<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 27, 1994
First Commonwealth Financial Corporation
----------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 0-11242 25-1428528
- ------------------------------ ----------- ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
22 North Sixth Street, Indiana, PA 15701
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 349-7220
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------
On September 27, 1994 the registrant acquired United National Bancorporation
("United") and its wholly-owned subsidiaries Unitas National Bank ("Unitas
Bank") and Unitas Mortgage Corporation ("Unitas Mortgage"). United was a
Pennsylvania-chartered bank holding company headquartered in Chambersburg,
Pennsylvania. Unitas Bank is a nationally chartered, federally insured
commercial bank also headquartered in Chambersburg, Pennsylvania. Unitas
Mortgage, headquartered in Carlisle, Pennsylvania engages in the origination of
mortgages for sale in the secondary mortgage market.
The merger was consummated pursuant to the Agreement and Plan of Reorganization
dated March 25, 1994 between the registrant and United, which was approved by
the shareholders of United at a special meeting held September 27, 1994. For
further information concerning the transaction, reference is made to the
registrant's Registration Statement on Form S-4 (No. 33-54193) and Proxy
Statement/Prospectus for such special meeting included therein, which are
incorporated herein by reference.
As described in the Proxy Statement/Prospectus, in the merger each issued and
outstanding share of United common stock was converted into 2 shares of the
registrant's common stock. The aggregate number of shares of the registrant's
common stock issued in the merger was 1,538,294.
On September 29, 1994 the registrant acquired Reliable Financial Corporation
("Reliable") and its wholly-owned subsidiary Reliable Savings Bank, PaSA
("Reliable Savings Bank"). Reliable was a savings and loan holding company with
its principal office in Bridgeville, Pennsylvania. Reliable Savings Bank is a
Pennsylvania-chartered, federally insured savings association.
The merger was consummated pursuant to the Agreement and Plan of Reorganization
dated April 21, 1994 between the registrant and Reliable, which was approved by
the shareholders of Reliable at a special meeting held September 29, 1994. For
further information concerning the transaction, reference is made to the
registrant's Registration Statement on Form S-4 (No. 33-54381) and Proxy
Statement/Prospectus for such special meeting included therein, which are
incorporated herein by reference.
As described in the Proxy Statement/Prospectus, in the merger, each issued and
outstanding share of Reliable common stock was converted into 1.6 shares of the
registrant's common stock. The aggregate number of shares of the registrant's
common stock issued in the merger will be approximately 2,256,310. The
aggregate number of shares issued by the registrant may vary due to partial
shares but the amount is not expected to be material.
1
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(A) Financial Statements of Acquired Business
UNITED NATIONAL BANCORPORATION
Audited Financial Statements:
Report of Independent Auditors . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 4
Consolidated Statements of Income. . . . . . . . . . . . . . 5
Consolidated Statements of Changes in Shareholders' Equity . 6
Consolidated Statements of Cash Flows. . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . 8
Unaudited Interim Financial Statements:
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 16
Consolidated Statements of Income. . . . . . . . . . . . . . 17
Consolidated Statements of Changes in Shareholders' Equity . 18
Consolidated Statements of Cash Flows. . . . . . . . . . . . 19
Notes to Consolidated Financial Statements . . . . . . . . . 20
RELIABLE FINANCIAL CORPORATION
Audited Financial Statements:
Report of Independent Auditors . . . . . . . . . . . . . . . 22
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 23
Consolidated Statements of Income. . . . . . . . . . . . . . 24
Consolidated Statements of Changes in Shareholders' Equity . 25
Consolidated Statements of Cash Flows. . . . . . . . . . . . 26
Notes to Consolidated Financial Statements . . . . . . . . . 27
Unaudited Interim Financial Statements:
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 40
Consolidated Statements of Income. . . . . . . . . . . . . . 41
Consolidated Statements of Changes in Shareholders' Equity . 42
Consolidated Statements of Cash Flows. . . . . . . . . . . . 43
Notes to Consolidated Financial Statements . . . . . . . . . 44
(B) Pro Forma Information
Pro Forma Combined Condensed Balance Sheet . . . . . . . . . . 46
Pro Forma Combined Condensed Statement of Income . . . . . . . 47
2
<PAGE>
[LETTERHEAD OF ERNST & YOUNG APPEARS HERE]
Report of Independent Auditors
The Board of Directors and Shareholders
United National Bancorporation
We have audited the accompanying consolidated balance sheets of United
National Bancorporation and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Corporation'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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United National
Bancorporation and subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the Corporation
changed its method of accounting for income taxes.
/s/ Ernst & Young
January 14, 1994
3
<PAGE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
1993 1992
-------- --------
(In Thousands)
<S> <C> <C>
Assets
Cash and due from banks $ 3,758 $ 6,030
Federal funds sold 1,600 --
-------- --------
Cash and Cash Equivalents 5,358 6,030
Interest-bearing deposits in banks 33 1,686
Investment securities (Market value 1993 -- $20,363; 1992 -- $24,161) 20,008 23,740
Mortgage loans held for sale (Market value 1992 -- $5,809) -- 5,507
Loans:
Real estate 37,550 36,181
Installment and consumer 38,446 38,318
Commercial, financial, and agricultural 24,881 18,854
Lease financing 28,113 18,893
-------- --------
128,990 112,246
Less: Allowance for loan losses (1,189) (1,061)
Unearned income (10,514) (9,466)
-------- --------
Net Loans 117,287 101,719
Premises and equipment, net of accumulated
depreciation (1993 -- $2,566; 1992 -- $2,317) 2,570 2,201
Accrued interest receivable 630 729
Other assets 1,717 1,649
-------- --------
TOTAL ASSETS $147,603 $143,261
======== ========
Liabilities
Deposits:
Noninterest-bearing $ 8,776 $ 9,188
Interest-bearing 120,543 118,674
-------- --------
Total Deposits 129,319 127,862
Securities sold under agreements to repurchase 4,687 3,198
Net deferred tax liabilities 934 561
Other liabilities 381 809
-------- --------
Total Liabilities 135,321 132,430
Shareholders' Equity
Preferred Stock -- $10.00 par value:
Authorized and unissued 5,000,000 shares -- --
Common Stock -- $2.50 par value:
Authorized 10,000,000 shares; issued and
outstanding shares -- 769,147 in 1993 and 699,407 in 1992 1,923 1,748
Surplus 4,115 2,476
Retained earnings 6,244 6,607
-------- --------
Total Shareholders' Equity 12,282 10,831
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $147,603 $143,261
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
------- ------- -------
(In Thousands, except per share data)
<S> <C> <C> <C>
Interest income:
Loans, including fees $10,946 $10,822 $10,625
Investment securities:
Taxable 1,573 1,382 1,297
Tax-exempt 28 32 33
Other 70 216 342
------- ------- -------
Total Interest Income 12,617 12,452 12,297
Interest expense:
Deposits 4,651 5,653 7,004
Short-term borrowings 143 30 1
------- ------- -------
Total Interest Expense 4,794 5,683 7,005
------- ------- -------
Net Interest Income 7,823 6,769 5,292
Provision for loan losses 473 325 300
------- ------- -------
Net Interest Income After
Provision for Loan Losses 7,350 6,444 4,992
Other income:
Gain on sale of mortgages 238 -- --
Trust department 138 138 157
Investment securities gains 62 15 34
Service fees and other 438 375 326
------- ------- -------
876 528 517
------- ------- -------
Other expenses:
Salaries and employee benefits 2,854 2,377 2,108
Occupancy expense 718 637 567
Special services 293 259 271
Taxes, other than income 57 107 98
FDIC insurance 293 268 238
Other 1,333 1,265 978
------- ------- -------
5,548 4,913 4,260
------- ------- -------
Income Before Income Taxes 2,678 2,059 1,249
Income Taxes 858 641 346
------- ------- -------
NET INCOME $ 1,820 $ 1,418 $ 903
======= ======= =======
Per share data:
Net income $2.37 $1.84 $1.17
Cash dividends .47 .43 .39
</TABLE>
See accompanying notes.
5
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Retained
Stock Surplus Earnings Total
------- ------- -------- -------
(In Thousands)
<S> <C> <C> <C> <C>
Balance at January 1, 1991 $1,446 $ 846 $ 6,857 $ 9,149
Net income 903 903
Cash dividends (301) (301)
10% common stock dividend --
57,637 shares at fair market value 144 664 (811) (3)
------ ------ ------- -------
Balance at December 31, 1991 1,590 1,510 6,648 9,748
Net income 1,418 1,418
Cash dividends (331) (331)
10% common stock dividend --
63,375 shares at fair market value 158 966 (1,128) (4)
------ ------ ------- -------
Balance at December 31, 1992 1,748 2,476 6,607 10,831
Net income 1,820 1,820
Cash dividends (364) (364)
10% common stock dividend --
69,740 shares at fair market value 175 1,639 (1,819) (5)
------ ------ ------- -------
Balance at December 31, 1993 $1,923 $4,115 $ 6,244 $12,282
====== ====== ======= =======
</TABLE>
See accompanying notes.
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
-------- -------- -------
(In Thousands)
<S> <C> <C> <C>
Operating Activities
Net income $ 1,820 $ 1,418 $ 903
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 473 325 300
Provision for depreciation and amortization 249 221 198
Amortization of investment security premiums
and accretion of discounts, net 94 16 4
Deferred income taxes 373 180 19
Realized investment security gains (62) (15) (34)
Gain on sale of mortgages (238) -- --
(Increase) decrease in other assets 31 (1,006) 238
Decrease in other liabilities (433) (273) (42)
-------- -------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,307 866 1,586
Investing Activities
Net increase in loans (16,041) (10,166) (1,068)
Proceeds from sale of mortgages 5,745 -- --
Purchase of premises and equipment, net (618) (837) (494)
Proceeds from sales of investment securities 2,555 2,016 2,183
Proceeds from maturities of investment securities 11,471 5,556 4,375
Purchase of investment securities (10,326) (14,846) (7,210)
Net decrease in short-term investments 1,653 414 2,398
-------- -------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (5,561) (17,863) 184
Financing Activities
Net increase in deposits 1,457 10,425 3,093
Net increase in short-term borrowings 1,489 3,198 --
Cash dividends (364) (331) (301)
-------- -------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,582 13,292 2,792
-------- -------- -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (672) (3,705) 4,562
Cash and cash equivalents at beginning of year 6,030 9,735 5,173
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,358 $ 6,030 $ 9,735
======== ======== =======
</TABLE>
See accompanying notes.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
1. Significant Accounting Policies
Principles of Consolidation
United National Bancorporation (the Corporation) and its subsidiaries (Unitas
National Bank [the Bank], Unitas Real Estate Corp., Unitas Commercial Leasing
Corp., Unitas Financial Corp., Unitas Life Insurance Co., Unitas Mortgage
Corp., and Unitas Services Corp.) provide financial services. The
consolidated financial statements include the accounts of the Corporation and
its wholly-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated. Investments in subsidiaries are carried at the
parent company's equity in the underlying net assets.
Mortgage Loans Held for Sale
The Bank identified a pool of conventional fixed-rate mortgages at December
31, 1992 which it was holding for sale. Mortgage loans held for sale are
carried at the aggregate of lower of cost or market value. No loans were held
for sale at December 31, 1993.
Investment and Mortgage-Backed Securities
Investment securities are stated at cost adjusted for amortization of
premiums and accretion of discounts. Security gains and losses are determined
using the specific identification method. In classifying debt securities
acquired and held in the investment portfolio, management continually
evaluates the Corporation's ability to hold the securities to maturity as
well as its intent to hold the securities for the foreseeable future.
