257 $535,752 $868,127
Investment securities and assets
held in trust for collateralized
mortgage obligation 163,666 86,063 89,890 450,964 790,583
Short-term assets 3,464 139 278 - 3,881
Total rate sensitive assets $347,468 $139,982 $188,425 $986,716 $1,662,591
Rate sensitive liabilities:
Deposits:
Non-interest bearing deposits $ - $ - $ - $144,012 $144,012
NOW and Super NOW 36,683 - - 65,818 102,501
Money market 90,930 - - 44,972 135,902
Other savings 15,803 - - 230,597 246,400
Certificates of deposit of
$100,000 or more 17,852 5,011 2,064 5,319 30,246
Other time deposits 101,355 96,698 109,656 229,476 537,185
Total deposits 262,623 101,709 111,720 720,194 1,196,246
Borrowings 277,483 31,381 64,237 59,634 432,735
Total rate sensitive liabilities $540,106 $133,090 $175,957 $779,828 $1,628,981
Off-balance sheet hedges (90,000) - 100,000 (10,000) -
Interest sensitivity GAP:
Interval (102,638) 6,892 (87,532) 216,888 $ -_
Cumulative $(102,638) $(95,746) $(183,278) $33,610 $33,610
Period GAP ratio 0.77x 1.05x 0.68x 1.28x
Cumulative GAP ratio 0.77 0.84 0.79 1.02
Ratio of cumulative GAP
to total assets (5.74)% (5.35)% (10.25)% 1.88%
</TABLE>
The acquisition of JSB and the implementation of the investment
securities leverage program caused a shift to more negative
static GAP ratios at December 31, 1994. As previously discussed
in detail in Note 25, the Company has executed a total of $110
million of off-balance sheet hedge transactions. These
off-balance sheet hedge transactions are included in the above
GAP table as a separate line item to isolate the impact they had
as a hedge against specific borrowings. These hedge transactions
reduced the negativity of the cumulative six month static GAP by
$90 million or 48.5% and had a minor impact on the one year
cumulative static GAP. Management is cognizant of the interest
rate risk that exists with the increased leveraging of the
balance sheet but is confident that it is being effectively
managed with available board-approved hedging measurement
methods, policies, and cash flow from the investment portfolio.
A portion of the Company's funding base is low cost core deposit
accounts which do not have a specific maturity date. The accounts
which comprise these low cost core deposits include passbook
savings accounts, money market accounts, NOW accounts, daily
interest savings accounts, purpose clubs, etc.. At December 31,
1994, the balance in these accounts totalled $485 million or
27.1% of total assets. Within the above static GAP table,
approximately $143 million or 30% of the total $485 million of
low cost core deposits are assumed to be rate sensitive
liabilities which reprice in one year or less; this 30%
assumption is based upon historical experience in varying
interest rate environments and is consistently used for all GAP
ratios presented. The Company recognizes that the pricing of
these accounts is somewhat inelastic when compared to normal rate
movements and generally assumes that up
<PAGE>66
to a 250 basis point increase in rates will not necessitate a
change in the cost of these accounts. Indeed, throughout 1994 the
Company has been able to hold steady the pricing of these
accounts despite six Federal Reserve rate movements which caused
a total 250 basis point increase in both the fed funds and prime
rate. Given intensifying competitive pressures and the widening
of the gap between the rates paid on these core accounts and
certificates of deposit, the Company expects that it may have to
increase the rate paid on the majority of these accounts by a
minimum of 25-50 basis points in 1995; such potential rate
increases would add pre-tax annual interest expense for the
Company of $1.2 million to $2.4 million. The probability of
increasing the rates on these low cost accounts was further
intensified by the February 1, 1995, Federal Reserve action to
increase interest rates by an additional 50 basis points. This
action further magnified the difference between the low cost core
account rates and certificates of deposit rates to approximately
500 basis points. This spread, left unattended, will most likely
contribute to increased migration of dollars from low cost
accounts into longer-term certificates of deposit as evidenced by
the migration witnessed in the fourth quarter. The Company will
continue to explore strategies, such as off-balance sheet hedging
transactions and on-balance sheet extension of the liability
base, to further mitigate the impact of any future rate increases
on these accounts and unfavorable mix shifts in a rising rate
environment.
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 limitations, management places considerable emphasis
on simulation modeling to manage and measure interest rate risk.
At December 31, 1994, these varied economic interest rate
simulations indicated that the maximum negative variability of
USBANCORP's net interest income over the next twelve month period
was (5.6%) under an upward rate shock forecast reflecting an
immediate 275 basis point increase in interest rates. The impact
on capital under this simulation was estimated to be less than
(2.0%). A more moderate near-term forecast simulation reflecting
a 125 basis point increase in rates indicates net interest income
variability of (1.2%) and capital impairment of less than 1.0%.
The Company's asset liability management policy seeks to limit
net interest income variability to + or - 5%.
With the adoption of SFAS #115 in the first quarter of 1994,
33.1% of the investment portfolio is currently classified as
available for sale and 66.9% as held to maturity. The available
for sale 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 the Company's intent to continue to diversify
its loan portfolio to increase liquidity and rate sensitivity and
to better manage USBANCORP's long-term interest rate risk by
continuing to sell newly originated 30 year fixed-rate mortgage
loans. The Company will retain all servicing rights at its newly
acquired mortgage banking subsidiary (Standard Mortgage
Corporation of Georgia) and recognize fee income over the
remaining lives of the loans sold at an average rate of
approximately 30 basis points on the loan balances outstanding.
<PAGE>67
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. 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 totalled $146 million at
December 31, 1994, compared to $151 million at December 31, 1993.
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, 1994, USBANCORP's subsidiaries had approximately $55 million
of unused lines of credit available under informal arrangements
with correspondent banks compared to $89.6 million at December
31, 1993. These 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. This would suggest a remaining current
total available Federal Home Loan Bank aggregate borrowing
capacity of approximately $474 million. Furthermore, USBANCORP
had available at December 31, 1994, $1.5 million of a total $2.5
million unsecured line of credit.
Liquidity can be further analyzed by utilizing the Consolidated
Statement of Cash Flows. Cash equivalents increased by $3.5
million from December 31, 1993, to December 31, 1994. Both the
financing and investing activities were significantly impacted by
the JSB acquisition. Investing activities also disclose that
purchases of investment securities exceeded the cash proceeds
from investment security maturities and sales by approximately
$180 million. To a much lesser extent, cash advanced for new loan
fundings exceeded the cash received from loan principal payments
and sales by approximately $15 million. Within financing
activities, there was a net $102 million increase in Federal Home
Loan Bank advances and a $164 million net increase in short-term
borrowings. Cash provided from these financing activities was
used to execute the increased leveraging of the Company's balance
sheet during 1994.
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 government policy
initiatives or economic factors not measured by a price index.
<PAGE>68
CAPITAL RESOURCES...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 1994 1993
Amount Ratio Amount Ratio
(In thousands, except ratios)
<S> <C> <C> <C> <C>
Risk Adjusted Capital Ratios
Tier 1 capital $117,480 12.45% $113,718 14.72%
Tier 1 capital minimum 37,745 4.00 30,893 4.00
Excess $79,735 8.45% $82,825 10.72%
Total capital 129,275 13.70 123,372 15.97
Total capital minimum 75,489 8.00 61,787 8.00
Excess $53,786 5.70% $61,585 7.97%
Total risk adjusted assets $943,614 $772,333
Asset Leverage Ratio
Tier 1 capital 117,480 6.64 113,718 9.18
Minimum requirement 88,462 5.00 61,931 5.00
Excess $29,018 1.64% $151,787 4.18%
Total adjusted assets $1,769,234 $1,238,624
</TABLE>
The decline in each of the regulatory capital ratios between
December 31, 1994, and December 31, 1993, was due to the
execution of several strategic initiatives which allowed the
Company to better leverage its capital strength in an effort to
enhance total shareholder return. The JSB acquisition had the
most significant impact because the $24.1 million increase in
capital resulting from the new common shares issued was basically
offset by the $25.9 million intangible asset created from the
acquisition. The implementation of the board approved treasury
stock buyback program during the second half of 1994 resulted in
the purchase of 127,700 shares at a total cost of $3.1 million.
Additionally, the execution of the previously discussed $122
million leverage program increased total assets without any
increase in equity. Each of these strategic initiatives,
including an increased common stock dividend, contributed to
enhanced leverage of the Company's capital base.
Even with the increased leverage of capital in 1994, the Company
exceeds all regulatory capital ratios for each of the periods
presented. Furthermore, each of the Company's subsidiary banks
are considered "well capitalized" under all applicable FDIC
regulations. It is the Company's ongoing intent to prudently
leverage the capital base in an effort to increase return on
equity performance while maintaining necessary capital
requirements. It is, however, the Company's intent to maintain
the FDIC "well capitalized" classification for each of its
subsidiaries to ensure the lowest deposit insurance premium and
to maintain an asset leverage ratio of no less than 6.0%.
The Company's declared Common Stock cash dividend per share was
$0.97 for 1994 which was a 12.8% increase over the $0.86 per
share dividend for 1993. The dividend yield on the Company's
Common Stock now approximates 4.5% compared to an average
Pennsylvania bank holding company yield of approximately 3.0%.
The Company remains committed to a progressive total shareholder
return which includes a common dividend yield at slightly higher
than peer levels.
<PAGE>69
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<PAGE>70
FORM 10-K
<PAGE>71
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
XX 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, 1994
For the fiscal year ended
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
Securities registered pursuant to Section 12(g) of the Act:
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. XX 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.) $118,620,793.75 as of
January 31, 1995.
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. 5,582,155 shares were
outstanding as of January 31, 1995.
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, 1994, 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 (\p229.405 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. XX
Exhibit Index is located on page 73.
<PAGE>72
FORM 10-K INDEX
PART I Page
Item 1. Business 74
Item 2. Properties 87
Item 3. Legal Proceedings 87
Item 4. Submission of Matters to a Vote of Security Holders 87
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 88
Item 6. Selected Consolidated Financial Data 88
Item 7. Management's Discussion and Analysis of Consolidated
Financial
Condition and Results of Operations 88
Item 8. Consolidated Financial Statements and Supplementary Data
88
Item 9. Changes In and Disagreements With Accountants On
Accounting and Financial Disclosure 88
PART III
Item 10. Directors and Executive Officers of the Registrant 88
Item 11. Executive Compensation 88
Item 12. Security Ownership of Certain Beneficial Owners and
Management 89
Item 13. Certain Relationships and Related Transactions 89
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules,
and Reports on Form 8-K 89
Signatures 92
<PAGE>73
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 Bank ("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. On June 30, 1994, the Company acquired
Johnstown Savings Bank, a $367 million savings bank headquartered
in Johnstown, PA. The Company merged JSB with and into U.S. Bank
with U.S. Bank surviving the merger. The separate existence of
JSB ceased, and all property, rights, powers, duties,
obligations, and liabilities of JSB were automatically
transferred to U.S. Bank in accordance with Federal and
Pennsylvania law. Immediately following the Merger, U.S. Bank
caused the intracompany sale by Standard Mortgage Corporation of
Georgia, a wholly-owned subsidiary of JSB, of all its assets,
subject to all of its liabilities, to SMC Acquisition
Corporation, an indirect subsidiary of Community. SMC Acquisition
Corporation was renamed Standard Mortgage Corporation of Georgia
and is a mortgage banking company organized under the laws of the
State of Georgia and originates, sells, and services residential
mortgage loans. 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, 1994, the Company had, on a consolidated basis, total assets,
deposits, and stockholders' equity of $1.79 billion, $1.20
billion and $137 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 21 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
<PAGE>74
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
22 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.
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 (dollars in thousands) and
ratios at December 31, 1994:
Headquarters Johnstown, PA
Chartered 1933
Total Assets $1,052,820
(58.9% of the Company's total)
Total Investment Securities $552,458
(70.5% of Company's total)
Total Loans (net of unearned income) $405,365
(47.7% of the Company's total)
Total Deposits $636,758
(53.2% of the Company's total)
Total Net Income before acquisition
restructuring charge $6,988
(52.9% of the Company's total)
Total Equity to Assets Ratio 8.39%
1994 Return on Average Assets before
acquisition restructuring charge 0.89%
Total Full-time Equivalent Employees 370
(47.4% of the Company's total)
Number of Offices 21
(46.7% 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 loans, and offering
checking, interest bearing demand, savings and time deposit
services. It also operates 12 ATMs which are
<PAGE>75
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.
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 (dollars in thousands) and
ratios at December 31, 1994:
Headquarters McKeesport, PA
Chartered 1965
Total Assets $338,354
(18.9% of the Company's total)
Total Investment Securities $129,356
(16.5% of Company's total)
Total Loans (net of unearned income) $185,160
(21.8% of the Company's total)
Total Deposits $297,222
(24.8% of the Company's total)
Total Net Income $3,546
(31.3% of the Company's total)
Total Equity to Assets Ratio 7.00%
1994 Return on Average Assets 1.04%
Total Full-time Equivalent Employees 209
(26.8% of the Company's total)
Number of Offices 12
(26.7% 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., which subsequently became 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,
<PAGE>76
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 $1.3 million), and Frontier
Consumer Discount Company. Additionally, as part of the JSB
acquisition on June 30, 1994, Standard Mortgage Corporation
became a direct subsidiary of Community as a result of the
intra-company purchase of all its assets, subject to all its
liabilities. Standard Mortgage Corporation is a mortgage banking
company that originates, sells, and services residential mortgage
loans. In accordance with Federal Reserve policy, USBANCORP has
committed to divest its equity investment in Community First
Financial Corporation by March 22, 1995, or such longer period as
the Federal Reserve Board may approve.
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 (dollars in thousands) and
ratios at December 31, 1994:
Headquarters Monroeville, PA
Chartered 1890
Total Assets $395,935
(22.1% of the Company's total)
Total Investment Securities $82,082
(10.5% of Company's total)
Total Loans (net of unearned income) $259,556
(30.5% of the Company's total)
Total Deposits $262,266
(21.9% of the Company's total)
Total Net Income $2,961
(26.2% of the Company's total)
Total Equity to Assets Ratio 6.10%
1994 Return on Average Assets 0.78%
Total Full-time Equivalent Employees 146
(18.7% of the Company's total)
Number of Offices 12
(26.7% of the Company's total)
<PAGE>77
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 and 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, 1994, United Life had total
assets of $1.4 million and total shareholder's equity of
$713,000.
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, 1994, USBANCORP Trust Company had $1.03 billion in
assets under management which included both discretionary and
non-discretionary assets.
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 53 Chairman, President & Chief
Executive Officer of USBANCORP,
Inc., and Chairman of U.S. Bank,
Three Rivers Bank, Community
Bancorp, Inc., and USBANCORP Trust
Company
Orlando B. Hanselman 35 Executive Vice President, Chief
Financial Officer & Manager of
Corporate Services of USBANCORP,
Inc.
Louis Cynkar 50 President & Chief Executive Officer
of U.S. Bank
W. Harrison Vail 54 President & Chief Executive Officer
of Three Rivers Bank
Dennis J. Fantaski 50 President & Chief Executive Officer
of Community Bancorp, Inc. and
Community Savings Bank
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.
Fantaski was named President and 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.
<PAGE>78
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 the 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 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 houses, 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 45 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 Johnstown Savings Bank, the
Company's largest subsidiary, U.S. Bank has 21 offices and a $1.1
billion asset presence primarily in the Greater Johnstown
marketplace. U.S. Bank now has a leading 25% deposit market share
in Cambria County. Community Bank and Three Rivers Bank have a
combined 24 offices and a $734 million asset presence in the
western region, largely comprised of the suburban Pittsburgh
marketplace.
The Pennsylvania economy appears to be slowing down as the
nation-at-large continues to enjoy a faster growth rate. The
strongest economic activity in Pennsylvania seems to be
concentrated in the southeast and central regions of the state.
Retail sales, durable goods orders, and consumer real estate
activity continue to foster the expansion. However, the statewide
seasonally adjusted unemployment rate for December 1994 increased
slightly to 5.9%, compared with the seasonally adjusted December
1993 unemployment rate of 5.8%. It must be emphasized, however,
that Pennsylvania has spent in excess of $2 billion to create
294,000 jobs since the beginning of 1987; further more, each
public dollar spent has been leveraged to an additional $2.55
from the private
<PAGE>79
sector over this same time period. The Company believes that as
the national economy begins to slow, the conditions in the state
will continue to slowly improve throughout 1995 as a result of
this strong historic public and private sector support for jobs
creation. Furthermore, Pennsylvania has separate House and Senate
bills in committee which attempt to relieve both the buyer and
the lender of any responsibility for pollution from former
owners. This law could be in place by Spring of 1995 and
continues the recent history of creating a state eagerly
receptive to new business development.
The Greater Johnstown economy is trailing Pennsylvania and the
nation; however, the seasonally adjusted unemployment rate for
December 1994 dropped to 8.5% compared with 9.0% for December
1993. Recent economic activity in the Johnstown region includes:
The Johnstown Industrial Park, which accommodates new business
and manufacturing ventures, has reached its capacity, leading to
the development of a second 68 acre industrial park.
Attracting defense industry contracts, the goal of a proactive
community business development plan, has resulted in $156.2
million in defense contracts and more than 650 new jobs since
1990.
Veritas Capital, Inc. has agreed to the purchase of the Conemaugh
& Blacklick Railroad and the Manufacturers Water Company,
Bethlehem Steel Corporation's only remaining Johnstown operation.
The Erie Sailors of the independent Frontier League entered a
three year lease with the City of Johnstown to move the baseball
team to the Point Stadium. The Point Stadium will receive funds
from the state of Pennsylvania for renovations to upgrade the
facility for the new minor league baseball franchise.
Several small, diversified steel production companies are
expected to hire nearly 2,500 high-skilled local steel workers.
Local tradesmen and subcontractors are expecting roles in the
construction of a $30 million Army Reserve aviation facility near
the Johnstown airport.
As evidenced by the above, Greater Johnstown continues to shift
from an over-reliance on heavy industry to a more diversified
economy including more light manufacturing and service related
businesses. This diversification of the local economy is further
exemplified by the nature of the ten largest non-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 Greater Pittsburgh region, where Three Rivers Bank and
Community operate, is benefitting from the national economic
expansion. Manufacturing, retail housing, and new auto sales have
all seen expansionary activity. Overall office building leasing
has been steady throughout 1994, with special strength noted in
the Oakland, Parkway West, and North suburban markets. Suburban
office space is expected to be a popular investment in 1995. With
vacancy rates trending downward, effective rental rates climbing,
and little new space being created, suburban office space is
becoming less readily available. It is quite possible that 1995
may see the return of speculative office construction in the
Pittsburgh suburbs. Recent economic activity in the Pittsburgh
region includes:
Lukens Steel Co. announced a $6.4 million project at its
Washington Steel plant, Washington County, that will increase
production by 14,000 tons or 5.0%.
Hillman Company is divesting a significant portion of its
nationwide real estate holdings.
<PAGE>80
The Southwestern Pennsylvania Planning Commission, covering the
six-county Pittsburgh region, has adopted a $14.7 billion
transportation plan aimed at improving the area's highway and
mass transit system over the next 20 years.
Hospitality Franchise Systems, Inc. purchased 130 acres along the
Monongahela River. Hospitality is interested in a riverboat
gambling operation for the site. Other smaller lot purchases for
this purpose have also been made in 1994 in reaction to the
Pittsburgh mayor's active support of this revenue concept.
$13.5 million in funding was approved for projects at Three
Rivers Stadium, $2.5 million for the renovation of Heinz Hall and
$2 million for the development of the Steel Heritage Center.
The Commonwealth of Pennsylvania granted $6 million to NASA
Robotics Engineering Consortium to help convert an abandoned
industrial site on the Allegheny River to a robotics research
center.
U.S. Steel has agreed to a two year contract with General Motors
Corp. which could boost steel prices by as much as 16%.
Links Development Co. is developing a $32 million residential and
retail development along a major transportation artery.
The Pittsburgh economy is generally well diversified as
exemplified by the ten largest non-government employers in the
region which include: 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 economies will
continue this diversification and show modest improvement
throughout 1995. Consequently, the Company's marketplace should
continue to display modest strengthening.
Employees
The Company employed approximately 780 persons as of December 31,
1994, in full- and part-time positions. Approximately 235
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, 1995. 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 $6.4 million at December 31, 1994. 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, 1994, the Company's
banking subsidiaries had unused loan commitments of approximately
$161.8 million.
Statistical Disclosures for Bank Holding Companies
Certain information regarding statistical disclosure for bank
holding companies pursuant to Guide 3 is provided in the 1994
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 53, 54, and 66.
<PAGE>81
II. Investment Portfolio
Information required by this section is presented on pages 82,
83, 84, and 85.
III. Loan Portfolio
Information required by this section appears on pages 24, 25, 85,
and 86.
IV. Summary of Loan Loss Experience
Information required by this section is presented on pages 24,
57, 58, and 59.
V. Deposits
Information required by this section follows on pages 86 and 87.
VI. Return on Equity and Assets
Information required by this section is presented on page 45.
VII. Short-Term Borrowings
Information required by this section is presented on page 26.
Investment Portfolio
Effective January 1, 1994, the Company adopted 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. Investment securities
held to maturity are carried at amortized cost while investment
securities classified as available for sale are reported at fair
value. At December 31, 1994, approximately 67% of the portfolio
was categorized as held to maturity and 33% as available for
sale. Prior to the adoption of SFAS #115, the entire securities
portfolio was classified as available for sale and carried at the
lower of amortized cost or market value.
The following table sets forth the book and market value of
USBANCORP's investment portfolio as of the periods indicated:
<TABLE>
<CAPTION>
Investment Securities Available for Sale at December 31
1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Book Value:
U.S. Treasury $23,411 $13,333 $9,647
U.S. Agency 31,372 72,648 32,490
State and municipal 1,479 44,547 35,619
Mortgage-backed securities 175,215 251,631 223,711
Other securities 37,087 46,553 65,421
Total book value of
investment securities
available for sale $268,564 $428,712 $366,888
Total market value of
investment securities
available for sale $259,462 $432,315 $369,907
Investment Securities Held to Maturity at December 31
1994 1993 1992
(In thousands)
Book Value:
U.S. Treasury $398 $ - $ -
U.S. Agency 35,879 - -
State and municipal 125,489 - -
Mortgage-backed securities 360,146 - -
Other securities 2,726 - -
Total book value of
investment securities
held to maturity $524,638 $ - $ -
Total market value of
investment securities
held to maturity $501,485 $ - $ -
</TABLE>
<PAGE>82
The $364.5 million increase in 1994 can be attributed to the
following: $190.1 million securities acquired through the
acquisition of Johnstown Savings Bank, and a $122 million
increase due primarily to increased leveraging of the Company's
balance sheet through the utilization of funding sources from the
Federal Home Loan Bank. Subsequent to the JSB acquisition, the
Company elected to sell approximately 90% of JSB's securities
portfolio (see further discussion under JSB Acquisition on page
50). Within the portfolio, the Company placed an emphasis on the
purchase of mortgage-backed securities, which provide a more
predictable cash flow stream than CMO's, and municipal securities
in an effort to generate increased tax-free earnings.
The book value of total investment securities increased from
$366.9 million at December 31, 1992, to $428.7 million at
December 31, 1993. The increase in the 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 in emphasis towards
mortgage-backed securities and collateralized mortgage
obligations which provide a recurrent source of cash flow.
At December 31, 1994, investment securities having a book value
of $275.2million 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, 1994.
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, 1994, 96.1% of the portfolio was rated "AAA"
and 97.0% was rated at least "AA" as compared to 89.2% and 91.0%,
respectively, at December 31, 1993. Only 0.5% was rated below "A"
or unrated at December 31, 1994.
The following table sets forth the contractual maturity
distribution of the investment securities, book and market
values, and the weighted average yield for each type and range of
maturity as of December 31, 1994. Yields 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
mortgage-backed securities and asset-backed securities for which
the average lives were used. Also, where applicable, put-dates
were used as the maturity dates. At December 31, 1994,
USBANCORP's consolidated investment securities portfolio had an
average contractual maturity of approximately 15.05 years and an
average cash flow payback of approximately 3.67 years.
<PAGE>83
<TABLE>
<CAPTION>
Investment Securities Available for Sale at December 31, 1994
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 $243 6.38% $22,145 6.23% $1,023 8.38% $ - -% $23,411 6.33%
U.S. Agency - - 23,447 5.68 7,925 5.48 - - 31,372 5.85
State and municipal - - 515 6.15 964 6.85 - - 1,479 6.61
U.S. Agency mortgage-
backed securities 11,475 6.06 136,887 5.27 21,586 6.30 5,267 5.84 175,215 5.46
Other securities<F1> 29,256 6.53 7,831 5.81 - - - - 37,087 6.37
Total investment
securities available
for sale $40,974 6.39% $190,825 5.45% $31,498 6.17% $5,267 5.84% $268,564 5.72%
Market Value
U.S. Treasury $237 - % $21,675 - % $1,005 - % $ - - % $22,917 $ - %
U.S. Agency - - 22,038 - 7,366 - - - 29,404 -
State and municipal - - 502 - 855 - - - 1,357 -
U.S. Agency mortgage-
backed securities 10,866 - 132,586 - 21,273 - 5,029 - 169,754 -
Other securities<F1> 29,080 - 6,950 - - - - - 36,030 -
Total investment
securities available
for sale $40,183 - % $183,751 -% $30,499 - % $5,029 - % $259,462 -%
Investment Securities Held to Maturity at December 31, 1994
Book Value
U.S. Treasury $- - % $398 5.69% $- - % $ - - % $398 5.69 %
U.S. Agency - - 13,070 6.18 22,809 6.76 - - 35,879 6.55
State and municipal 7,428 3.97 23,994 4.91 48,232 4.74 45,835 5.73 125,489 5.09
U.S. Agency mortgage-
backed securities - - 270,557 6.35 89,589 6.69 - - 360,146 6.44
Other securities<F1> 362 6.49 2,339 6.67 25 7.50 - - 2,726 6.65
Total investment
securities held
to maturity $7,790 4.08% $310,358 6.23% $160,655 6.12% $45,835 5.73% $524,638 6.12%
Market Value
U.S. Treasury $ - - % $391 - % $ - - % $ - - % $391 - %
U.S. Agency - - 12,155 - 21,102 - - - 33,257 -
State and municipal 7,411 - 23,780 - 44,638 - 44,075 - 119,904 -
U.S. Agency mortgage-
backed securities - - 258,520 - 86,739 - - - 345,259 -
Other securities<F1> 362 - 2,287 - 25 - - - 2,674 -
Total investment
securities held
to maturity $7,773 - % $297,133 - % $152,504 - % $44,075 -% $501,485 - %
<F1>Other investment securities include corporate notes and bonds,
asset-backed securities, and equity securities.
