USBANCORP, INC.
1995 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 43
Reports of Independent Public Accountants 44
Market Price and Dividend Data 46
Selected Five-Year Consolidated Financial Data 47
Selected Quarterly Consolidated Financial Data 48
Management's Discussion and Analysis 49
Form 10-K 76
USBANCORP Directors and General Officers 97
Subsidiaries' Directors, General Officers, and Advisory
Board 98
Office Locations 101
Shareholder Information 102
1
USBANCORP, INC.
FINANCIAL HIGHLIGHTS AT A GLANCE
See annex A
2
USBANCORP, INC.
FINANCIAL HIGHLIGHTS
%Increase
1995 1994 (Decrease)
FOR THE YEAR (In thousands, except per share and ratio data)
Net interest income $56,147 $55,818 1
Net income 15,803 11,320 40
Net income before acquisition charge 15,803 13,202 20
Performance ratios:
Return on average assets before
acquisition charge 0.87% 0.87% -
Return on average equity before
acquisition charge 11.03 10.41 6
Net interest margin 3.45 4.03 (14)
Net charge-offs as a percentage of
average loans, net of unearned income 0.08 0.04 100
Loan loss provision as a percentage of
average loans, net of unearned income 0.03 (0.34) 109
Net overhead expense (excluding
acquisition charge) as a percentage
of average assets 1.86 2.32 (20)
PER COMMON SHARE
Net income:
Primary $2.88 $2.18 32
Fully diluted 2.87 2.18 32
Fully diluted before acquisition charge 2.87 2.54 13
Cash dividends declared 1.06 0.97 9
Dividend payout ratio 36.43% 44.57% (18)
Price earnings ratio before
acquisition charge 11.50x 8.27x 39
AT PERIOD END
Total assets $1,885,372 $1,788,890 5
Investment securities:
Available for sale 427,112 259,462 65
Held to maturity 463,951 524,638 (12)
Loans and loans held for sale,
net of unearned income 834,634 868,004 (4)
Allowance for loan losses 14,914 15,590 (4)
Goodwill and core deposit intangibles 23,838 27,009 (12)
Deposits 1,177,858 1,196,246 (2)
Stockholders' equity 150,492 137,136 10
Trust assets (discretionary and
non-discretionary) 1,043,001 1,027,253 2
Non-performing assets 9,426 7,901 19
Non-performing assets as a percentage of
loans and loans held for sale,
net of unearned income, and other
real estate owned 1.13% 0.91% 24
Capital ratios:
Common equity 7.98 7.67 4
Total risk-based 14.88 13.70 9
Asset leverage 6.63 6.64 -
Per common share:
Book value $28.34 $24.57 15
Market value 33.00 21.00 57
Market price to book value ratio 116.44% 85.47% 36
Assets per employee $2,541 $2,293 11
STATISTICAL DATA
AT YEAR END (Amounts not rounded)
Full-time equivalent employees 742 780 (5)
Branch locations 45 45 -
Common shareholders 6,212 6,360 (2)
Common shares outstanding 5,310,489 5,582,155 (5)
NASDAQ Symbol: UBAN
3
USBANCORP, INC.
SHAREHOLDER INFORMATION AT A GLANCE
See annex A
4
USBANCORP, INC.
MESSAGE TO THE
SHAREHOLDER
Dear Shareholder:
Your Company is pleased to report that key strategies
introduced during 1995 have created a total annual
shareholder return of 64% and have repositioned us to
better meet the challenges of a changing banking
environment. Measures instituted last year to improve
earnings performance and the momentum achieved will
benefit our shareholders, customers and employees as we
head toward the 21st century.
Throughout the early 90s, your Company-like many small
community bank holding companies similar in asset size-
enjoyed growth and success by competing in the
traditional "Commercial Bank" marketplace. Supplying
credit and non-credit services to companies with annual
sales in excess of $10 million contributed to positive
bottom line results. These results were achieved
through conservative management practices with emphasis
on a strong credit process, acquisition growth and
diligent expense management.
Throughout 1994 increased rate-driven competition from
larger regional banks and non-traditional financial
service providers resulted in a gradual decline in your
Company's share of traditional "Commercial Bank"
business. Coupled with a three-year trend of less than
desirable growth in Earnings Per Share (EPS), this
decline in market share prompted management to take
decisive action and reorganize key leadership positions
during the second quarter of 1995.
Specifically, management acknowledged the need to shift
management practices from the previously successful
hierarchical "command and control" paradigm of the
past, to a flatter, more flexible organization capable
of supporting "real time" decision-making autonomy in
developing and implementing strategies. To reach this
objective, management identified the following
requisites for new leadership:
Address opportunities philosophically and with vision.
Utilize a hands-on, action-oriented approach to daily
business with steadfast accountability for results.
Build an aggressive management team which utilizes the
special skills and abilities of cross-functional
leaders.
Be passionate towards the mission.
Model a performance based work ethic demonstrated by a
"roll-up-your-sleeves" management style.
In May, I put together a team of leaders who best
exemplified these required qualities to lead the
repositioning process. Orlando B. Hanselman, who
continues as Executive Vice President/Chief Financial
Officer, USBANCORP, was awarded the expanded
responsibility of President and Chief Executive Officer
of U.S. Bank. W. Harrison Vail, President and Chief
Executive Officer of Three Rivers Bank, was awarded the
additional responsibility of President and Chief
Executive Officer of Community Savings Bank. Louis
Cynkar was made Executive Vice President and Corporate
Senior Commercial Loan Officer, USBANCORP. Finally, the
leadership team was expanded to include Ronald W.
Virag, President and Chief Executive Officer of
USBANCORP Trust Company, and Kevin J. O'Neil, President
and Chief Executive Officer of Standard Mortgage
Corporation of Georgia.
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USBANCORP, INC.
Your new leadership team developed these common goals:
Unify the three affiliate banks, the Trust Company and
Standard Mortgage Corporation under a common mission to
become the "Bank of Choice" for shareholders, customers
and employees.
Improve performance as measured by our corporate goal
of achieving an intermediate 13% ROE in 1996. This goal
is to be accomplished through strategies that increase
net interest income through loan growth, situational
right-sizing, benefits of continuing Western Region
integration, reduction of salary and benefit costs, and
emphasis on commercial and trust growth potential.
