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USBANCORP, INC.
USBANCORP, INC.
1996 ANNUAL REPORT
AND FORM 10-K
CONTENTS
Financial Highlights at a Glance 2
Financial Highlights 3
Shareholder Information at a Glance 4
Message to the Shareholder 5
Service Area Map 14
Consolidated Balance Sheet 17
Consolidated Statement of Income 18
Consolidated Statement of Changes in Stockholders' Equity 19
Consolidated Statement of Cash Flows 20
Notes to Consolidated Financial Statements 23
Statement of Management Responsibility 45
Report of Independent Public Accountant 46
Market Price and Dividend Data 48
Selected Five-Year Consolidated Financial Data 49
Selected Quarterly Consolidated Financial Data 50
Management's Discussion and Analysis 51
Form 10-K 72
USBANCORP Directors and General Officers 92
Subsidiaries' Directors, General Officers, and Advisory Boards 93
Office Locations 96
Shareholder Information Inside Back Cover
Graph Data Points Annex A
1
FINANCIAL HIGHLIGHTS AT A GLANCE
See Annex A
2
FINANCIAL HIGHLIGHTS
% Increase
1996 1995 (Decrease)
FOR THE YEAR (In thousands, except per share and ratio data)
Net interest income $ 61,138 $ 56,147 9
Net income 20,019 15,803 27
Performance ratios:
Return on average assets 1.03% 0.87% 18
Return on average equity 13.36 11.03 21
Net interest margin 3.52 3.45 2
Net charge-offs as a percentage of
average loans, net of unearned income 0.20 0.08 150
Loan loss provision as a percentage of
average loans, net of unearned income 0.01 0.03 (67)
Efficiency ratio 63.39 66.97 (5)
PER COMMON SHARE
Net income:
Primary $3.83 $2.88 33
Fully diluted 3.81 2.87 33
Cash dividends declared 1.37 1.06 29
Dividend payout ratio 35.28% 36.43% (3)
Price earnings ratio 10.96x 11.50x (5)
AT PERIOD END
Total assets $2,087,112 $1,885,372 11
Investment securities:
Available for sale 455,890 427,112 7
Held to maturity 546,318 463,951 18
Loans and loans held for sale,
net of unearned income 939,726 834,634 13
Allowance for loan losses 13,329 14,914 (11)
Goodwill and core deposit intangibles 21,478 23,838 (10)
Deposits 1,138,738 1,177,858 (3)
Stockholders' equity 151,917 150,492 1
Trust assets (discretionary and
non-discretionary) 1,157,072 1,043,001 11
Non-performing assets 8,671 9,426 (8)
Non-performing assets as a percentage of
loans and loans held for sale,
net of unearned income, and other
real estate owned 0.92% 1.13% (19)
Capital ratios:
Common equity 7.28 7.98 (9)
Total risk-based 14.16 14.88 (5)
Asset leverage 6.51 6.65 (2)
Per common share:
Book value $29.90 $28.34 6
Market value 41.75 33.00 27
Market price to book value ratio 139.63% 116.44% 20
Assets per employee $2,588 $2,417 7
STATISTICAL DATA
AT YEAR END (Amounts not rounded)
Full-time equivalent employees 759 742 2
Branch locations 44 45 (2)
Common shareholders 6,246 6,212 1
Common shares outstanding 5,081,004 5,310,489 (4)
NASDAQ Symbol: UBAN
3
Shareholder Information - at a glance
See Annex A
4
MESSAGE TO THE
SHAREHOLDER
Dear Shareholder:
The record success your Company has achieved in 1996 is
particularly satisfying in light of the demanding goals
I originally communicated to you in our 1995 Annual
Report. These goals provided a clear focus for striking
a productive "partnership for success" among
shareholders, customers, and employees while creating
an improving value for each.
DEMONSTRATING A COMMITMENT TO SHAREHOLDER VALUE
I am pleased to report to you that key 1996 strategies
to improve earnings performance and to reposition your
company to effectively compete in an ever changing
financial services environment have resulted in
improved value to you our shareholder. The
implementation of a flexible marketing and sales
strategy, combined with a balanced approach between new
business generation and expense control, resulted in a
1996 ROE of 13.4%. Our increasing earnings momentum
throughout the year created a fourth quarter 1996 ROE
of 14.4% which strengthens your Company's position for
further ROE enhancement in 1997 and beyond.
The ability to improve our earnings performance
contributed to a growing Earnings Per Share ("EPS") for
the full year 1996. Our stated goal was to achieve an
annualized EPS growth rate in the 15% to 20% range. For
1996, your Company far exceeded this goal by reporting
a record fully diluted EPS of $3.81 - or a growth of
32.8% compared to 1995. Your Company's ability to
execute strategies to generate more revenue from our
core banking business was the key driver of the 1996
EPS growth and also contributed to an improved
efficiency ratio. By the fourth quarter of 1996, the
efficiency ratio had improved to 61.4% compared to an
average of 67% in 1995. Your Company is well positioned
to further improve this ratio to below 60% by the end
of the second quarter of 1997 which is within the time
frame I had pledged in my message to you last year.
The 32.8% growth in EPS achieved in 1996 is even more
impressive when you consider the fact that our
financial results included a special assessment to
recapitalize the Savings Association Insurance Fund
("SAIF"). This Congressionally mandated special
assessment amounted to $1.3 million on an after-tax
basis and reduced our 1996 EPS by $0.26. One positive
outcome from this SAIF legislation is that we will now
be able to consolidate our Western Region Banks - Three
Rivers Bank and Community Savings Bank - into one bank
in 1997 without any negative tax consequences.
Additionally, the one time special assessment will be
recovered over a three to four year period in the form
of lower insurance premiums on deposits insured by the
SAIF.
The investment community demonstrated an increasing
confidence in your Company's ability to improve
earnings performance through the execution of
strategies outlined in my message to you last year.
Published analyst research reports, which accurately
detailed our significant success in advancing towards
our pre-stated goals, contributed to increased investor
confidence and an improved 1996 stock price. The price
at year end 1996 reached $41.75 per share - a 26.5%
improvement compared to the end of year 1995. The stock
price appreciation created an additional $46 million in
wealth for you our shareholders. Common dividends
totalled approximately $7.1 million for 1996 and
treasury stock repurchases totalled $8.5 million,
resulting in 78% ($15.6 million) of 1996 corporate net
income being distributed back to our shareholders.
These 1996 actions confirm your Company's commitment to
providing a progressive total shareholder return.
5
This increasing value created for shareholders was
achieved through the leadership of the management team
I introduced to you in 1995. These leaders embraced our
mission and passionately executed key strategies and
tactics which resulted in our record 1996 successes.
Through their vision and demonstrated work ethic they
motivated employees to join them in "rolling up their
sleeves" and to work as a team to achieve our goals.
The leaders are Orlando B. Hanselman, President and
Chief Executive Officer for U.S. Bank; W. Harrison
Vail, President and Chief Executive Officer for Three
Rivers and Community Savings Bank; Ronald W. Virag,
President and Chief Executive Officer of USBANCORP
Trust Company; and Kevin O'Neil, President and Chief
Executive Officer for Standard Mortgage Corporation of
Georgia. This management team facilitated the shift to
a flatter, more flexible customer-driven organization
throughout 1996, one which is capable of supporting
"real time" decision-making autonomy at all levels of
the organization. Their hands-on, action oriented
approach to our goals is evidenced by the results of
1996, and by the challenging strategic vision we share
for future success.
IMPROVING CUSTOMER VALUE WITH CONVENIENCE
Listening and responding to customer feedback has
directed your leadership team in the implementation of
value-added customer services. Customers have
communicated their wishes through processes first
introduced in late 1995, such as the Dazzled Or
Disappointed process and the ongoing President's Branch
Visits. Your leadership team has acted on this valuable
feedback by improving our responsiveness to customer
needs, exploring profitable ways to enhance our
products, and raising the level of service beyond that
offered at competing banks. These actions strengthened
our relationships with existing customers and
encouraged more new customers to select us as their
"Bank of Choice."
Customer feedback is the driving force behind the
implementation of the successful "high-touch" customer
service positioning strategy first introduced during
the last half of 1995. This large scale change to the
processes by which we measure the quality of our
service has produced impressive results in 1996. Driven
by the knowledge that customers respond positively to
flexibility and speed from our delivery system, your
leadership team intensified efforts to close the gap
between our current service and total customer
satisfaction. The following high-touch, medium-tech
strategies were employed in 1996 to close this gap.
Expanding The Place And Time Of Delivery
Loan revenues improved significantly in 1996 due to the
implementation of strategic initiatives designed to
demonstrate our commitment to customer convenience. The
introduction of the Sales Blitz and Neighborhood
Canvassing programs created face-to-face customer sales
contacts between our sales people and potential
customers. The Canvassing program was staffed almost
entirely with a cross-section of employee volunteers.
Both programs emphasized to our service communities
that we were willing to outwork our competition by
literally bringing bank services directly to the
customer at a location and time convenient to them.
Customers responded to this value-added approach to
customer service. U.S. Bank branch leaders made more
than 3,200 Sales Blitz calls outside the branch office
in 1996. New commercial and consumer loan business was
secured within 90 days on 35% of these calls.
6
Branch-generated commercial loans
for 1996 improved 220% over the previous year. Branch
consumer lending increases of 148% for closed end home
equity loans, 102% for direct auto loans, 60% for
mortgage loans, and 26% for other installment loans
emphasize the importance of flexible service for the
creation of new business. The Western Region banks'
introduction of the Sales Blitz and Neighborhood
Canvassing initiatives in the last half of 1996 offered
the added strategic advantage of increasing community
awareness for our two suburban Pittsburgh banks
competing within a metropolitan area where the
alternative media advertising costs are extremely high.
I am pleased to report that our 1996 consumer and
commercial loan originations through the retail
delivery system have exceeded our targeted goal.
The consolidation of Community Savings Bank into Three
Rivers Bank on July 4, 1997, will give Western Region
customers more banking location options. After this
date, customers can make all their banking transactions
at any Three Rivers Bank or former Community Savings
Bank office. The consolidation will achieve three
long-range goals: 1) To provide a unified marketing and
sales approach for the Western Region which will lead
to a higher state of customer awareness as we continue
to introduce new products, services and customer
advantages in the highly competitive Pittsburgh market,
2) To expand the variety of products offered by
continuing our transition from a savings bank to a
full-service commercial bank, and 3) To improve
customer convenience by allowing customers to now
perform all banking transactions at any of the 24
Western Region locations.
Expanding Methods Of Delivery
The Loan Patrol initiative enhances our high-touch
positioning by incorporating loan requests by phone
with our willingness to deliver services directly to a
customer's home or office. Marketing resources were
directed at the 18-54 year old customer, and the
success of the message is found in the loan
improvements of 1996. Phone-originated banking
contributed to a 53% increase in direct consumer loan
volume at U.S. Bank and provided the bank with another
means to prove its commitment to convenience. The added
value of the Loan Patrol to our customers is evident in
the fact that 40% of the U.S. Bank loan request phone
calls were received after traditional banking hours. In
the Western Region, the Loan Patrol and the new
Telemarketing Center contributed to increased consumer
loan growth of 38% after only six months of operation.
The success of the Sales Blitz, Neighborhood Canvassing
and Loan Patrol in delivering banking services to the
customer was followed by a review of current branch
operating hours. A cross functional high performance
work team recommended the expansion of office hours in
select high-traffic locations. The result was expanded
weekend hours and Sunday operating hours within
high-traffic mall branches.
U.S. Bank's commitment to customer convenience,
high-touch service, and technology will reach new
heights in 1997 with the introduction of our market
area's first "mobile branch" office. The mobile branch
will be one of only 40 full-service branch-on-wheels in
the country. U.S. Bank - the largest bank in its mostly
rural, four county marketplace - will operate the
mobile branch to bring more convenience to our current
customers while providing expanding business
opportunities in growth areas of our market. The mobile
branch will provide the capability to test new market
locations prior to any investment in brick and mortar.
A mobile branch office is a perfect match with our
mission of high convenience, high-touch service, and
our intent to outwork the competition.
7
Optimizing The Retail Delivery System To Increase
Commercial Business
The Small Business Loan Center - operating for its
first full year in 1996 - forged a productive working
process with the retail delivery channels at all
affiliate banks. The Center's centralized processing
ability enables the retail delivery system to
effectively sell commercial loans of under $250,000
within the branch office. The Center processed more
than 929 in-branch commercial loan applications
resulting in approvals for 688 customers seeking small
business commercial loans. The Small Business Loan
Center accounted for over $40 million in new loans in
1996 and provided more than $16 million in larger loan
referrals to the middle market commercial lending
group. Operating as a team to increase sales, the
affiliate retail segments improved the volume of new
demand deposit accounts by 4% in 1996 - an improvement
which was significantly impacted by the new cross
selling opportunities presented to the retail segment
by the Small Business Loan Center.
The lending success of the Small Business Loan Center
and the retail delivery system freed the Commercial
Middle Market segment operation to concentrate their
efforts on larger commercial lending customers. This
redistribution of commercial responsibilities allowed
the middle market segment to contribute a record $202
million in loan originations to the loan to deposit
ratio success for 1996. In addition to the overall loan
growth, a mix shift within the loan portfolio towards
higher yielding commercial loans has improved loan
portfolio yields. At December 31, 1996, total
commercial and commercial mortgage loans comprised
43.1% of total loans, compared to 33.9% at the end of
1995. As a result of the successes achieved in both
commercial and consumer lending, our loan to deposit
ratio significantly improved from 70.9% at the end of
1995 to 82.5% by the end of 1996.
Improving Technology To Enhance Product Delivery
The high-touch approach to customer service in 1996 was
enhanced through the addition of technology which
provides easy access to our current retail delivery
system. This technology has provided electronic options
for routine banking transactions, freeing our customer
service representatives to provide more high-touch
contact for those customers who value personal service.
TellerPhone Banking, originally introduced in late
1995, allows customers to access their account
information 24 hours a day, 365 days a year. An average
of 10,000 customer TellerPhone calls per month were
received in 1996, allowing retail delivery sales staff
to concentrate on the development of profitable new
business. An even higher state of technology was
applied to this successful service with the fourth
quarter introduction of PC TellerPhone Banking for
customers operating a personal computer with a modem.
The Western Region introduced another form of
technology which helps build profitable relationships
through enhanced customer service. Platform automation
for loan transactions has been in use since the third
quarter of 1996, and deposit service automation will be
operational during the first quarter of 1997. Service
representatives are equipped to access and review one
complete customer profile which verifies every account
relationship, and to immediately identify possible
cross-selling opportunities at the point of sale. This
information is valuable to our newly empowered
front-line sales people, who can make immediate sales
decisions on their own during any sales session.
Customer convenience was further enhanced in the
Western Region with the introduction of a debit card
product. Customers can deduct payments directly from
their checking or savings account by simply presenting
their debit card at any business which accepts the VISA
credit card.
8
More than 3,000 fee-generating debit card
transactions were made by Three Rivers Bank and
Community Savings Bank customers during the first three
weeks after the introduction of the debit card. A late
1997 introduction of the debit card product is
scheduled at U.S. Bank.
Access to banking services during non-traditional
banking hours was improved with the addition of
automatic teller machines ("ATM"s) in new service
areas. For 1997, affiliate banks have the goal of
operating at least one ATM within every community
served by our bank offices.
Your Company's success with the Loan Patrol,
TellerPhone Banking, platform automation, the debit
card product, and more automated teller machines
reaffirms our belief that the market will embrace
technology and is eager to use these convenient new
customer service options. The time-savings benefit of
this technology is being reinvested back into the
retail delivery system to produce new business, more
profitable banking relationships, and improved revenue.
Management will continue to explore technology with the
capabilities to enhance our "high-touch" delivery
system and to increase business. This commitment to
technology has led to the first ever Five-Year
Technology Plan for your Company. A balanced approach
to achieving operational efficiencies through
technology, while maintaining high-touch customer
services, is the focus of our Plan. In the next phase
of our technological evolution, your Company will
maintain our high-touch customer service and gradually
implement new technologies that will complete the
transition from medium-tech to high-tech servicing.
CREATING VALUE FOR OUR EMPLOYEES
The high-touch positioning is linked to the career
satisfaction of our employees, making our mission a
mutually beneficial partnership for success. Employees
demonstrated their ability to impact our mission by
accepting the 13% ROE challenge and working together as
a focused team to achieve the ROE goal well before the
end of 1996. The implementation of the following key
strategies helped create value for our employees in
1996.
Expanding Decision Making Autonomy At All Levels: Your
Company has taken steps to enhance career satisfaction
by encouraging our employees to exercise greater
decision making autonomy and to expand their current
responsibilities. Increased employee input has resulted
in a greater "ownership" for each new initiative, such
as the Sales Blitz and Neighborhood Canvass, and raises
the level of employee commitment to achieving key
strategic goals. The newly empowered employee has the
flexibility to adjust rates, immediately respond to
customer requests and to contribute to the future
direction of the bank. Employee involvement in
evaluating and responding to improvement opportunities
is created through employee-driven high performance
work teams which review and recommend service process
improvements.
Increasing Learning To Advance The Mission: Employees
are better prepared to execute the mission as a result
of training which has a direct impact on meeting
strategic objectives. During 1996, skills based
training increased by 300% over 1995. This increase is
a result of more flexible training alternatives such as
video learning centers, self study modules, and PC
training. As I pledged to you last year, we have
developed and are now implementing in-house
certification programs for product management,
supervision and leadership programs. The High
Achiever's Forum at U.S. Bank prepares mid-level
managers for a successful transition into
leadership roles.
9
By the end of 1996, nearly half the
forum participants were promoted to positions of
increased leadership responsibilities. For 1997, your
Company will assess the product learning needs of our
employees and develop an in-house certification program
to enhance the sales abilities of our front-line
employees. We have increased our training budget to
keep pace with the expanding employee responsibilities
created by the high-touch, medium-tech approach to
service.
Rewarding Performance: The shared sacrifice program of
1996 contributed to reduced expenses and demonstrated
employee commitment to improving performance and
achieving an ROE of 13%. Employees were, however, given
the opportunity to earn "Dazzle Dollars" which could be
redeemed for corporate merchandise or a gift
certificate from local merchants. These Dazzle Dollars
were awarded for work outside the scope of standard job
responsibilities and for extraordinary customer service
efforts. The record performance documented by year end
1996 led to the development of a performance based
incentive compensation program for employees at all
organizational levels. On January 21, 1997, employees
received an incentive reward for their 1996
contributions to your Company's success. This is the
first step in expanding our performance based incentive
compensation program, the goal I pledged to our
employees.
IMPROVING NET INCOME THROUGH NON-AFFILIATE BANKING
USBANCORP Trust Company contributed to improved
performance for your Company by generating total trust
revenue of $3.7 million for 1996. Net income for the
Trust Company continued its positive upward trend for
1996, increasing by 22% over 1995. The 9.2% increase in
trust revenues over 1995 was led by the strong growth
of the Trust Company's 401(k) product line and improved
performance in the institutional trust area. By year
end 1996, more than $12 million in pre-need funeral
home trusts were booked, making the outlook for
business expansion in this new product line a priority
for 1997. In addition, the Trust Company developed a
new integrated demand deposit and money market sweep
account which by year end achieved $10 million in
managed assets, with $25 to $50 million in sweep
assets.
Your Company's mortgage servicing affiliate, Standard
Mortgage Corporation of Georgia, headquartered in
Atlanta, achieved a record year in both profitability
and residential mortgage loan production. Net income
after taxes for 1996 reached $1.3 million, representing
a 26% increase over 1995, with an average return on
equity of 14%. Standard Mortgage closed more than $211
million in residential mortgage loans in 1996. These
closings resulted in a $680,000 increase in loan
origination fees, processing fees, and gains or sales
of mortgage loans when compared to 1995. The increase
in production volume was influenced by a relatively
stable and affordable interest rate environment, a
continued robust economy in the southeastern states,
new loan products and geographical expansion. For the
first time in 1996, Standard Mortgage originated
government insured loans and began origination activity
in the suburban Washington, D.C. area, resulting in $9
million in volume in three months. The mortgage
servicing portfolio remained stable during 1996 at
nearly $1.4 billion, which includes the servicing of
26,000 loans. Standard Mortgage will emphasize
expansion into government-controlled markets and into
new suburban Washington, D.C. and Georgia markets with
a 1997 goal of attaining $280 million in loan
originations.
10
GROWING THE FRANCHISE
THROUGH INNOVATIVE LINES OF BUSINESS
Your Company is committed to continually enhancing our
retail delivery system's sales performance as a
strategic direction for providing a progressive
shareholder return. For 1997, your Company will explore
new opportunities to create increased earnings
performance within a changing bank environment. Our
goal is to increase revenues and further improve return
on equity, while diversifying our income stream by
creating additional sources of non-interest income.
Analysis of banking trends, and the needs of our
current and potential customers, has led your Company
to introduce three new enterprises. Insurance and
annuity sales, the Three Rivers Mortgage Company, and
UBAN Associates, Inc., represent our first cautious
steps toward growing the franchise through innovative
new lines of business.
Expanding Retail Delivery System Products
The sale of insurance and annuities through the retail
system at all affiliate banks is an important tactical
step forward as your Company expands its retail product
offerings to include life insurance, annuities, and
mutual funds. These new products will be sold through
the affiliate banks beginning in the fourth quarter of
1997. This expansion to our retail product offerings
will generate improving customer sales volume and fee
income through our retail delivery system of community
branch offices, TellerPhone, the mobile branch, and
Loan Patrol home delivery. Your Company's Five Year
Strategic Plan (1997-2001) specifies the development of
increasing sales through existing delivery channels.
The sales of insurance and annuities meets this
objective, complements the current product offering,
and will position our banking affiliates to be the
"primary financial service provider of choice" for the
critical 18-34 year old target demographic group with
investible money between $1,000 and $15,000. Timothy D.
McDonald, the newly appointed Vice President of Life
Insurance and Annuities at U.S. Bank, has extensive
experience in U.S. Bank's existing retail delivery
system having served as the affiliate's Vice President
of Retail Banking - Northern Region, until his most
recent promotion. Prior to joining U.S. Bank, McDonald
built a successful career outside the banking industry
with a national life insurance company, making him
uniquely qualified for this new U.S. Bank position. In
addition to generating fee income, the sale of
insurance and annuities will provide customers with
more product variety and will contribute to sustaining
long-term growth from the existing retail delivery
system.
Western Region Mortgage Company
The Three Rivers Mortgage Company will begin operations
in the first quarter of 1997. Immediate savings are
expected as both the Three Rivers Bank and Community
Savings Bank mortgage operations are consolidated with
the opening of the Three Rivers Mortgage Company. Three
Rivers Mortgage Company President James Lomeo has built
an impressive reputation in the Pittsburgh market over
the past 12 years, previously serving as CEO of one of
the more successful independent mortgage companies in
Allegheny County. The new affiliate's success in
originating and selling mortgages on the secondary
market - while targeting new markets outside our
standard service area where there is strong mortgage
growth potential - will improve our ability to generate
increasing fee income.
11
This mortgage expansion strategy into new markets is similar
to the growth strategy employed by affiliate Standard
Mortgage Corporation of Georgia, which enjoyed a record
year of growth in both mortgage originations and fee
income. The Western Region Mortgage Company expects to
return start up costs during 1997, and will begin to
contribute to our profitability in 1998.
Providing Services To New Markets
UBAN Associates, Inc., offers the greatest potential
for attracting an entirely new customer base. The
registered investment advisory firm administers
investment portfolios, offers operational support
systems and provides asset and liability services to
small and mid-sized community banks as well as savings
and loans. Ray M. Fisher, formerly USBANCORP's Chief
Investment Officer, will direct the new firm. Fisher,
who has been in banking for 25 years, has gained
experience in areas which make him uniquely qualified
to lead UBAN Associates. These areas of expertise
include investment portfolio management, asset
liability management, accounting, and balance sheet
leveraging. An experienced investment staff was
selected from existing USBANCORP, Inc., employees,
emphasizing our commitment to provide expanding
promotional opportunities for our people. The precedent
for this type of service comes from the insurance
industry, where firms are electing to out-source their
investment management operations, rather than
self-investment. UBAN Associates management expects the
banking industry to duplicate this transition in the
years ahead. In addition, recent banking forecasts
reveal that many smaller community banks will remain
independent and will rely on their "hometown" bank
image to succeed. UBAN Associates delivers to these
community banks the same investment resources used by
larger financial institutions such as liquidity
management, cash flow and net interest margin
administration, and hedging capabilities for managing
interest rate risk. As a result, the smaller community
bank can direct their limited resources toward
maintaining personal service, while improving
investment performance. The goal for UBAN Associates is
to create fee income by servicing at least three
financial institutions by the third quarter of 1997,
and to deliver value to an entirely new customer base.
EARNING A LEADERSHIP ROLE IN THE COMMUNITY
Employees have added credibility to our high-touch
positioning within the communities and neighborhoods
where they live and work. Your leadership team donates
their expertise to the communities where they work, and
actively promotes community involvement to our
employees. This "leadership role" in community
development and volunteerism has demonstrated to our
service communities that your Company is earning the
reputation as caring neighbors. An average of 400
community service and civic organizations benefit as a
result of the more than 10,000 hours donated by
employees at all levels.
U.S. Bank was the primary sponsor of the largest annual
event in Cambria County - the 1996 Johnstown FolkFest.
More than 130 employees, their families and friends
comprised the largest group of volunteers for the Labor
Day weekend festival. USBANCORP shares the talents of
the organization's skilled managers through a Speaker's
Bureau which was introduced in 1996. Company managers
and technicians from all levels are volunteering their
expertise and are speaking before civic and non-profit
groups to present your Company as a knowledgeable
business leader in the community. This commitment to
our communities is on record, as all of your Company's
affiliate banks enter 1997 with an "outstanding"
Community Reinvestment Act ("CRA") rating.
12
BUILDING ON OUR MOMENTUM FOR 1997 AND BEYOND
Throughout 1997 and into 1998, each banking affiliate
will strengthen its position as the Bank of Choice, and
will continue the momentum they have built towards a
high-touch, medium-tech service delivery system.
Management's goals for 1997 and beyond will remain
focused on creating value for shareholders, customers
and employees.
For shareholders our goals are to:
Achieve a sustainable Return On Equity which is in the
top quartile of our peer group. Entry into this
quartile of high performing banks would require a
minimum ROE of 15%.
Achieve an annual total shareholder return
approximating 15-20%.
Continue to optimally leverage the organization to
maximize shareholder value through stock repurchases,
dividend payments, loan growth, proactive management of
the investment securities portfolio, and the entry into
promising new lines of business.
For customers our goals are to:
Continue to foster the delivery of a high-touch
approach to servicing the needs of each customer.
Leverage technology, such as new ATM locations,
TellerPhone and a mobile branch office, to make banking
more convenient to the customer.
Expand our current product line to offer insurance and
annuities to position our banks as the "primary
financial service provider of choice."
For employees our goals are to:
Provide the opportunity for skills-based training to
add value and satisfaction to their work.
Introduce a performance-based evaluation system which
correctly measures each employee's contribution towards
improving value for our shareholders and customers.
Continue to enhance career satisfaction through greater
decision-making autonomy and expanded responsibilities.
Management and employees are proud of the achievements
we have recorded in 1996. Your Company's improved
performance and the initiatives set into place during
the past year provide the foundation for steady
improvement and sustained growth into the next century.
I want to thank our dedicated employees and directors
for their tireless efforts and you, our shareholder,
for your continued support.
/s/Terry K. Dunkle
Terry K. Dunkle
Chairman, President & CEO
USBANCORP, Inc.
13
See Annex A - for Service Area Map presented on this page.
