PRELIMINARY INFORMATION STATEMENT
SCHEDULE 14(c) INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14c-5(d)(2))
[ ] Definitive Information Statement
USBANCORP, INC.
________________________________________________________________
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g)
and 0-11.
1) Title of each class of securities to which transaction
applies:
_________________________________________ _______________
2) Aggregate number of securities to which transaction
applies:
_________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
_________________________________________________________
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
_________________________________________________________
[ ] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
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which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
1) Amount Previously Paid:
__________________________________________________________
2) Form, Schedule or Registration Statement No.:
__________________________________________________________
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__________________________________________________________
4) Date Filed:
__________________________________________________________
[USBANCORP, INC. Letterhead]
Dear Fellow Shareholder:
In July 1999, we announced our intent to spin off our Three
Rivers Bank subsidiary to our shareholders. This decision was
reached by your Board of Directors and Management team after
exploring a wide range of strategic options to position
USBANCORP for future profitable growth in the financial services
industry. We continue to believe that the separation of the
banking subsidiaries into two totally distinct companies has the
potential to generate the greatest near and long term value in
their businesses by allowing each bank to focus on its core
strengths and pursue different future strategic directions.
Accordingly, this letter and the accompanying Information
Statement are being sent to you to inform you that your Board of
Directors has approved a plan for such spin off, under which you
will become the owner of one share of common stock of Three
Rivers Bancorp, Inc. for every two shares of USBANCORP stock
that you owned on ____________, 2000. Three Rivers Bancorp is a
newly formed holding company that will own all of the
outstanding stock of Three Rivers Bank. This distribution to
you of Three Rivers Bancorp common stock will not change the
number of shares of USBANCORP common stock you hold.
As discussed in more detail in the Information Statement,
we are making this distribution to you for several reasons.
First, after the spin-off Three Rivers Bancorp will be
positioned to raise capital in a more cost effective manner so
that it can more meaningfully participate in the consolidation
of the banking industry. Second, the spin off will allow
USBANCORP and Three Rivers Bancorp to better focus on the
businesses of their respective bank subsidiaries. U.S. Bank and
Three Rivers Bank each serve different geographic markets and
have unique strengths to capitalize on to achieve future growth.
We believe the spin off will enable both of these banks to
profitably grow by pursuing their own well defined business
strategies.
On April __, 2000, Three Rivers Bancorp, Inc. will become a
separate publicly held company listed on the Nasdaq National
Market under the symbol TRBC. It will be a $1 billion bank
holding company headquartered in Monroeville, Pennsylvania
having 24 branches located in the Pennsylvania counties of
Allegheny, Washington and Westmoreland. Its subsidiaries will
be Three Rivers Bank, TRB Financial Services Corporation and
Community First Capital Corp.
After the spin off, USBANCORP will be a $1.4 billion bank
holding company headquartered in Johnstown, Pennsylvania, with
22 branches conducting business in the Pennsylvania counties of
Cambria, Somerset, Westmoreland, Centre and Clearfield. Its
subsidiaries will include U.S. Bank, USBANCORP Trust and
Financial Services Company and Standard Mortgage Corporation of
Georgia.
I encourage you to read the attached Information Statement
carefully as it provides more details on Three Rivers Bancorp
and the spin off. This transaction presents exciting
opportunities for both companies and their shareholders. Both
USBANCORP and Three Rivers Bancorp will be in a strong position
to grow and prosper in the new millennium's changing landscape
for financial services companies. I thank you for your past
support of USBANCORP and would encourage you to continue to
support USBANCORP and the new Three Rivers Bancorp as we move
forward.
Best regards,
Terry K. Dunkle
Chairman and Chief Executive
Officer
SUBJECT TO COMPLETION DATED MARCH _____, 2000
[LOGO]
INFORMATION STATEMENT
THREE RIVERS BANCORP, INC.
Common Stock
($.01 par value)
USBANCORP, INC. is furnishing this Information Statement to
you, as a holder of record of USBANCORP common stock at the
close of business on __________________, 2000 (the "Record
Date"). This Information Statement describes the distribution
of one share of common stock, $.01 par value, of Three Rivers
Bancorp, Inc. for every two shares of USBANCORP common stock
held of record as of that date (the "Distribution"). See "The
Distribution -- Manner of Effecting the Distribution."
We currently own all of the capital stock of Three Rivers
Bancorp. As a result of transactions entered into in connection
with the Distribution, as of 11:59:59 E.D.T. on
__________________, 2000 (the "Distribution Date"), Three Rivers
Bancorp will own all of the outstanding capital stock of Three
Rivers Bank and Trust Company.
We will make the Distribution on the Distribution Date. You
will not have to pay anything for the shares of Three Rivers
Bancorp Common Stock that we distribute to you. There is no
public market for Three Rivers Bancorp Common Stock, although we
expect that a "when-issued" trading market will develop on or
after the Record Date. We have applied to list Three Rivers
Bancorp Common Stock on the Nasdaq National Market under the
symbol "TRBC".
We do not need a vote of shareholders in order to make this
Distribution. We are not asking you for a proxy, and you are
requested not to send us a proxy.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This information statement does not constitute an offer to
sell or the solicitation of an offer to buy any securities.
The date of this Information Statement is ________________,
2000.
TABLE OF CONTENTS
[INSERT TO COME]
INFORMATION STATEMENT
This Information Statement is being furnished solely to
provide information to shareholders of USBANCORP who will
receive shares of Three Rivers Bancorp Common Stock in the
Distribution. It is not, and is not to be construed as, an
inducement or encouragement to buy or sell any securities of
USBANCORP or Three Rivers Bancorp. The information contained in
this Information Statement is believed to be accurate as of the
date set forth on its cover. Changes may occur after that date,
and neither USBANCORP nor Three Rivers Bancorp will update the
information except in the normal course of their respective
public disclosures.
FORWARD-LOOKING STATEMENTS
This Information Statement contains various forward-looking
statements and includes assumptions concerning Three Rivers'
beliefs, plans, objectives, goals, expectations, anticipations
estimates, intentions, operations, future results, and
prospects, including statements that include the words "may,"
"could," "should," "would," "believe," "expect," "anticipate,"
"estimate," "intend," "plan" or similar expressions. These
forward-looking statements are based upon current expectations
and are subject to risk and uncertainties. In connection with
the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Three Rivers provides the
following cautionary statement identifying important factors
(some of which are beyond Three Rivers' control) which could
cause the actual results or events to differ materially from
those set forth in or implied by the forward-looking statements
and related assumptions.
Such factors include the following: (i) risk resulting
from the Distribution and the operation of Three Rivers Bank as
a separate independent company, (ii) the effect of changing
regional and national economic conditions; (iii) the effects of
trade, monetary and fiscal policies and laws, including interest
rate policies of the Board of Governors of the Federal Reserve
System; (iv) significant changes in interest rates and
prepayment speeds; (v) inflation, stock and bond market, and
monetary fluctuations; (vi) credit risks of commercial, real
estate, consumer, and other lending activities; (vii) changes in
federal and state banking and financial services laws and
regulations; (viii) the presence in Three Rivers' market area of
competitors with greater financial resources than Three Rivers;
(ix) the timely development of competitive new products and
services by Three Rivers Bank and the acceptance of those
products and services by customers and regulators (when
required); (x) the willingness of customers to substitute
competitors' products and services for those of Three Rivers
Bank and vice versa; (xi) changes in consumer spending and
savings habits; (xii) unanticipated regulatory or judicial
proceedings; and (xiii) other external developments which could
materially impact Three Rivers Bank's operational and financial
performance.
The foregoing list of important factors is not exclusive,
and neither such list nor any forward-looking statement takes
into account the impact that any future acquisition may have on
Three Rivers and on any such forward-looking statement. We do
not undertake to update any forward-looking statement, whether
written or oral, that we may make from time to time.
SUMMARY
This summary is qualified by the more detailed information
set forth elsewhere in this Information Statement, which should
be read in its entirety.
Distributing Company......... USBANCORP, Inc.
Three Rivers Bancorp, Inc.... Three Rivers Bancorp, Inc., has
received permission to become a
bank holding company for Three
Rivers Bank. Three Rivers
Bancorp and Three Rivers Bank
are headquartered in
Monroeville, Pennsylvania. At
September 30, 1999, Three Rivers
Bank had $1.05 billion in
assets, $548.9 million in
deposits, $469.0 million in
loans and $50.3 million in
shareholders' equity (excluding
net assets of discontinued
mortgage banking operations).
What USBANCORP will
distribute to you.......... You will receive one share of
Three Rivers Bancorp Common
Stock for every two shares of
USBANCORP common stock you own.
See "The Distribution -- Manner
of Effecting the Distribution."
Fractional shares, other than
those held by participants in
certain USBANCORP plans, will be
aggregated into whole shares of
Three Rivers common stock and
sold on the open market by the
Distribution Agent, with the
proceeds distributed to holders
who would otherwise be entitled
to receive fractional shares.
See "The Distribution -- Manner
of Effecting the Distribution."
You will not need to pay for the
shares of Three Rivers Bancorp
Common Stock you receive, nor
will you be required to
surrender or exchange USBANCORP
common stock in order to receive
Three Rivers Bancorp Common
Stock.
The Number of Shares We
Will Distribute............ We will distribute to our
shareholders approximately
6.7 million shares of Three
Rivers Bancorp Common Stock,
based on the number of shares of
USBANCORP common stock
outstanding as of
__________________, 2000.
USBANCORP will retain no
ownership in Three Rivers.
However, immediately after
the Distribution Date, shares
of Three Rivers Bancorp Common
Stock will be owned by the
Pension Plan, Profit Sharing
Plan and 401(k) Plan of
USBANCORP and U.S. Bank.
What Conditions Must be
Satisfied Before We Make
the Distribution........... We will not make the
Distribution unless:
- we receive a favorable
ruling from the Internal
Revenue Service that the
Distribution is tax free to
us and to you,
- we receive Federal Reserve
Board and Pennsylvania
Department of Banking
approvals,
- the Three Rivers Bancorp
Common Stock is approved
for listing on the Nasdaq
National Market, and
- our Board of Directors
approves the final terms
of the Distribution,
including, without
limitation, the formal
declaration of a dividend
to our shareholders and
other specific actions
necessary to the
Distribution.
We may amend, modify or abandon
the Distribution at any time
prior to the Distribution Date.
Trading Market and Symbol.... There is currently no public
market for Three Rivers Bancorp
Common Stock. Three Rivers
Bancorp has applied to list
its Common Stock on the Nasdaq
National Market under the symbol
"TRBC." We expect that Three
Rivers Bancorp Common Stock will
be approved for listing on the
Nasdaq National Market and that
trading will commence on a
"when-issued" basis on or after
the Record Date.
Record Date.................. __________________, 2000.
Distribution Agent........... BankBoston, N.A.
Distribution Date............ __________________, 2000. We
will transfer shares of Three
Rivers Bancorp Common Stock to
the Distribution Agent for the
benefit of the record holders of
our common stock at the close of
business on the record date.
Tax Consequences............. We have applied for a ruling
from the Internal Revenue
Service that the Distribution
will be tax free to us and to
you, our shareholders, for U.S.
Federal income tax purposes.
Receipt of this ruling is a
condition to the Distribution.
See "The Distribution - U.S.
Federal Income Tax Consequences
of the Distribution" for a more
detailed description of the
Federal income tax consequences
of the Distribution.
Why USBANCORP is Making the
Distribution............... USBANCORP's management and Board
of Directors have concluded that
the Distribution is in the best
interests of USBANCORP and its
shareholders. They believe that
the Distribution will: (i)
enhance the ability of Three
Rivers Bank to raise equity
capital on a substantially more
cost effective basis and to
facilitate potential
acquisitions, (ii) improve the
ability of both Three Rivers
Bank and U.S. Bank, USBANCORP's
other bank subsidiary, to focus
on their respective banking
businesses, which differ with
respect to both union
representation of employees
(certain of U.S. Bank's
employees are represented by a
labor union) and geographic
market area, and
(iii) permit U.S. Bank to
negotiate with its union with
respect to the possible
implementation of an employee
stock ownership plan.
Relationship between USBANCORP
and Three Rivers after the
Distribution ............. After the Distribution,
USBANCORP will have no ownership
interest in Three Rivers
Bancorp or Three Rivers Bank,
and Three Rivers Bancorp will be
an independent, publicly-held
company owning all of the
outstanding capital stock of
Three Rivers Bank. However,
immediately after the
Distribution Date, approximately
____ shares of Three Rivers
Bancorp Common Stock (__% of
the estimated total outstanding
shares) will be owned by the
Pension Plan, Profit Sharing
Plan and 401(k) Plan of
USBANCORP and U.S. Bank. Three
Rivers Bancorp, USBANCORP and
their banking subsidiaries will
enter into agreements governing
their relationship after the
Distribution. The agreements
will provide for each party to
make identified services,
records and personnel available
to the other. They will also
provide for allocation of
assets, liabilities and
responsibilities between them
with respect to employee
benefits and compensation and
for allocation of tax
liabilities between them for
periods prior to and after the
Distribution.
Spin-Off of Standard Mortgage
Corporation of Georgia to
USBANCORP Standard Mortgage Corporation of
Georgia ("SMC") is currently a
wholly owned subsidiary of Three
Rivers Bank engaged in the
mortgage banking business.
Prior to the Distribution, Three
Rivers Bank will distribute all
of the outstanding shares of the
capital stock of SMC to
USBANCORP, so that SMC will be a
wholly owned subsidiary of
USBANCORP. At and for the nine
months ended September 30, 1999,
SMC had total assets of
$51.5 million, total liabilities
of $40.9 million, shareholders'
equity of $10.7 million and
year-to-date net income of
$200,000.
Three Rivers Dividend
Policy..................... The payment and the amount of
cash dividends by Three Rivers
Bancorp after the Distribution
will be subject to the
discretion of its Board of
Directors. Dividend decisions
will be based on a number of
factors including Three Rivers
Bank's operating results and
financial requirements on a
stand-alone basis as well as
legal restrictions. See
"Description of Three Rivers
Bancorp Capital Stock -
Dividends."
Principal Office of Three
Rivers..................... The executive offices of Three
Rivers Bancorp will be located
at 2681 Moss Side Boulevard,
Monroeville, Pennsylvania 15146
SHAREHOLDERS WITH QUESTIONS MAY CALL:
For questions relating to the Distribution and delivery of
Three Rivers Bancorp Common Stock certificates, call BankBoston,
N.A. at:
( ) -
For other questions, call USBANCORP's Manager, Shareholder
Relations at:
(814) 533-5310
No person is authorized by USBANCORP or Three Rivers
Bancorp to give any information or to make any representations
other than those contained in this information statement, and,
if given or made, such information or representations must not
be relied upon as having been authorized.
INTRODUCTION
Three Rivers Bank, is currently a wholly owned subsidiary
of USBANCORP. After careful review and analysis, the Board of
Directors of USBANCORP has concluded that the Distribution is in
the best interests of USBANCORP and its shareholders. The Board
of Directors believes that the Distribution will:
(i) enhance the ability of Three Rivers
Bank to raise equity capital on a
substantially more cost effective basis
and to facilitate potential acquisitions;
(ii) improve the ability of both Three Rivers
Bank and U.S. Bank, USBANCORP's other
bank subsidiary, to focus on
their respective banking businesses, which
differ with respect to both union
representation of employees (certain of
U.S. Bank's employees are represented by
a labor union) and geographic market area;
and
(iii) permit U.S. Bank to negotiate with its union
with respect to the possible implementation of
an employee stock ownership plan.
To effect the Distribution, USBANCORP will:
- cause Three Rivers Bank to distribute
to USBANCORP all of the outstanding capital
stock of Standard Mortgage Corporation of
Georgia, a wholly owned subsidiary of Three
Rivers Bank;
- form Three Rivers Bancorp, Inc. as a
USBANCORP subsidiary for the purpose of
serving as the holding company for Three
Rivers Bank;
- contribute all the outstanding capital stock
of Three Rivers Bank to Three Rivers Bancorp;
and
- distribute all the outstanding Common Stock of
Three Rivers Bancorp to USBANCORP's shareholders.
After the Distribution, Three Rivers Bancorp will be a
regional bank holding company headquartered in Monroeville,
Pennsylvania, having 24 branches located in the Pennsylvania
counties of Allegheny, Washington and Westmoreland. On a
pro forma basis, assuming that the Distribution was completed as
of September 30, 1999, Three Rivers Bancorp had total assets,
loans and deposits of $1.05 billion, $469.0 million and
$548.9 million. Three Rivers Bancorp's pro forma net income for
the nine months ended September 30, 1999, was $7.2 million, and
its return on average total equity was 16.8%. See "Business of
Three Rivers."
THE DISTRIBUTION
Reasons for the Distribution
USBANCORP's management has proposed the Distribution to:
(i) enhance the ability of Three Rivers Bank to raise
equity capital on a substantially more cost effective basis and
to facilitate potential acquisitions;
(ii) improve the ability of both Three Rivers Bank and
U.S. Bank to focus on their respective banking businesses; and
(iii) permit U.S. Bank to negotiate with its labor
union with respect to the possible implementation of an employee
stock ownership plan.
Each of these reasons for the Distribution stems primarily
from the incompatibility of U.S. Bank and Three Rivers Bank.
This incompatibility is due largely to the fact that U.S. Bank's
non-management personnel are represented by the United
Steelworkers Union and are covered by a collective bargaining
agreement, while Three Rivers Bank employees are not covered by
a union agreement. Banking in the United States is generally a
non-unionized industry. We estimate that there are fewer than
20 unionized banks out of the 7,000 banking institutions in the
United States. We believe that the presence of a union at U.S.
Bank prevents Three Rivers Bank and U.S. Bank from pursuing
separate strategies and achieving objectives appropriate to
their specific situations.
We believe, based on discussions with our investment
bankers, that the union presence creates market perceptions that
have resulted in a discount in USBANCORP's stock price compared
to the stock price of its peers. This discount in USBANCORP's
stock price is, in effect, an elimination of the "acquisition
premium" that is inherent in the stock price of most financial
institutions. The "acquisition premium" is a significant
component of the fair market value of most financial
institutions that relates to their potential to be acquired. It
exists even if there is no intention on the part of management
to sell the institution. The acquisition premium is caused by
the virtually universal expectation that the banking industry
will continue to consolidate.
We believe, based on discussions with our investment
bankers, that USBANCORP's stock price contains little or no
acquisition premium. The financial markets do not perceive
USBANCORP as a potential acquisition target because investors
believe that potential acquirers fear the risks associated with
a banking entity that has a unionized workforce. In turn,
because of the lack of acquisition premium, USBANCORP is not
viewed as a potential acquirer because its stock is less
attractive to potential sellers. Potential targets typically
desire to be acquired by institutions that are themselves
perceived favorably as potential targets, so that their
shareholders (a) can remain invested in banking in a more
efficient and competitive institution, and (b) have an
opportunity to receive a second acquisition premium in a
subsequent sale. In addition, potential targets also fear the
spread of union representation to the target's workforce.
With respect to the first business purpose, management of
Three Rivers Bank would like to take part in the consolidation
of the banking industry by acquiring other banks. Accordingly,
management would like to position Three Rivers Bank so that it
can raise capital through a Three Rivers Bancorp stock offering
and make acquisitions with the proceeds of such an offering, or
use its stock as acquisition capital.
We believe, based on discussions with our investment
bankers, that the Distribution should enhance Three Rivers'
ability to expand through acquisitions. First, Three Rivers
Bancorp and its subsidiaries will not be parties to any
collective bargaining agreements with unions and, therefore, any
target bank's concerns regarding union affiliation will be
eliminated. Secondly, as a nonunion affiliated group, the
price/earnings ratio of Three Rivers Bancorp's stock should
ultimately be more closely aligned with peer ratios, although no
assurance can be given that it will do so. If such market
valuation occurs, the value of Three Rivers Bancorp Common
Stock, as acquisition currency, would be more competitive with
its peers. As a result, Three Rivers Bancorp would be better
able to pursue its strategy of being an acquirer of target banks
or other financial service companies.
Even if Three Rivers Bancorp is unable to expand through
acquisitions, management believes that the Distribution will
allow Three Rivers Bancorp to raise capital through a public
offering at a per share price that is more consistent with the
stock price of its peers. This additional capital would also
alleviate the potential for regulatory constraints on Three
Rivers Bank's ability to make certain types of loans and loans
within certain industries. The strong loan demand from
customers, coupled with the stock repurchases that USBANCORP
management has been required to implement in order to remain
competitive, have caused certain of Three Rivers Bank's loan
concentrations, when tested by regulators as a percentage of
equity, to approach certain regulatory limitations.
For the foregoing reasons, our investment bankers have
advised us that Three Rivers Bank be separated from USBANCORP
through a spin off so that Three Rivers Bank (through Three
Rivers Bancorp) will be better situated to participate in the
consolidation of the banking industry and to raise capital.
The second business purpose for the Distribution, which is
related to the first purpose, is to remedy the lack of fit and
focus between Three Rivers Bank and U.S. Bank. A separation of
these banks would allow each bank to pursue separate strategies
that are necessary to enhance each bank's performance and to
allow each bank to remain competitive by eliminating the
systemic management, operational and financing issues that have
arisen out of the fact that one bank is unionized while the
other is not. Most notably, U.S. Bank has not been able to
aggressively grow or directly promote its union connection
because USBANCORP has been reluctant to allocate additional
capital to U.S. Bank for such purposes.
The Distribution will allow U.S. Bank to aggressively
pursue its own business strategies including, among other
things, marketing itself as a union institution. This strategy
will allow U.S. Bank to capitalize on its good relationship with
the United Steelworkers of America, which represents about 65%
of U.S. Bank's total work force. In 1998, U.S. Bank received
the Pennsylvania Governor's Award for outstanding labor-
management cooperation. In October 1999, a four-year collective
bargaining agreement was signed, which was approved by over 90%
of the union's voting members. Management believes that this
contract will, among other things, allow it to expand customer
convenience by providing non-traditional hours of service, and
to facilitate certain of its post-Distribution strategies
described below.
Management does not believe that, after the Distribution,
USBANCORP will be an acquisition target or likely acquiror of
other banks. Rather, it anticipates internal growth for the
institution achieved through the successful implementation of
its business plan, which includes a plan to market the union as
a strength.
After the Distribution, U.S. Bank intends to, among other
things:
- commit the capital resources necessary to expand its
presence into the demographically attractive Centre
County, Pennsylvania market,
- actively advertise its union affiliation, including
placing the United Steelworkers logo on selected
print and electronic media advertising, and aggressively
market its services to unions and union members in the
western Pennsylvania market,
- include union representation on its board
of directors,
- more aggressively seek to attract union
business in its trust department, including the
management of Taft-Hartley funds and other union
pension and health and welfare funds, and
- seek to attract union investment in USBANCORP stock.
By focusing its business plan on U.S. Bank's strengths and
opportunities, management of USBANCORP believes it will be able
to significantly grow its earnings stream to a level that,
coupled with its capital management strategies, will allow
USBANCORP to be an attractive investment for its shareholders.
As further evidence of the lack of fit and focus between
the two banks, U.S. Bank is in a demographically older, slower
growth market, while Three Rivers Bank is in a younger, stronger
growth market. U.S. Bank enjoys a dominant market share in its
slow growth market, whereas Three Rivers Bank has only a small
share of the market it serves. The different characteristics of
each bank have resulted in the evolution of two distinct
business strategies. Three Rivers Bank believes that it should
focus on its core commercial banking competence and not attempt
to be "all things to all people." In seeking new commercial
banking customers, Three Rivers Bank will aggressively pursue an
increased share of the greater Pittsburgh market. By contrast,
U.S. Bank believes that it must have a full menu of banking and
investment products, including trust services, to offer its
older customer base. As a result, U.S. Bank's corporate
strategy is to develop its full menu of services and cross
market as many services as possible to a relatively stable
customer base.
Finally, the Distribution would allow USBANCORP and U.S.
Bank to position themselves to negotiate and organize an
employee stock ownership plan (an "ESOP") for the benefit of
employees of the USBANCORP affiliated group. In order to assist
U.S. Bank in its negotiations with the union, U.S. Bank has
desired for some time to offer an employee stock ownership plan
("ESOP") to its employees. However, because of the requirements
of the Employee Retirement Income Security Act (ERISA),
USBANCORP is unable to initiate an ESOP at U.S. Bank unless
employees of Three Rivers Bank are also eligible to participate.
The separation of Three Rivers Bank and U.S. Bank will enable
U.S. Bank to offer the creation of an ESOP to the union in
exchange for modifications in other benefit plans. Any
implementation of the ESOP would be contingent on an agreement
being reached between U.S. Bank and the union with respect to
the terms of the ESOP.
Accordingly, USBANCORP has concluded that the long-term
interests of both businesses are best served through the
creation of two separate, independent corporations which can
each focus on pursuing its own defined business strategies.
Manner of Effecting the Distribution
On or before the Distribution Date, USBANCORP will transfer
to BankBoston, N.A., as Distribution Agent for the benefit of
holders of record of USBANCORP Common Stock at the close of
business on __________________, 2000 (the "Record Date"), all
shares of Three Rivers Bancorp Common Stock then owned by
USBANCORP.
The Distribution will be made to holders of record of
USBANCORP Common Stock at the close of business on the Record
Date, without any consideration being paid by such holders, on
the basis of one share of Three Rivers Bancorp Common Stock for
every two shares of USBANCORP Common Stock held on the Record
Date. Three Rivers will participate in the Direct Registration
System to effect the Distribution, and shares of Three Rivers
Bancorp Common Stock will be distributed to USBANCORP
shareholders in book-entry form. Commencing on or about the
Distribution Date, the Distribution Agent will begin mailing
account statements reflecting ownership of shares of Three
Rivers Bancorp Common Stock to holders of record of USBANCORP
Common Stock. Any Three Rivers shareholders that would like to
receive a certificate representing their shares may contact the
Distribution Agent. The shares of Three Rivers Bancorp Common
Stock will be fully paid and nonassessable and holders will not
be entitled to preemptive rights. See "Description of Three
Rivers Capital Stock -- Three Rivers Bancorp Common Stock."