Management's evaluation of the Corporation's ability to hold securities to
maturity is based on an evaluation of its ability to satisfy liabilities in
the normal course of business and meet regulatory and legal requirements such
as minimum capital requirements. Additionally, management continually
evaluates the probability of events that might occur which may cause the
Corporation to sell debt securities. Currently, management is not aware of
such probable events; thus all debt securities are classified as investment
securities at December 31, 1993.
Revenue Recognition
Interest on loans is recognized based upon the principal amount outstanding.
The accrual of interest income is discontinued when circumstances indicate
that collection is questionable. When interest accruals are discontinued,
interest credited to income in the current year is reversed. Management may
elect to continue the accrual of interest when the estimated net realizable
value of collateral is sufficient to cover the principal balance and accrued
interest.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the portfolio. Management's
determination of the adequacy of the allowance is based on the risk
characteristics of the portfolio, past loan loss experience, local economic
conditions, and such other relevant factors which, in management's judgment,
deserve recognition. The allowance is increased by provisions for loan losses
charged to operations.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are charged to operations over
the estimated useful lives of the assets, computed by the straight-line
method.
Lease Financing
The Corporation provides equipment (principally automobiles) financing
through lease arrangements. Direct financing leases are stated at the
aggregate of lease payments receivable plus estimated residual values
(1993 -- $10,340,000; 1992 -- $5,891,000). Unearned income on direct
financing leases is amortized over the lease term resulting in an approximate
level rate of return.
8
<PAGE>
- --------------------------------------------------------------------------------
1. Significant Accounting Policies (continued)
Per Share Data
Net income and dividends per share have been restated to reflect a 10 percent
stock dividend to shareholders of record December 9, 1993, payable January
18, 1994. The effect of common stock equivalents is not significant for any
period presented.
Cash Flow Information
For purposes of the statements of cash flows, the Corporation considers cash
and due from banks and federal funds sold as cash and cash equivalents.
Generally, federal funds are purchased and sold for one-day periods. Cash
paid during the years ended December 31, 1993, 1992, and 1991 for interest
was $4,883,000, $5,961,000, and $5,314,000, respectively. Cash paid for
income taxes was $585,000 in 1993, $544,000 in 1992, and $288,000 in 1991.
Accounting Change -- Income Taxes
The Corporation adopted FASB Statement No. 109, "Accounting for Income
Taxes," in the first quarter of its fiscal year ended December 31, 1993.
The Corporation adopted the Statement on a prospective basis without
restating any prior years and has determined that the effect of its
implementation on the Corporation's financial position and results of
operations was not material for 1993 or 1992. In accordance with FASB
Statement No. 109, the liability method is used in accounting for income
taxes. Deferred income taxes are provided for differences between the tax
basis of an asset or liability and its reported amount in the financial
statements at the statutory tax rates that will be in effect when the
differences are expected to reverse.
Recently Issued FASB Statement
The Corporation is required to adopt FASB Statement No. 115, "Accounting
for Certain Investment in Debt and Equity Securities," in the first quarter
of its fiscal year ending December 31, 1994 and will be required to adopt
FASB Statement No. 114, "Accounting by Creditors for Impairment of a Loan,"
in the first quarter of its fiscal year ending December 31, 1995. The
Corporation has determined that the effect of its implementation of these
FASB Statements on the Corporation's financial position and results of
operations will not be material.
2. Restrictions on Cash and Due from Banks
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The average amount of those reserve balances for the year ended
December 31, 1993 was approximately $1,130,000.
3. Investment Securities
The amortized cost and estimated market value of investment securities were
as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1993:
U.S.Treasury securities and obligations
of U.S. government corporations
and agencies $ 17,006 $ 281 $ (17) $ 17,270
Obligations of states and
political subdivisions 200 3 -- 203
Corporate securities 800 29 -- 829
Foreign securities 250 19 -- 269
Mortgage-backed securities 1,195 40 -- 1,235
--------- ---------- ---------- ---------
Total debt securities 19,451 372 (17) 19,806
Equity securities 557 -- -- 557
--------- ---------- ---------- ---------
Total $ 20,008 $ 372 $ (17) $ 20,363
========= ========== ========== =========
</TABLE>
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
3. Investment Securities (continued)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1992:
U.S.Treasury securities and obligations
of U.S. government corporations
and agencies $ 18,822 $ 329 $ (80) $ 19,071
Obligations of states and
political subdivisions 550 22 -- 572
Corporate securities 1,316 48 (4) 1,360
Foreign securities 249 22 -- 271
Mortgage-backed securities 2,244 84 -- 2,328
--------- ---------- ---------- ---------
Total debt securities 23,181 505 (84) 23,602
Equity securities 559 -- -- 559
--------- ---------- ---------- ---------
Total $ 23,740 $ 505 $ (84) $ 24,161
========= ========== ========== =========
</TABLE>
At December 31, 1993 and 1992, investment securities with a carrying value of
$14,649,000 and $9,830,000, respectively, were pledged as collateral to
secure public deposits and for other purposes.
The amortized cost and estimated market value of debt securities at December
31, 1993, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
--------- ---------
(In Thousands)
<S> <C> <C>
Due in one year or less $ 850 $ 863
Due after one year through five years 12,068 12,249
Due after five years through ten years 5,338 5,459
Due after ten years -- --
------- -------
18,256 18,571
Mortgage-backed securities 1,195 1,235
------- -------
$19,451 $19,806
======= =======
</TABLE>
Proceeds from sales of investments in debt securities during 1993 were
$2,555,000. Gross gains of $62,000 and gross losses of $-0- were realized
on those sales. Proceeds from sales of investments in debt securities
during 1992 were $2,016,000. Gains of $35,000 and gross losses of $20,000
were realized on those sales. Proceeds from such sales were $2,183,000 in
1991. Gains of $41,000 were realized on those sales and a loss of $7,000
was realized on the sale of an interest-bearing time deposit.
4. Related Party Loans
Certain directors and executive officers of the Corporation and the Bank,
including their associates and companies, have loans with the Bank. Such
loans were made in the ordinary course of business at the Bank's normal
credit terms including interest rate and collateralization and do not
represent more than a normal risk of collection. Total loans to these
persons amounted to approximately $1,893,000 and $1,958,000 at December 31,
1993 and 1992, respectively. During 1993, $257,000 of new loans were made
and repayments totalled $322,000.
10
<PAGE>
- --------------------------------------------------------------------------------
5. Allowance for Loan Losses
Changes in the allowance for loan losses for each of the three years ended
December 31, 1993 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Balance beginning of year $1,061 $ 910 $ 802
Provision charged to operations 473 325 300
Recoveries on loans 24 36 12
Loans charged off (369) (210) (204)
------ ------ -----
Balance end of year $1,189 $1,061 $ 910
====== ====== =====
</TABLE>
6. Regulatory Matters
Dividends are paid by the Corporation from its assets which are mainly
provided by dividends from the Bank. However, certain regulatory
restrictions exist regarding the ability of the Bank to transfer funds to
the Corporation in the form of cash dividends, loans, or advances. As of
December 31, 1993, the Bank had retained earnings of $7,982,000 of which
$3,070,000 was available for distribution to the Corporation as dividends
without prior regulatory approval.
Under Federal Reserve regulation, the Bank also is limited as to the amount
it may loan to its affiliates, including the Corporation, unless such loans
are collateralized by specified obligations. At December 31, 1993, the
maximum amount available for transfer from the Bank to the Corporation in
the form of loans approximated 20 percent of consolidated net assets.
The Bank is also required to maintain minimum amounts of capital to total
"risk-weighted" assets, as defined by the banking regulators. At December
31, 1993, the Bank was required to have minimum Tier I and total capital
ratios of 4.00 percent and 8.00 percent, respectively. The Bank's actual
ratios at that date were 10.72 percent and 11.76 percent, respectively. The
Bank's leverage ratio at December 31, 1993 was 8.26 percent.
7. Income Taxes
Effective January 1, 1993, the Corporation changed its method of accounting
for income taxes from the deferred method to the liability method required
by FASB Statement No. 109, "Accounting for Income Taxes" (see Note 1,
"Accounting Changes"). As permitted under the new rules, prior years'
financial statements have not been restated. There was no cumulative effect
of adopting Statement No. 109 as of January 1, 1993. There was no effect on
the pre-tax income from continuing operations as a result of the adoption
of Statement No. 109.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1993 are as follows (In Thousands):
<TABLE>
<S> <C>
Deferred tax liabilities:
Leasing activity $2,205
Other 99
------
Total Deferred tax liabilities 2,304
Deferred tax assets:
Allowance for loan loss 188
Alternative minimum tax carryforward 1,182
------
Total deferred tax assets 1,370
------
Net deferred tax liabilities $ 934
======
</TABLE>
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. Income Taxes (continued)
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Liability Method Deferred Method
---------------------------------------
1993 1992 1991
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Current $ 485 $ 461 $ 327
Deferred 373 180 19
------ ------ ------
Income taxes $ 858 $ 641 $ 346
====== ====== ======
</TABLE>
Deferred taxes resulted from the following timing differences for the years
ended December 31, 1992 and 1991:
<TABLE>
<CAPTION>
1992 1991
------ ------
(In Thousands)
<S> <C> <C>
Leasing activities $ 199 $ (42)
Allowance for loan losses (69) (66)
Alternative minimum tax 58 178
Other (8) (51)
----- -----
$ 180 $ 19
===== =====
</TABLE>
Income taxes applicable to investment securities gains included in the
provision for income taxes totaled $21,000 in 1993, $5,000 in 1992, and
$12,000 in 1991.
A reconciliation of the provision for income taxes and the amount which would
have been provided at statutory rates is as follows:
<TABLE>
<CAPTION>
Liability Method Deferred Method
-----------------------------------
1993 1992 1991
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Tax at statutory rate on pre-tax income $ 911 $ 700 $ 425
Effect of tax-exempt income (53) (59) (68)
Other -- -- (11)
----- ----- -----
Income taxes $ 858 $ 641 $ 346
===== ===== =====
</TABLE>
8. Pension Plan
The Corporation has a defined benefit pension plan covering substantially all
of its employees. The benefits are based on years of service and the
employee's compensation. The Corporation's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. No contributions were made in 1993, 1992, or 1991. Contributions
are intended to provide not only for benefits attributed to service to date
but also for those expected to be earned in the future.
The following table sets forth the Plan's funded status and amounts
recognized in the Corporation's financial statements at December 31:
<TABLE>
<CAPTION>
1993 1992
------ ------
(In Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $751 in 1993 and $574 in 1992 $ (764) $ (588)
======= ======
Projected benefit obligation for service rendered to date $(1,100) $ (890)
Plan assets at fair value, primarily listed stocks and bonds 1,126 1,064
------- ------
Plan assets in excess of projected benefit obligation 26 174
Unrecognized net loss from past experience different
from that assumed 188 78
Unrecognized net transition asset (195) (215)
------- ------
Prepaid pension cost included in other assets $ 19 $ 37
======= ======
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
8. Pension Plan (continued)
Net pension expense (income) included the following components:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 60 $ 48 $ 40
Interest cost on projected benefit obligation 77 63 53
Actual return on plan assets (83) (79) (74)
Net amortization and deferral (14) (20) (20)
----- ----- ----
Net periodic pension expense (income) $ 40 $ 12 $ (1)
===== ===== ====
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8 percent and 7 percent, respectively, at
December 31, 1993 and 1992. The expected long-term rate of return on plan
assets was 8 percent in 1993 and 7 percent in 1992 and 8.5 percent in 1991.