14
Financial Statements - divider page
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CONSOLIDATED BALANCE SHEET
At December 31 1996 1995
(In thousands)
ASSETS
Cash and due from banks $ 43,183 $ 45,771
Interest bearing deposits with banks 1,218 647
Federal funds sold and securities purchased
under agreements to resell - 13,750
Investment securities:
Available for sale 455,890 427,112
Held to maturity (market value $549,427 on
December 31, 1996, and $471,191 on December 31, 1995) 546,318 463,951
Assets held in trust for collateralized mortgage
obligation 5,259 7,099
Loans held for sale 14,809 5,224
Loans 929,736 832,126
Less: Unearned income 4,819 2,716
Less: Allowance for loan losses 13,329 14,914
Net loans 911,588 814,496
Premises and equipment 18,201 18,588
Accrued income receivable 17,362 16,752
Mortgage servicing rights 12,494 11,372
Goodwill and core deposit intangibles 21,478 23,838
Bank owned life insurance 32,451 30,872
Other assets 6,861 5,900
TOTAL ASSETS $2,087,112 $1,885,372
LIABILITIES
Non-interest bearing deposits $ 144,314 $ 145,379
Interest bearing deposits 994,424 1,032,479
Total deposits 1,138,738 1,177,858
Federal funds purchased and securities sold under
agreements to repurchase 76,672 63,828
Other short-term borrowings 79,068 30,528
Advances from Federal Home Loan Bank 605,499 428,217
Collateralized mortgage obligation 4,691 6,548
Long-term debt 4,172 5,061
Total borrowed funds 770,102 534,182
Other liabilities 26,355 22,840
TOTAL LIABILITIES 1,935,195 1,734,880
Commitments and contingent liabilities (Note 16)
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 2,000,000 shares
authorized; there were no shares issued and
outstanding on December 31, 1996, and 1995 - -
Common stock, par value $2.50 per share; 12,000,000
shares authorized; 5,742,264 shares issued and
5,081,004 outstanding on December 31, 1996;
5,733,701 shares issued and 5,310,489 shares
outstanding on December 31, 1995 14,356 14,334
Treasury stock at cost, 661,260 shares on December 31,
1996, and 423,212 shares on December 31, 1995 (19,538) (11,007)
Surplus 93,527 93,361
Retained earnings 63,358 50,401
Net unrealized gains (losses) on available for sale
securities 214 3,403
TOTAL STOCKHOLDERS' EQUITY 151,917 150,492
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,087,112 $1,885,372
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF INCOME
Year ended December 31 1996 1995 1994
(In thousands, except per share data)
INTEREST INCOME
Interest and fees on loans:
Taxable $ 72,873 $ 69,019 $ 64,461
Tax exempt 1,560 2,134 2,039
Deposits with banks 132 280 121
Federal funds sold and securities purchased
under agreements to resell 36 165 94
Investment securities:
Available for sale 29,025 22,940 15,531
Held to maturity 33,237 34,621 19,645
Assets held in trust for collateralized mortgage
obligation 470 556 920
Total Interest Income 137,333 129,715 102,811
INTEREST EXPENSE
Deposits 42,060 45,403 34,283
Federal funds purchased and securities
sold under agreements to repurchase 3,888 4,769 4,545
Other short-term borrowings 3,706 2,284 804
Advances from Federal Home Loan Bank 25,952 20,043 6,006
Collateralized mortgage obligation 470 848 1,024
Long-term debt 119 221 331
Total Interest Expense 76,195 73,568 46,993
NET INTEREST INCOME 61,138 56,147 55,818
Provision for loan losses 90 285 (2,765)
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 61,048 55,862 58,583
NON-INTEREST INCOME
Trust fees 3,708 3,395 3,023
Net gains (losses) on loans held for sale 1,060 (124) 763
Net realized gains (losses) on
investment securities 638 702 (3,972)
Gain on disposition of business line - 905 -
Wholesale cash processing fees 1,085 1,154 1,237
Service charges on deposit accounts 3,264 2,937 2,779
Net mortgage servicing fees 2,312 2,555 1,130
Bank owned life insurance 1,574 738 -
Other income 5,048 4,281 3,227
Total Non-Interest Income 18,689 16,543 8,187
NON-INTEREST EXPENSE
Salaries and employee benefits 25,483 25,305 23,311
Net occupancy expense 4,463 4,215 4,133
Equipment expense 3,111 3,292 3,089
Professional fees 2,770 2,570 2,303
Supplies, postage, and freight 2,693 2,608 2,383
Miscellaneous taxes and insurance 1,418 1,414 1,215
FDIC deposit insurance expense 2,561 1,728 2,576
Acquisition charge - - 2,437
Amortization of goodwill and
core deposit intangibles 2,360 2,473 1,805
Other expense 7,615 6,952 6,267
Total Non-Interest Expense 52,474 50,557 49,519
INCOME BEFORE INCOME TAXES 27,263 21,848 17,251
Provision for income taxes 7,244 6,045 5,931
NET INCOME $20,019 $15,803 $11,320
NET INCOME APPLICABLE TO COMMON STOCK $20,019 $15,803 $11,320
PER COMMON SHARE DATA:
Primary:
Net income $3.83 $2.88 $2.18
Average number of common shares outstanding 5,231,587 5,480,527 5,191,885
Fully Diluted:
Net income $3.81 $2.87 $2.18
Average number of shares outstanding 5,252,695 5,499,750 5,191,885
Cash Dividends Declared $1.37 $1.06 $0.97
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Net
Unrealized
Preferred Common Treasury Retained Gains
Stock Stock Stock Surplus Earnings (Losses) Total
(In thousands)
Balance at December 31, 1993 $- $11,815 $ - $70,720 $34,080 $ - $116,615
1994
Net income for the year 1994 - - - - 11,320 - 11,320
Dividend reinvestment and
stock purchase plan - 47 - 408 - - 455
Stock options exercised - 18 - 123 - - 141
Common stock issued to acquire
Johnstown Savings Bank ("JSB")
(957,857 shares at $25.125
per share) - 2,395 - 21,672 - - 24,067
Net unrealized holding losses on
available for sale securities
- - - - - (7,353) (7,353)
Cash dividends declared:
Common stock ($0.22 per share
on 4,737,321 shares;$0.25 per
share on 4,745,247 shares;
$0.25 per share on
5,648,550 shares; and $0.25
per share on 5,617,055 shares) - - - - (5,045) - (5,045)
Treasury stock, 127,700 shares
at cost - - (3,064) - - - (3,064)
Balance at December 31, 1994 - 14,275 (3,064) 92,923 40,355 (7,353) 137,136
1995
Net income for the year 1995 - - - - 15,803 - 15,803
Stock options exercised - 59 - 438 - - 497
Net unrealized holding gains
on available for sale securities - - - - - 10,756 10,756
Cash dividends declared:
Common stock ($0.25 per
share on 5,584,722 shares;
$0.27 per share on
5,531,966 shares; $0.27
per share on 5,304,457
shares; and $0.27 per share
on 5,310,489 shares) - - - - (5,757) - (5,757)
Treasury stock, 295,512
shares at cost - - (7,943) - - - (7,943)
Balance at December 31, 1995 - 14,334 (11,007) 93,361 50,401 3,403 150,492
1996
Net income for the year 1996 - - - - 20,019 - 20,019
Stock options exercised - 22 - 166 - - 188
Net unrealized holding losses
on available for sale securities - - - - - (3,189) (3,189)
Cash dividends declared:
Common stock ($0.27 per
share on 5,266,539 shares;
$0.30 per share on
5,186,989 shares; $0.30
per share on 5,147,403
shares; $0.30 per share
on 5,081,004 shares; and
$0.20 per share on
5,081,004 shares) - - - - (7,062) - (7,062)
Treasury stock, 238,048
shares at cost - - (8,531) - - - (8,531)
Balance at December 31, 1996 $- $14,356 $(19,538) $93,527 $63,358 $214 $151,917
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31 1996 1995 1994
(In thousands)
OPERATING ACTIVITIES
Net income $ 20,019 $ 15,803 $ 11,320
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Provision (credit) for loan losses 90 285 (2,765)
Depreciation and amortization expense 2,564 2,484 2,346
Amortization expense of goodwill and
core deposit intangibles 2,360 2,473 1,805
Amortization expense of mortgage
servicing rights 1,249 1,175 746
Net amortization (accretion) of
investment securities 182 (3,694) (163)
Net realized (gains) losses on
investment securities (638) (702) 3,972
Net realized (gains) losses on loans and
loans held for sale (1,060) 124 (763)
Origination of mortgage loans held for sale (191,299) (102,780) (48,868)
Sales of mortgage loans held for sale 196,238 97,424 34,969
Decrease (increase) in accrued income
receivable (610) 142 (6,145)
Net gain on disposition of business line - (905) -
Increase in accrued expense payable 397 4,773 1,040
Net cash provided (used) by operating
activities 29,492 16,602 (2,506)
INVESTING ACTIVITIES
Purchase of investment securities
and other short-term investments (633,641) (468,096) 616,095)
Proceeds from maturities of investment
securities and other short-term
investments 128,973 108,880 115,474
Proceeds from sales of investment securities
and other short-term investments 389,068 273,118 320,237
Long-term loans originated (348,152) (267,167) (323,409)
Principal collected on long-term loans 240,679 243,965 250,276
Loans purchased or participated (1,614) (31,760) -
Loans sold or participated 663 90,933 78,547
Net (increase) decrease in credit card
receivables and other short-term loans (2,222) 1,670 (6,262)
Purchases of premises and equipment (2,227) (2,383) (2,081)
Sale/retirement of premises and equipment 49 411 17
Net decrease in assets held in trust for
collateralized mortgage obligation 1,840 2,005 4,711
Increase in mortgage servicing rights (2,371) (1,095) -
Cash received from disposition of business
line - 5,644 -
Premium paid to purchase Bank Owned
Life Insurance - (30,000) -
Increase due to JSB acquisition:
Investment securities - - (190,092)
Loans - - (118,150)
Loans held for sale - - (4,063)
Premises and equipment - - (2,422)
Accrued income received - - (1,857)
Mortgage service rights - - (10,360)
Intangible assets - - (25,917)
Other assets - - (8,115)
Net (increase) decrease in other assets (817) (1,601) 3,182
Net cash used by investing activities $(229,772) $(75,476) $(536,379)
(continued on next page)
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
Year ended December 31 1996 1995 1994
(In thousands)
FINANCING ACTIVITIES
Proceeds from sales of certificates
of deposit $ 248,589 $ 386,052 $ 383,260
Payments for maturing certificates
of deposit (272,838) (370,851) (379,456)
Net decrease in demand and savings
deposits (14,871) (33,589) (65,324)
Net increase (decrease) in federal
funds purchased, securities sold
under agreements to repurchase, and
other short-term borrowings 59,527 (124,228) 164,227
Net principal borrowings on advances
from Federal Home Loan Bank 177,282 226,420 103,068
Principal borrowings of long-term debt - 4,800 -
Repayments of long-term debt (889) (5,545) (1,564)
Common stock dividends paid (4,522) (7,160) (4,679)
Proceeds from dividend reinvestment and
stock purchase plan and stock options
exercised 188 497 596
Purchases of treasury stock (8,531) (7,943) (3,064)
Increase due to JSB acquisition:
Certificates of deposit - - 102,959
Demand and savings deposits - - 105,941
Other short-term borrowings - - 41,439
Advances from Federal Home Loan Bank - - 65,243
Due to JSB shareholders - - 19,701
Capital - - 24,067
Other liabilities - - 7,512
Cash cost of JSB acquisition - - (19,498)
Net increase (decrease) in other liabilities 578 (3,302) (2,067)
Net cash provided by financing activities 184,513 65,151 542,361
NET (DECREASE) INCREASE IN CASH EQUIVALENTS (15,767) 6,277 3,476
CASH EQUIVALENTS AT JANUARY 1 60,168 53,891 50,415
CASH EQUIVALENTS AT DECEMBER 31 $44,401 $60,168 $53,891
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AT AND FOR
THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Nature of Operations:
USBANCORP, Inc. (the "Company") is a multi-bank holding
company headquartered in Johnstown, Pennsylvania.
Through its banking subsidiaries the Company operates
44 banking offices in six southwestern Pennsylvania
counties. These offices provide a full range of
consumer, mortgage, commercial, and trust financial
products including deposit and credit card services.
These operations represent one industry segment.
Principles of Consolidation:
The consolidated financial statements include the
accounts of the Company and its wholly-owned
subsidiaries, United States National Bank in Johnstown
("U.S. Bank"), Three Rivers Bank and Trust Company
("Three Rivers Bank"), Community Bancorp, Inc.
including its principal subsidiaries, Community Savings
Bank and Standard Mortgage Corporation of Georgia,
("Community"), USBANCORP Trust Company ("Trust
Company"), and United Bancorp Life Insurance Company
("United Life"). Intercompany accounts and transactions
have been eliminated in preparing the consolidated
financial statements. The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the amounts
reported in the consolidated financial statements and
accompanying notes. Actual results may differ from
these estimates.
Investment Securities:
The Company uses Statement of Financial Accounting
Standards ("SFAS") 115, "Accounting for Certain
Investments in Debt and Equity Securities," which
specifies a methodology for the classification of
securities as either held to maturity, available for
sale, or as trading assets. Securities are classified
at the time of purchase as investment securities held
to maturity if it is management's intent and the
Company has the ability to hold the securities until
maturity. These held to maturity securities are carried
on the Company's books at cost, adjusted for
amortization of premium and accretion of discount which
is computed using the level yield method which
approximates the effective interest method.
Alternatively, securities are classified as available
for sale if it is management's intent at the time of
purchase to hold the securities for an indefinite
period of time and/or to use the securities as part of
the Company's asset/liability management strategy.
Securities classified as available for sale include
securities which may be sold to effectively manage
interest rate risk exposure, prepayment risk, and other
factors (such as liquidity requirements). These
available for sale securities are reported at fair
value with unrealized aggregate appreciation
(depreciation) excluded from income and credited
(charged) to a separate component of shareholders'
equity on a net of tax basis. Any security classified
as trading assets are reported at fair value with
unrealized aggregate appreciation (depreciation)
included in current income on a net of tax basis. The
Company presently does not engage in trading activity.
Realized gain or loss on securities sold was computed
upon the adjusted cost of the specific securities sold.
Loans:
Interest income is recognized using methods which
approximate a level yield related to principal amounts
outstanding. The Company's subsidiaries immediately
discontinue the accrual of interest income when loans,
except for loans that are insured for credit loss,
become 90 days past due in either principal or
interest. In addition, if circumstances warrant, the
accrual of interest may be discontinued prior to 90
days. In all cases, payments received on non-accrual
loans are credited to principal until full recovery of
principal has been recognized; it is only after full
recovery of principal that any additional payments
received are recognized as interest income. The only
exception to this policy is for the residential
mortgage loans wherein interest income is recognized on
a cash basis as payments are received. A non-accrual
loan is placed on accrual status after becoming current
and remaining current for twelve consecutive payments
(except for residential mortgage loans which only have
to become current) and upon the approval of the Credit
Committee and/or Board Discount/Loan Committee with
final approval resting with the Chief Accounting
Officer.
Loan Fees:
Loan origination and commitment fees, net of associated
direct costs, are deferred and amortized into interest
and fees on loans over the loan or commitment period.
Fee amortization is determined by either the
straight-line method, or the effective interest method,
which do not differ materially.
Mortgage Loans Held For Sale:
Newly originated 30 year fixed-rate residential
mortgage loans are classified as "held for sale," if it
is management's intent to sell these residential
mortgage loans. Servicing rights are generally retained
on sold loans. The residential mortgage loans held for
sale are carried at the lower of aggregate cost or
market value. Net realized and unrealized gains and
losses are included in "Net gains (losses) on loans
held for sale" in the Consolidated Statement of Income.
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Premises and Equipment:
Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation
is charged to operations over the estimated useful
lives of the premises and equipment using the
straight-line method. Useful lives of up to 45 years
for buildings and up to 12 years for equipment are
utilized. Leasehold improvements are amortized using
the straight-line method over the terms of the
respective leases or useful lives of the improvements,
whichever is shorter. Maintenance, repairs, and minor
alterations are charged to current operations as
expenditures are incurred.
Allowance for Loan Losses and Charge-off Procedures:
As a financial institution which assumes lending and
credit risks as a principal element of its business,
the Company anticipates that credit losses will be
experienced in the normal course of business.
Accordingly, the Company consistently applies a
comprehensive methodology and procedural discipline
which is updated on a quarterly basis at the subsidiary
bank level to determine both the adequacy of the
allowance for loan losses and the necessary provision
for loan losses to be charged against earnings. This
methodology includes:
A detailed review of all criticized and impaired loans
to determine if any specific reserve allocations are
required on an individual loan basis.
The application of reserve allocations for all
commercial and commercial real-estate loans are
calculated by using a two year migration analysis of
net losses incurred within the entire commercial loan
portfolio.
The application of reserve allocations to installment
and mortgage loans which are based upon historical
charge-off experience for those loan types. The
residential mortgage loan allocation is based upon the
Company's five year historical average of actual loan
charge-offs experienced in that category. The same
methodology is used to determine the allocation for
consumer loans except the allocation is based upon an
average of the most recent actual three year historical
charge-off experience for consumer loans.
The application of reserve allocations to all loans is
based upon review of historical and qualitative
factors, which include but are not limited to, national
and economic trends, delinquencies, concentrations of
credit, and trends in loan volume.
The maintenance of a general unallocated reserve of at
least 20% of the systematically determined minimum
amount from the items listed above in order to provide
conservative positioning in the event of any unforeseen
deterioration in the economy. This 20% policy
requirement was mandated by the Board of Directors
after the Company experienced significant credit
quality problems in the period from 1985 to 1989. It
must be emphasized that the Board views this policy as
establishing a minimum requirement only and the
requirement of a general unallocated reserve of at
least 20% of the determined need is prudent recognition
of the fact that reserve estimates, by definition, lack
precision.
After completion of this process, a formal meeting of
the Loan Loss Reserve Committee is held to evaluate the
adequacy of the reserve and establish the provision
level for the next quarter. The Company believes that
the procedural discipline, systematic methodology, and
comprehensive documentation of this quarterly process
is in full compliance with all regulatory requirements
and provides appropriate support for accounting
purposes.
When it is determined that the prospects for recovery
of the principal of a loan have significantly
diminished, the loan is immediately charged against the
allowance account; subsequent recoveries, if any, are
credited to the allowance account. In addition,
non-accrual and large delinquent loans are reviewed
monthly to determine potential losses. Consumer loans
are considered losses when they are 90 days past due,
except loans that are insured for credit loss.
Effective January 1, 1995, the Company adopted SFAS
114, "Accounting by Creditors for Impairment of a Loan"
which was subsequently amended by SFAS 118, "Accounting
by Creditors for Impairment of a Loan-Income
Recognition and Disclosures." SFAS 114 addresses the
treatment and disclosure of certain loans where it is
probable that the creditor will be unable to collect
all amounts due according to the contractual terms of
the loan agreement. This standard defines the term
"impaired loan" and indicates the method used to
measure the impairment. The measurement of impairment
may be based upon: 1) the present value of expected
future cash flows discounted at the loan's effective
interest rate; 2) the observable market price of the
impaired loan; or 3) the fair value of the collateral
of a collateral dependent loan. Additionally, SFAS 118
requires the disclosure of how the creditor recognizes
interest income related to these impaired loans.
The Company's policy is to individually review, as
circumstances warrant, each of its commercial and
commercial mortgage loans to determine if a loan is
impaired. At a minimum, credit reviews are mandatory
for all commercial and commercial mortgage loans with
balances in excess of $250,000 within an 18 month
period. The Company has also identified two pools of
small dollar value homogeneous loans which are
evaluated collectively for impairment. These separate
pools are for residential mortgage loans and consumer
loans. Individual loans within these pools are reviewed
and removed from the pool if factors such as
significant delinquency in payments of 90 days or more,
bankruptcy, or other negative economic concerns
indicate impairment.
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Purchased and Originated Mortgage Servicing Rights:
During the second quarter of 1995, the Company adopted
SFAS 122, "Accounting for Mortgage Servicing Rights."
The Company recognizes as assets the rights to service
mortgage loans for others whether the servicing rights
are acquired through purchases or originations.
Purchased mortgage servicing rights are capitalized at
cost. For loans originated and sold where servicing
rights have been retained, the Company allocates the
cost of originating the loan to the loan (without the
servicing rights) and the servicing rights retained
based on their relative fair market values if it is
practicable to estimate those fair values. Where it is
not practicable to estimate the fair values, the entire
cost of originating the loan is allocated to the loan
without the servicing rights. For purposes of
evaluating and measuring impairment, the Company
stratifies the rights based on risk characteristics. If
the discounted projected net cash flows of a stratum
are less than the carrying amount of the stratum, the
stratum is written down to the amount of the discounted
projected net cash flows through a valuation account.
The Company has determined that the predominant risk
characteristics of its portfolio are loan type and
interest rate. For the purposes of evaluating
impairment, the Company has stratified its portfolio in
200-basis point tranches by loan type. Mortgage
servicing rights are amortized in proportion to, and
over the period of, estimated net servicing income. The
value of mortgage servicing rights is subject to
interest rate and prepayment risk. It is reasonably
possible that the value of these assets will change if
prepayments occur at greater than the expected rate.
The effect of implementing SFAS 122 was the
capitalization of costs of originating mortgage
servicing rights of $693,000 in 1996 and $479,000 in
1995.
Trust Fees:
All trust fees are recorded on the cash basis which
approximates the accrual basis for such income.
Earnings Per Common Share:
The Company uses the treasury stock method to calculate
common stock equivalent shares outstanding for purposes
of determining both primary and fully diluted earnings
per share. Primary earnings per share amounts are
computed by dividing net income, after deducting
preferred stock dividend requirements (if any), by the
weighted average number of common stock and common
stock equivalent shares outstanding. Treasury shares
are treated as retired for earnings per share purposes.
Consolidated Statement of Cash Flows:
On a consolidated basis, cash equivalents include cash
and due from banks, interest bearing deposits with
banks, and federal funds sold and securities purchased
under agreements to resell. For the Parent Company,
cash equivalents also include short-term investments.
The Company made $4,870,000 in income tax payments in
1996; $3,590,000 in 1995; and $3,699,000 in 1994. The
Company made total interest expense payments of
$75,798,000 in 1996; $68,795,000 in 1995; and
$45,953,000 in 1994.
Income Taxes:
As discussed in Note 13, the Company accounts for
income taxes utilizing SFAS 109, "Accounting for Income
Taxes." Under SFAS 109, deferred tax assets or
liabilities are computed based on the difference
between the financial statement and income tax bases of
assets and liabilities using the enacted marginal tax
rate. Deferred income tax expenses or credits are based
on the changes in the asset or liability from period to
period.
Interest Rate Contracts:
The Company uses various interest rate contracts, such
as interest rate swaps, caps and floors, to help manage
interest rate and market valuation risk exposure, which
is incurred in normal recurrent banking activities.
These interest rate contracts function as hedges
against specific assets or liabilities on the
Consolidated Balance Sheet. Gains or losses on these
hedge transactions are deferred and recognized as
adjustments to interest income or interest expense of
the underlying assets or liabilities over the hedge
period.
For interest rate swaps, the interest differential to
be paid or received is accrued by the Company and
recognized as an adjustment to interest income or
interest expense of the underlying assets or
liabilities being hedged. Since only interest payments
are exchanged, the cash requirement and exposure to
credit risk are significantly less than the notional
amount.
Any premium or transaction fee incurred to purchase
interest rate caps or floors is deferred and amortized
to interest income or interest expense over the term of
the contract. Unamortized premiums related to the
purchase of caps and floors are included in "Other
assets" on the Consolidated Balance Sheet.
Risk Management Overview:
Risk identification and management are essential
elements for the successful management of the Company.
In the normal course of business, the Company is
subject to various types of risk, including interest
rate, credit, and liquidity risk. The Company controls
and monitors these risks with policies, procedures, and
various levels of managerial and Board oversight. The
Company's objective is to optimize profitability while
managing and controlling risk within Board approved
policy limits.
Interest rate risk is the sensitivity of net interest
income and the market value of financial instruments to
the magnitude, direction, and frequency of changes in
interest rates. Interest rate risk results from various
repricing frequencies and the maturity structure of
assets, liabilities, and off-balance sheet positions.
The Company uses its asset liability management policy
and hedging policy to control and manage interest rate
risk.
25
Credit risk represents the possibility that a customer
may not perform in accordance with contractual terms.
Credit risk results from extending credit to customers,
purchasing securities, and entering into certain
off-balance sheet financial instruments. The Company's
primary credit risk occurs in the loan portfolio. The
Company uses its credit policy and disciplined approach
to evaluating the adequacy of the allowance for loan
losses to control and manage credit risk. The Company's
investment policy and hedging policy strictly limit the
amount of credit risk that may be assumed in the
investment portfolio and through off-balance sheet
activities.
Liquidity risk represents the inability to generate
cash or otherwise obtain funds at reasonable rates to
satisfy commitments to borrowers, as well as, the
obligations to depositors and debtholders. The Company
uses its asset liability management policy and
contingency funding plan to control and manage
liquidity risk.
Future Accounting Standard:
In June 1996, the Financial Accounting Standards Board
("FASB") issued SFAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities" which provides for standardized accounting
for transfers and servicing of financial assets and
extinguishments of liabilities. This statement is
effective for related transactions occurring after
December 31, 1996, however, the FASB has indefinitely
delayed the effective date for certain portions of this
statement pending further clarification. Management
does not believe the effect of adoption of this
standard will be material.
2. CASH AND DUE FROM BANKS
Cash and due from banks at December 31, 1996, and 1995,
included $11,883,000 and $11,546,000, respectively, of
reserves required to be maintained under Federal
Reserve Bank regulations.
3. INTEREST BEARING DEPOSITS WITH BANKS
The book value of interest bearing deposits with
domestic banks are as follows:
At December 31 1996 1995
(In thousands)
Total $1,218 $647
All interest bearing deposits with domestic banks
mature within three months. The Company had no deposits
in foreign banks nor in foreign branches of United
States banks.
4. INVESTMENT SECURITIES
The book and market values of investment securities are
summarized as follows:
Investment securities available for sale:
Gross Gross
Book Unrealized Unrealized Market
At December 31, 1996 Value Gains Losses Value
(In thousands)
U.S. Treasury $ 10,934 $ 147 $ (21) $ 11,060
U.S. Agency 4,224 12 (39) 4,197
State and municipal 21,772 524 (1) 22,295
U.S. Agency mortgage-backed
securities 382,384 2,459 (2,385) 382,458
Other securities 35,880 - - 35,880
Total $455,194 $3,142 $(2,446) $455,890
Investment securities held to maturity:
Gross Gross
Book Unrealized Unrealized Market
At December 31, 1996 Value Gains Losses Value
(In thousands)
U.S. Treasury $ 10,198 $ 4 $ (13) $ 10,189
U.S. Agency 27,468 113 (29) 27,552
State and municipal 110,287 1,624 (308) 111,603
U.S. Agency
mortgage-backed
securities 395,199 3,937 (2,281) 396,855
Other securities 3,166 62 - 3,228
Total $546,318 $5,740 $(2,631) $549,427
Other investment securities include corporate notes
and bonds, asset-backed securities, and equity
securities.
26
Investment securities available for sale:
Gross Gross
Book Unrealized Unrealized Market
At December 31, 1995 Value Gains Losses Value
(In thousands)
U.S. Treasury $ 22,431 $ 421 $ (14) $ 22,838
U.S. Agency 12,408 7 (27) 12,388
State and municipal 58,698 1,269 (89) 59,878
U.S. Agency mortgage-backed
securities 296,669 4,784 (311) 301,142
Other securities 30,869 1 (4) 30,866
Total $421,075 $6,482 $ (445) $427,112
Investment securities held to maturity:
Gross Gross
Book Unrealized Unrealized Market
At December 31, 1995 Value Gains Losses Value
(In thousands)
U.S. Treasury $ 796 $ 11 $ - $ 807
U.S. Agency 31,512 511 (9) 32,014
State and municipal 97,900 1,973 (140) 99,733
U.S. Agency mortgage-backed
securities 330,312 5,777 (957) 335,132
Other securities 3,431 75 (1) 3,505
Total $463,951 $8,347 $(1,107) $471,191
Other investment securities include corporate notes
and bonds, asset-backed securities, and equity
securities.
The Company took advantage of the one-time SFAS 115
accounting opportunity in the fourth quarter of 1995 to
reposition the securities portfolio without risk of
tainting securities in the held to maturity portfolio.
A total of $174 million in securities were reclassified
from held to maturity to available for sale with $58
million subsequently sold at a net loss of $643,000 to
improve the ongoing earnings of the securities
portfolio. Additionally, the Company also transferred
$43 million of securities from available for sale to
held to maturity as part of this repositioning
strategy. The unrealized holding gain on these
securities at the date of transfer amounted to $120,000
and is being amortized over the remaining life of the
securities as an adjustment of yield.
All purchased investment securities are recorded on
settlement date which is not materially different from
the trade date. Realized gains and losses are
calculated by the specific identification method and
are included in "Net realized gain or (loss) on
investment securities" in the Consolidated Statement of
Income.
Maintaining investment quality is a primary objective
of the Company's investment policy which, subject to
certain limited exceptions, prohibits the purchase of
any investment security below a Moody's Investors
Service or Standard & Poor's rating of "A." At December
31, 1996, 98.7% of the portfolio was rated "AAA" and
98.8% "AA" or higher as compared to 97.5% and 97.9%,
respectively, at December 31, 1995. Only 1.0% of the
portfolio was rated below "A" or unrated on December
31, 1996.
The book value of securities pledged to secure public
and trust deposits, as required by law, was
$371,725,000 at December 31, 1996, and $234,414,000 at
December 31, 1995. The Company realized $2,462,000 and
$2,490,000 of gross investment security gains and
$1,824,000 and $1,788,000 of gross investment security
losses on available for sale securities in 1996 and
1995, respectively.
The Company may sell covered call options on securities
held in the available for sale investment portfolio. At
the time a call is written, the Company records a
liability equal to the premium fee received. The call
liability is marked to market monthly and the offset is
made to earnings. During 1996, $70,000 of income was
generated from call option contracts on securities
totalling $29 million. At December 31, 1996, one
contract covering securities totalling $20 million
remained open with a market value liability of $25,000.
During 1995, $42,000 of income was generated from call
option contracts on securities totalling $15 million.
The Company limits total covered call options
outstanding at any time to $25 million of available for
sale securities.
The following table sets forth the contractual maturity
distribution of the investment securities, book and
market values, and the weighted average yield for each
type and range of maturity as of December 31, 1996.
Yields are not presented on a tax-equivalent basis, but
are based upon book value and are weighted for the
scheduled maturity. Average maturities are based upon
the original contractual maturity dates with the
exception of mortgage-backed securities and
asset-backed securities for which the average lives
were used. At December 31, 1996, the Company's
consolidated investment securities portfolio had a
weighted average contractual maturity of approximately
9.49 years and a modified duration of approximately
3.71 years.
27
Investment securities available for sale:
After 1 Year After 5 Years
but but
Within 1 Year Within 5 Years Within 10 Years After 10 Years Total
At December 31, 1996 Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(In thousands, except yields)
Book Value
U.S. Treasury $ 8,435 7.53% $ 2,499 4.04% $ - -% $ - -% $ 10,934 6.73%
U.S. Agency - - - - 4,224 7.46 - - 4,224 7.46
State and municipal 1,803 6.31 2,230 5.61 7,037 5.63 10,702 5.87 21,772 5.80
U.S. Agency mortgage-
backed securities - - 39,780 6.48 154,711 6.89 187,893 7.16 382,384 6.98
Other securities 35,880 5.99 - - - - - - 35,880 5.99
Total investment securities
available for sale $46,118 6.28% $44,509 6.30% $165,972 6.85% $198,595 7.09% $455,194 6.84%
Market Value
U.S. Treasury $ 8,577 -% $ 2,483 -% $ - -% $ - -% $ 11,060 -%
U.S. Agency - - - - 4,197 - - - 4,197 -
State and municipal 1,831 - 2,271 - 7,189 - 11,004 - 22,295 -
U.S. Agency mortgage-
backed securities - - 39,794 - 154,039 - 188,625 - 382,458 -
Other securities 35,880 - - - - - - - 35,880 -
Total investment securities
available for sale $46,288 -% $44,548 -% $165,425 -% $199,629 -% $455,890 -%
Investment securities held to maturity:
After 1 Year After 5 Years
but but
Within 1 Year Within 5 Years Within 10 Years After 10 Years Total
At December 31, 1996 Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(In thousands, except yields)
Book Value
U.S. Treasury $ 504 5.60% $ 9,694 5.66% $ - -% $ - -% $ 10,198 5.66%
U.S. Agency - - 2,009 6.14 25,459 6.73 - - 27,468 6.69
State and municipal 500 5.09 2,979 5.79 45,339 4.93 61,469 5.58 110,287 5.32
U.S. Agency mortgage-
backed securities 197 6.59 169,330 6.98 76,721 7.58 148,951 7.42 395,199 7.26
Other securities 243 7.34 275 8.23 1,250 6.97 1,398 6.75 3,166 7.01
Total investment securities
held to maturity $1,444 5.85% $184,287 6.88% $148,769 6.62% $211,818 6.88% $546,318 6.81%
Market Value
U.S. Treasury $ 500 -% $ 9,689 -% $ - -% $ - -% $ 10,189 -%
U.S. Agency - - 1,992 - 25,560 - - - 27,552 -
State and municipal 505 - 2,994 - 45,496 - 62,608 - 111,603 -
U.S. Agency mortgage-
backed securities 82 - 170,439 - 78,128 - 148,206 - 396,855 -
Other securities 300 - 275 - 1,250 - 1,403 - 3,228 -
Total investment securities
held to maturity $1,387 -% $185,389 -% $150,434 -% $212,217 -% $549,427 -%
Other investment securities include corporate notes
and bonds, asset-backed securities, and equity securities.
28
5. LOANS
The loan portfolio of the Company consisted of the
following:
At December 31 1996 1995
(In thousands)
Commercial $138,008 $103,546
Commercial loans secured by
real estate 266,700 179,793
Real estate-mortgage 414,003 414,967
Consumer 111,025 133,820
Loans 929,736 832,126
Less: Unearned income 4,819 2,716
Loans, net of unearned income $924,917 $829,410
Real estate construction loans were not material at
these presented dates and comprised 1.9% and 2.8% of
total loans net of unearned income at December 31,
1996, and 1995, respectively. The Company has no credit
exposure to foreign countries or highly leveraged
transactions. Most of the Company's loan activity is
with customers located in the southwestern Pennsylvania
geographic area. As of December 31, 1996, loans to
customers engaged in similar activities and having
similar economic characteristics, as defined by
standard industrial classifications, did not exceed 10%
of total loans.
In the ordinary course of business, the subsidiaries
have transactions, including loans, with their
officers, directors, and their affiliated companies.
These transactions were on substantially the same terms
as those prevailing at the time for comparable
transactions with unaffiliated parties and do not
involve more than the normal credit risk. These loans
totaled $8,105,000and $5,490,000 at December 31, 1996,
and 1995, respectively. An analysis of these related
party loans follows:
Year ended December 31 1996 1995
(In thousands)
Balance January 1 $5,490 $14,955
New loans 27,192 12,958
Payments (24,577) (22,423)
Balance December 31 $8,105 $5,490
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan
losses follows:
Year ended December 31 1996 1995 1994
(In thousands)
Balance January 1 $14,914 $15,590 $15,260
Addition due to acquisition - - 3,422
Reduction due to disposition
of business line - (342) -
Provision for loan losses 90 285 (2,765)
Recoveries on loans
previously charged-off 932 681 771
Loans charged-off (2,607) (1,300) (1,098)
Balance December 31 $13,329 $14,914 $15,590
In the first quarter of 1995, the Company sold Frontier
Consumer Discount Company, a subsidiary of Community,
at a gain of $905,000 and recognized a reduction to the
allowance for loan losses which is reflected in the
above table in the line item "Reduction due to
disposition of business line."
7. NON-PERFORMING ASSETS
Non-performing assets are comprised of (i) loans which
are on a non-accrual basis, (ii) loans which are
contractually past due 90 days or more as to interest
or principal payments some of which are insured for
credit loss, and (iii) other real estate owned (real
estate acquired through foreclosure and in-substance
foreclosures). All loans, except for loans that are
insured for credit loss, are placed on non-accrual
status immediately upon becoming 90 days past due in
either principal or interest. In addition, if
circumstances warrant, the accrual of interest may be
discontinued prior to 90 days. In all cases, payments
received on non-accrual loans are credited to principal
until full recovery of principal has been recognized;
it is only after full recovery of principal that any
additional payments received are recognized as interest
income. The only exception to this policy is for
residential mortgage loans wherein interest income is
recognized on a cash basis as payments are received.
29
The following table presents information concerning
non-performing assets:
At December 31 1996 1995 1994 1993 1992
(In thousands, except percentages)
Non-accrual loans $6,365 $7,517 $5,446 $5,304 $ 5,596
Loans past due 90 days or more 2,043 995 1,357 203 1,573
Other real estate owned:
Foreclosed properties 263 914 1,098 991 934
In-substance foreclosures - - - - 2,188
Total non-performing assets $8,671 $9,426 $7,901 $6,498 $10,291
Total non-performing assets as
a percent of loans and loans held
for sale, net of unearned income,
and other real estate owned 0.92% 1.13% 0.91% 0.89% 1.58%
The Company is unaware of any additional loans which
are required to either be charged-off or added to the
nonperforming asset totals disclosed above. Other real
estate owned is recorded at the lower of 1) fair value
minus estimated costs to sell, or 2) carrying cost.