No fractional shares will be distributed as part of the
Distribution, other than fractional shares that will be credited
to the accounts of participants in certain USBANCORP plans as
described below. The Distribution Agent will aggregate
fractional shares, other than those held by participants in such
plans, into whole shares of Three Rivers Bancorp Common Stock
and sell them on the open market at prevailing prices on behalf
of holders who would otherwise be entitled to receive such
fractional share interests. Any such persons entitled to
receive at least $0.01 will receive a cash payment for their
portion of the total sale proceeds. Any persons entitled to
receive less than $0.01 will have their fractional shares
canceled.
Distribution of Three Rivers Bancorp Common Stock with
respect to USBANCORP Common Stock held in the USBANCORP and U.S.
Bank Pension Plan, Profit Sharing Plan, and 401(k) Plan, and the
USBANCORP Dividend Reinvestment Plan will be credited to
participants' accounts. Fractional shares will be credited with
respect to each of these plans other than the USBANCORP Dividend
Reinvestment Plan. Fractional shares with respect to the
USBANCORP Dividend Reinvestment Plan will be cashed out. The
Distribution Agent will aggregate fractional shares held by
participants in the Dividend Reinvestment Plan into whole shares
of Three Rivers Bancorp Common Stock and sell them on the open
market at prevailing prices on behalf of participants who would
otherwise be entitled to receive such fractional share
interests. The Dividend Reinvestment Plan accounts of
participants entitled to receive at least $0.01 will receive a
cash payment for their portion of the total sale proceeds. Any
accounts entitled to receive less than $0.01 will have their
fractional shares canceled.
The Distribution is subject to a number of conditions
including:
(i) receipt of a favorable ruling of the Internal
Revenue Service that the Distribution will be tax-free to
USBANCORP and its shareholders;
(ii) receipt of Federal Reserve Board and Pennsylvania
Department of Banking regulatory approvals;
(iii) the Three Rivers Bancorp Common Stock being
approved for listing on the Nasdaq National Market; and
(iv) approval by USBANCORP's Board of Directors of the
final terms of the Distribution, including, without limitation,
the formal declaration of a dividend to USBANCORP's shareholders
and other specific actions necessary to the Distribution.
The USBANCORP Board of Directors may amend, modify or
abandon the Distribution at any time prior to the Distribution
Date.
Results of the Distribution
Subsequent to the Distribution, which will be effective at
11:59:59 p.m. E.D.T. on the Distribution Date, Three Rivers
Bancorp, together with Three Rivers Bank and its subsidiaries,
will operate as an independent banking company, principally in
the Pennsylvania Counties of Allegheny, Washington and
Westmoreland. USBANCORP, together with its subsidiaries U.S.
Bank, Standard Mortgage Corporation of Georgia, USBANCORP Trust
and Financial Services Company, United Bancorp Life Insurance
Company, USNB Financial Services Corporation, UBAN Associates,
Inc. and UBAN Mortgage Company, will continue to conduct
business principally in the Pennsylvania Counties of Cambria,
Somerset, Westmoreland and Centre.
Relationship between USBANCORP and Three Rivers Bancorp after
the Distribution
After the Distribution, USBANCORP will have no ownership
interest in Three Rivers Bancorp or Three Rivers Bank, and Three
Rivers Bancorp will be an independent, publicly-owned company.
However, immediately after the Distribution Date, approximately
___ shares of Three Rivers Bancorp Common Stock (___% of the
estimated total outstanding shares) will be owned by USBANCORP's
and U.S. Bank's Pension Plan, Profit Sharing Plan and 401(k)
Plan. Three Rivers Bancorp and USBANCORP will enter into
certain agreements, described below, governing their
relationship subsequent to the Distribution and providing for
the allocation of tax liabilities and obligations arising from
periods prior to and after the Distribution. Copies of the
forms of such agreements are filed with the Securities and
Exchange Commission as exhibits to the Registration Statement of
which this Information Statement is a part. The following
summarizes the material terms of such agreements, but is
qualified by reference to the text of such agreements.
Spin-Off of Standard Mortgage Corporation to USBANCORP
Standard Mortgage Corporation of Georgia ("SMC") is
currently a wholly owned subsidiary of Three Rivers Bank engaged
in the mortgage banking business. Prior to the Distribution,
Three Rivers Bank will distribute all of the outstanding shares
of the capital stock of SMC to USBANCORP, so that SMC will be a
wholly owned subsidiary of USBANCORP. This internal
distribution is being effected: (i) because the business of
SMC will be more closely associated with the business plan of
USBANCORP than with that of Three Rivers Bancorp, and (ii) in
order to continue to provide USBANCORP with an income stream to
partially fund certain current debt service obligations that it
will retain after the Distribution.
Separation Agreement
USBANCORP and Three Rivers Bancorp will enter into a
Separation Agreement, which will provide for, among other
things, certain services, records and personnel which USBANCORP
and Three Rivers Bancorp will make available to each other after
the Distribution Date.
Services Agreement
To facilitate an orderly transition, USBANCORP and Three
Rivers Bancorp may enter into a Services Agreement pursuant to
which USBANCORP may continue to provide, upon annual review,
certain services to Three Rivers, with the related costs and
expenses being paid by Three Rivers. Three Rivers will
nonetheless have to utilize additional personnel to perform
certain services previously provided by USBANCORP, such as
investor relations, credit review and analysis and the chief
financial officer function.
Tax Separation Agreement
USBANCORP and Three Rivers Bancorp will enter into a Tax
Separation Agreement (the "Tax Separation Agreement"), on behalf
of themselves and their respective consolidated groups, that
reflects each party's rights and obligations with respect to
payments and refunds of taxes that are attributable to periods
beginning prior to and including the Distribution Date and
taxes resulting from transactions effected in connection with
the Distribution. The Tax Separation Agreement also expresses
each party's intention with respect to certain tax attributes of
Three Rivers Bancorp after the Distribution. The Tax Separation
Agreement provides for payments between the two companies for
certain tax adjustments made after the Distribution that cover
pre-Distribution tax liabilities. Other provisions cover the
handling of internal audits, settlements, stock options,
elections, accounting methods and return filing in cases where
both companies have an interest in the results of these
activities.
Certain U.S. Federal Income Tax Consequences of the Distribution
Prior to the Distribution, USBANCORP expects to receive a
ruling from the Internal Revenue Service to the effect that the
Distribution will qualify as a tax-free Distribution under
Sections 355 and 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and, accordingly, that (i) except as
described below with respect to fractional shares, USBANCORP's
shareholders will not recognize income, gain or loss upon the
receipt of shares of Three Rivers Bancorp Common Stock; (ii) the
aggregate tax basis of the shares of USBANCORP Common Stock and
Three Rivers Bancorp Common Stock (including any fractional
share interests to which a USBANCORP shareholder is entitled)
held by a USBANCORP shareholder after the Distribution will be
the same as the tax basis of the shares of USBANCORP Common
Stock held by such shareholder immediately before the
Distribution, and will be allocated between the shares of Three
Rivers Bancorp Common Stock and USBANCORP Common Stock in
proportion to their relative fair market values on the
Distribution Date; (iii) the holding period of the shares of
Three Rivers Bancorp Common Stock received by a USBANCORP
shareholder (including any fractional share interests to which a
USBANCORP shareholder is entitled) will include the holding
period of the shares of USBANCORP Common Stock with respect to
which the Distribution was made, provided that the shares of
USBANCORP Common Stock are held as a capital asset by such
shareholder on the Distribution Date; and (iv) cash received in
lieu of fractional share interests in Three Rivers Bancorp
Common Stock will give rise to gain or loss equal to the
difference between the amount of cash received and the tax basis
allocable to such fractional share interests. Such gain or loss
will be capital gain or loss if the shares of USBANCORP Common
Stock are held as a capital asset on the Distribution Date. The
receipt of such a ruling is a condition to the Distribution.
The foregoing is a summary of the material U.S. Federal
income tax consequences of the Distribution under the law in
effect as of the date of this Information Statement. IT DOES
NOT PURPORT TO COVER ALL INCOME TAX CONSEQUENCES AND MAY NOT
APPLY TO SHAREHOLDERS WHO ACQUIRED THEIR USBANCORP SHARES IN
CONNECTION WITH A GRANT OF SHARES AS COMPENSATION, WHO ARE NOT
CITIZENS OR RESIDENTS OF THE UNITED STATES, OR WHO ARE OTHERWISE
SUBJECT TO SPECIAL TREATMENT UNDER THE CODE. All USBANCORP
shareholders should consult their own tax advisors regarding the
appropriate income tax treatment of their receipt of Three
Rivers Bancorp Common Stock, including the application of
Federal, state, local and foreign tax laws, and the effect of
possible changes in tax law that may affect the tax consequences
described above.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data includes
the operations of Three Rivers Bank on a consolidated basis,
excluding the balance sheet data and results of operations of
Standard Mortgage Corporation of Georgia, its wholly owned
subsidiary which will be spun off to USBANCORP prior to the
Distribution. See "The Distribution--Spin-Off of Standard
Mortgage Corporation to USBANCORP."
The following selected consolidated financial data of Three
Rivers Bank should be read in conjunction with, and is qualified
in its entirety by reference to, the audited Consolidated
Financial Statements, the unaudited Consolidated Financial
Statements and the related notes thereto included on pages F-2
to F-43.
The pro forma selected financial data of Three Rivers
Bancorp set forth below is derived from the unaudited Pro Forma
Condensed Combined Financial Information included on pages F-36
to F-38. The pro forma data does not purport to represent what
Three Rivers Bancorp's financial position or results of
operations would have been had it operated as a separate,
independent company, nor does it give effect to any events other
than those discussed in the related notes. The pro forma data
also does not purport to project Three Rivers Bancorp's
financial position or results of operations as of any future
date or for any future period.
The capital structure that existed when Three Rivers Bank
operated as part of USBANCORP may not be representative of the
expected future capital structure as a separate, independent
company. Accordingly, per share data for earnings and cash
dividends declared has not been presented except for pro forma
earnings per share for the nine months ended September 30, 1999,
for which a distribution of one share of Three Rivers Bancorp
Common Stock for every two shares of USBANCORP Common Stock
outstanding was assumed.
<TABLE>
<CAPTION>
PRO FORMA NINE MONTHS
NINE MONTHS ENDED ENDED September 30, YEAR ENDED DECEMBER 31,
September 30, 1999 1999 1998 1998 1997(1) 1996(1) 1995(1) 1994(1)
(unaudited) (Dollars in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Income State-
ment Data:
Total interest income $52,365 $ 52,365 $ 51,068 $ 67,926 $ 65,103 $ 55,439 $ 50,812 $ 48,263
Total interest expense 30,132 30,132 28,800 38,455 36,032 29,371 27,724 22,108
Net interest income 22,233 22,233 22,268 29,471 29,071 26,068 23,088 26,155
Provision for loan losses 225 225 225 300 113 90 285 235
Net interest income after provision for
loan losses 22,008 22,008 22,043 29,171 28,958 25,978 22,803 25,920
Total non-interest income 4,341 4,341 5,081 6,918 5,282 4,866 5,175 4,573
Total non-interest expense 16,130 15,700 15,235 20,320 19,598 21,558 18,927 20,669
Income before income taxes 10,219 10,649 11,889 15,769 14,642 9,286 9,051 9,824
Provision for income taxes 3,040 3,168 3,591 4,762 4,522 2,523 2,513 3,353
Income from continuing operations 7,179 7,481 8,298 11,007 10,120 6,763 6,538 6,471
Per Common Share Data:
Basic and diluted earnings 1.08 NR NR NR NR NR NR NR
Book value at period end (2) 7.52 NR NR NR NR NR NR NR
Balance Sheet and Other Data:
Total assets 1,050,230 1,050,532 972,156 985,586 947,669 838,568 741,125 702,034
Loans and loans held for sale, net of
unearned income 469,039 469,039 468,974 468,194 466,615 431,928 367,940 444,831
Allowance for loan losses 5,600 5,600 6,082 6,104 6,006 6,025 6,834 7,290
Investment securities
available for sale 398,297 398,297 318,649 327,669 279,461 182,793 166,814 149,267
Investment securities held
to maturity 131,903 131,903 148,521 149,988 167,339 180,226 163,001 71,275
Deposits 548,856 548,856 550,240 560,450 525,810 529,337 552,988 559,487
Total borrowings 441,445 441,445 350,091 354,272 360,844 253,529 133,783 95,201
Stockholders' equity 50,299 50,299 63,367 61,031 51,838 47,193 46,666 40,424
Full-time equivalent employees 264 264 259 260 259 273 289 293
Selected Financial Ratios:
Return on average total equity 16.81 17.52 19.18 18.58 20.13 14.49 15.20 14.70
Return on average assets 0.94 0.98 1.18 1.16 1.14 0.87 0.91 0.92
Loans and loans held for sale,
net of unearned income, as a percent
of deposits, at period end 82.50 82.50 85.39 85.31 83.36 71.46 69.84 78.33
Ratio of average total equity to
average assets 5.58 5.58 6.17 6.27 5.68 6.00 6.00 6.28
Interest rate spread (3) 2.57 2.57 2.79 2.74 2.96 3.19 2.93 3.41
Net interest margin (4) 3.09 3.09 3.36 3.31 3.50 3.71 3.50 3.97
Allowance for loan losses as a
percentage of loans and loans
held for sale, net of
unearned income, at period end 1.26 1.26 1.30 1.30 1.34 1.69 1.75 1.73
Non-performing assets as a
percentage of loans and loans held
for sale and other real estate
owned, at period end (5) 1.91 1.91 0.58 0.66 0.96 1.17 1.52 1.01
Net charge-offs as a percentage of
average loans
and loans held for sale 0.21 0.21 0.04 0.04 0.03 0.23 0.07 0.02
One year GAP ratio, at period end(6) 0.75 0.75 0.79 1.02 0.64 0.84 0.78 0.86
</TABLE>
(1) Includes the results of operation of Community Savings Bank
for the period from January 1, 1994, until its merger with
and into Three Rivers Bank on July 18, 1997.
(2) Common stockholders' equity divided by outstanding common
shares at period end.
(3) Represents the difference between the average yield earned
on interest earning assets, computed on a tax-equivalent
basis, and the average rate paid on interest bearing
liabilities.
(4) Represents net interest income, computed on a tax-
equivalent basis, as a percentage of average total interest
earning assets.
(5) See Note 8 of the Notes to the Combined Financial
Statements set forth elsewhere herein.
(6) Represents rate sensitive assets (interest earning assets
which will mature or reprice within one year) divided by
rate sensitive liabilities (interest bearing liabilities
which will mature or reprice within one year).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Rivers Bancorp has only recently been formed and
therefore, it has no results of operations. As a result, this
discussion relates to the financial condition and results of
operations of Three Rivers Bank and its subsidiaries (excluding
Standard Mortgage Corporation of Georgia, the stock of which
will be distributed to USBANCORP prior to the Distribution) on a
combined basis.
The following discussion and analysis of financial
condition and results of operations of Three Rivers Bank should
be read in conjunction with the combined financial statements of
Three Rivers Bank, including the related notes thereto, included
elsewhere herein.
The following table summarizes some of Three Rivers Bank's
key performance indicators for the nine months ended
September 30, 1999 and 1998, and for the three years ended
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1999 1998 1998 1997 1996
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Income from continuing
operations $7,481 $8,298 $11,007 $10,120 $ 6,763
Return on average equity 17.52% 19.18% 18.58% 20.13% 14.49%
Return on average assets 0.98% 1.18% 1.16% 1.14% 0.87%
</TABLE>
RESULTS OF OPERATIONS
PERFORMANCE OVERVIEW FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 1998 . . .Three Rivers Bank's income from continuing
operations ("net income") for year to date September 30, 1999
totaled $7.5 million. The year to date 1999 results are
$817,000 or 9.9% lower than the $8.3 million reported for the
same period of 1998. Three Rivers Bank's return on equity (ROE)
averaged 17.52% for year to date September 30, 1999 which
represented a decrease from the 19.18% ROE reported in the same
nine month period of 1998. The Bank's return on assets dropped
by 20 basis points to 0.98% for year to date September 30, 1999.
Reduced non-interest income and higher non-interest
expenses negatively impacted both net income and ROE in the nine
months ended September 30, 1999. Specifically, non-interest
income decreased by $740,000 or 14.6%, while non-interest
expense increased by $465,000 or 3.1%. The Bank's equity base
was reduced modestly by a drop in other comprehensive income due
to a decline in value of the Bank's available for sale
securities portfolio.
PERFORMANCE OVERVIEW FOR THE YEARS ENDED DECEMBER 31, 1998, 1997
AND 1996... Three Rivers Bank's net income for 1998 was
$11.0 million compared to net income of $10.1 million for 1997
and net income of $6.8 million for 1996. When 1998 is compared
to 1997, the Bank's net income increased by $887,000 or 8.8%.
When 1997 is compared to 1996, the Bank's net income increased
by $3.4 million or 49.6%. The Bank's return on equity averaged
18.58% for 1998 compared to 20.13% for 1997 and 14.49% for 1996.
An increase in Three Rivers Bank's net interest margin and
a higher level of non-interest income more than offset an
increased amount of non-interest expense resulting in an
earnings increase in 1998. Specifically, total non-interest
income increased by $1.6 million or 31.0% while net interest
income also increased by $400,000 or 1.4% from the prior year.
This net $2.0 million increase in total revenue more than offset
higher non-interest expense and an increase in the provision for
loan losses. Total non-interest expense was $722,000 or 3.7%
higher in 1998 while the provision for loan losses increased by
$187,000.
When 1997 is compared to 1996, net interest income
increased by $3.0 million or 11.5% while total non-interest
income grew by $416,000 or 8.6%. This increased revenue
combined with lower noninterest expense resulted in a $3.4
million or 49.6% increase in net income. Overall, total non-
interest expense was $2.0 million or 9.1% lower in 1997,
primarily as a result of $2.5 million lower FDIC insurance
expense. In 1996 a special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF")insurance fund took
place resulting in higher levels of FDIC insurance.
NET INTEREST INCOME AND MARGIN ... Three Rivers Bank's net
interest income represents the amount by which interest income
on earning assets exceeds interest paid on interest bearing
liabilities. Net interest income is a primary source of the
Bank's earnings; it is affected by interest rate fluctuations as
well as changes in the amount and mix of earning assets and
interest bearing liabilities. It is the Bank's philosophy to
strive to optimize net interest margin performance in varying
interest rate environments.
The following table summarizes Three Rivers' net interest
income performance for each of the past three years and for the
nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1999 1998 1998 1997 1996
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Interest Income $52,365 $51,068 $67,926 $65,103 $55,439
Interest expense 30,132 28,800 $38,455 $36,032 $29,371
Net interest income 22,233 22,268 $29,471 $29,071 $26,068
Tax-equivalent adjust-
ment 706 575 782 731 886
Net tax-equivalent
interest income 22,939 22,843 $30,253 $29,802 $26,954
Net interest margin 3.09% 3.36% 3.31% 3.50% 3.71%
</TABLE>
SEPTEMBER 30, 1999 NET INTEREST PERFORMANCE OVERVIEW . . .Three
Rivers Bank's net interest income on a tax-equivalent basis
increased by $96,000 or 0.42% due to a higher level of earning
assets. Total average earning assets were $83.0 million higher
in nine month period ending September 30, 1999 due to a $83.2
million or 19.1% increase in investment securities. The higher
amount of investment securities was funded primarily by a $64.9
million increase in FHLB advances and $12.0 million in deposits
acquired in a branch acquisition completed in February 1999.
The income benefit from this growth in earning assets was
partially offset by a 27 basis point decline in the net interest
margin to 3.09%. The drop in the net interest margin reflects a
46 basis point decline in the earning asset yield which more
than offset the benefit of a 23 basis point reduction in the
cost of funds. The Bank has, however, experienced a
stabilization of the net interest margin on a quarterly basis in
1999 due to a noticeable slowing of asset prepayment speeds, and
continued growth in the higher yielding commercial loan
component of its loan portfolio.
The overall growth in the earning asset base was one
strategy used by the Bank to leverage its capital. The maximum
amount of leveraging the Bank can perform is controlled by
internal policy requirements to maintain a minimum asset
leverage ratio of no less than 6.0% (see further discussion
under Capital Resources) and to limit net interest income
variability to +/- 7.5% and net income variability to +/- 15%
over a twelve month period. (See further discussion under
Interest Rate Sensitivity).
COMPONENT CHANGES IN NET INTEREST INCOME: SEPTEMBER 30, 1999
VERSUS SEPTEMBER 30, 1998 . . . Regarding the separate
components of net interest income, Three Rivers Bank's total
tax-equivalent interest income for the nine month period ending
September 30, 1999 increased by $1.4 million or 2.8% when
compared to the same 1998 period. This increase was due to the
previously mentioned $83 million or 9.2% increase in total
average earning assets which caused interest income to rise by
$2.2 million. This positive factor was offset by a 46 basis
point drop in the earning asset yield to 7.18% that caused a
$924,000 reduction in interest income. Within the earning asset
base, the yield on the total loan portfolio declined by 47 basis
points to 8.07% due to the downward repricing of floating rate
assets and the reinvestment of cash received on higher yielding
prepaying assets into loans with lower interest rates. The
yield on total investment securities decreased by 31 basis
points to 6.32% due to accelerated mortgage prepayments and the
reinvestment of this cash into lower yielding securities. These
heightened prepayments reflect increased customer refinancing
activity due to drops in intermediate- and long-term interest
rates on the treasury yield curve particularly in the fourth
quarter of 1998 and first quarter of 1999. This refinancing
activity slowed significantly beginning in the second quarter of
1999 when the treasury yield curve began steepening again.
Three Rivers Bank's total interest expense for year to date
September 30, 1999 increased by $1.3 million or 4.6% when
compared to the same 1998 period. This higher interest expense
was due primarily to a $79 million increase in average interest
bearing liabilities. The growth in interest bearing liabilities
included a $16 million increase in interest bearing deposits due
largely to the deposits acquired with the February 1999 branch
acquisition, net of certificate of deposit run-off and the sale
of one small branch office. The remainder of the interest
bearing liability increase occurred in FHLB advances which
increased by $65 million and were used to help fund the
previously mentioned earning asset growth. Short-term
borrowings and FHLB advances had an average cost of 5.37% for
the nine months ending September 30, 1999 which was 33 basis
points lower than their cost in the prior year's same nine month
period but 139 basis points greater than the average cost of
deposits which amounted to 3.98%. The Bank was able to reduce
its cost of deposits by 25 basis points due primarily to lower
costs for certificates of deposit. Overall, the Bank's total
cost of funds dropped by 23 basis points to 4.61% as the pricing
declines for both deposits and borrowings were partially offset
by a greater use of borrowings to fund the earning asset base.
Three Rivers Bank recognizes that interest rate risk does
exist from this use of borrowed funds to leverage the balance
sheet. To neutralize a portion of this risk, Three Rivers Bank
has executed a total of $40 million of off-balance sheet hedging
transactions which help fix the variable funding costs
associated with the use of short-term borrowings to fund earning
assets. (See further discussion under Note 18 to the
consolidated financial statements set forth elsewhere herein.)
The Bank also has asset liability policy parameters which limit
the maximum amount of borrowings to 40% of total assets.
1998 NET INTEREST PERFORMANCE OVERVIEW ... Net interest income
of Three Rivers Bank on a tax-equivalent basis increased by
$451,000 or 1.5%, due to a $61 million or 7.2% increase in
average earning assets in 1998 compared to 1997. This increase
in average earning assets more than offset the negative impact
of a 19 basis point decline in the net interest margin to 3.31%.
The drop in the net interest margin reflects a 20 basis point
decline in the earning asset yield due primarily to accelerated
mortgage prepayments in both the securities and loan portfolios
resulting from the flat treasury yield curve and the
reinvestment of these cash flows in lower yielding assets. The
cost of funds remained relatively constant and only increased by
one basis point.
Total average earning assets were $61 million higher in
1998 due primarily to a $43 million or 10.9% increase in
investment securities and a $17 million or 3.7% increase in
average loans outstanding. Three Rivers Bank was able to
achieve 37% loan growth in commercial loans, and moderate loan
growth in direct consumer loans and residential mortgage and
home equity loans, resulting in 0.34% net loan growth in 1998.
The higher level of investment securities resulted from more
active buying of securities in the second half of 1998 due to
expected declines in interest rates and to position the balance
sheet for the inflow of deposits from a branch acquisition that
occurred in February 1999.
COMPONENT CHANGES IN NET INTEREST INCOME: 1998 VERSUS 1997 ...
Regarding the separate components of net interest income, Three
Rivers Bank's total interest income for 1998 increased by $2.8
million or 4.3% when compared to 1997. This increase was due
primarily to a $61 million or 7.2% increase in total average
earning assets which caused interest income to rise by $4.1
million. This positive factor was partially offset by a 20
basis point drop in the earning asset yield to 7.55% that caused
a $1.3 million reduction in interest income. Within the earning
asset base, the yield on total investment securities decreased
by 31 basis points to 6.56%, as accelerated mortgage prepayment
speeds caused increased amortization expense on mortgage-backed
securities which had been purchased at a premium. The yield on
the total loan portfolio declined by three basis points to 8.45%
due to the downward repricing of floating rate assets and the
reinvestment of cash received on higher yielding prepaying
assets into loans with lower interest rates. These heightened
prepayments reflect increased customer refinancing activity due
to drops in intermediate- and long-term interest rates on the
treasury yield curve in 1998. Note that the decline in the loan
portfolio yield was not as significant as the drop in the
investment securities portfolio yield, due partially to the
collection of prepayment penalties on certain commercial
mortgage loan pay-offs and a favorable shift in the loan
portfolio mix away from lower yielding indirect auto loans.
Continued improvement in the loan-to-deposit ratio
contributed to the earning asset growth. Three Rivers Bank's
loan-to-deposit ratio averaged 85.31% in 1998 compared to an
average of 83.36% for 1997. This loan growth resulted primarily
from the Bank's ability to originate middle market commercial
loans in a market place dominated by a few large commercial
lenders. The other contributing factor to the loan growth was a
stable economic environment.