</TABLE>
<PAGE>84
During 1994 and 1993, the Company sold approximately $168 million
and $22 million, respectively, of investment securities available
for sale which resulted in the realization of net investment
security losses of $3,972,000 and net investment security gains
of $583,000, respectively. The 1994 loss resulted primarily from
an investment portfolio repositioning strategy executed late in
the fourth quarter which was designed to enhance future net
interest income performance (see complete discussion under Net
Interest Income and Margin on page 49). The 1993 gains resulted
from 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 1994 1993 1992 1991 1990
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial $116,702 $99,321 $76,667 $122,974 $118,230
Commercial loans secured by
real estate 168,238 126,044 125,846 <F2> <F2>
Real estate-mortgage<F1> 407,177 338,778 298,963 163,985 162,162
Consumer 161,642 167,883 158,342 159,586 187,156
Loans 853,759 732,026 659,818 446,545 467,548
Less: Unearned income 3,832 5,894 10,903 16,394 21,734
Loans, net of unearned
income $849,927 $726,132 $648,915 $430,151 $445,814
<F1>At December 31, 1994, and 1993, real estate-construction loans
constituted 2.3% and 2.5% of the Company's total loans, net of
unearned income, respectively.
<F2>The historical information for this category was not available.
</TABLE>
Excluding the $125.6 million of loans acquired with the JSB
acquisition and the $17 million of student loans sold, total
loans and loans held for sale also increased by $32.2 million or
4.4% since year-end 1993. This growth occurred primarily in the
second and third quarters of 1994 and reflects the economic
stability and diversification of both regions of the Company's
marketplace - Greater Johnstown and suburban Pittsburgh. The
majority of the loan growth occurred in the commercial loan
portfolio which grew by $11.5 million or 11.6%. The Company
experienced increased demand for both taxable and tax-free
commercial loans in 1994. Total real estate loans (including home
equity products) also grew modestly by 3.7% during 1994 despite
the Company's practice of selling all newly originated 30 year
fixed-rate mortgage loans amounting to approximately $60 million
in 1994. This commercial and mortgage loan growth more than
offset reduced consumer loan balances caused largely by the sale
of the Company's $17 million student loan portfolio late in the
second quarter of 1994. Management elected to divest of this line
of business since future profitability will be adversely impacted
by scheduled changes in regulations and servicing requirements.
Consumer loan balances have also been negatively impacted by
intense competitive pressures in the indirect auto loan business
segment.
From December 31, 1992, to December 31, 1993, loans increased by
$72.2million 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
<PAGE>85
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.
The amount of loans outstanding by category as of December 31,
1994, 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 $39,712 $47,256 $29,734 $116,702
Commercial loans secured
by real estate 13,248 91,395 63,595 168,238
Real estate-mortgage 24,311 46,048 336,818 407,177
Consumer 7,662 119,186 34,794 161,642
Total $84,933 $303,885 $464,941 $853,759
Loans with fixed-rate $42,778 $226,197 $355,062 $624,037
Loans with floating-rate 42,155 77,688 109,879 229,722
Total $84,933 $303,885 $464,941 $853,759
Percent composition
of maturity 9.9% 35.6% 54.5% 100.0%
Fixed-rate loans as a
percentage of total loans 73.1%
Floating-rate loans as a
percentage of total loans 26.9%
</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, 1994, 73.1% of total loans were fixed-rate
compared to 71.6% at December 31, 1993. Total real estate loans
(including home equity products) grew modestly by 3.7% during
1994 despite the Company's practice of selling all newly
originated 30 year fixed-rate mortgage loans amounting to
approximately $60 million in 1994. During 1993, $22 million of
this type of loan product was sold. For additional information
regarding interest rate 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 1994 1993 1992
Amount Rate Amount Rate Amount Rate
(In thousands, except rates)
<S> <C> <C> <C> <C> <C> <C>
Demand - non-interest
bearing $138,428 -% $122,699 -% $103,398 -%
Demand -interest
bearing 106,665 1.55 99,090 2.05 82,705 2.81
Savings 248,265 1.94 231,025 2.40 216,137 3.07
Other time 632,040 4.40 574,182 4.36 510,996 5.22
Total deposits $1,125,398 3.47% $1,026,996 3.61% $913,236 4.40%
</TABLE>
<PAGE>86
The Company's deposits, excluding JSB, decreased $43 million or
4.1% since December 31, 1993. The decline in deposits can be
attributed to management's application of the previously
discussed pricing philosophy which emphasizes profitable net
interest margin management rather than increased deposit size.
This deposit pricing strategy was maintained during a period of
aggressively increasing competitive deposit rates particularly in
the Greater Pittsburgh suburban area. Regarding the JSB
acquisition, the Company used quality customer service to achieve
its goal of retaining over 90% of the total deposits acquired in
this intra-market consolidation.
The following table indicates the maturities and amounts of
certificates of deposit issued in denominations of $100,000 or
more as of December 31, 1994:
<TABLE>
<CAPTION>
Maturing in:
(In thousands)
<S> <C>
Three months or less $17,852
Over three through six months 5,011
Over six through twelve months 2,064
Over twelve months 5,319
Total $30,246
</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 36 other locations which are owned in fee. Sixteen
additional locations are leased with terms expiring from November
1, 1995, 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 27, 1995, 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>87
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 33 and 44. As of January 31, 1995, the Company had 6,345
shareholders of its Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Information required by this section is presented on page 45.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information required by this section is presented on pages 47 to
69.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this section is presented on pages 15 to
39.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable for the years presented.
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>88
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
1994 Annual Report to Shareholders and Part II - Item 8. Page
references are to said Annual Report.
Consolidated Financial Statements:
USBANCORP, Inc. and Subsidiaries
Consolidated Balance Sheet, 15
Consolidated Statement of Income, 16
Consolidated Statement of Changes in Stockholders' Equity, 17
Consolidated Statement of Cash Flows, 18
Notes to Consolidated Financial Statements, 21
Statement of Management Responsibility, 40
Report of Independent Public Accountant, 41
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:
There were no reports filed on Form 8-K for the quarter ended
December 31, 1994.
<PAGE>89
Exhibits:
The exhibits listed below are filed herewith or to other filings.
Exhibit Prior Filing or Exhibit
Number Description Page Number Herein
3.1 Articles of Incorporation,
as amended on February 24,
1995. 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
Exhibit 4.1 to Form S-3
File No. 33-56604
3.2 Bylaws, as amended and
restated on February 24,
1995. Exhibit IV, Part II to
Form S-14
File No. 2-79639
Exhibit 3.2
4.1 Rights Agreement, dated as
of February 24, 1995,
between USBANCORP, Inc. and
USBANCORP Trust Company,
as Rights Agent. Exhibit 1 to Form 8-A
Dated March 1, 1995
10.1 Agreement and Plan of Merger,
dated November 10, 1993, as
amended on January 18, 1994,
among USBANCORP, Inc., United
States National Bank in
Johnstown, and Johnstown
Savings Bank. Exhibit 2.1 to Form S-4
File No. 33-52837
10.2 Agreement, dated June 22, 1994,
between USBANCORP, Inc. and
Terry K. Dunkle. Exhibit 10.2
10.3 Agreement, dated October 25,
1994, between USBANCORP, Inc.
and W. Harrison Vail. Exhibit 10.3
10.4 Agreement, dated October 25,
1994, between USBANCORP, Inc.
and Louis Cynkar. Exhibit 10.4
10.5 Agreement, dated October 25,
1994, between USBANCORP, Inc.
and Dennis J. Fantaski. Exhibit 10.5
10.6 Loan Agreement, dated March 26,
1992, between USBANCORP, Inc.
and Pittsburgh National Bank. Exhibit 10.6 to Form S-2
File No. 33-56684
10.7 Collective Bargaining Agreement,
dated October 16, 1991, as
extended March 30, 1994, between
United States National Bank in
Johnstown and Steel Workers of
America, AFL-CIO-CLC Local
Union 8204. Exhibit 10.7 to Form S-2
File No. 33-56684
10.8 Agreement, dated October 25,
1994, between USBANCORP, Inc.
and Orlando B. Hanselman. Exhibit 10.8
10.9 1991 Stock Option Plan, dated
August 23, 1991, as amended
and restated on February 24,
1995. Exhibit 10.9
10.10 Agreement, dated December 1,
1994, between USBANCORP, Inc.
and Ronald W. Virag. Exhibit 10.10
10.11 Agreement, dated July 15, 1994,
between USBANCORP, Inc. and
Kevin J. O'Neil. Exhibit 10.11
13 1994 Annual Report to
Shareholders. Page 1
21 Subsidiaries of the
Registrant. Below
24.1 Consent of Arthur Andersen
LLP.
<PAGE>90
EXHIBIT A
(21) Subsidiaries of the Registrant
Percent Jurisdiction
Name of Ownership of Organization
United States National Bank
in Johnstown
Main and Franklin Streets
P.O. Box 520
Johnstown, PA 15907 100% United States
of America
Three Rivers Bank and
Trust Company
633 State Route 51, South
Jefferson Borough
P.O. Box 10915
Pittsburgh, PA 15236 100% Commonwealth of
Pennsylvania
Community Bancorp, Inc.
2681 Moss Side Boulevard
Monroeville, PA 15146 100% Commonwealth of
Pennsylvania
United Bancorp Life
Insurance Company
1421 East Thomas Road
Phoenix, AZ 85014 100% State of Arizona
USBANCORP Trust Company
Main and Franklin Streets
P.O. Box 520
Johnstown, PA 15907 100% Commonwealth of
Pennsylvania
<PAGE>91
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: February 24, 1995
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
February 24, 1995:
/s/Terry K. Dunkle
TERRY K. DUNKLE
Chairman, President
and Chief Executive Officer; Director
/s/Orlando B. Hanselman
ORLANDO B. HANSELMAN
Executive Vice President, Chief Financial
Officer & Manager of Corporate Services
/s/Jerome M. Adams
JEROME M. ADAMS, Director
/s/Robert A. Allen
ROBERT A. ALLEN, Director
/s/Clifford A. Barton
CLIFFORD A. BARTON, Director
/s/Michael F. Butler
MICHAEL F. BUTLER, Director
/s/Louis Cynkar
LOUIS CYNKAR, Director
/s/James C. Dewar
JAMES C. DEWAR, Director
/s/James M. Edwards, Sr.
JAMES M. EDWARDS, SR., Director
/s/Dennis J. Fantaski
DENNIS J. FANTASKI, Director
/s/Richard W. Kappel
RICHARD W. KAPPEL, Director
JOHN H. KUNKLE, JR., Director
JAMES F. O'MALLEY, Director
/s/Frank J. Pasquerilla
FRANK J. PASQUERILLA, Director
/s/Jack Sevy
JACK SEVY, Director
/s/Thomas C. Slater
THOMAS C. SLATER, Director
/s/James C. Spangler
JAMES C. SPANGLER, Director
/s/W. Harrison Vail
W. HARRISON VAIL, Director
/s/Robert L. Wise
ROBERT L. WISE, Director
<PAGE>92
USBANCORP, INC.
DIRECTORS,
GENERAL OFFICERS,
and ADVISORY BOARDS
COMMUNITY OFFICES
SHAREHOLDER INFORMATION
<PAGE>93
THIS PAGE IS INTENTIONALLY LEFT BLANK
<PAGE>94
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; Former Chairman, President & CEO,
USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank
& Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Michael F. Butler
Business Consultant &
Attorney-at-Law
Louis Cynkar
President & CEO,
United States National Bank
James C. Dewar
President & Owner,
Jim Dewar Oldsmobile, Inc.
Terry K. Dunkle
Chairman, President & CEO,
USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank
& Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
James M. Edwards, Sr.
President & CEO,
WJAC, Inc.
Dennis J. Fantaski
President & CEO,
Community Bancorp, Inc.
and Community Savings Bank
Richard W. Kappel
CEO, Secretary & Treasurer,
William J. Kappel Wholesale Co.
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
& CEO, 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.
W. Harrison Vail
President & CEO,
Three Rivers Bank &
Trust Company
Robert L. Wise
President,
Fossil Generation of
GPU Service Corporation
Directors Remembered
General Officers
Terry K. Dunkle
Chairman, President
& Chief Executive Officer
Orlando B. Hanselman
Executive Vice President,
Chief Financial Officer
& Manager of Corporate Services
Gary M. McKeown
Senior Vice President, Manager of
Credit Policy and Administration
& Assistant Secretary
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 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
Betty L. Jakell
Secretary
<PAGE>95
U.S. BANK
Board of Directors
Robert A. Allen
Retired; Former President,
Sani-Dairy
Clifford A. Barton
Retired; Former Chairman, President
& CEO, USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Michael F. Butler
Business Consultant &
Attorney-at-Law
William F. Casey
President & CEO,
Conemaugh Memorial Hospital
Louis Cynkar
President & CEO,
United States National Bank
Daniel R. DeVos
President and CEO,
Concurrent Technologies Corporation
James C. Dewar
President & Owner,
Jim Dewar Oldsmobile, Inc.
Bruce E. Duke III, M.D.
Surgeon, Valley Surgeons
Terry K. Dunkle
Chairman, President & CEO,
USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
James M. Edwards, Sr.
President & CEO,
WJAC, Inc.
Kim W. Kunkle
President & CEO,
Laurel Holding 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
& CEO, Crown American
Realty Trust
Howard M. Picking, III
President,
Miller-Picking Corporation
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,
Fossil Generation of
GPU Service Corporation
General Officers
Terry K. Dunkle
Chairman of the Board
Louis Cynkar
President &
Chief Executive Officer
William J. Locher, Jr.
Senior Vice President &
Manager of Commercial Lending
Paul E. Lovett, Jr.
Senior Vice President & Manager
of Retail Credit Administration
William E. Wood
Senior Vice President &
Manager of Community Banking
James S. Bubenko
Vice President & Manager
of Retail Credit Operations
Leo J. Fronczek
Vice President,
Management Information
Systems & Security Officer
Michael F. Komara
Vice President,
Human Resources
Frank A. Krall
Vice President,
Mortgage Lending
Kermit L. Miller
Vice President &
Branch Manager
Victor L. Tatum
Vice President &
Commercial Equipment
Leasing Manager
Directors Emeriti
John N. Crichton
Owen D. Griffith
John L. Williams
Advisory Boards
Carrolltown
Joseph E. Lacue
Joseph E. Stevens, Sr.
Coalport
Charles Glasgow
Richard W. Hegarty
Loretto
Frank J. Kuzemchak
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
Westmont, West End, Seward
Edward J. Cernic, Chairman
Dr. Frank H. Blackington, III
Robert A. Cameron
Teresa T. Chianese
David N. Crichton
Max J. Critchfield
John B. Gunter
John M. Kriak
Carl R. Sax
John B. Stockton
Harvey Supowitz
Carl H. Vulcan
Dr. William A. Yates
<PAGE>96
THREE RIVERS BANK
Board of Directors
Jerome M. Adams
Senior Partner,
Adams, Myers, & Baczkowski
Attorneys-at-Law
Clifford A. Barton
Retired; Former Chairman, President
& CEO, USBANCORP, Inc., and
Chairman of the Board of
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., and
Chairman of the Board of
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
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
W. Harrison Vail
President & CEO,
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,
Commercial Loan Division
Harry G. King
Senior Vice President,
Community Banking
James F. Ackman
Vice President,
Consumer Loans
Robert J. DeGrazia
Vice President,
Information Systems
Anita L. Elder
Vice President
& Credit Administrator
Vincent W. Locher
Vice President &
Commercial Loan Officer
Patricia M. Smarra
Vice President
& Operations Officer
Robert J. Smerker
Vice President,
Operations, Bank Secrecy
Act Officer &
Assistant Secretary
Mary Pat Soltis
Vice President,
Regional Manager
Joseph M. Trifaro, Jr.
Vice President,
Regional Manager
Directors Emeriti
J. Paul Farrell
William R. Hoag
COMMUNITY BANCORP, INC.
Board of Directors
Clifford A. Barton
Retired; Former Chairman,
President & CEO,
USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Terry K. Dunkle
Chairman, President &
CEO, USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Dennis J. Fantaski
President & CEO,
Community Bancorp, Inc.
and Community Savings Bank
Marylouise Fennell, RSB, Ed.D.
Senior Consultant,
Counsel of Independent Colleges
James R. Ferry
President,
Ferry Electric Company
Electrical Contractor
Richard W. Kappel
CEO, Secretary & Treasurer,
William J. Kappel Wholesale Co.
John H. Kunkle, Jr.
Retired; Former Vice-Chairman
& Director, Commonwealth Land
Title Insurance Co.
Thomas J. McCaffrey
Grubb & Ellis Company
William C. McNary
Retired; Financial Consultant,
CIGNA Individual
Financial Services Co.
Edward W. Seifert
Attorney-at-Law, Partner,
Reed, Smith, Shaw & McClay
General Officers
Terry K. Dunkle
Chairman of the Board
Dennis J. Fantaski
President &
Chief Executive Officer
Thomas J. Chunchick
Senior Vice President,
Retail Banking & Secretary
Anthony D. DeNunzio
Senior Vice President &
CRA Officer
Fred Geisler
Vice President,
Mortgage Lending
Delbert O. Hague
Vice President,
Residential Lending
Robert L. Rogers
Vice President,
Commercial Loans
<PAGE>97
USBANCORP TRUST COMPANY
Board of Directors
Jerome M. Adams
Senior Partner,
Adams, Myers & Baczkowski
Attorneys-at-Law
Clifford A. Barton
Retired; Former Chairman, President
& CEO, USBANCORP, Inc., and
Chairman of the Board of
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., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Dennis J. Fantaski
President & CEO,
Community Bancorp, Inc.
and Community Savings Bank
Richard W. Kappel
CEO, Secretary & Treasurer,
William J. Kappel Wholesale Co.
John H. Kunkle, Jr.
Retired; Former Vice Chairman
& Director, Commonwealth Land
Title Insurance Co.
Kim W. Kunkle
President & CEO,
Laurel Holding Company
Rev. Christian R. Oravec
President, St. Francis College
W. Harrison Vail
President & CEO,
Three Rivers Bank
& Trust Company
Ronald W. Virag, CTFA
President & CEO,
USBANCORP Trust Company
Robert L. Wise
President,
Fossil Generation of
GPU Service Corporation
General Officers
Terry K. Dunkle
Chairman of the Board
Ronald W. Virag, CTFA
President &
Chief Executive Officer
Orlando B. Hanselman
Treasurer
Gerald R. Baxter, CPA
Vice President &
Trust Officer
Anne G. Bump
Vice President,
Institutional Trust Services
Judith A. Duchene
Vice President &
Business Development Officer
Steven R. Garstad
Vice President &
Business Development Officer
David L. Mordan, CPA
Vice President & Manager
of Personal Trust Services
Mildred L. Nelson
Vice President &
Trust Officer
James T. Vaughan
Vice President &
Manager of Western Region
M. Randolph Westlund, CFA
Vice President &
Trust Investment Officer
James M. Young, CFA, CFP
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
500 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>98
U.S. BANK
OFFICE LOCATIONS
*Main Office Downtown
Main & Franklin Streets
Johnstown, PA 15901
(814) 533-5300
*Westmont Office
110 Plaza Drive
Johnstown, PA 15905-1207
(814) 255-6836
*University Heights Office
1404 Eisenhower Boulevard
Johnstown, PA 15904-3280
(814) 266-9691
*East Hills Office
1219 Scalp Avenue
Johnstown, PA 15904
(814) 266-3181
*Richland Mall Office
3200 Elton Road
Johnstown, PA 15904
(814) 266-8965
*Eighth Ward Office
1059 Franklin Street
Johnstown, PA 15905
(814) 535-8317
West End Office
163 Fairfield Avenue
Johnstown, PA 15906-2392
(814) 533-5436
*Carrolltown Office
Main & Carroll Streets
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
*Galleria Mall Office
500 Galleria Drive
Johnstown, PA 15904
(814) 266-5969
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) 754-2014
*Century III Office
269 Clairton Boulevard
Pittsburgh, PA 15236-1499
(412) 653-7199
*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) 664-8715
*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, Main & Franklin Streets,
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
*BiLo Supermarket, Scalp Avenue,
Johnstown
*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
2300 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>99
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
Anthony Misciagna & Co., Inc.
6 Bird Cage Walk
Hollidaysburg, PA 16648
Telephone: (800) 343-5149
Not a NASDAQ Dealer
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, 1995, there were 6,345 shareholders of common
stock and 5,582,155 shares outstanding. Of the total shares
outstanding, approximately 254,000 or 5% are held by insiders
(directors and executive officers) while approximately 1,631,270
or 29% 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>100
Annex A
ANNEX A TO USBANCORP, INC. 1994 ANNUAL REPORT & FORM 10-K
The following is a listing of the graphs presented in USBANCORP,
Inc.'s 1994 Annual Report & Form 10-K.
Page 2: The following six graphs present Financial Highlights-
At A Glance:
The first graph is an area graph showing non-performing
assets as a percentage of loans and OREO at December 31 for
the periods presented:
1990 1991 1992 1993 1994
0.87% 1.10% 1.58% 0.89% 0.91%
Asset quality is critical to a bank's safety and ongoing
earnings power. Non-performing assets are those loans and
foreclosed properties that are not generating income and
represent high collection risk. USBANCORP's non-performing
assets are significantly lower than peer.
The second graph is a bar graph showing the allowance for
loan losses as a percentage of total non-accrual loans at
December 31 for the periods presented:
1990 1991 1992 1993 1994
507.74% 387.22% 245.75% 287.71% 286.27%
The allowance for loan losses helps protect a bank's future
earnings from losses due to credit risk. USBANCORP's
allowance reflects a reserve of $2.86 for each $1.00 of
non-accrual loans.
The third graph is an area graph showing net overhead
expense (excluding acquisition charge) to average assets:
1990 1991 1992 1993 1994
2.89% 3.01% 2.68% 2.51% 2.32%
Note: The 1994 net overhead expense calculations exclude
$3.8 million net security losses recognized in the fourth
quarter which resulted from a specific investment portfolio
restructuring strategy.
Net overhead expense as a percentage of average assets
reflects a company's ability to generate non-interest
income and control its non-interest expenses. Over the
last five years USBANCORP has significantly improved its
performance in this key area of non-interest sensitive
profitability.
The fourth graph is a bar graph showing assets per full
time equivalent employee at December 31 for the periods
presented (in thousands):
1990 1991 1992 1993 1994
$1,447 $1,499 $1,770 $1,867 $2,293
We are aggressively capturing the financial benefits from
each of our past acquisitions, including our most recent
intra-market merger. Improved employee productivity is
one such integral benefit from our acquisitions.
The fifth graph is a bar graph showing the return on
equity before extraordinary item, SFAS #109 benefit and
acquisition charge:
1990 1991 1992 1993 1994
10.00% 9.39% 11.41% 10.13% 10.41%
The return on average equity (ROE) is a standard
measurement of a bank's profitability. Historically, a
12.50% to 13.50% ROE was considered above average
profitability. USBANCORP will not be satisfied until this
targeted ROE is consistently achieved.
The sixth graph is a area graph showing net interest
margin dollars (in thousands):
1990 1991 1992 1993 1994
$31,706 $32,908 $44,441 $49,485 $55,818
As a result of prudent acquisitions and effective
asset/liability management practices, USBANCORP has
increased net interest margin dollars for each of the past
five years.
Page 4: The following six graphs present Shareholder Information-At
A Glance:
The first graph is a bar graph showing pre-tax income
excluding acquisition charge (in thousands):
1990 1991 1992 1993 1994
$8,933 $9,181 $14,323 $16,520 $19,688
USBANCORP's pre-tax income has shown progressive growth.
Such income is a key determinant of shareholder value and
the Company's ongoing financial soundness.
The second graph is a bar graph showing dividends per
common share:
1990 1991 1992 1993 1994
$0.15 $0.55 $0.75 $0.86 $0.97
Common dividends per share represent a payment by the
company from its accumulated shareholder wealth. When this
cash is paid to the shareholder it is no longer available
to the company. Many shareholders, however, choose to
reinvest these dividends in the company.
The third graph is a bar graph showing common stock
price per share at December 31:
1990 1991 1992 1993 1994
$12.75 $18.00 $22.00 $23.75 $21.00
A second key element of shareholder return is the price
appreciation of each common share. USBANCORP's common
stock price per share has appreciated 65% since December
31, 1990.
The fourth graph is a bar graph showing common dividend
yield (based upon dividends declared and purchased at
average market price each year):
1990 1991 1992 1993 1994
1.20% 3.50% 3.70% 3.50% 4.20%
The common dividend yield is similar to the interest rate
on a deposit. Common dividends are only one element of
total shareholder return. Common dividend yields for
Pennsylvania bank holding companies were, as of January 31,
1995, 3.0%. USBANCORP's yield approximated 4.5%.
The fifth graph is a bar graph showing book value per
common share - December 31:
1990 1991 1992 1993 1994
$19.85 $21.71 $23.08 $24.67 $24.57
A company's book value per common share represents the
accumulated and undistributed shareholder wealth. This
wealth is used by the company to finance profitable growth
and to fund shareholder dividends. USBANCORP has increased
this shareholder wealth by 24% since December 31, 1990.
The sixth graph is an area graph showing asset leverage
ratio compared to the management minimum target of 6%:
1990 1991 1992 1993 1994
8.05% 8.56% 7.08% 9.18% 6.64%
Fundamental to shareholder and depositor safety is the
capital strength of the financial institution. USBANCORP
well exceeds all governmental regulatory capital
requirements. As we did during 1994, the Company will
continue to pursue several strategic alternatives to
leverage this capital strength in 1995.