SFAS 114 addresses the treatment and disclosure of
certain loans where it is probable that the creditor
will be unable to collect all amounts due according to
the contractual terms of the loan agreement. The
Company had loans totalling $2,297,000 and $2,227,000
being specifically identified as impaired and a
corresponding allocation reserve of $292,000 and
$1,085,000 at December 31, 1996, and 1995,
respectively. The average outstanding balance for loans
being specifically identified as impaired was
$2,186,000 for 1996 and $1,694,000 for 1995. All of the
impaired loans are collateral dependent, therefore the
fair value of the collateral of the impaired loans is
evaluated in measuring the impairment. There was no
interest income recognized on impaired loans during
1996 or 1995.
The following table sets forth, for the periods
indicated, (i) the gross interest income that would
have been recorded if non-accrual loans had been
current in accordance with their original terms and had
been outstanding throughout the period or since
origination if held for part of the period, (ii) the
amount of interest income actually recorded on such
loans, and (iii) the net reduction in interest income
attributable to such loans.
Year ended December 31 1996 1995 1994 1993 1992
(In thousands)
Interest income due in
accordance with original terms $560 $601 $509 $753 $882
Interest income recorded (75) (648) (588) (442) (110)
Net reduction (increase) in
interest income $485 $(47) $(79) $311 $772
8. PREMISES AND EQUIPMENT
An analysis of premises and equipment follows:
At December 31 1996 1995
(In thousands)
Land $ 2,131 $ 2,131
Premises 22,938 22,329
Furniture and equipment 17,946 15,294
Leasehold improvements 2,302 3,386
Total at cost 45,317 43,140
Less: Accumulated depreciation 27,116 24,552
Net book value $18,201 $18,588
30
9. FEDERAL FUNDS PURCHASED, SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE, AND OTHER SHORT-TERM
BORROWINGS
The outstanding balances and related information for
federal funds purchased, securities sold under
agreements to repurchase, and other short-term
borrowings are summarized as follows:
Securities
Federal Sold Under Other
Funds Agreements to Short-term
Purchased Repurchase Borrowings
At December 31, 1996 (In thousands, except rates)
Balance $29,000 $47,672 $ 79,068
Maximum indebtedness at
any month end 46,433 56,325 249,035
Average balance during year 26,485 46,402 73,706
Average rate paid for the year 5.72% 5.45% 4.59%
Average rate on period end
balance 7.26 5.42 5.44
Securities
Federal Sold Under Other
Funds Agreements to Short-term
Purchased Repurchase Borrowings
At December 31, 1995 (In thousands, except rates)
Balance $28,000 $ 35,828 $ 30,528
Maximum indebtedness at
any month end 37,599 126,575 50,507
Average balance during year 25,184 81,732 28,868
Average rate paid for the year 6.36% 5.48% 4.16%
Average rate on period
end balance 6.01 5.38 4.54
Securities
Federal Sold Under Other
Funds Agreements to Short-term
Purchased Repurchase Borrowings
At December 31, 1994 (In thousands, except rates)
Balance $13,650 $129,639 $ 75,295
Maximum indebtedness at
any month end 59,373 145,885 79,272
Average balance during year 20,557 52,813 39,476
Average rate paid for the year 3.82% 5.14% 5.01%
Average rate on period
end balance 6.55 5.54 6.57
Average amounts outstanding during the year represent
daily averages. Average interest rates represent
interest expense divided by the related average
balances. Collateral related to securities sold under
agreements to repurchase are maintained within the
Company's investment portfolio.
Included in the above borrowings is a $17,642,000
outstanding balance on a $25 million mortgage warehouse
line of credit at Standard Mortgage Corporation (a
mortgage banking subsidiary of Community). This line of
credit bears interest at a rate of 1.50% on the used
portion for which a compensating balance is maintained
and Libor plus 1.50% on the used portion for which no
compensating balance is maintained. This line of
credit, which expires July 1, 1997, is secured by
Standard Mortgage Corporation inventory, servicing
rights, and commitments.
Compensating balances held by the lender are used in
determining the interest rates charged on the mortgage
warehouse lines of credit and a bank note (discussed in
Note 11). These balances, which are derived from
customer escrow balances, amounts of collections in
transit on loans serviced and corporate cash balances,
can further decrease the interest rate charged on the
line of credit if the compensating balance is
maintained at a level greater than the used portion of
the line.
These borrowing transactions range from overnight to
one year in maturity. The average maturity was 124 days
at the end of 1996, ten days at the end of 1995 and 68
days at the end of 1994.
10. DEPOSITS
The following table sets forth the balance of the
Company's deposits:
At December 31 1996 1995 1994
(In thousands)
Demand-non-interest bearing $ 144,314 $ 145,379 $ 144,012
Demand-interest bearing 89,035 99,051 102,501
Savings 196,650 216,115 246,400
Money markets 150,358 134,685 135,902
Certificates of deposit
in denominations of
$100,000 or more 36,886 42,786 30,246
Other time 521,495 539,842 537,185
Total interest on deposits $1,138,738 1,177,858 $1,196,246
Interest expense on deposits consisted of the
following:
At December 31 1996 1995 1994
(In thousands)
Interest bearing demand $ 811 $ 1,258 $ 1,653
Savings 3,525 4,302 4,806
Money markets 4,977 4,226 3,152
Certificates of deposit
in denominations of
$100,000 or more 2,074 3,149 1,238
Other time 30,673 32,468 23,434
Total interest on deposits $42,060 $45,403 $34,283
The following table sets forth the balance of other
time deposits maturing in the periods presented:
Year
(In thousands)
1997 $315,971
1998 95,729
1999 40,041
2000 15,469
2001 and after 54,285
31
11. ADVANCES FROM FEDERAL HOME LOAN BANK,
COLLATERALIZED MORTGAGE OBLIGATION, AND LONG-TERM DEBT
Advances from Federal Home Loan Bank:
Advances from Federal Home Loan Bank consist of the
following:
At December 31 1996
Weighted
Maturing Average Yield Balance
(In thousands)
1997 5.52% $401,250
1998 5.11 176,873
1999 6.09 1,250
2000 6.15 3,750
2001 8.22 10,126
2002 and after 6.92 12,250
Total advances $605,499
At December 31 1995
Weighted
Maturing Average Yield Balance
(In thousands)
1996 5.82% $377,700
1997 5.61 2,750
1998 5.83 26,567
1999 6.09 1,250
2000 6.15 3,750
2001 and after 7.61 16,200
Total advances $428,217
Total Federal Home Loan Bank borrowing exposure at
December 31, 1996, was $605,499,000. Total Federal Home
Loan Bank borrowings consist of $281,999,000 of term
advances and $323,500,000 of repo plus advances with
maturities of less than 90 days.
Total Federal Home Loan Bank borrowing exposure at
December 31, 1995, was $428,217,000. Total Federal Home
Loan Bank borrowings consisted of $121,517,000 of term
advances and $306,700,000 of repo plus advances with
maturities of less than 90 days.
All Federal Home Loan Bank stock, along with an
interest in unspecified mortgage loans and
mortgage-backed securities, with an aggregate statutory
value equal to the amount of the advances, have been
pledged as collateral with the Federal Home Loan Bank
of Pittsburgh.
Collateralized Mortgage Obligation:
The collateralized mortgage obligation was issued
through Community First Capital Corporation ("CFCC"), a
wholly- owned, single-purpose finance subsidiary of
Community Savings Bank. Community Savings Bank
transferred in 1988 Federal Home Loan Mortgage
Corporation ("FHLMC") securities with a book value of
approximately $31,500,000 to CFCC which were then used
as collateral for issuance of bonds with a par value of
$27,787,000 in the form of a collateralized mortgage
obligation.
There are two classes of bonds, including one class of
zero coupon bonds, which mature in the years 2000
through 2018; however, payments of the bonds may occur
prior to maturity in accordance with certain provisions
of the Trust Indenture between CFCC and the trustee.
The remaining bonds have a weighted average adjusted
effective rate of 10.25%.
Assets held in trust for the collateralized mortgage
obligation consist of the following:
At December 31 1996 1995
(In thousands)
FHLMC securities $4,834 $6,449
Accrued interest
receivable on FHLMC 46 82
Funds held by trustee 379 568
Total $5,259 $7,099
Under provisions of the Trust Indenture, the bonds are
fully collateralized by the FHLMC securities and funds
held by the trustee. Funds held by the trustee
represent payments received on FHLMC securities,
collateral reserves, and reinvestment of earnings on
such funds which have not been applied to pay principal
and interest on the bonds. These funds are restricted
to assure payment on the bonds in accordance with the
Indenture.
Long-Term Debt:
The Company's long-term debt consisted of the
following:
At December 31 1996 1995
(In thousands)
Bank notes $3,700 $4,800
Other 472 261
Total long-term debt $4,172 $5,061
The bank note evidences a $4.8 million non-revolving
commercial loan commitment at Standard Mortgage
Corporation of Georgia which is payable monthly in
fixed principal installments of $100,000 through
January 25, 2000. The commercial loan bears interest at
3% on the used portion for which a compensating balance
is maintained and Prime Rate for which no compensating
balance is maintained. This loan is secured by Standard
Mortgage Corporation mortgage inventory, servicing
rights, and commitments.
Scheduled maturities of long-term debt for the years
subsequent to December 31, 1996, are $1,384,000 in
1997; $1,361,000 in 1998; $1,306,000 in 1999; and
$121,000 in 2000 and after.
32
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial
Instruments," requires all entities to disclose the
estimated fair value of its financial instrument assets
and liabilities. For the Company, as for most financial
institutions, approximately 95% of its assets and
liabilities are considered financial
instruments as defined in SFAS 107. Many of the
Company's financial instruments, however, lack an
available trading market as characterized by a willing
buyer and willing seller engaging in an exchange
transaction. Therefore, significant estimations and
present value calculations were used by the Company for
the purpose of this disclosure.
Estimated fair values have been determined by the
Company using the best available data and an estimation
methodology suitable for each category of financial
instruments. Management believes that cash, cash
equivalents, and loans and deposits with floating
interest rates have estimated fair values which
approximate the recorded book balances. The estimation
methodologies used, the estimated fair values, and
recorded book balances at December 31, 1996, and 1995,
were as follows:
Financial instruments actively traded in a secondary
market have been valued using quoted available market
prices.
1996 1995
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
Federal funds sold $ - $ - $ 13,750 $ 13,750
Investment securities
(including assets held
in trust for collateralized
mortgage obligation) 1,011,451 1,007,467 909,497 898,162
Financial instruments with stated maturities have been
valued using a present value discounted cash flow with
a discount rate approximating current market for
similar assets and liabilities.
1996 1995
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
Deposits with stated
maturities $562,415 $558,383 $592,746 $582,632
Short-term borrowings 533,935 533,935 427,859 427,859
Long-term debt (including
collateralized mortgage
obligation and non-
current portion of
FHLB advances) 235,934 236,167 108,695 106,323
Financial instrument liabilities with no stated
maturities have an estimated fair value equal to both
the amount payable on demand and the recorded book
balance.
1996 1995
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
Deposits with no
stated maturities $580,355 $580,355 $595,226 $595,226
The net loan portfolio has been valued using a present
value discounted cash flow. The discount rate used in
these calculations is based upon the treasury yield
curve adjusted for non-interest operating costs, credit
loss, and assumed prepayment risk.
1996 1995
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
Net loans (including
loans held for sale) $927,043 $926,397 $830,184 $819,720
Purchased and originated mortgage servicing rights have
been valued by an independent third party using a
methodology which incorporates a discounted after-tax
cash flow of the servicing (loan servicing fees and
other related ancillary fee income less the costs of
servicing the loans). This valuation also assumes
current PSA prepayment speeds which are based upon
industry data collected on mortgage prepayment trends.
This methodology is consistent with SFAS 122. For
further discussion see Note 1.
1996 1995
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
Purchased and
originated mortgage
servicing rights $14,596 $12,494 $12,985 $11,372
Changes in assumptions or estimation methodologies may
have a material effect on these estimated fair values.
The Company's remaining assets and liabilities which
are not considered financial instruments have not been
valued differently than has been customary with
historical cost accounting. No disclosure of the
relationship value of the Company's deposits is
required by SFAS 107. Because of the Company's core
deposit base (which comprises 96% of total deposits),
its non-use of volatile funding sources such as
brokered deposits, and a below peer cost of deposits
(actual cost in 1996 of 4.12% vs. a peer average of
4.28% as of September 30, 1996), management believes
the relationship value of these deposits is
significant. Based upon the Company's most recent
acquisitions and other limited secondary market
transactions involving similar deposits, management
estimates the relationship value of these funding
liabilities to range between $45 million to $90 million
less than their estimated fair value shown at December
31, 1996. The estimated fair value of off-balance sheet
financial instruments, used for hedging purposes, is
estimated by obtaining quotes from brokers. These
values represent the estimated amount the Company would
receive or pay, to terminate the agreements,
considering current interest rates, as well as, the
creditworthiness of the counterparties. At December 31,
1996, the notional value of the Company's off-balance
sheet financial instruments (interest rate swaps) totalled
$95 million with an estimated fair value of
approximately ($333,000).
33
There is no material difference between the notional amount and the
estimated fair value of the remaining off-balance sheet
items which total $256.2 million and are primarily
comprised of unfunded loan commitments which are
generally priced at market at the time of funding.
Management is concerned that reasonable comparability
of these disclosed fair values between financial
institutions may not be likely due to the wide range of
permitted valuation techniques and numerous estimates
which must be made given the absence of active
secondary markets for many of the financial
instruments. This lack of uniform valuation
methodologies also introduces a greater degree of
subjectivity to these estimated fair values.
13. INCOME TAXES
The provision for federal income taxes is summarized
below:
Year ended December 31 1996 1995 1994
(In thousands)
Current $6,468 $4,862 $4,748
Deferred 776 1,183 1,183
Income tax provision $7,244 $6,045 $5,931
The reconciliation between the federal statutory tax
rate and the Company's effective consolidated income
tax rate is as follows:
Year ended December 31 1996 1995 1994
Amount Rate Amount Rate Amount Rate
(In thousands, except percentages)
Tax expense based on federal
statutory rate $ 9,542 35.0% $ 7,647 35.0% $ 5,938 34.4%
State income taxes 200 0.7 350 1.6 570 3.3
Tax exempt income (3,168) (11.6) (2,766) (12.7) (1,736) (10.1)
Goodwill and acquisition related
costs 578 2.1 555 2.5 557 3.2
Other 92 0.3 259 1.3 602 3.6
Total provision for income taxes $7,244 26.5% $6,045 27.7% $5,931 34.4%
34
Deferred income taxes result from temporary differences
in the recognition of revenue and expense for tax and
financial reporting purposes. The following table
presents the impact on income tax expense of the
principal timing differences and the tax effect of
each:
Year ended December 31 1996 1995 1994
(In thousands)
Provision for possible loan losses $ 555 $ 236 $1,083
Lease accounting 747 212 113
Accretion of discounts on securities, net 104 1,170 551
Investment write-downs 230 416 22
Core deposit and mortgage servicing
intangibles (272) (209) (139)
Deposit liability write-down (465) (453) (220)
Deferred loan fees 82 82 76
Other, net (205) (271) (303)
Total $776 $1,183 $1,183
At December 31, 1996, and 1995, deferred taxes are
included in the accompanying consolidated balance
sheet. The following table highlights the major
components comprising the deferred tax assets and
liabilities for each of the periods presented:
At December 31 1996 1995
(In thousands)
Deferred Assets:
Provision for loan losses $ 4,665 $ 5,220
Investment security write-downsdue to SFAS 115 151 -
Deferred loan fees 573 655
Tax credits and carryovers 540 2,045
Other 426 70
Total assets 6,355 7,990
Deferred Liabilities:
Investment security write-ups due to SFAS 115 - (1,332)
Accumulated depreciation (927) (1,062)
Accretion of discount (2,247) (2,143)
Lease accounting (1,576) (828)
Core deposit and mortgage servicing intangibles (1,950) (2,222)
Deposit liability write-down (345) (810)
Other (570) (284)
Total liabilities (7,615) (8,681)
Valuation allowance (325) (325)
Net deferred liability $(1,585) $(1,016)
The change in the net deferred asset (liability) during
1996 and 1995 was attributed to the following:
At December 31 1996 1995
(In thousands)
Investment write-ups due to
SFAS 115, Accounting for
investments, and charged
to equity $(1,483) $(5,738)
Acquisition of JSB - 854
Use of JSB NOL (154) -
Alternative minimum tax credit 292 (379)
Deferred provision for
income taxes 776 (1,183)
Net decrease $ (569) $(6,446)
Additional deferred tax asset attributable to tax
benefits arising from completion of final JSB corporate
tax returns.
14. PENSION AND PROFIT SHARING PLANS
U.S. Bank:
U.S. Bank has a trusteed, noncontributory defined
benefit pension plan covering all employees who work at
least 1,000 hours per year for U.S. Bank or the Company
and who have not yet reached age 60 at their employment
date. The benefits of the plan are based upon the
employee's years of service and average annual earnings
for the highest five consecutive calendar years during
the final ten year period of employment. U.S. Bank's
plan funding policy has been to contribute annually an
amount within the statutory range of allowable minimum
and maximum actuarially determined tax-deductible
contributions. Plan assets are primarily debt
securities (including U.S. Agency and Treasury
securities, corporate notes and bonds), listed common
stocks (including shares of USBANCORP, Inc. common
stock), mutual funds, and short-term cash equivalent
instruments.
Net periodic pension cost for the plan is as follows:
Year ended December 31 1996 1995 1994
(In thousands)
Service cost $455 $399 $424
Interest cost 413 390 362
Deferred asset gain (loss) 241 575 (371)
Amortization of transition asset (17) (17) (17)
Amortization of unrecognized prior
service cost (30) (31) (23)
Actual return on plan assets (665) (919) 17
Net periodic pension cost $397 $397 $392
35
A reconciliation of the funded status of the plan to
the recorded net pension liability is as follows:
At December 31 1996 1995
(In thousands)
Fair value of plan assets $ 6,599 $ 5,161
Projected benefit obligation (6,418) (6,345)
Overfunded (unfunded) projected
benefit obligation 181 (1,184)
Unrecognized net transition asset (278) (294)
Unrecognized prior service cost (480) (522)
Unrecognized net (gain) loss (227) 108
Net pension liability $ (804) $(1,892)
The actuarial present value of benefit obligations is
as follows:
At December 31 1996 1995
(In thousands)
Accumulated benefit obligation $4,563 $4,488
Vested benefit obligation $4,339 $4,301
The following rate assumptions were used in the plan
accounting:
Jan. 1, Dec. 31, Jan. 1, Dec. 31,
Measurement Date 1996 1996 1995 1995
Discount rate (weighted-average) 7.00% 7.25% 7.75% 7.00%
Rate of compensation increases 3.50 3.50 4.00 3.50
Expected long-term rate
of return on plan assets
(weighted-average) 8.00 8.00 8.00 8.00
U.S. Bank also has a trusteed deferred profit sharing
plan with contributions made by U.S. Bank based upon
income as defined in the plan. All employees of U.S.
Bank and the Company who work over 1,000 hours per year
participate in the plan beginning on January 1
following six months of service. Contributions to this
profit sharing plan were $287,000 in 1996; $764,000 in
1995; and $584,000 in 1994. Plan assets are primarily
debt securities (including U.S. Agency and Treasury
securities, corporate notes and bonds), listed common
stocks (including shares of USBANCORP, Inc. common
stock), mutual funds, and short-term cash equivalent
instruments.
Three Rivers Bank and Community Savings Bank
(the Western Region Subsidiaries):
The Western Region Subsidiaries have a trusteed,
noncontributory defined benefit pension plan covering
all employees who work at least 1,000 hours per year
and who have not yet reached age 60 at their employment
date. The benefits of the plan are based upon the
employee's years of service and average annual earnings
for the highest five consecutive calendar years during
the final ten year period of employment. The Western
Region Subsidiaries' plan funding policy has been to
contribute annually an amount within the statutory
range of allowable minimum and maximum actuarially
determined tax-deductible contributions. Plan assets
are primarily debt securities (including U.S. Agency
and Treasury securities, corporate notes and bonds),
listed common stocks (including shares of USBANCORP,
Inc. common stock), mutual funds, and short-term cash
equivalent instruments.
Net periodic pension cost for the plan is as follows:
Year ended December 31 1996 1995 1994
(In thousands)
Service cost $ 518 $ 410 $ 346
Interest cost 316 259 302
Deferred asset gain (loss) 240 232 (160)
Amortization of transition obligation 3 3 3
Amortization of unrecognized
prior service cost 57 53 54
Actual return on plan assets (488) (448) (84)
Amortization of loss 13 - 17
Net periodic pension cost $ 659 $ 509 $ 478
A reconciliation of the funded status of the plan to
the recorded net pension asset (liability) is as
follows:
At December 31 1996 1995
(In thousands)
Fair value of plan assets $ 4,157 $ 2,958
Projected benefit obligation (4,998) (4,383)
Unfunded projected benefit obligation (841) (1,425)
Unrecognized net transition obligation 19 22
Unrecognized prior service cost 674 669
Unrecognized net loss 278 411
Adjustment to recognize minimum
required liability - (145)
Net pension asset (liability) $ 130 $(468)
The Western Region Subsidiaries recognized in 1995 an
intangible asset of $145,000 related to the adjustment
to recognize the minimum required liability due
primarily to a reduction in the discount rate. No
recognition of an intangible asset was necessary in
1996.
The actuarial present value of benefit obligations is
as follows:
At December 31 1996 1995
(In thousands)
Accumulated benefit obligation $3,903 $3,425
Vested benefit obligation $3,336 $3,129
36
The following rate assumptions were used in the plan
accounting:
Jan. 1, Dec. 31, Jan. 1, Dec. 31,
Measurement Date 1996 1996 1995 1995
Discount rate
(weighted-average) 7.00% 7.25% 7.75% 7.00%
Rate of compensation increases 3.50 3.50 4.00 3.50
Expected long-term rate
of return on plan assets
(weighted-average) 8.00 8.00 8.00 8.00
The Western Region Subsidiaries also have a trusteed
401(k) plan with contributions made by the Western
Region Subsidiaries matching those by eligible
employees up to a maximum of 50% of the first 6% of
their annual salary. All employees of the Western
Region Subsidiaries who work over 1,000 hours per year
are eligible to participate in the plan beginning on
January 1 following six months of service. The Western
Region Subsidiaries contribution to this 401(k) plan
was $166,000 in 1996; $128,000 in 1995; and $79,000 in
1994.
Except for the above pension benefits provided by each
subsidiary, the Company has no significant additional
exposure for any other post-retirement benefits.
15. LEASE COMMITMENTS
The Company's obligation for future minimum lease
payments on operating leases at December 31, 1996, is
as follows:
Year Future Minimum Lease
Payments
(In thousands)
1997 $512
1998 325
1999 205
2000 158
2001 and ther eafter (in total) 328
In addition to the amounts set forth above, certain of
the leases require payments by the Company for taxes,
insurance, and maintenance.
Rent expense included in total non-interest expense
amounted to $672,000, $533,000 and $540,000, in 1996,
1995, and 1994, respectively.
16. COMMITMENTS AND CONTINGENT LIABILITIES
The Company's banking subsidiaries incur off-balance
sheet risks in the normal course of business in order
to meet the financing needs of their customers. These
risks derive from commitments to extend credit and
standby letters of credit. Such commitments and standby
letters of credit involve, to varying degrees, elements
of credit risk in excess of the amount recognized in
the consolidated financial statements.
Commitments to extend credit are obligations to lend to
a customer as long as there is no violation of any
condition established in the loan agreement.
Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a
fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash
requirements. The banking subsidiaries evaluate each
customer's creditworthiness on a case-by-case basis.
Collateral which secures these types of commitments is
the same as for other types of secured lending such as
accounts receivable, inventory, and fixed assets.
Standby letters of credit are conditional commitments
issued by the banking subsidiaries to guarantee the
performance of a customer to a third party. Those
guarantees are primarily issued to support public and
private borrowing arrangements, including normal
business activities, bond financings, and similar
transactions. The credit risk involved in issuing
letters of credit is essentially the same as that
involved in extending loans to customers. Letters of
credit are issued both on an unsecured and secured
basis. Collateral securing these types of transactions
is similar to collateral securing the subsidiary banks'
commercial loans.
The Company's exposure to credit loss in the event of
nonperformance by the other party to these commitments
to extend credit and standby letters of credit is
represented by their contractual amounts. The banking
subsidiaries use the same credit and collateral
policies in making commitments and conditional
obligations as for all other lending. The Company had
outstanding various commitments to extend credit
approximating $256,221,000 and standby letters of
credit of $8,495,000 as of December 31, 1996.
Additionally, the Company is also subject to a number
of asserted and unasserted potential claims encountered
in the normal course of business. In the opinion of
management and legal counsel, neither the resolution of
these claims nor the funding of these credit
commitments will have a material adverse effect on the
Company's consolidated financial position or results of
operation.
17.INCENTIVE STOCK OPTION PLAN
In 1991, the Company's Board of Directors adopted an
Incentive Stock Option Plan authorizing the grant of
options covering 128,000 shares of common stock. In
April 1995, the Company amended the Plan to increase
the number of shares available for issuance thereunder
from 128,000 to 285,000 shares.
37
Under the Plan, options can be granted (the
"Grant Date") to employees with executive, managerial,
technical, or professional responsibility, as selected
by a committee of the Board of Directors. The Company
accounts for this Plan under APB Opinion 25,
"Accounting for Stock Issued to Employees," under which
no compensation cost has been recognized. The option
price at which a stock option may be exercised shall be
not less than 100% of the fair market value per share
of common stock on the Grant Date. The maximum term of
any option granted under the Plan cannot exceed 10
years. Had compensation cost for these plans been
determined consistent with FASB 123, "Accounting for
Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced to the
following pro forma amounts:
At December 31 1996 1995
(In thousands, except per share data)
Net Income:
As Reported $20,019 $15,803
Pro Forma 19,810 15,767
Primary Earnings Per Share:
As Reported $3.83 $2.88
Pro Forma 3.79 2.88
Fully Diluted Earnings Per Share:
As Reported $3.81 $2.87
Pro Forma 3.77 2.87
Because SFAS 123 method of accounting has not been
applied to options granted prior to January 1, 1995,
the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
On or after the first anniversary of the Grant Date,
one third of such options may be exercised. On or after
the second anniversary of the Grant Date, two-thirds of
such options may be exercised minus the aggregate
number of such options previously exercised. On or
after the third anniversary of the Grant Date, the
remainder of the options may be exercised.
A summary of the status of the Company's Stock Option
Plan at December 31, 1996, and 1995, and changes during
the years then ended is presented in the table and
narrative following:
Year ended December 31 1996 1995
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding at beginning of year 105,821 $24.34 75,867 $21.70
Granted 78,000 32.56 56,800 26.25
Exercised (8,563) 22.87 (23,846) 20.75
Forfeited - - (3,000) 22.40
Outstanding at end of year 175,258 28.11 105,821 24.34
Exercisable at end of year 54,280 23.29 20,854 20.09
Weighted average fair value of
options granted since 1-1-95 $6.99 $6.38
38
A total of 54,280 of the 175,258 options outstanding at
December 31, 1996, have exercise prices between $17.25
and $30.63, with a weighted average exercise price of
$23.29 and a weighted average remaining contractual
life of 6.9 years. All of these options are
exercisable. The remaining 120,978 options have
exercise prices between $21.25 and $32.56, with a
weighted average exercise price of $30.27 and a
weighted average remaining contractual life of 8.8
years.
During 1996 one option grant totalling 78,000 shares
was issued, compared to three option grants totalling
56,800 shares in 1995. The fair value of each option
grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following
assumptions used for grants in 1996 and 1995,
respectively: risk-free interest rates of 5.49% for the
1996 options and 5.79%, 6.13%, and 7.82% for the 1995
Plan options; expected dividend yields of 3.25% for the
1996 options, and 3.25%, 3.50%, and 4.00% for the 1995
Plan options; expected lives of 7.0 years for all the
1996 and 1995 Plan options; expected volatility of
21.28% for the 1996 options, 21.29%, 21.85%, and 22.32%
for the 1995 Plan options.
18.DIVIDEND REINVESTMENT PLAN
The Company's Dividend Reinvestment and Common Stock
Purchase Plan provides each record holder of Common
Stock with a simple and convenient method of purchasing
additional shares without payment of any brokerage
commissions, service charges or other similar expense.
A participant in the Plan may purchase shares of Common
Stock by electing either to (1) reinvest dividends on
all of his or her shares of Common Stock or (2) to make
optional cash payments of not less than $10 each
purchase up to a maximum of $2,000 per month and
continue to receive regular dividend payments on his or
her other shares. Participants who enroll to reinvest
dividends may also make optional cash payments of not
less than $10 each purchase up to a maximum of $2,000
per month. A participant may withdraw from the Plan at
any time.
Shares purchased under the Plan will be acquired at a
three percent discount from the average market price.
In the case of purchases from USBANCORP, Inc. of
treasury or newly-issued shares of Common Stock, the
average market price is determined by averaging the
high and low sale price of the Common Stock as reported
on the NASDAQ on the relevant investment date. At
December 31, 1996, the Company had 263,048 unissued
reserved shares available under the Plan. In the case
of purchases of shares of Common Stock on the open
market, the average market price will be the weighted
average purchase price of shares purchased for the Plan
in the market for the relevant investment date.
19. SHAREHOLDER RIGHTS PLAN
Each share of the Company's Common Stock had attached
to it one right (a "Right") issued pursuant to a
Shareholder Protection Rights Agreement, dated November
10, 1989 (the "Rights Agreement"). Each Right entitled
a holder to buy one-tenth of a share of the Company's
Series B Preferred Stock at a price of $40.00, subject
to adjustment (the "Exercise Price"). The Rights became
exercisable if a person, group, or other entity
acquired or announced a tender offer for 20% or more of
the Company's Common Stock. They could also have been
exercised if a person or group who had become a
beneficial owner of at least 10% of the Company's
Common Stock was declared by the Board of Directors to
be an "adverse person" (as defined in the Rights
Agreement). Under the Rights Agreement, any person,
group, or entity would be deemed a beneficial owner of
the Company's Common Stock if such person, group, or
entity would be deemed to beneficially own the
Company's Common Stock under the rules of the
Securities and Exchange Commission which generally
require that such person, group, or entity have, or
have the right to acquire within sixty days, voting or
dispositive power of the Company's Common Stock;
provided, however, that the Rights Agreement excluded
from the definition of beneficial owner, holders of
revocable proxies, employee benefit plans of the
Company or its subsidiaries and the Trust Company.
39
After the Rights became exercisable, the Rights
(other than rights held by a 20% beneficial owner or an
"adverse person") would entitle the holders to
purchase, under certain circumstances, either the
Company's Common Stock or common stock of the potential
acquirer having a value equal to twice the Exercise
Price. The Company was generally entitled to redeem the
Rights at $0.01 per Right at any time until the
twentieth business day following public announcement
that a 20% position had been acquired or the Board of
Directors had designated a holder of the Company's
Common Stock an adverse person. The Rights expired on
November 10, 1994.
On February 24, 1995, the Company's Board of Directors
adopted a Shareholder Rights Plan which is
substantially similar to and replaces the previous
Rights Agreement which expired on November 10, 1994.
The only significant difference from the previous
Rights Agreement is that under the new plan each right
will initially entitle shareholders to buy one unit of
a newly authorized series of junior participating
preferred stock at an exercise price of $65.00. The
rights attached to shares of USBANCORP Common Stock
outstanding on March 15, 1995, and will expire in ten
years.
20. JOHNSTOWN SAVINGS BANK ("JSB")
ACQUISITION
For financial reporting purposes, the Merger with JSB
was effected on June 30, 1994. USBANCORP merged JSB
with and into U.S. Bank, a wholly-owned subsidiary of
USBANCORP, with U.S. Bank surviving the Merger. The
separate existence of JSB ceased, and all property,
rights, powers, duties, obligations, and liabilities of
JSB were automatically transferred to U.S. Bank, in
accordance with Federal and Pennsylvania law.
Immediately following the Merger, U.S. Bank caused the
intracompany transfer by Standard Mortgage Corporation
of Georgia ("SMC") , a wholly-owned subsidiary of JSB,
of all its assets, subject to all of its liabilities,
to SMC Acquisition Corporation, an indirect subsidiary
of Community. SMC Acquisition Corporation was renamed
Standard Mortgage Corporation of Georgia and is a
mortgage banking company organized under the laws of
the State of Georgia and originates, sells, and
services residential mortgage loans.
The Merger was treated as a purchase for financial
accounting purposes. The recorded purchase price was
based on the average of the closing price of USBANCORP
Common Stock ("UBAN") on the NASDAQ/NMS for the ten
trading days immediately preceding the final closing
date of the transaction. The ten day average of
USBANCORP's Common Stock was $25.125, which resulted in
a total cost of the acquisition being $43.8 million,
which was represented by the issuance of 957,857 common
shares and $19.7 million in cash. Accounting for the
acquisition as a purchase, USBANCORP recognized newly
created core deposit intangibles of $5.7 million and
goodwill of $20.2 million and began realizing net
income immediately from July 1, 1994. Furthermore, the
Company incurred approximately $2.4 million of
additional restructuring expenses during 1994 as a
result of the JSB acquisition including employee
severance, data processing conversion costs, marketing
and advertising expenses, and other costs. These costs
are included in the line item titled "Acquisition
charge" in the accompanying Consolidated Statement of
Income.