Three Rivers Bank's total interest expense for 1998
increased by $2.4 million or 6.7% when compared to 1997. This
higher interest expense was due primarily to a $48.4 million
increase in average interest bearing liabilities. The growth in
interest bearing liabilities came primarily from $10.2 million
in short-term and $36.5 million in Federal Home Loan Bank
borrowings. For 1998, the Bank's total level of short-term
borrowed funds and FHLB advances averaged $326.7 million or
34.6% of total assets compared to an average of $280.0 million
or 31.7% of total assets for 1997. These borrowed funds had an
average cost of 5.63% in 1998 which was 143 basis points greater
than the average cost of interest bearing deposits of 4.20%.
The greater dependence on borrowings to fund earning assets was
the primary factor responsible for the one basis point increase
in the total cost of interest bearing liabilities to 4.80% in
1998. This increase in the total cost of funds occurred despite
a six basis point drop in the cost of interest bearing deposits
to 4.20%, as management was able to reprice all major deposit
categories downward in 1998.
To neutralize a portion of its interest rate risk, Three
Rivers Bank has executed a total of $25 million of off-balance
sheet hedging transactions which help fix the variable funding
costs associated with the use of short-term borrowings to fund
earning assets. If new loan opportunities do not occur or if
the incremental spread on new investment security purchases is
not at least 100 basis points greater than the short-term
borrowed funds costs, then the Bank will reduce its leverage of
the balance sheet by paying-off borrowings.
1997 NET INTEREST PERFORMANCE OVERVIEW ... Three Rivers Bank's
net interest income on a tax-equivalent basis increased by $2.8
million or 10.6% in 1997 compared to 1996 due to growth in
earning assets. Total average earning assets were $109 million
higher in 1997 with approximately a 15% growth in both loans and
investment securities. Specifically, total loans grew by $61
million or 15.9% while investment securities increased by $50
million or 14.3%. Despite this balanced growth in the earning
asset base, the net interest margin declined by 13 basis points
to 3.50%. An increased use of borrowings from the Federal Home
Loan Bank to fund the earning asset growth combined with a 14
basis point increase in interest bearing deposits caused the
compression in the net interest margin.
COMPONENT CHANGES IN NET INTEREST INCOME: 1997 VERSUS 1996 ...
Regarding the separate components of net interest income, Three
Rivers Bank's total tax-equivalent interest income for 1997
increased by $9.5 million or 16.9% when compared to 1996. This
increase was due primarily to a $109 million or 14.8% increase
in total average earning assets which caused interest income to
rise by $8.6 million. The remainder of the increase in interest
income was caused by a 14 basis point improvement in the earning
asset yield to 7.75%. Within the earning asset base, the yield
on total investment securities increased by 24 basis points to
6.87% while the yield on the total loan portfolio increased by
five basis points to 8.48%.
The loan-to-deposit ratio of Three Rivers Bank averaged
83.36% in 1997, compared to an average of 71.46% in 1996. The
loan yield benefited from a $6.7 million or 20.6% growth in the
commercial loan portfolio. Total commercial and commercial
mortgage loans comprised 45.1% of total loans at December 31,
1997, compared to 41.8% at December 31, 1996. The higher
commercial loan totals resulted from increased production from
middle market and small business lending (loans of less than
$250,000).
The Bank's total interest expense for 1997 increased by
$6.7 million or 22.7% when compared to 1996 due primarily to a
$99.7 million increase in average interest bearing liabilities.
The remainder of the increase was due to a 29 basis point rise
in the cost of funds to 4.79%. The cost of deposits increased
by 14 basis points to 4.26%. Within the liability mix, total
average borrowed funds increased by $107 million in order to
fund the earning asset growth and replace a $3.5 million outflow
in deposits. For 1997, the Bank's total level of short-term
borrowed funds and FHLB advances averaged $280 million or 31.7%
of total assets compared to an average of $172 million or 22.1%
of total assets for 1996. These borrowed funds had an average
cost of 5.61% in 1997 which was 135 basis points greater than
the average cost of interest bearing deposits which amounted to
4.26%. The combination of all these price and liability
composition movements caused the Bank's average cost of interest
bearing liabilities to increase by 29 basis points from 4.50% in
1996 to 4.79% in 1997.
AVERAGE BALANCE SHEETS
The table that follows provides an analysis of net interest
income on a tax-equivalent basis setting forth (i) average
assets, liabilities and stockholders' equity, (ii) interest
income earned on interest earning assets and interest expense
paid on interest bearing liabilities, (iii) average yields
earned on interest earning assets and average rates paid on
interest bearing liabilities, (iv) Three Rivers' interest rate
spread (the difference between the average yield earned on
interest earning assets and the average rate paid on interest
bearing liabilities), and (v) Three Rivers' net interest margin
(net interest income as a percentage of average total interest
earning assets). For purposes of this table, loan balances
include non-accrual loans and interest income on loans includes
loan fees or amortization of such fees which have been deferred,
as well as interest recorded on non-accrual loans as cash is
received. Additionally, a tax rate of approximately 34% is used
to compute tax equivalent yields.
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets: (In thousands, except percentages)
Loans, net of unearned
income $ 462,426 $28,439 8.07% $462,765 $29,962 8.54%
Deposits with banks 1,052 19 2.39 874 5 0.82
Federal funds sold and
securities purchased
under agreement to resale - - - 31 1 5.50
Investment securities and
investment securities
available for sale:
Available for sale 375,501 17,742 6.30 275,340 13,612 6.59
Held to maturity 143,279 6,871 6.39 160,279 8,063 6.71
Total investment
securities 518,780 24,613 6.32 435,619 21,675 6.63
Total interest earning
asset/interest income 982,258 53,071 7.18 899,289 51,643 7.64
Non-interest earning assets:
Cash and due from banks 16,504 14,326
Premises and equipment 4,989 4,536
Other assets 24,570 25,213
Allowance for loan losses (5,898) (6,054)
TOTAL ASSETS 1,022,423 937,310
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand 44,315 323 0.97 42,491 309 0.97
Savings 66,727 891 1.79 65,599 781 1.59
Money Market Accts 58,513 1,306 2.98 50,132 1,050 2.80
Other time 314,551 11,874 5.05 310,305 12,670 5.46
Total interest bearing
deposits 484,106 14,394 3.98 468,527 14,810 4.23
Borrowings:
Federal funds purchased,
securities sold under
agreements to repurchase
and other short-term
borrowings 53,818 2,041 5.13 54,409 2,304 5.66
Advances from Federal
Home Loan Bank 332,505 13,485 5.42 267,636 11,420 5.70
Long-term debt 2,756 212 10.40 3,531 266 10.07
Total interest bearing
liabilities/interest
expense 873,185 30,132 4.61 794,103 28,800 4.84
Non-interest bearing
liabilities:
Demand Deposits 82,443 76,559
Other liabilities 9,694 8,794
Stockholders' equity 57,101 57,854
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 1,022,423 937,310
Interest rate spread 2.57 2.79
Net interest income/net
interest margin 22,939 3.09 22,843 3.36
Tax-equivalent adjustment (706) (575)
Net interest income 22,233 22,268
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands, except percentages)
Interest earning assets:
Loans, net of unearned income $464,015 $39,688 8.45% $447,295 $38,452 8.48% $385,912 $33,109 8.43%
Deposits with banks 815 8 0.92 - - - - - -
Federal funds sold and securities
purchased under agreement to
resale 23 1 5.49 218 11 5.12 2,218 120 5.33
Investment securities and
investment securities available
for sale:
Available for sale 283,785 18,510 6.52 211,322 14,590 6.90 161,323 10,504 6.51
Held to maturity 158,117 10,501 6.64 187,086 12,781 6.83 187,236 12,592 6.73
Total investment securities 441,902 29,011 6.56 398,408 27,371 6.87 348,559 23,096 6.63
Total interest earning asset/
interest income 906,755 68,708 7.55 845,921 65,834 7.75 736,689 56,325 7.61
Non-interest earning assets:
Cash and due from banks 14,523 15,883 17,886
Premises and equipment 4,532 4,825 4,874
Other assets 25,425 23,868 24,555
Allowance for loan losses (6,069) (6,040) (6,602)
TOTAL ASSETS 945,166 884,457 777,402
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand 43,019 418 0.97 42,645 413 0.97 44,825 438 0.98
Savings 65,399 1,042 1.59 66,633 1,218 1.83 66,663 1,372 2.06
Money Market Accts 50,963 1,449 2.84 48,173 1,284 2.67 55,024 1,419 2.58
Other time 310,109 16,805 5.42 309,220 16,986 5.49 307,707 16,287 5.29
Total interest bearing deposits 469,490 19,714 4.20 466,671 19,901 4.26 474,219 19,516 4.12
Borrowings:
Federal funds purchased,
securities sold under
agreements to repurchase and
other short-term borrowings 50,475 2,772 5.49 40,285 2,253 5.59 28,748 1,544 5.37
Advances from Federal Home Loan
Bank 276,261 15,633 5.66 239,748 13,447 5.61 142,755 7,880 5.52
Long-term debt 3,359 336 10.00 4,507 431 9.56 5,838 431 7.38
Total interest bearing liabilities/
interest expense 799,585 38,455 4.80 751,211 36,032 4.79 651,560 29,371 4.50
Non-interest bearing liabilities:
Demand Deposits 77,561 73,660 71,547
Other liabilities 8,790 9,307 7,619
Stockholders' equity 59,230 50,279 46,676
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 945,166 884,457 777,402
Interest rate spread 2.74 2.96 3.19
Net interest income/net interest
margin 30,253 3.31 29,802 3.50 26,954 3.71
Tax-equivalent adjustment (782) (731) (886)
Net interest income 29,471 29,071 26,068
</TABLE>
The average balance and yield on taxable securities was $399.4
million and 6.55%, $356.1 million and 6.87%, and $296.6 million
and 6.59% for 1998, 1997, and 1996, respectively. The average
balance and tax-equivalent yield on tax-exempt securities was
$42.5 million and 6.69%, $42.3 million and 6.86%, and $51.9
million and 6.84% for 1998, 1997, and 1996, respectively.
Net interest income may also be analyzed by segregating the
volume and rate components of interest income and interest
expense. The table below sets forth an analysis of volume and
rate changes in net interest income on a tax-equivalent basis.
For purposes of this table, changes in interest income and
interest expense are allocated to volume and rate categories
based upon the respective percentage changes in average balances
and average rates. Changes in net interest income that could not
be specifically identified as either a rate or volume change
were allocated proportionately to changes in volume and changes
in rate.
<TABLE>
<CAPTION>
1998 vs. 1997 1997 vs. 1996
Increase(decrease) Increase(decrease)
due to change in: due to change in:
Average Average Average Average
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Interest earned on:
Loans, net of unearned income $1,283 $ (121) $1,162 $5,131 $ 191 $5,322
Deposits with banks 8 - 8 - - -
Federal funds sold and
securities purchased under
agreements to resell (11) 1 (10) (104) (5) (109)
Investment securities 2,835 (1,172) 1,663 3,552 899 4,451
Total interest income 4,115 (1,292) 2,823 8,579 1,085 9,664
Interest paid on:
Interest bearing demand
deposits 5 0 5 (21) (4) (25)
Savings Deposits (22) (154) (176) (1) (153) (154)
Money market 79 86 165 (188) 53 (135)
Other time deposits 53 (234) (181) 80 619 699
Federal funds purchased,
securities sold under
agreements to repurchase,
and other short-term
borrowings 558 (39) 519 643 66 709
Advances from Federal Home
Loan Bank 2,065 121 2,186 5,437 130 5,567
Long-term debt (116) 21 (95) - - -
Total interest expense 2,622 (199) 2,423 5,950 711 6,661
Change in net interest income $1,493 $(1,093) $ 400 $2,629 $ 374 $3,003
</TABLE>
LOAN QUALITY
Three Rivers' 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. Credit reviews are mandatory for all commercial loans
and for all commercial mortgages in excess of $500,000 within an
18-month period. 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 Three Rivers' loan
delinquency and other non-performing assets:
<TABLE>
<CAPTION>
At September 30, At December 31,
1999 1998 1998 1997 1996
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Total loan delinquency (past
due 30 to 89 days) $4,101 $4,547 $5,473 $7,909 $9,838
Total non-accrual loans 8,173 2,196 2,553 2,871 3,579
Total non-performing assets(1) 8,982 2,737 3,116 4,508 5,053
Loan delinquency as a percentage
of total loans and loans held
for sale, net of unearned income 0.87% 0.97% 1.17% 1.69% 2.28%
Non-accrual loans as a
percentage of total
loans and loans held
for sale, net of
unearned income 1.74% 0.47% 0.55% 0.62% 0.83%
Non-performing assets as a
percentage of total loans and
loans held for sale, net of
unearned income, and other
real estate owned 1.91% 0.58% 0.66% 0.96% 1.17%
</TABLE>
(1) Non-performing assets are comprised of (i) loans that are
on a non-accrual basis, (ii) loans that are contractually
past due 90 days or more as to interest and principal
payments of which some are insured for credit loss, and
(iii) other real estate owned. All loans, except for loans
that are insured for credit loss, are placed on non-
accrual status immediately upon becoming 90 days past due
in either principal or interest.
Between December 31, 1998 and September 30, 1999, total
loan delinquency declined by $1.4 million causing the
delinquency ratio to drop to 0.87%. Total non-performing assets
increased by $5.9 million since year-end 1998 causing the non-
performing assets to total loans ratio to increase to 1.91%.
The increase in non-performing assets and non-accrual loans is
due to one $6.5 million commercial mortgage loan on a
construction project for which a $500,000 specific reserve
allocation has been established.
Between December 31, 1997 and December 31, 1998, each of
the key asset quality indicators demonstrated improvement.
Total loan delinquency declined by $2.4 million causing the
delinquency ratio to drop to 1.17%. Total non-performing assets
decreased by $1.4 million since year-end 1997 causing the non-
performing assets to total loans ratio to drop to 0.66%. The
overall improvement in asset quality resulted from enhanced
collection efforts on residential mortgage loans and continued
low levels of non-performing commercial loans. These favorable
asset quality trends coupled with recoveries on loans previously
charged-off of $224,000 supported Three Rivers Bank's ability to
fund the loan loss provision at a level lower than the net
charge-off experience in 1998. Between December 31, 1996 and
December 31, 1997, there were improvements in the total dollar
amount of delinquent loans outstanding from $9.8 million to $7.9
million, non-accrual loans from $3.6 million to $2.9 million,
and non-performing assets from $5.1 million to $4.5 million.
ALLOWANCE AND PROVISION FOR LOAN LOSSES ... As described in more
detail in the accounting policy footnote of the consolidated
financial statements set forth elsewhere in this Information
Statement, Three Rivers Bank uses a comprehensive methodology
and procedural discipline to maintain an allowance for loan
losses to absorb inherent losses in the loan portfolio. The
allowance can be summarized into three elements: 1) reserves
established on specifically identified problem loans, 2) formula
driven general reserves established for loan categories based
upon historical loss experience and other qualitative factors
which include delinquency and non-performing loan trends,
concentrations of credit, trends in loan volume, experience and
depth of management, examination and audit results, effects of
any changes in lending policies, and trends in policy
exceptions, and 3) a general unallocated reserve which provides
conservative positioning in the event of variance from our
assessment in the regional and local economies and to provide
protection against credit risks resulting from other inherent
risk factors contained in the Bank's loan portfolio. Note that
the qualitative factors used in the formula driven general
reserves are evaluated quarterly (and revised if necessary) by
Three Rivers' management to establish allocations which
accommodate each of the listed risk factors. The following table
sets forth changes in the allowance for loan losses and certain
ratios for the periods ended:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1999 1998 1998 1997 1996 1995 1994
(In thousands, except ratios and percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period:$ 6,104 $ 6,006 $ 6,006 $ 6,025 $ 6,834 $ 7,290 $ 7,183
Reduction due to disposition
of business line - - - - - (342) -
Charge-offs:
Commercial 682 84 86 81 801 298 165
Real estate-mortgage 208 142 183 174 156 135 84
Consumer 76 107 157 183 142 207 218
Total charge-offs 966 333 426 438 1,099 640 467
Recoveries:
Commercial 200 52 73 175 123 123 125
Real estate-mortgage 15 103 110 62 9 14 18
Consumer 22 29 41 69 68 104 196
Total recoveries 237 184 224 306 200 241 339
Net charge-offs 729 149 202 132 899 399 128
Provision for loan losses 225 225 300 113 90 285 235
Balance at end of period 5,600 6,082 6,104 6,006 6,025 6,834 7,290
========== ========== ========== ========== ========== ========== ==========
Loans and loans held for
sale, net of unearned
income:
Average for the year 462,426 462,765 464,015 447,295 385,912 395,018 447,455
At period end 469,039 468,974 468,194 466,615 431,928 367,940 444,831
As a percent of average loans
and loans held for sale:
Net charge-offs 0.21% 0.04% 0.04% 0.03% 0.23% 0.10% 0.03%
Provision for loan losses 0.07 0.07 0.06 0.03 0.02 0.07 0.05
Allowance for loan losses 1.21 1.31 1.32 1.36 1.56 1.73 1.63
Allowance as a percent of
each of the following:
Total loans and loans held
for sale, net of
unearned income 1.19 1.30 1.30 1.29 1.39 1.86 1.64
Total delinquent loans
(past due 30 to 89 days) 136.55 133.76 111.53 75.94 61.24 87.81 168.52
Total non-accrual loans 68.52 276.96 239.09 209.20 168.34 149.61 244.06
Total non-performing assets 62.35 222.21 195.89 133.23 119.24 121.75 162.25
Allowance as a multiple of
net charge-offs 7.68x 40.82x 30.22x 45.50x 6.70x 17.33x 56.95x
Total classified assets $18,674 $15,067 $17,555 $12,698 $11,113 $14,366 $6,988
</TABLE>
Three Rivers Bank's provision for loan losses for year to
date September 30, 1999 totaled $225,000 or 0.07% of average
total loans. The Bank's net loan charge-offs amounted to
$729,000 or 0.21% of average loans for the nine month period
ending September 30, 1999.
Three Rivers Bank recorded provisions for loan losses of
$300,000 in 1998, $113,000 in 1997, and $90,000 in 1996. When
expressed as a percentage of average loans, the provision has
increased from 0.02% to 0.06% over this three-year period. The
Bank's net charge-offs amounted to $202,000 or 0.04% of average
loans in 1998, $132,000 or 0.03% of average loans in 1997, and
$899,000 or 0.23% of average loans in 1996
The higher loan loss provision in 1998 was due to continued
growth of commercial and commercial real-estate loans. During
1998, commercial and commercial real-estate loans grew by $10.3
million or 4.9% while the growth rate for this higher risk loan
category was $30 million or 16.5% in 1997. An increased level
of classified loans resulting from this loan growth also
supported the higher provision level.
Since December 31, 1998, the balance in the allowance for
loan losses has decreased by $504,000 due to the net charge-offs
exceeding the loan loss provision. Three Rivers Bank's
allowance for loan losses at September 30, 1999, was 62% of non-
performing assets and 69% of non-accrual loans. The reduction
in this coverage ratio since year end 1998 is due primarily to
an increased level of non-performing assets. As mentioned
earlier, the increase in non-performing assets is due entirely
to a $6.5 million commercial mortgage loan for which a $500,000
specific reserve allocation has been established. The allowance
for loan losses of Three Rivers Bank was 196% of non-performing
assets and 239% of non-accrual loans at December 31, 1998. Both
of these coverage ratios were comparable with the prior year.
During 1998 and 1999, there were no changes in the estimation
methods or assumptions that affected the Bank's methodology for
assessing the appropriateness of the allowance for loan losses.
The Bank does not weight the unallocated general allowance among
segments of the loan portfolio.
Three Rivers Bank management is unable to determine in what
loan category future charge-offs and recoveries may occur.
The following tables set forth the allocation of the
allowance for loan losses among various categories at September
30, 1999 and 1998 and December 31, 1998, 1997 and 1996. This
allocation is determined by using the consistent procedural
discipline that was previously discussed. The entire allowance
for loan losses is available to absorb future loan losses in any
loan category.
At September 30,
1999 1998
Percent Percent
of Total of Total
Amount Loans Amount Loans
(In thousands, except percentages)
Commercial $ 300 11.38% $ 283 12.09%
Commercial loans
secured by real
estate 1,028 39.91 1,281 35.24
Real estate-mortgage 188 42.28 202 45.63
Consumer 205 6.43 174 7.04
Allocation to general
risk 3,379 4,142
Allocation for
impaired loans 500 -
Total $5,600 100.00% $6,082 100.00%
<TABLE>
<CAPTION>
At December 31,
1998 1997 1996 1995 1994
Percent Percent Percent Percent Percent
of Total of Total of Total of Total of Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 279 11.44% $ 247 8.36% $ 378 7.49% $ 664 8.37% $ 909 12.04%
Commercial loans secured
by real estate 1,339 35.69 1,465 36.73 1,526 34.32 1,024 20.49 1,885 14.92
Real estate-mortgage 213 45.51 216 48.22 286 50.12 193 63.36 226 58.09
Consumer 211 7.36 176 6.69 170 8.07 188 7.78 763 14.95
Allocation to general
risk 4,062 3,902 3,665 4,765 3,507
Total $6,104 100.00% $6,006 100.00% $6,025 100.00% $6,834 100.00% $7,290 100.00%
</TABLE>
Even though real estate-mortgage loans comprise 42% of
Three Rivers Bank's total loan portfolio, only $188,000 or 3.4%
of the total allowance for loan losses is allocated against this
loan category at September 30, 1999. The real estate-mortgage
loan allocation is based primarily upon the Bank's five-year
historical average of actual loan charge-offs experienced in
that category. The disproportionately higher allocations for
commercial loans and commercial loans secured by real estate
reflect the increased credit risk associated with this type of
lending, the evaluation of the previously mentioned qualitative
factors, and the Bank's historical loss experience in these
categories. The higher allocation for consumer loans reflect
increased charge-offs due to personal bankruptcies over the past
two years. At September 30, 1999, management of the Bank
believes the allowance for loan losses was adequate to cover
potential inherent losses within the Bank's loan portfolio.
NON-INTEREST INCOME: NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
1998 . . . Non-interest income for the nine month period ending
September 30, 1999 totaled $4.3 million which represented a
$740,000 or 14.6% decrease when compared to the same 1998
period. This decrease was primarily due to the following items:
- a $570,000 decrease in gains realized on investment
security sales because a steeper yield curve has limited
investment portfolio repositioning opportunities.
- a $252,000 decrease in gains realized on loans held for
sale as a sharp drop in mortgage refinancing activity has
reduced both the volume and spread on loan sales into the
secondary market in 1999.
- a $64,000 or 9.2% increase in trust fees to $762,000 for
the period ended September 30, 1999. This trust fee growth
reflects increased assets under management due to the profitable
expansion of trust relationships.
NON-INTEREST INCOME: 1998, 1997 and 1996 ... Non-interest income
for 1998 totaled $6.9 million which represented a $1.6 million
or 31% increase when compared to 1997. This increase was
primarily due to the following items:
- An $84,000 or 10.0% increase in trust fees to $927,000
in 1998.
- A $1.2 million increase in gains realized on investment
security sales caused by the Bank's decision to sell mortgage
backed securities which were experiencing rapid prepayments in
1998. These security sales were part of an asset liability
management strategy to extend the duration of the portfolio
while maintaining yield.
- A $507,000 or 59.1% increase in other income due in part
to additional income resulting from ATM surcharging, other
processing fees, and revenue generated from annuity and mutual
fund sales in the Bank's financial service subsidiary.
- A $270,000 or 27.7% decrease in wholesale cash
processing fees due to a loss of a significant wholesale cash
processing customer.
Non-interest income as a percentage of total revenue
increased from 15.10% in 1997 to 15.97% in 1998. This
diversification of the revenue stream will continue to be a key
strategic focal point for Three Rivers Bank in the future.
Non-interest income for 1997 totaled $5.3 million which
represented a $416,000 or 8.6% increase when compared to 1996.
This increase was primarily due to the following items:
- A $52,000 or 6.6% increase in trust fees to $843,000 in
1997.
- A $189,000 increase in gains realized on loans held for
sale due to heightened residential mortgage origination and
sales activity.
- A $272,000 or 46.4% increase in other income due in part
to additional income resulting from ATM transaction charges and
premium income commissions from insurance sales.
NON-INTEREST EXPENSE: NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
1998 . . . Non-interest expense for the nine month period ending
September 30, 1999 totaled $15.7 million which represented a
$465,000 or 3.1% increase when compared to the same 1998 period.
This increase was primarily due to the following items:
- A $101,000 or 1.5% increase in salaries and employee
benefits due to modest merit pay increases and increased medical
insurance premiums.
- A $126,000 increase in goodwill and core deposit
amortization expense due to the amortization expense associated
with the core deposit premium resulting from the February 1999
branch acquisition and a full nine months of amortization
associated with the May 1998 acquisition of two National City
Bank branches.
- A $94,000 increase in equipment expense as a result of
increased depreciation on equipment purchased in early 1999,
some of which was associated with new branches.
- An $81,000 increase in miscellaneous taxes and insurance.
NON-INTEREST EXPENSE: 1998, 1997 and 1996. . . Non-interest
expense for 1998 totaled $20.3 million which represented a
$722,000 or 3.7% increase when compared to 1997. This increase
was primarily due to the following items:
- A $129,000 or 1.4% increase in salaries and employee
benefits due to merit pay increases, higher commission and
incentive payments, and increased pension expense.
- A $107,000 or 9.1% increase in professional fees due to
increased legal, investment advisory and other inter-company
support fees.
- A $355,000 increase in other expense due to higher
outside processing fees, increased advertising expense, and
costs associated with Year 2000 compliance.
Non-interest expense for 1997 totaled $19.6 million which
represented a $2.0 million or 9.1% decrease when compared to
1996. This decrease was primarily due to the following items:
- A $2.5 million decrease in FDIC deposit insurance
expense due to the non-recurrence of a $1.9 million special
assessment and lower basic deposit premium costs on SAIF-insured
deposits.
- A $307,000 or 3.5% increase in salaries and employee
benefits due to merit pay increases and increased
hospitalization premiums.