9. Loan Commitments and Standby Letters of Credit
Loan commitments are made to accommodate the financial needs of the Bank's
customers. Standby letters of credit commit the Bank to make payments on
behalf of customers when certain specified future events occur. They
primarily are issued to facilitate customers' trade transactions.
Historically, more than 90 percent of standby letters of credit expire
unfunded.
Both arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Bank's normal credit
policies. Collateral (e.g., securities, receivables, inventory, equipment) is
obtained based on management's credit assessment of the customer.
The Bank's maximum exposure to credit loss for loan commitments (unfunded
loans and unused lines of credit, including home equity lines of credit) and
standby letters of credit outstanding at December 31, 1993 was as follows (In
Thousands):
<TABLE>
<CAPTION>
<S> <C>
Loan commitments:
Home equity loans $ 828
Lines of credit 793
Real estate construction 907
Standby letters of credit 498
------
Total $3,026
======
</TABLE>
Loan commitments and standby letters of credit were $1,828,000 and $651,000,
respectively, at December 31, 1992.
10. Concentration of Credit Risk
Most of the Bank's business is with customers in the five county area of
Central Pennsylvania where it has full-service branch locations. The Bank's
consumer and real estate loan portfolios are principally to borrowers
throughout this market area. The Bank requires collateral on all real estate
exposures and generally requires loan-to-value ratios of no greater than 80
percent. The Bank's lease portfolio includes customers in this area as well
as other parts of South Central Pennsylvania. The commercial, financial, and
agricultural portfolio is diversified with no industry comprising greater
than 10 percent of total loans outstanding.
Collateral requirements on such loans are determined on a case-by-case basis
based on management's credit evaluations of the respective borrower.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
11. Shareholders' Equity
In 1987, the Corporation established a dividend reinvestment and stock
purchase plan. Shareholders of common stock may participate in the plan which
provides that additional shares of common stock may be purchased with
reinvested dividends at prevailing market prices. To the extent that shares
are not available on the open market, the Corporation has reserved 266,200
shares of common stock to be issued under the dividend reinvestment plan.
The Corporation has reserved 133,100 shares covered by the 1986 Stock Option
Plan which expires January 1997.
The Plan permits the granting of stock options, including incentive stock
options (ISOs) and nonqualified stock options (NQSOs) to key employees.
Options may be accompanied by stock appreciation rights (SARs). The
exercise of a SAR requires the surrender of an unexercised related option.
The purchase price of the common stock covered by each ISO will not be less
than 100 percent (85 percent for NQSOs) of the fair market value of the
stock on the date of the grant of such option. The duration of each option
granted under the Plan will not exceed 10 years from the date of grant. No
option will be exercisable during the year ending on the first anniversary
date of the granting of such option. The Plan provides that SARs will be
automatically exercised on the last business day prior to the expiration of
the related option if, on that date, the fair market value of a share of
common stock exceeds the per share price of the related option. In the
event of termination of employment, options will generally remain
exercisable until the earlier of the expiration of the option term or three
months from the date of termination of employment.
At December 31, 1993, all option holders have expressed their intention to
exercise the fixed award portion of their plan. Accordingly, no compensation
expense has been recorded. Had the holders intended to exercise the SAR
portion of their plan, compensation expense of approximately $528,000, based
on the market value of the Corporation's shares at December 31, 1993, would
have been recorded.
The changes in option shares outstanding are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Options outstanding at beginning of year 34,243 17,303 17,303
Options granted at $10.52-$16.14 per share 15,400 16,940 --
------ ------ ------
Options outstanding at end of year 49,643 34,243 17,303
====== ====== ======
Options available for grant at December 31 83,457
======
Options exercisable at December 31 34,243
======
</TABLE>
12. United National Bancorporation (Parent Company Only) Financial Information
<TABLE>
<CAPTION>
December 31
1993 1992
------ ------
(In Thousands)
<S> <C> <C>
Balance Sheet
Assets
Cash $ 37 $ 43
Investment in:
Bank subsidiary 12,209 10,770
Nonbank subsidiaries 36 18
------- -------
Total Assets $12,282 $10,831
======= =======
Shareholders' Equity $12,282 $10,831
======= =======
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
12. United National Bancorporation (Parent Company Only) Financial Information
(continued)
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
------ ------ ------
Statements of Income (In Thousands)
<S> <C> <C> <C>
Income:
Dividends from Bank subsidiary $ 404 $ 370 $ 351
Other 12 40 --
------- ------- -------
416 410 351
Expenses 53 41 35
------- ------- -------
Income before equity in undistributed
net income of subsidiaries 363 369 316
Equity in undistributed net income of:
Bank subsidiary 1,439 1,049 583
Nonbank subsidiaries 18 -- 4
------- ------- -------
Net income $ 1,820 $ 1,418 $ 903
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
------ ------ ------
Statements of Cash Flows (In Thousands)
<S> <C> <C> <C>
Operating activities
Net income $ 1,820 $ 1,418 $ 903
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed income of subsidiaries (1,457) (1,049) (587)
Other (5) (8) (3)
------- ------- -----
Net cash provided by operating activities 358 361 313
Financing activities
Cash dividends (364) (331) (301)
------- ------- -----
Net cash used by financing activities (364) (331) (301)
------- ------- -----
Increase (decrease in cash) (6) 30 12
Cash at beginning of year 43 13 1
------- ------- -----
Cash at end of year $ 37 $ 43 $ 13
======= ======= =====
</TABLE>
15
<PAGE>
United National Bancorporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- ------------
(000's)
<S> <C> <C>
Assets
Cash and due from banks $ 3,937 $ 3,758
Federal funds sold 1,400 1,600
-------- --------
Cash and cash equivalents 5,337 5,358
Interest-bearing deposits in banks 54 33
Investment Securities:
Held to Maturity (fair value 1994 - 5,930 20,008
$5,950; 1993 - $20,363)
Available for Sale at fair value 13,562 --
Loans:
Real estate 37,946 37,550
Installment and Consumer 39,836 38,446
Commercial, financial, and
agricultural 22,931 24,881
Lease financing 28,832 28,113
-------- --------
Total Loans 129,545 128,990
Less: Allowance for loan losses (1,325) (1,189)
Unearned income (10,212) (10,514)
-------- --------
Net Loans 118,008 117,287
Premises and equipment, net of
accumulated depreciation
(1994-$2,724; 1993-$2,378) 2,545 2,570
Other assets 2,538 2,347
-------- --------
Total Assets $147,974 $147,603
======== ========
Liabilities
Deposits:
Noninterest-bearing $ 9,667 $ 8,776
Interest-bearing 123,402 120,543
-------- --------
Total Deposits 133,069 129,319
Securities sold under
agreements to repurchase 673 4,687
Other liabilities 1,639 1,315
-------- --------
Total Liabilities 135,381 135,321
Shareholders' Equity
Preferred Stock-$10.00 par value:
Authorized and unissued 5,000,000 shares -- --
Common Stock-$2.50 par value:
Authorized 10,000,000 shares: issued
and outstanding - 769,147 shares 1,923 1,923
Surplus 4,115 4,115
Retained earnings 6,555 6,244
-------- --------
Total Shareholders' Equity 12,593 12,282
-------- --------
Total Liabilities and Shareholders'
Equity $147,974 $147,603
======== ========
</TABLE>
See accompanying notes.
16
<PAGE>
United National Bancorporation and Subsidiaries
Consolidated Statements of Income (unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -----------------
1994 1993 1994 1993
---- ---- ---- ----
(000's) (000's)
<S> <C> <C> <C> <C>
Interest Income
Loans Including Fees $ 2,606 $ 2,837 $ 5,246 $ 5,541
Investments 298 433 579 862
Other 10 6 23 44
-------- -------- -------- --------
Total Interest Income 2,914 3,276 5,848 6,447
Total Interest Expense 999 1,233 1,990 2,526
-------- -------- -------- --------
Net Interest Income 1,915 2,043 3,858 3,921
Provision for Loan Losses 99 75 198 150
-------- -------- -------- --------
Net Interest Income
After Provision for Loan Losses 1,816 1,968 3,660 3,771
Gain (loss) on Sale of Mortgages 0 (1) 9 238
Other Income 137 144 306 266
Other Expense 1,487 1,443 2,893 2,709
-------- -------- -------- --------
Income Before Income Taxes 466 668 1,082 1,566
Income Taxes 148 221 346 507
-------- -------- -------- --------
Net Income $ 318 $ 447 $ 736 $ 1,059
======== ======== ======== ========
Net Income Per Share $ 0.41 $ 0.58 $ 0.96 $ 1.38
Cash Dividends Per Share $ 0.13 $ 0.12 $ 0.26 $ 0.24
Average Number of Shares Outstanding 769,147 769,147 769,147 769,147
</TABLE>
See accompanying notes.
17
<PAGE>
United National Bancorporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------
1994 1993
------ ------
(In Thousands)
<S> <C> <C>
Operating Activities:
Net Income $ 736 $1,059
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for Loan Losses 198 150
Provision for Depreciation & Amortization 159 120
Amortization of Investment Security Premiums
and Accretion of Discounts, net 30 48
Deferred Income Taxes 131 192
Gain on Sale of Loans (8) (238)
Realized Investment Security Gains (18) 0
(Increase) Decrease in Other Assets (191) (37)
Increase (Decrease) in Other Liabilities 193 (91)
------ ------
Net Cash Provided By Operating Activities 1,230 1,203
Investing Activities:
Net (Increase) Decrease in Loans (946) (9,958)
Proceeds from sale of Mortgage Loans 153 5,009
Purchase of premises and equipment, net (134) (439)
Proceeds from sales of AFS investment securities 1,493 0
Proceeds from maturities of AFS investment securities 1,852 0
Proceeds from maturities of HTM investment securities 3,648 3,532
Purchase of AFS investment securities (6,588) 0
Purchase of HTM investment securities (244) (6,827)
Net (increase) decrease in short term investments (21) 1,667
------ ------
Net Cash Used In Investing Activities (787) (7,016)
Financing Activities:
Net Increase (Decrease) in Deposits 3,750 4,364
Net Increase (Decrease) in short-term borrowings (4,014) 769
Cash Dividends (200) (182)
------ ------
Net Cash Provided By (Used In) Financing Activities (464) 4,951
------ ------
Decrease in Cash and Cash Equivalents (21) (862)
Cash and Cash Equivalents, Beginning of Period 5,358 6,030
------ ------
Cash and Cash Equivalents, End of Period $5,337 $5,168
====== ======
</TABLE>
See accompanying notes.
18
<PAGE>
United National Bancorporation and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Unrealized
Common Retained Gain (Loss)
Stock Surplus Earnings AFS Securities Total
------ ------- -------- -------------- -----
<S> <C> <C> <C> <C> <C>
Balance at 12/31/92 $1,748 $2,476 $6,607 $ 0 $10,831
Net income 1,059 1,059
Cash Dividends (182) (182)
------ ------ ------ ----- -------
Balance at 6/30/93 $1,748 $2,476 $7,484 $ 0 $11,708
====== ====== ====== ===== =======
Balance at 12/31/93 $1,923 $4,115 $6,244 $ 0 $12,282
Net Income 736 736
Cash Dividends (200) (200)
Changes in unrealized
gain (loss) on
securities available
for sale, net of
tax effect (225) (225)
------ ------ ------ ----- -------
Balance at 6/30/94 $1,923 $4,115 $6,780 $(225) $12,593
====== ====== ====== ===== =======
</TABLE>
See accompanying notes.