The pro forma combined results of operations of the
Company for the year ended December 31, 1994, after
giving effect to the pro forma adjustments as of the
beginning of the period, is as follows:
Year ended December 31 1994
(In thousands, except per share data)
Net interest income $61,466
Provision for loan losses (2,307)
Non-interest income 10,635
Non-interest expense 56,581
Provision for income taxes 6,133
Net income $11,694
Net income per fully diluted common share $2.06
21. GOODWILL AND CORE DEPOSIT
INTANGIBLE ASSETS
USBANCORP's balance sheet shows both tangible assets
(such as loans, buildings, and investments) and
intangible assets (such as goodwill). The Company now
carries $16.9 million of goodwill and $4.6 million of
core deposit intangible assets on its balance sheet.
The majority of these intangible assets came from the
1994 JSB acquisition ($25.9 million) and the 1993
Integra Branches acquisition ($1.2 million).
40
The Company is amortizing core deposit intangibles over
periods ranging from five to ten years while goodwill
is being amortized over a 15 year life. The
straight-line method of amortization is being used for
both of these categories of intangibles. It is
important to note that this intangible amortization
expense is not a future cash outflow. The following
table reflects the future amortization expense of the
intangible assets:
Year Expense
(In thousands)
1997 $2,356
1998 2,170
1999 2,014
2000 1,904
2001 and after 13,034
A reconciliation of the Company's intangible asset
balances for 1996 and 1995 is as follows:
At December 31 1996 1995
(In thousands)
Balance January 1 $23,838 $27,009
Amortization expense (2,360) (2,473)
Goodwill reduction resulting
from additional deferred tax asset
- (698)
Balance December 31 $21,478 $23,838
The additional deferred tax asset was attributed to tax
benefits arising from the completion of the final JSB
corporate tax return in 1995.
Goodwill and other intangible assets are reviewed for
possible impairment at a minimum annually, or more
frequently, if events or changed circumstances may
affect the underlying basis of the asset. The Company
uses an estimate of the subsidiary banks undiscounted
future earnings over the remaining life of the goodwill
and other intangibles in measuring whether these assets
are recoverable. This review is consistent with SFAS
121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of,"
which the Company adopted in the first quarter of 1996.
This adoption did not have a material impact on the
Company's Financial Statements.
22. OFF-BALANCE SHEET HEDGE INSTRUMENTS
The Company uses various interest rate contracts, such
as interest rate swaps, caps and floors, to help manage
interest rate and market valuation risk exposure, which
is incurred in normal recurrent banking activities. A
summary of the off-balance sheet hedging transactions
outstanding as of December 31, 1996, and 1995, are as
follows:
Borrowed Funds Hedges:
On March 16, 1995, the Company entered into an interest
rate swap agreement with a notional amount of $60
million and a termination date of March 16, 1997. Under
the terms of the swap agreement, the Company pays a two
year fixed interest rate of 6.93% and receives 90 day
Libor which resets quarterly. The counterparty in this
unsecured transaction is PNC Bank.
This swap agreement was executed to hedge short-term
borrowings which were incurred to fund investment
securities as part of the increased leveraging of the
balance sheet. Specifically, FHLB term advances which
reprice quarterly are being used to fund fixed-rate
agency mortgage-backed securities with durations
ranging from two to three years. This hedge transaction
increased interest expense by $738,000 for 1996 and
$367,000 for 1995.
On September 29, 1995, the Company entered into an
interest rate swap agreement with a notional amount of
$25 million and a termination date of September 29,
1997. Under the terms of the swap agreement, the
Company pays a two year fixed interest rate of 6.05%
and receives 90 day Libor which resets quarterly. The
counterparty in this unsecured transaction is Mellon
Bank.
This swap agreement was executed to hedge short-term
borrowings used to leverage the balance sheet.
Specifically, FHLB advances which reprice every 90 days
are being used to fund fixed-rate agency
mortgage-backed securities with a two year duration.
This hedge transaction increased interest expense by
$124,000 for 1996 and $12,000 for 1995.
CMO Liability Hedge:
During the first quarter of 1994, the Company entered
into an interest rate swap agreement with a termination
date of February 11, 1997. Under the terms of the swap
agreement, the Company receives a fixed interest rate
of 5% and pays a floating interest rate defined as the
90 day Libor which resets quarterly. The counterparty
in this unsecured transaction is PNC Bank.
This swap agreement was initiated to hedge interest
rate risk in a declining, stable, or modestly rising
rate environment. Specifically, this transaction hedges
the CMO liability on the Consolidated Balance Sheet by
effectively converting the fixed percentage cost to a
variable rate cost. This hedge also offsets market
valuation risk since any change in the market value of
the swap agreement correlates in the opposite direction
with a change in the market value of the CMO liability.
Overall, this swap agreement increased interest expense
by $60,000 for 1996 and $110,000 for 1995.
The Company believes that its exposure to credit loss
in the event of non-performance by any of the
counterparties is remote.
The Company monitors and controls all off-balance sheet
derivative products with a comprehensive Board of
Director approved hedging policy. This policy permits a
maximum notional amount outstanding of $250 million for
interest rate swaps, and a maximum notional amount
outstanding of $250 million for interest rate
caps/floors. The Company had no interest rate caps or
floors outstanding at December 31, 1996, or December
31, 1995.
41
23. CAPITAL
The Company is subject to various capital requirements
administered by the federal banking agencies. Under
capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company
must meet specific capital guidelines that involve
quantitative measures of the Company's assets,
liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The
Company's capital amounts and classification are also
subject to qualitative judgements by the regulators
about components, risk weightings, and other factors.
Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional
discretionary actions by regulators that, if
undertaken, could have a direct material effect on the
Company's financial statements.
Quantitative measures established by regulation to
ensure capital adequacy require the Company to maintain
minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted
assets, and of Tier I capital to average assets.
Management believes that as of December 31, 1996, the
Company meets all capital adequacy requirements to
which it is subject.
As of December 31, 1996, and 1995, the Federal Reserve
categorized the Company as "Well Capitalized" under the
regulatory framework for prompt corrective action. To
be categorized as well capitalized, the Company must
maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that
notification that management believes have changed the
Company's classification category.
To Be Well
Capitalized Under
For Capital Prompt Corrective
As of December 31, 1996 Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(In thousands, except ratios)
Total Capital (to Risk Weighted Assets)
Consolidated $142,832 14.16% $80,683 8.00% $100,853 10.00%
U.S. Bank 86,087 15.47 44,505 8.00 55,631 10.00
Three Rivers Bank 31,878 13.55 18,818 8.00 23,523 10.00
Community Savings Bank 29,287 13.52 17,334 8.00 21,668 10.00
Tier 1 Capital (to Risk Weighted Assets)
Consolidated 130,225 12.91 40,341 4.00 60,512 6.00
U.S. Bank 79,133 14.22 22,252 4.00 33,379 6.00
Three Rivers Bank 29,281 12.45 9,409 4.00 14,114 6.00
Community Savings Bank 26,579 12.27 8,667 4.00 13,001 6.00
Tier 1 Capital (to Average Assets)
Consolidated 130,225 6.51 79,966 4.00 99,958 5.00
U.S. Bank 79,133 6.91 45,790 4.00 57,238 5.00
Three Rivers Bank 29,281 6.44 18,174 4.00 22,718 5.00
Community Savings Bank 26,579 6.65 15,986 4.00 19,982 5.00
42
To Be Well
Capitalized Under
For Capital Prompt Corrective
As of December 31, 1995 Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(In thousands, except ratios)
Total Capital (to Risk Weighted Assets)
Consolidated $134,552 14.88% $72,325 8.00% $90,406 10.00%
U.S. Bank 80,593 15.52 41,532 8.00 51,915 10.00
Three Rivers Bank 29,312 15.05 15,578 8.00 19,472 10.00
Community Savings Bank 28,675 15.22 15,075 8.00 18,843 10.00
Tier 1 Capital (to Risk Weighted Assets)
Consolidated 123,251 13.63 36,162 4.00 54,244 6.00
U.S. Bank 74,104 14.27 20,766 4.00 31,149 6.00
Three Rivers Bank 26,878 13.80 7,789 4.00 11,683 6.00
Community Savings Bank 26,320 13.97 7,537 4.00 11,306 6.00
Tier 1 Capital (to Average Assets)
Consolidated 123,251 6.65 74,107 4.00 92,634 5.00
U.S. Bank 74,104 6.88 43,064 4.00 53,830 5.00
Three Rivers Bank 26,878 6.72 16,006 4.00 20,008 5.00
Community Savings Bank 26,320 7.07 14,882 4.00 18,602 5.00
24. PARENT COMPANY FINANCIAL INFORMATION
The Parent Company functions primarily as a
coordinating and servicing unit for all subsidiary
entities. Provided services include general management,
credit policies and procedures, accounting and taxes,
loan review, auditing, investment advisory, compliance,
marketing, insurance risk management, general corporate
services, and financial and strategic planning. The
following financial information relates only to the
Parent Company operations:
BALANCE SHEET
At December 31 1996 1995
(In thousands)
ASSETS
Cash and cash equivalents $ 28 $ 314
Equity investment in banking subsidiaries 157,120 155,135
Equity investment in non-banking
subsidiaries 2,128 2,079
Other assets 878 964
TOTAL ASSETS $160,154 $158,492
LIABILITIES
Short-term borrowings $ 4,800 $ 7,452
Other liabilities 3,332 548
TOTAL LIABILITIES 8,132 8,000
STOCKHOLDERS' EQUITY
Total stockholders' equity 152,022 150,492
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $160,154 $158,492
43
STATEMENT OF INCOME
Year ended December 31 1996 1995 1994
(In thousands)
INCOME
Inter-entity management fees $ 3,817 $ 3,899 $ 3,332
Dividends from subsidiaries 15,491 9,237 5,530
Interest and dividend income 13 776 1,062
Net realized losses on
investment securities - (469) (99)
Total Income 19,321 13,443 9,825
EXPENSE
Interest expense 676 1,343 535
Salaries and employee benefits 2,753 2,885 2,670
Other expense 1,522 1,563 1,924
Total Expense 4,951 5,791 5,129
INCOME BEFORE INCOME TAXES
AND EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES 14,370 7,652 4,696
Provision for income taxes 484 641 5
Equity in undistributed
income of subsidiaries 5,271 7,510 6,619
NET INCOME $20,125 $15,803 $11,320
STATEMENT OF CASH FLOWS
Year ended December 31 1996 1995 1994
(In thousands)
OPERATING ACTIVITIES
Net income $ 20,125 $ 15,803 $ 11,320
Adjustments to reconcile
net income to net cash
provided by operating activities:
Equity in undistributed
income of subsidiaries (5,271) (7,510) (6,619)
Net cash provided by
operating activities 14,854 8,293 4,701
INVESTING AND FINANCING ACTIVITIES
Common stock cash dividends paid (4,522) (7,156) (4,679)
Proceeds from issuance of
common stock 188 497 596
Sale of investment securities - 16,356 -
Purchase of treasury stock (8,531) (7,943) (3,064)
(Repayment) borrowing to fund
JSB acquisition - (16,669) 16,669
(Decrease) increase in borrowings (1,800) 5,600 1,000
Investment in subsidiaries - (200) (19,498)
Other-net (475) (996) 3,884
Net cash used by investing and
financing activities (15,140) (10,511) (5,092)
NET DECREASE IN CASH EQUIVALENTS (286) (2,218) (391)
CASH EQUIVALENTS AT JANUARY 1 314 2,532 2,923
CASH EQUIVALENTS AT DECEMBER 31 $ 28 $ 314 $ 2,532
The ability of subsidiary banks to upstream cash to the
Parent Company is restricted by regulations. Federal
law prevents the Parent Company from borrowing from its
subsidiary banks unless the loans are secured by
specified assets. Further, such secured loans are
limited in amount to ten percent of the subsidiary
banks' capital and surplus. In addition, the subsidiary
banks are subject to legal limitations on the amount of
dividends that can be paid to their shareholder. The
dividend limitation generally restricts dividend
payments to a bank's retained net income for the
current and preceding two calendar years. Cash may also
be upstreamed to the Parent Company by the subsidiary
banks as an inter-entity management fee. At December
31, 1996, the subsidiary banks were permitted to
upstream an additional $20,071,000 in cash dividends to
the Parent Company. The subsidiary banks also had a
combined $131,277,000 of restricted surplus and
retained earnings at December 31, 1996.
The Parent Company renewed a $2.5 million line of
credit from a non-affiliated correspondent bank. This
line of credit is unsecured and is subject to annual
review on July 31, 1997. Future drawdowns on this line
would be at short-term rates tied to 90 day Libor.
Additionally, there is an annual commitment fee of 1/4%
on any unused portion of the line.
The Parent Company also entered into a $10 million
unsecured line of credit from the same non-affiliated
correspondent bank on August 1, 1995. Subsequently,
this line of credit was increased to $12 million in
July 1996 and is subject to annual review on July 31,
1997. Future drawdowns on this line would be the
greater of (A) the Prime Rate less one-half of one
percent (1/2%), or (B) the sum of the Federal Funds
Rate plus fifty basis points (1/2%) per annum.
Additionally, there is an annual commitment fee of
one-tenth of one percent (1/10%) on the unused portion
of the line.
The Parent Company had available at December 31,
1996,$9.7 million of a total combined $14.5 million
available credit line.
44
STATEMENT OF MANAGEMENT RESPONSIBILITY
January 23, 1997
To the Stockholders and
Board of Directors of
USBANCORP, Inc.
Management of USBANCORP, Inc. and its subsidiaries have
prepared the consolidated financial statements and
other information in the "Annual Report and Form 10-K"
in accordance with generally accepted accounting
principles and are responsible for its accuracy.
In meeting its responsibility, management relies on
internal accounting and related control systems, which
include selection and training of qualified personnel,
establishment and communication of accounting and
administrative policies and procedures, appropriate
segregation of responsibilities, and programs of
internal audit. These systems are designed to provide
reasonable assurance that financial records are
reliable for preparing financial statements and
maintaining accountability for assets and that assets
are safeguarded against unauthorized use or
disposition. Such assurance cannot be absolute because
of inherent limitations in any internal control system.
Management also recognizes its responsibility to foster
a climate in which Company affairs are conducted with
the highest ethical standards. The Company's Code of
Conduct, furnished to each employee and director,
addresses the importance of open internal
communications, potential conflicts of interest,
compliance with applicable laws, including those
related to financial disclosure, the confidentiality of
proprietary information, and other items. There is an
ongoing program to assess compliance with these
policies.
The Audit Committee of the Company's Board of Directors
consists solely of outside directors. The Audit
Committee meets periodically with management and the
independent public accountants to discuss audit,
financial reporting, and related matters. Arthur
Andersen LLP and the Company's internal auditors have
direct access to the Audit Committee.
/s/Terry K. Dunkle
Terry K. Dunkle
Chairman,
President & CEO
/s/Orlando B. Hanselman
Orlando B. Hanselman
Executive Vice President &
Chief Financial Officer
45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
USBANCORP, Inc.:
We have audited the accompanying consolidated balance
sheets of USBANCORP, Inc. (a Pennsylvania corporation)
and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income,
stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996.
These financial statements are the responsibility of
the Company's management. Our responsibility is to
express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material
respects, the financial position of USBANCORP, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for
each of the three years in the period ended December
31, 1996, in conformity with generally accepted
accounting principles.
As explained in Note 1 to the Consolidated Financial
Statements, effective January 1, 1995, the Company
changed its method of accounting for loan losses. In
addition, the Company changed its method of accounting
for mortgage servicing rights effective for the quarter
ended June 30, 1995. Further, as discussed in Note 1 to
the Consolidated Financial Statements, effective
January 1, 1994, the Company changed its method of
accounting for investments in debt and equity
securities.
/s/Arthur Andersen LLP
Arthur Andersen LLP
Pittsburgh, Pennsylvania
January 23, 1997
46
Management's Discussion and Analysis - Divider Page
47
MARKET PRICE AND DIVIDEND DATA
Common Stock
USBANCORP's Common Stock is traded on the NASDAQ
National Market System under the symbol "UBAN." The
following table sets forth the high and low closing
prices and the cash dividends declared per share for
the periods indicated:
CLOSING PRICES Cash Dividends
High Low Declared
Year ended December 31, 1996:
First Quarter $33.50 $31.50 $0.27
Second Quarter 36.88 31.75 0.30
Third Quarter 38.94 31.00 0.30
Fourth Quarter 42.50 38.50 0.50
Year ended December 31, 1995:
First Quarter $24.00 $20.50 $0.25
Second Quarter 23.50 19.75 0.27
Third Quarter 30.50 22.75 0.27
Fourth Quarter 34.25 29.25 0.27
48
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA
At or for the year ended December 31 1996 1995 1994 1993 1992
(Dollars in thousands, except per share data and ratios)
Summary of Income Statement Data:
Total interest income $ 137,333 $ 129,715 $ 102,811 $ 85,735 $ 82,790
Total interest expense 76,195 73,568 46,993 36,250 38,349
Net interest income 61,138 56,147 55,818 49,485 44,441
Provision for loan losses 90 285 (2,765) 2,400 2,216
Net interest income after provision
for loan losses 61,048 55,862 58,583 47,085 42,225
Total non-interest income 18,689 16,543 8,187 10,150 8,346
Total non-interest expense 52,474 50,557 49,519 40,715 36,248
Income before income taxes and cumulative
effect of change in accounting principle 27,263 21,848 17,251 16,520 14,323
Provision for income taxes 7,244 6,045 5,931 5,484 5,440
Income before cumulative effect of change
in accounting principle 20,019 15,803 11,320 11,036 8,883
Cumulative effect of change in accounting
principle - - - 1,452 -
Net income $ 20,019 $ 15,803 $ 11,320 $ 12,488 $ 8,883
Net income applicable to common stock $ 20,019 $ 15,803 $ 11,320 $ 12,385 $ 7,710
Per Common Share Data:
Primary Earnings:
Net income $ 3.83 $ 2.88 $ 2.18 $ 2.78 $ 2.67
Income before cumulative effect of change
in accounting principle, and acquisition
charge 3.83 2.88 2.54 2.45 2.67
Fully Diluted Earnings:
Net income 3.81 2.87 2.18 2.72 2.53
Income before cumulative effect of change
in accounting principle, and acquisition
charge 3.81 2.87 2.54 2.41 2.53
Cash dividends declared 1.37 1.06 0.97 0.86 0.75
Book value at period end 29.90 28.34 24.57 24.67 23.08
Balance Sheet and Other Data:
Total assets $2,087,112 $1,885,372 $1,788,890 $1,241,521 $1,139,855
Loans and loans held for sale,
net of unearned income 939,726 834,634 868,004 727,186 648,915
Allowance for loan losses 13,329 14,914 15,590 15,260 13,752
Investment securities available for sale 455,890 427,112 259,462 428,712 366,888
Investment securities held to maturity 546,318 463,951 524,638 - -
Deposits 1,138,738 1,177,858 1,196,246 1,048,866 997,591
Long-term debt 4,172 5,061 5,806 3,445 9,409
Stockholders' equity 151,917 150,492 137,136 116,615 82,971
Full-time equivalent employees 759 742 780 665 644
Selected Financial Ratios:
Return on average total equity before
SFAS 109 benefit and acquisition charge 13.36% 11.03% 10.41% 10.13% 11.41%
Return on average assets before SFAS 109
benefit and acquisition charge 1.03 0.87 0.87 0.91 0.85
Loans and loans held for sale, net of
unearned income, as a percent of deposits,
at period end 82.52 70.86 72.56 69.33 65.05
Ratio of average total equity to average
assets 7.69 7.85 8.39 8.96 7.48
Common stock cash dividends as a percent of
net income applicable to common stock 35.28 36.43 44.57 32.28 28.16
Common and preferred stock cash dividends as
a percent of net income 35.28 36.43 44.57 32.84 37.64
Interest rate spread 3.06 2.94 3.47 3.72 3.93
Net interest margin 3.52 3.45 4.03 4.34 4.58
Allowance for loan losses as a percentage of
loans and loans held for sale, net of
unearned income, at period end 1.42 1.79 1.80 2.10 2.12
Non-performing assets as a percentage of
loans and loans held for sale and other
real estate owned, at period end 0.92 1.13 0.91 0.89 1.58
Net charge-offs as a percentage of average
loans and loans held for sale 0.20 0.08 0.04 0.13 0.58
Ratio of earnings to fixed charges and preferred
dividends:
Excluding interest on deposits 1.79x 1.77x 2.34x 5.26x 4.05x
Including interest on deposits 1.36 1.30 1.37 1.45 1.36
One Year GAP ratio, at period end 0.79 0.86 0.79 1.10 1.14
Full-time equivalent employees in 1994 include 115
employees as a result of JSB acquisition. Full-time
equivalent employees in 1993 include 18 employees as a
result of the Integra Branches Acquisition. Full-time
equivalent employees in 1992 include 127 employees as a
result of the Community Acquisition.
The ratio of earnings to fixed charges and preferred
dividends is computed by dividing the sum of income
before taxes, fixed charges, and preferred dividends by
the sum of fixed charges and preferred dividends. Fixed
charges represent interest expense and are shown as
both excluding and including interest on deposits.
49
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain unaudited
quarterly consolidated financial data regarding the
Company:
1996 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
(In thousands, except per share data)
Interest income $35,991 $35,330 $33,245 $32,767
Non-interest income 4,665 4,922 4,572 4,530
Total operating income 40,656 40,252 37,817 37,297
Interest expense 20,006 19,709 18,213 18,267
Provision for loan losses 22 23 22 23
Non-interest expense 13,108 14,675 12,380 12,311
Income before income taxes 7,520 5,845 7,202 6,696
Provision for income taxes 2,025 1,546 1,920 1,753
Net income $ 5,495 $ 4,299 $ 5,282 $ 4,943
Primary Earnings Per Common Share:
Net income $ 1.06 $ 0.83 $ 1.01 $ 0.93
Fully Diluted Earnings Per Common Share:
Net income 1.06 0.82 1.01 0.93
Cash Dividends Declared Per Common Share 0.50 0.30 0.30 0.27
On September 30, 1996, the Company accrued a one-time
assessment of $1,925,000 mandated by Congress to
recapitalize the Savings Association Insurance Fund.
The negative after-tax impact of this special
assessment on net income was $1,368,000 or $0.26 on
fully diluted EPS.
1995 Quarter Ended Dec. 31 Sept. 30 June 30 March 31
(In thousands, except per share data)
Interest income $32,994 $32,733 $31,765 $32,223
Non-interest income 4,533 3,984 4,538 3,488
Total operating income 37,527 36,717 36,303 35,711
Interest expense 19,084 18,765 18,229 17,490
Provision for loan losses 45 45 75 120
Non-interest expense 12,838 12,606 12,595 12,518
Income before income taxes 5,560 5,301 5,404 5,583
Provision for income taxes 1,445 1,393 1,523 1,684
Net income $ 4,115 $ 3,908 $ 3,881 $ 3,899
Primary Earnings Per Common Share:
Net income $ 0.77 $ 0.72 $ 0.70 $ 0.70
Fully Diluted Earnings Per Common Share:
Net income 0.77 0.72 0.70 0.70
Cash Dividends Declared Per Common Share 0.27 0.27 0.27 0.25
50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("M. D. & A.")
The following discussion and analysis of financial
condition and results of operations of USBANCORP should
be read in conjunction with the consolidated financial
statements of USBANCORP, including the related notes
thereto, included elsewhere herein.
RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995, AND 1994
RECENT ACQUISITION HISTORY...The following represents a
brief summary of the Johnstown Savings Bank ("JSB")
acquisition, which was the only acquisition that
impacted the Company's financial performance over the
three year period from January 1, 1994, through
December 31, 1996. For a more comprehensive discussion
of this acquisition, see Note 20.
Johnstown Savings Bank: The acquisition of JSB for
financial reporting purposes was effective June 30,
1994, and accordingly, impacted the Company's financial
performance for six months in 1994 and the full year in
both 1995 and 1996. At the acquisition date, JSB had
total assets of $367 million, total loans of $125.6
million, and total deposits of $209 million. JSB was
immediately merged into the Company's U.S. Bank
subsidiary, which is also based in Johnstown,
Pennsylvania, giving U.S. Bank an approximate 23%
deposit market share leadership position in Cambria
County. JSB also had a wholly-owned mortgage banking
subsidiary, Standard Mortgage Company of Georgia, which
U.S. Bank transferred on an intracompany basis
immediately following the merger to Community Bancorp,
Inc.. Standard Mortgage Company currently services
approximately $1.4 billion of mortgage loans and has
mortgage servicing rights totalling $12.5 million at
December 31, 1996.
The total cost of the JSB acquisition was $43.8
million. JSB initially had six branch office locations
in the Greater Johnstown marketplace. Since the
acquisition date, three of these offices have been
merged into U.S. Bank's retail delivery system to
achieve economy of scale benefits.
PERFORMANCE OVERVIEW...The Company's net income for
1996 was $20.0 million or $3.81 on a fully diluted per
share basis compared to net income of $15.8 million or
$2.87 per fully diluted share for 1995 and net income
of $11.3 million or $2.18 per fully diluted share for
1994. When 1996 is compared to 1995, the Company's net
income increased by $4.2 million or 26.7% while fully
diluted earnings per share increased by $0.94 or 32.8%.
The Company's return on equity increased by 2.33% to
13.36% while return on assets increased by 16 basis
points to 1.03%.
This improved financial performance in 1996 was driven
by increased revenue generated from the core banking
business. Specifically, net interest income increased
by $5.0 million or 8.9% while total non-interest income
grew by $2.1 million or 13.0%. This growth in revenue
more than offset the negative impact of higher
non-interest expense. Total non-interest expense
increased by $1.9 million or 3.8% due primarily to a
special assessment to recapitalize the Savings
Association Insurance Fund ("SAIF") in the third
quarter of 1996. This special assessment amounted to
$1.9 million on a pre-tax basis and reduced fully
diluted earnings per share by $0.26 in 1996. Excluding
the special SAIF assessment, the Company's total
non-interest expense was essentially flat between
years.
51
The Company's earnings per share were also
enhanced by the repurchase of its common stock. There
were 247,000 fewer average fully diluted shares
outstanding in 1996 than in 1995 due to the success of
the Company's ongoing stock buyback program. Overall,
the Company demonstrated an improving quarterly
earnings trend in 1996 as fully diluted earnings per
share and return on equity improved from $0.93 and
13.14% in the first quarter to $1.06 and 14.38% in the
fourth quarter.
When 1995 is compared to 1994, the Company's net income
increased by $4.5 million or 39.6% while fully diluted
earnings per share increased by $0.69 or 31.7%. Note
that the Company's 1994 net income included a $1.9
million after-tax acquisition restructuring charge
related to the intra-market purchase of JSB. The
Company's improved earnings performance in 1995 was due
to higher non-interest income, increased net interest
income, and a lower effective income tax rate. These
favorable items were partially offset by a higher
relative loan loss provision (because the Company
benefited from a negative loan loss provision in 1994)
and higher non-interest expense. The full year impact
of the additional shares issued for the JSB acquisition
was the primary reason that the fully diluted earnings
per share growth rate was lower than the net income
growth rate experienced in 1995.
The following table summarizes some of the Company's
key performance indicators for each of the past three
years:
Year ended December 31 1996 1995 1994
(In thousands, except per share data and ratios)
Net income $20,019 $15,803 $11,320
Fully diluted earnings per share 3.81 2.87 2.18
Return on average assets 1.03% 0.87% 0.75%
Return on average equity 13.36 11.03 8.92
Average fully diluted
common shares outstanding 5,253 5,500 5,192
NET INTEREST INCOME AND MARGIN...The Company's net
interest income represents the amount by which interest
income on earning assets exceeds interest paid on
interest bearing liabilities. Net interest income is a
primary source of the Company's earnings; it is
affected by interest rate fluctuations as well as
changes in the amount and mix of earning assets and
interest bearing liabilities. It is the Company's
philosophy to strive to optimize net interest margin
performance in varying interest rate environments. The
following table summarizes the Company's net interest
income performance for each of the past three years:
Year ended December 31 1996 1995 1994
(In thousands, except ratios)
Interest income $137,333 $129,715 $102,811
Interest expense 76,195 73,568 46,993
Net interest income 61,138 56,147 55,818
Tax-equivalent adjustment 2,954 2,807 1,746
Net tax-equivalent interest income $ 64,092 $ 58,954 $ 57,564
Net interest margin 3.52% 3.45% 4.03%
1996 NET INTEREST PERFORMANCE OVERVIEW...The Company's
net interest income on a tax-equivalent basis increased
by $5.1 million or 8.7% due to growth in earning assets
and improved net interest margin performance. The 1996
net interest margin of 3.52% was seven basis points
better than the 1995 net interest margin of 3.45% and
reflects the benefits of reduced funding costs and six
consecutive quarters of loan growth.
52
The total cost of funds decreased by 17 basis
points as deposit and borrowing costs dropped by 15 and
55 basis points, respectively. Growth in higher
yielding loans helped limit the decline in the earning
asset yield to five basis points despite the lower
interest rate environment which was experienced in
1996. Total loans outstanding averaged $858 million or
73.8% of total deposits in 1996 compared to an average
of $824 million or 68.7% of total deposits in 1995. By
the fourth quarter of 1996, the Company's loan to
deposit ratio had improved to 79.4%. This growth in
loans along with greater balance sheet leveraging
through the investment securities portfolio caused
total average earning assets to be $111 million higher
in 1996 compared to 1995.
BALANCE SHEET LEVERAGING...The Company's ongoing
strategy to use borrowed funds to purchase earning
assets in order to leverage the balance sheet and
equity contributes to increased net interest income but
a lower net interest margin percentage. The source for
the borrowed funds is predominately the Federal Home
Loan Bank ("FHLB") because each of the Company's
subsidiary banks are members of the FHLB. Examples of
FHLB borrowings used by the Company include 30 and 90
day wholesale reverse repurchase agreements, overnight
borrowings, one year term funds tied to 90 day Libor,
and term advances. These funds are used primarily to
purchase available for sale and held to maturity
mortgage-backed investment securities with durations
ranging from one to three years. For the full year
1996, the Company's total level of short-term borrowed
funds and FHLB advances averaged $600 million or 30.8%
of total assets compared to an average of $449 million
or 24.6% of total assets in 1995. These borrowed funds
had an average cost of 5.59% in 1996 which was 147
basis points greater than the average cost of deposits
which amounted to 4.12%. The net interest spread earned
on assets funded with short-term borrowings and FHLB
advances averaged 1.45% in 1996 which compared
favorably to the net interest spread of 1.10% earned on
leveraged assets in 1995.
The maximum amount of leveraging the Company can
perform is controlled by internal policy requirements
to maintain a minimum asset leverage ratio of no less
than 6.0% (see further discussion under Capital
Resources) and to limit net interest income variability
to plus of minus 7.5% under different interest rate
scenarios (see further discussion under Interest Rate
Sensitivity). The Company continuously evaluates the
approximate $10 million of cash flow received monthly
from the investment portfolio and makes one of the
following three decisions which can impact the
leveraged position of the balance sheet:
(1) The Company can use the money to fund any loan
demand that cannot be funded with existing cash flow
from the loan portfolio or deposits.
(2) The Company can use the money to fund new
investment security purchases provided that the
incremental spread over the current short-term
borrowing cost is not less than 100 basis points.
(3) The Company can use the money to paydown short-term
borrowings if the incremental spread that can be earned
on new investment purchases is not deemed sufficient.
It is recognized that interest rate risk does exist,
particularly in a rising interest rate environment,
from this use of borrowed funds to leverage the balance
sheet. To neutralize a portion of this risk, the
Company has executed a total of $85 million of
off-balance sheet hedging transactions which help fix
the variable funding costs associated with the
leveraging of the balance sheet. (See further
discussion under Note 22.) Additionally, during the
first quarter of 1996 the Company took advantage of the
flatness of the Treasury yield curve to further reduce
the interest rate risk associated with the balance sheet leveraging.
53
Specifically, $150 million of non-hedged borrowings
with the FHLB were extended from a 30 day maturity to a
two year term at a fixed cost of approximately 5.0%.
This liability extension strategy helped reduce both
short-term interest rate risk and the cost of
borrowings.