- A $219,000 or 5.1% increase in other expense due to
higher telecommunication costs, advertising expense, employee
training costs, and outside processing fees.
YEAR 2000 ...The Year 2000("Y2K") issue is the result of
computer programs having been written using two digits, rather
than four, to define the applicable year. Any of Three Rivers
Bank's computer systems that have date-sensitive software or
date-sensitive hardware could have potentially recognized a date
using "00" as the Year 1900 rather than the Year 2000. This
could have resulted in system failure or miscalculations causing
disruptions of operations, including, among other things, a
temporary inability to process transactions, send statements or
engage in similar normal business activities.
During 1999, Three Rivers Bank actively worked on the
Year 2000 computer issue and made significant progress in
ensuring that both its information technology and
non-information technology systems and applications were Y2K
compliant. The Bank completed the inventory, assessment,
remediation, testing, and implementation phases of its Year 2000
program. Mission critical systems which had maintenance applied
since their original Y2K test were retested. The organization
practiced "clean management" of all mission critical and
critical systems.
The Y2K process has required that Three Rivers Bank work
with vendors, third-party service providers, and customers to
determine the extent to which the Bank was vulnerable to these
parties' failure to remediate their own Year 2000 issue. Prior
to December 31, 1999, all Mission critical vendors affirmed
their Year 2000 compliance, and no mission critical system
vendor changes occurred.
The Bank's business resumption plan was expanded to address
the potential problems of Y2K such as a loss of power,
telecommunications, or the failure of a mission critical vendor.
An outside consulting firm was retained to create a company wide
business resumption plan. The firm used its considerable
experience with business resumption planning and the existing
company contingency plans to create a business resumption plan
which supported our continued operation in the face of external
or internal Y2K caused disruptions. A test of the branch plan
for operation was performed on June 19, 1999. Customers were
served with no disruption.
As of the date of this Information Statement, the Bank is
not aware of any event that has occurred with respect to the Y2K
issue that has caused or is likely to cause a material adverse
effect on the business, financial condition or results of
operations of Three Rivers Bank. The Bank did not suffer any
system failures or miscalculations causing disruptions of
operations in connection with the occurrence of Y2K.
Notwithstanding the foregoing, Three Rivers Bank recognizes
the serious risks it faces regarding credit customers not
properly remediating their automated systems to conform with
Year 2000 related problems. The failure of a loan customer to
prepare adequately to conform with Year 2000 could have an
adverse effect on such customer's operations and profitability,
in turn limiting their ability to repay loans in accordance with
scheduled terms. During the second half of 1998, the Bank
completed a detailed analysis of its major loan customer's
compliance with Year 2000. The focus of the analysis was on
commercial credit exposures with balances in excess of $250,000
and included discussions between loan officers, customers, and
information system representatives in select cases. As a result
of this analysis, Three Rivers Bank currently believes that the
potential customer credit risk with Year 2000 will not have a
material adverse effect on the Bank's business, financial
condition or results of operations.
The Bank did not incur any liquidity problems in connection
with the occurrence of Y2K. Outflow of deposits during the
weeks prior to January 1, 2000, was only slightly above normal.
From an asset/liability standpoint, during 1999 the Bank
emphasized deposit products that encouraged extension of shorter
term maturities to products maturing after December 31, 1999 in
order to limit liquidity risk.
Three Rivers Bank used both internal and external resources
to complete its comprehensive Y2K compliance program. Three
Rivers Bank currently estimates that the total cost to achieve
Y2K compliance was approximately $400,000. Approximately 66% of
this total cost represents incremental expenses to Three Rivers
Bank while approximately 34% represents the internal cost of
redeploying existing information technology resources to the Y2K
issue. Three Rivers Bank does not believe that these
expenditures had, or will have, a material impact on its results
of operation, liquidity, or capital resources.
NET OVERHEAD BURDEN ... Three Rivers Bank's efficiency ratio
(non-interest expense divided by total revenue) increased to
57.6% in the first nine months of 1999 compared to 54.6% for the
same period of 1998. Factors contributing to the higher
efficiency ratio in 1999 included the compression experienced in
the net interest margin and an increased level of non-interest
expenses which included Year 2000 costs. The amortization of
intangible assets also created a $278,000 nine month non-cash
charge that negatively impacted the efficiency ratio. That
charge was $126,000 greater than in the same period in 1998.
Three Rivers Bank's efficiency ratio (non-interest expense
divided by total revenue) averaged 54.67% in 1998 compared to
55.86% in 1997, and 67.75% in 1996. Factors contributing to the
better efficiency ratio in 1998 included the increased net
interest margin dollars, increased non-interest income, and from
1996 to 1997, decreased non-interest expenses. Total assets per
employee improved 8.6% from $3.3 million for 1997 to $3.6
million for 1998. Income from continuing operations per
employee averaged $42,400 in 1998 compared to $38,300 in 1997
and $24,600 in 1996.
INCOME TAX EXPENSE ... Three Rivers Bank's provision for income
taxes for year to date September 30, 1999 was $3.2 million
reflecting an effective tax rate of 29.8%. The Bank's year to
date income tax provision through September 30, 1998 was $3.6
million for an effective tax rate of 30.2%. The lower effective
tax rate in 1999 was due to a reduced level of pre-tax income
combined with increased total tax-free asset holdings in year to
date September 30, 1999. The tax-free asset holdings consist
primarily of municipal investment securities, bank owned life
insurance, and commercial loan tax anticipation notes.
Three Rivers Bank's provision for income taxes for the year
1998 was $4.8 million reflecting an effective tax rate of 30.2%.
The Bank's 1997 income tax provision was $4.5 million reflecting
an effective tax rate of 30.9%. The Bank's 1996 income tax
provision was $2.5 million reflecting an effective tax rate of
27.2%. The higher tax expense in 1998 was due to greater pre-
tax income, as the effective tax rate was relatively consistent
between years. Between 1997 and 1996, the $2 million increase
in income tax expense was due to higher pre-tax earnings as the
level of tax-free income was relatively consistent between
years.
BALANCE SHEET ... Three Rivers Bank's total consolidated assets
(excluding net assets of discontinued mortgage banking
operations) were $1.05 billion at September 30, 1999, compared
with $985.6 million at December 31, 1998, which represents an
increase of $65 million or 6.6%. During the first nine months
of 1999, total loans and loans held for sale increased by less
than 1%. Total investment securities increased by $52.5 million
as increased borrowings were used to purchase securities.
Intangible assets increased by $1.2 million due to the core
deposit intangible resulting from a February 1999 branch
acquisition.
Total deposits decreased by $12 million or 2.1% since
December 31, 1998, due to increasingly competitive deposit
pricing in the Pittsburgh market area. The Bank's total
borrowed funds position increased by $87 million in order to
fund the earning asset growth. Total equity declined by $11
million due to a decline in accumulated other comprehensive
income as a result of a decrease in the market value of the
available for sale securities portfolio.
Three Rivers Bank's total consolidated assets (excluding
net assets of discontinued mortgage banking operations) were
$985.6 million at December 31, 1998, compared with $947.7
million at December 31, 1997, which represents an increase of 4%
or $37.9 million. During 1998, total loans and loans held for
sale increased by approximately $1.6 million or less than 1%.
Heightened mortgage loan refinancing activity and competition
led to an $11.9 million or 5.3% decrease in mortgage loans.
Consumer loans continued to decline due to net run-off
experienced in the indirect auto loan portfolio, as Three Rivers
Bank has exited this low profit line of business. The more
profitable commercial loan portfolio saw growth of approximately
$14.6 million or 37% between December 31, 1997 and 1998. Total
investment securities increased by $31 million because the Bank
more aggressively purchased securities in the second half of
1998. These purchases were made due to expected continuation of
strong cashflow from prepaying mortgage-backed securities and to
position the balance sheet for the net in-flow of approximately
$12 million in cash from a branch acquisition which was
completed in February 1999.
Total deposits increased by $35 million or 6.6% since
December 31, 1997, due largely to the acquisition of $27 million
of deposits in 1998 with the purchase of two National City Bank
branch offices located in Allegheny County.
INTEREST RATE SENSITIVITY ... Asset/liability management
involves managing the risks associated with changing interest
rates and the resulting impact on Three River Bank's net
interest income, net income and capital. The overall interest
rate risk position and strategies are reviewed by senior
management and Three Rivers Bank's Board of Directors on an
ongoing basis. The management and measurement of interest rate
risk at Three Rivers is performed by using the following tools:
- Simulation modeling which analyzes the impact of
interest rate changes on net interest income, net income and
capital levels over specific future time periods. The simulation
modeling forecasts earnings under a variety of scenarios that
incorporate changes in the absolute level of interest rates, the
shape of the yield curve, prepayments and changes in the volumes
and rates of various loan and deposit categories. The simulation
modeling also incorporates all off balance sheet hedging
activity as well as assumptions about reinvestment and the
repricing characteristics of certain assets and liabilities
without stated contractual maturities.
- 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. For static
GAP analysis, Three Rivers Bank typically defines interest rate
sensitive assets and liabilities as those that reprice within
six months or one year.
- Market value of portfolio equity sensitivity analysis.
The overall interest rate risk position and strategies are
reviewed by senior management and the Bank's Board of Directors
on an ongoing basis. The following tables present a summary of
Three Rivers Bank's static GAP position.
<TABLE>
<CAPTION>
GAP positions at September 30, 1999:
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 and percentages)
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Loans $ 103,586 $ 28,652 $ 50,229 $ 280,972 $463,439
Investment securities and assets
held in trust for collateralized
mortgage obligation 107,713 18,315 38,506 365,666 530,200
Other assets - - 12,271 - 12,271
Total rate sensitive assets 211,299 46,967 101,006 646,638 1,005,910
Rate sensitive liabilities:
Deposits:
Non-interest bearing deposits - - - 86,066 86,066
NOW and Super NOW - - - 40,655 40,655
Money market 53,426 - - - 53,426
Other savings - - - 67,239 67,239
Certificates of deposit of
$100,000 or more 20,789 2,201 100 124 23,214
Other time deposits 46,819 45,822 89,730 95,885 278,256
Total deposits 121,034 48,023 89,830 289,969 548,856
Borrowings 209,748 10,375 750 220,572 441,445
Total rate sensitive liabilities 330,782 58,398 90,580 510,541 990,301
Off-balance sheet hedges 40,000 - (40,000) - -
Interest sensitivity GAP:
Interval (159,483) (11,431) 50,426 136,097 -
Cumulative (159,483) (170,914) (120,488) 15,609 15,609
Period GAP ratio 0.57 0.80 2.00 1.27 -
Cumulative GAP ratio 0.57 0.60 0.69 0.98 -
Ratio of cumulative GAP to total
assets -15.18% -16.27% -11.47% 1.49%
</TABLE>
<TABLE>
<CAPTION>
At At At
September 30, December 31, September 30,
1999 1999 1998
<S> <C> <C> <C>
(In thousands, except ratios and percentages)
SIX MONTH CUMULATIVE GAP
RSA $ 258,266 $ 295,769 $ 279,792
RSL (389,180) (334,228) (440,810)
OFF-BALANCE SHEET HEDGES 40,000 25,000 25,000
GAP (170,914) (13,459) (136,018)
GAP RATIO 0.60 0.96 0.67
GAP AS A % OF TOTAL ASSETS (16.27%) (1.37) (13.99%)
GAP AS A % OF TOTAL CAPITAL (339.80%) (22.05%) (214.65%)
ONE YEAR CUMULATIVE GAP
RSA 359,272 433,353 424,897
RSL (479,760) (423,808) (538,318)
OFF-BALANCE SHEET HEDGES - - -
GAP (120,488) 9,545 (113,421)
GAP RATIO 0.75 1.02 0.79
GAP AS A % OF TOTAL ASSETS (11.47%) 0.97% (11.67%)
GAP AS A % OF TOTAL CAPITAL (239.54%) 15.64% (178.99%)
</TABLE>
When September 30, 1999, is compared to December 31, 1998,
both Three Rivers Bank's six month and one year cumulative GAP
ratios became more negative due primarily to reduced asset
sensitivity resulting from slowing prepayment speeds on
mortgage-backed securities. An increase in Three Rivers Bank's
short-term FHLB borrowings combined with the maturity of several
off-balance sheet hedges also contributed to increased rate
sensitive liabilities.
A portion of the Bank's funding base is low cost core
deposit accounts which do not have a specific maturity date.
The accounts that comprise these low cost core deposits include
passbook savings accounts, money market accounts, NOW accounts,
and daily interest savings accounts. At September 30, 1999, the
balance in these accounts totaled $161 million or 15.4% of total
assets. Within the above static GAP table, approximately $53
million or 33% of these core deposits are assumed to be rate
sensitive liabilities which reprice in one year or less; this
assumption is based upon historical experience in varying
interest rate environments and is reviewed annually for
reasonableness. Three Rivers Bank recognizes that the pricing of
these accounts is somewhat inelastic when compared to normal
rate movements.
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
primary emphasis on simulation modeling to manage and measure
interest rate risk. Three Rivers Bank's asset liability
management policy seeks to limit net interest income variability
over a twelve month period to +/- 7.5% and net income
variability to +/- 15.0% based upon varied economic rate
forecasts which include interest rate movements of up to 200
basis points and alterations of the shape of the yield curve.
Additionally, Three Rivers Bank in 1998 began using market value
sensitivity measures to further evaluate the balance sheet
exposure to changes in interest rates. Market value of portfolio
equity sensitivity analysis captures the dynamic aspects of
long-term interest rate risk across all time periods by
incorporating the net present value of expected cash flows from
Three Rivers Bank's assets and liabilities. Three Rivers Bank
monitors the trends in market value of portfolio equity
sensitivity analysis on a quarterly basis.
The following table presents an analysis of the sensitivity
inherent in Three Rivers Bank's net interest income, net income
and market value of portfolio equity. The interest rate
scenarios in the table compare Three Rivers Bank's base forecast
or most likely rate scenario at September 30, 1999, to scenarios
which reflect ramped increases and decreases in interest rates
of 200 basis points along with performance in a stagnant rate
scenario with interest rates held flat at the September 30,
1999, levels. Three Rivers Bank's most likely rate scenario is
based upon published economic consensus estimates. Each rate
scenario contains unique prepayment and repricing assumptions
which are applied to Three Rivers Bank's expected balance sheet
composition which was developed under the most likely interest
rate scenario.
<TABLE>
<CAPTION>
Variability Of Change In
Interest Rate Net Interest Variability Of Market Value Of
Scenario Income Net Income Portfolio Equity
<S> <C> <C> <C>
Base 0% 0% 0%
Flat 0.74 1.51 3.26
200 bp increase (5.8) (11.9) (54.3)
200 bp decrease 0.93 (2.2) 53.6
</TABLE>
As indicated in the table, the maximum negative variability
of Three Rivers Bank's net interest income and net income over
the next twelve month period was (5.8%) and a (11.9%)
respectively, under an upward rate shock forecast reflecting a
200 basis point increase in interest rates. The variability of
market value of portfolio equity was (54.3%) under this interest
rate scenario. The off-balance sheet borrowed funds hedges also
helped reduce the variability of forecasted net interest income,
net income and market value of portfolio equity in a rising
interest rate environment. Finally, this sensitivity analysis is
limited by the fact that it does not include any balance sheet
repositioning actions Three Rivers Bank may take should severe
movements in interest rates occur such as lengthening or
shortening the duration of the securities portfolio or entering
into additional off-balance sheet hedging transactions. These
actions would likely reduce the variability of each of the
factors identified in the above table in the more extreme
interest rate shock forecasts.
Within the investment portfolio at September 30, 1999,
75.1% of the portfolio is currently classified as available for
sale and 24.9% as held to maturity. This compares to a
portfolio composition breakdown of 68.6% available for sale and
31.4% held to maturity at December 31, 1998. The available for
sale classification provides management with greater flexibility
to manage the securities portfolio to better achieve overall
balance sheet rate sensitivity goals and provide liquidity to
fund loan growth if needed. Furthermore, it is Three Rivers
Bank's intent to continue to diversify its loan portfolio to
increase liquidity and rate sensitivity and to better manage
Three Rivers Bank's long-term interest rate risk by continuing
to sell newly originated fixed-rate mortgage loans.
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. For Three Rivers Bank, these assets totaled
$88 million at September 30, 1999, compared to $154 million and
$84 million at December 31, 1998 and December 31, 1997.
Maturing and repaying loans, as well as the monthly cash flow
associated with mortgage-backed securities are other significant
sources of asset liquidity for Three Rivers Bank.
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. Three Rivers' utilizes a variety
of these methods of liability liquidity. At September 30, 1999,
Three Rivers had approximately $85 million of unused lines of
credit available under informal arrangements with correspondent
banks compared to $125 million at December 31, 1998. These lines
of credit enable Three Rivers Bank to purchase funds for short-
term needs at current market rates. Additionally, Three Rivers
Bank is a member of the Federal Home Loan Bank which provides
intermediate to longer term advances to its members for 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 at September 30, 1999 of
approximately $93.1 million.
Liquidity can be further analyzed by utilizing the
Consolidated Statement of Cash Flows. Cash equivalents
increased by $1.7 million from December 31, 1998 to
September 30, 1999, due primarily to $70 million of net cash
provided by financing activities and $68 million of net cash
used by operating and investing activities. Within investing
activities, purchases of investment securities exceeded cash
proceeds from investment security maturities and sales by $53
million. Cash advanced for new loan fundings totaled $137
million and was approximately $2.5 million greater than the cash
received from loan principal payments. Advances from the Federal
Home Loan Bank provided $50 million of cash.
Cash equivalents increased by $1.8 million between
December 31, 1998 and December 31, 1997. Within investing
activities, purchases of investment securities exceeded the cash
proceeds from investment security maturities and sales by
approximately $30 million. Cash advanced for new loan fundings
totaled $154 million and was approximately $2.6 million greater
than the cash received from loan principal payments. Within
financing activities, cash generated from the sale of new
certificates of deposit exceeded the cash payments for maturing
certificates of deposit by $38 million.
CAPITAL RESOURCES ... As presented in Note 19 to the
consolidated financial statements set forth elsewhere herein,
each of Three Rivers Bank's regulatory capital ratios decreased
between December 31, 1998 and September 30, 1999, due to a
reduction in tangible equity resulting from the $1.4 million
core deposit premium associated with the 1999 branch
acquisition. Each of Three Rivers Bank's regulatory capital
ratios increased between December 31, 1997 and December 31,
1998. This was primarily due to a capital infusion of
$7,000,000. Specifically, the Tier 1 capital and asset leverage
ratio increased from 10.83% and 5.47% at December 31, 1997, to
12.07% and 6.02% at December 31, 1998. The Bank targets an
operating range of 6.0% to 6.50% for the asset leverage ratio
because management and the Board of Directors believes that this
level provides an optimal balance between regulatory capital
requirements and shareholder value needs. Strategies that the
Bank could use to manage its capital include common dividend
payments, treasury stock repurchases, and earning asset growth.
The Bank exceeds all regulatory capital ratios for each of
the periods presented. Furthermore, the Bank is considered
"well capitalized" under all applicable FDIC regulations. It is
the Bank's ongoing intent to continue to prudently leverage the
capital base in an effort to increase return on equity
performance while maintaining necessary capital requirements.
It is, however, the Bank's intent to maintain the FDIC "well
capitalized" classification to ensure the lowest deposit
insurance premium and to maintain an asset leverage ratio of no
less than 6.0%.
BUSINESS
General
Three Rivers Bancorp is a company organized under the
Pennsylvania Business Corporation Law of 1988 that has received
approval under the Bank Holding Company Act of 1956 (the "BHCA")
to become a holding company upon acquiring all of the
outstanding capital stock of Three Rivers Bank contemporaneously
with the Distribution.
Three Rivers Bank
Three Rivers Bank is a state bank chartered under the
Pennsylvania Banking Code of 1965, as amended. Through 24
locations in Allegheny, Washington and Westmoreland 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 23 ATMs that are affiliated with MAC, a regional
ATM network, and Plus System, a national ATM network.
Three Rivers Bank also offers wholesale banking services to
other banks, merchants, governmental units, and other large
commercial accounts. Such services include balancing services,
lock box accounts, and providing coin and currency.
Additionally, TRB Financial Services Corporation, a wholly owned
subsidiary of Three Rivers Bank was formed on August 5, 1997.
TRB Financial Services Corporation engages in the sale of
annuities and mutual funds.
Three Rivers Bank also has a wholly owned mortgage banking
subsidiary - Standard Mortgage Corporation of Georgia. Standard
Mortgage Corporation, based in Atlanta, Georgia, is a mortgage
banking company that originates, sells, and services residential
mortgage loans. All of the outstanding capital stock of
Standard Mortgage will be internally distributed by Three Rivers
to USBANCORP prior to the Distribution, so that Standard
Mortgage will become a direct subsidiary of USBANCORP.
Therefore, upon completion of the Distribution, Standard
Mortgage will no longer be affiliated with Three Rivers Bank.
See "The Distribution -- Spin-Off of Standard Mortgage
Corporation to USBANCORP."
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.
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.
Competition
Three Rivers Bank and its 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, 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.
New Legislation
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the "GLB Act"). The GLB Act makes
significant changes in U.S. banking law, principally by
overturning the 1933 Glass-Steagall Act. Under the GLB Act,
banks and other financial companies, such as securities firms
and insurance companies, will be able to combine and be commonly
owned. The GLB Act also permits bank holding companies and
banks to engage in a broader range of financially related
activities than was available to them before. The GLB Act does
not authorize banks or their affiliates to engage in commercial
activities that are not financial in nature.
The GLB Act also contains a number of provisions that will
affect the operations of all financial institutions. One of the
new provisions relates to the financial privacy of consumers,
authorizing the federal banking regulators to adopt rules that
would limit the ability of banks and other financial entities to
disclose non-public information about consumers to entities that
are not affiliates. These limitations will likely require more
disclosure to consumers, and in some circumstances will require
consent by the consumer before information is allowed to be
provided to a third party. We do not expect that any of the
regulatory provisions of the GLB Act will materially affect our
operations or significantly increase our costs.
Market Area
The Pittsburgh, Pennsylvania area enjoys a strong and
growing economy. Recent unemployment data for the six-county
area in and around Pittsburgh (the "Pittsburgh Metro Area")
improved to 4.2%, down approximately 0.4% from the same period
in 1998. Similar to national statistics, the Pittsburgh Metro
Area continues to run brisk as a result of consumer spending,
strong employment, greater hours worked, and little or no
inflationary pressures. Recent economic trend reports show a
highly confident Pittsburgh consumer spending freely on new
automobiles, large one-time items, and general goods, pushing
retail sales to record levels. Local businesses and
manufacturers are working hard to keep up with demand. Regional
Gross Domestic Product is expected to parallel national
statistics for the 1999 fourth quarter at near or slightly in
excess of 5.0%.
Economic expectations remain favorable for the Pittsburgh Metro
Area. While higher interest rates are beginning to slow the
housing industry in the region, the tone of the economy remains
strong but slowing. The recent Federal Reserve Board increase
in rates is beginning to take hold; most economists suggest
additional increases during the first quarter of 2000. Economic
expansion is expected to slow to a more reasonable rate between
2% and 3% over the Year 2000. As long as unemployment and
inflation remain at record low levels, the Pittsburgh Metro Area
is expected to fare quite well.
Employees
Three Rivers Bank had approximately 207 full-time and
93 part-time employees as of September 30, 1999.
Commitments and Lines of Credit
Three Rivers Bank is obligated under commercial, standby,
and trade-related irrevocable letters of credit aggregating
$5.2 million at September 30, 1999. In addition, the Bank has
issued lines of credit to customers generally for periods of up
to one year. Borrowings under such lines of credit are for the
working capital needs of the borrower. At September 30, 1999,
the Bank had unused loan commitments of approximately
$82.9 million.
Investment Portfolio
Investment securities held to maturity are carried at
amortized cost while investment securities classified as
available for sale are reported at fair value. At September 30,
1999, approximately 75.1% of the portfolio was categorized as
held to maturity and 24.9% as available for sale.
The following table sets forth the book and market value of
Three Rivers Bank's investment portfolio as of the periods
indicated:
<TABLE>
<CAPTION>
Investment Securities Available for Sale
At September 30, At December 31,
1999 1998 1998 1997 1996
(In thousands)
<S> <C> <C> <C> <C> <C>
Book Value:
U.S. Treasury $ - $ - $ - $ - $ 2,993
U.S. Agency 17,727 36,016 16,025 1,020 4,224
State and municipal 1,242 4,234 2,326 4,476 6,956
Mortgage-backed
securities 365,128 259,661 290,703 254,907 156,057
Other securities 31,802 17,094 17,169 16,844 12,019
Total book value of
investment securities
available for sale 415,899 317,005 326,223 277,247 112,482
Total market value of
investment securities
available for sale 398,297 322,023 327,669 279,461 182,794
<CAPTION>
Investment Securities Held to Maturity
At September 30, At December 31,
1999 1998 1998 1997 1996
(In thousands)
<S> <C> <C> <C> <C> <C>
Book Value:
U.S. Treasury $ 5,047 $ 4,000 $ 5,089 $ 4,008 $ 4,018
U.S. Agency - - - - 4,994
State and municipal 59,644 38,920 51,718 36,569 36,446
Mortgage-backed
securities 67,212 99,099 93,181 126,762 134,768
Other securities - - - - -
Total book value of
investment securities
held to maturity 131,903 142,019 149,988 167,339 180,226
Total market value of
investment securities
held to maturity 128,219 145,393 151,398 168,926 180,078
</TABLE>
Three Rivers Bank and its subsidiaries, collectively, did
not hold securities of any single issuer, excluding U.S.
Treasury and U.S. Agencies, that exceeded 10% of shareholders'
equity at September 30, 1999. Maintaining investment quality is
a primary objective of Three Rivers Bank'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 September 30,
1999 and 1998, 98.2% of the portfolio was rated "AAA." Less
than 1.0% was rated below "A" or unrated at September 30, 1999.