19
<PAGE>
UNITED NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1994
BASIS OF PRESENTATION
- ---------------------
Note 1 Management Representation: The accompanying unaudited consolidated
- ------ --------------------------
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six months ended June 30, 1994 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1994. For further
information, refer to the consolidated financial statements and footnotes
thereto included in United National Bancorporation's annual report on Form 10-K
for the year ended December 31, 1993.
Note 2 Reserve For Possible Loan Losses: (In thousands)
- ------ ---------------------------------
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Reserve balance January 1 $1,189 $1,061
Additions:
Provision charged to operating expenses 198 150
Recoveries of previously charged
off loans 21 15
Deductions:
Loans charged off 82 102
------ ------
Reserve balance June 30 $1,326 $1,124
</TABLE>
Note 3 Cash Flow Disclosures: (In thousands)
- ------ ----------------------
Cash paid during the first three months of the year for interest and income
taxes were as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Interest $2,016 $2,635
Income Taxes 215 315
</TABLE>
Note 4 Change in Accounting Method: The Corporation adopted Statement of
- ------ ----------------------------
Financial Accounting Standards No. 109 ("Statement 109"), "Accounting for Income
Taxes" effective January 1, 1993. FAS No. 109 is an asset and liability
approach for financial accounting and reporting for income taxes. As permitted
by Statement 109, UNB has elected not to restate the financial statements of any
prior year and the cumulative effect of the change had no material impact on the
balance sheet or income statement in the first quarter of 1993.
The Corporation adopted Statement of Financial Accounting Standards No. 115
"Accounting for certain Investments in Debt and Equity Securities" in the first
quarter of 1994. Accordingly, Management reviewed the investment portfolio and
classified certain securities as "Available-for-Sale". Such securities will be
marketed-to-market on a quarterly basis, with net unrealized gains (losses), net
of taxes, posted to equity capital.
20
<PAGE>
UNITED NATIONAL BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Note 5 Proposed Business Combination: On March 25, 1994, UNB signed a
- ------ ------------------------------
Definitive Agreement to merge the Corporation into First Commonwealth Financial
Corporation of Indiana, PA ("FCFC"). Total assets of the combined entity will
exceed $2.0 billion, affording our bank subsidiary, Unitas National Bank, and
active nonbank subsidiary, Unitas Mortgage Corporation, excellent long term
growth and profitability potential. We are confident that this partnership will
open significant opportunities for these subsidiaries as they become independent
affiliates of FCFC. Management of UNB anticipates acquisition costs to UNB in
excess of $200 thousand during 1994; however, Management is not aware of
forseeable future events which would otherwise materially alter the
profitability or safety and soundness of UNB. We expect certain cost savings in
noninterest expenditures subsequent to the merger.
21
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
Independent Auditors' Report
[LETTERHEAD OF EDWARDS LEAP & SAUER APPEARS HERE]
To the Board of Directors and Stockholders
Reliable Financial Corporation
Reliable Savings Bank, PaSA
Bridgeville, Pennsylvania
We have audited the accompanying consolidated balance sheets of Reliable
Financial Corporation (the "Corporation") and subsidiary as of September 30,
1993 and 1992 and the related consolidated statements of income, changes in
retained earnings and stockholders' equity and cash flows for the years ended
September 30, 1993 and 1992 and the statements of income, changes in retained
earnings and stockholders' equity and cash flows of Reliable Savings Bank, PaSA
(the "Savings Bank") for the year ended September 30, 1991. These financial
statements are the responsibility of the Corporation's and the Bank'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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 Reliable
Financial Corporation and subsidiary as of September 30, 1993 and 1992 and the
results of their operations and cash flows for the years then ended and the
results of operations and cash flows of Reliable Savings Bank, PaSA for the year
ended September 30, 1991, in conformity with generally accepted accounting
principles.
Edwards Leap & Sauer
Pittsburgh, Pennsylvania
November 5, 1993
22
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
September 30,
1993 1992
-------------------------
(in thousands)
<S> <C> <C>
ASSETS
Cash $ 1,029 $ 955
Interest-bearing deposits in other institutions 20,587 33,763
Investment securities, at cost (approximate market value of
$35,856 and $12,796, respectively) 30,718 7,813
Federal Home Loan Bank stock, at cost 922 1,101
Loans 85,255 99,459
Allowance for loan losses (700) (495)
Mortgage-backed securities, at cost (approximate market value of
$6,117 and $226, respectively) 5,930 224
Accrued interest receivable 348 91
Premises and equipment, net 2,553 2,627
Other assets 141 265
-------- --------
$146,783 $145,803
======== ========
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $114,619 $114,099
Accrued interest payable 829 924
Advances from borrowers for taxes and insurance 707 650
Other liabilities 824 553
-------- --------
116,979 116,226
RETAINED EARNINGS AND STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share,
4,000,000 shares authorized, 1,460,242 shares issued of which
1,398,862 are outstanding 15 15
Additional paid-in capital 13,657 13,657
Retained earnings--substantially restricted 17,348 15,905
-------- --------
31,020 29,577
Less: Treasury stock; 61,380 shares at cost (1,216) -0-
-------- --------
$146,783 $145,803
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
Consolidated Statements of Income
================================================================================
<TABLE>
<CAPTION>
Years Ended September 30,
1993 1992 1991
------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 9,012 $ 10,537 $ 11,250
Investment securities 1,662 1,224 941
Dividends 191 215 222
--------- --------- -------
10,865 11,976 12,413
================================================================================================================
INTEREST EXPENSE
Deposit accounts 4,500 6,147 7,912
--------- --------- -------
NET INTEREST INCOME 6,365 5,829 4,501
- ----------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 250 200 155
--------- --------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,115 5,629 4,346
================================================================================================================
NON-INTEREST INCOME
Net gain on sales of investment securities 1,133 261 -0-
Net gain on sales of real estate owned 49 11 -0-
Other 317 191 162
--------- --------- -------
7,614 6,092 4,508
=================================================================================================================
NON-INTEREST EXPENSES
Compensation 859 766 660
Employee benefits 183 114 124
Occupancy expense 308 295 287
Deposit insurance 236 267 221
Data processing 343 332 296
Other 646 446 336
--------- --------- -------
2,575 2,220 1,924
--------- --------- -------
INCOME BEFORE INCOME TAXES 5,039 3,872 2,584
================================================================================================================
PROVISION FOR INCOME TAXES 1,884 1,529 872
--------- --------- -------
NET INCOME $ 3,155 $ 2,343 $ 1,712
========= ========= =======
================================================================================================================
NET INCOME PER COMMON SHARE $ 2.21 $ 1.61 N/A*
========= ========= =======
Weighted average shares used in computing net
income per common share 1,425,596 1,457,944 N/A*
========= ========= =======
</TABLE>
* Not Applicable
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
Consolidated Statement of Changes in Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
-------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1990
(Reliable Savings Bank) $-0- $ -0- $12,361 $ -0- $12,361
Net Income -0- -0- 1,712 -0- 1,712
=======================================================================================================================
Balance at September 30, 1991
(Reliable Savings Bank) -0- -0- 14,073 -0- 14,073
Proceeds from issuance of
common stock 15 13,657 -0- -0- 13,672
Net Income -0- -0- 2,343 -0- 2,343
Dividends declared -0- -0- (511) -0- (511)
=======================================================================================================================
Balance at September 30, 1992 15 13,657 15,905 -0- 29,577
Net Income -0- -0- 3,155 -0- 3,155
Treasury stock (purchased 72,712
shares) -0- -0- -0- (1,420) (1,420)
Treasury stock (reissued 11,332
shares) -0- -0- (91) 204 113
Dividends declared -0- -0- (1,621) -0- (1,621)
=======================================================================================================================
Balance at September 30, 1993 $ 15 $13,657 $17,348 $(1,216) $29,804
==== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Years Ended September 30,
1993 1992 1991
----------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,155 $ 2,343 $ 1,712
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 137 138 134
Net accretion/amortization of premiums and discounts 13 (1) (1)
Net gain on sales of investment securities (1,133) (261) -0-
Net gain on sales of real estate owned (49) (11) -0-
Unamortized loan fees (427) (73) (51)
Provision for loan losses 250 200 155
Increase (decrease) in cash due to changes in assets and liabilities:
Accrued interest receivable (257) (13) 160
Other assets 124 (118) (15)
Accrued interest payable (95) (200) 16
Other liabilities 73 137 (29)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,791 2,141 2,081
====================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities -0- 800 1,000
Proceeds from sales of and redemption of investment securities 1,766 424 -0-
Purchase of investment securities (23,550) (6,709) -0-
Redemption (purchase) of FHLB stock 179 -0- (140)
Net loans repaid by customers 13,742 11,357 519
Purchase of mortgage-backed securities (5,977) -0- -0-
Proceeds from sales of real estate owned 1,163 39 13
Premises and equipment expenditures (63) (45) (94)
Net change in long-term interest-bearing deposits in other institutions -0- -0- 790
------- ------- -------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (12,740) 5,866 2,088
====================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts 520 (5,332) 7,782
Net increase (decrease) in advances from borrowers for taxes and insurance 57 (103) (123)
Proceeds from issuance of common stock, net of issuance costs of $930 -0- 13,672 -0-
Purchase of treasury stock (1,420) -0- -0-
Proceeds from reissuance of treasury stock 113 -0- -0-
Dividends paid (1,423) (219) -0-
------- ------- -------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (2,153) 8,018 7,659
====================================================================================================================
NET CHANGE IN CASH AND CASH EQUIVALENTS (13,102) 16,025 11,828
Cash and cash equivalents at beginning of year 34,718 18,693 6,865
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $21,616 $34,718 $18,693
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
Years ended September 30, 1993, 1992 and 1991
================================================================================
Note A--Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements as of and for the years ended
September 30, 1993 and 1992 include Reliable Financial Corporation and its
wholly-owned subsidiary, Reliable Savings Bank, PaSA. The consolidated financial
statements for the year ended September 30, 1991 include Reliable Savings Bank,
PaSA and its wholly-owned subsidiary, Reliable Savings Service Corporation. All
significant intercompany balances and transactions have been eliminated.
Investment Securities:
Investment securities are carried at cost, adjusted for amortization of
premium and accretion of discount over the term of the security using the
interest method or methods which approximate the interest method. Gains or
losses on the sale of securities are recognized upon realization using both the
weighted average and the specific-identification methods. All securities
currently owned are classified as held for investment as management has the
ability to hold such investments until maturity and the intent to hold them for
the foreseeable future.
Mortgage-Backed Securities:
Mortgage-backed securities are stated at cost, adjusted for amortization of
premium and accretion of discount using the interest method or methods which
approximate the interest method. The Corporation has the ability and
management's intention is to hold such assets to maturity. Should any be sold,
gains and losses will be recognized based on the specific identification method.
Loans and Allowance for Loan Losses:
Loans are stated at the amount of unpaid principal less the undisbursed
portion of loans and unamortized loan fees. The allowance for loan losses is
established through a provision for loan losses charged to expense. Loans are
charged against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible losses on existing loans
that may become uncollectible.