COMPONENT CHANGES IN NET INTEREST INCOME: 1996 VERSUS
1995...Regarding the separate components of net
interest income, the Company's total 1996
tax-equivalent interest income increased by $7.8
million or 5.9% when compared to 1995. This increase
was due primarily to a $111 million or 6.5% increase in
total average earning assets which caused interest
income to rise by $7.2 million. This net increase in
average earning assets reflects $84 million of growth
in average investment securities and a $34 million
increase in total average loans. The additional
interest income generated from higher earning asset
volumes was partially offset by a five basis point
decline in the earning asset yield to 7.72%. Within the
earning asset base, the yield on total investment
securities declined by eight basis points to 6.85% due
primarily to the lower interest rate environment
experienced in 1996. Both the prime rate and fed funds
rate were approximately 50 basis points lower in 1996
as compared to 1995.
Despite the lower interest rate environment, the yield
on the total loan portfolio decreased by only five
basis points to 8.62%. A mix shift in the loan
portfolio towards higher yielding commercial product is
favorably impacting the total loan portfolio yield.
Total commercial and commercial mortgage loans
comprised 43.1% of total loans at December 31, 1996,
compared to 33.9% at December 31, 1995. Residential
mortgage loans comprised 45.6% of total loans at
December 31, 1996, compared to 50.3% at December 31,
1995. The higher commercial loan totals resulted from
increased production from both small business (loans
less than $250,000) and middle market lending. This
improved new loan production was due primarily to more
effective sales efforts which have included an
intensive customer calling program and canvassing of
small commercial businesses. During 1996, in its first
full year of operation, the Company's small business
loan center approved 688 applications for $40 million
and closed 401 loans for $27 million with an average
approval time of 48 hours. The Company will continue to
aggressively focus on this market that was established
over the past eighteen months. This enhanced commercial
loan production also attests to the modest economic
growth of the Western Pennsylvania market.
The reduced dependence on residential mortgage loans as
an earning asset reflects the Company's ongoing
strategy to sell newly originated 30 year fixed-rate
mortgage product. The decline in consumer loans from
15.8% of total loans at December 31, 1995, to 11.3% of
total loans at December 31, 1996, was due entirely to
net run-off experienced within the lower yielding
indirect auto loan portfolio. This indirect auto loan
run-off has more than offset improved production of
higher yielding direct consumer loans from the
Company's branch offices which for 1996 were $14
million or 40% greater than 1995.
The Company's total interest expense for 1996 increased
by $2.6 million, or 3.6%, when compared to 1995. This
higher interest expense was caused by a $112 million
increase in average interest bearing liabilities which
caused interest expense to rise by $3.8 million. Within
the liability mix, total borrowed funds increased by
$153 million in order to fund greater balance sheet
leverage and replace a $41 million outflow in interest
bearing deposits.
54
Lower rates paid for both deposits
and FHLB borrowings caused a favorable rate variance of $1.2
million which partially offset the increased interest
expense resulting from the higher level of interest
bearing liabilities. The cost of deposits decreased by
15 basis points to 4.12% as the Company was able to
reprice all major deposit categories downward during
1996. Due to the lower interest rate environment and
the favorable extension of $150 million of non-hedged
FHLB borrowings at a fixed rate of 5.0%, the Company's
cost of borrowed funds averaged 5.59% for 1996 or 55
basis points lower than the 6.14% average cost for
1995. The combination of all these price and liability
composition movements caused USBANCORP's average cost
of interest bearing liabilities to decrease by 17 basis
points from 4.83% in 1995 to 4.66% in 1996.
1995 NET INTEREST PERFORMANCE OVERVIEW...The Company's
net interest income on a tax-equivalent basis, between
1995 and 1994, increased by $1.4 million, or 2.4%,
while the net interest margin percentage declined by 58
basis points to 3.45%. The increased net interest
income was due primarily to a higher volume of earning
assets resulting from the JSB acquisition and a greater
use of borrowed funds to leverage the balance sheet.
(See previous discussion under Balance Sheet
Leveraging.) For 1995, total average earning assets
were $270 million higher than 1994. The reduction in
the net interest margin percentage was due to the cost
of funds increasing to a greater extent than the
earning asset yield. Specifically, the Company's cost
of funds increased by 99 basis points to 4.83% while
the earning asset yield increased by 46 basis points to
7.77%. Factors contributing to the higher cost of funds
included an increased cost of short-term borrowings
used to fund the Company's balance sheet leveraging and
a disintermediation of deposits from lower cost savings
accounts into higher cost fixed-rate certificates of
deposit.
COMPONENT CHANGES IN NET INTEREST INCOME: 1995 VERSUS
1994...Regarding the separate components of net
interest income, the Company's total 1995
tax-equivalent interest income increased by $28.0
million or 26.7% when compared to 1994. The previously
mentioned $270 million increase in average earning
assets caused interest income to rise by $18.5 million
between years. The remaining $9.5 million of the
increase was due to a favorable rate variance as the
Company's total earning asset yield increased by 46
basis points to 7.77%. Within the earning asset base,
the yield on total investment securities increased by
90 basis points to 6.93% while the yield on the total
loan portfolio increased 38 basis points to 8.67%. The
yields in both portfolios were positively affected by
the higher interest rate environment as the prime rate
and fed funds rate were approximately 160 basis points
higher in 1995 as compared to 1994. The more
significant yield increase in the investment securities
portfolio was due in part to the benefits received from
the following portfolio repositioning strategy:
Late in the fourth quarter of 1994, the Company
repositioned its investment portfolio by selling $81
million of available for sale securities with a
weighted average coupon of approximately 6.02% and
remaining maturity of 29 months at a loss of $4
million. Securities in the amount of $77 million were
purchased with a weighted average coupon of
approximately 8.80% and a maturity of 49 months. The
approximate 275 basis point yield improvement on this
repositioning strategy generated $2.1 million of
additional pre-tax interest earnings in 1995.
The Company's loan to deposit ratio averaged 68.7% in
1995 compared to an average of 71.9% in 1994 or a
decline of 3.2%. It is important to note that
approximately 2.5% of this drop resulted from the
following specific loan portfolio repositioning
strategy executed in the first quarter of 1995:
55
In an effort to diversify the Company's balance sheet
mix and reduce its higher level of fixed-rate
residential mortgage loans that resulted from the JSB
acquisition,$34 million of fixed-rate residential
mortgage loans with a weighted average coupon of 7.79%
and a weighted average maturity of 168 months were sold
at a loss of $891,000. The proceeds from this sale were
reinvested in adjustable-rate and shorter duration
mortgage-backed securities at a comparable yield.
Consequently, this sale had minimal impact on 1995
interest earnings and increased the repricing
sensitivity of the Company's earning assets which
provides greater flexibility for interest rate risk
management.
The remainder of the decline in the loan to deposit
ratio resulted from net loan run-off experienced during
the first half of 1995 in both the commercial loan and
indirect auto loan portfolios. The Company was,
however, able to reverse the net run-off trend and grow
the total loan portfolio by $32.9 million or 4.1%
during the second half of 1995 due to increased volumes
for both commercial and adjustable rate mortgage loans.
The Company's total interest expense for 1995 increased
by $26.6 million or 56.6% when compared to 1994. This
higher interest expense was caused by a combination of
an increased volume of interest bearing liabilities
($18.9 million) and an unfavorable rate variance ($7.6
million) as each of these factors increased interest
expense by the amount indicated in the parenthesis. A
$297 million increase in average interest bearing
liabilities reflects the first full year of the JSB
acquisition and greater use of FHLB borrowings. The
unfavorable rate variance was due to deposit
disintermediation and the impact that the higher
interest rate environment had on repricing upward
maturing FHLB borrowings and certificates of deposit.
Regarding deposit disintermediation, the Company saw a
customer preference to move funds from lower cost
savings and NOW accounts into higher cost fixed-rate
certificates of deposits with maturities ranging from
18 months to three years. This trend began in the
fourth quarter of 1994 and continued through the first
half of 1995. The deposit disintermediation slowed in
the second half of 1995 as interest rates started to
decline. Overall, total 1995 average savings and NOW
account balances were $34 million lower than 1994. The
Company's ratio of low cost deposits to total deposits
averaged 55.4% in 1994 compared to an average of 49.9%
in 1995. While the movement of these funds cost the
Company approximately $1.4 million, the extension of
the liability base did reduce the negativity of the six
month and one year static gap positions. The
disintermediation combined with upward repricing of
maturing certificates of deposit to cause an 80 basis
point increase in the cost of deposits from 3.47% in
1994 to 4.27% in 1995. The combination of all these
price and liability composition movements caused
USBANCORP's average cost of interest bearing
liabilities to increase by 99 basis points from 3.84%
in 1994 to 4.83% in 1995.
The table that follows provides an analysis of net
interest income on a tax-equivalent basis setting forth
(i) average assets, liabilities and stockholders'
equity, (ii) interest income earned on interest earning
assets and interest expense paid on interest bearing
liabilities, (iii) average yields earned on interest
earning assets and average rates paid on interest
bearing liabilities, (iv) USBANCORP's interest rate
spread (the difference between the average yield earned
on interest earning assets and the average rate paid on
interest bearing liabilities), and (v) USBANCORP's net
interest margin (net interest income as a percentage of
average total interest earning assets). For purposes of
this table, loan balances include non-accrual loans and
interest income on loans includes loan fees or
amortization of such fees which have been deferred, as
well as, interest recorded on non-accrual loans as cash
is received. Additionally, a tax rate of approximately
34% is used to compute tax equivalent yields.
56
Year ended December 31 1996 1995 1994
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
(In thousands, except percentages)
Interest earning assets:
Loans, net of unearned income $ 857,921 $ 74,967 8.62% $ 823,807 $ 71,855 8.67% $ 809,695 $ 67,114 8.29%
Deposits with banks 2,746 132 4.74 5,477 280 5.84 2,974 121 4.08
Federal funds sold
and securities purchased
under agreements to resale 667 36 5.35 2,715 165 5.94 2,330 94 4.06
Investment securities:
Available for sale 441,638 29,719 6.73 322,172 22,940 7.11 276,225 15,531 5.62
Held to maturity 502,335 34,963 6.96 538,028 36,726 6.82 327,910 20,777 6.38
Total investment securities 943,973 64,682 6.85 860,200 59,666 6.93 604,135 36,308 6.03
Assets held in trust for
collateralized mortgage obligation 6,236 470 7.54 8,143 556 6.85 10,825 920 8.50
Total interest earning
assets/interest income 1,811,543 140,287 7.72 1,700,342 132,522 7.77 1,429,959 104,557 7.31
Non-interest earning assets:
Cash and due from banks 35,547 36,657 42,609
Premises and equipment 18,325 19,052 18,014
Other assets 96,164 85,403 39,446
Allowance for loan losses (14,322) (15,146) (17,488)
TOTAL ASSETS $1,947,257 $1,826,308 $1,512,540
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand $ 81,233 $ 811 1.00% $ 91,596 $ 1,258 1.37% $ 106,665 $ 1,653 1.55%
Savings 209,054 3,525 1.69 229,423 4,302 1.88 248,265 4,806 1.94
Other time 731,592 37,724 5.16 742,133 39,843 5.37 632,040 27,824 4.40
Total interest bearing deposits 1,021,879 42,060 4.12 1,063,152 45,403 4.27 986,970 34,283 3.47
Federal funds purchased,
securities sold under
agreements to repurchase,
and other short-term borrowings 146,593 7,594 5.18 135,784 7,053 5.17 112,846 5,349 4.79
Advances from Federal Home Loan Bank 453,838 25,952 5.72 313,026 20,043 6.40 109,098 6,006 5.51
Collateralized mortgage obligation 5,670 470 8.29 7,388 848 11.48 9,861 1,024 10.38
Long-term debt 4,786 119 2.02 1,603 221 12.40 5,010 331 6.58
Total interest bearing
liabilities/interest expense 1,632,766 76,195 4.66 1,520,953 73,568 4.83 1,223,785 46,993 3.84
Non-interest bearing liabilities:
Demand deposits 140,574 136,543 138,428
Other liabilities 24,126 25,534 23,468
Stockholders' equity 149,791 143,278 126,859
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $1,947,257 $1,826,308 $1,512,540
Interest rate spread 3.06 2.94 3.47
Net interest income/net
interest margin 64,092 3.52% 58,954 3.45% 57,564 4.03%
Tax-equivalent adjustment (2,954) (2,807) (1,746)
Net interest income $61,138 $56,147 $55,818
57
The average balance and yield on taxable securities was
$797 million and 6.81%, $723 million and 6.95%, and
$522 million and 6.00% for 1996, 1995, and 1994,
respectively. The average balance and yield on
tax-exempt securities was $146 million and 7.06%, $137
million and 6.83%, and $83 million and 6.25% for 1996,
1995, and 1994, respectively.
Net interest income may also be analyzed by segregating
the volume and rate components of interest income and
interest expense. The table below sets forth an
analysis of volume and rate changes in net interest
income on a tax-equivalent basis. For purposes of this
table, changes in interest income and interest expense
are allocated to volume and rate categories based upon
the respective percentage changes in average balances
and average rates. Changes in net interest income that
could not be specifically identified as either a rate
or volume change were allocated proportionately to
changes in volume and changes in rate.
1996 vs. 1995 1995 vs. 1994
Increase(decrease) Increase(decrease)
due to change in: due to change in:
Average Average Average Average
Volume Rate Total Volume Rate Total
(In thousands)
Interest earned on:
Loans, net of unearned income $ 2,546 $ 566 $ 3,112 $ 1,306 $ 3,435 $ 4,741
Deposits with banks (220) 72 (148) 105 54 159
Federal funds sold and
securities purchased under
agreements to resell (138) 9 (129) 19 52 71
Investment securities 5,117 (101) 5,016 17,275 6,083 23,358
Assets held in trust for
collateralized mortgage obligation (74) (12) (86) (204) (160) (364)
Total interest income 7,231 534 7,765 18,501 9,464 27,965
Interest paid on:
Interest bearing demand deposits (481) 34 (447) (217) (178) (395)
Savings deposits (819) 42 (777) (358) (146) (504)
Other time deposits (2,125) 6 (2,119) 5,305 6,714 12,019
Federal funds purchased,
securities sold under agreements
to repurchase, and other
short-term borrowings 572 (31) 541 1,226 478 1,704
Advances from Federal Home Loan Bank 6,883 (974) 5,909 12,921 1,116 14,037
Collateralized mortgage obligation (433) 55 (378) (305) 129 (176)
Long-term debt 228 (330) (102) 366 (476) (110)
Total interest expense 3,825 (1,198) 2,627 18,938 7,637 26,575
Change in net interest income $3,406 $1,732 $5,138 $(437) $1,827 $1,390
59
LOAN QUALITY...USBANCORP's written lending policies
require underwriting, loan documentation, and credit
analysis standards to be met prior to funding any loan.
After the loan has been approved and funded, continued
periodic credit review is required. Credit reviews are
mandatory for all commercial loans and for all
commercial mortgages in excess of $250,000 within an 18
month period. In addition, due to the secured nature of
residential mortgages and the smaller balances of
individual installment loans, sampling techniques are
used on a continuing basis for credit reviews in these
loan areas.
The following table sets forth information concerning
USBANCORP's loan delinquency and other non-performing
assets:
At December 31 1996 1995 1994
(In thousands, except percentages)
Total loan delinquency
(past due 30 to 89 days) $20,284 $14,324 $12,832
Total non-accrual loans 6,365 7,517 5,446
Total non-performing assets 8,671 9,426 7,901
Loan delinquency as a percentage
of total loans and loans held
for sale, net of unearned income 2.16% 1.72% 1.48%
Non-accrual loans as a percentage
of total loans and loans held
for sale, net of unearned income 0.68 0.90 0.63
Non-performing assets as a
percentage of total loans
and loans held for sale,
net of unearned income,
and other real estate owned 0.92 1.13 0.91
Non-performing assets are comprised of (i) loans
that are on a non-accrual basis, (ii) loans that are
contractually past due 90 days or more as to interest
and principal payments of which some are insured for
credit loss, and (iii) other real estate owned. All
loans, except for loans that are insured for credit
loss, are placed on non-accrual status immediately upon
becoming 90 days past due in either principal or
interest.
Between December 31, 1995, and December 31, 1996, the
ratio of delinquent loans to total loans increased from
1.72% to 2.16%. This increase is primarily attributable
to greater delinquency in both commercial and
residential mortgage loans in the 30-59 day past due
category. Non-performing assets demonstrated a decline
between 1995 and 1996 due largely to enhanced
collection efforts on residential mortgage loans and
the success of the Company's ongoing commercial loan
workout programs.
59
ALLOWANCE AND PROVISION FOR LOAN LOSSES...The following
table sets forth changes in the allowance for loan
losses and certain ratios for the periods ended:
Year ended December 31 1996 1995 1994 1993 1992
(In thousands, except ratios and percentages)
Balance at beginning of year: $ 14,914 $ 15,590 $ 15,260 $ 13,752 $ 13,003
Addition due to acquisitions - - 3,422 - 2,122
Reduction due to disposition of business line - (342) - - -
Charge-offs:
Commercial 1,705 576 352 383 2,286
Real estate-mortgage 156 135 155 628 1,141
Consumer 746 589 591 750 1,031
Total charge-offs 2,607 1,300 1,098 1,761 4,458
Recoveries:
Commercial 527 183 199 338 291
Real estate-mortgage 108 41 100 27 166
Consumer 297 457 472 504 412
Total recoveries 932 681 771 869 869
Net charge-offs 1,675 619 327 892 3,589
Provision for loan losses 90 285 (2,765) 2,400 2,216
Balance at end of year $ 13,329 $ 14,914 $ 15,590 $ 15,260 $ 13,752
Loans and loans held for sale,
net of unearned income:
Average for the year $857,921 $823,807 $809,695 $708,690 $623,087
At December 31 939,726 834,634 868,004 727,186 648,915
As a percent of average loans and
loans held for sale:
Net charge-offs 0.20% 0.08% 0.04% 0.13% 0.58%
Provision for loan losses 0.01 0.03 (0.34) 0.34 0.36
Allowance for loan losses 1.55 1.81 1.93 2.15 2.21
Allowance as a percent of each of the following:
Total loans and loans held for sale,
net of unearned income 1.42 1.79 1.80 2.10 2.12
Total delinquent loans (past due 30 to 89 days) 65.71 104.12 121.49 146.34 157.29
Total non-accrual loans 209.41 198.40 286.27 287.71 245.75
Total non-performing assets 153.72 158.22 197.32 234.84 133.63
Allowance as a multiple of net charge-offs 7.96x 24.09x 47.68x 17.11x 3.83x
Total classified loans $ 24,027 $ 28,355 $ 39,338 $ 38,227 $ 41,799
Dollar allocation of reserve to general risk 6,984 7,471 6,643 7,635 5,437
Percentage allocation of reserve to general risk 52.40% 50.09% 42.61% 50.03% 39.54%
The Company recorded a provision for loan losses of
$90,000 in 1996, $285,000 in 1995, and a negative
provision of $2.8 million in 1994. When expressed as a
percentage of average loans, the provision averaged
0.01% in 1996, 0.03% in 1995, and (0.34%) in 1994. The
Company's net charge-offs amounted to $1.7 million or
0.20% of average loans in 1996, $619,000 or 0.08% in
1995, and $327,000 or 0.04% in 1994. The strength of
the allowance for loan losses at each of the Company's
banking subsidiaries supported continued low loan loss
provision levels. The Company applies a consistent
methodology and procedural discipline to evaluate the
adequacy of the allowance for loan losses at each
subsidiary bank on a quarterly basis. At December 31,
1996, the allowance for loan losses at each of the
Company's banking subsidiaries was in compliance with
the Company's policy of maintaining a general
unallocated reserve of at least 20% of the
systematically determined minimum reserve need. In
total, the Company's general unallocated reserve was
$7.0 million at December 31, 1996, or 52.4% of the
allowance for loan losses. Additionally, the reduction
in the provision level was also supported by a
favorable downward trend in substandard and doubtful
classified loans experienced during 1995 and 1996.
Total classified loans dropped by $4.3 million, or
15.3%, in 1996 and $11.0 million, or 28%, in 1995.
60
The overall negative provision for 1994 resulted from a
negative provision of $4 million recognized in the
fourth quarter. This $4 million negative provision was
comprised of a $3 million negative provision at the
Company's U.S. Bank subsidiary and a $1 million
negative provision at the Company's Three Rivers Bank
subsidiary. This negative provision was driven by a
sustained improvement in asset quality which was
evidenced by favorable trends for net charge-offs, and
declining amounts of classified loans, non-accrual
loans and non-performing assets.
The Company's allowance for loan losses at December 31,
1996, was 1.42% of total loans and 154% of
non-performing assets. Both of these ratios declined
from the December 31, 1995, levels of 1.79% and 158%,
respectively, due to the decline in the reserve balance
and growth in the loan portfolio. The Company's reserve
levels continued to compare favorably to peer as
demonstrated in the most recent SNL Securities bank
analysis which showed that for banks throughout the
country between $1 and $5 billion in assets the
allowance to non-performing assets ratio was 142%.
Management currently estimates that if the loan growth
trends experienced in 1996 continue into future
periods, it is likely that increased loan loss
provisioning above the current low levels will be
required.
USBANCORP management is unable to determine in what
loan category future charge-offs and recoveries may
occur. The following schedule sets forth the allocation
of the allowance for loan losses among various
categories. This allocation is determined by using the
consistent quarterly procedural discipline which was
previously discussed. The entire allowance for loan
losses is available to absorb future loan losses in any
loan category.
At December 31 1996 1995 1994 1993 1992
Percent of Percent Percent Percent Percent
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
Amount to Loans Amount to Loans Amount to Loans Amount to Loans Amount to Loans
(In thousands, except percentages)
Commercial $ 1,826 14.7% $ 2,127 12.3% $ 1,894 13.4% $ 1,637 13.6% $ 1,653 11.6%
Commercial loans
secured by real estate 2,796 28.4 3,286 21.5 5,278 19.3 4,073 17.2 4,416 19.1
Real estate-mortgage 472 45.6 345 50.2 339 48.8 279 46.3 244 45.3
Consumer 959 11.3 600 16.0 1,436 18.5 1,636 22.9 2,002 24.0
Allocation to
general risk 6,984 7,471 6,643 7,635 5,437
Allocation for
impaired loans 292 1,085 - - -
Total $13,329 $14,914 $15,590 $15,260 $13,752
Includes loans held for sale.
Even though real estate-mortgage loans comprise
approximately 45.6% of the Company's total loan
portfolio, only $472,000 or 3.5% of the total allowance
for loan losses is allocated against this loan
category. The real estate-mortgage loan allocation is
based upon the Company's five year historical average
of actual loan charge-offs experienced in that category.
61
The disproportionately higher allocations for commercial
loans and commercial loans secured by real estate
reflect the increased credit risk associated with this
type of lending and the Company's historical loss
experience in these categories. At December 31, 1996,
management of the Company believes the allowance for
loan losses was adequate to cover potential yet
undetermined losses within the Company's loan
portfolio.
NON-INTEREST INCOME...Non-interest income for 1996
totalled $18.7 million which represented a $2.1
million, or 13.0%, increase when compared to 1995. This
increase was primarily due to the following items:
a $313,000, or 9.2%, increase in trust fees to $3.7
million in 1996. This trust fee growth is prompted by
increased assets under management due to the profitable
expansion of the Trust Company's business throughout
western Pennsylvania including the Greater Pittsburgh
marketplace. For the full year of 1996, the Trust
Company's business development efforts have generated
new trust assets amounting to $128 million which should
generate annual fees approximating $364,000.
a $1.1 million gain realized on the sale of loans held
for sale in 1996 compared to a $124,000 loss realized
on this same type of activity in 1995 (a net favorable
shift of $1.2 million). The 1996 gain resulted from
normal sales activity at the Company's mortgage banking
subsidiary as SMC generated over $211 million of new
loan originations in 1996. The 1995 loss resulted from
the previously discussed first quarter sale of $34
million of fixed-rate residential mortgage loans at a
loss of $891,000 as part of a balance sheet
repositioning strategy after the JSB acquisition.
a $905,000 gain realized on the disposition of Frontier
Finance Company, a subsidiary of Community Savings
Bank, in the first quarter of 1995. This business line
was sold because it did not fit into the Company's
future strategic plans and was not meeting internal
return on equity performance requirements. There were
no business line dispositions in 1996.
a $327,000, or 11.1%, increase in deposit service
charges to $3.3 million in 1996. This increase resulted
primarily from fewer waivers of overdraft charges due
to enhanced monitoring techniques and pricing increases
on several demand deposit account related services.
a $243,000, or 9.5%, decrease in net mortgage servicing
fee income to $2.3 million. This amount resulted from
$3.9 million of mortgage servicing fees net of $1.2
million of amortization expense of the cost of
purchased and originated mortgage servicing rights
("MSR"). The decline in earnings between 1996 and 1995
was due in part to increased amortization expense on
the mortgage servicing rights as a result of faster
mortgage prepayment speeds in 1996. The following chart
highlights some of the key information related to SMC's
mortgage servicing portfolio:
At December 31 1996 1995
(In thousands, except percentages
and prepayment data)
MSR balance $992,839 $990,299
Fair value of MSRs based upon
discounted cash flow of servicing portfolio 14,596 12,985
Fair value as a percentage of MSR balance 1.36% 1.31%
PSA prepayment speed 197 230
Weighted average portfolio interest rate 7.93% 8.04%
62
A rollforward of the MSRs is as follows:
(In thousands)
Balance as of December 31, 1995 $11,372
Acquisition of servicing rights 2,354
Amortization of servicing rights (1,232)
Balance as of December 31, 1996 $12,494
an $836,000 increase in the net cash surrender value of
a $32.5 million Bank Owned Life Insurance Policy
because the total balance of this asset was outstanding
for the entire year of 1996 compared to only a portion
of the year in 1995.
a $767,000, or 17.9%, increase in other income due in
part to additional income resulting from ATM
transaction charges, other mortgage banking processing
fees, credit card charges, letters of credit fees, and
check supply sales.
Non-interest income for 1995 totalled $16.5 million
which represented an $8.4 million or 102% increase when
compared to 1994. This increase was primarily due to
the following items:
the realization of a $702,000 gain on investment
securities available for sale in 1995 compared to a $4
million loss realized in 1994 (a net favorable shift of
$4.7 million). The 1995 gain resulted primarily from
the sale of $258 million of agency mortgage-backed
securities. These sales were executed to: (1) provide
liquidity for future funding needs; (2) enhance
asset/liability management positioning whereby lower
lifetime cap arm product was replaced with higher
lifetime cap arm product and fixed-rate mortgage
pass-through securities; and (3) improve overall
portfolio quality and provide ongoing earnings
enhancements. Approximately $95 million of the total
sales occurred in the fourth quarter of 1995 because
the Company took advantage of a one-time accounting
opportunity under SFAS 115 to reposition its securities
portfolio without risk of tainting the entire held to
maturity portfolio. The 1994 loss resulted primarily
from the previously discussed investment portfolio
repositioning strategy executed late in the fourth
quarter which was designed to enhance future net
interest income performance.
a $372,000, or 12.3%, increase in trust fees to $3.4
million in 1995. This trust fee growth reflects
increased assets under management as a result of
successful business development efforts in the
Company's southwestern Pennsylvania marketplace.
a $905,000 gain realized in 1995 on the disposition of
Frontier Finance Company, a subsidiary of Community
Savings Bank.
a $1.4 million increase in net mortgage servicing fee
income to $2.6 million. This amount resulted from $3.8
million of mortgage servicing fees net of $1.2 million
of amortization expense of the cost of purchased and
originated mortgage servicing rights. The improvement
in earnings between years was primarily due to holding
SMC for the full year in 1995 and reduced amortization
expense on the mortgage servicing rights as a result of
a slowdown in mortgage prepayment speeds. The quarterly
average amortization expense on mortgage servicing
rights was $80,000 lower in 1995 as compared to the
quarterly average in 1994.
a $124,000 loss realized on the sale of loans and loans
held for sale in 1995 compared to a $763,000 gain
realized in 1994 (a net unfavorable shift of
887,000).
63
The full year 1995 loss resulted primarily
from the previously discussed first quarter sale of $34
million of fixed-rate residential mortgage loans at a
loss of $891,000 as part of a balance sheet
repositioning strategy after the JSB acquisition. The
first quarter loss was partially offset by $767,000 of
gains generated throughout the year on fixed-rate
mortgage loan sales by SMC.
a $1.1 million increase in other income in 1995 due to
additional fee income resulting from the JSB
acquisition. Examples of fee income sources
demonstrating increases are ATM transaction charges,
other mortgage banking processing fees, insurance
commissions, and check supply sales.
NON-INTEREST EXPENSE...Non-interest expense for 1996
totalled $52.5 million, which represented a $1.9
million, or 3.8%, increase when compared to 1995. This
increase was primarily due to the following items:
an $833,000 increase in FDIC deposit insurance expense
due to a special assessment to recapitalize the SAIF in
the third quarter of 1996. This Congressionally
mandated special assessment amounted to $1.9 million on
a pre-tax basis as a result of a charge of 65.7 cents
per $100 of SAIF insured deposits held as of March 31,
1995. Beginning January 1, 1997, the annual rate the
Company pays on SAIF deposits will drop from 23 cents
to 6.44 cents per $100 of deposits while the rate on
Bank Insurance Fund ("BIF") deposits will increase from
zero cents to 1.29 cents per $100 of deposits.
Approximately $879 million or 77% of the Company's
deposits are covered by the BIF while the remaining
$260 million or 23% are part of the SAIF. The Company
estimates that 1997 pre-tax income will be favorably
impacted by approximately $300,000 as a result of these
deposit premium changes.
a $178,000, or 0.7%, increase in salaries and employee
benefits to $25.5 million. This modest increase was due
to higher pension and bonus costs which were partially
offset by three fewer FTE on average and lower group
insurance medical premiums as a result of a switch to a
managed care program.
a $200,000 increase in professional fees due to higher
legal and other professional fees in 1996.
a $663,000 increase in other expense due to theft loss
and higher advertising expense, other real estate owned
expense, telephone expense, and outside processing
fees.
Non-interest expense for 1995 totalled $50.6 million
which represented a $1.1 million, or 2.1%, increase
when compared to 1994. This increase was primarily due
to the following items:
the 1994 results included a $2.4 million acquisition
charge related to the Company's acquisition of JSB.
There were no acquisition costs incurred in 1995.
a $2.0 million increase in salaries and employee
benefits due to 22 additional average full-time
equivalent employees as a result of the full year of
the JSB acquisition, planned wage increases of
approximately 4%, and generally higher group medical
insurance and profit sharing costs.
a $668,000 increase in amortization expense due to the
amortization of the goodwill and core deposit
intangibles resulting from the JSB acquisition for the
full year in 1995 compared to only six months in 1994.
(See further discussion in Note 21.)
64
a $285,000 increase in net occupancy and equipment
expense due to the costs associated with operating four
additional JSB branches and the occupancy and equipment
costs related to the mortgage banking subsidiary.
an $848,000 decrease in FDIC deposit insurance expense
due to a reduction in the premium assessment rate on
deposits covered by the Bank Insurance Fund ("BIF")
from 23 cents to four cents per hundred dollars of
deposits effective June 1, 1995.
a $267,000 increase in professional fees due primarily
to higher legal fees in 1995. Included in the higher
legal fees were the legal costs incurred to
successfully negotiate a new four year collective
bargaining agreement with the United Steelworkers of
America, AFL-CIO-CLC, Local Union 8204, which is the
bargaining unit for 250 non-supervisory employees of
the Company's U.S. Bank subsidiary. (See further
discussion under Other Matters-Collective Bargaining
Agreement.)
a $685,000 increase in other expense due to the cost
associated with a claims audit and the write-off of a
prepaid bond commitment fee at the Company's mortgage
banking subsidiary, increased advertising expenses, and
the inclusion of all JSB other expenses for the entire
year in 1995.
NET OVERHEAD BURDEN...The Company's efficiency ratio
(non-interest expense divided by total revenue, which
consists of tax-equivalent net interest income and
non-interest income) showed significant improvement as
it declined from 67.0% in 1995 to 63.4% in 1996.
Excluding the $1.9 million SAIF special assessment, the
Company's efficiency ratio for 1996 averaged 61.1%. The
increased revenue generated in 1996 was the key factor
responsible for the improved efficiency ratio. The
Company is well positioned to achieve its goal of
reducing this ratio to below 60% by mid-1997. Employee
productivity ratios also continued to demonstrate
improvement as total assets per employee averaged $2.6
million for 1996, a 7.1% increase over the $2.4 million
average for 1995. Net income per employee also
increased by $5,700 to $26,600 in 1996 compared to
$20,900 in 1995.