Loan Portfolio
The following table sets forth Three Rivers Bank's loans by
major category as of the dates set forth below:
<TABLE>
<CAPTION>
At September 30, At December 31,
1999 1998 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Commercial $53,369 $56,705 $53,563 $39,003 $32,352 $30,788 $51,387
Commercial loans
secured by real estate 187,189 165,256 167,091 171,377 148,231 75,396 63,637
Real estate- mortgage(1) 198,338 213,994 213,067 225,008 216,483 233,113 266,044
Consumer 30,211 33,125 34,565 31,396 35,162 29,342 65,670
Gross loans $469,107 $469,080 $468,286 $466,784 $432,228 $368,639 $446,738
Less: unearned income (68) (106) (92) (169) (300) (699) (1,907)
Loans, net of unearned
income 469,039 468,974 468,194 466,615 431,928 367,940 444,831
</TABLE>
(1) At September 30, 1999, December 31, 1998 and 1997, real
estate-construction loans constituted 3.0%, 4.2% and 2.1%
of Three Rivers' total loans, net of unearned income,
respectively.
The amount of loans outstanding by category as of
September 30, 1999, 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.
[CAPTION]
<TABLE>
More Than
One Year
One Year Through Over Total
or Less Five Years Five Years Loans
(In thousands, except ratios)
<S> <C> <C> <C> <C>
Commercial $23,842 $ 5,886 $ 23,641 $ 53,369
Commercial loans secured by real
estate 26,997 28,836 131,355 187,189
Real estate-mortgage 14,479 34,475 149,384 198,338
Consumer 4,367 14,133 11,711 30,211
Total $69,685 $83,330 $316,091 $469,107
Loans with fixed-rate 20,800 69,350 195,954 286,105
Loans with floating-rate 48,885 13,980 120,137 183,002
Total $69,685 $83,330 $316,091 $469,107
Percent composition of
maturity 14.9% 17.7% 67.4% 100.0%
Fixed-rate loans as a
percentage of total
loans 29.8% 83.2% 62.0% 61.0%
Floating-rate loans as a
percentage of total loans 70.2% 16.8% 38.0% 39.0%
</TABLE>
The loan maturity information is based upon original loan
terms and is not adjusted for principal paydowns and
"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 September 30, 1999, 61% of total loans were fixed-
rate, which was comparable with the prior year. The stability
in the fixed-rate percentage between years reflects continued
customer preference for fixed-rate loans. Also, a good portion
of the commercial real estate loan growth has occurred in the
five year fixed-rate area. 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 Three
Rivers' deposits and the average rates paid thereon:
<TABLE>
<CAPTION>
For the Nine Months ended September 30, For the Year ended December 31,
1999 1998 1998 1997 1996
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
(In thousands, except rates)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand - non-
interest
bearing $ 82,443 -% $ 76,559 - % $ 77,561 - % $ 73,660 - % $ 71,547 - %
Demand -
interest
bearing 44,315 0.97% 42,491 0.97% 43,019 0.97% 42,645 0.97% 44,825 0.98
Savings 66,727 1.79 65,599 1.59 65,399 1.59 66,633 1.83 66,663 2.06
Money markets 58,513 2.98 50,132 2.80 50,963 2.84 48,173 2.67 55,024 2.58
Other time 314,551 5.05 310,305 5.46 310,109 5.42 309,220 5.49 307,707 5.29
Total deposits $566,549 3.98% $545,086 4.23% $547,051 4.20% $540,331 4.26% $545,766 4.12%
======== ==== ======== ==== ======== ==== ======== ==== ======== =====
</TABLE>
The following table indicates the maturities and amounts of
certificates of deposit issued in denominations of $100,000 or
more as of September 30, 1999:
Maturing in:
(In thousands)
Three months or less $20,789
Over three through six months 2,201
Over six through twelve months 100
Over twelve months 124
Total $23,214
=======
Properties
The principal office of Three Rivers Bancorp is located at
2681 Mosside Boulevard in Monroeville, Pennsylvania. As of the
Distribution Date, Three Rivers Bancorp will own 13 locations,
with an additional 12 locations leased with terms expiring from
November 30, 1999 to November 30, 2009.
Legal Proceedings
Three Rivers 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, there is no present basis to conclude that the
resolution of these claims will have a material adverse effect
on Three Rivers' consolidated financial position or results of
operations.
MANAGEMENT OF THREE RIVERS BANCORP
Directors
Three Rivers Bancorp's Articles of Incorporation provide
that the number of directors may not be less than five nor more
than twenty-five, provided that the number of directors may be
altered from time to time, by resolution adopted by the Three
Rivers Bancorp's Board of Directors.
The Board of Directors will be divided into three classes,
each to serve respectively until the annual meetings of
shareholders in 2001, 2002 and 2003, and until their successors
shall be elected and shall qualify. Thereafter, their
successors shall be elected for three year terms and until their
successors shall be elected and shall qualify.
The following sets forth certain information concerning the
individuals who have agreed to serve as directors of Three
Rivers Bancorp following the Distribution.
DIRECTOR
NAME(1) AGE SINCE(2)
Class I Directors to Serve Until 2001
Clifford A. Barton 71 1966
Retired; Former Chairman, President and
Chief Executive Officer of USBANCORP;
Member of Board of Directors of Crown
American Realty Trust
Terry K. Dunkle 58 1988
Chairman, President and Chief Executive
Officer of USBANCORP until the Distribution
Date and of Three Rivers Bancorp
J. Terrence Farrell 52 1983
Attorney-at-Law
Marylouise Fennell, Ed.D. 60 1994
Higher Education Consultant
Jack Sevy 69 1984
Retired; Former Owner and Operator,
New Stanton West Auto/Truck Plaza
Class II Directors to Serve Until 2002
Jerome M. Adams 68 1973
Senior Partner,
Adams, Myers and Baczkowski,
Attorneys-at-Law
I. N. Rendall Harper, Jr. 61 1999
President and CEO
American Micrographics Company, Inc.
Richard W. Kappel 68 1967
Retired CEO, Secretary and Treasurer
of Wm. J. Kappel Wholesale Co.
W. Harrison Vail 58 1991
President and Chief Executive Officer
of Three Rivers Bank
Charles R. Zappala 51 2000
Chairman Russell, Rea, Zappala & Gomulka,
Holding Company
Class III Directors to Serve Until 2003
Michael F. Butler 64 1993
Business Consultant and Attorney-at-Law
James R. Ferry 61 1991
President of Ferry Electric Company,
Electrical Contractor
Steven J. Guy 40 1999
CFO and Vice President of Finance
Oxford Development Company
Stephen I. Richman 66 1991
Senior Partner,
Richman & Smith
Law Firm
Edward W. Seifert 61 1967
Attorney-at-Law, Partner,
Reed, Smith, Shaw & McClay
________________
(1) Except for positions with Three Rivers Bancorp,
all directors and nominees have held the positions
indicated or another senior executive position with
the same entity or one of its affiliates or predecessors
for the past five years.
(2) Reflects the earlier of the first year as a director of
USBANCORP, U.S. Bank, Three Rivers Bank or predecessor
institutions Community Bancorp, Inc. or Johnstown
Savings Bank.
Board Compensation and Benefits
Employee Directors will not receive additional compensation
for serving on the Board of Directors of Three Rivers Bancorp.
Non-employee Directors of Three Rivers Bancorp will receive an
annual retainer of $6,000, payable in Three Rivers Bancorp
Common Stock. Three Rivers Bancorp will also pay the premiums
on directors' and officers' liability and business travel
accident insurance policies covering the Directors. In
addition, non-employee directors will receive cash compensation
of $550 per meeting for attendance at Three Rivers Bancorp Board
of Directors meetings. A fee of $400 per meeting will be paid
for attendance at each meeting of any committee of such Board.
Committees of the Board
It is anticipated that Three Rivers Bancorp will establish
Audit, Compensation and Nominating Committees of the Board. It
is also anticipated that all members of such committees will be
non-employee Directors.
Audit Committee. The Audit Committee will: (i) recommend
to the Board the selection, retention or termination of Three
Rivers Bancorp's independent auditors; (ii) approve the level of
non-audit services provided by the independent auditors;
(iii) review the scope and results of the work of Three Rivers'
internal audit service providers; (iv) review the scope and
approve the estimated cost of the annual audit; (v) review the
annual financial statements and the results of the audit with
management and the independent auditors; (vi) review with
management and the independent auditors the adequacy of Three
Rivers' system of internal accounting controls; (vii) review
with management and the independent auditors the significant
recommendations made by the auditors with respect to changes in
accounting procedures and internal accounting controls; and
(viii) report to the Board on the results of its review and make
such recommendations as it may deem appropriate.
Compensation Committee. The Compensation Committee will
review and approve the compensation of the senior executives of
Three Rivers. [This committee will also administer the Three
Rivers Bancorp Long-Term Incentive Plan. See "New Stock-Based
and Incentive Plans of Three Rivers."]
Nominating Committee. The Nominating Committee will:
(i) identify suitable candidates for Board membership and in
such capacity will consider nominees recommended by
shareholders; (ii) propose to the Board a slate of directors for
election by the shareholders at each annual meeting; and
(iii) propose candidates to fill vacancies on the Board based on
qualifications it determines to be appropriate.
Executive Officers
In addition to Messrs. Dunkle and Vail (see "Management of
Three Rivers Bancorp -- Directors"), the following persons are
expected to serve as executive officers of Three Rivers as of
the Distribution Date:
Name Title
Terry K. Dunkle Chairman and Chief
Executive Officer (1)
W. Harrison Vail Vice Chairman of the Board,
President and COO
Harry G. King Senior Vice President,
Support Services
Louis Klippa Senior Vice President,
Operations
Vincent Locher Senior Vice President and
Chief Commercial Loan Officer
Gary McKeown Senior Vice President
and Chief Credit Officer
Anthony M. V. Eramo Vice President and Chief
Financial Officer
(1) Mr. Dunkle will also serve as the Chief Executive Officer
of USBANCORP in order to assist USBANCORP management with the
post-Distribution transition matters.
Stock Ownership of Executive Officers and Directors
The following table sets forth information concerning Three
Rivers Bancorp Common Stock that is expected to be beneficially
owned by each of Three Rivers Bancorp's directors, by each of
Three Rivers Bancorp's executive officers and by all directors
and executive officers as a group. The projections are based
upon the number of shares of USBANCORP Common Stock held by the
individuals and the group at __________________, 2000, and do
not include shares subject to options granted under USBANCORP's
1991 Stock Option Plan which will be converted into options to
acquire Three Rivers Bancorp Common Stock. See "USBANCORP Stock
Option Conversion." Except for Mr. Barton, who will own 1.4% of
the outstanding Three Rivers Bancorp Common Stock, none of the
following persons will hold in excess of 1% of Three Rivers
Bancorp Common Stock.
Projected Number
Beneficial Owner of Shares
Clifford A. Barton........................... 95,476
Terry K. Dunkle.............................. 25,986
Richard W. Kappel............................ 16,006
Michael F. Butler............................ 15,243
W. Harrison Vail............................. 10,379
Jerome M. Adams.............................. 8,934
Jack Sevy.................................... 3,701
Edward W. Seifert............................ 3,454
J. Terrence Farrell.......................... 820
Stephen I. Richman........................... 729
Marylouise Fennell........................... 0
James R. Ferry............................... 450
Steven J. Guy................................ 0
I.N. Randall Harper, Jr. ..................... 0
Charles R. Zappala........................... 0
Louis Klippa................................. 2,874
Gary McKeown................................. 2,352
Vincent Locher............................... 1,311
Harry G. King................................ 1,282
Anthony M. V. Eramo.......................... 1,027
All Directors and Executive Officers
as a Group (18 persons).................... 188,742
EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation_______
Awards Payouts
Securities
Name and Restricted Underlying All Other
Principal Stock Options Compensation
Position(1) Year Salary($) Bonus($)(2) Awards(3) (#)(4) ($)(5)(6)(7)
<S> <C> <C> <C> <C> <C> <C>
Terry K. Dunkle 1998 330,060 65,649 109,477 0 26,159
Chairman of the 1997 294,833 113,107 -- 30,000 29,809
Board and Chief 1996 211,920 84,344 -- 45,000 18,125
Executive Officer
W. Harrison Vail 1998 165,000 29,172 72,984 0 10,547
Vice Chairman 1997 145,000 50,263 -- 18,000 9,701
of the Board 1996 120,000 42,719 -- 24,000 8,497
and President
</TABLE>
_______________
(1) Includes the cash and cash value of stock awards made to
executive officers of USBANCORP and its subsidiaries under
USBANCORP's Executive Annual Incentive Plan.
(2) Unless otherwise indicated, no executive officer named in
the Summary Compensation Table received personal benefits
or perquisites in excess of the lesser of $50,000 or 10% of
the officer's total compensation (salary and bonus).
(3) At the end of 1999 Messrs. Dunkle and Vail held 4,500 and
3,000 restricted shares of USBANCORP Common Stock worth
$54,000 and $36,000, respectively. The restrictions on
such shares lapse in three equal annual increments on the
anniversaries of the award. Dividends are accrued and
distributed when restrictions lapse on the corresponding
shares. Amounts have been adjusted to reflect USBANCORP's
July 1998 three-for-one stock split.
(4) Options were granted during 1997 and 1996 under the
1991 Stock Option Plan to the Named Officers. The options
granted in 1997 were cancelled effective November 23, 1999.
(5) Includes amounts awarded under the Profit Sharing Plan of
USBANCORP and U.S. Bank. All full-time employees of
USBANCORP and U.S. Bank are entitled to participate in the
Profit Sharing Plan. A contribution during any plan year
is based on both net income and capital as defined in the
Plan.
(6) Includes (a) the value of the premium paid by USBANCORP
of $10,000 for a split dollar life insurance policy for
Mr. Dunkle, and (b) the premiums paid by USBANCORP and
its subsidiaries for life insurance policies with cover-
age limits above $50,000 to Messrs. Dunkle and Vail.
(7) Includes amounts contributed under a 401(k) Plan of
USBANCORP to Mr. Vail. Under the USBANCORP sponsored
401(k) plan, employees of Three Rivers Bank are allowed
to contribute up to 20% of their compensation to the plan
with an employer match of $.50 on each $1.00 of employee
contribution up to a maximum of 6% of an employee's
compensation.
USBANCORP Option Grants in Last Fiscal Year
No grants of stock options were made in 1999 to the named
executive officers.
Aggregated USBANCORP Option Exercises
in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Under lying Unexercised In-the-Money Options
Options at Fiscal Year-End at FY-End(2)
Shares ac-
quired on Value
Name Exercise(#) Realized(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Terry K. Dunkle 6,302 $53,463 $66,856 $ 0 $143,397 $ 0
W. Harrison Vail 2,100 21,143 44,340 0 117,621 0
[Add 3 others]
</TABLE>
(1) Represents the aggregate market value of the underlying
shares of USBANCORP Common Stock at the date of exercise
minus the aggregate exercise prices for options exercised.
(2) "In the money options" are stock options with respect to
which the market value of the underlying shares of
USBANCORP Common Stock exceeded the exercise price at
December 31, 1999. The value of such options is
determined by subtracting the aggregate exercise price for
such options from the aggregate fair market value of the
underlying shares of USBANCORP Common Stock on
December 31, 1999. Fair market value was determined by
reference to the average of the high and low sale prices
of USBANCORP Common Stock as quoted on the Nasdaq Stock
Market.
Pension Plan
Three Rivers Bank maintains a qualified defined benefit
retirement plan for its employees (the "TRB Pension Plan").
Remuneration for pension benefit purposes is base pay, excluding
overtime, bonus or reimbursement of business expense. An
employee's benefit under the TRB Pension Plan is determined on
the basis of "Final Average Pay," which means the highest
average annual base salary received by an employee for any five
consecutive year period during the ten-year period ending on the
date of his or her termination of employment.
Three Rivers Bank expects to make a contribution of
$__________ in 2000 for the 1999 plan year.
Estimated annual benefits payable upon retirement at age 65
after 15 years of service with respect to the specified
remuneration are as follows:
PENSION TABLE
Five Calendar Year
Average Salary Annual Benefit at
Preceding Retirement Normal Retirement Date
$ 15,000 $ 5,550
25,000 9,250
40,000 14,800
60,000 22,200
90,000 33,300
100,000 37,000
120,000 44,400
140,000 51,800
150,000(1) 55,500
_____________________________
(1) Effective for retirements on or after January 1, 1994,
annual compensation for Plan purposes may not exceed
$150,000 plus any increases applicable to cost of living
adjustments. Employees with compensation exceeding
$150,000 in years before 1994 may have larger "preserved
benefits."
The above benefits are paid for the life of the employee
with a right of survivorship with respect to ten years of post-
retirement benefits. Other optional forms of benefit are
available in actuarially equivalent amounts. Current
remuneration covered by the TRB Pension Plan in 1998 for
Mr. Vail was $165,000, subject to the $150,000 limitation. Under
the TRB Pension Plan, Mr. Vail had 14 years of credited service
as of December 31, 1998.
Mr. Dunkle is currently a participant in USBANCORP's
Pension Plan, rather than the TRB Pension Plan. As of the
Distribution Date, Mr. Dunkle will remain a participant in the
USBANCORP Pension Plan and initially will not participate in the
TRB Pension Plan). Current remuneration in 1998 which was
covered by the USBANCORP Pension Plan for Mr. Dunkle was
$330,000, subject to the $150,000 limitation. Under such plan,
Mr. Dunkle had 11 years of credited service as of December 31,
1998.
Change In Control Agreements
Three Rivers Bancorp intends to enter into Change in
Control Agreements with Mr. Dunkle and Mr. Vail under which
Three Rivers Bancorp will agree to provide the executives with
severance benefits upon the occurrence of certain enumerated
events ("Triggering Events") following a change in control of
Three Rivers Bancorp ("Change in Control") (as defined in the
Agreements). The initial term of the Agreements is expected to
be three years, subject to an automatic one year extension on
each anniversary date thereof, unless either party gives notice
to the other of an intention not to renew. Under the
Agreements, upon the occurrence of a Triggering Event following
a Change in Control, Mr. Dunkle would be entitled to receive
approximately 2.99 times his combined salary and bonus which
will be determined (a) during the initial three year term of the
Agreement by reference to his highest salary and bonus paid in
the year in which he is terminated or in any one of the last
five fiscal years preceding such termination, and (b) after the
expiration of the initial term, by reference to the average of
the executive's combined salary and bonus in the preceding five
years. Under the Change in Control Agreement for Mr. Vail,
Mr. Vail would be entitled to receive 1.5 times his annual
combined base salary and bonus. The executives, in their
discretion, may receive these payments in a lump sum or on a
monthly installment basis. The Change in Control Agreements
will also entitle the executives to continued participation in
the employee benefits plans of Three Rivers Bancorp for a period
of three years with respect to Mr. Dunkle and eighteen months
with respect to Mr. Vail. In addition, the Agreements will
provide that options held by the executives to acquire Three
Rivers Bancorp Common Stock, to the extent not currently
exercisable, will become immediately exercisable upon the
occurrence of a Triggering Event following a Change in Control,
and may be exercised by the executives at any time prior to the
earlier of the expiration date of the options or 90 days after
the executive's termination. The Agreements will also require
Three Rivers Bancorp to make additional payments to the
executives in the event that the severance payments described
above result in the imposition of an excise tax, pursuant to
Section 4999 of the Internal Revenue Code of 1986 on the payment
of such amounts.
NEW STOCK-BASED AND INCENTIVE PLANS OF THREE RIVERS BANCORP
Three Rivers Bancorp Long-Term Incentive Plan
Generally. The Three Rivers Bancorp Long-Term Incentive
Plan (the "Three Rivers LTIP") is expected to be approved prior
to the Distribution Date by the Three Rivers Bancorp Board of
Directors and by USBANCORP as the sole shareholder of Three
Rivers Bancorp. The Three Rivers LTIP is expected to provide
for the grant of various types of long-term incentive awards to
key employees, consistent with the objectives and limitations of
Three Rivers LTIP. These awards may include non-qualified
options to purchase shares of Three Rivers Common Stock,
incentive stock options, stock appreciation rights and
restricted stock grants.
Administration. The Three Rivers LTIP is expected to vest
broad powers in the Compensation Committee (the "Compensation
Committee") of Three Rivers Bancorp Board of Directors to
administer and interpret the Three Rivers LTIP. The
Compensation Committee's powers are expected to include
authority, within the limitations set forth in the Three Rivers
LTIP, to select the persons to be granted awards, to determine
terms and conditions of awards, including but not limited to the
type, size and term of awards, to determine the time when awards
will be granted and any conditions for receiving awards, to
establish objectives and conditions for earning awards, to
determine whether such conditions have been met and whether
payment of an award will be made at the end of an award period,
or at the time of exercise, or deferred, to determine whether
payment of an award should be reduced or eliminated, and to
determine whether such awards should be intended to qualify,
regardless of their amount, as deductible for U.S. Federal
income tax purposes. The Three Rivers LTIP is also expected to
generally vest broad powers in the Compensation Committee to
amend and terminate the Three Rivers LTIP.
Eligibility. Key employees of Three Rivers Bancorp and its
divisions, subsidiaries and affiliates are expected to be
eligible to be granted awards under the Three Rivers LTIP. The
Compensation Committee may also grant awards to employees of a
joint venture or other business in which Three Rivers Bancorp
has a substantial investment, and may make awards to non-
executive employees who are in a position to contribute to the
success of Three Rivers Bancorp.
Three Rivers Executive Incentive Compensation Plan
Generally. The Three Rivers' Executive Incentive
Compensation Plan (the "Three Rivers Incentive Plan") is
expected to be approved prior to the Distribution Date by the
Three Rivers Bancorp Board of Directors and by USBANCORP as the
sole shareholder of Three Rivers Bancorp. The Three Rivers
Incentive Plan is expected to provide for officers of Three
Rivers and its divisions and subsidiaries to be granted annual
cash or stock incentive awards consistent with the objectives
and limitations of the Three Rivers Incentive Plan.
Administration. The Three Rivers Incentive Plan is
expected to vest broad powers in the Compensation Committee to
administer and interpret the Three Rivers Incentive Plan. The
Compensation Committee's powers are expected to include
authority, within the limitations set forth in the Three Rivers
Incentive Plan, to select the persons to be granted awards, to
determine the time when awards will be granted, to determine and
certify whether objectives and conditions for earning awards
have been met, to determine whether payment of an award will be
made at the end of an award period or deferred, and to determine
whether an award or payment of an award should be reduced or
eliminated. The Three Rivers Incentive Plan is also expected to
generally vest broad powers in the Compensation Committee to
amend and terminate the Three Rivers Incentive Plan.
Eligibility. At the discretion of the Compensation
Committee, executive officers of Three Rivers are expected to be
granted, and other officers of Three Rivers, its divisions and
subsidiaries may be granted, annual incentive awards under the
Three Rivers Incentive Plan.
Successor Plans
On or prior to the Distribution Date, the Company intends
to adopt a stock option plan with terms substantially similar to
the USBANCORP 1991 Stock Option Plan (the "USBANCORP SOP") for
the purpose of continuing the stock options which were granted
under the USBANCORP SOP. These options will be converted into
options to purchase Three Rivers Bancorp Common Stock. See
"USBANCORP Stock Option Conversion." It has not yet been
determined whether any new grants will be made under this new
plan.
USBANCORP STOCK OPTION CONVERSION
Effective on the Distribution Date, holders of outstanding
options to purchase USBANCORP Common Stock will have their
interests adjusted as described below. The Compensation
Committee of USBANCORP's Board of Directors has approved
formulas to adjust the exercise price and award size of
USBANCORP stock options pursuant to the terms and provisions of
each such grant and the relevant plan. The adjustment formulas
are intended to maintain the value of the outstanding USBANCORP
stock options at the time of adjustment.
Employees of Three Rivers who received USBANCORP stock
options shall have such USBANCORP stock options entirely
converted into options to purchase Three Rivers Bancorp Common
Stock pursuant to one of two methods to be selected by the
employee. Under the first method, the exercise price of each
such Three Rivers stock option shall equal the exercise price of
the corresponding USBANCORP stock option prior to the
Distribution, multiplied by a factor (the "Three Rivers Stock
Conversion Ratio") in which the numerator is the composite
volume weighted average price of Three Rivers Bancorp Common
Stock (trading on a "when issued" basis) for the trading days
during a pricing period to be determined at a future date by the
USBANCORP Board of Directors (the "Per Share Three Rivers Stock
Price") and the denominator is the composite volume weighted
average price of USBANCORP Common Stock trading with Three
Rivers for the trading days during the pricing period (the "Per
Share Pre-Split USBANCORP Stock Price"). The pricing period
will occur prior to the Distribution, except that if Three
Rivers Bancorp Common Stock does not trade on a "when issued"
basis, the pricing period for determining the numerator of the
above-described fraction will be soon after the Distribution
Date. The number of shares of Three Rivers Bancorp Common Stock
subject to each such Three Rivers stock option shall equal the
number of shares subject to the corresponding USBANCORP stock
option prior to the Distribution divided by the Three Rivers
Stock Conversion Ratio. All other terms of such Three Rivers
stock options shall be the same as the terms of the USBANCORP
stock options from which they were converted.
Employees of Three Rivers who have received USBANCORP stock
options and who have elected the alternative method of
conversion will have their options (in whole or in part)
converted by the following method. The exercise price of each
such Three Rivers Bancorp stock option shall equal the composite
volume weighted average price of Three Rivers Bancorp Common
Stock (trading on a "when issues" basis). The pricing period
will occur prior to the Distribution, except that if Three
Rivers Bancorp Common Stock does not trade on a "when issued"
basis, the pricing period for determining the exercise price
will be soon after the Distribution Date. The number of shares
of Three Rivers Bancorp Common Stock subject to each such Three
Rivers Bancorp stock option shall equal the number of shares
required to keep the total fair value of the converted options
equal to the total fair value of the options on a pre-
Distribution basis.