Your new management team defined four primary
strategies to achieve these goals. Begin facilitating a
flexible sales and marketing strategy. Increasingly
accept controlled risks to advance the mission. Balance
our approach between new business generation and
expense reduction. And, create a "partnership of
success" which will lead to added value for
shareholders, customers and employees.
FACILITATING A FLEXIBLE SALES AND MARKETING STRATEGY
To implement a flexible sales and marketing strategy,
management began by expanding the pool of candidates
for vacated leadership positions to include applicants
working in non-banking industries that have broader
experience in sales and service. As a result, sales and
retail leaders have been recruited from companies
featuring products as diverse as life insurance,
annuities, toys, clothing and snack foods. This
expanded sales and retail experience is fostering a
more sophisticated approach to selling our products and
services and is affording your Company an innovative
and beneficial competitive edge.
Utilizing the broadened base of sales expertise,
management began in June of 1995 to help employees
develop and hone needed sales skills. Branch leadership
and retail sales staff at each affiliate bank
participated in high-intensity retail sales training
conducted by a nationally recognized teaching
organization. Intensive follow-up and coaching in the
field continue to provide our front line people with
the tools they need to maintain our vigorous sales and
service program. This customer-driven sales program is
characterized by flexibility in when, where and how we
deliver our products and services in order to maximize
customer convenience and satisfaction. With proper
sales leadership and effective employee training in
place, we are confident that this competitive point of
difference will attract new customers and cement
relationships with existing customers.
Extensive customer research during 1994 and again in
1995 confirmed that more than 90% of customers
throughout the USBANCORP network felt that their
service expectations were either met or exceeded. A
thorough review of the aggregate research findings
revealed, and supported our belief, that customers want
us to focus on one area of improvement-more flexibility
in the product and service delivery process. Speeding
the product delivery process and expanding the times
and places of delivery are already beginning to close
the gap between quality service and total customer
satisfaction.
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USBANCORP, INC.
To further support a flexible sales and marketing
strategy, management adopted a Total Quality Management
(TQM) system in which each employee is empowered to
identify opportunities for improvement and remove
barriers to success. Employees are responsible for
bringing new opportunities as well as sales or service
barriers to the attention of seven Rapid Response
Teams. The teams are comprised of peer-elected
individuals who offer recommendations for improving
work flow associated with the delivery process. To
date, Rapid Response Teams are evaluating processes
such as cashing checks, processing loans, waiving fees,
selling and maintaining safe deposit boxes and applying
for home equity loans. Actions recommended by the Rapid
Response Teams assure that the most efficient processes
are used for convenient delivery of products and
services to our customers.
ACCEPTING CONTROLLED RISK TO ADVANCE THE MISSION
Management's ability to accept controlled risk with
confidence was further advanced through an Investment
ALCO re-engineering project completed during 1995. The
evolution to state of the art computer systems for
simulation modeling, financial forecasting and
investment accounting enhanced management's abilities
to monitor and manage interest rate risk. These
enhancements to the decision making process-combined
with amended hedging, investment and ALCO policies that
reflect management's philosophy to assume controlled
interest rate risk-received high marks during a full
scope examination conducted at U.S. Bank by the Office
of the Comptroller of the Currency during the fourth
quarter of 1995. The investment income opportunities
afforded by this re-engineering complements our
management style which places a premium on increased
earnings performance within a changing bank
environment.
BALANCING OUR APPROACH BETWEEN
NEW BUSINESS GENERATION AND EXPENSE REDUCTION
By re-engineering work flows and reporting structures,
50% of all employee vacancies occurring after May 1,
1995, resulted in position eliminations. Through
situational right-sizing, your Company flattened the
organizational structure at all affiliates to further
advance our sales and marketing culture by directing
more responsibility and accountability towards those
closest to the customer. During 1995, employees from
all levels of the organization worked together to
identify ways to reduce expense without impairing
customer service. Some of these expense reductions were
achieved by eliminating production of the quarterly
statement to shareholders, developing a bar coding
system to lower postage costs, decreasing the weight of
this annual report, and curtailing discretionary
expenditures for fixed assets.
These savings improved our efficiency ratio from 73% in
1991 to 67% in 1995. It is management's goal to reduce
this ratio to less than 60% over the next 12 to 18
months. All expense reductions and right-sizing
decisions will continue to be made only after careful
consideration is given to the impact on our stated 1996
goals and our future competitive position in the market
area. Management will resist short term benefits of
pervasive employee downsizing which would adversely
affect our goal to increase market share through a
"high-touch" approach to customer service. By retaining
the optimum resources to succeed, your Company is
better positioned to capture and keep a larger share of
the banking market in the communities we serve.
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USBANCORP, INC.
CREATING A PARTNERSHIP OF SUCCESS
The new executive leadership will create added value
for its partners-shareholders, customers and employees.
For shareholders we are improving performance through a
balanced approach to business generation and expense
reduction which leads to improved EPS growth and to a
progressive total shareholder return. For our customers
we are becoming the "Bank of Choice" through
"high-touch" customer service. At your Company,
"banker's hours" have taken on a new meaning. We are
outworking the competition by delivering our products
and services whenever and wherever it is convenient for
our customers. For employees we are providing growth
opportunities through a total quality management
process that emphasizes skill-based learning programs
and continuous employee participation in generating
ideas and streamlining procedures.
Shareholders, customers and employees are responding to
the revitalized USBANCORP with renewed enthusiasm.
Shareholders have responded favorably to our improved
performance as demonstrated through heightened stock
activity in 1995. Total trading volume of USBANCORP
stock in 1995 increased by 44% compared with the
previous year. This increased demand for our stock
contributed to a total shareholder return of 64% in
1995.
In July, U.S. Bank President Orlando B. Hanselman asked
customers to tell him how they were "dazzled or
disappointed" with products and services. Within the
first three months of the comprehensive survey, more
than 5,000 customers answered his request. Their
feedback verified that the high level of quality
service our employees provide to customers is indeed a
competitive advantage for U.S. Bank. The bank president
personally responded by calling or writing each
customer and senior division leaders ensured that each
comment requiring follow up was acted upon within 14
days. The president also continues to mail personal
hand-written notes to existing and potential customers.
Eagerly participating in the TQM process, employees
generated more than 300 suggestions for improvement. At
U.S. Bank a suggestion to expand the availability of
training sessions resulted in the implementation of
five regional learning centers, each equipped with
audiovisual equipment. These learning centers offer
more timely employee communication as well as expanded
access to learning. Employee participation is also the
driving force behind Making Change, an
employee-suggested, volunteer-staffed newsletter
dedicated to communicating the latest news concerning
our accomplishments and future direction. In the
Western Region, employees from all levels of the
organization pooled a wide range of skills and
experience to design and implement telephone banking.