Page 5: The graph at the top left is a bar graph showing net
interest income (NII) in thousands and data points showing
the net interest margin (NIM) percentage:
1990 1991 1992 1993 1994
NII $31,706 $32,908 $44,441 $49,485 $55,818
NIM 4.56% 4.69% 4.58% 4.34% 4.03%
The graph at the bottom left is a bar graph showing
assets per full time equivalent employee at December 31 for
the periods presented (in thousands):
1990 1991 1992 1993 1994
$1,447 $1,499 $1,770 $1,867 $2,293
Page 6: The graph at the top left is a area graph showing total
market capitalization (in thousands):
1990 1991 1992 1993 1994
$65,050 $70,023 $82,971 $116,615 $137,136
The graph at the bottom left is a bar graph showing
total assets at December 31 for the periods presented (in
thousands):
1990 1991 1992 1993 1994
$774,403 $784,036 $1,139,855 $1,241,521 $1,788,890
Page 7: The graph at the top left is a pie chart showing 1994
gross revenue contribution by product segment.
Investments 29%, Trust 3%,
Commercial 17%, Wholesale 1%,
Consumer 50%
The graph at the bottom left is bar graph showing net
income per common share before extraordinary item, SFAS
#109 benefit, and acquisition charge on a fully diluted
basis:
1990 1991 1992 1993 1994
$1.95 $1.97 $2.53 $2.41 $2.54
Page 8: The graph is a pie chart showing loan portfolio
composition at December 31, 1994, by loan type:
Commercial 14%
Commercial secured by real estate 20%
Real estate - mortgage 47%
Consumer 19%
Page 9: The graph at the top left is an area graph showing the
asset leverage ratio compared to the management minimum
target of 6%:
1990 1991 1992 1993 1994
8.05% 8.56% 7.08% 9.18% 6.64%
The graph at the bottom left is a bar graph showing
common dividend yield (based upon dividends declared and
purchased at average market price each year):
1990 1991 1992 1993 1994
1.20% 3.50% 3.70% 3.50% 4.20%
Page 10: The graph at the top left is a pie chart showing the
deposit composition as of December 31, 1994:
DDA 12%, CD's 48%
Savings & NOW 29%, Money market 11%
The graph at the bottom left is a pie chart showing the
deposit composition as of December 31, 1994:
DDA 13%, CD's 44%
Savings & NOW 32%, Money market 11%
Page 11: Shows a service area map of USBANCORP, Inc.'s six
southwestern Pennsylvania counties. The map shows
a closeup of the six counties identifying branch locations
by subsidiary.
Page 44: The top left graph is a bar graph showing common stock
price per share at December 31:
1990 1991 1992 1993 1994
$12.75 $18.00 $22.00 $23.75 $21.00
The fourth graph is a bar graph showing common dividend
yield (based upon dividends declared and purchased at
average market price each year):
1990 1991 1992 1993 1994
1.20% 3.50% 3.70% 3.50% 4.20%
Page 47: The graph at the top left is a bar graph showing total
assets at December 31 for the periods presented (in
thousands):
1990 1991 1992 1993 1994
$774,403 $784,036 $1,139,855 $1,241,521 $1,788,890
The graph at the bottom left is a pie chart showing
market leadership in Cambria County:
U.S. Bank 25%
Pittsburgh National Bank 13%
BT Financial 17%
Cenwest 11%
Other (No more than 7% individually) 34%
Page 48: The graph at the top left is a bar graph showing net
income per common share before extraordinary item, SFAS
#109 benefit, and acquisition charge (fully diluted basis):
1990 1991 1992 1993 1994
$1.95 $1.97 $2.53 $2.41 $2.54
The graph at the bottom left is an area graph showing
total common shares outstanding at December 31:
1990 1991 1992 1993 1994
2,552,407 2,568,189 2,982,124 4,726,181 5,582,155
Page 49: The graph at the top left is an bar graph showing return
on average assets before extraordinary item, SFAS #109
benefit, and acquisition charge:
1990 1991 1992 1993 1994
0.82% 0.83% 0.85% 0.91% 0.87%
The graph at the bottom left is a bar graph showing net
interest income (NII) in thousands and data points showing
the net interest margin (NIM) percentage:
1990 1991 1992 1993 1994
NII $31,706 $32,908 $44,441 $49,485 $55,818
NIM 4.56% 4.69% 4.58% 4.34% 4.03%
Page 50: The table at the top left shows the investment leverage
program (dollar amounts in thousands):
Securities in the amount of $121,735 were purchased with a
weighted average maturity of 54 months and a weighted
average coupon of 7.35%. Of these securities 39% were
variable and 61% were fixed.
Funding for the securities was $121,735 with a weighted
average maturity of 3 months and a weighted average coupon
of 5.10%.
Hedge transactions total $100,000 with a weighted average
maturity of 12 months and a weighted average coupon of
0.29%.
Note: The leverage program was in place from 7-01-94 to
12-31-94 and contributed an incremental $1.2 million to
pre-tax income.
The table at the bottom left shows Johnstown Savings
Bank (JSB) investment security portfolio repositioning
(dollar amounts in thousands):
The Company sold JSB securities amounting to $175,454 with
a weighted average maturity of 41 months and a weighted
average coupon of 5.5%. Of these securities 23% were
variable rates and 77% were fixed.
The Company purchased JSB securities of $165,000 with a
weighted average maturity of 45 months and a weighted
average coupon of 7.27%. Of these securities purchased 11%
were variable rates and 89% were fixed.
Note: The annual pre-tax income effect of this
repositioning approximates $2.9 million.
Page 51: The graph at the top left is a bar graph showing net
interest income (NII) in thousands and data points showing
the net interest margin (NIM) percentage:
1990 1991 1992 1993 1994
NII $31,706 $32,908 $44,441 $49,485 $55,818
NIM 4.56% 4.69% 4.58% 4.34% 4.03%
The table at the bottom left shows Three Rivers Bank
(TRB) and U.S. Bank (USNB) investment security portfolio
repositioning (dollar amounts in thousands):
TRB sold securities amounting to $15,932 with a weighted
average maturity of 43 months and a weighted average coupon
of 4.80%. Of these securities 0% were variable rates and
100% were fixed.
USNB sold securities amounting to $65,445 with a weighted
average maturity of 26 months and a weighted average
coupon of 6.32%. Of these securities 2% were variable
rates and 98% were fixed.
Total securities sold amounted to $81,377 with a weighted
average maturity of 29 months and a weighted average
coupon of 6.02%. Of these securities 1% were variable
rates and 99% were fixed.
TRB purchased securities amounting to $14,926 with a
weighted average maturity of 45 months and a weighted
average coupon of 8.65%. Of these securities 40% were
variable rates and 60% were fixed.
USNB purchased securities amounting to $62,451 with a
weighted average maturity of 50 months and a weighted
average coupon of 8.83%. Of these securities 84% were
variable rates and 16% were fixed.
Total securities purchased amounted to $77,377 with a
weighted average maturity of 49 months and a weighted
average coupon of 8.80%. Of these securities 76% were
variable rates and 24% were fixed.
Note: The annual pre-tax income effect of this
repositioning approximates $2.1 million.
Page 52: The top left graph is a area graph showing net interest
margin dollars (in thousands):
1990 1991 1992 1993 1994
$31,706 $32,908 $44,441 $49,485 $55,818
The bottom left graph is a pie chart showing loan
portfolio composition at December 31, 1994 by loan type:
Commercial 14%
Commercial secured by real estate 20%
Real estate - mortgage 47%
Consumer 19%
Page 55: The table at the top left shows the investment portfolio
(dollar amounts in thousands):
Total securities at December 31, 1994, amounted to $784,100
with a weighted average maturity of 3.8 years and a
weighted average coupon of 6.84%. Of these securities
25% were variable rates and 75% were fixed.
Total securities at December 31, 1993, amounted to $426,320
with a weighted average maturity of 2.8 years and a
weighted average coupon of 5.45%. Of these securities
15% were variable rates and 85% were fixed.
Total peer group securities at September 30, 1994 have
weighted average maturity of 4.7 years and a weighted
average coupon of 6.32%. Of these securities 9% were
variable rates and 91% were fixed.
Note: The peer group is defined as BT Financial, Keystone
Financial, Susquehanna Bancshares, S & T Bancorp, First
Western Bancorp, First Commonwealth Financial, and
Southwest National Corporation. Peer information
was derived from the 9/30/94 call reports.
The bottom left graph is a pie chart showing the
liability funding mix at December 31, 1994:
Deposits 67%
Borrowings 25%
Equity 8%
Page 56: The graph at the top left is a pie chart showing the
deposit composition as of December 31, 1994:
DDA 12%, CD's 48%
Savings & NOW 29%, Money market 11%
The bottom left graph is an area graph showing non-
performing assets as a percentage of loans and OREO at
December 31 for the periods presented:
1990 1991 1992 1993 1994
0.87% 1.10% 1.58% 0.89% 0.91%
Page 57: The middle left graph is a bar graph showing the
allowance for loan losses at December 31 for the periods
presented:
1990 1991 1992 1993 1994
2.80% 3.02% 2.12% 2.10% 1.80%
Page 58: The bottom left graph is a bar graph showing the
loan loss provision as a percentage of average loans:
1990 1991 1992 1993 1994
0.20% 0.21% 0.36% 0.34% (0.34%)
Page 59: The top left graph is a bar graph showing the net
charge-offs as a percentage of average loans:
1990 1991 1992 1993 1994
0.17% 0.08% 0.58% 0.13% 0.04%
Page 60: The top left graph is an bar graph showing non-interest
income excluding investment security gains and losses (in
thousands):
1990 1991 1992 1993 1994
$5,383 $6,085 $7,953 $9,567 $12,159
Page 61: The top left graph is a bar graph showing
trust fee income (in thousands):
1990 1991 1992 1993 1994
$1,306 $1,633 $2,054 $2,578 $3,023
The bottom left graph is a pie chart showing the
composition of 1994 trust assets (dollar amounts in
thousands):
Corporate trust $339,029 33%
Employee benefits
(excluding Pathroad) $331,652 32%
Personal trust
(excluding Pathroad) $299,221 29%
Pathroad $57,351 6%
Page 62: The top left graph is a bar graph showing the
total non-interest expense excluding acquisition charge (in
thousands):
1990 1991 1992 1993 1994
$27,198 $28,862 $36,248 $40,715 $47,082
The bottom left graph is an bar graph showing the
components of non-interest expense excluding acquisition
charge (in thousands):
1990 1991 1992 1993 1994
All other $7,998 $8,506 $11,083 $12,605 $16,410
FDIC Ins. $ 775 $1,381 $ 2,040 $ 2,157 $ 2,576
Occupancy
& Equipment $4,021 $4,320 $ 5,087 $ 6,001 $ 7,222
Salaries &
benefits $14,306 $14,655 $18,038 $19,952 $23,311
Page 63: The top left graph is a bar graph showing net overhead
expense (excluding acquisition charge) as a percent of tax
equivalent net interest income compared to management's
strategic target is 55%:
1990 1991 1992 1993 1994
67.63% 68.24% 61.66% 60.86% 60.99%
Note: Net overhead expense calculations exclude $3.8 million
net security losses recognized in the fourth quarter 1994
which resulted from a specific investment restructuring
strategy.
The bottom left graph is a bar graph showing assets per
full time equivalent employee at December 31 for the periods
presented (in thousands):
1990 1991 1992 1993 1994
$1,447 $1,499 $1,770 $1,867 $2,293
Page 64: The top left graph is an area graph showing net overhead
expense (excluding acquisition charge) to average assets:
1990 1991 1992 1993 1994
2.89% 3.01% 2.68% 2.51% 2.32%
Note: The 1994 net overhead expense calculations exclude
$3.8 million net security losses recognized in the fourth
quarter which resulted from a specific investment portfolio
restructuring strategy.
The bottom left graph is an area graph showing core net
income excluding significant non-recurring items (in
thousands):
1990 1991 1992 1993 1994
$7,141 $7,637 $8,797 $11,281 $13,068
Page 65: The top left graph is a pie chart showing loan
portfolio composition at December 31, 1994 by loan type:
Commercial 14%
Commercial secured by real estate 20%
Real estate - mortgage 47%
Consumer 19%
The bottom left graph is an bar graph showing the
Company's one year GAP ratio compared to a neutral one
year GAP of 1.00x at December 31 for the periods
presented:
1990 1991 1992 1993 1994
0.97x 1.06x 1.14x 1.10x 0.79x
Page 67: The graph at the top left is a pie chart showing the
deposit composition as of December 31, 1994:
DDA 12%, CD's 48%,
Savings & NOW 29%, Money market 11%,
The graph at the bottom left is a pie chart showing the
deposit composition as of December 31, 1993:
DDA 13%, CD's 44%
Savings & NOW 32%, Money market 11%
Page 68: The top left graph is a pie chart showing the investment
portfolio liquidity(scheduled maturities) as of December
31, 1994:
Less than 1 year is 6%
Greater than 1 year but less than 5 years is 64%
Greater than 5 year but less than 10 years is 24%
Greater than 10 years is 6%
The bottom left graph is a pie chart showing the
liability funding mix at December 31, 1994:
Deposits 67%
Borrowings 25%
Equity 8%
Page 69: The middle left graph is a bar graph showing the risk
based capital ratio compared to the regulatory requirement
of 8.00%.
1990 1991 1992 1993 1994
5.10% 5.70% 4.54% 7.97% 5.70%
Page 74: The middle left graph is a pie chart showing 1994
gross revenue contribution by product segment (in
thousands):
Investments $32,339, Trust $3,023,
Commercial $18,783, Wholesale $1,237,
Consumer $55,616,
The bottom left graph is a pie chart showing 1993 gross
revenue contribution by product segment (in thousands):
Investments $25,603, Trust $2,578,
Commercial $16,820, Wholesale $1,281,
Consumer $49,603,
Page 78: The graph at the top left is a bar graph showing trust
assets. The graph presents the book value of client assets
which is discretionary and non-discretionary (in millions):
1990 1991 1992 1993 1994
$550 $631 $650 $943 $1,027
Note: 193% growth rate from 1990 to 1994.
Page 79: The graph at the bottom left is a pie chart showing
market leadership in Cambria County:
U.S. Bank 25%
Pittsburgh National Bank 13%
BT Financial 17%
Cenwest 11%
Other (No more than 7% individually) 34%
Page 81: The middle left graph is a bar graph showing assets per
full time equivalent employee at December 31 for the
periods presented (in thousands):
1990 1991 1992 1993 1994
$1,447 $1,499 $1,770 $1,867 $2,293
Page 82: The two graphs at the left are pie charts showing the
Company's composition of the investment portfolio at
December 31, 1993, and 1994, respectively:
1993 1994
U.S. Treasury and Agency Debentures 20% 11%
U.S. Agency CMO's 34% 7%
U.S. Agency Pools 22% 60%
Tax Exempt 10% 6%
Other 14% 16%
Page 83: The two graphs at the left are pie charts showing the
Company's composition of the investment portfolio credit
quality distribution at December 31, 1993, and 1994,
respectively:
1993 1994
AAA 90.76% 96.43%
AA 2.52% 0.85%
A 5.89% 2.49%
Other 0.83% 0.23%
Page 85: The middle left graph is a bar graph showing
average loans to average deposits at December 31 for the
periods presented:
1990 1991 1992 1993 1994
67.55% 65.47% 68.23% 69.01% 71.82%
Page 87: The top left graph is a pie chart showing the deposit
composition as of December 31, 1994:
DDA 12%, CD's 48%,
Savings & NOW 29%, Money market 11%,
Page 100: The graph at the bottom right is a bar graph showing
common stock price earnings ratio (calculated on a fully
diluted basis before SFAS #109 benefit and acquisition
charge). Based upon December 31 stock prices for the
periods presented):
1990 1991 1992 1993 1994
5.29x 7.86x 8.70x 9.85x 8.27x
The graph at the bottom left is a bar graph showing
common stock price to book value at December 31 for the
periods presented:
1990 1991 1992 1993 1994
64.23% 82.91% 95.32% 96.27% 85.47%
EXHIBIT 3.2
BYLAWS OF USBANCORP, INC.
ADOPTED November 20, 1992
REVISED February 24, 1995
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting of
the shareholders for the election of directors and the transaction
of whatever other business may properly come before the meeting,
shall be held at the Main Office of the Corporation, Main and
Franklin Streets, City of Johnstown, Commonwealth of Pennsylvania,
at 1:30 p.m., on the 4th Tuesday of April of each year, or at such
other place on such date and at such time as the Board of Directors
may in their discretion determine. Written notice stating the
place, day, and hour of the meeting and, in case of special
meeting, the general nature of the business to be transacted, shall
be delivered not less than five (5) nor more than forty (40) days
before the date of the meeting, or in case of a merger or
consolidation not less than ten (10) nor more than forty (40) days
before the date of the meeting, either personally or by mail, by or
at the direction of the President, or the Secretary, or the officer
or persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the
books of the Corporation or as supplied by him to the Corporation
for the purpose of notice, with postage thereon prepaid.
Section 1.2. Special Meetings. Special meetings of the
shareholders may be called at any time by the Chairman of the
Board, President, the Chief Executive Officer or by the Board of
Directors, or by any two (2) or more directors. The Secretary
shall fix the date of such meeting, to be held not more than sixty
(60) days after receipt of the request, and shall give due notice
thereof.
1
Section 1.3. Nominations for Director. Nominations for
election to the Board of Directors may be made by the Board of
Directors or by any shareholder of any outstanding class of capital
stock of the Corporation entitled to vote for the election of
directors. Nominations, other than those made by or on behalf of
the existing management of the Corporation, shall be made in
writing and shall be delivered or mailed to the President of the
Corporation not less than 60 days nor more than 90 days prior to
any meeting of shareholders called for the election of directors.
Such notification shall contain the following information to the
extent known to the notifying shareholder: (a) the name and
address of each proposed nominee; (b) the principal occupation of
each proposed nominee; (c) the total number of shares of capital
stock of the Corporation that will be voted; (d) the total number
of shares of capital stock of the Corporation that will be voted
for each proposed nominee; (e) the name and residence address of
the notifying shareholder; and (f) the number of shares of capital
stock of the Corporation owned by the notifying shareholder.
Nominations not made in accordance herewith may, in his discretion,
be disregarded by the Chairperson of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast for
each such nominee.
Section 1.4. Judges of Election. Every election of
directors shall be managed by three judges, who shall be appointed
from among the shareholders by the Board of Directors. The judges
of election shall hold and conduct the election at which they are
appointed to serve; and, after the election, they shall file with
the Secretary a certificate under their hands, certifying the
result thereof and the names of the directors elected. The judges
of election, at the request of the Chairperson of the meeting,
shall act as tellers of any other vote by ballot taken at such
meeting, and shall certify the result thereof. No person who is a
candidate for office, or an officer or an employee of this
Corporation or a subsidiary thereof, shall act as a judge.
Section 1.5. Proxies. Shareholders may vote at any meeting
of the shareholders in person or by proxies duly authorized in
writing. Proxies, unless otherwise provided, shall be valid for
only one meeting to be specified therein, and any adjournments of
such meeting. No proxy shall be valid after eleven (11) months
from the date of its execution unless otherwise provided in the
proxy. Proxies shall be dated and shall be filed with the records
of the meeting.
Section 1.6. Quorum. A majority of the outstanding capital
stock, represented in person or by proxy, shall constitute a quorum
at any meeting of shareholders, unless otherwise provided by law;
but less than a quorum may adjourn any meeting, from time to time,
and the meeting may be held, as adjourned, without further notice.
A majority of the votes cast shall decide every question or matter
2
submitted to the shareholders at any meeting, at which a quorum is
present, unless otherwise provided by law or by the Articles of
Incorporation.
Section 1.7. Voting. Only persons in whose names shares
appear on the share transfer books of the Corporation on the date
on which notice of the meeting is mailed shall be entitled to vote
at such meeting, unless some other day is fixed by the Board of
Directors for the determination of shareholders of record, but such
date shall not be less than ten (10) nor more than fifty (50) days
before the date of the meeting, or in the case of a merger or
consolidation not less than twenty (20) nor more than fifty (50)
days before the date of the meeting. Each outstanding share,
regardless of class, shall be entitled to one vote on each matter
submitted to a vote, except that in all elections for directors
every shareholder shall have the right to vote, in person or by
proxy, for the number of shares owned by him, for as many persons
as there are directors to be elected, or to cumulate said shares,
and give one candidate as many votes as the number of directors
multiplied by the number of his shares shall equal, or to
distribute them on the same principle among as many candidates as
he shall think fit.
Section 1.8. Subchapters G and H of Business Corporation
Law. The provisions of Subchapter G of Chapter 25 (Section 2561 et
seq.) and the provisions of Subchapter H of Chapter 25 (Section
2571 et seq.) of the Pennsylvania Business Corporation Law of 1988,
as amended (effected by the Act of April 27, 1990 (No. 36)) shall
not be applicable to the Corporation.
ARTICLE II
Directors
Section 2.1. Board of Directors. The Board of Directors
shall have the power to manage and administer the business and
affairs of the Corporation. Except as expressly limited by law or
required or directed by these Bylaws or by the Articles of
Incorporation to be exercised or done by the shareholders, all
corporate powers of the Corporation shall be vested in and may be
exercised by the Board of Directors.
Section 2.2. Number; Term; Vacancies. The number,
classification, election and appointment, term of office and
removal from office of directors shall be in accordance with and
governed by the provisions of Article Seventh of the Articles of
Incorporation of this Corporation which provisions are incorporated
herein with the same effect as if fully set forth. The Board of
Directors may appoint each year such number of advisory directors
or directors emeritus as the Board of Directors may from time to
time determine.
3
Section 2.3. Organization Meeting. The Secretary, upon
receiving the certificate of the judges, of the result of any
election, shall notify the directors-elect of their election and of
the time at which they are required to meet at the Main Office of
the Corporation for the purpose of organizing the new Board and
electing and appointing officers of the Corporation for the
succeeding year. Such meeting shall be held on the day of the
election or as soon thereafter as practicable, and, in any event,
within thirty days thereof. If, at the time fixed for such
meeting, there shall not be a quorum present, the directors present
may adjourn the meeting, from time to time, until a quorum is
obtained.
Section 2.4. Regular Meetings. The regular meetings of the
Board of Directors shall be held quarterly at a time and place
determined by the Board of Directors. No notice of regular
meetings need be given.
Section 2.5. Special Meetings. Special meetings of the
Board of Directors may be called by the Chairman of the Board, the
President, the Chief Executive Officer or at the request of three
(3) or more directors to be held at the principal place of business
of the Corporation or such other place as designated by the person
or persons calling the meeting. Each member of the Board of
Directors shall be given notice stating the time and place, by
telephone, telegram, facsimile transmission, letter, or in person,
of each such special meeting.
Section 2.6. Quorum. A majority of the directors shall
constitute a quorum at any meeting, except when otherwise provided
by law; but a less number may adjourn any meeting, from time to
time, and the meeting may be held, as adjourned, without further
notice.
Section 2.7. Remuneration. No stated fee shall be paid to
directors, as such, for their service, but by resolution of the
Board of Directors, a fixed sum and expenses of attendance, if any,
may be allowed for attendance at each regular or special meeting of
the Board of Directors; provided, that nothing herein contained
shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation
therefor. Members of standing or special committees may be allowed
like compensation for attending committee meetings.
Section 2.8. Action by Directors Without a Meeting. Any
action which may be taken at a meeting of the directors, or of a
committee thereof, may be taken without a meeting if a consent in
writing setting forth the action so taken or to be taken, shall be
signed by all of the directors, or all of the members of the
committee, as the case may be. Such consent shall have the same
effect as a unanimous vote.
4
Section 2.9. Action of Directors by Communications
Equipment. Any action which may be taken at a meeting of
directors, or of a committee thereof, may be taken by means of a
conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each
other at the same time.
Section 2.10. Age Limitation. No person shall be eligible
for election, re-election, appointment or re-appointment to the
Board of Directors if such person shall have attained the age of
seventy (70) years, at the time of any such action.
Section 2.11. Share Ownership. Each director shall own in
his or her own right unencumbered shares of common stock in the
Corporation having a par value of not less than $1,000.
Section 2.12. Minutes. The Board of Directors and each
committee hereinafter provided for shall keep minutes of its
meetings. Minutes of the committees shall be submitted at the next
regular meeting of the Board of Directors, and any action taken
with respect thereto shall be entered as the minutes of the Board
of Directors.
ARTICLE III
Committees of the Board
Section 3.1. Special Committees. The Board of Directors may
appoint from time to time, from its own members, special committees
of two or more persons, for such purposes and with such powers as
the Board may authorize.
Section 3.2. Executive Committee. The Committee shall
consist of not less than three (3) members of the Board of
Directors (who are not officers of the Corporation or a subsidiary
or affiliate of the Corporation) appointed by the Chairman of the
Board, who, together with the Chairman of the Board, the President
and the Chief Executive Officer, shall constitute the Executive
Committee, which may exercise all of the powers of the Board of
Directors except where action of the Board of Directors is by law
specifically required. It shall act by the concurrent vote of not
less than three members thereof. The Secretary shall keep a record
of its proceedings and report the same at each regular meeting of
the Board of Directors.
5
It shall have general supervision of, and direct the affairs and
practical operation of the subsidiaries. It shall meet weekly or
monthly, as it shall determine, on such day as it may designate and
at such times as it shall appoint, and at other times upon the call
of the Chairman of the Board, the Chief Executive Officer and the
President, upon the call of the Chairman of the Committee, and upon
call of any two members thereof. The Board of Directors shall
accept or decline the report of the Executive Committee, such
action to be recorded in the minutes of the meeting.
Section 3.3. Audit Committee. The Audit Committee shall
include six or more USBANCORP, Inc. Board Members, with two or more
Board Members from each banking affiliate, none being officers or
employees of any banking affiliate or the Corporation.
One member shall be rotating, serving for a period of one year so
that the Audit Committee will annually include a new member.
Members shall be elected annually to serve a term of one year. One
of the members shall be appointed chairman by the Chairman of the
Board. The Committee shall appoint a secretary who shall keep
minutes of all meetings. Three members of the Committee shall
constitute a quorum. The Committee shall meet six times per year.