Employees of USBANCORP who will continue to be employed by
USBANCORP after the Distribution Date and hold any USBANCORP
stock options, and holders of any USBANCORP stock options who
retire or have retired from USBANCORP on or prior to the
Distribution Date, shall retain such options to purchase
USBANCORP Common Stock, subject to the adjustments to the
exercise price and number of shares subject to each such
option. The exercise price of each adjusted USBANCORP Stock
Option shall be determined by multiplying the USBANCORP stock
option exercise price prior to the Distribution by a factor (the
"USBANCORP Stock Conversion Ratio") where the numerator is the
composite volume weighted average price of USBANCORP Common
Stock trading without Three Rivers for the trading days during
the pricing period (the "Per Share Post-Split USBANCORP Stock
Price") and the denominator is the Per Share Pre-Split USBANCORP
Stock Price. The number of shares of USBANCORP Common Stock
subject to each Adjusted USBANCORP Stock Option shall equal the
number of shares subject to such USBANCORP stock option prior to
the Distribution divided by the USBANCORP Stock Conversion
Ratio. All other terms of the Adjusted USBANCORP Stock Options
shall be the same as the terms of the pre-adjustment USBANCORP
stock options.
CERTAIN RESTRICTIONS ON ACQUISITION OF THREE RIVERS
Pennsylvania Law
The Pennsylvania Business Corporation Law contains certain
provisions applicable to Three Rivers Bancorp that may have the
effect of impeding a change in control of Three Rivers Bancorp.
Chapter 25 of the Pennsylvania Business Corporation Law
contains certain "anti-takeover" provisions which apply to a
"registered corporation," unless the registered corporation
elects not to be governed by such provisions. Three Rivers
Bancorp will be a "registered corporation" within the meaning of
Chapter 25 of the Pennsylvania Business Corporation Law because
the Three Rivers Bancorp Common Stock is entitled to vote
generally in the election of directors and will be registered
under the Securities Exchange Act of 1934, as amended. The
relevant provisions are contained in Subchapters 25E through 25H
of the Pennsylvania Business Corporation Law.
Subchapter 25E of the Pennsylvania Business Corporation Law
(relating to control transactions) provides that if any person
or group acquires 20% or more of the voting power of a covered
corporation, the remaining shareholders may demand from such
person or group the fair value of their shares, including a
proportionate amount of any control premium.
Subchapter 25F of the Pennsylvania Business Corporation Law
(relating to business combinations) delays for five years and
imposes conditions upon "business combinations" between an
"interested shareholder" and the corporation. The term
"business combination" is defined broadly to include various
transactions utilizing a corporation's assets for purchase price
amortization or refinancing purposes. For this purpose, an
"interested shareholder" is defined generally as the beneficial
owner of at least 20% of a corporation's voting shares.
Subchapter 25G of the Pennsylvania Business Corporation Law
(relating to control-share acquisitions) prevents a person who
has acquired 20% or more of the voting power of a covered
corporation from voting such shares unless the "disinterested"
shareholders approve such voting rights. Failure to obtain such
approval exposes the owner to the risk of a forced sale of the
shares to the issuer.
Subchapter 25H of the Pennsylvania Business Corporation Law
(relating to disgorgement) applies in the event that (i) any
person or group publicly discloses that the person or group may
acquire control of the corporation or (ii) a person or group
acquires (or publicly discloses an offer or intent to acquire)
20% or more of the voting power of the corporation and, in
either case, sells shares within 18 months thereafter. Any
profits from sales of equity securities of the corporation
received by the person or group during such 18-month period
belong to the corporation if the securities that were sold were
acquired during the 18-month period or within 24 months prior
thereto.
Subchapter 25I of the Pennsylvania Business Corporation Law
(relating to severance payments) provides for a minimum
severance payment to certain employees terminated within two
years of the approval of a control-share acquisition under
Subchapter 25G of the Pennsylvania Business Corporation Law.
Subchapter 25J of the Pennsylvania Business Corporation Law
(relating to labor contracts) prohibits, in connection with a
control-share acquisition under Subchapter 25G of the
Pennsylvania Business Corporation Law, the abrogation of certain
labor contracts, if any, prior to their stated date of
expiration.
Three Rivers Bancorp has elected not to "opt out" of
coverage under Subchapter 25 of the Pennsylvania Business
Corporation Law, and therefore, the foregoing provisions of
Subchapter 25 will be applicable to Three Rivers Bancorp.
Subchapters 25E through 25H of the Pennsylvania Business
Corporation Law contain a wide variety of transactional and
status exemptions, exclusions and safe harbors.
In addition to the foregoing, the Pennsylvania Business
Corporation Law (a) provides that the Board of Directors can
consider the effects of any action upon any or all groups
affected by such action, including shareholders, employees,
suppliers, customers, creditors and local communities, in
determining whether a certain action is in the best interests of
the corporation; (b) provides that the Board of Directors need
not consider the interests of any particular group as dominant
or controlling; (c) provides that directors, in order to satisfy
the presumption that they have acted in the best interests of
the corporation, need not satisfy any greater obligation or
higher burden of proof with respect to actions relating to an
acquisition or potential acquisition of control; (d) provides
that actions relating to acquisitions of control that are
approved by a majority of "disinterested directors" are presumed
to satisfy the directors' standard unless it is proven by clear
and convincing evidence that the directors did not assent to
such action in good faith after reasonable investigation; and
(e) provides that the fiduciary duty of directors is solely to
the corporation and may be enforced by the corporation or by a
shareholder in a derivative action, but not by a shareholder
directly.
The Pennsylvania Business Corporation Law also explicitly
provides that the fiduciary duty of directors shall not be
deemed to require directors (a) to redeem any rights under, or
to modify or render inapplicable, any shareholder rights plan;
(b) to render inapplicable, or make determinations under,
provisions of the Pennsylvania Business Corporation Law relating
to control transactions, business combinations, control-share
acquisitions or disgorgement by certain controlling shareholders
following attempts to acquire control; or (c) to act as the
board of directors, a committee of the board or an individual
director solely because of the effect such action might have on
an acquisition or potential or proposed acquisition of control
of the corporation or the consideration that might be offered or
paid to shareholders in such an acquisition. One of the effects
of these fiduciary duty provisions may be to make it more
difficult for a shareholder to successfully challenge the
actions of the Three Rivers Bancorp Board of Directors in a
potential change in control context. Pennsylvania case law
appears to provide that the fiduciary duty standard under the
Pennsylvania Business Corporation Law grants directors the
statutory authority to reject or refuse to consider any
potential or proposed acquisition of the corporation.
Certain Anti-Takeover Provisions in the Articles of
Incorporation and Bylaws
While the Board of Directors of Three Rivers Bancorp is not
aware of any effort that might be made to obtain control of
Three Rivers after the Distribution, the Board believes that it
is appropriate to include certain provisions as part of Three
Rivers' Articles of Incorporation to protect the interests of
Three Rivers and its shareholders from hostile takeovers that
the Board might conclude are not in the best interests of Three
Rivers or its shareholders. These provisions may have the
effect of discouraging a future takeover attempt that is not
approved by the Board but which individual shareholders may deem
to be in their best interests or in which shareholders may
receive a substantial premium for their shares over the then
current market price. As a result, shareholders who might
desire to participate in such a transaction may not have an
opportunity to do so. Such provisions will also render the
removal of Three Rivers' Board of Directors or management more
difficult.
The following discussion is a general summary of certain
provisions of the Articles of Incorporation and the Bylaws of
Three Rivers Bancorp that may be deemed to have such an "anti-
takeover" effect. The description of these provisions is
necessarily general and reference should be made in each case to
the Articles of Incorporation and Bylaws of Three Rivers
Bancorp. For information regarding how to obtain a copy of
these documents without charge, see "Available Information."
Classified Board of Directors and Related Provisions
The Three Rivers Bancorp Articles of Incorporation provide
that the Board of Directors is to be divided into three classes
which shall be as nearly equal in number as possible. The
directors in each class will hold office following their initial
appointment to office for terms of one year, two years and three
years, respectively, and, upon reelection, will serve for terms
of three years thereafter. Each director will serve until his
or her successor is elected and qualified. The Articles provide
that a director may be removed by shareholders only upon the
affirmative vote of at least a majority of the votes which all
shareholders would be entitled to cast. The Articles further
provide that any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of
directors, may be filled for the remainder of the unexpired term
by a majority vote of the directors then in office.
A classified board of directors could make it more
difficult for shareholders, including those holding a majority
of the outstanding shares of Three Rivers Bancorp Common Stock,
to force an immediate change in the composition of a majority of
the Board of Directors. Because the terms of only one-third of
the incumbent directors expire each year, it requires at least
two annual elections for the shareholders to change a majority,
whereas a majority of a non-classified board may be changed in
one year. In the absence of the provisions of the Articles
classifying the Board, all of the directors would be elected
each year.
Management of the Three Rivers Bancorp believes that the
staggered election of directors tends to promote continuity of
management because only one-third of the Board of Directors is
subject to election each year. Staggered terms guarantee that
in the ordinary course approximately two-thirds of the
Directors, or more, at any one time have had at least one year's
experience as directors of Three Rivers, and moderate the pace
of change in the composition of the Board of Directors by
extending the minimum time required to elect a majority of
Directors from one to two years.
Other Antitakeover Provisions
The Articles of Incorporation and Bylaws of Three Rivers
Bancorp contain certain other provisions that may also have the
effect of deterring or discouraging, among other things, a non-
negotiated tender or exchange offer for the Three Rivers Bancorp
Common Stock, a proxy contest for control of Three Rivers
Bancorp, the assumption of control of Three Rivers Bancorp by a
holder of a large block of the Three Rivers Bancorp Common Stock
and the removal of Three Rivers management. These provisions:
(1) empower the Board of Directors, without shareholder
approval, to issue preferred stock, the terms of which,
including voting power, are set by the Board; (2) restrict the
ability of shareholders to remove directors; (3) require that
shares with at least 80% of total voting power approve mergers
and other similar transactions if the transaction is not
approved, in advance, by the Board of Directors; (4) prohibit
shareholders' actions without a meeting; (5) eliminate the right
of shareholders to call a special meeting; (6) require that
shares with at least 80%, or in certain instances a majority, of
total voting power approve the repeal or amendment of Three
Rivers' Articles of Incorporation; (7) require any person who
acquires stock of Three Rivers Bancorp with voting power of 25%
or more to offer to purchase for cash all remaining shares of
Three Rivers Bancorp voting stock at the highest price paid by
such person for shares of Three Rivers Bancorp voting stock
during the preceding year; (8) limit the right of a person or
entity to vote more than 10% of the outstanding voting stock of
Three Rivers Bancorp; (9) eliminate cumulative voting in
elections of directors; and (10) require that shares with at
least 66-2/3% of the total voting power of Three Rivers Bancorp
voting stock approve any repeal or amendment of Three Rivers'
Bylaws.
DESCRIPTION OF THREE RIVERS BANCORP CAPITAL STOCK
Under Three Rivers Bancorp's Articles of Incorporation,
which have been filed as an exhibit to the Registration
Statement of which this Information Statement forms a part,
Three Rivers' authorized capital stock consists of
_________ shares, no par value, of which _________ shall be
Common Stock and _________ shall be preferred stock ("Preferred
Stock"). Based on _________ shares of USBANCORP Common Stock
outstanding as of _______________, 2000, and a distribution
ratio of one share of Three Rivers Bancorp Common Stock for
every two shares of USBANCORP Common Stock outstanding, it is
expected that approximately ________ shares of Three Rivers
Bancorp Common Stock will be distributed to holders of USBANCORP
Common Stock. No Preferred Stock will be distributed to
USBANCORP shareholders in connection with the Distribution.
Common Stock
Voting Rights
Each share of the Three Rivers Bancorp Common Stock will
have the same relative rights and will be identical in all
respects with every other share of Three Rivers Bancorp Common
Stock. The holders of Three Rivers Bancorp Common Stock will
possess exclusive voting rights in the Company, except to the
extent that shares of preferred stock issued in the future may
have voting rights, if any. Each holder of shares of Three
Rivers Bancorp Common Stock will be entitled to one vote for
each share held of record on all matters submitted to a vote of
holders of shares of Three Rivers Bancorp Common Stock. Holders
of Three Rivers Bancorp Common Stock will not be entitled to
cumulate their votes for election of directors.
Dividends
The payment and amount of cash dividends declared by Three
Rivers Bancorp after the Distribution will be subject to the
discretion of the Three Rivers Bancorp Board of Directors.
Dividend decisions will be based on a number of factors,
including Three Rivers' consolidated operating results and
financial condition, tax considerations, industry standards,
economic conditions, regulatory restrictions, general business
practices and other factors.
We do not presently anticipate that Three Rivers Bancorp
will conduct significant operations independent of those of
Three Rivers Bank for a substantial period of time following the
Distribution. Therefore, we do not expect Three Rivers Bancorp
to have any significant source of income other than dividends
from Three Rivers Bank, if any. Consequently, Three Rivers
Bancorp's ability to pay cash dividends to its shareholders will
be dependent upon the ability of Three Rivers Bank to pay
dividends to Three Rivers Bancorp.
The Pennsylvania Banking Code provides that cash dividends
may be declared and paid only out of accumulated net earnings
and that, prior to the declaration of any dividend, if the
surplus of a bank is less than the amount of its capital, the
bank shall, until its surplus is equal to its capital, transfer
to its surplus an amount that is at least ten percent (10%) of
the net earnings of the bank for the period since the end of its
last fiscal year or for any shorter period since the bank's most
recent declaration of a dividend. The Pennsylvania Banking Code
further provides that if the surplus of a bank is less than
fifty percent (50%) of the amount of its capital, no dividends
may be declared or paid by the bank without the prior approval
of the Pennsylvania Banking Department until the bank's surplus
is equal to or greater than fifty percent (50%) of the bank's
capital.
Three Rivers Bancorp is subject to the Pennsylvania
Business Corporation Law which permits dividends or
distributions to be paid as long as the corporation will be able
to pay its debts in the ordinary course of business after making
the dividend or distribution.
Liquidation
In the event of any liquidation, dissolution or winding up
of Three Rivers Bank, Three Rivers Bancorp, as holder of all of
the capital stock of Three Rivers Bank, would be entitled to
receive all of the assets of Three Rivers Bank after payment of
all debts and liabilities of Three Rivers Bank. In the event of
a liquidation, dissolution or winding up of Three Rivers
Bancorp, each holder of shares of Three Rivers Bancorp Common
Stock would be entitled to receive, after payment of all debts
and liabilities of Three Rivers Bancorp, a pro rata portion of
all assets of Three Rivers Bancorp available for distribution to
holders of Three Rivers Bancorp Common Stock. If any preferred
stock is issued, the holders thereof may have a priority in
liquidation or dissolution over the holders of the Three Rivers
Bancorp Common Stock.
Other Characteristics
Holders of the Three Rivers Bancorp Common Stock will not
have preemptive rights with respect to any additional shares of
Three Rivers Bancorp Common Stock that may be issued. The Three
Rivers Bancorp Common Stock is not subject to call for
redemption, and the outstanding shares of Three Rivers Bancorp
Common Stock, when issued and upon receipt by Three Rivers
Bancorp of the full purchase price therefor, will be fully paid
and nonassessable.
Preferred Stock
None of the _________ authorized shares of preferred stock
of Three Rivers Bancorp will be issued in the Distribution.
After the Distribution is completed, the Board of Directors of
Three Rivers Bancorp will be authorized, without shareholder
approval, to issue preferred stock and to fix and state voting
powers, designations, preferences or other special rights of
such shares and the qualifications, limitations and restrictions
thereof. The preferred stock may rank prior to the Three Rivers
Bancorp Common Stock as to dividend rights or liquidation
preferences, or both, and may have full or limited voting
rights. Should the Board of Directors of Three Rivers Bancorp
issue preferred stock, no holder of any such stock will have any
preemptive right to subscribe for or purchase any stock or any
other securities of Three Rivers Bancorp other than such, if
any, as the Board of Directors, in its sole discretion, may
determine and at such price or prices and upon such other terms
as the Board of Directors, in its sole discretion, may fix.
INDEMNIFICATION OF DIRECTORS
The Bylaws of Three Rivers Bancorp provide for (1) the
indemnification of directors, officers, employees, and agents of
Three Rivers Bancorp and its subsidiaries and (2) the
elimination of a director's liability for monetary damages, in
each case to the fullest extent permitted by Pennsylvania law.
Pennsylvania law provides that a Pennsylvania corporation
may indemnify directors, officers, employees, and agents of the
corporation against liabilities they may incur in such
capacities for any action taken or any failure to act, whether
or not the corporation would have the power to indemnify the
person under any provision of law, unless such action or failure
to act is determined by a court to have constituted recklessness
or willful misconduct. Pennsylvania law also permits the
adoption of a Bylaw amendment, approved by shareholders,
providing for the elimination of a director's liability for
monetary damages for any action taken or any failure to take any
action unless (1) the director has breached or failed to perform
the duties of his/her office; and (2) the breach or failure to
perform constitutes self-dealing, willful misconduct or
recklessness.
Directors and officers of Three Rivers Bancorp will also be
insured against certain liabilities for their actions as such by
an insurance policy obtained by Three Rivers Bancorp.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Three Rivers Bancorp
Common Stock will be __________________, __________________
__________________.
LISTING AND TRADING OF THREE RIVERS COMMON STOCK
Prior to the date hereof, there has not been any
established trading market for Three Rivers Bancorp Common
Stock. Application is expected to be made to list the Three
Rivers Bancorp Common Stock on the Nasdaq National Market under
the symbol "TRBC." It is presently anticipated that Three
Rivers Bancorp Common Stock will be approved for listing on the
Nasdaq National Market prior to the Distribution Date, and
trading is expected to commence on a "when-issued" basis on or
after the Record Date. The term "when issued" indicates a
conditional transaction in a security authorized for issuance
but not as yet actually issued. All "when issued" transactions
are on an "if" basis, to be settled if and when the actual
security is issued and the NASDAQ Stock Market directs that the
transactions are to be settled.
There can be no assurance as to the prices at which Three
Rivers Bancorp Common Stock will trade before, on or after the
Distribution Date. Until Three Rivers Bancorp Common Stock is
fully distributed and an orderly trading market develops in
Three Rivers Bancorp Common Stock, the price at which such stock
trades may fluctuate significantly and may be lower or higher
than the respective price that would be expected for a fully
distributed issue. Prices for Three Rivers Bancorp Common Stock
will be determined in the marketplace and may be influenced by
many factors, including (i) the depth and liquidity of the
market for Three Rivers Bancorp Common Stock, (ii) developments
affecting the business of Three Rivers Bancorp, (iii) investor
perception of Three Rivers Bancorp, and (iv) general economic
and market conditions. As of ___________, 2000, there were
_________ holders of USBANCORP Common Stock, which approximates
the number of prospective record holders of Three Rivers Bancorp
Common Stock.
Shares of Three Rivers Bancorp Common Stock distributed in
the Distribution will be freely transferable, except for
securities received by persons who may be deemed to be
affiliates of Three Rivers Bancorp ("Affiliates") under the
Securities Act of 1933, as amended (the "Securities Act").
Affiliates would generally include individuals or entities that
control, are controlled by, or are under common control with
Three Rivers Bancorp and will include all Directors and certain
officers of Three Rivers. Persons who are Affiliates of Three
Rivers will be permitted to sell their shares of Three Rivers
Bancorp Common Stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the
registration requirements of the Securities Act.
2001 ANNUAL MEETING AND SHAREHOLDER PROPOSALS
Three Rivers' first annual shareholders meeting after the
Distribution is expected to be held on __________________, 2001.
If a shareholder wishes to have a proposal considered at the
2001 meeting and included in the Proxy Statement for that
meeting, the proposal must be received by Three Rivers in
writing on or before November ___, 2000.
AVAILABLE INFORMATION
When the Registration Statement on Form 10, of which this
Information Statement forms a part, becomes effective, Three
Rivers Bancorp will be subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended, and, in
accordance therewith, will file reports, and proxy materials
with the SEC. Copies of the Form 10, including the exhibits
thereto, and the reports, proxy statements and other information
filed by Three Rivers Bancorp with the SEC can then be inspected
and copied at the public reference facilities of the SEC,
450 Fifth Street N.W., Room 1024, Washington D.C. 20549 and at
the SEC's Regional Offices at 7 World Trade Center, 13th floor,
New York, NY 10048 and at 500 West Madison Street, Suite 1400,
Chicago, IL 60661. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the SEC,
450 Fifth Street N.W, Room 1024, Washington D.C. 20549. Copies
may also be obtained from the SEC's Web Site
(http://www.sec.gov).
INDEX TO FINANCIAL STATEMENTS
Page
Reference
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet - September 30, 1999
(unaudited), December 31, 1998 and December 31, 1997 F-2
Consolidated Statement of Income - Nine months
ended September 30, 1999 and September 30, 1998
(unaudited) and fiscal years ended December 31,
1998, December 31, 1997 and December 31, 1996 F-3
Consolidated Statement of Comprehensive Income -
Nine months ended September 30, 1999 and
September 30, 1998 (unaudited) and fiscal
years ended December 31, 1998, December 31,
1997 and December 31, 1996 F-4
Consolidated Statement of Stockholders' Equity - Nine
months ended September 30, 1999 (unaudited) and fiscal
years ended December 31, 1998, December 31, 1997
and December 31, 1996 F-5
Consolidated Statement of Cash Flows - Nine months
ended September 30, 1999 and September 30, 1998
(unaudited) and fiscal years ended December 31,
1998, December 31, 1997 and December 31, 1996 F-6
Notes to Consolidated Financial Statements F-7
Report of Independent Auditors F-43
All other financial statements and schedules have been
omitted since the required information is not present or not
present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
above listed financial statements or the notes thereto.