U.S. Bank is applying the knowledge and expertise
amassed by these pioneers to initiate a similar service
this year.
IMPLEMENTING THE STRATEGIES-
INCREASING NET INCOME THROUGH LOAN GROWTH
Successfully positioning your Company as the quality
service leader within a rate-driven competitive
environment requires bold action and extraordinary
employee commitment. At a time when employee interest
and enthusiasm were at all time highs, we revealed the
key employee-driven components of our new "high-touch"
strategies. After instituting several key programs, our
success was apparent immediately. The increase in loan
volume which began at mid-year was a direct result of
proving to customers that we are willing to provide
flexibility in the time, place and method of our
product and service delivery.
8
USBANCORP, INC.
Because of its strong leadership in the market and
management's ability to rapidly track results, U.S.
Bank was chosen as the first subsidiary to implement
the positioning components. The following programs were
initiated to help demonstrate the bank's new direction.
The Sales "Blitz": Employees demonstrated enthusiastic
support for U.S. Bank's retail service initiatives
immediately following intensified sales training.
Community office leaders volunteered their own
challenging sales call goals, motivated solely by their
new sales knowledge and a willingness to advance the
bank's mission. As a result, out-of-branch sales calls
increased 300% during the last four months of 1995
compared with the previous four month period.
Canvassing: Employee volunteers from all departments
and organizational levels knocked on doors in three
high-growth-potential neighborhoods to bring the home
delivery concept to a broader audience. Employees
visited more than 3,600 homes during three Saturday
morning canvassing sessions, delivering a first-hand
description of our quality service commitment to more
than 1,700 potential customers. Employees also left
U.S. Bank's tracks everywhere they went by hanging a
footprint-shaped promotional piece on the door knob of
every home they visited!
The Loan Patrol: U.S. Bank began a promotional campaign
highlighting the bank's willingness to go beyond
standard bank practice by delivering consumer and
mortgage credit services at the customer's convenience
rather than restricting sales to banker's hours and
community offices. Customers were urged to put U.S.
Bank to the test by asking the bank to deliver approved
loan proceeds right to their homes or offices, anytime
of the day or night. In 1995 customers also enjoyed the
ability to complete applications for these credit
products via a toll-free telephone number. These new
concepts increased loan applications by 43%, with 65%
of these representing new customers for U.S. Bank. The
closing rate on telephone loan applications now
approximates the 33% national average. As we enter 1996
the message is clear-U.S. Bank is willing to do
whatever it takes to outwork and outsell the
competition.
These programs succeeded in positioning U.S. Bank as
the local service provider most willing to demonstrate
extraordinary commitment to customer convenience. By
outworking the competition, U.S. Bank's branch system
leaders, working with centralized lending support
teams, posted improved loan volumes during the last
three months of 1995. Commercial loan originations
through the branch system increased to an average of
$665,000 a month for the last quarter of the year
compared to $52,000 a month during the baseline period
of January through April 1995. During the last quarter
of 1995, the branch system averaged $1.5 million in new
mortgage originations per month, a four-fold increase
when compared to the baseline period. The most modest
success was the still remarkable 57% improvement in new
consumer loans originated by the branches.
In 1996, the Loan Patrol concept is being adapted to
develop other loan generating opportunities. A joint
effort between U.S. Bank and local home improvement
retailers will bring home equity loan applications
right into the retailers' stores along with U.S. Bank
sales banners and point-of-sale merchandising. U.S.
Bank will
9
USBANCORP, INC.
promote participating retailers to our current
customers through mass-distributed coupon books, while
retailers will encourage their customers to
conveniently finance home improvements by obtaining a
home equity loan from U.S. Bank. To increase mortgage
loan activity, three mortgage loan originators will now
be available to complete residential mortgage
applications at the customer's home or business from 7
A.M. to 9 P.M. seven days a week.
Banking on demonstrated success at U.S. Bank, your
Company plans to introduce similar programs in the
Western Region in early 1996. It is our belief that
comparable results can be achieved in the "big bank"
environment of the West, as customers compare the
"high-tech" impersonal treatment received from the "big
banks" to our personalized "high-touch" practices.
IMPLEMENTING THE STRATEGIES-WESTERN REGION INTEGRATION
The sale of Frontier Finance Company during the first
quarter of 1995 resulted in a pre-tax gain of $905,000
and divested your Company of a business line which was
not compatible with future strategic plans. The
organizational structure of the Western Region was
revised to eliminate duplications in effort and
staffing between the two Western affiliates. These
operating efficiencies positioned the Western
affiliates to swiftly embrace a marketing and sales
driven business strategy.
Western Region subsidiaries are improving customer
service and advancing the consolidation effort through
successful operation of inter-affiliate banking and
telephone banking. In July, Three Rivers Bank and
Community Savings Bank received regulatory approval to
allow their customers to transact deposit business at
any of the combined 24 offices and 17 automated teller
locations throughout the Western Region. Telephone
banking, known as "TellerPhone Banking," was introduced
in the Western Region in December of 1995 and was
enthusiastically received. Within the first 15 days of
operation, nearly 700 customers used the service,
making nearly 6,000 calls or transactions.
Inter-affiliate banking and TellerPhone Banking are
positioning the Western affiliates to successfully
execute our strategic plans in 1996.
EMPLOYEE COMMITMENT TO THE MISSION
In September 1995, USBANCORP, U.S. Bank and USBANCORP
Trust Company officers, employees and Boards of
Directors agreed to participate in a shared
proportionate sacrifice program to reduce expense and
demonstrate their commitment to improving performance
and achieving an intermediate 13% ROE in 1996.
All officers agreed to a salary rollback starting at
10% for executive officers and reducing to 3% for first
level officers. All other U.S. Bank and USBANCORP
employees agreed to a wage freeze. Beginning January 1,
1996, these salary rollbacks and the wage freeze will
be effective for one year. The United Steelworkers of
America, AFL-CIO-CLC, Local Union 8204, which
represents 60% of the work force of U.S. Bank and
USBANCORP Trust Company, overwhelmingly approved a four
year contract which includes a wage freeze in 1996 and
annual raises of 2%, 4% and 5% in the following three
years. The Boards of Directors of U.S. Bank, USBANCORP
and USBANCORP Trust Company opted for a 10% reduction
in directors' fees for 1996.