In discharging its duty, the Audit Committee may rely on the
evaluations and conclusions of regulatory examiners as well as
internal and/or external auditors utilized by the Committee in the
performance or review of audit functions.
The Corporation's auditors shall report directly to the Audit
Committee. The Committee shall meet with the internal auditors and
review internal audit reports, independent auditor findings, and
all official reports from regulatory authorities along with
management's responses to these reports.
The Corporation's chief auditor, chief loan review and chief
compliance officers shall functionally report directly to the Audit
Committee and also provide their findings to the subsidiaries of
the Corporation. The loan review and compliance function will
report administratively to the chief auditor. Administratively,
the chief auditor reports to the Chairman of the Board.
The Committee shall, annually, report formally, in writing, to
the Board of Directors the performance of its supervisory and audit
functions. The report must set forth the Committee's evaluations,
conclusions, and recommendations with respect to the condition of
the Corporation and the effectiveness of its policies, practices
and controls.
The Committee shall recommend to the Board of Directors for
its action the appointment or discharge of the Corporation's -
independent auditors. The Committee shall consider the auditor's
independence, audit and non-audit fees and the quality of their
work. If the auditors are to be replaced, the Committee shall
document the reason for replacement along with a recommendation for
the appointment of new auditors.
6
The Committee shall meet with the independent auditors
periodically and review, among other things, the Scope and Audit
Plan, report or opinion on the Corporation's financial statements,
the effectiveness of the subsidiaries' internal controls, along
with any recommendations for improvement and any major problems
encountered.
The Committee shall insure that an internal audit department
and loan review and compliance department are adequately staffed
and independent from the management of the subsidiaries. In
fulfilling this role, the Committee shall review the content and
completeness of the audit, loan review and compliance programs and
procedures, appraise the audit staff and loan review and compliance
staff and approve salaries and insure that the audit staff and loan
review and compliance staff are maintaining their technical
proficiency through continuing education programs.
It is also the responsibility of the Audit Committee to
ascertain on the basis of observation and audit, whether the trust
function is being administered in accordance with law, regulations
and sound fiduciary principles. It shall evaluate the policies,
practices and controls employed by the trust function to effect
compliance and enforce correction of any violations, deficiencies
or weaknesses. In discharging its duty, the Audit Committee may
rely on the evaluations and conclusions of internal and/or external
auditors utilized by the Committee in the performance or review of
audit functions.
The Audit Committee must ensure that the responsible parties
have before them the last report of examination of the trust
functions by the Pennsylvania Department of Banking and the Federal
Reserve System and any letters to or from the such agencies in
order to verify correction of exceptions, weaknesses or
deficiencies. The Committee also should confirm the correction of
all exceptions, weaknesses or deficiencies which may be brought to
the Corporation's attention by internal and external auditors.
The Audit Committee is required to report formally in writing
to the Board of Directors the performance of its trust supervisory
and audit functions. The report must set forth the Committee's
evaluations, conclusions and recommendations with respect to the
condition of the trust function, and the effectiveness of its
policies, practices and controls. It also must include a specific
statement of the Committee's conclusion as to whether that function
is being administered in accordance with all applicable laws and
sound fiduciary principles.
The Committee shall have such other duties as may be lawfully
delegated to it from time to time by the Board of Directors.
7
Section 3.4. Nominating Committee. There shall be a
Nominating Committee of at least three (3) members of the Board of
Directors who shall be nominated by the Chairman of the Board and
appointed at least annually by the Board of Directors. It shall be
the duty of this Committee to nominate directors for consideration
at the annual meeting of the shareholders.
Section 3.5. Management Compensation Committee. There shall
be a Management Compensation Committee of at least three (3)
members of the Board of Directors who shall be the three (3)
directors (who are not officers of the Corporation or a subsidiary
or affiliate of the Corporation) appointed by the Chairman of the
Board to the Executive Committee. It shall be the duty of the
Committee to review and make recommendations to the Board of
Directors concerning officers' compensation.
Section 3.6 Stock Option Plan Committee. There shall be a
Stock Option Plan Committee of at least three (3) members of the
Board of Directors appointed from time to time by the Board of
Directors of the Corporation to administer the 1991 Stock Option
Plan in accordance with the provisions thereof.
ARTICLE IV
Officers and Employees
Section 4.1. Designations. The officers of the Corporation
shall be the Chairman of the Board, President, Chief Executive
Officer, Secretary and Treasurer who shall be elected for one year
by the Board of Directors at their first meeting after the annual
meeting of shareholders and who shall hold office until their
successors are elected and qualify. Any two or more offices may be
held by the same person, except the offices of President and
Treasurer.
Section 4.2. Chairman of the Board. The Chairman of the
Board shall preside at all meetings of the Board of Directors and
in general shall perform such duties as are incident to his office
and as prescribed by the Board of Directors. The Chairman of the
Board shall perform the duties and have the powers of the Chief
Executive Officer in his absence or his inability or refusal to
act.
Section 4.3. President. The Board of Directors shall
appoint one of its members to be President of the Corporation. He
shall be an ex officio member of all committees except the Stock
Option, Management Compensation and Audit Committees. The
President shall have and may exercise any and all other powers and
duties pertaining by law, regulation, or practice to the office of
President or imposed by these Bylaws. He shall also have and may
exercise such further powers and duties as from time to time may be
8
conferred upon or assigned to him by the Board of Directors. In
the absence of the Chairman of the Board and the Chief Executive
Officer, or their inability or refusal to act, he shall preside at
all meetings of the Board of Directors.
Section 4.4. The Chief Executive Officer. The Chief
Executive Officer shall have general supervision of all departments
and business of the Corporation, he shall prescribe the duties of
other officers and see to the performance thereof. He shall be an
ex officio member of all committees except the Stock Option,
Management Compensation and Audit Committees. In the absence of
the Chairman of the Board or his inability or refusal to act, he
shall preside at all meetings of the Board of Directors.
Section 4.5. Secretary. The Board of Directors shall
appoint a Secretary, who shall be Secretary of the Board and of the
Corporation, and shall keep accurate minutes of meetings. He shall
attend to the giving of all notices required by these Bylaws to be
given. He shall be custodian of the corporate seal, records,
documents and papers of the Corporation. He shall have and may
exercise any and all other powers and duties pertaining by law,
regulation or practice to the office of Secretary or imposed by
these Bylaws. He shall perform such other duties as may be
assigned to him from time to time by the Board of Directors.
Section 4.6. Treasurer. The Board of Directors shall
appoint a Treasurer, who shall be the Treasurer of the Corporation.
He shall have and may exercise any and all powers and duties
pertaining by law, regulation or practice to the office of
Treasurer or imposed by these Bylaws. He shall perform such other
duties as may be assigned to him from time to time by the Board of
Directors.
Section 4.7. Other Officers. The Board of Directors may
appoint one or more Executive Vice Presidents, one or more Senior
Vice Presidents, one or more Vice Presidents, one or more Assistant
Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, a Chief Auditor, and such other officers,
officers emeritus and Attorneys-in-fact found necessary for the
orderly transaction of business. Such officers shall respectively
exercise such powers and perform such duties as pertain to the
respective offices or as may be conferred upon or assigned to them
by the Board of Directors, the Chief Executive Officer or the
President.
Section 4.8. Clerks and Agents. The Board of Directors may
appoint, from time to time, such agents or employees as it may deem
advisable for the prompt and orderly transaction of the business of
the Corporation, define their duties, fix salaries to be paid them
and dismiss them. Subject to the authority of the Board of
Directors, the President or any other officer of the Corporation
9
authorized by him, may appoint and dismiss all or any agents or
employees, prescribe their duties and the conditions of their
employment, and from time to time, fix their compensation.
Section 4.9. Tenure of Office. All officers shall hold
office for the current year for which the Board of Directors was
elected, unless they shall resign, become disqualified, or be
removed; and any vacancy occurring in the office of President shall
be filled promptly by the Board of Directors.
ARTICLE V
Authority of Officers
Section 5.1. Corporate Seal. The Chairman of the Board, the
President, the Chief Executive Officer, any Vice President
(excluding the Chief Auditor), the Secretary, and the Treasurer,
shall each have authority to affix and attest the corporate seal of
the Corporation.
Section 5.2. Other Powers. The Chairman of the Board, the
President, the Chief Executive Officer or any Vice President
(excluding the Chief Auditor), acting in conjunction with the
Secretary or Treasurer or Assistant Secretary or Assistant
Treasurer are authorized to perform such corporate and official
acts as are necessary to carry on the business of the Corporation,
subject to the directions of the Board of Directors and the
Executive Committee.
The above-named officers are fully empowered, subject to
policies and established committee approvals:
a. To sell, assign and transfer any and all shares of stock,
bonds or other personal property standing in the name of
the Corporation or held by the Corporation either in its
own name or as agent;
b. To assign and transfer any and all registered bonds and
to execute requests for payment or reissue of any such
bonds that may be issued now or hereafter and held by the
Corporation in its own right or as agent;
c. To sell at public or private sale, lease, mortgage or
otherwise dispose of any real estate or interest therein
held or acquired by the Corporation in its own right or
as agent, except the real estate and buildings occupied
by the Corporation in the transaction of its business,
and to execute and deliver any instrument necessary to
completion of the transaction;
10
d. To receive and receipt for any sums of money or property
due or owing to the Corporation in its own right or as
agent and to execute any instrument of satisfaction
therefor for any lien of record;
e. To execute and deliver any deeds, contracts, agreements,
leases, conveyances, bills of sale, petitions, writings,
instruments, releases, acquittance and obligations
necessary in the exercise of the corporate powers of the
Corporation.
Section 5.3. Checks and Drafts. Such of the officers and
other employees as may from time to time be designated by the Board
of Directors or Executive Committee, shall have the authority to
sign checks, drafts, letters of credit, orders, receipts, and to
endorse checks, bills of exchange, orders, drafts, and vouchers
made payable or endorsed to the Corporation.
Section 5.4. Loans. Each of the Chairman of the Board,
President, the Chief Executive Officer, any Vice President
(excluding the Chief Auditor), the Secretary or the Treasurer,
acting in conjunction with any other of these designated officers
may effect loans on behalf of the Corporation from any banking
institution, executing notes or obligations and pledging assets of
the Corporation therefor.
ARTICLE VI
Section 6.1. Limitation of Liability. To the fullest extent
permitted by the Law of the Commonwealth of Pennsylvania, a
director of the Corporation shall not be personally liable to the
Corporation or others for monetary damages for any action taken or
any failure to take any action, unless the director has breached or
failed to perform the duties of his or her office and such breach
or failure constitutes self-dealing, willful misconduct or
recklessness. The provisions of this Section 6.1 shall not apply
with respect to the responsibility or liability of a director under
any criminal statute or the liability of a director for the payment
of taxes pursuant to local, state or federal law.
Section 6.2. Indemnification. (a) The Corporation shall
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or
was
serving, at the request of the Corporation, as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees), amounts paid in settlement, judgments, and fines
actually and reasonably incurred by such person in connection with
11
such action, suit, or proceeding; provided, however, that no
indemnification shall be made in any case where the act or failure
to act giving rise to the claim for indemnification is determined
by a court to have constituted willful misconduct or recklessness.
(b) Advance of Expenses. Expenses (including attorneys'
fees) incurred in defending a civil or criminal action, suit, or
proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit, or proceeding, upon receipt of a
written statement by or on behalf of the director, officer,
employee, or agent to repay such amount if it shall be ultimately
determined that he or she is not entitled to be indemnified by the
Corporation as authorized in this Article VI.
(c) Indemnification not Exclusive. The indemnification and
advancement of expenses provided by this Article VI shall not be
deemed exclusive of any other right to which persons seeking
indemnification and advancement of expenses may be entitled under
any agreement, vote of disinterested directors or otherwise, both
as to actions in such persons' official capacity and as to their
actions in another capacity while holding office, and shall
continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such person.
(d) Insurance, Contracts, Security. The Corporation may
purchase and maintain insurance on behalf of any person, may enter
into contracts of indemnification with any person, and may create
a fund of any nature which may, but need not be, under the control
of a trustee for the benefit of any person, and may otherwise
secure in any manner its obligations with respect to
indemnification and advancement of expenses, whether arising under
this Article VI or otherwise, whether or not the Corporation would
have the power to indemnify such person against such liability
under the provisions of this Article VI.
Section 6.3. Effect of Amendment. Any repeal or
modification of this Article VI shall be prospective only, and
shall not adversely affect any limitation on the personal liability
of a director of the Corporation or any right of any person to
indemnification from the Corporation with respect to any action or
failure to take any action occurring prior to the time of such
repeal or modification.
Section 6.4. Severability. If, for any reason, any
provision of this Article VI shall be held invalid, such invalidity
shall not affect any other provision not held so invalid, and each
such other provision shall, to the full extent consistent with law,
continue in full force and effect. If any provision of this
Article VI shall be held invalid in part, such invalidity shall in
no way affect the remainder of such provision, and the remainder
12
of such provision, together with all other provisions of this
Article VI, shall, to the full extent consistent with law, continue
in full force and effect.
ARTICLE VII
Stock and Stock Certificates
Section 7.1. Transfers. Shares of stock shall be
transferable on the books of the Corporation, and a transfer book
shall be kept in which all transfers of stock shall be recorded.
Every person becoming a shareholder by such transfer shall, in
proportion to his shares, succeed to all rights of the prior holder
of such shares.
Section 7.2. Share Certificates. Every share certificate
shall be signed by the President, or any Vice President, or by any
one of their facsimile signatures, or by the Secretary, or any
Assistant Secretary or by any one of their facsimile signatures,
and shall be signed by a transfer agent. Every shareholder of
record shall be entitled to a share certificate representing the
shares owned by him or her and, when stock is transferred, the
certificates representing such stock shall be returned to the
Corporation and new certificates issued. The corporate seal shall
appear on each share certificate and may be a facsimile, engraved
or printed. Each certificate shall recite on its face that the
stock represented thereby is transferable only upon the books of
the Corporation, properly endorsed.
Section 7.3. Shares of Another Corporation. Shares owned by
the Corporation in another corporation, domestic or foreign, shall
be voted by the President or such other officer, agent or proxy as
the Board of Directors may determine.
ARTICLE VIII
Miscellaneous Provisions
Section 8.1. Fiscal Year. The Fiscal Year of the
Corporation shall be the calendar year. The Corporation shall be
subject to an annual audit as of the end of its fiscal year by
independent public accountants appointed by and responsible to the
Board of Directors through the Audit Committee.
Section 8.2. Records. The Articles of Incorporation, the
Bylaws and the proceedings of all meetings of the shareholders, the
Board of Directors, and standing committees of the Board, shall be
recorded in appropriate minute books provided for the purpose. The
minutes of each meeting shall be signed by the Secretary or other
officer appointed to act as secretary of the meeting.
13
Section 8.3. Gender and Number. Where the context permits,
words in any gender shall include any other gender, words in the
singular shall include the plural and the plural shall include the
singular.
ARTICLE IX
Bylaws
Section 9.1. Inspection. A copy of the Bylaws, with all
amendments thereto, shall at all times be kept in a convenient
place at the Main Office of the Corporation, and shall be open for
inspection to all shareholders during normal business hours.
Section 9.2. Amendments. These Bylaws may be altered,
amended, added to or repealed by a vote of the majority of the
Board of Directors at any regular meeting of the Board, or at any
special meeting of the Board called for that purpose, except they
shall not make or alter any Bylaw fixing their qualifications,
classification or term of office. Such action by the Board of
Directors is subject, however, to the general right of the
shareholders to change such action.
EXHIBIT 10.2
AGREEMENT
THIS AGREEMENT (the "Agreement") made the 22nd day of
June, 1994, by and between USBANCORP, Inc. (the "Company"), a
Pennsylvania corporation, having its principal place of business
at Main and Franklin Streets, Post Office Box 430, Johnstown,
Pennsylvania 15907-0430, and TERRY K. DUNKLE
("Executive").
WHEREAS, the Board of Directors of the Company (the "Board")
has determined that it is in the best interest of the Company and
its shareholders to ensure that the Company will have the
continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change in Control (as
defined below) of the Company. The Board believes it is
imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to
encourage the Executive's full attention and dedication to
the Company currently and in the event of any threatened or
pending Change in Control, and to provide the Executive with
compensation and benefits arrangements upon a Change in Control
which ensure that the compensation and benefits expectations of
the Executive will be satisfied and which are competitive with
those of other corporations.
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Term. This Agreement shall be for a three (3) year
period commencing on the date first set forth above and shall be
automatically renewed on the first and on each subsequent annual
anniversary of the above day and month ("Annual Renewal Date")
for a period ending three (3) years from each Annual Renewal Date
unless either party shall give written notice of non-renewal at
least sixty (60) days prior to the Annual Renewal Date.
2. Change in Control. As used in this Agreement, Change in
Control shall mean the occurrence of any of the following:
(a) any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), as enacted and in force on the date
hereof) is or becomes the "beneficial owner" (as that term is
defined in Rule 13d-3 under the Exchange Act, as enacted and in
force on the date hereof) of securities of the Company
representing 24.99% or more of the combined voting power of the
Company's securities then outstanding;
(b) there occurs a merger, consolidation, share
exchange, division or other reorganization involving the Company
and another entity in which Company shareholders do
not continue to hold a majority of the capital stock of the
resulting entity, or a sale, exchange, transfer, or other
disposition of substantially all of the assets of the
Company to another entity or other person; or
-2-
(c) there occurs a contested proxy solicitation or
solicitations of the Company's shareholders which results in
the contesting party or parties obtaining the ability to
elect a majority of the members of the Board of Directors
standing for election at one or more meetings of the
Company's shareholders.
3. Triggering Events. If a Change in Control shall occur
and if thereafter, at any time during the term of this Agreement
there shall be:
(a) any involuntary termination of the Executive by
the Company, other than for Cause as defined in Section 4
below;
(b) any reduction in the Executive's title,
responsibilities, including reporting responsibilities, or
authority, including such title, responsibilities, or authority
as such may be increased from time to time during the term of
this Agreement;
(c) the assignment to the Executive of duties
inconsistent with the Executive's office as such duties existed
on the day immediately prior to the date of a Change in Control;
(d) any reassignment of the Executive to a location
greater than twenty-five (25) miles from Johnstown,
Pennsylvania;
-3-
(e) any reduction in the Executive's annual base
salary in effect on the day immediately prior to the
date of a Change in Control;
(f) any failure to continue the Executive's
participation, on substantially similar terms, in any incentive
compensation or bonus plans of the Company in which the Executive
participated in immediately prior to the Change in Control, or
any change or amendment to any of the substantive provisions of
any of such plans which would materially decrease the potential
benefits to the Executive under any of such plans;
(g) any failure to provide the Executive with benefits
at least as favorable as those enjoyed by the Executive
under any pension, life insurance, medical, health and
accident, disability or other employee plans of the Company
in which the Executive participated in immediately prior to
the time of the Change in Control, or the taking of any
action that would materially reduce any of such benefits in
effect at the time of the Change in Control, unless such
reduction relates to a reduction in benefits applicable to
all employees generally; or
(h) any breach of any provision of this Agreement by
the Company, which breach shall not have been cured by the
Company within thirty (30) days of the Company's receipt
from the Executive or his agent of written notice specifying
in reasonable detail the nature of the Company's breach;
-4-
then Executive, at his sole discretion, may upon no less than
ninety (90) days written notice to the Company, resign from
employment with the Company (or, if involuntarily terminated,
give notice of intention to collect benefits under this
Agreement) by delivering written notice to the Company at any
time during the term of this Agreement.
4. Termination of Executive for Cause. Upon or following a
Change in Control, the Company shall have the right at any time
to terminate the Executive's employment for Cause. In such
event, the Company shall give prompt notice to the Executive,
specifying in reasonable detail the basis for such termination.
For purposes of this Agreement, "Cause" shall mean the following
conduct of the Executive:
(a) Material breach of any provision of this
Agreement, which breach Executive shall have failed to cure
within thirty (30) days after Employee's receipt of written
notice from the Company specifying the specific nature of the
Executive's breach;
(b) Willful misconduct of Executive that is materially
inimical to the best interests, monetary or otherwise, of
the Company;
(c) Conviction of a felony or of any crime involving
moral turpitude, fraud or deceit;
(d) Adjudication as a bankrupt under the United States
Bankruptcy Code.
-5-
5. Compensation and Benefits. Upon the occurrence of an
event set forth in Section 3 hereof and the delivery of a notice
of termination to the Company pursuant to Section 3 hereof, the
Executive shall be absolutely entitled to receive the
compensation and benefits set forth below:
(a) the Executive shall select, in his absolute
discretion, and receive either (i) monthly installments equal to
one thirty-sixth (1/36) of an amount equal to 2.99 times the
following: (x) During the initial three-year term of this
Agreement (the "Initial Term") commencing on the date hereof, the
highest combined base salary and bonus paid or payable to the
Executive in the then current year or in any one of the last five
fiscal years preceding the Executive's delivery of a notice of
termination; or (y) After the expiration of the Initial Term, the
quotient obtained by dividing the sum of the Executive's combined
salary and bonuses in the five years preceding the Executive's
delivery of a notice of termination by five, such monthly
installments shall be payable for a period of three years (the
"Payment Period") commencing on the first day of the first
calendar month after Executive's delivery of notice of
termination, or (ii) a one time lump sum payment equal to the
non-discounted sum of the payments provided for in Section
5(a)(i) immediately above;
-6-
(b) from the date of the notice of termination through
and including the last day of the Payment Period, the
Executive shall be entitled to continue to participate in
the employee retirement plan(s) of the Company and any
supplemental executive retirement plan(s) (including
deferred profit sharing plan) or other plan in effect during the
term of this Agreement designed to supplement payments made under
such employee retirement plan, as the case may be, as if the
Executive's employment had not terminated;
(c) from the date of the notice of termination through
and including the last day of the Payment Period, the
Executive shall be provided with life, disability, and
medical insurance benefits at levels equivalent to the
highest levels in effect for the Executive during any one of
the three (3) calendar years preceding the year in which the
notice of termination is delivered; and
(d) on the date of the notice of termination, all
options held by the Executive to acquire common stock of the
Company, to the extent not immediately exercisable by their
terms, shall become immediately exercisable, and such
options shall be exercisable by the Executive at any time
prior to the earlier of the expiration date(s) of such stock
options or the date which is ninety (90) days after the
Executive's termination of employment with the Company.
(e) as soon as possible upon a Change in Control, but
in no event later than 30 days following a Change in
-7-
Control, the Company shall, in accordance with Section
1.05(b) of the Rabbi Trust Agreement dated June 22, 1994
between the Company and USBANCORP Trust Company, make an
irrevocable contribution to the Trust established pursuant
to such Trust Agreement in an amount that is sufficient to
guarantee payment to the Participant or his beneficiaries
the benefits to which they would be entitled to pursuant to
the terms of any supplemental executive retirement plan(s)
of the Company as in effect on the date on which the Change
in Control occurred.
In the event the Executive is ineligible to continue
participation in the employee retirement plan of the Company
and/or any supplemental executive retirement plan (including
deferred profit sharing plan) or other plan in effect during the
term of this Agreement designed to supplement payments made under
such employee retirement plan or in any of the Company's life,
disability or medical insurance plans or programs, the Company
shall, in lieu of such participation, pay the Executive a dollar
amount equal to the dollar amount of the benefit forfeited by the
Executive as a result of such ineligibility or a dollar amount
equal to the cost to the Executive to obtain such benefits in the
case of any life, disability or medical insurance plans or
programs.
6. Certain Additional Payments by the Company.
Notwithstanding anything in this Agreement to the contrary, in
-8-
the event it is determined that any payment or distribution by
the Company to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise (a "Payment"), is subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), on excess parachute payments,
as that term is used and defined in Sections 4999 and 280G of the
Code, then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount equal to
the then current rate of tax under said Section 4999 multiplied
by the total of the amount so paid or payable, including this
Gross-Up Payment, which are deemed to be a part of an excess
parachute payment. All calculations under this provision shall
be made by the Company whose determinations shall be final.
7. Beneficiary. Should the Executive die after entitlement
but prior to payment in full of amounts due pursuant to Section
5(a)(i) hereof, such monthly payments shall continue (if such
payment option was so elected by Executive) to the Executive's
designated beneficiary or his estate until such entitlement has
been paid in full.
8. Employment at Will. This Agreement contains the entire
understanding of the Company and the Executive with respect to
the subject matter hereof and, subject to the provisions of any
other agreement between the Executive and the Company, the
Executive shall remain an employee at will and nothing herein
-9-
shall confer upon the Executive any right to continued employment
and shall not affect the right of the Company to terminate the
Executive for any reason not prohibited by law; provided,
however, that any such removal shall be without prejudice to any
rights the Executive may have to compensation and benefits as
provided for in Section 5 hereof.
9. Arbitration. Except as otherwise provided herein, in
the event of any controversy, dispute or claim arising out of, or
relating to this Agreement, or the breach thereof, the parties
may seek recourse only for temporary or preliminary injunctive
relief to the courts having jurisdiction thereof. If any relief
other than injunctive relief is sought, the Company and the
Executive agree that such underlying controversy, dispute or
claim shall be settled by arbitration conducted in Pittsburgh,
Pennsylvania in accordance with this Section 9 and the Commercial
Arbitration Rules of the American Arbitration Association
("AAA"). The matter shall be heard and decided, and awards
rendered, by a panel of three (3) arbitrators (the "Arbitration
Panel"). The Company and Executive shall each select one
arbitrator from the AAA National Panel of Commercial Arbitrators
(the "Commercial Panel") and AAA shall select a third arbitrator
from the Commercial Panel. The award rendered by the Arbitration
Panel shall be final and binding as between the parties hereto
and their heirs, executors, administrators, successors and
assigns, and judgment on the award may be entered by any court
having jurisdiction thereof. Each party shall pay their
-10-
professional fees, expenses and costs incurred in connection with
the resolution of any controversy, dispute or claim arising out
of, or relating to this Agreement.