Real Estate Owned (REO):
Real estate acquired in satisfaction of a loan and in-substance
foreclosures are reported in other assets. In-substance foreclosures are
properties in which a borrower with little or no equity in the collateral,
effectively abandons control of the property or has no economic interest to
continue involvement in the property. The borrower's ability to rebuild equity
based on current financial conditions is also considered doubtful. Properties
acquired by foreclosure or deed in lieu of foreclosure and properties classified
as in-substance foreclosures are transferred to REO and recorded at the lower of
cost or fair value at the date actually or constructively received. Fair value
is measured by market transactions. If there are no active markets for similar
items, fair value is determined by discounting a forecast of expected cash flows
at a rate commensurate with the risk involved.
27
<PAGE>
- --------------------------------------------------------------------------------
Interest Income:
Interest on loans is recorded when earned. Accrual of interest is
discontinued on a loan when management believes, after considering economic and
business conditions and collection efforts, that the borrower's financial
condition is such that collection is questionable. Loan origination fees are
deferred and recognized over the life of the loan as an adjustment of yield
(interest income).
Depreciation:
The Savings Bank generally computes depreciation on the straight-line
method for financial reporting purposes over the assets' estimated useful lives
which range from 7 to 50 years for buildings and leasehold improvements and from
5 to 10 years for furniture and fixtures. Depreciation for tax purposes is
computed under the straight-line method for assets placed in service prior to
January 1, 1981. Assets placed in service after December 31, 1980 are
depreciated under the provisions of Accelerated Cost Recovery System (ACRS) or
the Modified Accelerated Cost Recovery System (MACRS), which stipulates that the
cost of assets be recovered over recovery lives as determined by the Internal
Revenue Code. As a result, there may be timing differences between book
depreciation and tax depreciation.
Income Taxes:
Deferred income taxes are reported for timing differences between items of
income or expense reported in the financial statements and those reported for
income tax purposes. The differences relate principally to depreciation of
premises and equipment, recognition of interest income and the provision for
loan losses.
Earnings per Share:
Earnings per share are calculated on the basis of the weighted average
number of shares outstanding. As a result of the stock conversion, as described
in Note P, the newly issued stock was outstanding for 184 days during the fiscal
year ended September 30, 1992. Options to purchase an additional 34,000 shares
at $10/share, as described in Note L, were available for the year ended
September 30, 1993, with 11,332 shares actually purchased during the quarter
ended March 31, 1993. Therefore, the weighted average number for shares
outstanding was 1,425,596 and 1,457,944 at September 30, 1993 and 1992,
respectively.
Cash Equivalents:
For the purposes of the Statements of Cash Flows, the Corporation and the
Savings Bank consider all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
totaled $20,586,837, $33,762,891 and $18,201,160 at September 30, 1993, 1992 and
1991, respectively. Net loans transferred to real estate owned, a non-cash
operating activity, totaled $1,138,140, $0 and $32,943 in the years ended
September 30, 1993, 1992 and 1991, respectively.
Reclassification of Prior Years' Statements:
Certain items previously reported in the prior years' financial statements
have been reclassified to conform with the current year's classifications. These
reclassifications have no effect on net income.
28
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
Note B--Investment Securities
Investment securities at September 30 are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1993
---------------------------------------------------------
Carrying Unrealized Unrealized Market
Amount Gains Losses Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 8,983,966 $ 69,784 $-0- $ 9,053,750
U.S. agency obligations 17,000,000 129,662 -0- 17,129,662
State and municipal
obligations 3,264,441 81,893 -0- 3,346,334
Corporate debt 499,044 5,656 -0- 504,700
Federal Home Loan Mortgage
Corporation common stock 970,103 4,851,772 -0- 5,821,875
----------- ---------- ---------- -----------
$30,717,554 $5,138,767 $-0- $35,856,321
=========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1993
---------------------------------------------------------
Carrying Unrealized Unrealized Market
Amount Gains Losses Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 1,997,485 $ 33,765 -0- $ 2,031,250
U.S. agency obligations 2,500,000 85,781 -0- 2,585,781
State and municipal obligations 1,715,000 14,580 -0- 1,729,580
Corporate debt 497,666 1,709 -0- 499,375
Federal Home Loan Mortgage Corporation
common stock 1,102,353 4,847,647 -0- 5,950,000
----------- ---------- --------- -----------
$ 7,812,504 $4,983,482 $-0- $12,795,986
=========== ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Years Ended
September 30,
---------------------------
1993 1992
----------- ----------
<S> <C> <C>
Gross realized gains:
Federal Home Loan Mortgage
Corporation common stock $ 1,133,333 $ 261,061
=========== ===========
</TABLE>
The maturities of investment securities at September 30, 1993
were as follows:
<TABLE>
<CAPTION>
Carrying Market
Amount Value
----------- -----------
<S> <C> <C>
Due in one year or less $ 2,143,883 $ 2,165,600
Due from one to five years 25,693,568 25,879,269
Due from five to ten years 1,910,000 1,989,577
Due after ten years -0- -0-
Marketable equity security 970,103 5,821,875
----------- -----------
$30,717,554 $35,856,321
=========== ===========
</TABLE>
29
<PAGE>
- ---------------------------------------------------------------------------
Note C--Loans
Loans at September 30 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
----------- ------------
<S> <C> <C>
Residential mortgage $78,782,333 $ 93,049,040
Real estate construction 5,765,420 5,450,472
Commercial real estate 1,837,585 456,171
Non-residential and land 1,941,955 2,391,215
Loans on deposit accounts 1,047,040 1,020,583
Home improvement loans 53,662 64,077
Consumer 570,623 391,259
----------- ------------
89,998,618 102,822,817
Less: Undisbursed portion of loans 3,555,533 1,749,066
Unamortized loan fees 1,188,441 1,615,346
----------- ------------
$85,254,644 $ 99,458,405
=========== ============
</TABLE>
As of September 30, loans secured by one-to-four family residences
represented 93.94% and 95.80% of the total loan portfolio for 1993 and 1992,
respectively. Total loans on non-accrual status at September 30, 1993 and 1992
totaled approximately $2,600,000 and $1,200,000, respectively.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year $495,000 $295,000 $155,000
Provision charged to operations 250,000 200,000 154,619
Loans charged off (44,768) -0- (14,619)
-------- -------- --------
$700,232 $495,000 $295,000
======== ======== ========
</TABLE>
The Savings Bank primarily grants residential mortgage loans to customers
in Allegheny and Washington counties, Pennsylvania. The Savings Bank maintains a
diversified loan portfolio and the ability of its debtors to honor their
contracts is not substantially dependent on any particular economic business
sector.
- --------------------------------------------------------------------------------
Note D--Accrued Interest Receivable
Accrued interest receivable at September 30 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Loans $ 1,449 $ 5,254
Investments 346,343 86,126
-------- -------
$347,792 $91,380
======== =======
</TABLE>
30
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
Note E--Premises and Equipment
Premises and equipment at September 30 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Land $ 120,253 $ 120,253
Building 2,305,845 2,301,456
Leasehold improvements 258,024 242,691
Furniture and fixtures 862,535 819,555
---------- ----------
3,546,657 3,483,955
Less: Accumulated depreciation 993,171 856,769
---------- ----------
$2,553,486 $2,627,186
========== ==========
</TABLE>
Depreciation expense totaled $136,402, $138,110 and $133,844 for the years
ended September 30, 1993, 1992 and 1991, respectively.
- --------------------------------------------------------------------------------
Note F--Federal Home Loan Bank Stock
The Savings Bank is required to own stock of the Federal Home Loan Bank
based on a percentage of net residential mortgages outstanding. During the year
ended September 30, 1993, the Savings Bank was required to redeem stock to the
Federal Home Loan Bank at its cost basis. The amount of common stock owned was
$922,100 and $1,100,800 at September 30, 1993 and 1992, respectively.
- --------------------------------------------------------------------------------
Note G--Deposit Accounts
Deposit accounts at September 30 consisted of the following:
<TABLE>
<CAPTION>
Weighted
Average Rate At 1993 1992
September 30, ---------------------- -----------------------
1993 Amount % Amount %
--------------- ------------ ---- ------------ ----
<S> <C> <C> <C> <C> <C>
Regular Passbook Savings 2.75% $ 29,843,096 26% $ 28,599,688 25%
Other Passbook Savings 2.75% 774,857 1% 1,229,640 1%
Christmas Club Savings 2.75% 630,625 1% 670,033 1%
Money Market Accounts 2.80% 14,771,856 13% 14,035,181 12%
NOW Checking Accounts 2.25% 6,296,495 5% 5,633,579 5%
Certificate Accounts
Maturities:
6 months or less 3.07% 15,680,504 14% 17,098,033 15%
6 months to 1 year 3.34% 10,430,759 9% 12,458,547 11%
1 year to 3 years 4.79% 12,272,065 11% 13,576,041 12%
More than 3 years 7.00% 19,762,189 17% 17,334,740 15%
------------ ---- ------------ ----
58,145,517 51% 60,467,361 53%
Non-Interest Bearing Accounts 4,156,062 3% 3,463,672 3%
------------ ---- ------------ ----
$114,618,508 100% $114,099,154 100%
============ ==== ============ ====
</TABLE>
Certificates of deposit with balances exceeding $100,000 totaled $1,234,650
and $1,026,810 at September 30, 1993 and 1992, respectively.
The Savings Bank paid cash of approximately $4,600,000, $6,300,000, and
$7,900,000 in interest on deposits during the years ended September 30, 1993,
1992 and 1991, respectively.
31
<PAGE>
- --------------------------------------------------------------------------------
Interest expense for the years ended September 30 is summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------------- -------------- --------------
<S> <C> <C> <C>
Savings and NOW accounts $ 1,494,143 $ 1,890,983 $ 1,976,217
Time deposits 3,005,806 4,256,044 5,936,262
-------------- -------------- --------------
$ 4,499,949 $ 6,147,027 $ 7,912,479
============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
Note H--Stockholders' Equity
Retained earnings at September 30, 1992, the most recent date for which tax
returns were filed, included approximately $4,917,000 for which no provision for
federal income tax has been made. These amounts represent allocations of income
to bad debt deductions for tax purposes only. Reduction of amounts so allocated
for purposes other than tax bad debt losses will create income for tax purposes
only, which will be subject to the then current corporate income tax rate.
Treasury stock is shown at cost and consists of 61,380 shares of the
Corporation's stock at September 30, 1993. The Corporation purchased 72,712
shares of Treasury stock at an average price per share of approximately $19.50
and reissued 11,332 shares which cost approximately $18.00 per share, at $10.00
per share during the year ended September 30, 1993. The reissuance was in
conjunction with the Benefit Plans as described in Note L.
- --------------------------------------------------------------------------------
Note I--Income Taxes
In addition to charging income for taxes actually paid or payable, the
provision for income taxes can reflect deferred income tax credits which result
from timing differences in computing income for financial and income tax
reporting. There were no deferred tax credits included in the income tax
provisions for the years ended September 30, 1993, 1992 and 1991. The principal
timing differences are a result of recognition of bad debt deductions, interest
income, loan fees and accelerated depreciation methods.
For Federal income tax purposes the Savings Bank is permitted a tax bad
debt deduction unrelated to any loan loss provision for book purposes. This
deduction is computed by one of two methods, the experience method taking into
account the six year moving average of net charge-offs to loans, and the
percentage of taxable income method, subject to certain limitations. The amount
of the tax bad debt deduction for the year ended September 30, 1992 was $-0-and
approximately $145,000 for the short tax year ended September 30, 1991. Due to
the limitations referenced above, no tax bad debt deduction is anticipated for
the tax year ended September 30, 1993.