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USBANCORP, INC.
In addition to salary rollbacks and wage freezes, all
U.S. Bank and USBANCORP employees are participating in
a temporarily discounted deferred profit sharing plan.
These discounts do not alter the earnings-based formula
for determining the employers' profit sharing
contribution; however, participants received 90% of the
formula amount for the year ending December 31, 1995.
During the next two years, participants will receive
25% and 75% of the formula amount, respectively. In
year four, profit sharing contributions will be
restored to 100% of the formula. Augmenting these
expense reductions, traditional indemnity health
insurance coverage was replaced by a point of service
managed care program.
Aggregate four-year benefits from the shared
proportionate sacrifice program are expected to reduce
costs by $2 million, with a present value of
approximately $1.5 million. By agreeing to these
expense reductions, employees and directors have
created additional time for your Company to enhance its
core franchise and profitability.
EMPHASIS ON COMMERCIAL AND TRUST GROWTH POTENTIAL
The Commercial segment contributed to improved
performance for your Company in 1995 by generating fee
income and loan growth. Due to increased competition
for "big business" loans, your Company is redirecting
sales efforts to attract small and middle-sized
business customers, those with annual sales of $3
million or less. To target this market segment, a Small
Business Center was created to centralize processing
and underwriting of commercial loans up to $250,000. By
utilizing "back room" efficiencies provided by the
Center, your Company has been successful in generating
an increasing number of commercial loans through the
branch network at each banking affiliate. Commercial
lending fee goals were raised at mid-year to coincide
with the opening of the Small Business Center. At year
end 1995, the commercial segment had surpassed their
revised fee goal.
A Sales Blitz program, similar to the U.S. Bank retail
segment program, targeted potential customers with a
large "sphere of influence," including construction
companies, law firms, accounting firms, engineers and
architects. Successful sales calls not only result in
new loan business, but also help to generate referral
business that benefits the commercial segment in the
long term. A direct response advertising campaign is
also in place to target specific businesses and sell
them on the advantages of responsiveness, personal
attention and anytime, anywhere delivery convenience
provided by the Small Business Center working
cooperatively with all branch calling officers.
Standard Mortgage Corporation of Georgia, our wholesale
mortgage banking affiliate, increased loan origination
production by 62% in 1995. Standard Mortgage benefitted
from last year's declining interest rate environment as
well as further strategic expansion into the robust
real estate markets of the southeastern United States.
This section of the country continues to offer a strong
housing market and home values that are rising faster
than in any other part of the country. More than $137
million in loan originations were generated during the
last half of 1995 compared with just $85 million for
all of 1994. Standard Mortgage Corporation of Georgia
also originated and sold 330 adjustable rate mortgage
loans totalling approximately $44.5 million to U.S.
Bank. This transaction resulted in reduced interest
rate risk and provided geographic diversification in
U.S. Bank' mortgage loan portfolio.
11
USBANCORP, INC.
USBANCORP Trust Company seized the opportunity to
aggressively market the Pathroad product throughout the
strong stock and equity environment of 1995. The
Pathroad account is positioned to take advantage of an
upswing in consumer savings and investment activity
within a growing segment of the population with assets
of less than $200,000 and annual household incomes of
$45,000 or more. The Trust Company will use a direct
marketing approach to generate new account inquiries
and increase current account investment levels during
1996. Management also will market the Pathroad product
to other small bank Trust Divisions as a turnkey,
fee-generating operation. These strategies are expected
to increase managed assets as well as fee income in
1996.
SERVING OUR COMMUNITIES
Recognizing the importance of good corporate citizens,
your leadership team actively participates in improving
the communities they serve. I personally serve on the
Federal Reserve Bank Board in Philadelphia. Orlando B.
Hanselman serves on the Board of Directors' Investment
and Finance Operations Committee for Conemaugh Health
Systems. Additionally, Hanselman is a member of the
National American Red Cross Biomedical Services Board
of Directors and is chairman of the Johnstown Regional
Blood Services Board. W. Harrison Vail is a member of
the Board of Directors for the Greater Pittsburgh
Council of the Boy Scouts of America and serves as a
director for the Housing Opportunities, Inc. board.
Louis Cynkar serves as Chairman of Housing
Opportunities, Inc. of Cambria County as well as Vice
Chairman for Johnstown Area Regional Industries (JARI).
Kevin O'Neil actively participates as an advisor to the
Atlanta Mortgage Consortium, a group of Atlanta based
institutions that provide financing opportunities for
low to moderate income families. O'Neil is also active
in revitalizing inner-city properties located in
Atlanta.
Employees at every level of the organization volunteer
countless hours of service to help us merit our
reputation as caring neighbors and leaders in the
communities we serve. During the Labor Day weekend,
U.S. Bank sponsored the Johnstown Area Heritage
Association's Johnstown FolkFest ^95. Throughout the
three day weekend, U.S. Bank and USBANCORP employees
provided 75% of the volunteer support for this
celebrated community event. Additionally, the corporate
credit card division combined volunteer efforts with
customer service by providing a cash-advance point of
sale booth for those who attended the festival.
1996 AND BEYOND
In 1995 your Company responded to increased competitive
pressures by successfully implementing carefully
thought out repositioning strategies. These strategies
provide a broad foundation for your Company to build
upon as we progress through 1996. Improving operational
performance and increasing the pace of Earnings Per
Share growth will be an ongoing priority for your
management team.
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USBANCORP, INC.
Throughout 1996 and into 1997, your Company will begin
the second phase of repositioning. We will maintain the
"high-touch" delivery process developed in 1995 while
gradually introducing a "high-tech" complement to
optimize the speed and efficacy of our current delivery
systems. Management's future goals for 1996 and beyond
are focused on shareholders, customers and employees.
For shareholders our goals are to:
achieve efficiency ratios of less than 60% during the
next 12 to 18 months.
accomplish a 40% increase in aggregate branch loan
originations during 1996.
achieve an annualized Earnings Per Share growth rate in
the 15% to 20% range.
accomplish an annual, sustainable total shareholder
return approximating 15%.
realize an intermediate 13% Return on Equity in 1996 as
a platform for further enhancement in 1997 and beyond.