JSB INTEGRATION BENEFITS...The successful integration
of JSB and the cost savings from intra-market
consolidation opportunities also contributed to the
improved efficiency and employee productivity ratios
discussed above. Specific cost savings/revenue
generating actions completed since the acquisition
included: a computer conversion from JSB's outside data
processing service bureau to U.S. Bank's internal data
processing system, the consolidation of three JSB
branches into the Company's existing retail delivery
system, the consolidation of back room check clearing
and item processing operations, the consolidation of
several administrative functions such as executive
administration, accounting and internal audit, the
transfer of all subsidiary banks' mortgage servicing to
Standard Mortgage Corporation, an investment portfolio
repositioning strategy that resulted in the sale of
approximately 90% of JSB's securities portfolio, and
the downward repricing of several low cost deposit
products. The continued favorable pre-tax benefits
recognized annually for each of the past two years has
amounted to approximately $5.0 million, which has
exceeded the Company's targeted goal of $3.8 million of
annual savings. Overall, the Company has retained
approximately 50 employees or just 42% of the original
JSB total of 120 full-time equivalent employees
(excluding SMC).
65
INCOME TAX EXPENSE...The Company's provision for income
taxes for 1996 was $7.2 million, reflecting an
effective tax rate of 26.6%. The Company's income tax
provision for 1995 was $6.0 million, reflecting an
effective tax rate of 27.7%. The $1.2 million increase
in income tax expense was due entirely to the higher
level of pre-tax earnings in 1996 because the Company
benefitted from a reduction in its effective tax rate.
This lower effective tax rate was caused predominately
by increased total tax-free asset holdings which were
$13 million higher on average in 1996 as compared to
1995 and amounted to $200 million. The tax-free asset
holdings consisted of municipal investment securities,
bank owned life insurance, and commercial loan tax
anticipation notes. These increasing levels of tax-free
asset holding were also responsible for the decline in
the effective tax rate from 34.4% in 1994 to 27.7% in
1995.
OTHER MATTERS-COLLECTIVE BARGAINING AGREEMENT...The
Company announced on October 17, 1995, that its
wholly-owned subsidiary, U.S. Bank in Johnstown (the
"Bank"), has reached a new four year collective
bargaining agreement with the United Steelworkers of
America, AFL-CIO-CLC, Local Union 8204, which is the
bargaining unit for 250 non-supervisory employees of
the Bank, or approximately 60% of the Bank's workforce.
The agreement, approved by a majority of the bargaining
unit members, was effective on October 16, 1995. The
principal features of the collective bargaining
agreement are as follows:
The term of the agreement is four years and will expire
on October 15, 1999.
The agreement calls for a wage freeze for bargaining
unit employees in the first year of the contract ending
October 15, 1996. Thereafter, the agreement calls for
annual raises of 2%, 4%, and 5%.
The agreement does not alter the earnings-based formula
for determining profit sharing payments under the
Bank's deferred profit sharing plan, but participants
in the plan (which includes all employees of the Bank)
received 90% of the formula amount with respect to the
calendar year ending December 31, 1995. In the next two
years, participants will receive 25% and 75% of the
formula amount, respectively. In the final year of the
contract, profit sharing payments will be restored to
100% of the formula.
The traditional indemnity health insurance coverage for
bargaining unit employees will be replaced by a Blue
Cross point of service managed care program.
The pay scale of hourly workers beyond the entry level
will be increased to be commensurate with the pay of
full-time salaried employees performing similar jobs in
order to encourage part-time employment and flexible
scheduling.
Management/labor task forces will be established to
provide joint recommendations on certain operational
issues.
BALANCE SHEET...The Company's total consolidated assets
were $2.087 billion at December 31, 1996, compared with
$1.885 billion at December 31, 1995, which represents
an increase of $202 million or 10.7% due principally to
increased leveraging of the balance sheet. Total loans
and loans held for sale increased by $105 million, or
12.6%, due to the previously mentioned growth in
commercial and commercial mortgage loans. Investment
securities increased by $111 million due to purchases
of mortgage-backed and municipal securities. A
significant portion of the securities portfolio growth
occurred during the third quarter of 1996 because the
Company took advantage of a temporary 30-50 basis point
steepening of the treasury yield curve to purchase
higher yielding securities.
66
Total deposits decreased by $39 million, or 3.3%, since
December 31, 1995. The majority of this run-off
occurred in certificates of deposit because the Company
experienced more aggressive competitor deposit pricing
in 1996 and customer movement towards mutual funds due
to the strong returns offered by these products in a
rising stock market. The Company's total borrowed funds
position increased by $236 million. These borrowings
were used to fund the growth in the balance sheet and
replace deposits which ran-off. Overall, the Company's
asset leverage ratio dropped to 6.51% at December 31,
1996, from 6.65% at December 31, 1995.
The Company now carries $16.9 million of goodwill and
$4.6 million of core deposit intangible assets on its
balance sheet. The majority of these intangible assets
were originated with the JSB acquisition. The Company
paid this premium for JSB and believes its franchise
value has been strengthened by the acquisition for
several reasons:
JSB's customer base, branch locations, and
approximately $190 million of stable core deposits
allowed the Company to obtain a 23% market share
leadership position in Cambria County-one of its
primary markets.
the intra-market consolidation opportunities are
generating significant ongoing earnings enhancements.
(See JSB Integration Benefits.)
INTEREST RATE SENSITIVITY...Asset/liability management
involves managing the risks associated with changing
interest rates and the resulting impact on the
Company's net interest income, net income and capital.
The management and measurement of interest rate risk at
USBANCORP is performed by using the following tools: 1)
simulation modeling which analyzes the impact of
interest rate changes on net interest income, net
income and capital levels over specific future time
periods by projecting the yield performance of assets
and liabilities in numerous varied interest rate
environments; and 2) static "GAP" analysis which
analyzes the extent to which interest rate sensitive
assets and interest rate sensitive liabilities are
matched at specific points in time.
For static GAP analysis, USBANCORP typically defines
interest rate sensitive assets and liabilities as those
that reprice within six months or one year. Maintaining
an appropriate match is one method of avoiding wide
fluctuations in net interest margin during periods of
changing interest rates. The difference between rate
sensitive assets and rate sensitive liabilities is
known as the "interest sensitivity GAP." A positive GAP
occurs when rate sensitive assets exceed rate sensitive
liabilities repricing in the same time period and a
negative GAP occurs when rate sensitive liabilities
exceed rate sensitive assets repricing in the same time
period. A GAP ratio (rate sensitive assets divided by
rate sensitive liabilities) of one indicates a
statistically perfect match. A GAP ratio of less than
one suggests that a financial institution may be better
positioned to take advantage of declining interest
rates rather than increasing interest rates, and a GAP
ratio of more than one suggests the converse.
67
The following table presents a summary of the Company's
static GAP positions at December 31, 1996:
Over Over
3 Months 6 Months
3 Months Through Through Over
Interest Sensitivity Period or Less 6 Months 1 Year 1 Year Total
(In thousands, except ratios and percentages)
Rate sensitive assets:
Loans $ 225,994 $ 69,938 $ 118,068 $ 512,397 $ 926,397
Investment securities and assets
held in trust for collateralized
mortgage obligation 268,058 43,880 81,206 620,190 1,013,334
Short-term assets 1,218 - - - 1,218
Other assets - - 32,451 - 32,451
Total rate sensitive assets $ 495,270 $ 113,818 $ 231,725 $ 1,132,587 $1,973,400
Rate sensitive liabilities:
Deposits:
Non-interest bearing deposits $ - $ - $ - $ 144,314 $ 144,314
NOW and Super NOW - - - 89,035 89,035
Money market 150,358 - - - 150,358
Other savings - - - 196,650 196,650
Certificates of deposit of $100,000
or more 23,261 4,568 4,140 4,917 36,886
Other time deposits 90,395 86,077 139,496 205,527 521,495
Total deposits 264,014 90,645 143,636 640,443 1,138,738
Borrowings 485,106 25,531 52,582 206,883 770,102
Total rate sensitive liabilities $ 749,120 $ 116,176 $ 196,218 $ 847,326 $1,908,840
Off-balance sheet hedges (25,000) - 25,000 - -
Interest sensitivity GAP:
Interval (228,850) (2,358) 10,507 285,261 -
Cumulative $(228,850) $(231,208) $(220,701) $ 64,560 $ 64,560
Period GAP ratio 0.68x 0.98x 1.05x 1.34x
Cumulative GAP ratio 0.68 0.72 0.79 1.03
Ratio of cumulative GAP to total
assets (10.96)% (11.08)% (10.57)% (3.09)%
When December 31, 1996, is compared to December 31,
1995, both the Company's six month and one year
cumulative GAP ratios became more negative due to
increased leveraging of the balance sheet. As
separately disclosed in the above table, the hedge
transactions (described in detail in Note 22) reduced
the negativity of the six month GAP by $25 million and
had no impact on the one year GAP because the scheduled
maturity of all off-balance sheet hedges is now under
one year.
A portion of the Company's funding base is low cost
core deposit accounts which do not have a specific
maturity date. The accounts which comprise these low
cost core deposits include passbook savings accounts,
money market accounts, NOW accounts, daily interest
savings accounts, purpose clubs, etc.. At December 31,
1996, the balance in these accounts totalled $436
million or 20.9% of total assets. Within the above
static GAP table, approximately $150 million or 34% of
the low cost core deposits are assumed to be rate
sensitive liabilities which reprice in one year or
less; this assumption is based upon historical
experience in varying interest rate environments and is
consistently used for all GAP ratios presented. The
Company recognizes that the pricing of these accounts
is somewhat inelastic when compared to normal rate
movements and generally assumes that up to a 250 basis
point increase in rates will not necessitate a change
in the cost of these accounts.
There are some inherent limitations in using static GAP
analysis to measure and manage interest rate risk. For
instance, certain assets and liabilities may have
similar maturities or periods to repricing but the
magnitude or degree of the repricing may vary significantly
with changes in market interest rates.
68
As a result of these GAP limitations,
management places primary emphasis on simulation
modeling to manage and measure interest rate risk. At
December 31, 1996, these varied economic interest rate
simulations indicated that the maximum negative
variability of USBANCORP's net interest income over the
next twelve month period was (4.4%) under an upward
rate shock forecast reflecting a 200 basis point
increase in interest rates above published economic
consensus estimates. Capital impairment under this
simulation was estimated to be less than (2.0%) and net
income was reduced by approximately (8.3%). The
off-balance sheet borrowed funds hedge transactions
also helped reduce the variability of forecasted net
interest income in a rising interest rate environment.
The Company's asset liability management policy seeks
to limit net interest income variability to plus or
minus 7.5% and net income variability to plus or minus
15.0% based upon varied economic rate forecasts which
include interest rate movements of up to 200 basis
points and alterations of the shape of the yield curve.
Within the investment portfolio at December 31, 1996,
45.5% of the portfolio is currently classified as
available for sale ("AFS") and 54.5% as held to
maturity ("HTM"). This compares to a portfolio
composition breakdown of 47.9% AFS and 52.1% HTM at
December 31, 1995. The available for sale
classification provides management with greater
flexibility to manage the securities portfolio to
better achieve overall balance sheet rate sensitivity
goals and provide liquidity to fund loan growth if
needed.
Furthermore, it is the Company's intent to continue to
diversify its loan portfolio to increase liquidity and
rate sensitivity and to better manage USBANCORP's
long-term interest rate risk by continuing to sell
newly originated 30 year fixed-rate mortgage loans. The
Company will usually retain servicing rights at its
mortgage banking subsidiary and recognize fee income
over the remaining lives of the loans sold at an
average rate of approximately 30 basis points on the
loan balances outstanding.
LIQUIDITY...Financial institutions must maintain
liquidity to meet day-to-day requirements of depositor
and borrower customers, take advantage of market
opportunities, and provide a cushion against unforeseen
needs. Liquidity needs can be met by either reducing
assets or increasing liabilities. Sources of asset
liquidity are provided by short-term investment
securities, time deposits with banks, federal funds
sold, banker's acceptances, and commercial paper. These
assets totalled $160 million at December 31, 1996,
compared to $169 million at December 31, 1995. Maturing
and repaying loans, as well as the monthly cash flow
associated with certain mortgage-backed securities are
other significant sources of asset liquidity.
Liability liquidity can be met by attracting deposits
with competitive rates, using repurchase agreements,
buying federal funds, or utilizing the facilities of
the Federal Reserve or the Federal Home Loan Bank
systems. USBANCORP's subsidiaries utilize a variety of
these methods of liability liquidity. At December 31,
1996, USBANCORP's subsidiaries had approximately $55
million of unused lines of credit available under
informal arrangements with correspondent banks compared
to $246 million at December 31, 1995. These lines of
credit enable USBANCORP's subsidiaries to purchase
funds for short-term needs at current market rates.
Additionally, each of the Company's subsidiary banks
are members of the Federal Home Loan Bank which
provides the opportunity to obtain intermediate to
longer term advances up to approximately 80% of their
investment in assets secured by one- to four-family
residential real estate.
69
This would suggest a remaining
current total available Federal Home Loan Bank aggregate
borrowing capacity of approximately $302 million.
Furthermore, USBANCORP had available at December 31,
1996, $9.7 million of a total $14.5 million unsecured
line of credit.
Liquidity can be further analyzed by utilizing the
Consolidated Statement of Cash Flows. Cash equivalents
decreased by $15.8 million between December 31, 1996,
and December 31, 1995, due primarily to $229.8 million
of net cash used by investing activities. This more
than offset $29.5 million of net cash provided by
operating activities and $184.5 million of net cash
provided by financing activities. Within investing
activities, purchases of investment securities exceeded
the cash proceeds from investment security maturities
and sales by approximately $115.6 million due to
increased leveraging of the balance sheet. Cash
advanced for new loan fundings totalled $348.2 million
and was approximately $107 million greater than the
cash received from loan principal payments. Within
financing activities, cash payments for maturing
certificates of deposit exceeded cash generated from
the sale of new certificates of deposit by $24.2
million. Demand and savings deposits experienced a net
decrease of $14.9 million in 1996 which represented a
drop in the rate of run-off when compared to the prior
two years. Net principal borrowings of advances from
the Federal Home Loan Bank provided $177.3 million of
cash.
EFFECTS OF INFLATION...USBANCORP's asset and liability
structure is primarily monetary in nature. As such,
USBANCORP's assets and liabilities tend to move in
concert with inflation. While changes in interest rates
may have an impact on the financial performance of the
banking industry, interest rates do not necessarily
move in the same direction or in the same magnitude as
prices of other goods and services and may frequently
reflect government policy initiatives or economic
factors not measured by a price index.
CAPITAL RESOURCES...As presented in Note 23, each of
the Company's regulatory capital ratios decreased
between December 31, 1996, and December 31, 1995, due
to greater leveraging of the balance sheet through the
investment securities portfolio and loan portfolio. As
a result of this increased size of the balance sheet,
the asset leverage ratio dropped to 6.51% which is 14
basis points below the prior year level. The Company
targets an operating level of approximately 6.50% for
the asset leverage ratio because management and the
Board of Directors believes that this level provides an
optimal balance between regulatory capital requirements
and shareholder value needs. Accordingly, in 1997, the
Company will continue to leverage the additional
capital generated from earnings through common dividend
payments, treasury stock repurchases, and earning asset
growth.
The Company used funds provided by a $14.5 million
unsecured line of credit to repurchase 238,000 shares
or $8.5 million of its common stock during 1996. The
rate on this unsecured line of credit floats at 50
basis points under the prime rate. Through December 31,
1996, the Company has repurchased a total of 661,000
shares of its common stock at a total cost of $19.5
million or $29.55 per share. The Company plans to
continue its treasury stock repurchase program which
currently permits a maximum total repurchase
authorization of $30 million. The maximum price per
share at which the Company can repurchase stock is 150%
of book value. At December 31, 1996, the Company's
common stock market price was $41.75 per share or
139.6% of the book value of $29.90 per share. This
represented a 27% improvement from the December 31,
1995, common stock market price of $33.00 per share or
116.4% of book value.
70
The Company exceeds all regulatory capital ratios for
each of the periods presented. Furthermore, each of the
Company's subsidiary banks are considered "well
capitalized" under all applicable FDIC regulations. It
is the Company's ongoing intent to prudently leverage
the capital base in an effort to increase return on
equity performance while maintaining necessary capital
requirements. It is, however, the Company's intent to
maintain the FDIC "well capitalized" classification for
each of its subsidiaries to ensure the lowest deposit
insurance premium and to maintain an asset leverage
ratio of no less than 6.0%.
The Company's declared Common Stock cash dividend per
share was $1.37 for 1996 which was a 29% increase over
the $1.06 per share dividend for 1995. The 1996
dividends include a special $0.20 per share dividend
which was declared in December in order to provide
further opportunity to the Company's shareholders to
participate in the record success that the Company
achieved in 1996. Based upon the Company's total
declared 1996 common dividends, the dividend yield on
the Company's Common Stock was approximately 3.3%. This
common dividend yield compares favorably to the
Pennsylvania Bank Holding Companies' yield of
approximately 2.8%. The Company remains committed to a
progressive total shareholder return which includes a
common dividend yield at slightly higher than peer
levels. For the full year 1996, approximately $16
million, or 78%, of the Company's net income was
distributed back to the shareholders through common
dividends and treasury share repurchases.
FORWARD LOOKING STATEMENT...This annual report contains
various forward-looking statements and includes
assumptions concerning the Company's operations, future
results, and prospects. These forward-looking
statements are based upon current expectations and are
subject to risk and uncertainties. In connection with
the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company provides the
following cautionary statement identifying important
factors which could cause the actual results or events
to differ materially from those set forth in or implied
by the forward-looking statements and related
assumptions.
Such factors include the following: (i) the effect of
changing regional and national economic conditions;
(ii) significant changes in interest rates and
prepayment speeds; (iii) credit risks of commercial,
real estate, consumer, and other lending activities;
(iv) changes in federal and state banking regulations;
(v) the presence in the Company's market area of
competitors with greater financial resources than the
Company and; (vi) other external developments which
could materially impact the Company's operational and
financial performance.
71
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1996
or
Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to
Commission File Number 0-11204
USBANCORP, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or
organization)
25-1424278
(I.R.S. Employer Identification No.)
Main & Franklin Streets, P.O. Box 430, Johnstown,
Pennsylvania 15907-0430
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(814) 533-5300
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.50 Par Value
(Title of class)
Share Purchase Rights
(Title of class)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
the registrant was required to file such reports) and
(2) has been subject to such filing requirements for
the past 90 days. X Yes No
State the aggregate market value of the voting stock
held by non-affiliates of the registrant. The aggregate
market value shall be computed by reference to the
price at which the stock was sold, or the average bid
and asked prices of such stock, as of a specified date
within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405.) $228,660,165.00
as of January 31, 1997.
Note - If a determination as to whether a particular
person or entity is an affiliate cannot be made without
involving unreasonable effort and expense, the
aggregate market value of the common stock held by
non-affiliates may be calculated on the basis of
assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this
Form.
Applicable only to registrants involved in bankruptcy
proceedings during the preceding five years: Indicate
by check mark whether the registrant has filed all
documents and reports required to be filed by Sections
12, 13, or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a
plan confirmed by a court. Yes No
(Applicable only to corporate registrants) Indicate the
number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date. 5,081,337 shares were outstanding as
of January 31, 1997.
Documents incorporated by reference. List hereunder the
following documents if incorporated by reference and
the Part of the Form 10-K (e.g., Part I, Part II, etc.)
into which the document is incorporated: (1) Any annual
report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed
pursuant to Rule 424(b) or (e) under the Securities Act
of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual
report to security holders for fiscal year ended
December 24, 1980).
Portions of the annual shareholders' report for the
year ended December 31, 1996, are incorporated by
reference into Parts I and II.
Portions of the proxy statement for the annual
shareholders' meeting are incorporated by reference in
Part III.
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K p229.405
of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
Exhibit Index is located on page 73.
72
FORM 10-K INDEX
PART I Page
Item 1.Business 74
Item 2.Properties 85
Item 3.Legal Proceedings 86
Item 4.Submission of Matters to a Vote of Security Holders 86
PART II
Item 5.Market for the Registrant's Common Stock and
Related Stockholder Matters 86
Item 6.Selected Consolidated Financial Data 86
Item 7.Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 86
Item 8.Consolidated Financial Statements and Supplementary
Data 86
Item 9.Changes In and Disagreements With Accountants On
Accounting and Financial Disclosure 86
PART III
Item 10.Directors and Executive Officers of the Registrant 87
Item 11.Executive Compensation 87
Item 12.Security Ownership of Certain Beneficial Owners
and Management 87
Item 13.Certain Relationships and Related Transactions 87
PART IV
Item 14.Exhibits, Consolidated Financial Statement
Schedules, and Reports on Form 8-K 87
Signatures 90
73
PART I
ITEM 1. BUSINESS
General
USBANCORP, Inc. (the "Company") is a registered bank
holding company organized under the Pennsylvania
Business Corporation Law and is registered under the
Bank Holding Company Act of 1956, as amended (the
"BHCA.") The Company became a holding company upon
acquiring all of the outstanding shares of United
States National Bank in Johnstown ("U.S. Bank") on
January 5, 1983. The Company also acquired all of the
outstanding shares of Three Rivers Bank and Trust
Company ("Three Rivers Bank") in June 1984, McKeesport
National Bank ("McKeesport Bank") in December 1985
(which was subsequently merged into Three Rivers Bank),
Community Bancorp, Inc. (whose sole direct subsidiary
is Community Savings Bank) in March 1992, and Johnstown
Savings Bank ("JSB") in June 1994 (which was
immediately merged into U.S. Bank). Immediately
following the acquisition of JSB, U.S. Bank caused the
intracompany transfer by Standard Mortgage Corporation
of Georgia, a wholly-owned subsidiary of JSB, of all
its assets, subject to all of its liabilities, to SMC
Acquisition Corporation, an indirect subsidiary of
Community. SMC Acquisition Corporation was renamed
Standard Mortgage Corporation of Georgia and is a
mortgage banking company organized under the laws of
the State of Georgia that originates, sells, and
services residential mortgage loans. In addition, the
Company formed United Bancorp Life Insurance Company
("United Life") in October 1987, USBANCORP Trust
Company (the "Trust Company") in October 1992, and UBAN
Associates, Inc. ("UBAN Associates"), in January 1997.
UBAN Associates is a registered investment advisory
firm that administers investment portfolios, offers
operational support systems and provides asset and
liability services to small and mid-sized community
banks. The Company's principal activities consist of
owning and operating its six wholly-owned subsidiary
entities. At December 31, 1996, the Company had, on a
consolidated basis, total assets, deposits, and
shareholders' equity of $2.09 billion, $1.14 billion
and $152 million, respectively.
The Company and the subsidiary entities derive
substantially all their income from banking and
bank-related services. The Company functions primarily
as a coordinating and servicing unit for its subsidiary
entities in general management, credit policies and
procedures, accounting and taxes, loan review,
auditing, investment advisory, compliance, marketing,
insurance risk management, general corporate services,
and financial and strategic planning.
The Company, as a bank holding company, is regulated
under the BHCA, and is supervised by the Board of
Governors of the Federal Reserve System (the "Board.")
In general, the BHCA limits the business of bank
holding companies to owning or controlling banks and
engaging in such other activities as the Board may
determine to be so closely related to banking or
managing or controlling banks as to be a proper
incident thereto.
USBANCORP Banking Subsidiaries:
U.S. Bank
U.S. Bank is a national banking association organized
under the laws of the United States. Through 20
locations in Cambria, Clearfield, Somerset, and
Westmoreland Counties, Pennsylvania, U.S. Bank conducts
a general banking business.
74
It is a full-service bank
offering (i) retail banking services, such as demand,
savings and time deposits, money market accounts, secured and unsecured
loans, mortgage loans, safe deposit boxes, holiday club
accounts, collection services, money orders, and
traveler's checks; (ii) lending, depository and related
financial services to commercial, industrial,
financial, and governmental customers, such as real
estate-mortgage loans, short- and medium-term loans,
revolving credit arrangements, lines of credit,
inventory and accounts receivable financing, personal
and commercial property lease financing, real
estate-construction loans, business savings accounts,
certificates of deposit, wire transfers, night
depository, and lock box services; and (iii) credit
card operations through MasterCard and VISA. U.S. Bank
also operates 24 automated bank teller machines
("ATM"s) through its 24 Hour Banking Network which is
linked with MAC, a regional ATM network and CIRRUS, a
national ATM network.
U.S. Bank's deposit base is such that loss of one
depositor or a related group of depositors would not
have a materially adverse effect on its business. In
addition, the loan portfolio is also diversified so
that one industry or group of related industries does
not comprise a material portion of the loan portfolio.
U.S. Bank's business is not seasonal nor does it have
any risks attendant to foreign sources.
Since U.S. Bank is federally chartered, it is subject
to primary supervision of the Office of the Comptroller
of the Currency. U.S. Bank is also subject to the
regulations of the Board of Governors of the Federal
Reserve Bank and the Federal Deposit Insurance
Corporation.
The following is a summary of key data (dollars in
thousands) and ratios at December 31, 1996:
Headquarters Johnstown, PA
Chartered 1933
Total Assets $1,212,670
(58.1% of the Company's total)
Total Investment Securities $ 641,439
(64.0% of Company's total)
Total Loans (net of unearned income) $ 489,439
(52.1% of the Company's total)
Total Deposits $ 612,184
(53.8% of the Company's total)
Total Net Income $ 12,978
(64.8% of the Company's total)
Asset Leverage Ratio 6.91%
1996 Return on Average Assets 1.14%
1996 Return on Average Equity 13.20%
Total Full-time Equivalent Employees 364
(48.0% of the Company's total)
Number of Offices 20
(45.4% of the Company's total)
Three Rivers Bank
Three Rivers Bank is a state bank chartered under the
Pennsylvania Banking Code of 1965, as amended (the
"Pennsylvania Banking Code.") Through 12 locations in
Allegheny and Washington Counties, Pennsylvania, Three
Rivers Bank conducts a general retail banking business
consisting of granting commercial, consumer,
construction, mortgage and student loans, and offering
checking, interest bearing demand, savings and time
deposit services.
75
It also operates 12 ATMs that are
affiliated with MAC, a regional ATM network, and Plus
System, a national ATM network. Three Rivers Bank also
offers wholesale banking services to other banks,
merchants, governmental units, and other large
commercial accounts. Such services include balancing
services, lock box accounts, and providing coin and
currency. Three Rivers Bank has an arrangement with
Statewide Security Transport, Inc. (which conducts
business under the name of Landmark Security Transport)
pursuant to which it also provides cash collection and
deposit services to its customers.
Three Rivers Bank's deposit base is such that loss of
one depositor or a related group of depositors would
not have a materially adverse effect on its business.
In addition, the loan portfolio is also diversified so
that one industry or group of related industries does
not comprise a material portion of the loan portfolio.
Three Rivers Bank's business is not seasonal nor does
it have any risks attendant to foreign sources.
As a state chartered, federally-insured bank and trust
company which is not a member of the Federal Reserve
System, Three Rivers Bank is subject to supervision and
regular examination by the Pennsylvania Department of
Banking and the Federal Deposit Insurance Corporation.
Various federal and state laws and regulations govern
many aspects of its banking operations.
The following is a summary of key data (dollars in
thousands) and ratios at December 31, 1996:
Headquarters McKeesport, PA
Chartered 1965
Total Assets $476,164
(22.8% of the Company's total)
Total Investment Securities $223,070
(22.3% of Company's total)
Total Loans (net of unearned income) $223,904
(23.8% of the Company's total)
Total Deposits $295,225
(25.9% of the Company's total)
Total Net Income $ 5,815
(29.0% of the Company's total)
Asset Leverage Ratio 6.44%
1996 Return on Average Assets 1.37%
1996 Return on Average Equity 20.21%
Total Full-time Equivalent Employees 185
(24.4% of the Company's total)
Number of Offices 12
(27.3% of the Company's total)
Community
In March 1992, USBANCORP acquired Community Bancorp,
Inc., which subsequently became a bank holding company
regulated under the BHCA and supervised by the Federal
Reserve Board, and its sole direct subsidiary,
Community Savings Bank ("Community.")
Community is a state savings bank chartered under the
Pennsylvania Banking Code. Community currently conducts
its banking operation through 12 locations in
Allegheny, Washington, and Westmoreland counties,
Pennsylvania. Traditionally, Community originated and
held fixed-rate residential mortgage loans that were
funded primarily by certificates of deposit and offered
a few fee-based services.
76
Under the direction of
personnel transferred to Community from U.S. Bank and
Three Rivers Bank, Community expanded its product
offerings through the introduction of commercial
lending and expanded consumer lending and deposit
gathering in order to position itself as a full-service
community bank.
As part of the Community acquisition, USBANCORP
acquired Community's direct subsidiaries: Community
First Capital Corporation (a special purpose finance
subsidiary), Community First Financial Corporation (a
subsidiary engaged in real estate joint ventures with
assets totalling $1.1 million), and Frontier Consumer
Discount Company (Frontier Consumer Discount Company
was subsequently sold in March 1995). Additionally, as
part of the JSB acquisition on June 30, 1994, Standard
Mortgage Corporation became a direct subsidiary of
Community as a result of the intra-company purchase of
all its assets, subject to all its liabilities.
Standard Mortgage Corporation is a mortgage banking
company that originates, sells, and services
residential mortgage loans. In accordance with Federal
Reserve policy, USBANCORP has committed to divest its
equity investment in Community First Financial
Corporation by March 24, 1997, or such longer period as
the Federal Reserve Board may approve.
Community's deposit base is such that loss of one
depositor or a related group of depositors would not
have a materially adverse effect on its business. In
addition, the loan portfolio contains a high portion of
residential mortgage and consumer loans that have less
credit risk associated with them. The loan portfolio is
also diversified so that one industry or group of
related industries does not comprise a material portion
of the loan portfolio.
Community's business is not seasonal nor does it have
any risks attendant to foreign sources.
As a Pennsylvania-chartered, federally-insured savings
bank that is not a member of the Federal Reserve
System, Community Savings Bank is subject to
supervision and regular examination by the Pennsylvania
Department of Banking and the FDIC. Various federal and
state laws and regulations also govern many aspects of
its banking and bank-related operations.
The following is a summary of key data (dollars in
thousands) and ratios at December 31, 1996:
Headquarters Monroeville, PA
Chartered 1890
Total Assets $397,725
(19.1% of the Company's total)
Total Investment Securities $134,690
(13.4% of Company's total)
Total Loans (net of unearned income) $226,383
(24.1% of the Company's total)
Total Deposits $234,112
(20.6% of the Company's total)
Total Net Income $ 2,215
(11.1% of the Company's total)
Asset Leverage Ratio 6.65%
1996 Return on Average Assets (excluding SAIF charge) 0.90%
1996 Return on Average Equity (excluding SAIF charge) 12.93%
Total Full-time Equivalent Employees 156
(20.6% of the Company's total)
Number of Offices 12
(27.3% of the Company's total)
77
USBANCORP Non-Banking Subsidiaries:
United Life
United Life is a captive insurance company organized
under the laws of the State of Arizona. United Life
engages in underwriting as reinsurer of credit life and
disability insurance within the Company's six county
market area. Operations of United Life are conducted in
each office of the Company's banking subsidiaries.
United Life is subject to supervision and regulation by
the Arizona Department of Insurance, the Insurance
Department of the Commonwealth of Pennsylvania, and the
Board of Governors of the Federal Reserve Bank. At
December 31, 1996, United Life had total assets of $1.7
million and total shareholder's equity of $865,000.
USBANCORP Trust Company
USBANCORP Trust Company is a trust company organized
under Pennsylvania law in October 1992. USBANCORP Trust
Company was formed to consolidate the trust functions
of U.S. Bank and Three Rivers Bank and to increase
market presence. As a result of this formation, the
Trust Company now offers a complete range of trust
services through each of the Company's subsidiary
banks. At December 31, 1996, USBANCORP Trust Company
had $1.16 billion in assets under management which
included both discretionary and non-discretionary
assets.
Executive Officers
Information relative to current executive officers of
the Company or its subsidiaries is listed in the
following table:
Name Age Office with USBANCORP,Inc. and/or Subsidiary
Terry K. Dunkle 55 Chairman, President & Chief Executive
Officer of USBANCORP, Inc., and
Chairman of U.S. Bank, Three Rivers Bank,
Community Bancorp, Inc., and
USBANCORP Trust Company
Orlando B. Hanselman 37 Executive Vice President of
USBANCORP, Inc., and President &
Chief Executive Officer of U.S. Bank
W. Harrison Vail 56 President & Chief Executive Officer
of Three Rivers Bank, and President
& Chief Executive Officer of
Community Bancorp, Inc., and
Community Savings Bank
Ronald W. Virag, CFTA 51 President & Chief Executive Officer,
USBANCORP Trust Company
Kevin J. O'Neil 59 President & Chief Executive Officer,
Standard Mortgage Corporation of Georgia
Mr. Dunkle succeeded Clifford A. Barton in February
1994, as Chairman, President and Chief Executive
Officer of USBANCORP. In April 1988, Mr. Dunkle was
appointed as President and Chief Executive Officer of
U.S. Bank and Executive Vice President and Secretary of
USBANCORP. Mr. Dunkle served the five previous years as
Executive Vice President of Commonwealth National Bank
in Harrisburg, Pennsylvania. Mr. Hanselman joined U.S.