The Corporation made income tax payments of $1,847,644 and $1,442,703
during the years ended September 30, 1993 and 1992, respectively. The Savings
Bank made income tax payments of $866,270 during the year ended September 30,
1991.
The income tax provision at September 30 consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------------- -------------- ------------
<S> <C> <C> <C>
Federal income taxes $ 1,587,873 $ 1,209,935 $ 687,308
State income taxes 296,037 318,782 184,705
-------------- -------------- ------------
$ 1,883,910 $ 1,528,717 $ 872,013
============== ============== ============
</TABLE>
32
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
The provision for federal income taxes differs from that computed at the
statutory corporate tax rate primarily due to the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------------- -------------- ------------
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.0% 34.0%
Decrease in deferred loan fees (2.9) (.6) (1.4)
Exempt interest, dividends, net (.9) (.6) (.7)
Change in accounting method -0- -0- .2
Bad debt deduction 1.7 1.8 .1
Capital loss carryover -0- (.5) -0-
Other, net (.4) (2.8) (5.6)
-------------- -------------- ------------
Effective tax rate 31.5% 31.3% 26.6%
============== ============== ============
</TABLE>
State income taxes are paid on income determined in accordance with
generally accepted accounting principles.
In February of 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes", that supersedes SFAS No. 96 and APB 11. The primary changes
incorporated in SFAS 109 include, among other things, relaxation of the criteria
for recognizing deferred tax assets and reduction in the complexity of
calculating deferred taxes by reducing the need to schedule the reversal of
temporary differences year-by-year. The statement is effective for fiscal years
beginning after December 15, 1992. The Corporation plans to adopt SFAS 109 in
the first quarter of fiscal 1994. The adoption of SFAS 109 will require the
Corporation to change to the liability method for financial accounting and
reporting for income taxes. The Corporation currently estimates that its
deferred tax liability would be decreased by approximately $370,000. The
resulting benefit will be recorded through the income statement and reported as
a cumulative effect of a change in an accounting principle.
- --------------------------------------------------------------------------------
Note J--Financial Institutions Reform, Recovery and Enforcement Act
("FIRREA") of 1989
FIRREA was signed into law on August 9, 1989 and regulations for savings
institutions' minimum capital requirements went into effect on December 7, 1989.
In addition to its capital requirements, FIRREA includes provisions for changes
in the federal regulatory structure for institutions including a new deposit
insurance system, increased deposit insurance premiums, and restricted
investment activities with respect to noninvestment-grade corporate debt and
certain other investments. FIRREA also increases the required ratio of
housing-related assets in order to qualify as a savings institution.
The regulations require institutions to have a minimum regulatory tangible
capital equal to 1.5 percent of total assets and, a minimum 3 percent core
capital ratio. The risk-based capital ratio requirement is 8.0 percent of total
risk adjusted assets as of December 31, 1992. Prior to December 31, 1992 it was
7.2% of total risk adjusted assets.
The Savings Bank, at September 30, 1993, meets all regulatory tangible
capital, core capital and risk-based capital requirements of 8.0 percent, as
defined by FIRREA. Failure to meet these capital requirements would expose the
Savings Bank to regulatory sanctions, including limitations on asset growth. The
following table shows that the Savings Bank is in compliance with regulatory
capital standards:
33
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
Adjusted
Amount Total Assets
---------- --------------
(dollars in thousands)
<S> <C> <C>
GAAP capital $ 25,903 18.19%
========== ==============
Tangible capital $ 25,903 18.19%
Tangible capital requirement 2,135 1.50%
---------- --------------
Excess $ 23,768 16.69%
========== ==============
Core capital $ 25,903 18.19%
Core capital requirement 4,271 3.00%
---------- --------------
Excess $ 21,632 15.19%
========== ==============
Risk-based capital $ 26,603 42.71%
Minimum risk-based capital requirement 4,984 8.00%
---------- --------------
Excess $ 21,619 34.71%
========== ==============
</TABLE>
Risk-based capital includes supplementary capital of $700,232, representing
the general allowance for loan losses.
The following is a reconciliation of net income and retained earnings (as
shown in these audited financial statements) to net income and retained earnings
as presented in the Office of Thrift Supervision quarterly reports:
<TABLE>
<CAPTION>
September 30, 1993 September 30, 1992
------------------------- -------------------------
Twelve Twelve
Months Ended Balance Months Ended Balance
------------ ------- ------------ -------
Retained Retained
Net Income Earnings Net Income Earnings
------------ -------- ------------ --------
(in thousands)
<S> <C> <C> <C> <C>
Balances on regulatory reports $3,203 $19,067 $2,208 $15,864
Add (deduct) audit adjustments for:
Income (loss) of parent (48) (7) 41 41
Other activity -0- (1,712) 94 -0-
------ ------- ------ -------
Balances on accompanying consolidated
financial statements $3,155 $17,348 $2,343 $15,905
====== ======= ====== =======
</TABLE>
Other activity for the year ended September 30, 1993 consists of dividends
declared of approximately $1,621,000 and the effect of treasury stock reissued
at approximately $91,000 less than the purchase price.
- --------------------------------------------------------------------------------
Note K--Commitments
In the normal course of business, there are various outstanding commitments
and contingent liabilities, such as commitments to extend credit. These
commitments involve, to varying degrees, elements of credit risk in excess of
amounts recognized in the balance sheets.
Loan commitments are made to accommodate the financial needs of the Savings
Bank's customers.
These arrangements have credit risk essentially the same as that involved
in extending loans to customers and are subject to the Savings Bank's normal
credit policies and loan underwriting standards. Collateral is obtained based on
management's credit assessment of the customer. Management currently expects no
loss from these activities.
34
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
The Savings Bank's maximum exposure to credit loss for loan commitments
(unfunded loans) outstanding at September 30, 1993 and 1992, was $3,330,720 and
$1,272,000, respectively. Commitments for fixed rate loans totaled $2,741,720
and $773,000 at September 30, 1993 and 1992, respectively, with rates ranging
from 6.5% to 12%. The Savings Bank had outstanding commitments at September 30,
1993 and 1992 of $-0- and $324,000, respectively to purchase investment
securities.
Lease commitments: Annual rentals under long-term monthly operating leases
for property amounted to $22,800 in 1993, 1992 and 1991. At September 30, 1993,
the minimum rental commitment, including any current renewal options under
existing leases with initial or remaining terms of more than one year was as
follows:
<TABLE>
<CAPTION>
Years Ending Gross Rental
September 30 Expense
------------ -----------
<S> <C>
1994 $ 23,900
1995 24,000
1996 24,000
1997 13,900
1998 10,800
Remaining term 1,800
--------
TOTAL COMMITMENT $ 98,400
========
</TABLE>
- --------------------------------------------------------------------------------
Note L--Pension, Retirement and Benefit Plans
On August 9, 1991, the Savings Bank elected to terminate its previously
existing defined benefit pension plan. Under Statement of Financial Accounting
Standards No. 88 (SFAS 88), "Employer's Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits", a
termination of a defined benefit plan is considered both a settlement (an
irrevocable transaction relieving an employer of the responsibility for a
pension benefit obligation) and a curtailment (elimination for employees of the
accrual of defined benefits for future service). All balances in the plan as of
September 30, 1991, which were determined by actuaries to equal $845,627 vested
in the plan participants in relation to their respective present values
determined at a weighted average discount rate and long-term rate of return on
plan assets of 7.5% in the plan as of the termination date. Therefore, there was
no settlement or curtailment gain or loss associated with the termination. The
plan trust continued to hold the plan assets until distribution of $861,351 on
January 20, 1992. By definition, the accumulated benefit obligation is the value
of the assets. Pension expense for 1991 totaled $31,377.
On June 25, 1991, the Savings Bank adopted a 401(k) retirement plan,
whereby the employees may elect to make pre-tax contributions through a salary
reduction of up to 10% of their monthly salary. The Savings Bank may match
dollar for dollar up to 5% of employees' monthly salary reduction or make
elective contributions to the Plan. The Savings Bank's contributions to the Plan
were $29,047, $22,786 and $1,770 for the years ended September 30, 1993, 1992
and 1991, respectively.
On January 23, 1992, the Board of Directors of the Savings Bank adopted the
Reliable Savings Bank, PaSA Recognition and Retention Plan ("RRP") as a method
of providing officers and key employees with a proprietary interest in Reliable
Financial Corporation. All employees of the Savings Bank and its affiliates are
eligible to receive awards from the plan. The standard vesting rate of an award
is 20% per year commencing one year from the date of the award.
In August, 1992 an award under the RRP was granted to President Stephen
Grippi, representing 6,000 shares which were purchased at $17.50 per share.
Vesting under this award is 33 1/3% over three years. Amortization, on a
straight line basis over three (3) years, of this award for the years
35
<PAGE>
ended September 30, 1993 and 1992 totaled $49,500 and $3,500, respectively.
During the year ended September 30, 1993, 2,000 shares had vested.
On January 14, 1992, the Board of Directors of Reliable Financial adopted
Reliable Financial Corporation 1992 Incentive Stock Option Plan (the "Option
Plan") and the Reliable Financial Corporation 1992 Stock Option Plan for
Nonemployee Directors (the "Directors' Plan"). Under the Option Plan, options
may only be granted to officers and other key employees. The Option Plan is
designed to encourage the continued employment of these employees and to attract
new employees by facilitating their purchase of a stock interest in Reliable
Financial. Options granted under the Option Plan may include both incentive
stock options ("ISOs") within the meaning of Section 422A of the Internal
Revenue Code and nonstatutory stock options ("Nonstatutory Options").
The Pension Committee will, from time to time, select employees to whom
Options are to be granted and the number of Options to be granted based upon the
employee's performance, compensation and the nature of his responsibilities,
duties and functions.
Pursuant to the Option Plan, up to 109,518 shares of Reliable Financial
common stock may be issued or transferred for the exercise of options to
purchase shares of common stock.
The Committee will determine the dates on which each Option will become
exercisable. Each ISO will continue to be exercisable over a maximum period of
ten years from the date granted, and each Nonstatutory Option will be
exercisable over a period of ten years and one day from the date granted.
Under circumstances set forth in the Option Plan, all or a portion of the
Options may be exercised for specified periods following termination of
employment. An Option may not be transferred by an optionee during his or her
lifetime. The exercise price per share of Common Stock covered by an Option
shall be the fair market value of Common Stock on the date of grant. The
shares purchased upon exercise of an Option are to be paid for in cash or
through the delivery of previously-acquired shares of Common Stock or in a
combination of cash and such shares.
The Pension Committee, with shareholder ratification, has granted to
President Grippi options under the Option Plan to purchase 12,000 shares of
stock. One-third of these options were exercised on the first anniversary date
of the conversion.
The Directors' Plan is designed to promote the growth and profitability of
Reliable Financial and the Savings Bank and to provide non-employee directors
with an incentive to assume the significant duties and responsibilities entailed
therewith. Benefits under the Directors' Plan are granted to non-employee
directors, a group currently consisting of 4 people. Pursuant to the Directors'
Plan, up to 36,506 shares of the common stock of Reliable may be issued or
transferred pursuant to the exercise of options to purchase shares of common
stock ("Directors' Options"). Directors' Options may only be granted to members
of Reliable's Board of Directors who are not employees of Reliable, the Savings
Bank or any other subsidiary or affiliate thereof on the date the Directors'
Options are granted. Directors' Options granted under the Directors' Plan are
nonstatutory stock options.
The Directors' Plan provides that each of the 4 non-employee directors
serving at the consummation of the conversion of the Savings Bank from mutual to
stock form receive options to purchase 5,500 shares of Reliable common stock.