For customers our goals are to:
implement an efficient credit scoring system which
results in a one hour or less approval process for
consumer loan applications.
achieve a 24-hour turnaround on mortgage loan
approvals.
cost-effectively expand our time of delivery to include
evenings and weekends.
achieve a balanced "high-touch/high-tech" delivery
process, emphasizing the convenience of home delivery.
explore expanded product delivery capabilities through
our ATM delivery system and the introduction of
interactive computer-driven banking.
For employees our goals are to:
increase skill based learning opportunities.
provide career satisfaction through greater
decision-making autonomy and expanded responsibilities.
develop in-house certification programs for product
management, supervision and leadership.
expand performance based incentive compensation
programs to all organizational levels.
Management acknowledges the aggressiveness of these
goals and is strongly committed to building upon the
momentum gained in 1995 to achieve even greater success
in 1996 and beyond.
\s\Terry K. Dunkle
Terry K. Dunkle
Chairman, President & CEO
USBANCORP, Inc.
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USBANCORP, INC.
SERVICE AREA MAP
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USBANCORP, INC.
FINANCIAL STATEMENTS
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USBANCORP, INC.
THIS PAGE IS INTENTIONALLY LEFT BLANK.
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USBANCORP, INC.
CONSOLIDATED BALANCE SHEET
At December 31 1995 1994
(In thousands)
ASSETS
Cash and due from banks $ 45,771 $ 48,841
Interest bearing deposits with banks 647 5,050
Federal funds sold and securities purchased
under agreements to resell 13,750 -
Investment securities:
Available for sale 427,112 259,462
Held to maturity (market value $471,191 on
December 31, 1995, and
$501,485 on December 31, 1994) 463,951 524,638
Assets held in trust for
collateralized mortgage obligation 7,099 9,104
Loans held for sale 5,224 18,077
Loans 832,126 853,759
Less: Unearned income 2,716 3,832
Less: Allowance for loan losses 14,914 15,590
Net loans 814,496 834,337
Premises and equipment 18,588 19,100
Accrued income receivable 16,752 16,894
Mortgage servicing rights 11,372 11,452
Goodwill and core deposit intangibles 23,838 27,009
Other assets 36,772 14,926
TOTAL ASSETS $1,885,372 $1,788,890
LIABILITIES
Non-interest bearing deposits $ 145,379 $ 144,013
Interest bearing deposits 1,032,479 1,052,233
Total deposits 1,177,858 1,196,246
Federal funds purchased and securities sold under
agreements to repurchase 63,828 143,289
Other short-term borrowings 30,528 75,295
Advances from Federal Home Loan Bank 428,217 200,094
Collateralized mortgage obligation 6,548 8,251
Long-term debt 5,061 5,806
Other liabilities 22,840 22,773
TOTAL LIABILITIES 1,734,880 1,651,754
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, 1995, and 1994 - -
Common stock, par value $2.50 per share; 12,000,000
shares authorized; 5,733,701 shares issued and
5,310,489
outstanding on December 31, 1995; 5,709,855 shares
issued
and 5,582,155 shares outstanding on
December 31, 1994 14,334 14,275
Treasury stock at cost, 423,212 shares on December 31,
1995, and 127,700 on December 31, 1994 (11,007) (3,064)
Surplus 93,361 92,923
Retained earnings 50,401 40,355
Net unrealized gains (losses) on
available for sale securities 3,403 (7,353)
TOTAL STOCKHOLDERS' EQUITY 150,492 137,136
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,885,372 $1,788,890
See accompanying notes to consolidated financial
statements.
17
USBANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31 1995 1994 1993
(In thousands, except per share data)
INTEREST INCOME
Interest and fees on loans:
Taxable $ 69,019 $ 64,461 $ 59,605
Tax exempt 2,134 2,039 1,110
Deposits with banks 280 121 127
Federal funds sold and securities purchased
under agreements to resell 165 94 383
Investment securities:
Available for sale 22,940 15,531 23,164
Held to maturity 34,621 19,645 -
Assets held in trust for
collateralized mortgage obligation 556 920 1,346
Total Interest Income 129,715 102,811 85,735
INTEREST EXPENSE
Deposits 45,403 34,283 32,623
Federal funds purchased and securities
sold under agreements to repurchase 4,769 4,545 322
Other short-term borrowings 2,284 804 37
Advances from Federal Home Loan Bank 20,043 6,006 1,163
Collateralized mortgage obligation 848 1,024 1,508
Long-term debt 221 331 597
Total Interest Expense 73,568 46,993 36,250
NET INTEREST INCOME 56,147 55,818 49,485
Provision for loan losses 285 (2,765) 2,400
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 55,862 58,583 47,085
NON-INTEREST INCOME
Trust fees 3,395 3,023 2,578
Net (losses) gains on loans held for sale (124) 763 593
Net realized gains (losses) on investment securities 702 (3,972) 583
Gain on disposition of business line 905 - -
Wholesale cash processing fees 1,154 1,237 1,281
Service charges on deposit accounts 2,937 2,779 2,771
Net mortgage servicing fees 2,555 1,130 -
Other income 5,019 3,227 2,344
Total Non-Interest Income 16,543 8,187 10,150
NON-INTEREST EXPENSE
Salaries and employee benefits 25,305 23,311 19,952
Net occupancy expense 4,215 4,133 3,393
Equipment expense 3,292 3,089 2,608
Professional fees 2,570 2,303 2,167
Supplies, postage, and freight 2,608 2,383 1,998
Miscellaneous taxes and insurance 1,414 1,215 1,128
FDIC deposit insurance expense 1,728 2,576 2,157
Acquisition charge - 2,437 -
Amortization of goodwill
and core deposit intangibles 2,473 1,805 831
Other expense 6,952 6,267 6,481
Total Non-Interest Expense 50,557 49,519 40,715
INCOME
BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 21,848 17,251 16,520
Provision for income taxes 6,045 5,931 5,484
BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 15,803 11,320 11,036
Cumulative effect of change in accounting
principle-adoption of SFAS 109 - - 1,452
NET INCOME $ 15,803 $ 11,320 $ 12,488
NET INCOME APPLICABLE TO
COMMON STOCK $ 15,803 $ 11,320 $ 12,385
PER COMMON SHARE DATA:
Primary:
Net income $2.88 $2.18 $2.78
Average number of common
shares outstanding 5,480,527 5,191,885 4,456,820
Fully Diluted:
Income before cumulative effect of
change in accounting principle $2.87 $2.18 $2.41
Net income 2.87 2.18 2.72
Average number
of shares outstanding 5,499,750 5,191,885 4,588,622
Cash Dividends Declared $1.06 $0.97 $0.86
See accompanying notes to consolidated financial
statements.