Bank in January 1987 as Vice President and Chief
Financial Officer and was appointed Executive Vice
President in February 1994. In May 1995, Mr. Hanselman
was awarded the expanded responsibility of President
and Chief Executive Officer of U.S. Bank. Mr. Vail has
been President and Chief Executive Officer of Three
Rivers Bank since January 1985. In May 1995, he was
awarded the additional responsibility of President and
Chief Executive Officer of Community Savings Bank. He
joined Three Rivers Bank as President on August 1,
1984. Mr. Virag was appointed as President and Chief
Executive Officer of USBANCORP Trust Company in
November 1994.
78
Prior to joining the Trust Company, Mr.
Virag served as Senior Vice President and
head of the trust group for Bank One in Charleston,
West Virginia. Mr. O'Neil is President and Chief
Executive Officer of Standard Mortgage Corporation of
Georgia, a wholly-owned mortgage banking subsidiary of
Community Savings Bank. Mr. O'Neil joined the Company
through the acquisition of JSB, and has 27 years of
mortgage banking experience.
Monetary Policies
Commercial banks are affected by policies of various
regulatory authorities including the Federal Reserve
System. An important function of the Federal Reserve
System is to regulate the national supply of bank
credit. Among the instruments of monetary policy used
by the Board of Governors are: open market operations
in U.S. Government securities, changes in the discount
rate on member bank borrowings, and changes in reserve
requirements on bank deposits. These means are used in
varying combinations to influence overall growth of
bank loans, investments, and deposits, and may also
affect interest rate charges on loans or interest paid
for deposits. The monetary policies of the Board of
Governors have had a significant effect on the
operating results of commercial banks in the past and
are expected to continue to do so in the future. In
view of changing conditions in the national economy and
the money markets (as well as the effect of actions by
monetary and fiscal authorities including the Board of
Governors), no prediction can be made as to possible
future changes in interest rates, deposit levels or
loan demand, or as to the impact of such changes on the
business and earnings of the Company and its subsidiary
entities.
Competition
The subsidiary entities face strong competition from
other commercial banks, savings banks, savings and loan
associations, and several other financial or investment
service institutions for business in the communities
they serve. Several of these institutions are
affiliated with major banking and financial
institutions, such as Mellon Bank Corporation and PNC
Financial Corporation, which are substantially larger
and have greater financial resources than the
subsidiary entities.
As the financial services industry continues to
consolidate, the scope of potential competition
affecting the subsidiary entities will also increase.
For most of the services that the subsidiary entities
perform, there is also competition from credit unions
and issuers of commercial paper and money market funds.
Such institutions, as well as brokerage houses,
consumer finance companies, factors, insurance
companies, and pension trusts, are important
competitors for various types of financial services. In
addition, personal and corporate trust investment
counseling services are offered by insurance companies,
other firms, and individuals.
Market Area
The Company, headquartered in Johnstown, Pennsylvania,
operates through 44 branch offices in six southwestern
Pennsylvania counties with a combined population of
approximately 2.2 million: Allegheny, Cambria,
Clearfield, Somerset, Washington, and Westmoreland. The
Company's largest subsidiary, U.S. Bank has 20 offices
and a $1.2 billion asset presence primarily in the
Greater Johnstown marketplace. Community Savings Bank
and Three Rivers Bank have a combined 24 offices and an
$874 million asset presence in the western region,
largely comprised of the suburban Pittsburgh
marketplace.
79
National economic forecasts for 1997 suggest growth
within the two to three percent range. None of the
major economic forces, government, business, or
consumer, appear to have sufficient strength to push
the Gross Domestic Product upward much beyond 3%. The
Pennsylvania economy tends to parallel the national
economy, but at a slower pace. The seasonally adjusted
unemployment rate in Pennsylvania at December 1996 was
4.9%, compared with the seasonally adjusted December
1995 unemployment rate of 6.3%.
The Greater Johnstown economy generally trails
Pennsylvania and the nation; however, the seasonally
adjusted unemployment rate for December 1996 was 7.1%
compared with 9.5% for December 1995. Recent economic
activity in the Johnstown region includes:
Attracting new businesses and people to Johnstown will
be the focus of the next three year phase of the city's
recovery plan. The draft plan includes hiring an
economic development coordinator, increasing
participation with economic development groups,
improving recreational opportunities, and revitalizing
neighborhoods.
Bestform Foundations, Inc. has begun a $4 million
expansion of its existing distribution center in
Sidman. The project entails the construction of a
two-level, 160,000 square foot addition. Employment is
expected to grow from 67 workers to over 300 once the
expanded facility becomes fully operational.
A Wal-Mart store may be opened on a 32-acre parcel
adjacent to the Hills Plaza along Route 22 near
Ebensburg. If this possibility becomes fact, it could
create 300 to 500 jobs.
The Lowe's Home Improvement Warehouse in Richland
opened recently with great success. Shoppers like the
competitive prices, longer hours, and more than 40,000
items. Many of the store's 200 employees were hired
locally.
The merger of two Johnstown hospitals, Conemaugh
Hospital and Good Samaritan, should pave the way for
more advanced medical programs and extended community
service projects. The area could save $30 million in
medical costs over the next five years through the
elimination of duplicate services, streamlined
operations, and other money- saving factors.
As evidenced by the above, Greater Johnstown continues
to shift from an over-reliance on heavy industry to a
more diversified economy including more light
manufacturing and service related businesses.
The Greater Pittsburgh region, where Three Rivers Bank
and Community operate, correlates closely with the
national economy; the seasonally adjusted unemployment
rate for December 1996 was 4.5% compared with 6.2% for
December 1995. The Company expects Pittsburgh to follow
the national economy in a slow expansion over the next
12 months. Recent economic activity in the Pittsburgh
region includes:
The U.S. Army plans to build a $30 million, 200,000
square foot command center for reservists near
Pittsburgh's old airport. Economic development
officials predict the move will mean millions to the
local economy with out-of-state reservists spending
their per-diem allowances at local hotels and
restaurants.
West Penn Power is eliminating 600 employees as part of
the company's plans to reduce its work force of 6,000
to 4,800 by the end of 1997. Roughly 400 of the 1,200
jobs to be cut over the next 18 months will be
eliminated through attrition.
80
Recently, the federal government approved $650 million
in improvements to three locks and dams on the
Monongahela River; this construction will position
local waterways for new economic growth. Another $270
million of work on the Gray's Landing and Point Marion
locks and dams is nearly completed. The changes will
bolster an industry that supports more than 38,000
local jobs.
CityLink Airlines, Inc. a new low-fare carrier, plans
to start passenger service from Pittsburgh to Dallas,
Minneapolis, Newark, and Chicago. With government
approval, CityLink could fill a void at Pittsburgh
International Airport, where USAir accounts for 80% of
passenger traffic. CityLink will use $15 million of
private financing and employ 300 people.
The Pittsburgh economy is generally well diversified.
The Company believes that the state and regional
economies will continue this diversification throughout
1997 and remain in a slow positive expansion period.
Consequently, the Company's marketplace should continue
to display modest growth.
Employees
The Company employed approximately 860 persons as of
December 31, 1996, in full- and part-time positions.
Approximately 265 non-supervisory employees of U.S.
Bank are represented by a union. U.S. Bank and such
employees are parties to a labor contract pursuant to
which employees have agreed not to engage in any work
stoppage during the term of the contract which will
expire on October 15, 1999. U.S. Bank has not
experienced a work stoppage since 1979. The Company
successfully negotiated a four-year collective
bargaining agreement with the local union which took
effect October 16, 1995, see Other Matters-Collective
Bargaining Agreement in the M.D.&A. for a complete
discussion on that contract.
Commitments and Lines of Credit
The Company's banking subsidiaries are obligated under
commercial, standby, and trade-related irrevocable
letters of credit aggregating $8.5 million at December
31, 1996. In addition, the subsidiary banks have issued
lines of credit to customers generally for periods of
up to one year. Borrowings under such lines of credit
are usually for the working capital needs of the
borrower. At December 31, 1996, the Company's banking
subsidiaries had unused loan commitments of
approximately $256.2 million.
Statistical Disclosures for Bank Holding Companies
Certain information regarding statistical disclosure
for bank holding companies pursuant to Guide 3 is
provided in the 1996 Annual Report to Shareholders and
such pages are incorporated herein by reference. The
remaining Guide 3 information is included in this Form
10-K as listed below:
I. Distribution of Assets, Liabilities, and
Stockholders' Equity; Interest Rates and Interest
Differential Information.
This section is presented on pages 57, 58, 67, 68, and 69.
II. Investment Portfolio
Information required by this section is presented on
pages 26, 27, 28, 82, and 83.
81
III. Loan Portfolio
Information required by this section appears on pages
29, 30, 83, 84, and 85.
IV. Summary of Loan Loss Experience
Information required by this section is presented on
pages 29, 60, 61, and 62.
V. Deposits
Information required by this section follows on pages 31 and 85.
VI. Return on Equity and Assets
Information required by this section is presented on page 49.
VII. Short-Term Borrowings
Information required by this section is presented on page 31.
Investment Portfolio
Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards ("SFAS")
115, "Accounting for Certain Investments in Debt and
Equity Securities." This statement addresses the
accounting and reporting for investments in equity
securities that have readily determinable fair values
and for all investments in debt securities. Investment
securities held to maturity are carried at amortized
cost while investment securities classified as
available for sale are reported at fair value. At
December 31, 1996, approximately 55% of the portfolio
was categorized as held to maturity and 45% as
available for sale.
The following table sets forth the book and market
value of USBANCORP's investment portfolio as of the
periods indicated:
Investment Securities Available for Sale at December 31
1996 1995 1994
(In thousands)
Book Value:
U.S. Treasury $ 10,934 $ 22,431 $ 23,411
U.S. Agency 4,224 12,408 31,372
State and municipal 21,772 58,698 1,479
Mortgage-backed securities 382,384 296,669 175,215
Other securities 35,880 30,869 37,087
Total book value of investment
securities available for sale $455,194 $421,075 $268,564
Total market value of investment
securities available for sale $455,890 $427,112 $259,462
Investment Securities Held to Maturity at December 31
1996 1995 1994
(In thousands)
Book Value:
U.S. Treasury $ 10,198 $ 796 $ 398
U.S. Agency 27,468 31,512 35,879
State and municipal 110,287 97,900 125,489
Mortgage-backed securities 395,199 330,312 360,146
Other securities 3,166 3,431 2,726
Total book value of investment
securities held to maturity $546,318 $463,951 $524,638
Total market value of investment
securities held to maturity $549,427 $471,191 $501,485
82
The total securities portfolio increased by
approximately $111 million between December 31, 1995,
and December 31, 1996, and by $107 million between year
end 1994 and year-end 1995. This growth in both years
resulted from increased balance sheet leveraging in an
effort to improve return on equity performance. The
securities portfolio growth occurred primarily in
mortgage-backed securities and municipal securities.
Adjustable-rate securities were also purchased to
increase the repricing sensitivity of the Company's
earning assets as part of ongoing asset/liability
management strategies. The increased purchase of
municipal securities over this period was a key factor
contributing to the drop in the Company's effective tax
rate from 34.4% in 1994 to 26.6% in 1996.
At December 31, 1996, investment securities having a
book value of $371.7million were pledged as collateral
for public funds and other purposes as required by law.
The Company and its subsidiaries, collectively, did not
hold securities of any single issuer, excluding U.S.
Treasury and U.S. Agencies, that exceeded 10% of
shareholders' equity at December 31, 1996.
Maintaining investment quality is a primary objective
of the Company's investment policy which, subject to
certain minor exceptions, prohibits the purchase of any
investment security below a Moody's Investor Service or
Standard & Poor's rating of "A." At December 31, 1996,
98.7% of the portfolio was rated "AAA" and 98.8% was
rated at least "AA" as compared to 97.5% and 97.9%,
respectively, at December 31, 1995. Only 1.0% was rated
below "A" or unrated at December 31, 1996.
Loan Portfolio
The following table sets forth the Company's loans by
major category as of the dates set forth below:
At December 31 1996 1995 1994 1993 1992
(In thousands)
Commercial $138,008 $103,546 $116,702 $ 99,321 $ 76,667
Commercial loans secured
by real estate 266,700 179,793 168,238 126,044 125,846
Real estate-mortgage 414,003 414,967 407,177 338,778 298,963
Consumer 111,025 133,820 161,642 167,883 158,342
Loans 929,736 832,126 853,759 732,026 659,818
Less: Unearned income 4,819 2,716 3,832 5,894 10,903
Loans, net of unearned income $924,917 $829,410 $849,927 $726,132 $648,915
At December 31, 1996, and 1995, real estate-construction
loans constituted 1.9% and 2.8% of the Company's total loans,
net of unearned income, respectively.
Total loans, net of unearned income, increased by $95.5
million, or 11.5%, between December 31, 1995, and
December 31, 1996. This growth occurred in commercial
mortgage loans which increased by $86.9 million, or
48.3%, and commercial loans which grew by $34.5
million, or 33.3%. The higher loan totals in both
commercial categories resulted from increased
production from both middle market and small business
lending (loans less than $250,000). This improved new
loan production was due primarily to more effective
sales efforts which have included an intensive customer
calling program and canvassing of small commercial
businesses. During 1996 in its first full year of
operation, the Company's small business loan center
approved 688 applications for $40 million and closed
401 loans for $27 million with an average approval time
of 48 hours. Middle market loan originations exceeded
$200 million in 1996.
83
Total residential mortgage loans were relatively flat
between years as growth in adjustable-rate mortgage
loans was more than offset by principal amortization in
the existing fixed-rate mortgage loan portfolio. The
Company is also selling all new 30 year fixed-rate
mortgage product to assist in asset/liability
positioning and to reduce the Company's overall
dependence on residential mortgage loans. Total
consumer loans declined by $22.8 million, or 17.0%, due
to continued net run-off in the indirect auto loan
portfolio. This indirect auto loan run-off has more
than offset improved production of higher yielding
direct consumer loans from the Company's branch offices
which for 1996 were $14 million, or 40%, greater than
1995.
Total loans, net of unearned income, declined by $20.5
million or 2.4% between December 31, 1994, and December
31, 1995. Total real estate mortgage loans increased by
$7.8 million or 1.9% due to the generation of $44.5
million of adjustable-rate mortgage loans in the
suburban Atlanta, Georgia market by SMC. These new
adjustable-rate mortgage loans more than offset $34
million of fixed-rate mortgage loans sold in the first
quarter of 1995 as part of a balance sheet
repositioning strategy. Total commercial loans
decreased by $13.2 million due to the maturity of $20
million of commercial loan tax anticipation notes which
were not replaced. Consumer loans dropped by $27.8
million or 17.2% due to net loan run-off experienced in
the indirect auto loan portfolio and a $5 million
reduction resulting from the disposition of a business
line. Total commercial mortgage loans grew by $11.6
million or 6.9% due primarily to a refocused emphasis
on small business commercial lending (loans less than
$250,000). During the last six months of 1995, the
Company's small business loan center approved 219
applications for $14 million and closed 133 loans for
$8.5 million.
The amount of loans outstanding by category as of
December 31, 1996, which are due in (i) one year or
less, (ii) more than one year through five years,
and(iii) over five years, are shown in the following
table. Loan balances are also categorized according to
their sensitivity to changes in interest rates.
More Than
One Year
One Year Through Over Total
or Less Five Years Five Years Loans
(Dollars in thousands)
Commercial $23,587 $ 60,605 $ 53,816 $138,008
Commercial loans secured
by real estate 30,572 98,310 137,818 266,700
Real estate-mortgage 22,854 65,025 326,124 414,003
Consumer 14,073 79,657 17,295 111,025
Total $91,086 $303,597 $535,053 $929,736
Loans with fixed-rate $37,988 $201,129 $357,219 $596,336
Loans with floating-rate 53,098 102,468 177,834 333,400
Total $91,086 $303,597 $535,053 $929,736
Percent composition of maturity 9.8% 32.7% 57.5% 100.0%
Fixed-rate loans as a percentage of total loans 64.1%
Floating-rate loans as a percentage of total loans 35.9%
The loan maturity information is based upon original
loan terms and is not adjusted for principal paydowns
and "rollovers." In the ordinary course of business,
loans maturing within one year may be renewed, in whole
or in part, as to principal amount at interest rates
prevailing at the date of renewal.
84
At December 31, 1996, 64.1% of total loans were
fixed-rate compared to 64.9% at December 31, 1995. This
reduced dependence on fixed-rate loans reflects the
success of several ongoing strategies which included:
the generation of adjustable-rate mortgage loans in the
suburban Atlanta, Georgia market and the ongoing sale
of 30 year fixed-rate residential mortgage loans. As a
result of these strategies, the percentage of the loan
portfolio classified as floating rate grew to 35.9% at
December 31, 1996. For additional information regarding
interest rate sensitivity, see "Management's Discussion
and Analysis of Consolidated Financial Condition and
Results of Operations-Interest Rate Sensitivity."
Deposits
The following table sets forth the average balance of
the Company's deposits and the average rates paid
thereon for the past three calendar years:
At December 31 1996 1995 1994
Amount Rate Amount Rate Amount Rate
(In thousands, except rates)
Demand - non-interest bearing $ 140,574 -% $ 136,543 -% $ 138,428 -%
Demand - interest bearing 81,233 1.00 91,596 1.37 106,665 1.55
Savings 209,054 1.69 229,423 1.88 248,265 1.94
Other time 731,592 5.16 742,133 5.37 632,040 4.40
Total deposits $1,162,453 4.12% $1,199,695 4.27% $1,125,398 3.47%
The Company's average deposits decreased by $37.2
million, or 3.1%, in 1996. This drop in deposits
reflects management's application of a consistent
pricing strategy which emphasizes profitable net
interest margin management rather than increased
deposit size. Customer movement toward mutual funds due
to the strong returns offered by these products in a
rising stock market also contributed to the deposit
decline. The drop in deposits occurred in all major
categories except non-interest bearing demand deposit
accounts. The growth in this product reflects the
success of new business generated in conjunction with
the increased commercial lending activity.
The following table indicates the maturities and
amounts of certificates of deposit issued in
denominations of $100,000 or more as of December 31,
1996:
Maturing in:
(In thousands)
Three months or less $23,261
Over three through six months 4,568
Over six through twelve months 4,140
Over twelve months 4,917
Total $36,886
ITEM 2. PROPERTIES
The principal offices of the Company and U.S. Bank
occupy a five-story building at the corner of Main and
Franklin Streets in Johnstown plus several floors of
the building adjacent thereto. The Company occupies the
main office and its subsidiary entities have 34 other
locations which are owned in fee. Fourteen additional
locations are leased with terms expiring from March 31,
1998, to December 31, 2005.
85
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to a number of asserted and
unasserted potential legal claims encountered in the
normal course of business. In the opinion of both
management and legal counsel, there is no present basis
to conclude that the resolution of these claims will
have a material adverse effect on the Company's
consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted by the Company to its
shareholders through the solicitation of proxies or
otherwise during the fourth quarter of the fiscal year
covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Information relating to the Company's Common Stock is
presented on pages 37 and 48. As of January 31, 1997,
the Company had 6,242 shareholders of its Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Information required by this section is presented on page 49.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information required by this section is presented on
pages 51 to 71.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this section is presented on
pages 17 to 44.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable for the years presented.
86
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this section relative to
Directors of the Registrant is presented in the Proxy
Statement for the Annual Meeting of Shareholders.
Executive officer information has been provided in Item 1.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this section is presented in
the Proxy Statement for the Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this section is presented in
the Proxy Statement for the Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this section is presented in
the Proxy Statement for the Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
Consolidated Financial Statements Filed:
The consolidated financial statements listed below are
from the 1996 Annual Report to Shareholders and Part II
- Item 8. Page references are to said Annual Report.
Consolidated Financial Statements:
USBANCORP, Inc. and Subsidiaries
Consolidated Balance Sheet, 17
Consolidated Statement of Income, 18
Consolidated Statement of Changes in Stockholders'Equity, 19
Consolidated Statement of Cash Flows, 20
Notes to Consolidated Financial Statements, 23
Statement of Management Responsibility, 45
Report of Independent Public Accountants, 46
Consolidated Financial Statement Schedules:
These schedules are not required or are not applicable
under Securities and Exchange Commission accounting
regulations and therefore have been omitted.
Reports on Form 8-K:
There were no reports on Form 8-K for the quarter ended
December 31, 1996.
87
Exhibits:
The exhibits listed below are filed herewith or to other filings.
Exhibit Prior Filing or Exhibit
Number Description Page Number Herein
3.1 Articles of Incorporation,
as amended on February 24, 1995. Exhibit III, Part II to Form S-14
File No. 2-79639
Exhibit 4.2 to Form S-2
File No. 33-685
Exhibit 4.3 to Form S-2
File No. 33-685
Exhibit 4.1 to Form S-3
File No. 33-56604
3.2 Bylaws, as amended and restated
on February 24, 1995. Exhibit IV, Part II to Form S-14
File No. 2-79639
Exhibit 3.2
4.1 Rights Agreement, dated as of
February 24, 1995, between
USBANCORP, Inc. and USBANCORP
Trust Company, as Rights Agent. Exhibit 1 to Form 8-A
Dated March 1, 1995
10.2 Agreement, dated June 22, 1994,
between USBANCORP, Inc. and
Terry K. Dunkle. Exhibit 10.2 to 1994 Form 10-K
Filed March 22, 1995
10.3 Agreement, dated October 25, 1994,
between USBANCORP, Inc. and W.
Harrison Vail. Exhibit 10.3 to 1994 Form 10-K
Filed March 22, 1995
10.6 Loan Agreement, dated March 26,
1992, between USBANCORP, Inc. and
Pittsburgh National Bank. Exhibit 10.6 to Form S-2
File No. 33-56684
10.7 Agreement, dated October 25, 1994,
between USBANCORP, Inc. and
Orlando B. Hanselman. Exhibit 10.7 to 1994 Form 10-K
Filed March 22, 1995
10.8 1991 Stock Option Plan, dated
August 23, 1991, as amended and
restated on February 24, 1995. Exhibit 10.8 to 1994 Form 10-K
Filed March 22, 1995
10.9 Agreement, dated December 1, 1994,
between USBANCORP, Inc. and Ronald
W. Virag. Exhibit 10.9 to 1994 Form 10-K
Filed March 22, 1995
10.10 Agreement, dated July 15, 1994,
between USBANCORP, Inc. and Kevin
J. O'Neil. Exhibit 10.10 to 1994 Form 10-K
Filed March 22, 1995
10.11 Collective Bargaining Agreement,
dated October 16, 1995, between
United States National Bank in
Johnstown and Steel Workers of
America, AFL-CIO-CLC Local Union
8204. Exhibit 10.1 to Form 8-K/A
Dated March 1, 1996
13 1996 Annual Report to Shareholders. Page 1
22 Subsidiaries of the Registrant. Below
24.1 Consent of Arthur Andersen LLP.
88
EXHIBIT A
(22) Subsidiaries of the Registrant
Percent Jurisdiction
Name of Ownership of Organization
United States National Bank in Johnstown
Main and Franklin Streets
P.O. Box 520
Johnstown, PA 15907 100% United States
of America
Three Rivers Bank and Trust Company
633 State Route 51, South
Jefferson Borough
P.O. Box 10915
Pittsburgh, PA 15236 100% Commonwealth of
Pennsylvania
Community Bancorp, Inc.
2681 Moss Side Boulevard
Monroeville, PA 15146 100% Commonwealth of
Pennsylvania
United Bancorp Life Insurance Company
1421 East Thomas Road
Phoenix, AZ 85014 100% State of Arizona
USBANCORP Trust Company
Main and Franklin Streets
P.O. Box 520
Johnstown, PA 15907 100% Commonwealth of
Pennsylvania
UBAN Associates, Inc.
110 Regent Court, Suite 104
State College, PA 16801 100% Commonwealth of
Pennsylvania
89
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
USBANCORP, Inc.
(Registrant)
Date: February 28, 1997 By:/s/Terry K. Dunkle
TERRY K. DUNKLE
Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in
the capacities indicated on February 28, 1997:
/s/Terry K. Dunkle
TERRY K. DUNKLE
Chairman, President
and Chief Executive Officer; Director
/s/Orlando B. Hanselman
ORLANDO B. HANSELMAN
Executive Vice President, Chief Financial Officer
Officer
/s/Jerome M. Adams
JEROME M. ADAMS, Director
/s/Clifford A. Barton
CLIFFORD A. BARTON, Director
/s/Michael F. Butler
MICHAEL F. BUTLER, Director
/s/James C. Dewar
JAMES C. DEWAR, Director
/s/James M. Edwards, Sr.
JAMES M. EDWARDS, SR., Director
/s/Richard W. Kappel
RICHARD W. KAPPEL, Director
JOHN H. KUNKLE, JR., Director
/s/James F. O'Malley
JAMES F. O'MALLEY, Director
/s/Frank J. Pasquerilla
FRANK J. PASQUERILLA, Director
/s/Jack Sevy
JACK SEVY, Director
/s/Thomas C. Slater
THOMAS C. SLATER, Director
/s/James C. Spangler
JAMES C. SPANGLER, Director
/s/W. Harrison Vail
W. HARRISON VAIL, Director
/s/Robert L. Wise
ROBERT L. WISE, Director
90
USBANCORP, INC.
DIRECTORS, GENERAL OFFICERS, AND ADVISORY BOARD
COMMUNITY OFFICES
SHAREHOLDER INFORMATION
Divider page
91
USBANCORP, INC.
Board of Directors
Jerome M. Adams
Senior Partner,
Adams, Myers & Baczkowski
Attorneys-at-Law
Clifford A. Barton
Retired; Former Chairman, President & CEO,
USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank
& Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Michael F. Butler
Business Consultant &
Attorney-at-Law
James C. Dewar
President & Owner,
Jim Dewar Oldsmobile, Inc.
Terry K. Dunkle
Chairman, President & CEO,
USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank
& Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
James M. Edwards, Sr.
President & CEO,
WJAC, Inc.
Richard W. Kappel
Retired CEO,
Secretary & Treasurer,
Wm. J. Kappel Wholesale Co.
John H. Kunkle, Jr.
Retired; Former Vice-Chairman
& Director, Commonwealth Land
Title Insurance Co.
James F. O'Malley
Senior Lawyer,
Yost & O'Malley
Attorneys-at-Law
Frank J. Pasquerilla
Chairman of the Board
& CEO, Crown American
Realty Trust
Jack Sevy
Retired; Former Owner
& Operator,
New Stanton West
Auto/Truck Plaza
Thomas C. Slater
Owner, President &
Director,
Slater Laboratories, Inc.
Clinical Laboratory
James C. Spangler
Retired; Former Owner,
Somerset Auction and
Transfer, Inc.
W. Harrison Vail
President & CEO,
Three Rivers Bank &
Trust Company, Community
Bancorp, Inc., and Community
Savings Bank
Robert L. Wise
President,
GPU Generation, Inc.
General Officers
Terry K. Dunkle
Chairman, President
& Chief Executive Officer
Orlando B. Hanselman
Executive Vice President
Gary M. McKeown
Senior Vice President, Manager of
Credit Policy and Administration
& Assistant Secretary
Dan L. Hummel
Senior Vice President &
Marketing Director
Jeffrey A. Stopko, CPA
Senior Vice President &
Chief Financial Officer
John Suierveld, Jr.
Senior Vice President &
Chief Auditor
Ray M. Fisher
Vice President &
Chief Investment Officer
John H. Follansbee, III
Vice President, Compliance
John J. Legath
Vice President,
CRA/Community
Development
Leslie N. Morgenstern
Vice President & Manager,
Loan Review
James E. Vennebush
Vice President &
Manager, General Services
Betty L. Jakell
Secretary
92
U.S. BANK
Board of Directors
Clifford A. Barton
Retired; Former Chairman, President
& CEO, USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Michael F. Butler
Business Consultant &
Attorney-at-Law
William F. Casey
CEO, Conemaugh
Health Systems, Inc.
Daniel R. DeVos
President and CEO,
Concurrent Technologies Corporation
James C. Dewar
President & Owner,
Jim Dewar Oldsmobile, Inc.
Bruce E. Duke III, M.D.
Surgeon, Valley Surgeons
Terry K. Dunkle
Chairman, President & CEO,
USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
James M. Edwards, Sr.
President & CEO,
WJAC, Inc.
Orlando B. Hanselman
President & CEO,
United States National Bank,
and Executive Vice President,
USBANCORP, Inc.
Kim W. Kunkle
President & CEO,
Laurel Holding Company
Rev. Christian R. Oravec
President,
St. Francis College
Frank J. Pasquerilla
Chairman of the Board
& CEO, Crown American
Realty Trust
Howard M. Picking, III
President,
Miller-Picking Corporation
Sara A. Sargent
President,
The Sargent's Group
Fred R. Shaffer
Senior Pharmacist/Director,
Findley's Pharmacy, Inc.
Thomas C. Slater
Owner, President &
Director,
Slater Laboratories, Inc.
Clinical Laboratory
James C. Spangler
Retired; Former Owner,
Somerset Auction and
Transfer, Inc.
Robert L. Wise
President,
GPU Generation, Inc.
General Officers
Terry K. Dunkle
Chairman of the Board
Orlando B. Hanselman
President &
Chief Executive Officer
Leo J. Fronczek
Senior Vice President,
Management Information
Systems & Security Officer
Jeryl L. Graham
Senior Vice President,
Lending & Leasing
Robert S. Berezansky
Vice President &
Commercial Loan Officer
James S. Bubenko
Vice President & Manager
of Retail Credit Operations
Wayne A. Kessler
Vice President,
Community Banking
Michael F. Komara
Vice President,
Human Resources
Frank A. Krall
Vice President,
Mortgage Lending
Timothy D. McDonald
Vice President,
Life Insurance and Annuities
Mark D. Shelhammer
Vice President,
Community Banking
Victor L. Tatum
Vice President &
Commercial Equipment
Leasing Manager
Directors Emeriti
John N. Crichton
John L. Williams
Advisory Board
Orlando B. Hanselman, Chairman
Dr. Frank H. Blackington, III
Edward J. Cernic
Teresa T. Chianese
David N. Crichton
John M. Kriak
David J. Rizzo
Carl R. Sax
Fred R. Shaffer
James C. Spangler
John B. Stockton
93
THREE RIVERS BANK
Board of Directors
Jerome M. Adams
Senior Partner,
Adams, Myers, & Baczkowski
Attorneys-at-Law
Clifford A. Barton
Retired; Former Chairman, President
& CEO, USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Janey D. Barton
Retired; Vice President,
Three Rivers Bank &
Trust Company
Terry K. Dunkle
Chairman, President &
CEO, USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
J. Terrence Farrell
Attorney-at-Law
James R. Ferry
President,
Ferry Electric Company
Electrical Contractor
Stephen I. Richman
Senior Partner,
Ceisler, Richman, Smith
Law Firm
Jack Sevy
Retired; Former Owner & Operator,
New Stanton West
Auto/Truck Plaza
W. Harrison Vail
President & CEO,
Three Rivers Bank &
Trust Company
General Officers
Terry K. Dunkle
Chairman of the Board
W. Harrison Vail
President & Chief Executive Officer
Louis S. Klippa
Executive Vice President,
Chief Operating Officer
& Secretary
Harry G. King
Senior Vice President,
Community Banking
Vincent W. Locher
Senior Vice President &
Chief Commercial Loan Officer
James F. Ackman
Vice President,
Consumer Loans
Robert J. DeGrazia
Vice President,
Information Systems
Patricia M. Smarra
Vice President
& Operations Officer
Robert J. Smerker
Vice President,
Operations, Bank Secrecy
Act Officer &
Assistant Secretary
Mary Pat Soltis
Vice President,
Sales & Business Development
Hudson Stoner
Vice President,
Small Business Center
Directors Emeriti
J. Paul Farrell
William R. Hoag
COMMUNITY BANCORP, INC.
Board of Directors
Clifford A. Barton
Retired; Former Chairman,
President & CEO,
USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Terry K. Dunkle
Chairman, President &
CEO, USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Marylouise Fennell, RSM, Ed.D.
Senior Consultant,
Counsel of Independent Colleges
James R. Ferry
President,
Ferry Electric Company
Electrical Contractor
Richard W. Kappel
Retired; CEO,
Secretary & Treasurer,
Wm. J. Kappel Wholesale Co.
John H. Kunkle, Jr.
Retired; Former Vice-Chairman
& Director, Commonwealth Land
Title Insurance Co.