New directors, subsequently elected, also receive the option to purchase 5,500
shares, to the extent shares remain available under the Directors' Plan. The
exercise price of the outstanding Directors' Options is $10.00 per share, which
was the fair market value of Reliable's common stock on the date of grant. No
Directors' Option may be exercised after the expiration of ten years and one day
from the date of grant of such option. One-third of these Directors' Options
were exercised on the first anniversary of the date of grant.
36
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
Note M--Reliable Financial Corporation
Reliable Financial Corporation was formed on November 7, 1991 to acquire
100% of the common stock of Reliable Savings Bank, PaSA as a result of the
Savings Bank's conversion from mutual to stock form. Prior to March 30, 1992,
Reliable Financial Corporation had no significant assets. Reliable Financial
Corporation currently has no independent business operations. Certain items
previously reported in the prior years' financial statements have been
reclassified to conform with the current year's classifications. These
reclassifications have no effect on the consolidated net income.
The condensed financial information for Reliable Financial Corporation as
of and for the years ended September 30, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
1993 1992
------------ -----------
<S> <C> <C>
ASSETS
Interest-bearing deposits $ 4,416,208 $ 7,134,702
Investment in Reliable Savings Bank 11,830,791 8,627,252
Prepaid taxes 839 42,572
----------- -----------
$16,247,838 $15,804,526
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Dividends Payable $ 489,602 $ 292,048
Accrued expenses 27,212 8,148
----------- -----------
516,814 300,196
Stockholders' Equity
Common stock, par value $0.01 per share, 4,000,000 shares authorized,
1,460,242 shares issued and outstanding 14,602 14,602
Additional paid-in capital 13,657,743 13,657,743
Retained earnings 3,275,153 1,831,985
Treasury stock, at cost (1,216,474) -0-
----------- -----------
15,731,024 15,504,330
----------- -----------
$16,247,838 $15,804,526
=========== ===========
STATEMENTS OF INCOME
Interest and other operating income $ 159,708 $ 108,733
Dividends from Reliable Savings Bank -0- 511,086
----------- ------------
159,708 619,819
EXPENSES
Operating expenses 208,344 16,586
----------- ------------
INCOME (LOSS) BEFORE TAXES (48,636) 603,233
PROVISION FOR INCOME TAXES -0- 51,243
----------- ------------
INCOME (LOSS) BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARY (48,636) 551,990
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY 3,203,539 1,791,080
----------- -----------
NET INCOME $ 3,154,903 $ 2,343,070
=========== ===========
</TABLE>
37
<PAGE>
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1993 1992
--------------- ---------------
<S> <C> <C>
Net income $ 3,154,903 $ 2,343,070
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase (decrease) in cash due to changes in assets and liabilities:
Equity in undistributed earnings of subsidiary (3,203,539) (1,791,080)
Prepaid taxes 41,732 (42,572)
Accrued expenses 19,064 8,148
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,160 517,566
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Reliable Savings Bank stock -0- (6,836,171)
--------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES -0- (6,836,171)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net -0- 13,672,345
Purchase of treasury stock (1,420,240) -0-
Proceeds from reissuance of treasury stock 113,320 -0-
Dividends paid (1,423,734) (219,038)
--------------- ---------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (2,730,654) 13,453,307
--------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,718,494) 7,134,702
Cash and cash equivalents at beginning of year 7,134,702 -0-
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,416,208 $ 7,134,702
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
Note N--Supplemental Information
The following condensed statement summarizes the financial position of the
Savings Bank's wholly-owned subsidiary, Reliable Savings Service Corporation,
which has been consolidated with the financial statements of Reliable Savings
Bank, PaSA at September 30, 1992 (immediately prior to liquidation). Under the
authority of the Board of Directors of the Savings Bank, liquidation of the
service corporation was approved as of September 30, 1992.
The statement is presented as supplemental information only and is not
necessary for the fair presentation of the consolidated financial statements.
RELIABLE SAVINGS SERVICE CORPORATION
CONDENSED BALANCE SHEET
September 30, 1992 (immediately prior to liquidation)
<TABLE>
<S> <C>
ASSETS
Cash in bank $ -0-
Receivable--Parent 5,764
-----------
$ 5,764
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Common stock $ 21,000
Additional paid-in capital 40,000
Retained earnings (deficit) (55,236)
-----------
$ 5,764
===========
</TABLE>
38
<PAGE>
Reliable Financial Corporation and Subsidiary
- --------------------------------------------------------------------------------
Note O--Related-Party Transactions
Certain officers and directors and their affiliates of Reliable Savings
Bank, PaSA were indebted to the Savings Bank at September 30, 1993 and 1992.
Related party loans are made on substantially the same terms as those prevailing
at the time for comparable transactions with unrelated persons and generally do
not involve more than normal risk of collectibility. The aggregate dollar amount
of these loans (exclusive of loans to any such person which in the aggregate do
not exceed $60,000 at September 30, 1993) was $706,387 and $726,979 at September
30, 1993 and 1992, respectively. During the year ended September 30, 1993 and
1992, $67,000 and $87,900 of new loans were made to related parties and
repayments by any such person(s) totaled $87,592 and $90,336, respectively.
- --------------------------------------------------------------------------------
Note P--Conversion
On March 16, 1992, the members of the Savings Bank formally approved the
Plan of Conversion under which the Savings Bank converted from a
Pennsylvania-chartered mutual savings and loan association to a
Pennsylvania-chartered permanent reserve fund capital stock savings and loan
association. Included in the Plan of Conversion was the formation of a holding
company, Reliable Financial Corporation, which owns all of the common stock of
Reliable Savings Bank, PaSA, as its wholly-owned subsidiary. The conversion was
consummated on March 30, 1992.
- --------------------------------------------------------------------------------
Note Q--Accounting Standards
In addition to SFAS 109, as previously discussed in Note I, certain other
recent accounting standards relating to the Corporation have been promulgated by
the Financial Accounting Standards Board. Statement of Financial Accounting
Standards No. 107 requires entities to disclose the fair value of "Financial
Instruments" for which it is practicable to estimate fair value, with certain
exceptions. Statement of Financial Accounting Standards No. 114 addresses the
accounting by creditors for impairment of certain loans. Statement of Financial
Accounting Standards No. 115 relates to accounting for certain investments in
debt and equity securities.
The Corporation is not currently required to and has elected not to adopt
early implementation of any of these standards. The impact of such adoption was
not determined at this time.
39
<PAGE>
RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1994 1993
---------- -------------
<S> <C> <C>
Cash $ 748 $ 1,029
Interest-bearing deposits in other institutions 15,530 20,587
-------- --------
Cash and Cash Equivalents 16,278 21,616
FHLMC stock available for sale (market value 717 -
of $5,143 at June 30, 1994)
Investment securities, at cost (market value 38,386 30,718
of $37,210 and $35,586)
Mortgage-backed securities, at cost (market value 5,049 5,930
of $4,938 and $6,117)
Federal Home Loan Bank stock, at cost 848 922
Loans 87,568 85,255
Allowance for possible loan losses (850) (700)
Accrued interest receivable 419 348
Premises and equipment, net 2,456 2,553
Other assets 484 141
-------- --------
$151,355 $146,783
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $116,415 $114,619
Accrued interest payable 555 829
Advances from borrowers for taxes and insurance 2,164 707
Other liabilities 1,504 824
-------- --------
120,638 116,979
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 4,000,000 shares 15 15
authorized; 1,460,242 shares issued;
1,410,194 and 1,398,862 shares outstanding
Additional paid-in capital 13,657 13,657
Retained earnings - substantially restricted 18,043 17,348
-------- --------
31,715 31,020
Less: Treasury stock, at cost 998 1,216
-------- --------
30,717 29,804
-------- --------
$151,355 $146,783
======== ========
</TABLE>
See notes to consolidated financial statements.
40
<PAGE>
RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share and share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 1,674 $ 2,033 $ 5,273 $ 6,126
Interest-bearing deposits in
other institutions 103 188 299 610
FHLMC stock available for sale 33 29 84 86
Investment securities 576 436 1,599 1,162
Mortgage-backed securities 76 76 235 146
Dividends 46 47 126 146
---------- ---------- ---------- ----------
2,508 2,809 7,616 8,276
INTEREST EXPENSE
Deposit accounts 1,032 1,110 3,124 3,420
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,476 1,699 4,492 4,856
PROVISION FOR POSSIBLE LOAN
LOSSES 50 50 150 150
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES 1,426 1,649 4,342 4,706
NON-INTEREST INCOME
Net gain on sales of FHLMC stock 1,308 215 1,542 698
Net gain on real estate owned - 42 - 37
Other 77 86 266 231
---------- ---------- ---------- ----------
2,811 1,992 6,150 5,672
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE
Compensation 233 219 677 639
Employee benefits 47 45 138 136
Occupancy expense 84 78 240 226
Deposit insurance 66 52 200 169
Data processing 85 85 246 256
Other 484 146 803 451
---------- ---------- ---------- ----------
999 625 2,304 1,877
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT ON PRIOR
YEARS OF CHANGE IN TAX
ACCOUNTING METHOD 1,812 1,367 3,846 3,795
PROVISION FOR INCOME TAXES 906 479 1,723 1,431
---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT
ON PRIOR YEARS OF CHANGE IN
TAX ACCOUNTING METHOD 906 888 2,123 2,364
CUMULATIVE EFFECT ON PRIOR YEARS
OF CHANGE IN TAX ACCOUNTING
METHOD - - 365 -
---------- ---------- ---------- ----------
NET INCOME $ 906 $ 888 $ 2,488 $ 2,364
========== ========== ========== ==========
PER SHARE DATA (BASED ON AVERAGE
SHARES OUTSTANDING)
Income before cumulative effect
of change in tax accounting
method $ 0.46 $ 0.63 $ 1.50 $ 1.65
---------- ---------- ---------- ----------
Cumulative effect of change in
tax accounting method - - 0.26 -
---------- ---------- ---------- ----------
Net income $ 0.64 $ 0.63 $ 1.76 $ 1.65
========== ========== ========== ==========
Cash dividends declared $ 0.40 $ 0.30 $ 1.20 $ 0.80
========== ========== ========== ==========
Weighted average shares
outstanding 1,417,043 1,411,584 1,414,268 1,428,712
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
41
<PAGE>
RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 1994 AND 1993
(Unaudited)
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Additional Retained Treasury Total
stock Paid-In Capital Earnings Stock
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 $15 $13,657 $15,905 $-0- $29,577
Net Income -0- -0- 2,364 -0- 2,364
Treasury stock (purchased -0- -0- -0- (1,420) (1,420)
72,712 shares)
Treasury stock (reissued -0- -0- (91) 204 113
11,332 shares)
Dividends declared -0- 0- (1,131) -0- (1,131)
--- ------- ------- ------- -------
Balance at June 30, 1993 $15 $13,657 $17,047 $(1,216) $29,503
=== ======= ======= ======= =======
- ---------------------------
Balance at September 30, 1993 $15 $13,657 $17,348 $(1,216) $29,804
Net Income -0- -0- 2,488 -0- 2,488
Treasury stock (reissued -0- -0- (105) 218 113
11,332 shares)
Dividends declared -0- -0- (1,688) -0- (1,688)
--- ------- ------- ----- -------
Balance at June 30, 1994 $15 $13,657 $18,043 $(998) $30,717
=== ======= ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
42
<PAGE>
RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1994 AND 1993
(Unaudited)
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,488 $ 2,364
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 104 102
Net accretion of discounts on
investment securities (10) (5)
Gain on sales of FHLMC stock (1,542) (698)
Net gain on sale of real estate owned - (46)
Unamortized loan fees (145) (336)
Deferred income taxes (370) -
Provision for possible loan losses 150 150
Increase (decrease) in cash due to
changes in assets and liabilities:
Accrued interest receivable (71) (108)
Other assets 27 100
Accrued interest payable (274) (322)
Other liabilities (680) 74
------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 1,037 1,275
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of mortgage-backed
securities - (5,977)
Purchases of investment securities (12,628) (17,530)
Proceeds from sales of FHLMC stock 1,796 1,247
Proceeds from redemptions and
maturities of investment securities 4,000 -
Proceeds from redemption of FHLB stock 74 179
Proceeds from sale of real estate owned 819
Net (increase) decrease in loans (2,250) 13,542
Principal payments on mortgage-backed
securities 881 -
Premises and equipment expenditures - (50)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (8,127) (770)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 1,796 1,767
Net increase in advances from
borrowers for taxes and insurance 1,456 1,446
Purchase of treasury stock - (1,420)
Proceeds from sale of treasury stock 113 113
Dividends paid (1,613) (1,004)
------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,752 902
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,338) (5,593)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 21,616 34,718
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $16,278 $29,125
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid on deposits $ 3,398 $ 3,741
Income taxes paid $ 1,348 $ 1,315
Loans transferred to real estate owned $ - $ 1,138
Investment securities transferred to
FHLMC stock available for sale $ 928 $ -
</TABLE>
See notes to consolidated financial statements.