18
USBANCORP, INC.
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, 1992 $13,800 $ 7,456 - $36,022 $25,693 - $ 82,971
1993
Net income for the year 1993 - - - - 12,488 - 12,488
Dividend reinvestment and
stock purchase plan - 56 - 495 - - 551
Stock options exercised - 13 - 73 - - 86
Preferred stock converted to
common stock (12,468) 1,415 - 11,053 - - -
Preferred stock redeemed (1,332) - - (36) - - (1,368)
Secondary common stock
issuance of 1,150,000
shares net of issuance costs - 2,875 - 23,113 - - 25,988
Cash dividends declared:
Preferred stock dividends
paid on conversion - - - - (103) - (103)
Common stock ($0.20 per
share on 4,436,257 shares;
$0.22 per share on
4,708,461 shares;
$0.22 per share on
4,715,686 shares; and
$0.22 per share on
4,720,535 shares) - - - - (3,998) - (3,998)
Balance December 31, 1993 - 11,815 - 70,720 34,080 - 116,615
1994
Net income for the year 1994 - - - - 11,320 - 11,320
Dividend reinvestment and
stock purchase plan - 47 - 408 - - 455
Stock options exercised - 18 - 123 - - 141
Common stock issued to acquire
Johnstown Savings Bank ("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 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 December 31, 1995 $- $14,334 $(11,007) $93,361 $50,401 $3,403 $150,492
See accompanying notes to consolidated financial statements.
19
USBANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31 1995 1994 1993
(In thousands)
OPERATING ACTIVITIES
Net income $ 15,803 $ 11,320 $ 12,488
Adjustments to reconcile net
income to net cash
provided by operating activities:
Provision (credit) for loan losses 285 (2,765) 2,400
Depreciation and amortization expense 2,484 2,346 2,873
Amortization expense of goodwill and
core deposit intangibles 2,473 1,805 831
Amortization expense of mortgage servicing rights 1,175 746 -
Net (accretion) amortization of investment securities (3,694) (163) 996
Net realized (gains) losses on investment securities (702) 3,972 (583)
Net realized losses (gains) on loans and
loans held for sale 124 (763) (593)
Net gain on disposition of business line (905) - -
Decrease (increase) in accrued income receivable 142 (6,145) 471
Increase in accrued expense payable 4,773 1,040 2,097
Net cash provided by operating activities 21,958 11,393 20,980
INVESTING ACTIVITIES
Purchase of investment securities
and other short-term investments (468,096) (616,095) (296,777)
Proceeds from maturities of
investment securities and other
short-term investments 108,880 115,474 204,899
Proceeds from sales of investment securities
and other short-term investments 273,118 320,237 29,641
Long-term loans originated (272,523) (323,409) (355,716)
Mortgage loans held for sale (5,224) (14,014) (1,054)
Principal collected on long-term loans 249,189 250,391 259,071
Loans purchased or participated (31,760) - (1,058)
Loans sold or participated 90,933 78,547 22,131
Net decrease (increase) in credit card receivables
and other short-term loans 1,670 (6,262) (1,944)
Purchases of premises and equipment (2,383) (2,081) (2,431)
Sale/retirement of premises and equipment 411 17 12
Net decrease in assets held in
trust for collateralized mortgage obligation 2,005 4,711 4,767
Acquisition of mortgage servicing rights (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 (1,601) 3,182 1,381
Net cash used by investing activities $(80,832) $(550,278) $(137,078)
(continued on next page)
See accompanying notes to consolidated financial
statements.
20
USBANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
Year ended December 31 1995 1994 1993
(In thousands)
FINANCING ACTIVITIES
Proceeds from sales of certificates of deposit $386,052 $383,260 $254,222
Payments for maturing certificates of deposit (370,851) (379,456) (315,062)
Net (decrease) increase in demand
and savings deposits (33,589) (65,324) 35,578
Net cash received through Integra Branches acquisition - - 76,537
Net (decrease) increase in federal funds purchased,
securities sold under agreements to repurchase,
and other short-term borrowings (124,228) 164,227 1,752
Net principal borrowings on advances
from Federal Home Loan Bank 226,420 103,068 16,073
Principal borrowings of long-term debt 4,800 - -
Repayments of long-term debt (5,545) (1,564) (5,964)
Preferred stock cash dividends paid - - (397)
Redemption of preferred stock - - (1,368)
Common stock dividends paid (7,160) (4,679) (3,557)
Proceeds from dividend reinvestment
and stock purchase plan and stock options exercised 497 596 637
Purchases of treasury stock (7,943) (3,064) -
Secondary common stock offering (net of expenses) - - 25,988
Increase due to JSB acquisition:
Certificates of deposit - 102,959 -
Demand and savings deposits - 105,941 -
Other short-term borrowings - 41,439 -
Advances from Federal Home Loan Bank - 65,243 -
Due to JSB shareholders - 19,701 -
Capital - 24,067 -
Other liabilities - 7,512 -
Cash cost of JSB acquisition - (19,498) -
Net decrease in other liabilities (3,302) (2,067) (348)
Net cash provided by financing activities 65,151 542,361 84,091
NET INCREASE (DECREASE) IN
CASH EQUIVALENTS 6,277 3,476 (32,007)
CASH EQUIVALENTS AT JANUARY 1 53,891 50,415 82,422
CASH EQUIVALENTS AT DECEMBER 31 $60,168 $53,891 $50,415
See accompanying notes to consolidated financial
statements.
21
USBANCORP, INC.
THIS PAGE IS INTENTIONALLY LEFT BLANK.
22
USBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AT AND FOR
THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
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
45 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:
Effective January 1, 1994, the Company adopted
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.
Prior to this adoption, the securities portfolio was
classified as held for sale, and carried at the lower
of amortized cost or market value. Any unrealized
holding period adjustments (if any) would have been
reflected in "Net unrealized gain or loss on investment
securities available for sale" on the Consolidated
Statement of Income.
Realized gain or loss on securities sold 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.
23
USBANCORP, INC.
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. This strategy is executed in an effort
to help neutralize long-term interest rate risk. The
residential mortgage loans held for sale are carried at
the lower of aggregate cost or market value. Net
realized and unrealized gains and losses are included
in "Net (losses) gains on loans held for sale" in the
Consolidated Statement of Income.