10. Assignment. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the
Company, and the Company shall require any successor to expressly
acknowledge and assume its obligations hereunder. This Agreement
shall inure to the extent provided hereunder to the benefit of
and be enforceable by the Executive or his/her legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. The Executive may not
delegate any of his/her duties, responsibilities, obligations or
positions hereunder to any person and any such purported
delegation by him/her shall be void and of no force and effect.
11. Prior Termination. Anything in this Agreement to the
contrary notwithstanding, if the Executive's employment with
the Company is terminated prior to the date on which a Change in
Control occurs either (a) by the Company other than for Cause or
(b) by the Executive for any one of the reasons set forth in
Section 3 hereof, and it is reasonably demonstrated that such
termination of employment (i) was at the request of a third party
who has taken steps reasonably calculated to effect the Change in
Control or (ii) otherwise arose in connection with or
anticipation of the Change in Control, then for all purposes of
this Agreement the termination shall deemed to have occurred upon
-11-
a Change in Control and the Executive will be entitled to the
compensation and benefits provided for in Section 5 hereof.
12. Release. The Executive hereby acknowledges and agrees
that prior to the occurrence of the Executive's or his
dependent's right to receive from the Company or any of its
representatives or agents any compensation or benefit to be paid
or provided to him or his dependents pursuant to Section 5 of
this Agreement, the Executive may be required by the Company, in
its sole discretion, to execute a release in a form reasonably
acceptable to the Company, which releases any and all claims the
Executive has or may have against the Company or its
subsidiaries, agents, officers, directors, successors or assigns.
13. Compliance with Laws. The parties hereto acknowledge
and agree that this Agreement and each party's enforcement of
their rights hereunder are subject to the Comprehensive Thrift
and Bank Fraud Prosecutions Act of 1990 (12 USC 1828) as enacted
and in force on the date hereof.
14. Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing, and if
personally delivered or when sent by first class certified or
registered mail, postage prepaid, return receipt requested -- in
the case of the Executive, to his residence address as set forth
below, and in the case of the Company, to the address of its
-12-
principal place of business, in care of the Board -- or to such
other person or at such other address with respect to each party
as such party shall notify the other in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
Attest: USBANCORP, Inc.
By:\s\Betty L. Jakell By:\s\Orlando B. Hanselman
Betty L. Jakell Orlando B. Hanselman, Executive
Secretary Vice President
By:\s\Terry K. Dunkle
Terry K. Dunkle
Address: 1508 Donato Court
Johnstown, PA 15905-1528
EXHIBIT 10.3
AGREEMENT
This Agreement (the "Agreement") made the 25th day of
October, 1994, by and between USBANCORP, Inc. (the "Company"), a
Pennsylvania corporation, having its principal place of business
at Main and Franklin Streets, Post Office Box 430, Johnstown,
Pennsylvania 15907-0430, and W. HARRISON VAIL ("Executive").
WHEREAS, the Executive is the President and Chief Executive
Officer of Three Rivers Bank and Trust Company, ("Three Rivers
Bank"), a Pennsylvania bank and trust company, directly owned by
the Company.
WHEREAS, the Board of Directors of the Company (the "Board")
has determined that it is in the best interest of the Company and
its shareholders to ensure that the Company and Three Rivers Bank
will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change
in Control (as defined below) of the Company. The Board believes
it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to
encourage the Executive's full attention and dedication to Three
Rivers Bank currently and in the event of any threatened or
pending Change in Control, and to provide the Executive with
compensation and benefits arrangements upon a Change in Control
which ensure that the compensation and benefits expectations of
the Executive will be satisfied and which are competitive with
those of other corporations.
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Term. This Agreement shall be for a three (3) year
period commencing on the date first set forth above and shall be
automatically renewed on the first and on each subsequent annual
anniversary of the above day and month ("Annual Renewal Date")
for a period ending three (3) years from each Annual Renewal Date
unless either party shall give written notice of non-renewal at
least sixty (60) days prior to the Annual Renewal Date.
2. Change in Control. As used in this Agreement, Change in
Control shall mean the occurrence of any of the following:
(a) any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), as enacted and in force on the date
hereof) is or becomes the "beneficial owner" (as that term is
defined in Rule 13d-3 under the Exchange Act, as enacted and in
force on the date hereof) of securities of the Company
representing 24.99% or more of the combined voting power of the
Company's securities then outstanding;
(b) there occurs a merger, consolidation, share
exchange, division or other reorganization involving the Company
and another entity in which Company shareholders do
not continue to hold a majority of the capital stock of the
resulting entity, or a sale, exchange, transfer, or other
-2-
disposition of substantially all of the assets of the
Company to another entity or other person; or
(c) there occurs a contested proxy solicitation or
solicitations of the Company's shareholders which results in
the contesting party or parties obtaining the ability to
elect a majority of the members of the Board of Directors
standing for election at one or more meetings of the
Company's shareholders.
3. Triggering Events. If a Change in Control shall occur
and if thereafter, at any time during the term of this Agreement
there shall be:
(a) any involuntary termination of the Executive by
Three Rivers Bank, other than for Cause as defined in
Section 4 below;
(b) any reduction in the Executive's title,
responsibilities, including reporting responsibilities, or
authority, including such title, responsibilities, or authority
as such may be increased from time to time during the term of
this Agreement;
(c) the assignment to the Executive of duties
inconsistent with the Executive's office as such duties existed
on the day immediately prior to the date of a Change in Control;
(d) any reduction in the Executive's annual base
salary in effect on the day immediately prior to the date of
a Change in Control;
-3-
(e) any failure to continue the Executive's
participation, on substantially similar terms, in any incentive
compensation or bonus plans of Three Rivers Bank in which the
Executive participated in immediately prior to the Change in
Control, or any change or amendment to any of the substantive
provisions of any of such plans which would materially decrease
the potential benefits to the Executive under any of such plans;
(f) any failure to provide the Executive with benefits
at least as favorable as those enjoyed by the Executive
under any pension, life insurance, medical, health and
accident, disability or other employee plans of Three Rivers
Bank in which the Executive participated in immediately
prior to the time of the Change in Control, or the taking of
any action that would materially reduce any of such benefits
in effect at the time of the Change in Control, unless such
reduction relates to a reduction in benefits applicable to
all employees generally; or
(g) any breach of any provision of this Agreement by
the Company or Three Rivers Bank, which breach shall not
have been cured by the Company or Three Rivers Bank within
thirty (30) days of the Company's receipt from the Executive
or his agent of written notice specifying in reasonable
detail the nature of the Company's or Three Rivers Bank's
breach;
-4-
then Executive, at his sole discretion, may upon no less than
ninety (90) days written notice to Company, resign from
employment with Three Rivers Bank (or, if involuntarily
terminated, give notice of intention to collect benefits under
this Agreement) by delivering written notice to the Company at
any time during the term of this Agreement.
4. Termination of Executive for Cause. Upon or following a
Change in Control, the Company or Three Rivers Bank shall have
the right at any time to terminate the Executive's employment for
Cause. In such event, the Company shall give prompt notice to
the Executive, specifying in reasonable detail the basis for such
termination. For purposes of this Agreement, "Cause" shall mean
the following conduct of the Executive:
(a) Material breach of any provision of this
Agreement, which breach Executive shall have failed to cure
within thirty (30) days after Employee's receipt of written
notice from the Company specifying the specific nature of the
Executive's breach;
(b) Willful misconduct of Executive that is materially
inimical to the best interests, monetary or otherwise, of
the Company or Three Rivers Bank;
(c) Conviction of a felony or of any crime involving
moral turpitude, fraud or deceit;
(d) Adjudication as a bankrupt under the United States
Bankruptcy Code.
-5-
5. Compensation and Benefits. Upon the occurrence of an
event set forth in Section 3 hereof and the delivery of a notice
of termination to the Company pursuant to Section 3 hereof, the
Executive shall be absolutely entitled to receive the
compensation and benefits set forth below:
(a) the Executive shall select, in his absolute
discretion, and receive either (i) monthly installments equal to
one thirty-sixth (1/36) of an amount equal to 2.99 times the
following: (x) During the initial three-year term of this
Agreement (the "Initial Term") commencing on the date hereof, the
highest combined base salary and bonus paid or payable to the
Executive in the then current year or in any one of the last five
fiscal years preceding the Executive's delivery of a notice of
termination; or (y) After the expiration of the Initial Term, the
quotient obtained by dividing the sum of the Executive's combined
salary and bonuses in the five years preceding the Executive's
delivery of a notice of termination by five, such monthly
installments shall be payable for a period of one year (the
"Payment Period") commencing on the first day of the first
calendar month after Executive's delivery of notice of
termination, or (ii) a one time lump sum payment equal to the
non-discounted sum of the twelve (12) monthly payments provided
for in Section 5(a)(i) immediately above;
(b) from the date of the notice of termination through
and including the last day of the Payment Period, the
-6-
Executive shall be entitled to continue to participate in
the employee retirement plan(s) of the Company and any
supplemental executive retirement plan(s) (including
deferred profit sharing plan) or other plan in effect during the
term of this Agreement designed to supplement payments made under
such employee retirement plan, as the case may be, as if the
Executive's employment had not terminated;
(c) from the date of the notice of termination through
and including the last day of the Payment Period, the
Executive shall be provided with life, disability, and
medical insurance benefits at levels equivalent to the
highest levels in effect for the Executive during any one of
the three (3) calendar years preceding the year in which the
notice of termination is delivered; and
(d) on the date of the notice of termination, all
options held by the Executive to acquire common stock of the
Company, to the extent not immediately exercisable by their
terms, shall become immediately exercisable, and such
options shall be exercisable by the Executive at any time
prior to the earlier of the expiration date(s) of such stock
options or the date which is ninety (90) days after the
Executive's termination of employment with the Company.
In the event the Executive is ineligible to continue
participation in the employee retirement plan of Three Rivers
Bank and/or any supplemental executive retirement plan (including
deferred profit sharing plan) or other plan in effect during the
-7-
term of this Agreement designed to supplement payments made under
such employee retirement plan or in any of Three Rivers Bank's
life, disability or medical insurance plans or programs, the
Company shall, in lieu of such participation, pay the Executive a
dollar amount equal to the dollar amount of the benefit forfeited
by the Executive as a result of such ineligibility or a dollar
amount equal to the cost to the Executive to obtain such benefits
in the case of any life, disability or medical insurance plans or
programs.
6. Beneficiary. Should the Executive die after entitlement
but prior to payment in full of amounts due pursuant to Section
5(a)(i) hereof, such monthly payments shall continue (if such
payment option was so elected by Executive) to the Executive's
designated beneficiary or his estate until such entitlement has
been paid in full.
7. Employment at Will. This Agreement contains the entire
understanding of the Company and the Executive with respect to
the subject matter hereof and, subject to the provisions of any
other agreement between the Executive and the Company, the
Executive shall remain an employee at will and nothing herein
shall confer upon the Executive any right to continued employment
and shall not affect the right of Three Rivers Bank to terminate
the Executive for any reason not prohibited by law; provided,
however, that any such removal shall be without prejudice to any
rights the Executive may have to compensation and benefits as
provided for in Section 5 hereof.
-8-
8. Arbitration. Except as otherwise provided herein, in
the event of any controversy, dispute or claim arising out of, or
relating to this Agreement, or the breach thereof, the parties
may seek recourse only for temporary or preliminary injunctive
relief to the courts having jurisdiction thereof. If any relief
other than injunctive relief is sought, the Company and the
Executive agree that such underlying controversy, dispute or
claim shall be settled by arbitration conducted in Pittsburgh,
Pennsylvania in accordance with this Section 8 and the Commercial
Arbitration Rules of the American Arbitration Association
("AAA"). The matter shall be heard and decided, and awards
rendered, by a panel of three (3) arbitrators (the "Arbitration
Panel"). The Company and Executive shall each select one
arbitrator from the AAA National Panel of Commercial Arbitrators
(the "Commercial Panel") and AAA shall select a third arbitrator
from the Commercial Panel. The award rendered by the Arbitration
Panel shall be final and binding as between the parties hereto
and their heirs, executors, administrators, successors and
assigns, and judgment on the award may be entered by any court
having jurisdiction thereof. Each party shall pay their
professional fees, expenses and costs incurred in connection with
the resolution of any controversy, dispute or claim arising out
of, or relating to this Agreement.
9. Assignment. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the
Company, and the Company shall require any successor to expressly
-9-
acknowledge and assume its obligation hereunder. This Agreement
shall be void and no further force and effect upon the Company's
sale of all the voting stock or assets of Three Rivers Bank to an
unrelated third party or to combine with another Company
affiliate, except if it is reasonably demonstrated such sale was
at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or such sale otherwise
arose in connection with or in anticipation of a Change in
Control. This Agreement shall inure to the extent provided
hereunder to the benefit of and be enforceable by the Executive
or his/her legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. The
Executive may not delegate any of his/her duties,
responsibilities, obligations or positions hereunder to any
person and any such purported delegation by him/her shall be void
and of no force and effect.
10. Prior Termination. Anything in this Agreement to the
contrary notwithstanding, if the Executive's employment with
Three Rivers Bank is terminated prior to the date on which a
Change in Control occurs either (a) by the Company or Three
Rivers Bank other than for Cause or (b) by the Executive for any
one of the reasons set forth in Section 3 hereof, and it is
reasonably demonstrated that such termination of employment (i)
was at the request of a third party who has taken steps
reasonably calculated to effect the Change in Control or (ii)
otherwise arose in connection with or anticipation of the Change
-10-
in Control, then for all purposes of this Agreement the
termination shall deemed to have occurred upon a Change in
Control and the Executive will be entitled to the
compensation and benefits provided for in Section 5 hereof.
11. Release. The Executive hereby acknowledges and agrees
that prior to the occurrence of the Executive's or his
dependent's right to receive from the Company or any of its
representatives or agents any compensation or benefit to be paid
or provided to him or his dependents pursuant to Section 5 of
this Agreement, the Executive may be required by the Company, in
its sole discretion, to execute a release in a form reasonably
acceptable to the Company, which releases any and all claims the
Executive has or may have against the Company or its
subsidiaries, agents, officers, directors, successors or assigns.
12. Compliance with Laws. The parties hereto acknowledge
and agree that this Agreement and each party's enforcement of
their rights hereunder are subject to the Comprehensive Thrift
and Bank Fraud Prosecutions Act of 1990 (12 USC 1828) as enacted
and in force on the date hereof.
13. Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing, and if
personally delivered or when sent by first class certified or
registered mail, postage prepaid, return receipt requested -- in
the case of the Executive, to his residence address as set forth
below, and in the case of the Company, to the address of its
-11-
principal place of business, in care of the Board -- or to such
other person or at such other address with respect to each party
as such party shall notify the other in writing.
This Agreement supersedes the Agreement between Executive
and Three Rivers Bank dated June 23, 1988.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
Attest: USBANCORP, Inc.
By:\s\Betty L. Jakell By:\s\Terry K. Dunkle
Betty L. Jakell Terry K. Dunkle
Secretary Chairman, President & CEO
By:\s\W. Harrison Vail
W. Harrison Vail
Address: 237 Meadowfield Lane
Clairton, PA
15025-3021
EXHIBIT 10.4
AGREEMENT
This Agreement (the "Agreement") made the 25th day of
October, 1994, by and between USBANCORP, Inc. (the "Company"), a
Pennsylvania corporation, having its principal place of business
at Main and Franklin Streets, Post Office Box 430, Johnstown,
Pennsylvania 15907-0430, and LOUIS CYNKAR ("Executive").
WHEREAS, the Executive is the President and Chief Executive
Officer of United States National Bank in Johnstown,
("U. S. Bank"), a national banking association, directly owned by
the Company.
WHEREAS, the Board of Directors of the Company (the "Board")
has determined that it is in the best interest of the Company and
its shareholders to ensure that the Company and U. S. Bank will
have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change in Control (as
defined below) of the Company. The Board believes it is
imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to
encourage the Executive's full attention and dedication to
U. S. Bank currently and in the event of any threatened or
pending Change in Control, and to provide the Executive with
compensation and benefits arrangements upon a Change in Control
which ensure that the compensation and benefits expectations of
the Executive will be satisfied and which are competitive with
those of other corporations.
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Term. This Agreement shall be for a three (3) year
period commencing on the date first set forth above and shall be
automatically renewed on the first and on each subsequent annual
anniversary of the above day and month ("Annual Renewal Date")
for a period ending three (3) years from each Annual Renewal Date
unless either party shall give written notice of non-renewal at
least sixty (60) days prior to the Annual Renewal Date.
2. Change in Control. As used in this Agreement, Change in
Control shall mean the occurrence of any of the following:
(a) any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), as enacted and
in force on the date hereof) is or becomes the
"beneficial owner" (as that term is defined in Rule 13d-3
under the Exchange Act, as enacted and in force on the
date hereof) of securities of the Company representing 24.99%
or more of the combined voting power of the Company's
securities then outstanding;
(b) there occurs a merger, consolidation, share
exchange, division or other reorganization involving
the Company and another entity in which Company
shareholders do not continue to hold a majority of the
capital stock of the resulting entity, or a sale,
exchange, transfer, or other
-2-
disposition of substantially all of the assets of the
Company to another entity or other person; or
(c) there occurs a contested proxy solicitation or
solicitations of the Company's shareholders which
results in the contesting party or parties obtaining the
ability to elect a majority of the members of the Board of
Directors standing for election at one or more meetings of
the Company's shareholders.
3. Triggering Events. If a Change in Control shall occur
and if thereafter, at any time during the term of this Agreement
there shall be:
(a) any involuntary termination of the Executive by
U. S. Bank, other than for Cause as defined in Section 4
below;
(b) any reduction in the Executive's title,
responsibilities, including reporting responsibilities, or
authority, including such title, responsibilities, or authority
as such may be increased from time to time during the term
of this Agreement;
(c) the assignment to the Executive of duties
inconsistent with the Executive's office as such duties
existed on the day immediately prior to the date of a Change
in Control;
(d) any reduction in the Executive's annual base
salary in effect on the day immediately prior to the date of
a Change in Control;
-3-
(e) any failure to continue the Executive's
participation, on substantially similar terms, in any incentive
compensation or bonus plans of U. S. Bank in which the
Executive participated in immediately prior to the Change in
Control, or any change or amendment to any of the
substantive provisions of any of such plans which would
materially decrease the potential benefits to the Executive
under any of such plans;
(f) any failure to provide the Executive with benefits
at least as favorable as those enjoyed by the Executive
under any pension, life insurance, medical, health and
accident, disability or other employee plans of U. S. Bank
in which the Executive participated in immediately prior to
the time of the Change in Control, or the taking of any
action that would materially reduce any of such benefits in
effect at the time of the Change in Control, unless such
reduction relates to a reduction in benefits applicable to
all employees generally; or
(g) any breach of any provision of this Agreement by
the Company or U. S. Bank, which breach shall not have been
cured by the Company or U. S. Bank within thirty (30) days
of the Company's receipt from the Executive or his agent of
written notice specifying in reasonable detail the nature of
the Company's or U. S. Bank's breach;
-4-
then Executive, at his sole discretion, may upon no less
than ninety (90) days written notice to Company, resign from
employment with U. S. Bank (or, if involuntarily terminated,
give notice of intention to collect benefits under this
Agreement) by delivering written notice to the Company at
any time during the term of this Agreement.
4. Termination of Executive for Cause. Upon or following a
Change in Control, the Company or U. S. Bank shall have the right
at any time to terminate the Executive's employment for Cause.
In such event, the Company shall give prompt notice to the
Executive, specifying in reasonable detail the basis for such
termination. For purposes of this Agreement, "Cause" shall mean
the following conduct of the Executive:
(a) Material breach of any provision of this
Agreement, which breach Executive shall have failed to cure
within thirty (30) days after Employee's receipt of written
notice from the Company specifying the specific nature of
the Executive's breach;
(b) Willful misconduct of Executive that is materially
inimical to the best interests, monetary or otherwise, of
the Company or U. S. Bank;
(c) Conviction of a felony or of any crime involving
moral turpitude, fraud or deceit;
(d) Adjudication as a bankrupt under the United States
Bankruptcy Code.
-5-
5. Compensation and Benefits. Upon the occurrence of an
event set forth in Section 3 hereof and the delivery of a notice
of termination to the Company pursuant to Section 3 hereof, the
Executive shall be absolutely entitled to receive the
compensation and benefits set forth below:
(a) the Executive shall select, in his absolute
discretion, and receive either (i) monthly installments equal
to one thirty-sixth (1/36) of an amount equal to 2.99 times the
following: (x) During the initial three-year term of this
Agreement (the "Initial Term") commencing on the date hereof,
the highest combined base salary and bonus paid or payable to
the Executive in the then current year or in any one of the
last five fiscal years preceding the Executive's delivery of a
notice of termination; or (y) After the expiration of the
Initial Term, the quotient obtained by dividing the sum of the
Executive's combined salary and bonuses in the five years
preceding the Executive's delivery of a notice of termination by
five, such monthly installments shall be payable for a period
of one year (the "Payment Period") commencing on the first day
of the first calendar month after Executive's delivery of
notice of termination, or (ii) a one time lump sum payment
equal to the non-discounted sum of the twelve (12) monthly
payments provided for in Section 5(a)(i) immediately above;
(b) from the date of the notice of termination through
and including the last day of the Payment Period, the
-6-
Executive shall be entitled to continue to participate in
the employee retirement plan(s) of the Company and any
supplemental executive retirement plan(s) (including
deferred profit sharing plan) or other plan in effect during
the term of this Agreement designed to supplement payments
made under such employee retirement plan, as the case may
be, as if the Executive's employment had not terminated;
(c) from the date of the notice of termination through
and including the last day of the Payment Period, the
Executive shall be provided with life, disability, and
medical insurance benefits at levels equivalent to the
highest levels in effect for the Executive during any one of
the three (3) calendar years preceding the year in which the
notice of termination is delivered; and
(d) on the date of the notice of termination, all
options held by the Executive to acquire common stock of the
Company, to the extent not immediately exercisable by their
terms, shall become immediately exercisable, and such
options shall be exercisable by the Executive at any time
prior to the earlier of the expiration date(s) of such stock
options or the date which is ninety (90) days after the
Executive's termination of employment with the Company.
In the event the Executive is ineligible to continue
participation in the employee retirement plan of U. S. Bank
and/or any supplemental executive retirement plan (including
deferred profit sharing plan) or other plan in effect during
the -7-
term of this Agreement designed to supplement payments made
under such employee retirement plan or in any of U. S.
Bank's life, disability or medical insurance plans or
programs, the Company shall, in lieu of such participation,
pay the Executive a dollar amount equal to the dollar amount
of the benefit forfeited by the Executive as a result of
such ineligibility or a dollar amount equal to the cost to
the Executive to obtain such benefits in the case of any
life, disability or medical insurance plans or programs.
6. Beneficiary. Should the Executive die after entitlement
but prior to payment in full of amounts due pursuant to Section
5(a)(i) hereof, such monthly payments shall continue (if such
payment option was so elected by Executive) to the Executive's
designated beneficiary or his estate until such entitlement has
been paid in full.
7. Employment at Will. This Agreement contains the entire
understanding of the Company and the Executive with respect to
the subject matter hereof and, subject to the provisions of any
other agreement between the Executive and the Company, the
Executive shall remain an employee at will and nothing herein
shall confer upon the Executive any right to continued employment
and shall not affect the right of U. S. Bank to terminate the
Executive for any reason not prohibited by law; provided,
however, that any such removal shall be without prejudice to any
rights the Executive may have to compensation and benefits as
provided for in Section 5 hereof.
-8-
8. Arbitration. Except as otherwise provided herein, in
the event of any controversy, dispute or claim arising out of, or
relating to this Agreement, or the breach thereof, the parties
may seek recourse only for temporary or preliminary injunctive
relief to the courts having jurisdiction thereof. If any relief
other than injunctive relief is sought, the Company and the
Executive agree that such underlying controversy, dispute or
claim shall be settled by arbitration conducted in Pittsburgh,
Pennsylvania in accordance with this Section 8 and the Commercial
Arbitration Rules of the American Arbitration Association
("AAA"). The matter shall be heard and decided, and awards
rendered, by a panel of three (3) arbitrators (the "Arbitration
Panel"). The Company and Executive shall each select one
arbitrator from the AAA National Panel of Commercial Arbitrators
(the "Commercial Panel") and AAA shall select a third arbitrator
from the Commercial Panel. The award rendered by the Arbitration
Panel shall be final and binding as between the parties hereto
and their heirs, executors, administrators, successors and
assigns, and judgment on the award may be entered by any court
having jurisdiction thereof. Each party shall pay their
professional fees, expenses and costs incurred in connection with
the resolution of any controversy, dispute or claim arising out
of, or relating to this Agreement.
9. Assignment. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the
Company, and the Company shall require any successor to expressly
-9-
acknowledge and assume its obligation hereunder. This Agreement
shall be void and no further force and effect upon the Company's
sale of all the voting stock or assets of U. S. Bank to an
unrelated third party or to combine with another Company
affiliate, except if it is reasonably demonstrated such sale was
at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or such sale otherwise
arose in connection with or in anticipation of a Change in
Control. This Agreement shall inure to the extent provided
hereunder to the benefit of and be enforceable by the Executive
or his/her legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. The
Executive may not delegate any of his/her duties,
responsibilities, obligations or positions hereunder to any
person and any such purported delegation by him/her shall be void
and of no force and effect.
10. Prior Termination. Anything in this Agreement to the
contrary notwithstanding, if the Executive's employment with
U. S. Bank is terminated prior to the date on which a Change in
Control occurs either (a) by the Company or U. S. Bank other than
for Cause or (b) by the Executive for any one of the reasons set
forth in Section 3 hereof, and it is reasonably demonstrated that
such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect the
Change in Control or (ii) otherwise arose in connection with or
-10-
anticipation of the Change in Control, then for all purposes of
this Agreement the termination shall deemed to have occurred upon
a Change in Control and the Executive will be entitled to the
compensation and benefits provided for in Section 5 hereof.
11. Release. The Executive hereby acknowledges and agrees
that prior to the occurrence of the Executive's or his
dependent's right to receive from the Company or any of its
representatives or agents any compensation or benefit to be paid
or provided to him or his dependents pursuant to Section 5 of
this Agreement, the Executive may be required by the Company, in
its sole discretion, to execute a release in a form reasonably
acceptable to the Company, which releases any and all claims the
Executive has or may have against the Company or its
subsidiaries, agents, officers, directors, successors or assigns.