43
<PAGE>
RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1994 AND 1993
- -------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three- and nine-month periods ended
June 30, 1994, are not necessarily indicative of the results
that may be expected for the fiscal year ending September 30,
1994. The interim consolidated financial statements and the
following discussion should be read in conjunction with the
consolidated financial statements and footnotes thereto included
in the Corporation's Annual Report on Form 10-K for the fiscal
year ended September 30, 1993.
NOTE 2. EARNINGS PER SHARE
Earnings per common share are based on the weighted average
number of common shares outstanding and common share equivalents
in each period. Weighted average shares outstanding include
common share equivalents under the available stock option
plans.
NOTE 3. FHLMC STOCK AVAILABLE FOR SALE
Investment securities to be held for indefinite periods of time
including investment securities that management intends to use
as part of its asset/liability strategy, and that may be sold in
response to changes in interest rates, changes in prepayment
risk, or other similar factors are classified as available for
sale and are recorded at the lower of aggregate cost or market.
Specifically, management has classified only the FHLMC stock as
available for sale.
NOTE 4. INVESTMENT SECURITIES
Investments in debt securities which management has the ability
and intent to hold to maturity or on a long-term basis are
carried at cost. Premiums and discounts are amortized to expense
and accreted to income over the life of the securities using a
method which approximates the level yield method. Gain or loss
on the sale of investment securities, if any, are based on the
specific identification method.
44
<PAGE>
RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NINE MONTHS ENDED JUNE 30, 1994 AND 1993
- --------------------------------------------------------------------------------
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement No. 114 "Accounting by Creditors for the Impairment of a
Loan" which effective for fiscal years beginning after December 15,
1994. Statement No. 114 addresses the methods to be used by a creditor
to measure the impairment of a loan and the proper recognition of a
change in the value of an impaired loan. Management believes that the
effect of adopting this statement on Reliable's consolidated financial
statements would not be material.
Also in May 1993, the FASB issued Statement No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" which is effective
for fiscal years beginning after December 15, 1993. Statement No 115
addresses the definition of, accounting for and disclosure of debt and
equity securities. In accordance with this statement, securities will
be classified into and accounted for based on three distinct
categories: securities held to maturity, securities available for sale
and trading securities. Management is currently evaluating the impact
of this statement on Reliable's consolidated financial statements.
NOTE 6. RECLASSIFICATIONS
Certain items previously reported in the September 30, 1993
consolidated financial statements have been reclassified to conform
with the current quarter's classifications. These reclassifications
have no effect on net income.
NOTE 7. PENDING MERGER TRANSACTION
On April 21, 1994, the registrant entered into a definitive agreement
to be acquired by First Commonwealth Financial Corporation ("FCFC") of
Indiana, Pennsylvania. FCFC was incorporated in Pennsylvania in 1982
and is registered as a bank holding company which is currently
affiliated with 7 wholly owned bank subsidiaries. In addition, FCFC
owns a data processing subsidiary and a trust company subsidiary both
headquartered in Indiana, Pennsylvania an FCFC also has joint venture
interest in a credit life insurance company. Through its subsidiary
banking network, FCFC traces its banking origins to 1880 and conducts
its business through 69 community banking offices in 51 communities
throughout 14 countries of central and western Pennsylvania. FCFC has
total assets of approximately $2 billion and employs over 900 persons.
The share of FCFC are traded on New York Stock Exchange under the
symbol "FCF".
The agreement provides for the issuance of 1.6 shares of FCFC's common
stock for each share of the registrant's common stock. It is
anticipated that the acquisition will be accounted for as a pooling of
interests.
45
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(FCFC, United and Reliable)
June 30, 1994
(Unaudited)
The following unaudited Pro Forma Combined Balance Sheet combines the
historical balance sheets of First Commonwealth Financial Corporation ("FCFC"),
United National Bancorporation ("United") and Reliable Financial Corporation
("Reliable") as if the mergers had become effective on June 30, 1994. This
balance sheet should be read in conjunction with the First Commonwealth
Financial Corporation Consolidated Financial Statements, the United National
Bancorporation Consolidated Financial Statements and the Reliable Financial
Corporation Consolidated Financial Statements and the notes thereto appearing
elsewhere in this Form 8-K. See "Certain Information About the Pro Forma
Combined Financial Data."
The merger between FCFC and United was a separate and independent transaction
from the merger between FCFC and Reliable. The consummation of the Reliable
merger was not a condition precedent to the United merger, and the consummation
of the United merger was not a condition precedent to the Reliable merger.
<TABLE>
<CAPTION>
As Reported
----------------------------------
FCFC United Reliable Pro Forma
6/30/94 6/30/94 6/30/94 Adjustments Combined
-------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................... $ 50,766 $ 3,937 $ 748 $ 55,451
Investment securities............................. 805,925 19,492 45,000 870,417
Money market investments.......................... 397 1,454 15,530 17,381
Loans, net........................................ 1,057,637 118,008 86,718 1,262,363
Premises and equipment............................ 22,248 2,545 2,456 27,249
Other assets...................................... 44,024 2,538 903 47,465
---------- -------- -------- ---------- ----------
Total assets.............................. $1,980,997 $147,974 $151,355 $ -0- $2,280,326
========== ======== ======== ========== ==========
LIABILITIES
Deposits.......................................... $1,621,015 $133,069 $116,415 $1,870,499
Short-term borrowings............................. 157,020 673 -0- 157,693
Other liabilities................................. 13,892 1,639 4,223 19,754
Long-term debt.................................... 7,639 -0- -0- 7,639
---------- -------- -------- ---------- ----------
Total liabilities......................... 1,799,566 135,381 120,638 2,055,585
SHAREHOLDERS' EQUITY
Common stock...................................... 18,642 1,923 15 (a) (1,938) 22,437
(a) 3,795
Additional paid-in capital........................ 74,556 4,115 13,657 (a) (17,772) 90,471
(a) 15,915
Retained earnings................................. 101,492 6,780 18,043 (a) (998) 125,317
Treasury stock.................................... -0- -0- (998) (a) 998 -0-
Unrealized gain (loss) on securities
available for sale.............................. (8,527) (225) -0- (8,752)
Deferred compensation............................. (4,732) -0- -0- (4,732)
---------- -------- -------- ---------- ----------
Total shareholders' equity................ 181,431 12,593 30,717 224,741
---------- -------- -------- ---------- ----------
Total liabilities and
shareholders' equity.................. $1,980,997 $147,974 $151,355 $ -0- $2,280,326
========== ======== ======== ========== ==========
Book value per common share....................... $9.73 $16.37 $21.78 $10.02
</TABLE>
(a) Reflects issuance of 1,538,294 shares of FCFC Common Stock for 769,147
shares of United Common Stock, and 2,256,310 shares of FCFC Common Stock for
1,410,194 shares of Reliable Common Stock.
46
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(FCFC, United and Reliable)
(Unaudited)
The following unaudited Pro Forma Combined Condensed Statements of Income for
the six months ended June 30, 1994, and the years ended December 31, 1993, 1992
and 1991 for FCFC and United, and the six months ended June 30, 1994 and the
years ended September 30, 1993, 1992 and 1991 for Reliable combine the
historical statements of income of FCFC, United and Reliable as if the mergers
had become effective on January 1, 1991 as described in "Certain Information
About the Pro Forma Combined Financial Data." Pro forma net income and net
income per share were calculated before the cumulative effect of accounting
changes. These income statements should be read in conjunction with the First
Commonwealth Financial Corporation Consolidated Financial Statements, the United
National Bancorporation Consolidated Financial Statements, the Reliable
Financial Corporation Consolidated Financial Statements and the related notes
thereto appearing elsewhere in this Form 8-K.
The merger between FCFC and United was a separate and independent transaction
from the merger between FCFC and Reliable. The consummation of the Reliable
merger was not a condition precedent to the United merger, and the consummation
of the United merger was not a condition precedent to the Reliable merger.
<TABLE>
<CAPTION>
Six Months Years Ended December 31,
Ended -------------------------------------
June 30, 1994 1993 1992 1991
------------- ----------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans....................... $ 51,875 $ 106,079 $ 105,971 $ 103,232
Interest and dividends on investment securities.. 24,979 48,360 47,164 41,337
Interest on money market securities.............. 62 761 2,710 5,942
----------- ----------- ----------- -----------
Total interest income........................ 76,916 155,200 155,845 150,511
----------- ----------- ----------- -----------
Interest expense
Interest on deposits............................. 29,604 63,192 71,706 80,400
Interest on short-term borrowings................ 3,234 3,639 1,753 1,570
Interest on long-term debt....................... 236 456 454 456
----------- ----------- ----------- -----------
Total interest expense....................... 33,074 67,287 73,913 82,426
----------- ----------- ----------- -----------
Net interest income.......................... 43,842 87,913 81,932 68,085
Provision for possible loan losses............... 1,410 2,920 3,744 5,401
----------- ----------- ----------- -----------
Net interest income after provision
for possible loan losses................... 42,432 84,993 78,188 62,684
Net security gains.............................. 1,800 3,528 955 711
Other income.................................... 5,484 10,972 9,410 7,497
Other expenses.................................. 30,302 59,367 54,958 46,050
----------- ----------- ----------- -----------
Income before taxes.......................... 19,414 40,126 33,595 24,842
Applicable income taxes......................... 6,412 12,461 9,246 6,243
----------- ----------- ----------- -----------
Net income................................... $ 13,002 $ 27,665 $ 24,349 $ 18,599
=========== =========== =========== ===========
Average common shares outstanding................... 21,410,953 22,461,272 21,978,270 20,899,175
Net income per share................................ $0.61 $1.23 $1.11 $0.89
</TABLE>
47
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: October 5, 1994
FIRST COMMONWEALTH FINANCIAL CORPORATION
By: /S/JOHN J. DOLAN
----------------------------------
John J. Dolan
Sr. Vice President, Comptroller
and Chief Financial Officer