Premises and Equipment:
Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation
is charged to operations over the estimated useful
lives of the premises and equipment using the
straight-line method. Useful lives of up to 45 years
for buildings and up to 12 years for equipment are
utilized. Leasehold improvements are amortized using
the straight-line method over the terms of the
respective leases or useful lives of the improvements,
whichever is shorter. Maintenance, repairs, and minor
alterations are charged to current operations as
expenditures are incurred.
Allowance for Loan Losses and Charge-off Procedures:
As a financial institution which assumes lending and
credit risks as a principal element 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 classified assets to determine
if any specific reserve allocations (which includes
impaired loans) are required on an individual loan
basis.
The application of reserve allocations to all
criticized and classified assets based upon allocation
percentages which were calculated by using a five-year
historical average for actual losses incurred on loans
with an olem (other loans especially mentioned),
substandard, or doubtful rating.
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
performing loans based upon a five year historical
average for actual losses incurred from all loan review
categories.
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.
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
adoption of these standards resulted in loans totalling
$2,865,000 being specifically identified as impaired
and a corresponding allocation reserve of $466,000 was
established. At December 31, 1995, the Company had
$2,227,000 in loans being specifically identified as
impaired and a corresponding allocation of $1,085,000
was made to the allowance.
24
USBANCORP, INC.
Purchased and Originated Mortgage Servicing Rights:
During the second quarter of 1995, the Company adopted
SFAS 122, "Accounting for Mortgage Servicing Rights."
Prior to the issuance of this statement, SFAS 65,
"Accounting for Certain Mortgage Banking Activities"
required capitalization of the cost of the rights to
service mortgage loans for others when those rights
were acquired through a purchase transaction but
prohibited capitalization when those rights were
acquired through loan origination activities. SFAS 122
eliminates the accounting distinction between rights to
service mortgage loans for others that are acquired
through loan origination activities and those acquired
through purchase transactions. When the Company
originates a loan and retains the mortgage servicing
rights, the total cost of the mortgage loan is
allocated between mortgage servicing rights and the
loan based on their relative fair values. Mortgage
servicing rights are amortized over the period of
estimated net servicing income and are evaluated for
impairment based on their fair value. The effect of
implementing SFAS 122 was the capitalization of costs
of originating mortgage servicing rights of $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. Fully diluted
earnings per share amounts are calculated for 1993
assuming that the Series A $2.125 Cumulative
Convertible Non-Voting Preferred Stock was converted at
the beginning of the year into 1.136 shares of the
Company's Common Stock and that no preferred dividends
were paid. By April 7, 1993, all Preferred Stock was
either redeemed or converted to the Company's Common
Stock. 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 $3,590,000 in income tax payments in
1995; $3,699,000 in 1994; and $4,871,000 in 1993. The
Company made total interest expense payments of
$68,795,000 in 1995; $45,953,000 in 1994; and
$34,153,000 in 1993.
Income Taxes:
As discussed in Note 13, the Company adopted SFAS 109,
"Accounting for Income Taxes" on January 1, 1993. Under
SFAS 109, deferred tax assets or liabilities are
computed based on the difference between the financial
statement and income tax bases of assets and
liabilities using the enacted marginal tax rate.
Deferred income tax expenses or credits are based on
the changes in the asset or liability from period to
period.
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 are deferred and amortized
to interest income or interest expense over the term of
the contract. Unamortized premiums related to the
purchase of caps and floors are included in other
assets on the Consolidated Balance Sheet.
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
USBANCORP, INC.
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 March 1995, the Financial Accounting Standards Board
issued SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when
indicators of impairment are present and the
undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount.
SFAS 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company
will adopt SFAS 121 in the first quarter of 1996 and,
based on current circumstances, does not believe the
effect of adoption will be material.
2. CASH AND DUE FROM BANKS
Cash and due from banks at December 31, 1995, and 1994,
included $11,546,000 and $10,781,000, 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 1995 1994 1993
(In thousands)
Total $647 $5,050 $4,809
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:
At December 31, 1995 Gross Gross
Book Unrealized Unrealized Market
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<F1> 30,869 1 (4) 30,866
Total $421,075 $6,482 $(445) $427,112
Investment securities held to maturity:
At December 31, 1995 Gross Gross
Book Unrealized Unrealized Market
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<F1> 3,431 75 (1) 3,505
Total $463,951 $8,347 $(1,107) $471,191
<F1>Other investment securities include corporate notes
and bonds, asset-backed securities, and equity
securities.
26
USBANCORP, INC.
Investment securities available for sale:
At December 31, 1994 Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
(In thousands)
U.S. Treasury $ 23,411 $ - $ (494) $ 22,917
U.S. Agency 31,372 3 (1,971) 29,404
State and municipal 1,479 1 (123) 1,357
U.S. Agency mortgage-backed
securities 175,215 29 (5,490) 169,754
Other securities<F1> 37,087 1 (1,058) 36,030
Total $268,564 $ 34 $(9,136) $ 259,462
Investment securities held to maturity:
At December 31, 1994 Gross Gross
Book Unrealized Unrealized Market
Value Gains Losses Value
(In thousands)
U.S. Treasury $ 398 $ - $ (7) $ 391
U.S. Agency 35,879 - (2,622) 33,257
State and municipal 125,489 825 (6,410) 119,904
U.S. Agency mortgage-backed
securities 360,146 2,491 (17,378) 345,259
Other securities<F1> 2,726 10 (62) 2,674
Total $524,638 $3,326 $(26,479) $ 501,485
<F1>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."
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, 1995, 97.5% of the portfolio was rated "AAA" and
97.9% "AA" or higher as compared to 96.1% and 97.0%,
respectively, at December 31, 1994. Only 1.2% of the
portfolio was rated below "A" or unrated on December
31, 1995.
The book value of securities pledged to secure public
and trust deposits, as required by law, was
$234,414,000 at December 31, 1995, and $275,210,000 at
December 31, 1994. The Company realized $2,490,000 and
$1,029,000 of gross investment security gains and
$1,788,000 and $5,001,000 of gross investment security
losses on available for sale securities in 1995 and
1994, 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 1995, $42,000 of income was
generated from call option contracts on securities
totalling $15 million. At December 31, 1995, one
contract covering securities totalling $9 million
remained open with a market value liability of $11,000.