12. Compliance with Laws. The parties hereto acknowledge
and agree that this Agreement and each party's enforcement of
their rights hereunder are subject to the Comprehensive Thrift
and Bank Fraud Prosecutions Act of 1990 (12 USC 1828) as enacted
and in force on the date hereof.
13. Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing, and if
personally delivered or when sent by first class certified or
registered mail, postage prepaid, return receipt requested -- in
the case of the Executive, to his residence address as set forth
below, and in the case of the Company, to the address of its
-11-
principal place of business, in care of the Board -- or to such
other person or at such other address with respect to each party
as such party shall notify the other in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
Attest: USBANCORP, Inc.
\s\Betty L. Jakell By:\s\Terry K. Dunkle
Secretary Terry K. Dunkle
Chairman, President & CEO
\s\Louis Cynkar
Louis Cynkar
Address: 141 Peggy Lane
Johnstown, PA
15904-1242
EXHIBIT 10.5
AGREEMENT
This Agreement (the "Agreement") made the 25th day of
October, 1994, by and between USBANCORP, Inc. (the "Company"), a
Pennsylvania corporation, having its principal place of business
at Main and Franklin Streets, Post Office Box 430, Johnstown,
Pennsylvania 15907-0430, and DENNIS J. FANTASKI
("Executive").
WHEREAS, the Executive is the President and Chief Executive
Officer of Community Savings Bank, ("Community"), a Pennsylvania-
chartered savings bank, indirectly owned by the Company.
WHEREAS, the Board of Directors of the Company (the "Board")
has determined that it is in the best interest of the Company and
its shareholders to ensure that the Company and Community will
have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change in Control (as
defined below) of the Company. The Board believes it is
imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to
encourage the Executive's full attention and dedication to
Community currently and in the event of any threatened or pending
Change in Control, and to provide the Executive with compensation
and benefits arrangements upon a Change in Control which ensure
that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other
corporations.
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Term. This Agreement shall be for a three (3) year
period commencing on the date first set forth above and shall be
automatically renewed on the first and on each subsequent annual
anniversary of the above day and month ("Annual Renewal Date")
for a period ending three (3) years from each Annual Renewal Date
unless either party shall give written notice of non-renewal at
least sixty (60) days prior to the Annual Renewal Date.
2. Change in Control. As used in this Agreement, Change in
Control shall mean the occurrence of any of the following:
(a) any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), as enacted and in force on the date
hereof) is or becomes the "beneficial owner" (as that term is
defined in Rule 13d-3 under the Exchange Act, as enacted and in
force on the date hereof) of securities of the Company
representing 24.99% or more of the combined voting power of the
Company's securities then outstanding;
(b) there occurs a merger, consolidation, share
exchange, division or other reorganization involving the Company
and another entity in which Company shareholders do
not continue to hold a majority of the capital stock of the
resulting entity, or a sale, exchange, transfer, or other
-2-
disposition of substantially all of the assets of the
Company to another entity or other person; or
(c) there occurs a contested proxy solicitation or
solicitations of the Company's shareholders which results in
the contesting party or parties obtaining the ability to
elect a majority of the members of the Board of Directors
standing for election at one or more meetings of the
Company's shareholders.
3. Triggering Events. If a Change in Control shall occur
and if thereafter, at any time during the term of this Agreement
there shall be:
(a) any involuntary termination of the Executive by
Community, other than for Cause as defined in Section 4
below;
(b) any reduction in the Executive's title,
responsibilities, including reporting responsibilities, or
authority, including such title, responsibilities, or authority
as such may be increased from time to time during the term of
this Agreement;
(c) the assignment to the Executive of duties
inconsistent with the Executive's office as such duties existed
on the day immediately prior to the date of a Change in Control;
(d) any reduction in the Executive's annual base
salary in effect on the day immediately prior to the date of
a Change in Control;
-3-
(e) any failure to continue the Executive's
participation, on substantially similar terms, in any incentive
compensation or bonus plans of Community in which the Executive
participated in immediately prior to the Change in Control, or
any change or amendment to any of the substantive provisions of
any of such plans which would materially decrease the potential
benefits to the Executive under any of such plans;
(f) any failure to provide the Executive with benefits
at least as favorable as those enjoyed by the Executive
under any pension, life insurance, medical, health and
accident, disability or other employee plans of Community in
which the Executive participated in immediately prior to the
time of the Change in Control, or the taking of any action
that would materially reduce any of such benefits in effect
at the time of the Change in Control, unless such reduction
relates to a reduction in benefits applicable to all
employees generally; or
(g) any breach of any provision of this Agreement by
the Company or Community, which breach shall not have been
cured by the Company or Community within thirty (30) days of
the Company's receipt from the Executive or his agent of
written notice specifying in reasonable detail the nature of
the Company's or Community's breach;
-4-
then Executive, at his sole discretion, may upon no less than
ninety (90) days written notice to Company, resign from
employment with Community (or, if involuntarily terminated, give
notice of intention to collect benefits under this Agreement) by
delivering written notice to the Company at any time during the
term of this Agreement.
4. Termination of Executive for Cause. Upon or following a
Change in Control, the Company or Community shall have the right
at any time to terminate the Executive's employment for Cause.
In such event, the Company shall give prompt notice to the
Executive, specifying in reasonable detail the basis for such
termination. For purposes of this Agreement, "Cause" shall mean
the following conduct of the Executive:
(a) Material breach of any provision of this
Agreement, which breach Executive shall have failed to cure
within thirty (30) days after Employee's receipt of written
notice from the Company specifying the specific nature of the
Executive's breach;
(b) Willful misconduct of Executive that is materially
inimical to the best interests, monetary or otherwise, of
the Company or Community;
(c) Conviction of a felony or of any crime involving
moral turpitude, fraud or deceit;
(d) Adjudication as a bankrupt under the United States
Bankruptcy Code.
-5-
5. Compensation and Benefits. Upon the occurrence of an
event set forth in Section 3 hereof and the delivery of a notice
of termination to the Company pursuant to Section 3 hereof, the
Executive shall be absolutely entitled to receive the
compensation and benefits set forth below:
(a) the Executive shall select, in his absolute
discretion, and receive either (i) monthly installments equal to
one thirty-sixth (1/36) of an amount equal to 2.99 times the
following: (x) During the initial three-year term of this
Agreement (the "Initial Term") commencing on the date hereof, the
highest combined base salary and bonus paid or payable to the
Executive in the then current year or in any one of the last five
fiscal years preceding the Executive's delivery of a notice of
termination; or (y) After the expiration of the Initial Term, the
quotient obtained by dividing the sum of the Executive's combined
salary and bonuses in the five years preceding the Executive's
delivery of a notice of termination by five, such monthly
installments shall be payable for a period of one year (the
"Payment Period") commencing on the first day of the first
calendar month after Executive's delivery of notice of
termination, or (ii) a one time lump sum payment equal to the
non-discounted sum of the twelve (12) monthly payments provided
for in Section 5(a)(i) immediately above;
(b) from the date of the notice of termination through
and including the last day of the Payment Period, the
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Executive shall be entitled to continue to participate in
the employee retirement plan(s) of the Company and any
supplemental executive retirement plan(s) (including
deferred profit sharing plan) or other plan in effect during the
term of this Agreement designed to supplement payments made under
such employee retirement plan, as the case may be, as if the
Executive's employment had not terminated;
(c) from the date of the notice of termination through
and including the last day of the Payment Period, the
Executive shall be provided with life, disability, and
medical insurance benefits at levels equivalent to the
highest levels in effect for the Executive during any one of
the three (3) calendar years preceding the year in which the
notice of termination is delivered; and
(d) on the date of the notice of termination, all
options held by the Executive to acquire common stock of the
Company, to the extent not immediately exercisable by their
terms, shall become immediately exercisable, and such
options shall be exercisable by the Executive at any time
prior to the earlier of the expiration date(s) of such stock
options or the date which is ninety (90) days after the
Executive's termination of employment with the Company.
In the event the Executive is ineligible to continue
participation in the employee retirement plan of Community and/or
any supplemental executive retirement plan (including deferred
profit sharing plan) or other plan in effect during the
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term of this Agreement designed to supplement payments made under
such employee retirement plan or in any of Community's
life, disability or medical insurance plans or programs, the
Company shall, in lieu of such participation, pay the Executive a
dollar amount equal to the dollar amount of the benefit forfeited
by the Executive as a result of such ineligibility or a dollar
amount equal to the cost to the Executive to obtain such benefits
in the case of any life, disability or medical insurance plans or
programs.
6. Beneficiary. Should the Executive die after entitlement
but prior to payment in full of amounts due pursuant to Section
5(a)(i) hereof, such monthly payments shall continue (if such
payment option was so elected by Executive) to the Executive's
designated beneficiary or his estate until such entitlement has
been paid in full.
7. Employment at Will. This Agreement contains the entire
understanding of the Company and the Executive with respect to
the subject matter hereof and, subject to the provisions of any
other agreement between the Executive and the Company, the
Executive shall remain an employee at will and nothing herein
shall confer upon the Executive any right to continued employment
and shall not affect the right of Community to terminate the
Executive for any reason not prohibited by law; provided,
however, that any such removal shall be without prejudice to any
rights the Executive may have to compensation and benefits as
provided for in Section 5 hereof.
-8-
8. Arbitration. Except as otherwise provided herein, in
the event of any controversy, dispute or claim arising out of, or
relating to this Agreement, or the breach thereof, the parties
may seek recourse only for temporary or preliminary injunctive
relief to the courts having jurisdiction thereof. If any relief
other than injunctive relief is sought, the Company and the
Executive agree that such underlying controversy, dispute or
claim shall be settled by arbitration conducted in Pittsburgh,
Pennsylvania in accordance with this Section 8 and the Commercial
Arbitration Rules of the American Arbitration Association
("AAA"). The matter shall be heard and decided, and awards
rendered, by a panel of three (3) arbitrators (the "Arbitration
Panel"). The Company and Executive shall each select one
arbitrator from the AAA National Panel of Commercial Arbitrators
(the "Commercial Panel") and AAA shall select a third arbitrator
from the Commercial Panel. The award rendered by the Arbitration
Panel shall be final and binding as between the parties hereto
and their heirs, executors, administrators, successors and
assigns, and judgment on the award may be entered by any court
having jurisdiction thereof. Each party shall pay their
professional fees, expenses and costs incurred in connection with
the resolution of any controversy, dispute or claim arising out
of, or relating to this Agreement.
9. Assignment. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the
Company, and the Company shall require any successor to expressly
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acknowledge and assume its obligation hereunder. This Agreement
shall be void and no further force and effect upon the Company's
sale of all the voting stock or assets of Community to an
unrelated third party or to combine with another Company
affiliate, except if it is reasonably demonstrated such sale was
at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or such sale otherwise
arose in connection with or in anticipation of a Change in
Control. This Agreement shall inure to the extent provided
hereunder to the benefit of and be enforceable by the Executive
or his/her legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. The
Executive may not delegate any of his/her duties,
responsibilities, obligations or positions hereunder to any
person and any such purported delegation by him/her shall be void
and of no force and effect.
10. Prior Termination. Anything in this Agreement to the
contrary notwithstanding, if the Executive's employment with
Community is terminated prior to the date on which a Change in
Control occurs either (a) by the Company or Community other than
for Cause or (b) by the Executive for any one of the reasons set
forth in Section 3 hereof, and it is reasonably demonstrated that
such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect the
Change in Control or (ii) otherwise arose in connection with or
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anticipation of the Change in Control, then for all purposes of
this Agreement the termination shall deemed to have occurred upon
a Change in Control and the Executive will be entitled to the
compensation and benefits provided for in Section 5 hereof.
11. Release. The Executive hereby acknowledges and agrees
that prior to the occurrence of the Executive's or his
dependent's right to receive from the Company or any of its
representatives or agents any compensation or benefit to be paid
or provided to him or his dependents pursuant to Section 5 of
this Agreement, the Executive may be required by the Company, in
its sole discretion, to execute a release in a form reasonably
acceptable to the Company, which releases any and all claims the
Executive has or may have against the Company or its
subsidiaries, agents, officers, directors, successors or assigns.
12. Compliance with Laws. The parties hereto acknowledge
and agree that this Agreement and each party's enforcement of
their rights hereunder are subject to the Comprehensive Thrift
and Bank Fraud Prosecutions Act of 1990 (12 USC 1828) as enacted
and in force on the date hereof.
13. Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing, and if
personally delivered or when sent by first class certified or
registered mail, postage prepaid, return receipt requested -- in
the case of the Executive, to his residence address as set forth
below, and in the case of the Company, to the address of its
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principal place of business, in care of the Board -- or to such
other person or at such other address with respect to each party
as such party shall notify the other in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
Attest: USBANCORP, Inc.
By:\s\Betty L. Jakell By:\s\Terry K. Dunkle
Betty L. Jakell Terry K. Dunkle
Secretary Chairman, President & CEO
BY:\s\Dennis J. Fantaski
Dennis J. Fantaski
Address: 304 Red Oak Court
Monroeville, PA
15146-3100
EXHIBIT 10.8
AGREEMENT
This Agreement (the "Agreement") made the 25th day of
October, 1994, by and between USBANCORP, Inc. (the "Company"), a
Pennsylvania corporation, having its principal place of business
at Main and Franklin Streets, Post Office Box 430, Johnstown,
Pennsylvania 15907-0430, and ORLANDO B. HANSELMAN ("Executive").
WHEREAS, the Executive is the Executive Vice President,
Chief Financial Officer and Manager of Corporate Services of the
Company.
WHEREAS, the Board of Directors of the Company (the "Board")
has determined that it is in the best interest of the Company and
its shareholders to ensure that the Company will have the
continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change in Control (as
defined below) of the Company. The Board believes it is
imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to
encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending
Change in Control, and to provide the Executive with compensation
and benefits arrangements upon a Change in Control which ensure
that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other
corporations.
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Term. This Agreement shall be for a three (3) year
period commencing on the date first set forth above and shall be
automatically renewed on the first and on each subsequent annual
anniversary of the above day and month ("Annual Renewal Date")
for a period ending three (3) years from each Annual Renewal Date
unless either party shall give written notice of non-renewal at
least sixty (60) days prior to the Annual Renewal Date.
2. Change in Control. As used in this Agreement, Change in
Control shall mean the occurrence of any of the following:
(a) any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), as enacted and in force on the date
hereof) is or becomes the "beneficial owner" (as that term is
defined in Rule 13d-3 under the Exchange Act, as enacted and in
force on the date hereof) of securities of the Company
representing 24.99% or more of the combined voting power of the
Company's securities then outstanding;
(b) there occurs a merger, consolidation, share
exchange, division or other reorganization involving the Company
and another entity in which Company shareholders do not continue
to hold a majority of the capital stock of the resulting entity,
or a sale, exchange, transfer, or other
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disposition of substantially all of the assets of the
Company to another entity or other person; or
(c) there occurs a contested proxy solicitation or
solicitations of the Company's shareholders which results in
the contesting party or parties obtaining the ability to
elect a majority of the members of the Board of Directors
standing for election at one or more meetings of the
Company's shareholders.
3. Triggering Events. If a Change in Control shall occur
and if thereafter, at any time during the term of this Agreement
there shall be:
(a) any involuntary termination of the Executive by
the Company, other than for Cause as defined in Section 4
below;
(b) any reduction in the Executive's title,
responsibilities, including reporting responsibilities, or
authority, including such title, responsibilities, or authority
as such may be increased from time to time during the term of
this Agreement;
(c) the assignment to the Executive of duties
inconsistent with the Executive's office as such duties existed
on the day immediately prior to the date of a Change in Control;
(d) any reduction in the Executive's annual base
salary in effect on the day immediately prior to the date of
a Change in Control;
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(e) any failure to continue the Executive's
participation, on substantially similar terms, in any incentive
compensation or bonus plans of the Company in which the Executive
participated in immediately prior to the Change in Control, or
any change or amendment to any of the substantive provisions of
any of such plans which would materially decrease the potential
benefits to the Executive under any of such plans;
(f) any failure to provide the Executive with benefits
at least as favorable as those enjoyed by the Executive
under any pension, life insurance, medical, health and
accident, disability or other employee plans of the Company
in which the Executive participated in immediately prior to
the time of the Change in Control, or the taking of any
action that would materially reduce any of such benefits in
effect at the time of the Change in Control, unless such
reduction relates to a reduction in benefits applicable to
all employees generally; or
(g) any breach of any provision of this Agreement by
the Company, which breach shall not have been cured by the
Company within thirty (30) days of the Company's receipt
from the Executive or his agent of written notice specifying
in reasonable detail the nature of the Company's breach;
then Executive, at his sole discretion, may upon no less than
ninety (90) days written notice to Company, resign from
employment with the Company (or, if involuntarily
-4-
terminated, give notice of intention to collect benefits under
this Agreement) by delivering written notice to the Company at
any time during the term of this Agreement.
4. Termination of Executive for Cause. Upon or following a
Change in Control, the Company shall have the right at any time
to terminate the Executive's employment for Cause. In such
event, the Company shall give prompt notice to the Executive,
specifying in reasonable detail the basis for such termination.
For purposes of this Agreement, "Cause" shall mean the following
conduct of the Executive:
(a) Material breach of any provision of this
Agreement, which breach Executive shall have failed to cure
within thirty (30) days after Employee's receipt of written
notice from the Company specifying the specific nature of the
Executive's breach;
(b) Willful misconduct of Executive that is materially
inimical to the best interests, monetary or otherwise, of
the Company;
(c) Conviction of a felony or of any crime involving
moral turpitude, fraud or deceit;
(d) Adjudication as a bankrupt under the United States
Bankruptcy Code.
5. Compensation and Benefits. Upon the occurrence of an
event set forth in Section 3 hereof and the delivery of a notice
of termination to the Company pursuant to Section 3 hereof, the
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Executive shall be absolutely entitled to receive the
compensation and benefits set forth below:
(a) the Executive shall select, in his absolute
discretion, and receive either (i) monthly installments equal to
one thirty-sixth (1/36) of an amount equal to 2.99 times the
following: (x) During the initial three-year term of this
Agreement (the "Initial Term") commencing on the date hereof, the
highest combined base salary and bonus paid or payable to the
Executive in the then current year or in any one of the last five
fiscal years preceding the Executive's delivery of a notice of
termination; or (y) After the expiration of the Initial Term, the
quotient obtained by dividing the sum of the Executive's combined
salary and bonuses in the five years preceding the Executive's
delivery of a notice of termination by five, such monthly
installments shall be payable for a period of one and one half (1
1/2) years (the "Payment Period") commencing on the first day of
the first calendar month after Executive's delivery of notice of
termination, or (ii) a one time lump sum payment equal to the
non-discounted sum of the eighteen (18) monthly payments provided
for in Section 5(a)(i) immediately above;
(b) from the date of the notice of termination through
and including the last day of the Payment Period, the
Executive shall be entitled to continue to participate in
the employee retirement plan(s) of the Company and any
-6-
supplemental executive retirement plan(s) (including
deferred profit sharing plan) or other plan in effect during
the term of this Agreement designed to supplement payments
made under such employee retirement plan, as the case may
be, as if the Executive's employment had not terminated;
(c) from the date of the notice of termination through
and including the last day of the Payment Period, the
Executive shall be provided with life, disability, and
medical insurance benefits at levels equivalent to the
highest levels in effect for the Executive during any one of
the three (3) calendar years preceding the year in which the
notice of termination is delivered; and
(d) on the date of the notice of termination, all
options held by the Executive to acquire common stock of the
Company, to the extent not immediately exercisable by their
terms, shall become immediately exercisable, and such
options shall be exercisable by the Executive at any time
prior to the earlier of the expiration date(s) of such stock
options or the date which is ninety (90) days after the
Executive's termination of employment with the Company.
In the event the Executive is ineligible to continue
participation in the employee retirement plan of the Company
and/or any supplemental executive retirement plan (including
deferred profit sharing plan) or other plan in effect during the
term of this Agreement designed to supplement payments made under
such employee retirement plan or in any of the Company's
-7-
life, disability or medical insurance plans or programs, the
Company shall, in lieu of such participation, pay the Executive a
dollar amount equal to the dollar amount of the benefit forfeited
by the Executive as a result of such ineligibility or a dollar
amount equal to the cost to the Executive to obtain such benefits
in the case of any life, disability or medical insurance plans or
programs.
6. Beneficiary. Should the Executive die after entitlement
but prior to payment in full of amounts due pursuant to Section
5(a)(i) hereof, such monthly payments shall continue (if such
payment option was so elected by Executive) to the Executive's
designated beneficiary or his estate until such entitlement has
been paid in full.
7. Employment at Will. This Agreement contains the entire
understanding of the Company and the Executive with respect to
the subject matter hereof and, subject to the provisions of any
other agreement between the Executive and the Company, the
Executive shall remain an employee at will and nothing herein
shall confer upon the Executive any right to continued employment
and shall not affect the right of the Company to terminate the
Executive for any reason not prohibited by law; provided,
however, that any such removal shall be without prejudice to any
rights the Executive may have to compensation and benefits as
provided for in Section 5 hereof.
-8-
8. Arbitration. Except as otherwise provided herein, in
the event of any controversy, dispute or claim arising out of, or
relating to this Agreement, or the breach thereof, the parties
may seek recourse only for temporary or preliminary injunctive
relief to the courts having jurisdiction thereof. If any relief
other than injunctive relief is sought, the Company and the
Executive agree that such underlying controversy, dispute or
claim shall be settled by arbitration conducted in Pittsburgh,
Pennsylvania in accordance with this Section 8 and the Commercial
Arbitration Rules of the American Arbitration Association
("AAA"). The matter shall be heard and decided, and awards
rendered, by a panel of three (3) arbitrators (the "Arbitration
Panel"). The Company and Executive shall each select one
arbitrator from the AAA National Panel of Commercial Arbitrators
(the "Commercial Panel") and AAA shall select a third arbitrator
from the Commercial Panel. The award rendered by the Arbitration
Panel shall be final and binding as between the parties hereto
and their heirs, executors, administrators, successors and
assigns, and judgment on the award may be entered by any court
having jurisdiction thereof. Each party shall pay their
professional fees, expenses and costs incurred in connection with
the resolution of any controversy, dispute or claim arising out
of, or relating to this Agreement.
9. Assignment. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the
Company, and the Company shall require any successor to expressly
-9-
acknowledge and assume its obligation hereunder. This Agreement
shall inure to the extent provided hereunder to the benefit of
and be enforceable by the Executive or his/her legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. The Executive may not
delegate any of his/her duties, responsibilities, obligations or
positions hereunder to any person and any such purported
delegation by him/her shall be void and of no force and effect.
10. Prior Termination. Anything in this Agreement to the
contrary notwithstanding, if the Executive's employment with the
Company is terminated prior to the date on which a Change in
Control occurs either (a) by the Company other than for Cause or
(b) by the Executive for any one of the reasons set forth in
Section 3 hereof, and it is reasonably demonstrated that such
termination of employment (i) was at the request of a third party
who has taken steps reasonably calculated to effect the Change in
Control or (ii) otherwise arose in connection with or
anticipation of the Change in Control, then for all purposes of
this Agreement the termination shall deemed to have occurred upon
a Change in Control and the Executive will be entitled to the
compensation and benefits provided for in Section 5 hereof.
11. Release. The Executive hereby acknowledges and agrees
that prior to the occurrence of the Executive's or his
dependent's right to receive from the Company or any of its
representatives or agents any compensation or benefit to be paid
-10-
or provided to him or his dependents pursuant to Section 5 of
this Agreement, the Executive may be required by the Company, in
its sole discretion, to execute a release in a form reasonably
acceptable to the Company, which releases any and all claims the
Executive has or may have against the Company or its
subsidiaries, agents, officers, directors, successors or assigns.
12. Compliance with Laws. The parties hereto acknowledge
and agree that this Agreement and each party's enforcement of
their rights hereunder are subject to the Comprehensive Thrift
and Bank Fraud Prosecutions Act of 1990 (12 USC 1828) as enacted
and in force on the date hereof.
13. Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing, and if
personally delivered or when sent by first class certified or
registered mail, postage prepaid, return receipt requested -- in
the case of the Executive, to his residence address as set forth
below, and in the case of the Company, to the address of its
principal place of business, in care of the Board -- or to such
other person or at such other address with respect to each party
as such party shall notify the other in writing.
-11-
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
Attest: USBANCORP, Inc.
By:\s\Betty L. Jakell By:\s\Terry K. Dunkle
Betty L. Jakell Terry K. Dunkle
Secretary Chairman, President & CEO
By:\s\Orlando B. Hanselman
Orlando B. Hanselman
Address: P.O. Box 337
Johnstown, PA 15907-0337
EXHIBIT 10.9
USBANCORP, INC.
1991 STOCK OPTION PLAN
August 23, 1991, as
amended on February 24, 1995
The purposes of the 1991 Stock Option Plan (the "Plan")
are to encourage eligible employees of USBANCORP, INC. (the
"Corporation") and its Subsidiaries, including Directors and
officers of the Corporation who are employees, to increase their
efforts to make the Corporation and each Subsidiary more
successful, to provide an additional inducement for such employees
to remain with the Corporation or a Subsidiary, to reward such
employees by providing an opportunity to acquire the Common Stock,
par value $2.50 per share, of the Corporation (the "Common Stock")
on favorable terms and to provide a means through which the
Corporation may attract able persons to enter the employment of the
Corporation or one of its Subsidiaries. For purposes of the Plan,
the term "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Corporation if each of the
corporations (other than the last corporation in the unbroken
chain) owns stock possessing at least fifty percent (50%) or more
of the total combined voting power of all classes of stock in one
of the other corporations in the chain.
SECTION 1
Administration
The Plan shall be administered by a Committee (the
"Committee") appointed from time to time by the Board of Directors
of the Corporation (the "Board") and consisting of no fewer than
three members of the Board, none of whom is, or was within one year
prior to becoming a member of the Committee, eligible for selection
as a person to whom stock options may be granted pursuant to the
Plan or any other plan of the Corporation or any of its affiliates
(as "affiliates" is defined in regulations of the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) entitling the participants therein to
acquire stock or stock options of the Corporation or any of its
affiliates. If at any time a member of the Committee would not be
eligible for initial appointment to the Committee, said member
shall be deemed to have resigned from the Committee. The Board may
at any time, without cause, remove any person from the Committee by
written notice to such person. Any member of the Committee may
resign by written notice to the Board.