Edward W. Seifert
Attorney-at-Law, Partner,
Reed, Smith, Shaw & McClay
W. Harrison Vail
President & CEO,
Community Bancorp, Inc.
and Community Savings Bank
General Officers
Terry K. Dunkle
Chairman of the Board
W. Harrison Vail
President &
Chief Executive Officer
Thomas J. Chunchick
Senior Vice President,
Administrative, Secretary,
Community Development
Officer & Compliance Officer
Richard L. Barron
Vice President,
Human Resources
Fred Geisler
Vice President,
Mortgage Lending
94
USBANCORP TRUST COMPANY
Board of Directors
Jerome M. Adams
Senior Partner,
Adams, Myers & Baczkowski
Attorneys-at-Law
Clifford A. Barton
Retired; Former Chairman, President
& CEO, USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
John N. Crichton
Chairman, Concurrent
Technologies Corporation
Terry K. Dunkle
Chairman, President & CEO,
USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
William M. George
President, PA AFL-CIO
Orlando B. Hanselman
Executive Vice President,
USBANCORP, Inc., and President &
CEO, United States National Bank
Richard W. Kappel
CEO, Secretary & Treasurer,
Wm. J. Kappel Wholesale Co.
John H. Kunkle, Jr.
Retired; Former Vice Chairman
& Director, Commonwealth Land
Title Insurance Co.
Kim W. Kunkle
President & CEO,
Laurel Holding Company
Rev. Christian R. Oravec
President, St. Francis College
W. Harrison Vail
President & CEO,
Three Rivers Bank
& Trust Company, Community
Bancorp, Inc., and Community
Savings Bank
Ronald W. Virag, CTFA
President & CEO,
USBANCORP Trust Company
Robert L. Wise
President,
GPU Generation, Inc.
General Officers
Terry K. Dunkle
Chairman of the Board
Ronald W. Virag, CTFA
President &
Chief Executive Officer
Jeffrey A. Stopko, CPA
Treasurer
David L. Mordan, CPA
Senior Vice President &
Manager of Institutional
Trust Services
Gerald R. Baxter, CPA, CTFA
Vice President &
Trust Officer
Richard F. Chimelewski
Vice President & Trust
Business Development Officer
Frank J. Lapinsky
Vice President &
Trust Investment Officer
Karen A. Sebring, CPA
Vice President and
Manager of Personal
Trust Services
William S. Townsend
Vice President &
Trust Investment Officer
James T. Vaughan
Vice President &
Manager of Western Region
M. Randolph Westlund, CFA
Vice President &
Chief Investment Officer
Director Emeritus
James F. O'Malley, Esq.
Senior Lawyer,
Yost & O'Malley
Attorneys-at-Law
Trust Company Offices
Main and Franklin Streets, 11th Floor
U.S. Bank Building
P.O. Box 520
Johnstown, Pennsylvania 15907-0520
500 Fifth Avenue, 2nd Floor
Three Rivers Bank and
Trust Company Building
McKeesport, Pennsylvania 15132-2500
UBAN ASSOCIATES, INC.
General Officers
Terry K. Dunkle
Chairman of the Board
Ray M. Fisher
President &
Chief Executive Officer
Wendy L. Rager
Vice President &
Chief Operating Officer
UBAN Associates, Inc., Office
110 Regent Court, Suite 104
State College, PA 16801-7966
95
U.S. BANK
OFFICE LOCATIONS
X Main Office Downtown
216 Franklin Street
P.O. Box 520
Johnstown, PA 15907-0520
(814) 533-5300
X Westmont Office
110 Plaza Drive
Johnstown, PA 15905-1211
(814) 255-6836
X University Heights Office
1404 Eisenhower Boulevard
Johnstown, PA 15904-3280
(814) 266-9691
X East Hills Office
1219 Scalp Avenue
Johnstown, PA 15904-3182
(814) 266-3181
X Eighth Ward Office
1059 Franklin Street
Johnstown, PA 15905-4303
(814) 535-8317
West End Office
163 Fairfield Avenue
Johnstown, PA 15906-2392
(814) 533-5436
X Carrolltown Office
101 S. Main Street
Carrolltown, PA 15722-0507
(814) 344-6501
Ebensburg Office
101 W. High Street
Ebensburg, PA 15931-0209
(814) 472-8706
X Lovell Park Office
179 Lovell Ave.
Ebensburg, PA 15931-0418
(814) 472-5200
Nanty Glo Office
928 Roberts Street
Nanty Glo, PA 15943-1303
(814) 749-9227
Nanty Glo Drive-In
1383 Shoemaker Street
Nanty Glo, PA 15943-1252
(814) 749-0955
Loretto Office
180 St. Mary's Street
P.O. Box 116
Loretto, PA 15940-0116
(814) 472-8452
X Galleria Mall Office
500 Galleria Drive Suite 100
Johnstown, PA 15904-8911
(814) 266-5969
X St. Michael Office
900 Locust Street
St. Michael, PA 15951-0393
(814) 495-5514
Coalport Office
Main Street, P.O. Box 356
Coalport, PA 16627-0356
(814) 672-5303
X Seward Office
1, Roadway Plaza
Seward, PA 15954-9501
(814) 446-5655
X Windber Office
1501 Somerset Avenue
Windber, PA 15963-1745
(814) 467-4591
Central City Office
104 Sunshine Avenue
Central City, PA 15926-1129
(814) 754-4141
X Somerset Office
108 W. Main Street
Somerset, PA 15501-2035
(814) 445-4193
X Derry Office
112 South Chestnut Street
Derry, PA 15627-1938
(412) 694-8887
THREE RIVERS BANK
OFFICE LOCATIONS
X Boston Office
1701 Boston Hollow Road
McKeesport, PA 15135-1217
(412) 754-2014
X Century III Office
269 Clairton Boulevard
Pittsburgh, PA 15236-1499
(412) 653-7199
X Franklin Mall Office
1500 W. Chestnut Street
Washington, PA 15301-5871
(412) 228-0065
X Glassport Office
600 Monongahela Avenue
Glassport, PA 15045-1608
(412) 664-8760
X Jefferson Borough Office
Route 51, South
P.O. Box 10915
Pittsburgh, PA 15236-0915
(412) 382-1000
X Liberty Boro Office
3107 Liberty Way
McKeesport, PA 15133-2198
(412) 664-8707
X McKeesport Office
500 Fifth Avenue
McKeesport, PA 15132-2500
(412) 664-8715
X Motor Bank
1415 Fifth Avenue
McKeesport, PA 15132-2427
(412) 664-8755
X Port Vue Office
1194 Romine Avenue
McKeesport, PA 15133-3596
(412) 664-8975
X Rainbow Village Office
1 Rainbow Village
Shopping Center
White Oak, PA 15131-2415
(412) 664-8771
X South Strabane Office
590 Washington Road
Washington, PA 15301-9621
(412) 225-9800
X University Office
2016 Eden Park Boulevard
McKeesport, PA 15132-7619
(412) 664-8780
X Remote 24-Hour Banking Locations
X Main Office, Main & Franklin Streets, Johnstown
X Richland Mall, Elton Road, Johnstown
X Lee Hospital, Main Street, Johnstown
X The Galleria, Johnstown
X BiLo Supermarket, Scalp Avenue, Johnstown
X Derry BP-Pit Stop Quick Shop, Derry
X Robyn's Shoppe, Nanty Glo
X Gogas Service Station, Cairnbrook
X Community College of Allegheny
County, North Campus, Pittsburgh
X Shop & Save, Ohio Avenue, Glassport
X Wal-Mart, Oak Spring Road, Washington
X Washington Mall, Oak Springs Road, Washington
COMMUNITY
SAVINGS BANK
OFFICE LOCATIONS
X Lawrenceville
4319 Butler Street
Pittsburgh, PA 15201-3094
(412) 681-8390
X New Kensington
2 Feldarelli Square
2300 Freeport Road
New Kensington, PA 15068-4669
(412) 335-9811
X North Side
401 East Ohio Street
Pittsburgh, PA 15212-5588
(412) 231-4300
X Northway Mall
1002 Northway Mall
Pittsburgh, PA 15237-3098
(412) 364-8692
X Moon Township
914 Narrows Run Road
Coraopolis, PA 15108-2306
(412) 262-2210
X Monroeville
2681 Moss Side Boulevard
Monroeville, PA 15146-3394
(412) 856-8410
X North Versailles
Great Valley Shopping Center
500 Lincoln Highway
North Versailles, PA 15137-1524
(412) 829-1360
X Baldwin
Brownsville Plaza
5253 Brownsville Road
Pittsburgh, PA 15236-2796
(412) 655-2217
X Carrick
1817 Brownsville Road
Pittsburgh, PA 15210-3999
(412) 881-3500
X Bethel Park
2739 South Park Road
Bethel Park, PA 15102-3805
(412) 835-2100
X Finleyville
3576 Sheridan Avenue
Finleyville, PA 15332-1018
(412) 348-6626
X Jeannette
401 Clay Avenue
Jeannette, PA 15644-2124
(412) 527-1501
X 24-Hour Banking Available
96
USBANCORP, INC.
SHAREHOLDER INFORMATION
Securities Markets
USBANCORP, Inc. Common Stock is publicly traded and
quoted on the NASDAQ National Market System. The common
stock is traded under the symbol of "UBAN." The listed
market makers for the stock are:
Boenning & Scattergood, Inc.
200 Four Falls
Corporate Center
Suite 212
West Conshohocken, PA 19428
Telephone: (800) 883-8383
Ferris Baker Watts, Inc.
6 Bird Cage Walk
Hollidaysburg, PA 16648
Telephone: (800) 343-5149
Herzog, Heine, Geduld, Inc.
525 Washington Boulevard
Jersey City, NJ 07310
Telephone: (212) 908-4156
Janney Montgomery Scott, Inc.
1801 Market Street - 10th Floor
Philadelphia, PA 19103
Telephone: (215) 665-6500
Legg Mason Wood Walker, Inc.
969 Eisenhower Boulevard
Oak Ridge East
Johnstown, PA 15904
Telephone: (814) 266-7900
Merrill Lynch
Equity Markets Group
North Tower
World Financial Center
New York, NY 10281-1305
Telephone: (212) 449-4162
F. J. Morrissey & Co., Inc.
1700 Market Street
Suite 1420
Philadelphia, PA 19103-3913
Telephone: (215) 563-8500
Oppenheimer & Co., Inc.
Oppenheimer Tower
200 Liberty Street
One World Financial Center
New York, NY 10281
Telephone: (212) 667-7000
Parker/Hunter, Inc.
416 Main Street
Johnstown, PA 15901
Telephone: (814) 535-8403
Sandler O'Neill & Partners, L.P.
2 World Trade Center
104th Floor
New York, NY 10048
Telephone: (800) 635-6860
Wheat First Butcher Singer
100 Pasquerilla Plaza
P.O. Box 96
Johnstown, PA 15907
Telephone: (814) 535-1516
Form 10-K
USBANCORP, Inc.'s Annual Report to the Securities and
Exchange Commission on Form 10-K is integrated within
this Annual Report.
Corporate Offices
The corporate offices of USBANCORP, Inc. are located in
the United States National Bank Building at Main and
Franklin Streets, Johnstown, PA 15901.
Mailing address: P.O. Box 430
Johnstown, PA 15907-0430
(814) 533-5300
Agents
The transfer agent and registrar for USBANCORP, Inc.'s
common stock is: Boston EquiServe
Investor Relations Department
P.O. Box 644
Mail Stop 45-02-09
Boston, MA 02102-0644
(617) 575-3170
Shareholder Data
As of January 31, 1997, there were 6,242 shareholders
of common stock and 5,081,337 shares outstanding. Of
the total shares outstanding, approximately 269,000 or
5% are held by insiders (directors and executive
officers) while approximately 1,645,807 or 32% are held
by institutional investors (mutual funds, employee
benefit plans, etc.).
Dividend Reinvestment
Shareholders seeking information about USBANCORP,
Inc.'s dividend reinvestment plan should contact Betty
L. Jakell, Executive Office, at (814) 533-5158.
Information
Analysts, investors, shareholders, and others seeking
financial data about USBANCORP, Inc. or any of its
subsidiaries annual and quarterly reports, proxy
statements, 10-K, 10-Q, 8-K, and call reports-are asked
to contact Jeffrey A. Stopko, Senior Vice President &
Chief Financial Officer at (814) 533-5310.
Inside back cover
Exhibit 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent
to the incorporation of our report dated January 23,
1997 included in this Form 10-K, into USBANCORP, Inc.'s
previously filed Registration Statements on Form S-3
(Registration No. 33-56604); Form S-8 (Registration
No. 33-53935); Form S-8 (Registration No. 33-55845);
Form S-8 (Registration No. 33-55207) and Form S-8
(Registration No. 33-55211).
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
March 17, 1997
Annex A
USBANCORP, INC. 1996 ANNUAL REPORT & FORM 10-K
The following is a listing of the graphs presented in
USBANCORP, Inc.'s 1996 Annual Report & Form 10-K.
Page 2: The following six graphs present Financial
Highlights-At A Glance:
The top left graph is an area graph showing non-
performing assets as a percentage of loans and OREO at
December 31 for the periods presented:
1992 1993 1994 1995 1996
1.58% 0.89% 0.91% 1.13% 0.92%
Asset quality is critical to a bank's safety and
ongoing earnings power. Non-performing assets are those
loans and foreclosed properties that are not generating
income and represent high collection risk. USBANCORP's
non-performing assets are lower than peer.
The middle left graph is an bar graph showing the
allowance for loan losses as a percentage of total non-
accrual loans at December 31 for the periods presented:
1992 1993 1994 1995 1996
245.75% 287.71% 286.27% 198.40% 209.41%
The allowance for loan losses help protect a bank's
future earnings from losses due to credit risk.
USBANCORP's allowance reflects a reserve of $2.09 for
each $1.00 of non-accrual loans.
The bottom left graph is a bar graph showing the
Company's efficiency ratio excluding SAIF charge:
1992 1993 1994 1995 1996
67.63% 67.44% 67.53% 66.97% 61.06%
The efficiency ratio reflects the Company's ability to
generate revenue and control its non-interest expenses.
USBANCORP's significantly improved its performance in
this key area of profitability in 1996 by generating
increasing revenue from its core banking business.
The top right graph is a bar graph showing the
Company's net income per employee for the periods
presented:
1992 1993 1994 1995 1996
$13,983 $18,788 $15,429 $20,915 $26,604
USBANCORP has aggressively captured the financial
benefits from each of its past acquisitions. Improved
employee productivity is one such integral benefit from
these acquisitions. USBANCORP has nearly doubled its net
income per employee over the past five years.
The middle right graph is a bar graph showing
the Company's return on equity for the periods presented:
1992 1993 1994 1995 1996
$11.41 $11.46 $8.92 $11.03 $13.36
The return on equity (ROE) is a standard measurement
of a bank's profitability. USBANCORP exceeded its
intermediate 13% ROE target by achieving a 13.36% ROE for
the full year 1996, for the fourth quarter 1996 the
Company's ROE improved to 14.38%.
The bottom right graph is a area graph showing
net interest income (in thousands):
1992 1993 1994 1995 1996
$44,441 $49,485 $55,818 $56,147 $61,138
As a result of prudent acquisitions, balance sheet
leveraging, and effective asset/liability management
practices. USBANCORP has increased net interest income
for each of the past five years.
Page 4: The following six graphs present Shareholder
Information-At A Glance:
The top left graph is a bar graph showing net
income (in thousands):
1992 1993 1994 1995 1996
$8,883 $12,488 $11,320 $15,803 $20,019
USBANCORP 1996 net income was $20 million which
represented a 27% increase over the 1995 results. Such
income is a key determinant of shareholder value and the
Company's ongoing financial soundness.
The middle left graph is a bar graph showing
dividends per common share:
1992 1993 1994 1995 1996
$0.75 $0.86 $0.97 $1.06 $1.37
Common dividends per share represent a payment by
the company from its accumulated shareholder wealth.
USBANCORP's dividends paid to shareholders have increased
at an average annual rate of 16.5% over the past five
years. The Company declared a special dividend of $0.20
per share in 1996 to further share its record success
with its shareholders.
The bottom left graph is a bar graph showing
common stock price per share at December 31:
1992 1993 1994 1995 1996
$22.00 $23.75 $21.00 $33.00 $41.75
A second key element of shareholder return is the
price appreciation of each common share. USBANCORP's
common stock price per share has appreciated 27% in 1996.
The top right graph is a pie graph showing the
distribution of 1996 net income:
Common dividend payout 35%
Treasury stock repurchases 43%
Retained for internal
capital growth 22%
In 1996, USBANCORP distributed 78% of its net
income back to its shareholders through treasury stock
repurchases and common dividend payments.
The middle right graph is a bar graph showing
book value per common share at December 31:
1992 1993 1994 1995 1996
$23.08 $24.67 $24.57 $28.34 $29.90
A company's book value per common share
represents the accumulated and undistributed shareholder
wealth. This wealth is used by the company to finance
profitable growth and to fund shareholder dividends.
USBANCORP has increased this shareholder wealth by 30%
over the past five years to $29.90 at December 31, 1996.
The bottom left graph is an area graph showing
asset leverage ratio compared to the management minimum
target of 6% and the regulatory requirement of 5%:
1992 1993 1994 1995 1996
7.08% 9.18% 6.64% 6.63% 6.51%
Fundamental to shareholder and depositor safety
is the capital strength of the financial institution. It
is USBANCORP's intent to optimally leverage the capital
base in order to enhance shareholder value while
maintaining necessary regulatory requirements.
Page 5: Appearing in the margin is a "call out"
reflecting the quote:
Your Company exceeded its 13% ROE target and grew
EPS by 32.8%...
The graph at the bottom left is area graph
graph showing market capitalization at December 31 (in
thousands):
1992 1993 1994 1995 1996
$65,607 $101,559 $117,225 $175,246 $212,132
Page 6: Appearing in the margin is a "call out"
reflecting the quote:
Timely response to customer needs encourages more
customers to select us as their "Bank of Choice"...
The bottom left graph is a pie chart showing
1996 gross revenue contribution by product segment
(percentage):
Investments 41%, Trust 2%,
Commercial 20%, Wholesale 1%,
Consumer 36%,
Page 7: The graph at the top left is a pie chart showing
loan portfolio composition at December 31, 1996, by loan
type:
Commercial 15%
Commercial secured by real estate 29%
Real estate - mortgage 44%
Consumer 12%
Appearing in the margin is a "call out"
reflecting the quote:
Alternative delivery systems provide customers with
more banking options...
Page 8: The top left graph is a bar graph showing
average loan to average deposit ratio for the periods
presented:
1995 1Q96 2Q96 3Q96 4Q96
68.67% 70.78% 71.42% 73.76% 79.40%
Appearing in the margin is a "call out"
reflecting the quote:
Technology brings new convenience and improves
customer service...
Page 9: Appearing in the margin at the top of the page
is a "call out" reflecting the quote:
Our Five Year Technology Plan introduces new
technologies which complement our "high-touch"
service...
Appearing in the margin at the bottom of the
page is a "call out" reflecting the quote:
Preparing employees for the challenges ahead...
Page 10: The top left graph is a bar graph showing the
Company's net income per employee for the periods
presented:
1992 1993 1994 1995 1996
$13,983 $18,788 $15,429 $20,915 $26,604
The bottom left graph is a bar graph showing
the Company's SMC residential mortgage loans originated
(in thousands) for the periods presented:
1994 1995 1996
$85,469 $147,254 $211,198
Page 11: Appearing in the margin at the top of the page
is a "call out" reflecting the quote:
Improving sales volume and fee income by adding new
products and services...
Appearing in the margin at the bottom of the
page is a "call out" reflecting the quote:
Three Rivers Mortgage Company begins operations in
1997...
Page 12: Appearing in the margin at the middle of the
page is a "call out" reflecting the quote:
UBAN Associates, Inc., will leverage existing
organizational strengths to attract an entirely new
customer base...
Page 13: Appearing in the margin at the top of the page
is a "call out" reflecting the quote:
Improving value for shareholders, customers, and
employees remains our goal...
The graph at the bottom left is a bar graph
showing net income per common share before SFAS #109
benefit, acquisition charge, and SAIF charge (fully
diluted basis) for the periods presented:
1992 1993 1994 1995 1996
$2.53 $2.41 $2.54 $2.87 $4.07
Page 14: Shows a service area map of USBANCORP, Inc.'s
six southwestern Pennsylvania counties. The map shows
a closeup of the six counties identifying branch
locations by subsidiary.
Page 48: The left graph is a bar graph showing dividends
per common share:
1992 1993 1994 1995 1996
$0.75 $0.86 $0.97 $1.06 $1.37
The right graph is a bar graph showing common
stock price per share at December 31:
1992 1993 1994 1995 1996
$22.00 $23.75 $21.00 $33.00 $41.75
Page 50: The top left graph is a bar graph showing pre-
tax income (in thousands):
1992 1993 1994 1995 1996
$14,323 $16,520 $17,251 $21,848 $27,263
Page 51: The graph at the bottom of the page is a bar
graph showing total assets at December 31 for the periods
presented (in thousands):
1992 $1,139,855
1993 $1,241,521
1994 $1,788,890
1995 $1,885,372
1996 $2,087,112
The bottom left graph is a bar graph showing
net income (in thousands):
1992 1993 1994 1995 1996
$8,883 $12,488 $13,320 $15,803 $20,019
Page 52: The top left graph is a bar graph showing the
Company's return on equity before SFAS #109 benefit,
acquisition charge, and SAIF charge for the periods
presented:
1992 1993 1994 1995 1996
$11.41 $10.13 $10.41 $11.03 $14.28
The graph at the bottom left is an area graph
showing total common shares outstanding at December 31:
1992 1993 1994 1995
2,982,124 4,726,181 5,582,155 5,310,489
1996
5,081,004
Page 53: The graph at the top left is a bar graph
showing tax equivalent net interest income (NII) in
thousands and data points showing the net interest margin
(NIM) percentage:
1992 1993 1994 1995 1996
NII $45,249 $50,225 $57,564 $58,954 $64,092
NIM 4.58% 4.34% 4.03% 3.45% 3.52%
The bottom left graph is a pie chart showing
the liability funding mix at December 31, 1996:
Deposits 55%
Borrowing 37%
Equity 8%
Page 54: The top left graph is a bar graph showing
average loans to average deposits for the periods
presented:
1992 1993 1994 1995 1996
68.23% 69.01% 71.82% 68.67% 73.80%
The graph at the bottom left is a pie chart
showing loan portfolio composition at December 31, 1996,
by loan type:
Commercial 15%
Commercial secured by real estate 29%
Real estate - mortgage 44%
Consumer 12%
Page 55: The graph at the top left is a pie chart
showing the deposit composition as of December 31, 1996:
DDA 13%, CD's 50%
Savings & NOW 24%, Money market 13%
The bottom left graph is a pie chart showing
the investment portfolio liquidity(scheduled maturities)
as of December 31, 1996:
Less than 1 year is 3%
Greater than 1 year but less than 5 years is 23%
Greater than 5 year but less than 10 years is 32%
Greater than 10 years is 42%
Page 56: The top left graph is a pie chart showing the
liability funding mix at December 31, 1995:
Deposits 63%
Borrowing 29%
Equity 8%
The graph at the bottom left is a pie chart
showing the deposit composition as of December 31, 1995:
DDA 12%, CD's 50%
Savings & NOW 27%, Money market 11%
Page 58: The bottom left graph is a area graph showing
net interest income (in thousands):
1992 1993 1994 1995 1996
$44,441 $49,485 $55,818 $56,147 $61,138
The bottom right graph is a area graph showing
net interest margin percentage:
1992 1993 1994 1995 1996
4.58% 4.34% 4.03% 3.45% 3.52%
Page 59: The top left graph is an bar graph showing non-
performing assets as a percentage of loans and OREO at
December 31 for the periods presented:
1992 1993 1994 1995 1996
1.58% 0.89% 0.91% 1.13% 0.92%
The bottom left graph is an bar graph showing
the allowance for loan losses as a percentage of total
non-accrual loans at December 31 for the periods
presented:
1992 1993 1994 1995 1996
245.75% 287.71% 286.27% 198.40% 209.41%
The bottom right graph is a bar graph showing
the allowance for loan losses as a percentage of loans at
December 31 for the periods presented:
1992 1993 1994 1995 1996
2.12% 2.10% 1.80% 1.79% 1.42%
Page 61: The top left graph is a bar graph showing the
loan loss provision as a percentage of average loans:
1992 1993 1994 1995 1996
0.36% 0.34% (0.34%) 0.03% 0.01%
Page 62: The top left graph is a bar graph showing the
net charge-offs as a percentage of average loans:
1992 1993 1994 1995 1996
0.58% 0.13% 0.04% 0.08% 0.20%
The bottom left graph is an bar graph showing
non-interest income excluding investment security gains
and losses (in thousands):
1992 1993 1994 1995 1996
$7,953 $9,567 $12,159 $15,841 $18,051
Page 63: The top left graph is an bar graph showing the
components of non-interest income (in thousands):
1992 1993 1994 1995 1996
All other $3,187 $3,520 $1,148 $9,057 $10,632
Deposit
service
charges $1,916 $2,771 $2,779 $2,937 $3,264
Cash pro-
cessing
fees $1,189 $1,281 $1,237 $1,154 $1,086
Trust fees $2,054 $2,578 $3,023 $3,395 $3,708
The bottom left graph is a bar graph showing
trust fee income (in thousands):
1992 1993 1994 1995 1996
$2,054 $2,578 $3,023 $3,395 $3708
The average annual growth rate in trust fee income
is 16.1%.
Page 64: The top left graph is a bar graph showing non-
interest expense excluding acquisition charge and SAIF
charge (in thousands):
1992 1993 1994 1995 1996
$36,248 $40,715 $47,082 50,557 $50,549
The bottom left graph is an bar graph showing
the components of non-interest expense (in thousands):
1992 1993 1994 1995 1996
All other $11,083 $12,605 $13,973 $16,017 $25,483
FDIC Ins. $ 2,040 $ 2,157 $ 2,576 $1,728 $639
Occupancy
Equipment $ 5,087 $ 6,001 $ 7,222 $ 7,507 $7,574
Salaries &
benefits $18,038 $19,952 $23,311 $25,305 $25,483
Page 65: The top left graph is a bar graph showing net
overhead expense as a percentage of net interest income
(excluding net security gains and losses):
1992 1993 1994 1995 1996
62.53% 62.02% 60.67% 60.58% 53.71%
The bottom left graph is a bar graph showing the
Company's efficiency ratio excluding SAIF charge:
1992 1993 1994 1995 1996
67.63% 67.44% 67.53% 66.97% 61.06%
Page 66: The top left graph is a bar graph showing
assets per full time equivalent employee at December 31
for the periods presented (in thousands):
1992 1993 1994 1995 1996
$1,641 $1,829 $2,070 $2,419 $2,588
The graph at the bottom left is a bar graph
showing total assets at December 31 for the periods
presented (in thousands):
1992 $1,139,855
1993 $1,241,521
1994 $1,788,890
1995 $1,885,372
1996 $2,087,112
Page 67: The top left graph is a pie chart showing the
liability funding mix at December 31, 1996:
Deposits 55%
Borrowing 37%
Equity 8%
The bottom left graph is a pie chart showing
the liability funding mix at December 31, 1995:
Deposits 63%
Borrowing 29%
Equity 8%
Page 68: The bottom left graph is an bar graph showing
the Company's one year GAP ratio compared to a neutral
one year GAP of 1.00x at December 31 for the periods
presented:
1992 1993 1994 1995 1996
1.14x 1.10x 0.79x 0.86x 0.79x
Page 69: The top left graph is a pie chart showing the
investment portfolio liquidity (scheduled maturities) as
of December 31, 1996:
Less than 1 year is 3%
Greater than 1 year but less than 5 years is 23%
Greater than 5 year but less than 10 years is 32%
Greater than 10 years is 42%
The bottom left graph is a pie chart showing
the investment portfolio liquidity(scheduled maturities)
as of December 31, 1995:
Less than 1 year is 5%
Greater than 1 year but less than 5 years is 45%
Greater than 5 year but less than 10 years is 26%
Greater than 10 years is 24%
Page 70: The top left graph is a bar graph showing the
Company's total risk based capital at December 31
compared to a regulatory requirement of 8.00%:
1992 1993 1994 1995 1996
12.54 15.97 13.70 14.88 14.16
The bottom left graph is an area graph showing
asset leverage ratio compared to the management minimum
target of 6% and the regulatory requirement of 5%:
1992 1993 1994 1995 1996
7.08% 9.18% 6.64% 6.63% 6.51%
Page 71: The top left graph is a bar graph showing the
common dividend yield (based upon dividends declared and
purchase at average market price each year) for the
periods presented:
1992 1993 1994 1995 1996
3.70% 3.50% 4.20% 4.13% 3.88%
The graph at the bottom left is a pie chart
showing the distribution of 1996 net income:
Common dividend payout 35%
Treasury stock repurchases 43%
Retained for internal capital 22%
growth
The graph at the bottom left is a pie chart
showing the distribution of 1995 net income:
Common dividend payout 37%
Treasury stock repurchases 50%
Retained for internal capital 13%
growth
Page 74: The top left graph is a pie chart showing 1996
gross revenue contribution by product segment (in
thousands):
Investments $63,538, Trust $3,708,
Commercial $30,606, Wholesale $1,085,
Consumer $57,085,
The bottom left graph is a pie chart showing
1996 gross revenue contribution by product segment
(percentage):
Investments 41%, Trust 2%,
Commercial 20%, Wholesale 1%,
Consumer 36%,
Page 75: The top left graph is a pie chart showing 1995
gross revenue contribution by product segment (in
thousands):
Investments $59,264, Trust $3,395,
Commercial $27,583, Wholesale $1,154,
Consumer $54,862,
The bottom left graph is a pie chart showing
1995 gross revenue contribution by product segment
(percentage):
Investments 40%, Trust 2%,
Commercial 19%, Wholesale 1%,
Consumer 38%,
Page 76: The top left graph is a bar graph showing net
income before SFAS #109 benefit, acquisition charge, and
SAIF charge (in thousands):
1992 1993 1994 1995 1996
$8,883 $11,036 $13,202 $15,803 $21,387
The graph at the bottom left is an bar graph
showing return on average assets before SFAS #109
benefit, acquisition charge, and SAIF charge:
1992 1993 1994 1995 1996
0.85% 0.91% 0.87% 0.87% $1.10
Page 77: The left graph is a bar graph showing the
Company's SMC residential mortgage loans originated (in
thousands) for the periods presented:
1994 1995 1996
$85,469 $147,254 $211,198
Page 78: The graph at the top left is a bar graph
showing trust assets. The graph presents the book value
of client assets which is discretionary and non-
discretionary at December 31 (in millions):
1992 1993 1994 1995 1996
$650 $943 $1,027 $1,043 $1,157
Note: 78% growth rate from 1992 to 1996.
Page 79: The top left graph is a pie chart showing the
composition of 1996 trust assets (dollars in thousands
and percentages):
Corporate trust $321,229 28%
Employee benefits $430,656 37%
Personal trust $347,657 30%
Pathroad $57,530 5%
Page 81: The left graph is a bar graph showing the
Company's net income per employee for the periods
presented:
1992 1993 1994 1995 1996
$13,983 $18,788 $15,429 $20,915 $26,604
Page 82: The top left graph is a pie chart showing the
investment portfolio liquidity (scheduled maturities) as
of December 31, 1996:
Less than 1 year is 3%
Greater than 1 year but less than 5 years is 23%
Greater than 5 year but less than 10 years is 32%
Greater than 10 years is 42%
The bottom left graph is a pie chart showing
the investment portfolio liquidity (scheduled maturities)
as of December 31, 1995:
Less than 1 year is 5%
Greater than 1 year but less than 5 years is 45%
Greater than 5 year but less than 10 years is 26%
Greater than 10 years is 24%
Page 83: The top left graph is a pie chart showing loan
portfolio composition at December 31, 1996 by loan type:
Commercial 15%
Commercial secured by real estate 29%
Real estate - mortgage 44%
Consumer 12%
Page 84: The top left graph is a pie chart showing loan
portfolio composition at December 31, 1995 by loan type:
Commercial 12%
Commercial secured by real estate 22%
Real estate - mortgage 50%
Consumer 16%
Page 85: The graph at the top left is a pie chart
showing the deposit composition as of December 31, 1996:
DDA 13%, CD's 50%
Savings & NOW 24%, Money market 13%
Inside back cover: The graph at the bottom right is a
bar graph showing common stock price to book value at
December 31:
1992 1993 1994 1995 1996
95.32% 96.27% 85.47% 116.44% 139.63%
The graph at the bottom right is a
bar graph showing common stock price earnings ratio
(calculated on a fully diluted basis before SFAS #109
benefit and acquisition charge). Based upon December 31
stock prices for the periods presented):
1992 1993 1994 1995 1996
8.70x 9.85x 8.27x 11.50x 10.96x