THREE RIVERS BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, At December 31
1999 1998 1997
(Unaudited) (In thousands)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 20,292 $ 16,169 $ 16,855
Interest bearing deposits with banks - 2,447 -
Investment securities:
Available for sale 398,297 327,669 279,461
Held to maturity (market value
$128,219 at September 30, 1999,
$151,398 on December 31, 1998,
and $168,926 on December 31, 1997) 131,903 149,988 167,339
Loans held for sale 59 1,873 2,541
Loans 469,048 466,413 464,243
Less: Unearned income 68 92 169
Allowance for loan losses 5,600 6,104 6,006
Net loans 463,380 460,217 458,068
Premises and equipment 5,294 4,489 4,516
Accrued income receivable 7,059 7,030 6,965
Goodwill and core deposit intangibles 2,937 1,772 103
Bank owned life insurance 12,271 11,859 11,303
Other assets 9,040 2,073 518
Net assets of discontinued mortgage
banking operations 10,656 10,455 10,712
TOTAL ASSETS $1,061,188 $996,041 $958,381
LIABILITIES
Non-interest bearing deposits $ 86,066 $ 84,969 $71,338
Interest bearing deposits 462,790 475,481 454,472
Total deposits 548,856 560,450 525,810
Federal funds purchased and securities
sold under agreements to repurchase 20,000 18,305 19,936
Other short-term borrowings 58,950 23,500 29,000
Advances from Federal Home Loan Bank 359,876 309,891 307,945
Long-term debt 2,619 2,576 3,963
Total borrowed funds 441,445 354,272 360,844
Other liabilities 9,932 9,833 9,177
TOTAL LIABILITIES 1,000,233 924,555 895,831
Commitments and contingent liabilities
(Note #17)
STOCKHOLDERS' EQUITY
Subsidiary Equity 72,246 70,396 61,118
Accumulated other comprehensive income (11,291) 1,090 1,432
TOTAL STOCKHOLDERS' EQUITY 60,955 71,486 62,550
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,061,188 $996,041 $958,381
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Nine Months Nine Months
Ended Ended
September 30, September 30, Year ended December 31,
1999 1998 1998 1997 _1996_
(unaudited) (unaudited)
INTEREST INCOME (In thousands)
<S> <C> <C> <C> <C> <C>
Interest and fees on loans:
Taxable $ 27,980 $ 29,398 $ 38,923 $ 38,047 $ 32,825
Tax exempt 367 454 613 315 209
Deposits with banks 19 5 8 12 18
Federal funds sold - 1 1 11 120
Investment securities:
Available for sale 17,651 13,591 18,480 14,560 10,465
Held to maturity 6,348 7,619 9,901 12,158 11,802
Total Interest Income 52,365 51,068 67,926 65,103 55,439
INTEREST EXPENSE
Deposits 14,394 14,810 19,714 19,901 19,516
Federal funds purchased
and securities sold
under agreements to
repurchase 757 773 1,004 754 366
Other short-term
borrowings 1,284 1,531 1,768 1,499 1,178
Advances from Federal Home
Loan Bank 13,485 11,420 15,633 13,447 7,880
Long-term debt 212 266 336 431 431
Total Interest Expense 30,132 28,800 38,455 36,032 29,371
NET INTEREST INCOME 22,233 22,268 29,471 29,071 26,068
Provision for loan
losses 225 225 300 113 90
NET INTEREST INCOME AFTER
PROVISION FOR LOAN
LOSSES 22,008 22,043 29,171 28,958 25,978
NON-INTEREST INCOME
Trust fees 762 698 927 843 791
Net realized gains
on investment securities 273 843 1,316 112 30
Net realized (losses) gains
on loans held for sale (22) 230 235 244 55
Wholesale cash processing
fees 477 530 706 976 1,086
Service charges on deposit
accounts 1,391 1,336 1,813 1,725 1,765
Bank owned life insurance 412 419 556 524 553
Other income 1,048 1,025 1,365 858 586
Total Non-Interest Income 4,341 5,081 6,918 5,282 4,866
NON-INTEREST EXPENSE
Salaries and employee
benefits 7,014 6,913 9,125 8,996 8,689
Net occupancy expense 1,397 1,349 1,807 1,823 1,781
Equipment expense 1,114 1,020 1,336 1,309 1,261
Professional fees 976 948 1,277 1,170 1,119
Supplies, postage, and
freight 742 777 1,028 1,090 1,143
Miscellaneous taxes and
insurance 418 337 475 398 454
FDIC deposit insurance
expense 148 148 196 42 2,560
Amortization of goodwill
and core deposit
intangibles 278 152 214 263 263
Other expense 3,613 3,591 4,862 4,507 4,288
Total Non-Interest Expense 15,700 15,235 20,320 19,598 21,558
INCOME BEFORE INCOME TAXES 10,649 11,889 15,769 14,642 9,286
Provision for income
taxes 3,168 3,591 4,762 4,522 2,523
INCOME FROM CONTINUING
OPERATIONS 7,481 8,298 11,007 10,120 6,763
Income from Discontinued
Mortgage Banking Operations,
Net of Tax 200 539 252 1,286 1,267
NET INCOME 7,681 8,837 11,259 11,406 8,030
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Nine Months Nine Months
Ended Ended Year ended December 31,
September 30, September 30,
1999 1998 1998 1997 1996
COMPREHENSIVE INCOME (unaudited) (unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Net income $ 7,681 $ 8,837 $11,259 $11,406 $ 8,030
Other comprehensive income,
before tax:
Unrealized holding gains
(losses) on Securities:
Unrealized holding gains
(losses) arising during
period (17,351) 3,678 826 1,730 (761)
Less: Reclassification
adjustment for gains included
in net income, net of tax (273) (843) (1,316) (112) (30)
Other comprehensive income
(loss), before tax (17,624) 2,835 (490) 1,618 (791)
Income tax expense (credit)
related to items of other
comprehensive income (5,243) 856 (148) 500 (215)
Other comprehensive income
(loss), net of tax (12,381) 1,979 (342) 1,118 (576)
Comprehensive (loss) income $ (4,700) $10,816 $10,917 $12,524 $ 7,454
======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months
Ended
September 30,
____ 1999____ Year ended December 31,
(unaudited) 1998 1997 1996
<S> <C> <C> <C> <C>
PREFERRED STOCK $ - $ - $ - $ -
Balance at beginning of period - - - -
Balance at end of period - - - -
COMMON STOCK
Balance at beginning of period 2,015 2,015 2,015 2,015
Balance at end of period 2,015 2,015 2,015 2,015
CAPITAL SURPLUS
Balance at beginning of period 20,454 13,454 13,454 13,454
Downstream dividends - 7,000 - -
Balance at end of period 20,454 20,454 13,454 13,454
RETAINED EARNINGS
Balance at beginning of period 37,471 34,937 31,410 30,306
Income from continuing operations 7,481 11,007 10,120 6,763
Equity from discontinued
mortgage banking operations 10,656 10,455 10,712 -
Dividends paid (5,831) (8,981) (6,841) (5,659)
Dividends received - 509 248 -
Balance at end of period 49,777 47,927 45,649 31,410
NET UNREALIZED GAIN (LOSS) ON
SECURITIES AVAILABLE FOR SALE
Balance at beginning of period 1,090 1,432 314 890
Net change in fair value of
securities available for sale (12,381) (342) 1,118 (576)
Balance at end of period (11,291) 1,090 1,432 314
TOTAL STOCKHOLDERS' EQUITY $60,955 $71,486 $62,550 $47,193
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
September 30, _ Year ended December 31,
1999 1998 1998 1997 1996
(unaudited) (unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 7,481 $ 8,298 $ 11,007 $ 10,120 $ 6,763
Adjustments to reconcile net income to
net cash provided by operating
activities:
Income provided by discontinued
mortgage banking operations 200 539 252 1,286 1,267
Provision for loan losses 225 225 300 113 90
Depreciation and amortization
expense 657 597 790 855 826
Amortization expense of goodwill and
core deposit intangibles 278 152 214 263 263
Net amortization of investment
securities 763 459 756 51 190
Net realized gains on investment
securities (273) (843) (1,316) (112) (30)
Net realized (gains) losses
on loans held for sale 22 (230) (235) (244) (55)
Decrease (increase) in accrued income
receivable (29) 48 (65) (667) (540)
Increase (decrease) in accrued
expense payable (95) 98 22 1,223 98
Net cash provided by operating
activities 9,229 9,343 11,725 12,888 8,872
INVESTING ACTIVITIES
Purchase of investment securities and
other short-term investments (265,224) (216,646) (381,078) (348,925) (257,151)
Proceeds from maturities of investment
securities and other short-term
investments 78,907 59,077 93,677 136,237 53,689
Proceeds from sales of investment
securities and other short-term
investments 133,284 137,583 257,104 128,968 170,098
Long-term loans originated (137,466) (131,633) (154,285) (162,541) (209,846)
Loans held for sale (59) (1,430) (1,873) (2,541) (556)
Principal collected on long-term
loans 135,037 129,865 153,601 130,410 146,531
Net decrease (increase) in
other short-term loans 892 920 1,011 97 (961)
Purchases of premises and equipment (1,571) (682) (815) (383) (1,160)
Sale/retirement of premises and
equipment 109 41 53 54 43
Net (increase) decrease in other assets (21,404) (964) (4,588) 3,592 (4,012)
Net cash used by investing activities (77,495) (23,869) (37,193) (115,032) (103,325)
FINANCING ACTIVITIES
Proceeds from sales of certificates of
deposit 241,992 231,538 293,679 186,407 140,060
Payments for maturing certificates of
deposit (268,419) (205,684) (255,579) (200,612) (150,541)
Net increase (decrease) in demand and
savings deposits 14,833 (1,427) (3,460) 10,679 (13,171)
Net increase (decrease) in federal
funds purchased, securities sold
under agreements to repurchase, and
other short-term borrowings 37,145 (21,609) (7,131) 12,914 30,743
Net principal borrowings
on advances from Federal Home Loan
Bank 49,985 11,958 1,946 95,446 90,622
Borrowing (repayments) of long-term
debt 43 (1,102) (1,387) (1,045) (1,619)
Common stock dividends paid (5,831) (6,257) (8,981) (6,841) (5,659)
Dividends received from subsidiaries - 509 509 248 -
Contributions from Parent - 7,000 7,000 - -
Net increase (decrease) in other
liabilities 194 (813) 633 (556) 724
Net cash provided by financing
activities 69,942 14,113 27,229 96,640 91,159
NET INCREASE (DECREASE) IN CASH
EQUIVALENTS 1,676 (413) 1,761 (5,504) (3,294)
CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,616 16,855 16,855 22,359 25,653
CASH EQUIVALENTS AT END OF PERIOD $20,292 $16,442 $18,616 $16,855 $22,359
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
On July 12, 1999, USBANCORP, Inc., the Bank's holding
company parent, announced that its Board of Directors approved a
plan to split USBANCORP's banking subsidiaries into two separate
publicly traded companies. The plan will be effected through a
tax-free spin-off, is expected to take six to nine months to
complete and is contingent upon a favorable tax ruling from the
Internal Revenue Service and regulatory approvals.
Under the proposed tax-free spin-off plan, 100% of the
shares of the holding company to be formed for Three Rivers
Bank, to be known as Three Rivers Bancorp, Inc., would be
distributed as a dividend to the shareholders of USBANCORP in
proportion to their existing USBANCORP ownership. Shareholders
would retain their existing USBANCORP shares. Standard Mortgage
Company of Georgia, a mortgage banking company that is currently
a subsidiary of Three Rivers Bank, will be internally spun-off
from Three Rivers Bank to USBANCORP prior to consummation of the
proposed Three Rivers Bank spin-off.
The Consolidated Financial Statements included herein may
not necessarily be indicative of the results of operations,
financial position and cash flows of Three Rivers Bancorp, Inc.
in the future or had it operated as a separate, independent
company during the periods presented. The Consolidated
Financial Statements included herein do not reflect any changes
that may occur in the financial condition and operations of the
Bank as a result of the Distribution.
The Spin-Off will result in the division of certain of
Parent's existing corporate support functions between the two
resulting entities. Corporate expenses included in Three Rivers
Bancorp, Inc.'s financial results represent an allocation of
Parent's consolidated corporate expense to the entities
comprising Three Rivers Bancorp, Inc. The allocation of
corporate expense is based on a specific review to identify
costs incurred for the benefit of the banking business and in
management's judgment results in a reasonable allocation of such
costs. Three Rivers Bancorp was allocated $1.9 million, $1.9
million, and $1.8 million of overhead costs related to
USBANCORP's shared administrative and support functions for the
years 1998, 1997, and 1996, respectively. The allocation was
largely based upon Three Rivers Bancorp's total assets as a
percentage of USBANCORP's total assets during such prior
periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include accounts of
Three Rivers Bancorp, Inc. and its wholly-owned subsidiary,
Three Rivers Bank and Trust Company, including its subsidiaries
TRB Financial Services Company and Community First Capital
Corporation. The consolidated interim financial statements have
been prepared without audit. Certain information and footnote
disclosures normally included in financial statements presented
in accordance with generally accepted accounting principles have
been condensed or omitted. Three Rivers Bancorp, Inc. believes
the disclosures made are adequate to make the interim financial
information presented not misleading.
In the opinion of management, the accompanying consolidated
interim financial statements reflect all adjustments (which
include only normal recurring adjustments) necessary to present
fairly the financial position of Three Rivers Bancorp, Inc. as
of September 30, 1999 and December 31, 1998 and 1997, and the
results of operations and cash flows for the nine months ended
September 30, 1999 and 1998, and for the years ended
December 31, 1998, 1997 and 1996.
Business and Nature of Operations:
Three Rivers Bancorp, Inc. (the "Bank") is a Pennsylvania-
chartered bank holding company headquartered in Monroeville,
Pennsylvania. The Bank operates 24 banking offices in three
southwestern Pennsylvania counties. These offices provide a
full range of consumer, mortgage, commercial, and trust
financial products. The information contained in the financial
statements and these accompanying notes relates only to the Bank
on a stand-alone basis.
As discussed above, Standard Mortgage Company of Georgia
("SMC"), a mortgage banking company that historically was a
subsidiary of TRB, will be internally spun-off from TRB to the
Parent prior to the consummation of the proposed TRB spin-off.
Accordingly, results of operations and cash flows of SMC have
been reported as discontinued operations for all periods
presented in the consolidated financial statements of TRB. The
consolidated balance sheets for all periods presented also
reflects SMC as a discontinued operation. Summarized financial
information of the discontinued operations is presented in the
following tables:
<TABLE>
<CAPTION>
Net assets of discontinued mortgage banking operations:
At September 30, 1999 At December 31,
ASSETS (unaudited) 1998 1997
<S> <C> <C> <C>
Cash and due from banks 235 $30 $421
Interest bearing deposits banks 149
Loans held for sale 20,708 47,880 9,946
Net loans 11,721 10,387 11,800
Premises and equipment 797 514 365
Mortgage servicing rights 14,858 16,536 15,227
Goodwill and core deposit intangibles 258 278 304
Other assets 2,784 1,562 1,279
TOTAL ASSETS $51,510 $77,187 $39,342
LIABILITIES
Other short-term borrowings 33,303 $57,203 $21,292
Long-term debt 5,156 6,563 4,083
Total borrowed funds 38,459 63,766 25,375
Other liabilities 2,395 2,966 3,255
TOTAL LIABILITIES $40,854 $66,732 $28,630
NET ASSETS $10,656 $10,455 $10,712
<CAPTION>
Income from discontinued mortgage banking operations:
For the Nine Months
Ended For the year ended
September 30, December 31,
(unaudited)
1999 1998 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Interest income $2,597 $1,995 $2,846 $1,883 $1,593
Interest expense 1,608 851 1,398 455 368
Net interest income 989 1,144 1,448 1,428 1,225
Provision for loan losses 75 - - - -
Non-interest income 4,691 4,882 6,417 6,163 5,609
Non-interest expense 5,264 5,155 7,445 5,495 4,769
Income before income taxes 341 871 420 2,096 2,065
Provision for income taxes 141 332 168 810 798
Income from discontinued
mortgage banking operations $200 $539 $252 $1,286 $1,267
</TABLE>
Investment Securities:
Securities are classified at the time of purchase as
investment securities held to maturity if it is management's
intent and the Bank has the ability to hold the securities until
maturity. These held to maturity securities are carried on the
Bank's books at cost, adjusted for amortization of premium and
accretion of discount which is computed using the level yield
method which approximates the effective interest 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 Bank'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 Bank presently does not engage in trading activity.
Realized gain or loss on securities sold was computed upon the
adjusted cost of the specific securities sold.
Loans:
Interest income is recognized using methods which
approximate a level yield related to principal amounts
outstanding. The Bank discontinues 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. The only exception to this
policy is for residential mortgage loans wherein interest income
is recognized on a cash basis as payments are received. 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 only have to become
current).
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:
Newly originated fixed-rate residential mortgage loans are
classified as "held for sale," if it is management's intent to
sell these residential mortgage loans. The residential mortgage
loans held for sale are carried at the lower of aggregate cost
or market value.
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 of its business, the Bank
anticipates that credit losses will be experienced in the normal
course of business. Accordingly, the Bank consistently applies
a comprehensive methodology and procedural discipline which is
updated on a quarterly basis to determine both the adequacy of
the allowance for loan losses and the necessary provision for
loan losses to be charged against earnings. This methodology
includes:
A detailed review of all criticized and impaired loans to
determine if any specific reserve allocations are required on an
individual loan basis. The specific reserve established for
these criticized and impaired loans is based on careful analysis
of the loan's performance, the related collateral value, cash
flow considerations and the financial capability of any
guarantor.
The application of formula driven reserve allocations for
all commercial and commercial real-estate loans are calculated
by using a three year migration analysis of net losses incurred
within each risk grade for the entire commercial loan portfolio.
The difference between estimated and actual losses is reconciled
through the dynamic nature of the migration analysis.
The application of formula driven reserve allocations to
installment and mortgage loans which are based upon historical
charge-off experience for those loan types. The residential
mortgage loan allocation is based upon the Bank's five year
historical average of actual loan charge-offs experienced in
that category. The same methodology is used to determine the
allocation for consumer loans except the allocation is based
upon an average of the most recent actual three year historical
charge-off experience for consumer loans.
The application of formula driven reserve allocations to
all outstanding loans and certain unfunded commitments is based
upon review of historical losses and qualitative factors, which
include but are not limited to, economic trends, delinquencies,
concentrations of credit, trends in loan volume, experience and
depth of management, examination and audit results, effects of
any changes in lending policies and trends in policy exceptions.
The maintenance of a general unallocated reserve in order
to provide conservative positioning based on an assessment of
the regional economy and to provide protection against credit
risks resulting from other inherent risk factors contained in
the Bank's loan portfolio. It must be emphasized that a general
unallocated reserve is prudent recognition of the fact that
reserve estimates, by definition, lack precision. After
completion of this process, a formal meeting of the Loan Loss
Reserve Committee is held to evaluate the adequacy of the
reserve and establish the provision level for the next quarter.
The Bank believes that the procedural discipline, systematic
methodology, and comprehensive documentation of this quarterly
process is in full compliance with all regulatory requirements
and provides appropriate support for accounting purposes. When
it is determined that the prospects for recovery of the
principal of a loan have significantly diminished, the loan is
immediately charged against the allowance account; subsequent
recoveries, if any, are credited to the allowance account. In
addition, non-accrual and large delinquent loans are reviewed
monthly to determine potential losses. Consumer loans are
considered losses when they are 90 days past due, except loans
that are insured for credit loss.
The Bank's policy is to individually review, as
circumstances warrant, each of its commercial and commercial
mortgage loans to determine if a loan is impaired. At a
minimum, credit reviews are mandatory for all commercial and
commercial mortgage loans with balances in excess of $500,000
within an 18 month period. The Bank has also identified two
pools of small dollar value homogeneous loans which are
evaluated collectively for impairment. These separate pools are
for residential mortgage loans and consumer loans. Individual
loans within these pools are reviewed and removed from the pool
if factors such as significant delinquency in payments of 90
days or more, bankruptcy, or other negative economic concerns
indicate impairment.
Comprehensive Income:
In January 1998, the Bank adopted SFAS #130, "Reporting
Comprehensive Income," which establishes standards for reporting
and displaying comprehensive income and its components in a
financial statement. For the Bank, comprehensive income
includes net income and unrealized holding gains and losses from
available for sale investment securities. The balances of other
accumulated comprehensive income were $1,090,000, $1,432,000 and
$314,000 at December 31, 1998, 1997 and 1996, respectively.
Segment Reporting:
In June, 1997, the Financial Accounting Standards Board
("FASB") issued Statement No. 131 "Disclosures about Segments of
an Enterprise and Related Information" ("FAS No. 131") which is
effective for financial statements for periods beginning after
December 15, 1997. FAS No. 131 redefines how operating segments
are determined and requires disclosures of certain financial and
descriptive information about a company's operating segments.
Under current conditions the Bank is reporting one business
segment.
Statement of Cash Flows:
Cash equivalents include cash and due from banks, interest
bearing deposits with banks, federal funds sold and securities
purchased under agreements to resell, and short-term
investments. The Bank made $4,599,000 in income tax payments in
1998; $3,819,000 in 1997; and $1,859,000 in 1996. The Bank made
total interest expense payments of $38,433,000 in 1998;
$34,809,000 in 1997; and $29,273,000 in 1996.
Income Taxes:
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.
Interest Rate Contracts:
The Bank 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 Balance Sheet. Unrealized gains or losses on
these hedge transactions are deferred. It is the Bank's policy
not to terminate hedge transactions prior to expiration date.
For interest rate swaps, the interest differential to be paid or
received is accrued by the Bank and recognized as an adjustment
to interest income or interest expense of the underlying assets
or liabilities being hedged. Because only interest payments are
exchanged, the cash requirement and exposure to credit risk are
significantly less than the notional amount. Any premium or
transaction fee incurred to purchase interest rate caps or
floors is deferred and amortized to interest income or interest
expense over the term of the contract. Unamortized premiums
related to the purchase of caps and floors are included in
"Other assets" on the Balance Sheet.
Risk Management Overview:
Risk identification and management are essential elements
for the successful management of the Bank. In the normal course
of business, the Bank is subject to various types of risk,
including interest rate, credit, and liquidity risk. The Bank
controls and monitors these risks with policies, procedures, and
various levels of managerial and Board oversight. The Bank's
objective is to optimize profitability while managing and
controlling risk within Board approved policy limits. Interest
rate risk is the sensitivity of net interest income and the
market value of financial instruments to the magnitude,
direction, and frequency of changes in interest rates. Interest
rate risk results from various repricing frequencies and the
maturity structure of assets, liabilities, and off-balance sheet
positions. The Bank uses its asset liability management policy
and hedging policy to control and manage interest rate risk.
Credit risk represents the possibility that a customer may
not perform in accordance with contractual terms. Credit risk
results from extending credit to customers, purchasing
securities, and entering into certain off-balance sheet
financial instruments. The Bank's primary credit risk occurs in
the loan portfolio. The Bank uses its credit policy and
disciplined approach to evaluating the adequacy of the allowance
for loan losses to control and manage credit risk. The Bank's
investment policy and hedging policy strictly limit the amount
of credit risk that may be assumed in the investment portfolio
and through off-balance sheet activities.
Liquidity risk represents the inability to generate cash or
otherwise obtain funds at reasonable rates to satisfy
commitments to borrowers, as well as, the obligations to
depositors and debtholders. The Bank uses its asset liability
management policy and contingency funding plan to control and
manage liquidity risk.
Future Accounting Standards:
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement #133, "Accounting for Derivative
Instruments and Hedging Activities"("SFAS #133"), which is
required to be adopted in years beginning after June 15, 1999.
The statement permits early adoption as of the beginning of any
fiscal quarter after its issuance. The statement will require
the Bank to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value
of the derivative will either be offset against the change in
fair value of the hedged asset, liability, or firm commitment
through earnings, or recognized in other comprehensive income
until the hedged item is recognized in earnings. The
ineffective portions of a derivative's change in fair value will
be immediately recognized in earnings. This statement has been
amended by SFAS #137 "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the effective date of SFAS #133."
SFAS #137 will be effective for years beginning after June 15,
2000. The Bank has not yet quantified the impact of adopting
SFAS #133 on its financial statements and has not determined the
timing of, or method of adoption of SFAS #133. However, SFAS
#133 could increase volatility in earnings and other
comprehensive income.
3. CASH AND DUE FROM BANKS
Cash and due from banks at September 30, 1999 and
December 31, 1998, and 1997, included $9,043,000, $8,600,000 and
$4,234,000, respectively, of reserves required to be maintained
under Federal Reserve Bank regulations.
4. INTEREST BEARING DEPOSITS WITH BANKS
The book value of interest bearing deposits with domestic
banks are as follows:
At December 31,
1998 1997
(In thousands)
Total $2,447 $ --
All interest bearing deposits with domestic banks mature
within three months. The Bank had no deposits in foreign banks
nor in foreign branches of United States banks.
5. INVESTMENT SECURITIES
The book and market values of investment securities are
summarized as follows:
Investment securities available for sale:
September 30, 1999
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
(In thousands and unaudited)
U.S. Treasury $ - $ - $ - $ -
U.S. Agency 17,727 - (838) 16,889
State and municipal 1,242 12 - 1,254
U.S. Agency mortgage-
Backed securities 365,128 - (16,116) 349,012
Other securities (1) 31,802 - (660) 31,142
Total $415,899 $ 12 $(17,614) $398,297
(1) Other investment securities include corporate notes and
bonds, asset-backed securities, and equity securities.
Investment securities held to maturity:
<TABLE>
<CAPTION>
September 30, 1999
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
(In thousands and unaudited)
<S> <C> <C> <C> <C>
U.S. Treasury $ 5,047 $ - $ (49) $ 4,998
U.S. Agency - - - -
State and municipal 59,644 310 (3,060) 56,894
U.S. Agency mortgage-
Backed securities 67,212 170 (1,055) 66,327
Other securities(1) - - - -
Total $131,903 $480 $ (4,164) $128,219
<FN>
(1) Other investment securities include corporate notes and
bonds, asset-backed securities, and equity securities.
</TABLE>
Investment securities available for sale:
<TABLE>
<CAPTION>
At December 31, 1998
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ - $ - $ - $ -
U.S. Agency 16,025 39 - 16,064
State and municipal 2,326 37 - 2,363
U.S. Agency
mortgage-backed
securities 290,703 1,947 (577) 292,073
Other securities(1) 17,169 - - 17,169
Total $326,223 $2,023 $(577) $327,669
<CAPTION>
Investment securities held to maturity:
At December 31, 1998
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ 5,089 $ - $ (33) $ 5,056
U.S. Agency - - - -
State and municipal 51,718 799 (524) 51,993
U.S. Agency
mortgage-backed
securities 93,181 1,348 (180) 94,349
Other securities(1) - - - -
Total $149,988 $2,147 $(737) $151,398
<FN>
(1) Other investment securities include corporate notes and
bonds, asset-backed securities, and equity securities.
</TABLE>
<TABLE>
<CAPTION>
Investment securities available for sale:
At December 31, 1997
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ - $ - $ - $ -
U.S. Agency 1,020 11 - 1,031
State and municipal 4,476 108 - 4,584
U.S. Agency
mortgage-backed
securities 254,907 2,343 (248) 257,002
Other securities(1) 16,844 - - 16,844
Total $277,247 $2,462 $(248) $279,461
<CAPTION>
Investment securities held to maturity:
Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ 4,008 $ - $ (3) $ 4,005
U.S. Agency - - - -
State and municipal 36,569 723 (23) 37,269
U.S. Agency
mortgage-backed
securities 126,762 1,236 (346) 127,652
Other securities(1) - - - -
Total $167,339 $1,959 ($372) $168,926
<FN>
(1) Other investment securities include corporate notes and bonds, asset-
backed securities, and equity securities.
</TABLE>
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.
Maintaining investment quality is a primary objective of
the Bank'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 September 30, 1999, 98.2% of the portfolio was rated
"AAA" as compared to 98.2% and 99.4% at December 31, 1998 and
1997, respectively. Less than 1.0% of the portfolio was rated
below "A" or unrated on September 30, 1999. The book value of
securities pledged to secure public and trust deposits, as
required by law, was $328,299,000 at September 30, 1999,
$208,932,000 at December 31, 1998, and $41,498,000 at
December 31, 1997. The Bank realized $396,000, $1,584,000 and
$657,000 of gross investment security gains and $123,000,
$268,000 and $545,000 of gross investment security losses on
available for sale securities in the nine months ended
September 30, 1999 and the years ended December 31, 1998 and
1997, respectively. 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 September 30, 1999. Yields are
not presented on a tax-equivalent basis, but 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.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE AT SEPTEMBER 30, 1999 (In thousands, except yields, and unaudited)
Within 1 After 1 within 5 After 5 within 10 After 10 Total
BOOK VALUE Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
US TREASURY - - - - - - - - - -
US AGENCY - - 7,835 5.62 9,892 6.40 - - 17,727 6.06
STATE AND MUNICIPALS - - - - 1,242 5.74 - - 1,242 5.74
COLLATERALIZED MORTGAGE OBLIG - - 14,787 6.28 201,419 6.34 148,922 6.48 365,128 6.40
OTHER SECURITIES 21,556 6.00 - -_ 2,000 5.17 8,246 7.83 31,802 6.42
TOTAL 21,556 6.00 22,622 6.05 214,553 6.33 157,168 6.55 415,899 6.39
MARKET VALUE
US TREASURY - - - - -
US AGENCY - 7,529 9,360 - 16,889
STATE AND MUNICIPALS - - 1,254 - 1,254
COLLATERALIZED MORTGAGE OBLIG - 14,528 192,325 142,159 349,012
OTHER SECURITIES 21,556 - 1,994 7,592 31,142
TOTAL 21,556 22,057 204,933 149,751 398,297
<CAPTION>
HELD TO MATURITY AT SEPTEMBER 30, 1999 (In thousands, except yields, and unaudited)
Within 1 After 1 within 5 After 5 within 10 After 10 Total
BOOK VALUE Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
US TREASURY 5,047 4.20 - - - - - - 5,047 4.20
US AGENCY - - - - - - - - - -
STATE AND MUNICIPALS - - 7,171 4.67 4,460 5.48 48,013 4.90 59,644 4.92
COLLATERALIZED MORTGAGE OBLIG 7,270 6.66 37,299 7.01 14,449 6.62 8,194 6.69 67,212 6.85
OTHER SECURITIES - - - - - - - - - -
TOTAL 12,317 3.93 44,470 6.63 18,909 6.35 56,207 5.16 131,903 5.72
MARKET VALUE
US TREASURY 4,998 - - - 4,998
US AGENCY - - - - -
STATE AND MUNICIPALS - 7,189 4,440 45,265 56,894
COLLATERALIZED MORTGAGE OBLIG 7,297 37,076 13,931 8,023 66,327
OTHER SECURITIES - - - - -
TOTAL 12,295 44,265 18,371 53,288 128,219
</TABLE>
6. LOANS AND LOANS HELD FOR SALE
The loan portfolio of the Bank consisted of the following:
September 30, At December 31
1999 1998 1997
(unaudited) (In thousands)
Commercial $53,369 $ 53,563 $ 39,003
Commercial loans secured by
real estate 187,189 167,091 171,377
Real estate-mortgage 198,338 213,067 225,008
Consumer 30,211 34,565 31,396
Loans 469,107 468,286 466,784
Less: Unearned income (68) (92) (169)
Loans, net of unearned income $469,039 $468,194 $466,615
Real estate construction loans were not material at these
presented dates and comprised 3.0%, 4.2% and 2.1% of total loans
net of unearned income at September 30, 1999, December 31, 1998
and 1997, respectively. The Bank has no direct credit exposure
to foreign countries. Most of the Bank's loan activity is with
customers located in the southwestern Pennsylvania geographic
area. As of December 31, 1998, loans to customers engaged in
similar activities and having similar economic characteristics,
as defined by standard industrial classifications, did not
exceed 10% of total loans. 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 $512,000 and $617,000 at
December 31, 1998 and 1997, respectively. An analysis of these
related party loans follows:
Year ended December 31
1998 1997
(In thousands)
Balance beginning of period $617 $740
New loans 209 503
Payments 314 626
Balance end of period $512 $617
7. ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses
follows:
Nine Months
Ended
September 30, Year ended December 31,
1999 1998 1997 1996
(In thousands)
Balance, beginning of period $6,104 $6,006 $6,025 $6,834
Provision for loan losses 225 300 113 90
Recoveries on loans
Previously charged-off 237 224 306 200
Loans charged-off 966 426 438 1,099
Balance, end of period $5,600 $6,104 $6,006 $6,025
8. NON-PERFORMING ASSETS
Non-performing assets are comprised of (i) loans which are
on a non-accrual basis, (ii) loans which are contractually past
due 90 days or more as to interest or principal payments some of
which are insured for credit loss, and (iii) other real estate
owned (real estate acquired through foreclosure and in-substance
foreclosures).