The Committee shall interpret the Plan and prescribe such
rules, regulations and procedures in connection with the operations
of the Plan as it shall deem to be necessary and advisable for the
administration of the Plan consistent with the purposes of the
Plan.
The Committee shall keep records of any action taken at
its meetings. A majority of the Committee shall constitute a
quorum at any meeting and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee, shall be the
acts of the Committee.
SECTION 2
Eligibility
Those salaried employees of the Corporation or any
Subsidiary with executive, managerial, technical or professional
responsibility, who may or may not be an officer or a member of the
Board of Directors, shall be eligible to receive stock options as
described herein.
Subject to the provisions of the Plan, the Committee
shall have full and final authority, in its discretion, to grant
stock options as described herein and to determine the employees to
whom stock options shall be granted and the number of shares to be
covered by each stock option. In determining the eligibility of
any employee, as well as in determining the number of shares which
may be acquired pursuant to each stock option, the Committee shall
consider the positions and the responsibilities of the employee
being considered, the nature and value to the Corporation or a
Subsidiary of his or her services, his or her present and/or
potential contribution to the success of the Corporation or a
Subsidiary and such other factors as the Committee may deem
relevant.
SECTION 3
Shares Available under the Plan
The aggregate number of shares of the Common Stock which
may be issued or delivered and as to which stock options may be
granted under the Plan is 285,000 shares. All of such shares are
subject to adjustment and substitution as set forth in Section 6.
If any stock option granted under the Plan is cancelled
by mutual consent or terminates or expires for any reason without
having been exercised in full, the number of shares subject to such
stock option shall again be available for purposes of the Plan.
The shares which may be issued or delivered under the
Plan may be either authorized but unissued shares or treasury
shares or partly each, as shall be determined from time to time by
the Board.
SECTION 4
Grant of Stock Options
The Committee shall have authority, in its discretion, to
grant "incentive stock options" pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), to grant
"non-statutory stock options" (stock options which do not qualify
under such Section 422 of the Code) or to grant both types of stock
options, provided that the exercise of one type of option shall not
affect the other type.
To the extent that the aggregate fair market value of
stock with respect to which incentive stock options are exercisable
for the first time by any individual during any calendar year
(under all plans of the individual's employer corporation and its
parent and subsidiary corporations) exceeds $100,000, such stock
options shall be treated as options which are non-statutory stock
options. The preceding sentence shall be applied by taking options
into account in the order in which they are granted. Also, for
this purpose, the fair market value of any stock shall be
determined as of the date the option with respect to such stock was
granted.
SECTION 5
Terms and Conditions of Stock Options
Stock options granted under the Plan shall be subject to
the following terms and conditions:
(A) The purchase price at which each stock option may be
exercised (the "option price") shall be such price as the
Committee, in its discretion, shall determine but shall not be
less than one hundred percent (100%) of the fair market value
per share of Common Stock which may be acquired pursuant to
the stock option on the date of grant, except that in the case
of an incentive stock option granted to an employee who,
immediately prior to such grant, owns stock possessing more
than ten percent (10%) of the total combined voting power of
all classes of stock of the Corporation or any Subsidiary (a
"Ten Percent Employee"), the option price shall not be less
than 110% of such fair market value on the date of grant. For
purposes of this Section 5(A), the fair market value of the
Common Stock shall be determined as provided in Section 5(H)
below. Also, for purposes of this Section 5(A), an individual
(i) shall be considered as owning not only shares of the
Common Stock owned individually, but also all shares that are
at the time owned, directly or indirectly, by or for the
spouse, ancestors, lineal descendants and brothers and sisters
(whether by the whole or half blood) of such individual and
(ii) shall be considered as owning proportionately any shares
owned, directly or indirectly, by or for any corporation,
partnership, estate or trust in which such individual shall be
a stockholder, partner or beneficiary.
(B) The option price shall be payable in full in any one
or more of the following ways:
(i) in cash; and/or
(ii) in shares of the Common Stock (which are owned
by the optionee free and clear of all liens and other
encumbrances and which are not subject to the
restrictions set forth in Section 7 below) having a fair
market value on the date of exercise of the stock option,
determined as provided in Section 5(H), equal to the
option price for the shares being purchased.
If the option price is paid in whole or in part in shares
of Common Stock, any portion of the option price representing a
fraction of a share shall be paid in cash. The date of exercise of
a stock option shall be determined under procedures established by
the Committee, and the option price shall be payable at such time
or times as the Committee, in its discretion, shall determine. No
shares shall be issued or delivered upon exercise of a stock option
until full payment of the option price has been made. When full
payment of the option price has been made and subject to the
restrictions set forth in Section 7, the optionee shall be
considered for all purposes to be the owner of the shares with
respect to which payment has been made. Payment of the option
price with shares shall not increase the number of shares of Common
Stock which may be issued or delivered under the Plan as provided
in Section 3.
(C) Subject to Section 8 hereof, stock options may be
exercised at the following rate. On or after the first
anniversary of the date on which the options were granted (the
"Grant Date"), one-third of such options may be exercised
(rounded upward to the nearest whole share). On or after the
second anniversary of the Grant Date two-thirds of such
options may be exercised (rounded upward to the nearest whole
share) 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. No
incentive stock option shall be exercisable after the
expiration of ten years (five years in the case of a Ten
Percent Employee) from the date of grant. No non-statutory
stock option shall be exercisable after the expiration of ten
years and six months from the date of grant. Subject to this
Section 5(C) and Sections 5(F), 5(G) and 5(H) below, stock
options may be exercised at such times, in such amounts and
subject to such restrictions as shall be determined, in its
discretion, by the Committee.
(D) No stock option rights shall be transferable by an
optionee other than by will, or if an optionee dies intestate,
by the laws of descent and distribution of the state of
domicile of the optionee at the time of death, and all stock
options shall be exercisable during the lifetime of an
optionee only by the optionee.
(E) Unless otherwise determined by the Committee and set
forth in the stock option agreement referred to in
Section 5(G) or an amendment thereto:
(i) If the employment of an optionee who is not a
Disabled Optionee (as defined in Section 5(F) below) is
voluntarily terminated with the consent of the
Corporation or a Subsidiary, any then outstanding stock
option held by such an optionee shall be exercisable (to
the extent exercisable on the date of termination of
employment) by such an optionee at any time prior to the
earlier of the expiration date of such stock option or
the date which is three months after the date of
termination of employment;
(ii) If an optionee retires under any retirement
plan of the Corporation or a Subsidiary, any then
outstanding stock option held by such an optionee shall
be exercisable in full (whether or not so exercisable on
the date of termination of employment) by such an
optionee at any time prior to the earlier of the
expiration date of such stock option or the date which is
three months after the date of termination of employment;
(iii) If the employment of an optionee who is a
Disabled Optionee is terminated, any then outstanding
stock option held by such optionee shall be exercisable
in full (whether or not so exercisable on the date of
termination of employment) by the optionee at any time
prior to the earlier of the expiration date of such stock
option or the date which is one year after the date of
termination of employment;
(iv) The following transfers of employees will not
be treated as a termination of employment:
(a) A transfer of an employee between
Subsidiaries of the Corporation;
(b) A transfer of an employee from the
Corporation to one of its Subsidiaries; or
(c) A transfer of an employee to the
Corporation from one of its Subsidiaries.
(v) Following the death of an optionee during
employment, any outstanding stock option held by the
optionee at the time of death shall be exercisable in
full (whether or not so exercisable on the date of the
death of the optionee) by the person or persons entitled
to do so under the will of the optionee, or, if the
optionee shall fail to make testamentary disposition of
the stock option or shall die intestate, by the legal
representative of the optionee, at any time prior to the
expiration date of such stock option or within one year
after the date of death, whichever is the shorter period.
Following the death of an optionee after termination of
employment during a period when a stock option is
exercisable as provided in clauses (i), (ii) and (iii)
above, any outstanding stock option held by the optionee
at the time of death shall, to the extent the stock
option was exercisable by the optionee at the time of
death, be exercisable by such person or persons as would
have been so entitled had the employee died prior to the
termination of employment, so long as such exercise
occurs prior to the earlier of the expiration date of
such stock option or the date which is one year after the
date of death.
(F) If the employment of an optionee terminates for any
reason other than voluntary termination with the consent of
the Corporation or a Subsidiary, disability, retirement under
any retirement plan of the Corporation or a Subsidiary, or
death, the rights of such optionee under any then outstanding
stock option shall terminate at the time of such termination
of employment. In addition, the Committee may in its
discretion immediately terminate all stock options held by the
optionee if an optionee (i) engages in the operation or
management of a business, whether as owner, partner, officer,
director, employee or otherwise and whether during or after
termination of employment, which is in competition with the
Corporation or any of its Subsidiaries; (ii) uses for his own
benefit or discloses to a third party information pertaining
to the Corporation or any of its Subsidiaries which the
Corporation or its Subsidiaries consider to be confidential;
or (iii) interferes with the relationship between the
Corporation or a Subsidiary and its employees, suppliers or
customers.
"Disabled Optionee" shall mean an individual who is
unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less
than 12 months.
Whether termination of employment is a voluntary
termination with the consent of the Corporation or a
Subsidiary; whether an optionee is a Disabled Optionee;
whether an optionee has engaged in the operation or management
of a business which is in competition with the Corporation or
any of its Subsidiaries; whether an optionee uses for his own
benefit or discloses to a third party information pertaining
to the Corporation or any of its Subsidiaries which is
confidential; and whether an optionee has interfered with the
relationship between the Corporation or a Subsidiary and its
employees, suppliers or customers shall be determined in each
case by the Committee, whose determination shall be final and
binding unless such determination is demonstratably arbitrary
and capricious.
(G) All stock options shall be confirmed by a stock
option agreement, or an amendment thereto, which shall be
executed by the Chief Executive Officer, the President (if
other than the Chief Executive Officer) or any Executive Vice
President on behalf of the Corporation and by the employee to
whom such stock options are granted.
(H) Fair market value of the Common Stock, so long as
the Common Stock trades in the Over-the-Counter market or on
a stock exchange, shall be computed by taking a weighted
average of the mean between the highest and lowest selling
prices per share of the Common Stock as quoted in such
reliable publication as the Committee, in its discretion, may
choose to rely upon, on the nearest date before and the
nearest date after the date as of which fair market value is
to be determined on which there are sales.
If at any time the Common Stock does not trade in the
Over-the-Counter market or on a stock exchange, the fair
market value of the Common Stock shall be determined by an
independent and experienced appraiser which is selected by the
Committee. Fair market value shall be determined without
regard to any restriction applicable to the Common Stock other
than a restriction which, by its terms, will never lapse.
(I) The obligation of the Corporation to issue or
deliver shares of the Common Stock under the Plan shall be
subject to (i) the effectiveness of a registration statement
under the Securities Act of 1933, as amended, with respect to
such shares, if deemed necessary or appropriate by counsel for
the Corporation, (ii) the condition that the shares shall have
been listed (or authorized for listing upon official notice of
issuance) upon each stock exchange on which such shares may
then be listed and (iii) all other applicable laws,
regulations, rules and orders which may then be in effect;
provided, however, that if the Company Stock shall be delisted
from all national stock exchanges and/or deregistered in
accordance with the provisions of the Securities Exchange Act
of 1934, as amended, the Corporation shall have the obligation
to issue and deliver shares of Common Stock under the Plan
upon the exercise of any then outstanding stock option.
Subject to the foregoing provisions of this Section 5 and
the other provisions of the Plan, any stock option granted under
the Plan shall be subject to such other terms and conditions as the
Committee shall deem advisable.
SECTION 6
Adjustment and Substitution of Shares
If a dividend or other distribution shall be declared
upon the Common Stock payable in shares of Common Stock, the number
of shares of Common Stock then subject to any outstanding stock
option and the number of shares which may be issued or delivered
under the Plan but are not then subject to an outstanding stock
option shall be adjusted by adding thereto the number of shares
which would have been distributable thereon if such shares had been
outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend or distribution.
If the outstanding shares of Common Stock shall be
changed into or exchangeable for a different number or kind of
shares of stock or other securities of the Corporation or another
corporation, whether through reorganization, reclassification,
recapitalization, stock split-up, combination of shares, merger or
consolidation, then there shall be substituted for each share of
Common Stock subject to any then outstanding stock option and for
each share of Common Stock which may be issued or delivered under
the Plan but is not then subject to an outstanding stock option,
the number and kind of shares of stock or other securities into
which each outstanding share of Common Stock shall be so changed or
for which each such share shall be exchangeable.
In the case of any adjustment or substitution as provided
for in this Section 6, the aggregate option price for all shares
subject to each then outstanding stock option prior to such
adjustment or substitution shall be the aggregate option price for
all shares of stock or other securities (including any fraction) to
which such shares shall have been adjusted or which shall have been
substituted for such shares. Any new option price per share shall
be carried to at least three decimal places with the last decimal
place rounded upwards to the nearest whole number.
No adjustment or substitution provided for in this
Section 6 shall require the Corporation to issue or sell a fraction
of a share or other security. Accordingly, all fractional shares
or other securities which result from any such adjustment or
substitution shall be eliminated and not carried forward to any
subsequent adjustment or substitution.
If any such adjustment or substitution provided for in
this Section 6 requires the approval of stockholders in order to
enable the Corporation to grant incentive stock options, then no
such adjustment or substitution shall be made without prior
stockholder approval. Notwithstanding the foregoing, in the case
of incentive stock options, if the effect of any such adjustment or
substitution would be to cause the stock option to fail to continue
to qualify as an incentive stock option or to cause a modification,
extension or renewal of such stock option within the meaning of
Section 424 of the Code, the Committee may elect that such
adjustment or substitution not be made but rather shall use
reasonable efforts to effect such other adjustment of each then
outstanding stock option as the Committee in its sole discretion
shall deem equitable and which will not result in any
disqualification, modification, extension or renewal (within the
meaning of Section 424 of the Code) of such incentive stock option.
SECTION 7
Restrictions on Transfer of Certain Shares
Shares of Common Stock acquired under exercise of an
option pursuant to Section 5(B)(ii) by a person then subject to the
provisions of Section 16 of the Exchange Act shall not be sold or
otherwise transferred prior to the expiration of six months after
the date of the grant of the option. The Corporation is authorized
to (i) retain the certificate(s) representing such shares or place
such certificates in the custody of its transfer agent, (ii) place
a restrictive legend on such shares, and/or (iii) issue a stop
transfer order to the transfer agent with respect to such shares in
order to enforce the transfer restrictions of this Section.
SECTION 8
Acceleration of the Exercise Date of Stock Options
Notwithstanding any other provision of this Plan, all
stock options shall become exercisable upon the occurrence of any
of the events listed below whether or not such options are then
exercisable under the provisions of the applicable agreements
relating thereto:
(A) Stock option rights shall be exercisable during any
one or more of the following periods:
(i) for a period of 60 days beginning on the date
on which shares of Common Stock are first purchased
pursuant to a tender offer or exchange offer (other than
such an offer by the Corporation or a Subsidiary),
whether or not such offer is approved or opposed by the
Corporation or a Subsidiary and regardless of the number
of shares of Common Stock purchased pursuant to such
offer;
(ii) for a period of 60 days beginning on the date
the Corporation acquires knowledge that any person or
group deemed a person under Section 13(d)(3) of the
Exchange Act (other than any director of the Corporation
on August 23, 1991, any Affiliate or Associate of any
such director (with such terms having the respective
meanings set forth in Rule 12b-2 under the Exchange Act
as in effect on August 23, 1991), any member of the
family of any such director, any trust (including the
trustees thereof) established by or for the benefit of
any such persons, or any charitable foundation, whether
a trust or a corporation (including the trustees and
directors thereof) established by any of such persons),
in a transaction or series of transactions shall become
the beneficial owner, directly or indirectly (with
beneficial ownership determined as provided in Rule 13d-
3, or any successor rule, under the Exchange Act), of
securities of the Corporation entitling the person or
group to 20% or more of all votes (without consideration
of the rights of any class of stock to elect directors by
a separate class vote) to which all shareholders of the
Corporation would be entitled if the election of
Directors were an election held on such date;
(iii) for a period of 60 days beginning on the date
of filing under the Exchange Act of a Statement on
Schedule 13D, or any amendment thereto, by any person or
group deemed a person under Section 13(d)(3) of the
Exchange Act, disclosing an intention or possible
intention to acquire or change control of the
Corporation;
(iv) for a period of 60 days beginning on the date,
during any period of two consecutive years, when
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for
election by the shareholders of the Corporation, of each
new Director was approved by a vote of at least two-
thirds of the Directors then still in office who were
Directors at the beginning of such period; and
(v) for a period of 60 days beginning on the date
of approval by the shareholders of the Corporation of an
agreement (a "reorganization agreement") providing for
(a) the merger or consolidation of the Corporation with
another corporation where the shareholders of the
Corporation, immediately prior to the merger or
consolidation, will not beneficially own, immediately
after the merger or consolidation, shares of the
corporation issuing cash or securities in the merger or
consolidation entitling such shareholders to 40% or more
of all votes (without consideration of the rights of any
class of stock to elect directors by a separate class
vote) to which all shareholders of such corporation would
be entitled in the election of Directors or where the
members of the Board of Directors of the Corporation,
immediately prior to the merger or consolidation, do not,
immediately after the merger or consolidation, constitute
a majority of the Board of Directors of the corporation
issuing cash or securities in the merger or consolidation
or (b) the sale or other disposition of all or
substantially all the assets of the Corporation.
SECTION 9
Effect of the Plan on the Rights of Employees and Employer
Neither the adoption of the Plan nor any action of the
Board or the Committee pursuant to the Plan shall be deemed to give
any employee any right to be granted a stock option under the Plan
and nothing in the Plan, in any stock option granted under the Plan
or in any stock option agreement shall confer any right upon any
employee to continue in the employment of the Corporation or any
Subsidiary or diminish in any way the right of the Corporation or
any Subsidiary to terminate the employment of any employee at any
time. The granting of a stock option shall impose no obligation
upon the Optionee to exercise such option.
SECTION 10
Amendment
The right to alter and amend the Plan at any time and
from time to time and the right to revoke or terminate the Plan are
hereby specifically reserved to the Board; provided always that no
such revocation or termination shall terminate any outstanding
stock option theretofore granted under the Plan; and provided
further that no such alteration or amendment of the Plan shall,
without prior stockholder approval, (a) increase the total number
of shares which may be issued under the Plan, (b) increase the
total number of shares issuable pursuant to any stock option
granted to any one optionee, (c) make any changes in the class of
eligible employees or (d) extend the period set forth in the Plan
during which stock options may be granted. No alteration,
amendment, revocation or termination of the Plan shall, without the
written consent of the holder of a stock option theretofore granted
under the Plan, adversely affect the rights of such holder with
respect to such stock option.
SECTION 11
Effective Date and Duration of Plan
The effective date and date of adoption of the Plan shall
be August 23, 1991 (the "Effective Date"), the date of adoption of
the Plan by the Board, provided that such adoption of the Plan by
the Board is approved by the affirmative vote of the holders of at
least a majority of the outstanding shares of Common Stock at a
meeting of such holders duly called, convened and held within one
year of the Effective Date. Notwithstanding any provision of the
Plan to the contrary, no stock option granted under the Plan prior
to such shareholder approval may be exercised until after such
approval. No stock option may be granted under the Plan subsequent
to the date which is ten (10) years following the effective date of
the Plan.
SECTION 12
Application of Funds
The proceeds received by the Corporation for the sale of
the Common Stock pursuant to exercise of stock options shall be
used for general corporate purposes.
SECTION 13
Reservation of the Stock
The Corporation shall be under no obligation to purchase
or reserve Common Stock to satisfy the exercise of stock options.
The grant of stock options to employees hereunder shall not be
construed to constitute the establishment of a trust of the Common
Stock issuable pursuant to such stock options, and no particular
Common Stock shall be identified as optioned and reserved for
employees hereunder. The Corporation shall be deemed to have
complied with the terms of the Plan if, at the time of issuance and
delivery pursuant to the exercise of a stock option, it has a
sufficient number of shares of the Common Stock authorized and
unissued or in its treasury which may then be appropriated and
issued for purposes of the Plan, irrespective of the date when such
Common Stock was authorized.
SECTION 14
Governing Law
The Plan and all determinations and actions taken
pursuant thereto shall be governed by the laws of the Commonwealth
of Pennsylvania and construed in accordance therewith.
This Plan has been prepared, negotiated and delivered in,
and shall be construed and enforced in accordance with, the laws of
the Commonwealth of Pennsylvania.
Microfilm Number__________ Filed with the Department
of State
on
__________________
Entity Number_____________
____________________________________
Secretary of the Commonwealth
STATEMENT WITH RESPECT TO SHARES - DOMESTIC BUSINESS CORPORATION
In compliance with the requirements of 15
Pa.C.S. Section 1522(b) (relating to statement with respect to
shares), the undersigned corporation, desiring to state the
designation and voting rights, preferences, limitations, and
special rights, if any, of a class or series of its shares, hereby
states that:
1 The name of the corporation is: USBANCORP, INC.
2 (Check and complete one of the following):
____ The resolution amending the Articles under 15 Pa.C.S.
Section 1522(b) (relating to divisions and determinations
by the board), set forth in full, is as follows:
X The resolution amending the Articles under
15 Pa.C.S. Section 1522(b) is set forth in full in
Exhibit A attached hereto and made a part hereof.
3 The aggregate number of shares of such class or series
established and designated by (a) such resolution, (b) all
prior statements, if any, filed under 15 Pa.C.S. Section 1522
or corresponding provisions of prior law with respect thereto,
and (c) any other provision of the Articles is 60,000 shares.
4 The resolution was adopted by the Board of Directors or an
authorized committee thereof on: February 24, 1995
5 (Check, and if appropriate complete, one of the following):
X The resolution shall be effective upon the filing of this
statement with respect to shares in the Department of
State.
____ The resolution shall be effective on: ________________
at _______
Date Hour
IN TESTIMONY WHEREOF, the undersigned corporation has caused
this statement to be signed by a duly authorized officer thereof
this 3rd day of March, 1995.
USBANCORP, INC.
(Name of Corporation)
By /s/ Orlando B. Hanselman
Title: Orlando B. Hanselman,
Executive Vice President
Exhibit A
TERM OF SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
OF
USBANCORP, INC.
RESOLVED that, pursuant to the authority vested in the
Board of Directors of the Corporation by the Articles of
Incorporation, the Board of Directors does hereby provide for the
issue of a series of Preferred Stock, without par value, of the
Corporation, to be designated "Series C Junior Participating
Preferred Stock" (hereinafter referred to as the "Series C
Preferred Stock" or "this Series"), initially consisting of
60,000 shares, and to the extent that the designations, powers,
preferences and relative and other special rights and the
qualifications, limitations and restrictions of the Series C
Preferred Stock are not stated and expressed in the Articles of
Incorporation, does hereby fix and herein state and express such
designations, powers, preferences and relative and other special
rights and the qualifications, limitations and restrictions
thereof, as follows (all terms used herein which are defined in
the Articles of Incorporation shall be deemed to have the
meanings provided therein):
1. Designation and Amount. The designation of the
series of Preferred Stock created by this resolution shall be
Series C Junior Participating Preferred Stock and the number of
shares constituting such Series is Sixty Thousand (60,000). Such
number of shares may be increased or decreased by resolution of
the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series C Preferred Stock to a number less
than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any
outstanding securities of the Corporation convertible into shares
of this Series.
2. Dividends.
(A) Subject to the prior and superior rights of
the holders of any shares of any series of Preferred Stock
ranking prior and superior to the shares of this Series with
respect to dividends, the holders of shares of this Series shall
be entitled to receive, when and as declared by the Board of
Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on April 1, July 1,
October 1, and January 1 of each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of this Series,
in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $10.00 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common
Stock since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a
share of this Series. In the event the Company shall at any time
after February 24, 1995 (the "Rights Declaration Date") declare
any dividend on the Common Stock payable in shares of Common
Stock, subdivide the outstanding shares of Common Stock, or
combine the outstanding shares of Common Stock into a smaller
number of shares, then in each such case the amount to which
holders of shares of this Series were entitled immediately prior
to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Company shall declare a dividend or
distribution on the Series C Preferred Stock as provided in
paragraph (A) of this Section immediately after it declares a
dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $10.00 per share on Series C Preferred Stock
shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be
cumulative on outstanding shares of Series C Preferred Stock from
the Quarterly Dividend Payment Date next preceding the date of
issue of such shares of this Series, unless the date of issue of
such shares is prior to the record date for the first Quarterly
Dividend Payment Date in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders
of shares of this Series entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on
the shares of this Series in an amount less than the total amount
of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may
fix a record date for the determination of holders of shares of
this Series entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more
than ten (10) days prior to the date fixed for the payment
thereof.
3. Voting Rights. The holders of shares of Series C
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series C Preferred Stock
shall entitle the holder thereof to 100 votes on all matters
submitted to a vote of the shareholders of the Corporation. In
the event the Corporation shall at any time declare or pay any
dividend on the Common Shares payable in Common Shares, or effect
a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such
case the number of votes per share to which holders of shares of
Series C Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction,
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any
other resolutions creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series C
Preferred Stock and the holders of Common Stock and any other
capital stock of the Corporation having general voting rights
shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise
provided by law, holders of Series C Preferred Stock shall have
no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate
action.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other
dividends or distributions payable on the Series C Preferred
Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series C Preferred Stock
outstanding shall have been paid in full, the Corporation shall
not:
(i) declare or pay dividends, or make any
other distributions, on any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series C Preferred Stock;
(ii) declare or pay dividends, or make any
other distributions, on any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series C Preferred
Stock, except dividends paid ratably on the Series C
Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise
acquire for consideration shares of any stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series C Preferred Stock, provided that
the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series C Preferred Stock;
or
(iv) redeem or purchase or otherwise acquire
for consideration any shares of Series C Preferred Stock, or
any shares of stock ranking on a parity with the Series C
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary
of the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless the
Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series C
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock subject to the conditions and
restrictions on issuance set forth herein, in the Articles of
Incorporation, or in any other resolutions creating a series of
Preferred Stock or any similar stock or as otherwise required by
law.
6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (A) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Preferred Stock
unless, prior thereto, the holders of shares of Series C
Preferred Stock shall have received $100.00 per share, plus an
amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series C Preferred Stock
shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate amount to be distributed per
share to holders of Common Stock, or (B) to the holders of shares
of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C
Preferred Stock, except distributions made ratably on the
Series C Preferred Stock and all such parity stock in proportion
to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time declare or pay any
dividend on the outstanding shares of Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the aggregate amount to
which holders of shares of Series C Preferred Stock were entitled
immediately prior to such event under the proviso in clause (A)
of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
7. Consolidation, Merger, Etc. In case the
Corporation shall enter into any consolidation, merger,
combination or other transaction in which the outstanding shares
of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case
each share of Series C Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per share, subject
to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into
which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of
shares of Series C Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to
such event.
8. No Redemption. The shares of Series C Preferred
Stock shall not be redeemable.
9. Rank. The Series C Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of
assets, junior to all series of any other class of the
Corporation's Preferred Stock.
10. Amendment. The Articles of Incorporation of the
Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special
rights of the Series C Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series C Preferred Stock,
voting together as a single class.
EXHIBIT 10.10
AGREEMENT
This Agreement (the "Agreement") made the 1st day of
December, 1994, by and between USBANCORP, Inc. (the "Company"), a
Pennsylvania corporation, having its principal place of business
at Main and Franklin Streets, Post Office Box 430, Johnstown,
Pennsylvania 15907-0430, and RONALD W. VIRAG
("Executive").
WHEREAS, the Executive is the President and Chief Executive
Officer of USBANCORP Trust Company, ("USBANCORP Trust"), a trust
company organized under Pennsylvania law, directly owned by the
Company.
WHEREAS, the Board of Directors of the Company (the "Board")
has determined that it is in the best interest of the Company and
its shareholders to ensure that the Company and USBANCORP Trust
will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change
in Control (as defined below) of the Company. The Board believes
it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to
encourage the Executive's full attention and dedication to
USBANCORP Trust currently and in the event of any threatened or
pending Change in Control, and to provide the Executive with
compensation and benefits arrangements upon a Change in Control
which ensure that the compensation and benefits expectations of
the Executive will be satisfied and which are competitive with
those of other corporations.
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Term. This Agreement shall be for a three (3) year
period commencing on the date first set forth above and shall be
automatically renewed on the first and on each subsequent annual
anniversary of the above day and month ("Annual Renewal Date")
for a period ending three (3) years from each Annual Renewal Date
unless either party shall give written notice of non-renewal at
least sixty (60) days prior to the Annual Renewal Date.
2. Change in Control. As used in this Agreement, Change in
Control shall mean the occurrence of any of the following:
(a) any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), as enacted and in force on the date
hereof) is or becomes the "beneficial owner" (as that term is
defined in Rule 13d-3 under the Exchange Act, as enacted and in
force on the date hereof) of securities of the Company
representing 24.99% or more of the combined voting power of the
Company's securities then outstanding;
(b) there occurs a merger, consolidation, share
exchange, division or other reorganization involving the Company
and another entity in which Company shareholders do
not continue to hold a majority of the capital stock of the
resulting entity, or a sale, exchange, transfer, or other
-2-
disposition of substantially all of the assets of the
Company to another entity or other person; or
(c) there occurs a contested proxy solicitation or
solicitations of the Company's shareholders which results in
the contesting party or parties obtaining the ability to
elect a majority of the members of the Board of Directors
standing for election at one or more meetings of the
Company's shareholders.
3. Triggering Events. If a Change in Control shall occur
and if thereafter, at any time during the term of this Agreement
there shall be:
(a) any involuntary termination of the Executive by
USBANCORP Trust, other than for Cause as defined in Section
4 below;
(b) any reduction in the Executive's title,
responsibilities, including reporting responsibilities, or
authority, including such title, responsibilities, or authority
as such may be increased from time to time during the term of
this Agreement;
(c) the assignment to the Executive of duties
inconsistent with the Executive's office as such duties existed
on the day immediately prior to the date of a Change in Control;
(d) any reduction in the Executive's annual base
salary in effect on the day immediately prior to the date of
a Change in Control;
-3-
(e) any failure to continue the Executive's
participation, on substantially similar terms, in any incentive
compensation or bonus plans of USBANCORP Trust in which the
Executive participated in immediately prior to the Change in
Control, or any change or amendment to any of the substantive
provisions of any of such plans which would materially decrease
the potential benefits to the Executive under any of such plans;
(f) any failure to provide the Executive with benefits
at least as favorable as those enjoyed by the Executive
under any pension, life insurance, medical, health and
accident, disability or other employee plans of USBANCORP
Trust in which the Executive participated in immediately
prior to the time of the Change in Control, or the taking of
any action that would materially reduce any of such benefits
in effect at the time of the Change in Control, unless such
reduction relates to a reduction in benefits applicable to
all employees generally; or
(g) any breach of any provision of this Agreement by
the Company or USBANCORP Trust, which breach shall not have
been cured by the Company or USBANCORP Trust within thirty
(30) days of the Company's receipt from the Executive or his
agent of written notice specifying in reasonable detail the
nature of the Company's or USBANCORP Trust's breach;
-4-
then Executive, at his sole discretion, may upon no less than
ninety (90) days written notice to Company, resign from
employment with USBANCORP Trust (or, if involuntarily terminated,
give notice of intention to collect benefits under this
Agreement) by delivering written notice to the Company at any
time during the term of this Agreement.
4. Termination of Executive for Cause. Upon or following a
Change in Control, the Company or USBANCORP Trust shall have the
right at any time to terminate the Executive's employment for
Cause. In such event, the Company shall give prompt notice to
the Executive, specifying in reasonable detail the basis for such
termination. For purposes of this Agreement, "Cause" shall mean
the following conduct of the Executive:
(a) Material breach of any provision of this
Agreement, which breach Executive shall have failed to cure
within thirty (30) days after Employee's receipt of written
notice from the Company specifying the specific nature of the
Executive's breach;
(b) Willful misconduct of Executive that is materially
inimical to the best interests, monetary or otherwise, of
the Company or USBANCORP Trust;
(c) Conviction of a felony or of any crime involving
moral turpitude, fraud or deceit;
(d) Adjudication as a bankrupt under the United States
Bankruptcy Code.
-5-
5. Compensation and Benefits. Upon the occurrence of an
event set forth in Section 3 hereof and the delivery of a notice
of termination to the Company pursuant to Section 3 hereof, the
Executive shall be absolutely entitled to receive the
compensation and benefits set forth below:
(a) the Executive shall select, in his absolute
discretion, and receive either (i) monthly installments equal to
one thirty-sixth (1/36) of an amount equal to 2.99 times the
following: (x) During the initial three-year term of this
Agreement (the "Initial Term") commencing on the date hereof, the
highest combined base salary and bonus paid or payable to the
Executive in the then current year or in any one of the last five
fiscal years preceding the Executive's delivery of a notice of
termination; or (y) After the expiration of the Initial Term, the
quotient obtained by dividing the sum of the Executive's combined
salary and bonuses in the five years preceding the Executive's
delivery of a notice of termination by five, such monthly
installments shall be payable for a period of one year (the
"Payment Period") commencing on the first day of the first
calendar month after Executive's delivery of notice of
termination, or (ii) a one time lump sum payment equal to the
non-discounted sum of the twelve (12) monthly payments provided
for in Section 5(a)(i) immediately above;
(b) from the date of the notice of termination through
and including the last day of the Payment Period, the
-6-
Executive shall be entitled to continue to participate in
the employee retirement plan(s) of the Company and any
supplemental executive retirement plan(s) (including
deferred profit sharing plan) or other plan in effect during the
term of this Agreement designed to supplement payments made under
such employee retirement plan, as the case may be, as if the
Executive's employment had not terminated;
(c) from the date of the notice of termination through
and including the last day of the Payment Period, the
Executive shall be provided with life, disability, and
medical insurance benefits at levels equivalent to the
highest levels in effect for the Executive during any one of
the three (3) calendar years preceding the year in which the
notice of termination is delivered; and
(d) on the date of the notice of termination, all
options held by the Executive to acquire common stock of the
Company, to the extent not immediately exercisable by their
terms, shall become immediately exercisable, and such
options shall be exercisable by the Executive at any time
prior to the earlier of the expiration date(s) of such stock
options or the date which is ninety (90) days after the
Executive's termination of employment with the Company.
In the event the Executive is ineligible to continue
participation in the employee retirement plan of USBANCORP Trust
and/or any supplemental executive retirement plan (including
deferred profit sharing plan) or other plan in effect during the
-7-
term of this Agreement designed to supplement payments made under
such employee retirement plan or in any of USBANCORP Trust's
life, disability or medical insurance plans or programs, the
Company shall, in lieu of such participation, pay the Executive a
dollar amount equal to the dollar amount of the benefit forfeited
by the Executive as a result of such ineligibility or a dollar
amount equal to the cost to the Executive to obtain such benefits
in the case of any life, disability or medical insurance plans or
programs.
6. Beneficiary. Should the Executive die after entitlement
but prior to payment in full of amounts due pursuant to Section
5(a)(i) hereof, such monthly payments shall continue (if such
payment option was so elected by Executive) to the Executive's
designated beneficiary or his estate until such entitlement has
been paid in full.
7. Employment at Will. This Agreement contains the entire
understanding of the Company and the Executive with respect to
the subject matter hereof and, subject to the provisions of any
other agreement between the Executive and the Company, the
Executive shall remain an employee at will and nothing herein
shall confer upon the Executive any right to continued employment
and shall not affect the right of USBANCORP Trust to terminate
the Executive for any reason not prohibited by law; provided,
however, that any such removal shall be without prejudice to any
rights the Executive may have to compensation and benefits as
provided for in Section 5 hereof.
-8-
8. Arbitration. Except as otherwise provided herein, in
the event of any controversy, dispute or claim arising out of, or
relating to this Agreement, or the breach thereof, the parties
may seek recourse only for temporary or preliminary injunctive
relief to the courts having jurisdiction thereof. If any relief
other than injunctive relief is sought, the Company and the
Executive agree that such underlying controversy, dispute or
claim shall be settled by arbitration conducted in Pittsburgh,
Pennsylvania in accordance with this Section 8 and the Commercial
Arbitration Rules of the American Arbitration Association
("AAA"). The matter shall be heard and decided, and awards
rendered, by a panel of three (3) arbitrators (the "Arbitration
Panel"). The Company and Executive shall each select one
arbitrator from the AAA National Panel of Commercial Arbitrators
(the "Commercial Panel") and AAA shall select a third arbitrator
from the Commercial Panel. The award rendered by the Arbitration
Panel shall be final and binding as between the parties hereto
and their heirs, executors, administrators, successors and
assigns, and judgment on the award may be entered by any court
having jurisdiction thereof. Each party shall pay their
professional fees, expenses and costs incurred in connection with
the resolution of any controversy, dispute or claim arising out
of, or relating to this Agreement.
9. Assignment. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the
Company, and the Company shall require any successor to expressly
-9-
acknowledge and assume its obligation hereunder. This Agreement
shall be void and no further force and effect upon the Company's
sale of all the voting stock or assets of USBANCORP Trust to an
unrelated third party or to combine with another Company
affiliate, except if it is reasonably demonstrated such sale was
at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or such sale otherwise
arose in connection with or in anticipation of a Change in
Control. This Agreement shall inure to the extent provided
hereunder to the benefit of and be enforceable by the Executive
or his/her legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. The
Executive may not delegate any of his/her duties,
responsibilities, obligations or positions hereunder to any
person and any such purported delegation by him/her shall be void
and of no force and effect.
10. Prior Termination. Anything in this Agreement to the
contrary notwithstanding, if the Executive's employment with
USBANCORP Trust is terminated prior to the date on which a Change
in Control occurs either (a) by the Company or USBANCORP Trust
other than for Cause or (b) by the Executive for any one of the
reasons set forth in Section 3 hereof, and it is reasonably
demonstrated that such termination of employment (i) was at the
request of a third party who has taken steps reasonably
calculated to effect the Change in Control or (ii) otherwise
arose in connection with or
-10-
anticipation of the Change in Control, then for all purposes of
this Agreement the termination shall deemed to have occurred upon
a Change in Control and the Executive will be entitled to the
compensation and benefits provided for in Section 5 hereof.
11. Release. The Executive hereby acknowledges and agrees
that prior to the occurrence of the Executive's or his
dependent's right to receive from the Company or any of its
representatives or agents any compensation or benefit to be paid
or provided to him or his dependents pursuant to Section 5 of
this Agreement, the Executive may be required by the Company, in
its sole discretion, to execute a release in a form reasonably
acceptable to the Company, which releases any and all claims the
Executive has or may have against the Company or its
subsidiaries, agents, officers, directors, successors or assigns.
12. Compliance with Laws. The parties hereto acknowledge
and agree that this Agreement and each party's enforcement of
their rights hereunder are subject to the Comprehensive Thrift
and Bank Fraud Prosecutions Act of 1990 (12 USC 1828) as enacted
and in force on the date hereof.
13. Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing, and if
personally delivered or when sent by first class certified or
registered mail, postage prepaid, return receipt requested -- in
the case of the Executive, to his residence address as set forth
below, and in the case of the Company, to the address of its
-11-
principal place of business, in care of the Board -- or to such
other person or at such other address with respect to each party
as such party shall notify the other in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
Attest: USBANCORP, Inc.
By:\s\Betty L. Jakell By:\s\Terry K. Dunkle
Betty L. Jakell Terry K. Dunkle
Secretary Chairman, President & CEO
By:\s\Ronald W. Virag
Ronald W. Virag
Address: 3 Greenbrier
Hurricane, West Virginia
25526
EXHIBIT 10.11
AGREEMENT
This Agreement (the "Agreement") made the 15th day of
July, 1994, by and between USBANCORP, Inc. (the "Company"), a
Pennsylvania corporation, having its principal place of business
at Main and Franklin Streets, Post Office Box 430, Johnstown,
Pennsylvania 15907-0430, and KEVIN J. O'NEIL
("Executive").
WHEREAS, the Executive is the President and Chief Executive
Officer of Standard Mortgage Corporation of Georgia, a mortgage
banking corporation ("Standard") indirectly owned by the Company.
WHEREAS, the Board of Directors of the Company (the "Board")
has determined that it is in the best interest of the Company and
its shareholders to ensure that the Company and Standard will
have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change in Control (as
defined below) of the Company. The Board believes it is
imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to
encourage the Executive's full attention and dedication to
Standard currently and in the event of any threatened or pending
Change in Control, and to provide the Executive with compensation
and benefits arrangements upon a Change in Control which ensure
that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other
corporations.
NOW THEREFORE, in consideration of the premises and mutual
covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Term. This Agreement shall be for a three (3) year
period commencing on the date first set forth above and shall be
automatically renewed on the first and on each subsequent annual
anniversary of the above day and month ("Annual Renewal Date")
for a period ending three (3) years from each Annual Renewal Date
unless either party shall give written notice of non-renewal at
least sixty (60) days prior to the Annual Renewal Date.
2. Change in Control. As used in this Agreement, Change in
Control shall mean the occurrence of any of the following:
(a) any "person" or "group" (as those terms are
defined or used in Section 13(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), as enacted and in force on the date
hereof) is or becomes the "beneficial owner" (as that term is
defined in Rule 13d-3 under the Exchange Act, as enacted and in
force on the date hereof) of securities of the Company
representing 24.99% or more of the combined voting power of the
Company's securities then outstanding;
(b) there occurs a merger, consolidation, share
exchange, division or other reorganization involving the Company
and another entity in which Company shareholders do
not continue to hold a majority of the capital stock of the
resulting entity, or a sale, exchange, transfer, or other
-2-
disposition of substantially all of the assets of the
Company to another entity or other person; or
(c) there occurs a contested proxy solicitation or
solicitations of the Company's shareholders which results in
the contesting party or parties obtaining the ability to
elect a majority of the members of the Board of Directors
standing for election at one or more meetings of the
Company's shareholders.
3. Triggering Events. If a Change in Control shall occur
and if thereafter, at any time during the term of this Agreement
there shall be:
(a) any involuntary termination of the Executive by
Standard, other than for Cause as defined in Section 4
below;
(b) any reduction in the Executive's title,
responsibilities, including reporting responsibilities, or
authority, including such title, responsibilities, or authority
as such may be increased from time to time during the term of
this Agreement;
(c) the assignment to the Executive of duties
inconsistent with the Executive's office as such duties existed
on the day immediately prior to the date of a Change in Control;
(d) any reduction in the Executive's annual base
salary in effect on the day immediately prior to the date of
a Change in Control;
-3-
(e) any failure to continue the Executive's
participation, on substantially similar terms, in any incentive
compensation or bonus plans of Standard in which the Executive
participated in immediately prior to the Change in Control, or
any change or amendment to any of the substantive provisions of
any of such plans which would materially decrease the potential
benefits to the Executive under any of such plans;
(f) any failure to provide the Executive with benefits
at least as favorable as those enjoyed by the Executive
under any pension, life insurance, medical, health and
accident, disability or other employee plans of Standard in
which the Executive participated in immediately prior to the
time of the Change in Control, or the taking of any action
that would materially reduce any of such benefits in effect
at the time of the Change in Control, unless such reduction
relates to a reduction in benefits applicable to all
employees generally; or
(g) any breach of any provision of this Agreement by
the Company or Standard, which breach shall not have been
cured by the Company or Standard within thirty (30) days of
the Company's receipt from the Executive or his agent of
written notice specifying in reasonable detail the nature of
the Company's or Standard's breach;
-4-
then Executive, at his sole discretion, may upon no less than
ninety (90) days written notice to Company, resign from
employment with Standard (or, if involuntarily terminated, give
notice of intention to collect benefits under this Agreement) by
delivering written notice to the Company at any time during the
term of this Agreement.
4. Termination of Executive for Cause. Upon or following a
Change in Control, the Company or Standard shall have the right
at any time to terminate the Executive's employment for Cause.
In such event, the Company shall give prompt notice to the
Executive, specifying in reasonable detail the basis for such
termination. For purposes of this Agreement, "Cause" shall mean
the following conduct of the Executive:
(a) Material breach of any provision of this
Agreement, which breach Executive shall have failed to cure
within thirty (30) days after Employee's receipt of written
notice from the Company specifying the specific nature of the
Executive's breach;
(b) Willful misconduct of Executive that is materially
inimical to the best interests, monetary or otherwise, of
the Company or Standard;
(c) Conviction of a felony or of any crime involving
moral turpitude, fraud or deceit;
(d) Adjudication as a bankrupt under the United States
Bankruptcy Code.
-5-
5. Compensation and Benefits. Upon the occurrence of an
event set forth in Section 3 hereof and the delivery of a notice
of termination to the Company pursuant to Section 3 hereof, the
Executive shall be absolutely entitled to receive the
compensation and benefits set forth below:
(a) the Executive shall select, in his absolute
discretion, and receive either (i) monthly installments equal to
one thirty-sixth (1/36) of an amount equal to 2.99 times the
following: (x) During the initial three-year term of this
Agreement (the "Initial Term") commencing on the date hereof, the
highest combined base salary and bonus paid or payable to the
Executive in the then current year or in any one of the last five
fiscal years preceding the Executive's delivery of a notice of
termination; or (y) After the expiration of the Initial Term, the
quotient obtained by dividing the sum of the Executive's combined
salary and bonuses in the five years preceding the Executive's
delivery of a notice of termination by five, such monthly
installments shall be payable for a period of one year (the
"Payment Period") commencing on the first day of the first
calendar month after Executive's delivery of notice of
termination, or (ii) a one time lump sum payment equal to the
non-discounted sum of the twelve (12) monthly payments provided
for in Section 5(a)(i) immediately above;
(b) from the date of the notice of termination through
and including the last day of the Payment Period, the
-6-
Executive shall be entitled to continue to participate in
the employee retirement plan(s) of the Company and any
supplemental executive retirement plan(s) (including
deferred profit sharing plan) or other plan in effect during the
term of this Agreement designed to supplement payments made under
such employee retirement plan, as the case may be, as if the
Executive's employment had not terminated;
(c) from the date of the notice of termination through
and including the last day of the Payment Period, the
Executive shall be provided with life, disability, and
medical insurance benefits at levels equivalent to the
highest levels in effect for the Executive during any one of
the three (3) calendar years preceding the year in which the
notice of termination is delivered; and
(d) on the date of the notice of termination, all
options held by the Executive to acquire common stock of the
Company, to the extent not immediately exercisable by their
terms, shall become immediately exercisable, and such
options shall be exercisable by the Executive at any time
prior to the earlier of the expiration date(s) of such stock
options or the date which is ninety (90) days after the
Executive's termination of employment with the Company.
In the event the Executive is ineligible to continue
participation in the employee retirement plan of Standard and/or
any supplemental executive retirement plan (including deferred
profit sharing plan) or other plan in effect during the
-7-
term of this Agreement designed to supplement payments made under
such employee retirement plan or in any of Standard's life,
disability or medical insurance plans or programs, the Company
shall, in lieu of such participation, pay the Executive a dollar
amount equal to the dollar amount of the benefit forfeited by the
Executive as a result of such ineligibility or a dollar amount
equal to the cost to the Executive to obtain such benefits in the
case of any life, disability or medical insurance plans or
programs.
6. Beneficiary. Should the Executive die after entitlement
but prior to payment in full of amounts due pursuant to Section
5(a)(i) hereof, such monthly payments shall continue (if such
payment option was so elected by Executive) to the Executive's
designated beneficiary or his estate until such entitlement has
been paid in full.
7. Employment at Will. This Agreement contains the entire
understanding of the Company and the Executive with respect to
the subject matter hereof and, subject to the provisions of any
other agreement between the Executive and the Company, the
Executive shall remain an employee at will and nothing herein
shall confer upon the Executive any right to continued employment
and shall not affect the right of Standard to terminate the
Executive for any reason not prohibited by law; provided,
however, that any such removal shall be without prejudice to any
rights the Executive may have to compensation and benefits as
provided for in Section 5 hereof.
-8-
8. Arbitration. Except as otherwise provided herein, in
the event of any controversy, dispute or claim arising out of, or
relating to this Agreement, or the breach thereof, the parties
may seek recourse only for temporary or preliminary injunctive
relief to the courts having jurisdiction thereof. If any relief
other than injunctive relief is sought, the Company and the
Executive agree that such underlying controversy, dispute or
claim shall be settled by arbitration conducted in Pittsburgh,
Pennsylvania in accordance with this Section 8 and the Commercial
Arbitration Rules of the American Arbitration Association
("AAA"). The matter shall be heard and decided, and awards
rendered, by a panel of three (3) arbitrators (the "Arbitration
Panel"). The Company and Executive shall each select one
arbitrator from the AAA National Panel of Commercial Arbitrators
(the "Commercial Panel") and AAA shall select a third arbitrator
from the Commercial Panel. The award rendered by the Arbitration
Panel shall be final and binding as between the parties hereto
and their heirs, executors, administrators, successors and
assigns, and judgment on the award may be entered by any court
having jurisdiction thereof. Each party shall pay their
professional fees, expenses and costs incurred in connection with
the resolution of any controversy, dispute or claim arising out
of, or relating to this Agreement.
9. Assignment. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the
Company, and the Company shall require any successor to expressly
-9-
acknowledge and assume its obligations hereunder. This Agreement
shall be void and no further force and effect upon the Company's
sale of all the voting stock or assets of Standard to an
unrelated third party, except if it is reasonably demonstrated
such sale was at the request of a third party who has taken steps
reasonably calculated to effect a Change in Control or such sale
otherwise arose in connection with or in anticipation of a Change
in Control. This Agreement shall inure to the extent provided
hereunder to the benefit of and be enforceable by the Executive
or his/her legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. The
Executive may not delegate any of his/her duties,
responsibilities, obligations or positions hereunder to any
person and any such purported delegation by him/her shall be void
and of no force and effect.
10. Prior Termination. Anything in this Agreement to the
contrary notwithstanding, if the Executive's employment with
Standard is terminated prior to the date on which a Change in
Control occurs either (a) by the Company or Standard other than
for Cause or (b) by the Executive for any one of the reasons set
forth in Section 3 hereof, and it is reasonably demonstrated that
such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect the
Change in Control or (ii) otherwise arose in connection with or
-10-
anticipation of the Change in Control, then for all purposes of
this Agreement the termination shall deemed to have occurred upon
a Change in Control and the Executive will be entitled to the
compensation and benefits provided for in Section 5 hereof.
11. Release. The Executive hereby acknowledges and agrees
that prior to the occurrence of the Executive's or his
dependent's right to receive from the Company or any of its
representatives or agents any compensation or benefit to be paid
or provided to him or his dependents pursuant to Section 5 of
this Agreement, the Executive may be required by the Company, in
its sole discretion, to execute a release in a form reasonably
acceptable to the Company, which releases any and all claims the
Executive has or may have against the Company or its
subsidiaries, agents, officers, directors, successors or assigns.
12. Compliance with Laws. The parties hereto acknowledge
and agree that this Agreement and each party's enforcement of
their rights hereunder are subject to the Comprehensive Thrift
and Bank Fraud Prosecutions Act of 1990 (12 USC 1828) as enacted
and in force on the date hereof.
13. Notice. Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing, and if
personally delivered or when sent by first class certified or
registered mail, postage prepaid, return receipt requested -- in
the case of the Executive, to his residence address as set forth
below, and in the case of the Company, to the address of its
-11-
principal place of business, in care of the Board -- or to such
other person or at such other address with respect to each party
as such party shall notify the other in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
Attest: USBANCORP, Inc.
By:\s\Betty L. Jakell By:\s\Orlando B. Hanselman
Betty L. Jakell Orlando B. Hanselman, Executive
Secretary Vice President
By:\s\Kevin J. O'Neil
Kevin J. O'Neil
Address: 9305 Saint Georgen Common
Duluth, GA 30136
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