The following table presents information concerning non-
performing assets:
<TABLE>
<CAPTION>
September 30, At December 31,
1999 1998 1997 1996 1995 1994
(unaudited) (In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans $8,173 $2,553 $2,871 $3,579 $4,568 $2,987
Loans past due 90 days
or more 387 37 956 1,252 433 604
Other real estate owned 422 526 681 222 612 902
Total non-performing assets $8,982 $3,116 $4,508 $5,053 $5,613 $4,493
Total non-performing assets
as a percent of loans and
loans held for sale, net
of unearned income, and
other real estate owned 1.91% 0.66% 0.96% 1.17% 1.52% 1.05%
</TABLE>
The Bank is unaware of any additional loans which are
required to either be charged-off or added to the non-performing
asset totals disclosed above. Other real estate owned is
recorded at the lower of 1) fair value minus estimated costs to
sell, or 2) carrying cost.
For impaired loans, the measurement of impairment may be
based upon: 1) the present value of expected future cash flows
discounted at the loan's effective interest rate; 2) the
observable market price of the impaired loan; or 3) the fair
value of the collateral of a collateral dependent loan.
The Bank had loans totaling $842,000 and $362,000 being
specifically identified as impaired at December 31, 1998 and
1997, respectively. The average outstanding balance for loans
being specifically identified as impaired was $560,000 for 1998
and $296,000 for 1997. All of the impaired loans are collateral
dependent, therefore the fair value of the collateral of the
impaired loans is evaluated in measuring the impairment. There
was no interest income recognized on impaired loans during 1998
or 1997.
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>
Nine Months
Ended
September 30 Year ended December 31,
1999 1998 1998 1997 1996 1995 1994
(unaudited) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income due in
accordance with original
terms $168 $33 $42 $ 71 $101 $ 87 $261
Interest income recorded (7) (5) (6) (40) (3) (30) (62)
Net reduction in
interest income $161 $28 $36 $ 31 $ 98 $ 57 $199
==== === === ==== ==== ==== ====
</TABLE>
9. PREMISES AND EQUIPMENT
An analysis of premises and equipment follows:
At December 31,
1998 1997
(In thousands)
Land $ 417 $ 417
Premises 5,461 4,991
Furniture and equipment 6,921 6,103
Leasehold improvements 2,055 2,027
Total at cost 14,854 13,538
Less: Accumulated Depreciation 10,365 9,022
Net book value 4,489 4,516
10. 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:
At December 31, 1998
Securities
Federal Sold Under Other
Funds Agreements to Short-term
Purchased Repurchase Borrowings
(In thousands, except rates)
Balance $17,355 $ 950 $ 23,500
Maximum indebtedness at
any month end 22,500 1,406 115,000
Average balance during
year 17,151 934 32,389
Average rate paid for
the year 5.55% 4.13% 5.38%
Average rate on period
end balance 5.58% 5.16% 4.31%
At December 31, 1997
Securities
Federal Sold Under Other
Funds Agreements to Short-term
Purchased Repurchase Borrowings
(In thousands, except rates)
Balance $19,100 $ 836 $ 29,000
Maximum indebtedness at
any month end 22,845 1,272 48,000
Average balance during
year 12,430 1,071 26,785
Average rate paid for
the year 5.63% 4.14% 5.52%
Average rate on period
end balance 6.43% 5.54% 5.35%
Average amounts outstanding during the year represent daily
averages. Average interest rates represent interest expense
divided by the related average balances. Collateral related to
securities sold under agreements to repurchase are maintained
within the Bank's investment portfolio.
11. DEPOSITS
The following table sets forth the balance of the Bank's
deposits:
At
September 30, At December 31,
1999 1998 1997 1996
(unaudited) (In thousands)
Demand:
Non-interest bearing $86,066 $84,969 $71,338 $72,689
Interest bearing 40,655 45,602 42,203 42,688
Savings 67,239 64,649 65,356 75,676
Money market 53,426 53,443 46,592 50,358
Certificates of deposit
in denominations of
$100,000 or more 23,214 16,647 23,974 23,757
Other time 278,256 295,140 276,347 264,169
Total deposits $548,856 560,450 $525,810 $529,337
Interest expense on deposits consisted of the following:
At
September 30, At December 31,
1999 1998 1997 1996
(unaudited) (In thousands)
Interest bearing demand $323 $ 418 $ 413 $ 438
Savings 891 1,042 1,218 1,373
Money market 1,306 1,449 1,284 1,419
Certificates of deposit in
denominations of $100,000
or more 741 1,194 1,505 1,487
Other time 11,133 15,611 15,481 14,799
Total interest expense $14,394 $19,714 $19,901 $19,516
The following table sets forth the balance at December 31, 1998
of other time deposits maturing in the periods presented:
Year
(In thousands)
1999 $220,344
2000 28,393
2001 21,317
2002 9,639
2003 and after 15,447
12. FEDERAL HOME LOAN BANK Borrowings and long-term debt
Federal Home Loan Bank Borrowings:
Federal Home Loan Bank borrowings consist of the following:
At September 30, 1999 (unaudited):
Weighted
Average
Type Maturing Amount Rate
(In thousands,
except percentages)
Open Repo Plus Overnight $58,950 5.54%
Advances and wholesale 1999 130,000 5.38
Repurchase agreements 2000 90,000 4.84
2001 8,876 8.46
2002 71,000 5.79
2003 and after 60,000 5.24
Total Advances and
Wholesale repurchase
Agreements 359,876 5.38
Total FHLB Borrowings $418,826 5.40%
All of the above borrowings bear a fixed rate of interest, with
the only exceptions being the Open Repo Plus advances whose rate
can change daily.
At December 31, 1998:
Weighted
Type Maturing Amount Average Rate
(In thousands, except percentages)
Flexline Overnight $ 23,500 4.96%
Advances and 1999 90,010 5.33
Wholesale Repurchase 2000 5 6.15
Agreements 2001 8,876 8.46
2002 71,000 5.79
2003 and after 140,000 4.99
Total Advances and
Wholesale Repurchase
Agreements 309,891 5.37
Total FHLB Borrowings $333,391 5.34%
At December 31, 1997:
Weighted
Type Maturing Amount Average Rate
(In thousands, except percentages)
Flexline Overnight $ - - %
Advances and 1998 307,046 5.52
Wholesale Repurchase 1999 15,023 5.90
Agreements 2000 - -
2001 8,876 8.46
2002 and after 6,000 7.25
Total Advances and
wholesale Repurchase
Agreements 336,945 5.65
Total FHLB Borrowings $336,945 5.65%
Total Federal Home Loan Bank borrowings consist of
$309,891,000 and $221,945,000 of term advances and $23,500,000
and $115,000,000 of repo plus advances with maturities of less
than 90 days for 1998 and 1997, respectively. All Federal Home
Loan Bank stock, along with an interest in unspecified mortgage
loans and mortgage-backed securities, with an aggregate
statutory value equal to the amount of the advances, have been
pledged as collateral to the Federal Home Loan Bank of
Pittsburgh.
Long-Term Debt:
The Bank's long-term debt consisted of the following:
At December 31,
1998 1997
(In thousands)
Collateralized mortgage obligation $2,511 $3,779
Other 65 184
Total long-term debt $2,576 $3,963
The collateralized mortgage obligation was issued through
Community First Capital Corporation ("CFCC"), a wholly-owned,
single-purpose finance subsidiary of the Bank. In 1988, the
Bank transferred Federal Home Loan Mortgage Corporation
("FHLMC") securities with a book value of approximately
$31,500,000 to CFCC which then collateralized the issuance of
bonds with a par value of $27,787,000. Scheduled maturities of
long-term debt for the years subsequent to December 31, 1998,
are $65,000 in 1999; $0 in 2000; $0 in 2001; $0 in 2002; and
$2.5 million in 2003 and thereafter.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS #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 Bank, as for most financial institutions, approximately
95.0% of its assets and liabilities are considered financial
instruments. Many of the Bank's financial instruments, however,
lack an available trading market characterized by a willing
buyer and willing seller engaging in an exchange transaction.
Therefore, significant estimations and present value
calculations were used by the Bank for the purpose of this
disclosure.
Estimated fair values have been determined by the Bank
using the best available data 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, 1998 were as follows:
Financial instruments actively traded in a secondary market
have been valued using quoted available market prices.
1998
Estimated Recorded
Fair Book
Value Balance
(In thousands)
Investment
securities $478,987 $477,657
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.
1998
Estimated Recorded
Fair Book
Value Balance
(In thousands)
Deposits with
stated maturities $314,111 $311,787
Short-term borrowings 191,743 191,815
All other borrowings 162,100 162,457
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.
1998
Estimated Recorded
Fair Book
Value Balance
(In thousands)
Deposits with no
stated maturities $233,506 $248,663
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.
1998
Estimated Recorded
Fair Book
Value Balance
(In thousands)
Net loans (including
loans held for
sale) $460,434 $460,217
Changes in assumptions or estimation methodologies may have a
material effect on these estimated fair values. The Bank'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 Bank's deposits is required by
SFAS #107, however, management believes the relationship value
of these core deposits is significant. Based upon the Bank'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 $27 million to $55 million less than their estimated
fair value shown at December 31, 1998. 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 Bank would receive or
pay, to terminate the agreements, considering current interest
rates, as well as, the creditworthiness of the counterparties.
At December 31, 1998, the notional value of the Bank's off-
balance sheet financial instruments (interest rate swaps)
totaled $25 million with an estimated fair value of
approximately ($205,000). There is no material difference
between the notional amount and the estimated fair value of the
remaining off-balance sheet items which total $82.9 million and
are primarily comprised of unfunded loan commitments which are
generally priced at market at the time of funding.
Management believes 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.
14. INCOME TAXES
The provision for federal income taxes is summarized below:
Year ended December 31,
1998 1997 1996
(In thousands)
Current $ 4,983 $ 4,579 $ 2,655
Deferred (221) (57) (132)
Income tax provision $ 4,762 $ 4,522 $ 2,523
The reconciliation between the federal statutory tax rate
and the Bank's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
Amount Rate Amount Rate Amount Rate
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Tax expense based on
federal statutory rate $ 5,519 35.0% $ 5,125 35.0% $ 3,250 35.0%
Tax exempt income (1,043) (6.6) (948) (6.5) (693) (7.5)
Other 286 1.8 345 2.4 (34) (0.3)
Total provision for
income taxes $ 4,762 30.2% $ 4,522 30.9% $ 2,523 27.2%
</TABLE>
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:
Year ended December 31,
1998 1997 1996
(In thousands)
Provision for possible
loan losses $ (34) $(1,192) $ 199
Accretion of discounts
on securities, net 77 373 (11)
Investment write-downs (265) 648 (315)
Deferred loan fees 52 (175) 23
Other, net (50) 289 (28)
Total $(220) $ (57) $(132)
At December 31, 1998 and 1997, 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:
At December 31,
1998 1997
(In thousands)
Deferred Assets:
Provision for loan losses $ 2,137 $ 2,102
Accumulated depreciation 25 25
Deferred loan fees 260 313
Other 44 44
Total assets 2,466 2,484
Deferred Liabilities:
Investment security write-ups
due to SFAS #115 (509) (774)
Accretion of discount (1,164) (1,087)
Other (418) (468)
Total liabilities (2,091) (2,329)
Valuation allowance - -
Net deferred liability $ 375 $ 155
15. PENSION AND 401(k) PLANS
The Bank has a trusted, 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 Bank's 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 the common stock of USBANCORP), mutual funds, and
short-term cash equivalent instruments.
Pension Benefits:
At December 31,
1998 1997
(In thousands,
except percentages)
Change in benefit obligation:
Benefit obligation at Beginning of year 5,689 4,998
Service cost 598 548
Interest cost 405 360
Deferred asset gain 421 257
Benefits paid (600) (444)
Expenses paid (37) (30)
Benefit obligation at end of year 6,476 5,689
Change in plan assets:
Fair value of plan assets at beginning of year 4,919 4,157
Actual return on plan assets 454 757
Employer contributions 890 479
Benefits paid (600) (444)
Expenses paid (37) (30)
Fair value of plan assets at end of year 5,626 4,919
Funded status of the plan (underfunded) (850) (770)
Unrecognized transition asset 12 15
Unrecognized prior service cost 560 617
Unrecognized actuarial loss (gain) 499 121
Accrued benefit cost 221 (17)
Components of net periodic benefit cost:
Service cost 598 548
Interest cost 405 360
Expected return on
plan assets (411) (343)
Amortization of prior
year service cost 3 3
Amortization of
transition asset 57 57
Net periodic benefit
cost 652 625
Weighted-average assumptions:
Discount rate 6.75% 7.00%
Expected return on
plan assets 8.00% 8.00%
Rate of compensation
increase 3.50% 3.50%
Three Rivers Bank also has a trusteed 401(k) plan with
contributions made by Three Rivers Bank matching those by
eligible employees up to a maximum of 50% of the first 6% of
their annual salary. All employees of Three Rivers Bank who
work over 1,000 hours per year are eligible to participate in
the plan on January 1 following six months of service. Three
Rivers Bank's contribution to this 410(k) plan was $143,000 in
1998 and $115,000 in 1997.
Except for the above pension benefits, the Bank has no
significant additional exposure for any other post-retirement
benefits.
16. LEASE COMMITMENTS
The Bank's obligation for future minimum lease payments on
operating leases at September 30, 1999 (unaudited) is as
follows:
Year Future Minimum Lease Payments
(In thousands)
2000 $633
2001 601
2002 601
2003 511
2004 and thereafter (in total) 786
In addition to the amounts set forth above, certain of the
leases require payments by the Bank for taxes, insurance, and
maintenance. Rent expense included in total non-interest
expense amounted to $452,000, $425,000 and $423,000, in 1998,
1997, and 1996, respectively.
17. COMMITMENTS AND CONTINGENT LIABILITIES
The Bank incurs 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. Because many of the commitments are
expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.
The Bank evaluates 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 Bank 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 Bank's
commercial loans.
The Bank'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 Bank uses the same credit and
collateral policies in making commitments and conditional
obligations as for all other lending. The Bank had outstanding
various commitments to extend credit approximating $82.9 million
and standby letters of credit of $5.2 million as of December 31,
1998.
Additionally, the Bank 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 Bank's financial position or results of operation.
18. OFF-BALANCE SHEET HEDGE INSTRUMENTS
The Bank 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. A summary of the Bank's
off-balance sheet derivative transactions are as follows:
Borrowed Funds Hedges:
The Bank had entered into several interest rate swaps to
hedge short-term borrowings used to leverage the balance sheet.
Specifically, FHLB advances which reprice between 30 days and
one year are being used to fund fixed-rate agency mortgage-
backed securities with durations ranging from two to three
years. Under these swap agreements, the Bank pays a fixed-rate
of interest and receives a floating-rate which resets either
monthly, quarterly, or annually. The following table summarizes
the interest rate swap transactions which impacted the Bank's
performance for the nine months ended September 30, 1999
(unaudited):
<TABLE>
<CAPTION>
Fixed Floating Impact
Notional Start Termination Rate Rate Repricing On Interest
Amount Date Date Paid Received Frequency Expense
<S> <C> <C> <C> <C> <C> <C>
25,000,000 9-25-97 9-25-99 5.80% 4.85% Expired 177,417
40,000,000 5-01-99 4-30-00 5.00% 5.25% Monthly 9,134
65,000,000 186,551
</TABLE>
The impact on interest expense was $113,000 and $20,000 for
the years ended December 31, 1998 and 1997, respectively.
The Bank believes that its exposure to credit loss in the
event of non-performance by any of the counterparties (which
include Mellon Bank and First Union) in the interest rate swap
agreements is remote.
The Bank monitors and controls all off-balance sheet
derivative products with a comprehensive Board of Director
approved hedging policy. This policy permits a total maximum
notional amount outstanding of $300 million for interest rate
swaps, and interest rate caps/floors. The Bank had no interest
rate caps or floors outstanding at any time during the years
ended December 31, 1998, or December 31, 1997.
19. CAPITAL
The Bank is subject to various capital requirements
administered by the federal banking agencies. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Bank's
financial statements.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier I
capital to risk-weighted assets, and of Tier I capital to
average assets. Management believes that as of December 31,
1998, the Bank meets all capital adequacy requirements to which
it is subject. As of December 31, 1998 and 1997, the FDIC
categorized the Bank as "Well Capitalized" under the regulatory
framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-
based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's
classification category.
The following table sets forth the Bank's actual capital
ratios at the dates indicated, and the minimum ratios required
by bank regulators in order for the Bank to be adequately
capitalized and well capitalized. The assets and capital
measured for purposes of this table do not include the assets
and capital of the Bank's discontinued mortgage banking
operations.
<TABLE>
<CAPTION>
September 30, 1999
(unaudited)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets) $64,253 12.63% $40,709 8.00% $50,886 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 58,653 11.53 20,354 4.00 30,532 6.00
Tier 1 Capital (to Average
Assets) 58,653 5.60 41,998 4.00 52,498 5.00
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets) $64,193 13.32% $43,375 8.00% $54,218 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 58,169 12.07 21,687 4.00 32,531 6.00
Tier 1 Capital (to Average
Assets) 58,169 6.02 38,749 4.00 48,437 5.00
<CAPTION>
December 31, 1997
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets) $56,111 12.08% $37,172 8.00% $46,465 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 50,303 10.83 18,586 4.00 27,879 6.00
Tier 1 Capital (to Average
Assets) 50,303 5.47 36,807 4.00 46,008 5.00
</TABLE>
21. 1999 BRANCH ACQUISITION (UNAUDITED)
On February 12, 1999, the Bank acquired the Kiski Valley
Office of First Western Bancorp, Inc. ("First Western") located
in Westmoreland County in exchange for cash and Three Rivers
Bank's Moon Township Office which is located in Allegheny
County. On a net basis, the Bank acquired $13.5 million in
deposits, $1.2 million in consumer loans and the related fixed
assets, leases, safe deposit box business and other agreements
at the Kiski Valley branch office. The Bank paid a core deposit
premium of approximately ten percent for the acquired deposits
and purchased the consumer loans and fixed assets at book value.
22. SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA OF THREE
RIVERS BANK
The following table sets forth certain unaudited quarterly
consolidated financial data regarding Three Rivers Bank.
1998 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
(In thousands)
Interest income $16,858 $17,148 $16,633 $17,287
Non-interest income 1,837 1,842 1,787 1,452
Total operating income 18,695 18,990 18,420 18,739
Interest expense 9,655 9,717 9,210 9,873
Provision for loan
losses 75 75 75 75
Non-interest expense 5,085 5,100 5,102 5,033
Income before income
taxes 3,880 4,098 4,033 3,758
Provision for income
taxes 1,171 1,234 1,218 1,139
Income from continuing
operations $ 2,709 $ 2,864 $ 2,815 $ 2,619
1997 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
(In thousands)
Interest income $16,948 $16,574 $16,274 $15,307
Non-interest income 1,401 1,295 1,334 1,252
Total operating income 18,349 17,869 17,608 16,559
Interest expense 9,673 9,236 8,942 8,181
Provision for loan
losses 45 23 23 22
Non-interest expense 4,886 4,888 4,992 4,832
Income before income
taxes 3,745 3,722 3,651 3,524
Provision for income
taxes 1,161 1,154 1,145 1,062
Income from continuing
operations $ 2,584 $ 2,568 $ 2,506 $ 2,462
23. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Pro Forma Condensed Consolidated Financial Statements
should be read in conjunction with the historical consolidated
financial statements of Three Rivers Bancorp and the notes
thereto contained in this information statement. The pro forma
condensed consolidated financial information is presented for
informational purposes only and does not purport to reflect the
results of operations or financial position of Three Rivers
Bancorp or the results of operations or financial position that
would have occurred had Three Rivers Bancorp been operated as a
separate, independent company. The pro forma adjustments to the
accompanying historical consolidated statements of income and
consolidated balance sheets are set forth below.
Pro forma Condensed Consolidated Statements of Income
(In thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three Rivers Bancorp
Historical Pro Forma
Nine Months Ended Nine Months Ended
September 30, 1999 Adjustments September 30, 1999
<S> <C> <C>
Total Interest Income $52,365 $52,365
Total Interest Expense 30,132 30,132
Net Interest Income 22,233 22,233
Provision for loan losses 225 225
Net Interest Income After
Provision for Loan Losses 22,008 22,008
Total Non-Interest Income 4,341 4,341
Total Non-Interest Expense 15,700 430 A 16,130
Income Before Income Taxes 10,649 (430) 10,219
Provision for income taxes 3,168 (128) B 3,040
Net Income $7,481 ($302) $7,179
Basic and diluted earnings per share NR ($0.05) $1.08
Average shares outstanding NR 6,652 C 6,652
</TABLE>
<TABLE>
<CAPTION>
Historical Pro forma
For the year ended For the year ended
December 31, 1998 Adjustments December 31, 1998
<S> <C> <C>
Total Interest Income $67,926 $67,926
Total Interest Expense 38,455 38,455
Net Interest Income 29,471 29,471
Provision for loan losses 300 300
Net Interest Income After
Provision for Loan Losses 29,171 29,171
Total Non-Interest Income 6,918 6,918
Total Non-Interest Expense 20,320 573 A 20,893
Income Before Income Taxes 15,769 (573) 15,196
Provision for income taxes 4,762 (173) B 4,589
Net Income $11,007 ($400) $10,607
Basic and diluted earnings per share NR ($0.06) $1.59
Average shares outstanding NR 6,652 C 6,652
</TABLE>
Pro forma Condensed Consolidated Balance Sheet
(In thousands)
Unaudited
<TABLE>
<CAPTION>
Three Rivers Bancorp
Historical Pro Forma
Nine Months Ended Nine Months Ended
September 30, 1999 Adjustments September 30, 1999
<S> <C> <C> <C>
ASSETS
Cash and due from banks $20,292 ($302) A $19,990
Investment securities 530,200 530,200
Loans 463,439 463,439
Other assets 36,601 36,601
Total Assets $1,050,532 ($302) $1,050,230
LIABILITIES
Deposits $548,856 $548,856
Total borrowed funds 441,445 441,445
Other liabilities 9,932 9,932
Total Liabilities 1,000,233 1,000,233
Total stockholders equity 50,299 (302) A 49,997
Total Liabilities and
Stockholders Equity $1,050,532 ($302) $1,050,230
<CAPTION>
Three Rivers Bancorp
Historical Pro forma
For the year ended For the year ended
December 31, 1998 Adjustments December 31,
1998
<S> <C> <C> <C>
ASSETS
Cash and due from banks $18,616 ($400) A $18,216
Investment securities 477,657 477,657
Loans 462,090 462,090
Other assets 27,223 27,223
Total Assets $985,586 ($400) $985,186
LIABILITIES
Deposits $560,450 $560,450
Total borrowed funds 354,272 354,272
Other liabilities 9,833 9,833
Total Liabilities 924,555 924,555
Total stockholders equity 61,031 (400) A 60,631
Total Liabilities and
Stockholders Equity $985,586 ($400) $985,186
</TABLE>
Notes to unaudited pro forma condensed consolidated financial
statements:
(A) To record the additional incremental expenses Three
Rivers Bancorp expects to incur as a separate publicly traded
company. Examples of such expenses include: legal fees,
investor relations costs, audit fees, shareholder services
costs, personnel costs, directors fees and other.
(B) To record the income tax impact of the above costs at
the Company's historical effective tax rate.
(C) Average shares presented assume a distribution of one
share of Three Rivers Bancorp common stock for every two shares
of USBANCORP common stock outstanding as of September 30, 1999.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Three Rivers
Bancorp, Inc.:
We have audited the accompanying consolidated balance
sheets of Three Rivers Bancorp, Inc. (a Pennsylvania
corporation) and subsidiaries as of December 31, 1998 and 1997,
and the related statements of income, comprehensive income,
changes in stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
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 Three Rivers Bancorp, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/Arthur Andersen LLP
Pittsburgh, Pennsylvania
January 7, 2000