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, 1995.
Yields are not presented on a tax-equivalent basis, are
based upon book value and are weighted for the
scheduled maturity. Average maturities are based upon
the original contractual maturity dates with the
exception of mortgage-backed securities and
asset-backed securities for which the average lives
were used. At December 31, 1995, the Company's
consolidated investment securities portfolio had a
weighted average contractual maturity of approximately
14.28 years and a modified duration of approximately
2.82 years.
27
USBANCORP, INC.
Investment securities available for sale: at December 31, 1995
After 1 Year After 5 Years
but but
Within 1 Year Within 5 Years Within 10 Years After 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(In thousands, except yields)
Book Value
U.S. Treasury $ 11,512 5.88% $ 10,919 6.98% $ - -% $ - -% $ 22,431 6.42%
U.S. Agency - - 10,857 5.62 1,551 5.30 - - 12,408 5.58
State and municipal 3,501 4.49 28,069 4.85 6,901 5.15 20,227 5.95 58,698 5.24
U.S. Agency mortgage-
backed securities 1,104 3.65 128,697 7.06 69,331 6.95 97,537 7.38 296,669 7.13
Other securities<F1> 28,593 5.98 2,276 5.46 - - - - 30,869 5.94
Total investment securities
available for sale $ 44,710 5.78% $180,818 6.61% $77,783 6.76% $117,764 7.13% $421,075 6.70%
Market Value
U.S. Treasury $ 11,575 -% $ 11,263 -% $ - -% $ - -% $ 22,838 -%
U.S. Agency - - 10,855 - 1,533 - - - 12,388 -
State and municipal 3,509 - 28,429 - 6,994 - 20,946 - 59,878 -
U.S. Agency mortgage-
backed securities 1,106 - 130,407 - 70,108 - 99,521 - 301,142 -
Other securities<F1> 28,594 - 2,272 - - - - - 30,866 -
Total investment securities
available for sale $ 44,784 -% $183,226 -% $78,635 -% $120,467 -% $427,112 -%
Investment securities held to maturity: At December 31, 1995
After 1 Year After 5 Years
but but
Within 1 Year Within 5 Years Within 10 Years After 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(In thousands, except yields)
Book Value
U.S. Treasury $ 796 5.98% $- -% $- -% $- -% $ 796 5.98%
U.S. Agency - - 10,012 6.13 21,500 6.32 - - 31,512 6.26
State and municipal - - 3,554 4.69 45,526 4.91 48,820 5.60 97,900 5.25
U.S. Agency mortgage-
backed securities 919 6.02 197,038 7.00 88,943 7.32 43,412 7.08 330,312 7.09
Other securities<F1> 246 5.13 275 8.22 1,250 6.97 1,660 6.75 3,431 6.83
Total investment securities held
to maturity $1,961 5.89% $210,879 6.92% $157,219 6.48% $93,892 6.30% $463,951 6.64%
Market Value
U.S. Treasury $ 807 $- $- $- $ 807
U.S. Agency - 10,020 21,994 - 32,014
State and municipal - 3,595 45,991 50,147 99,733
U.S. Agency mortgage-
backed securities 399 200,814 90,689 43,230 335,132
Other securities<F1> 279 274 1,252 1,700 3,505
Total investment securities held
to maturity $1,485 $214,703 $159,926 $95,077 $471,191
<F1>Other investment securities include corporate notes
and bonds, asset-backed securities, and equity
securities.
28
USBANCORP, INC.
5. LOANS
The loan portfolio of the Company consisted of the
following:
At December 31 1995 1994
(In thousands)
Commercial $103,546 $116,702
Commercial loans secured by real estate 179,793 168,238
Real estate-mortgage 414,967 407,177
Consumer 133,820 161,642
Total Loans 832,126 853,759
Less: Unearned income 2,716 3,832
Loans, net of unearned income $829,410 $849,927
Real estate construction loans were not material at
these presented dates and comprised 2.8% and 2.3% of
total loans net of unearned income at December 31,
1995, and 1994, 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, 1995, 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 $5,490,000and $14,955,000 at December 31, 1995,
and 1994, respectively. An analysis of these related
party loans follows:
Year ended December 31 1995 1994
(In thousands)
Balance January 1 $14,955 $15,074
New loans 12,958 17,414
Payments (22,423) (17,533)
Balance December 31 $ 5,490 $14,955
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses follows:
Year ended December 31 1995 1994 1993
(In thousands)
Balance January 1 $15,590 $15,260 $13,752
Addition due to acquisition - 3,422 -
Reduction due to disposition
of business line (342) - -
Provision for loan losses 285 (2,765) 2,400
Recoveries on loans
previously charged-off 681 771 869
Loans charged-off (1,300) (1,098) (1,761)
Balance December 31 $14,914 $15,590 $15,260
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
USBANCORP, INC.
The following table presents information concerning non-performing assets:
At December 31 1995 1994 1993 1992 1991
(In thousands, except percentages)
Non-accrual loans $7,517 $5,446 $5,304 $5,596 $3,358
Loans past due 90
days or more 995 1,357 203 1,573 600
Other real estate owned:
Foreclosed properties 914 1,098 991 934 787
In-substance foreclosures - - - 2,188 -
Total non-performing assets $9,426 $7,901 $6,498 $10,291 $4,745
Total non-performing assets as a percent of loans and
loans held for sale, net of unearned income, and other
real estate owned
1.13% 0.91% 0.89% 1.58% 1.10%
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.
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. There was no interest
income recognized on impaired loans during 1995.
Year ended December 31 1995 1994 1993 1992 1991
(In thousands)
Interest income due in accordance
with original terms $601 $509 $753 $882 $678
Interest income recorded (648) (588) (442) (110) (209)
Net reduction (increase)
in interest income $(47) $(79) $311 $772 $469
8. PREMISES AND EQUIPMENT
An analysis of premises and equipment follows:
At December 31 1995 1994
(In thousands)
Land $ 2,131 $ 2,149
Premises 22,329 21,071
Furniture and equipment 15,294 14,881
Leasehold improvements 3,386 3,093
Total at cost 43,140 41,194
Less: Accumulated depreciation 24,552 22,094
Net book value $18,588 $19,100
30
USBANCORP, INC.
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:
At December 31, 1995 Securities
Federal Sold Under Other
Funds Agreements to Short-term
Purchased Repurchase Borrowings
(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
At December 31, 1994 Securities
Federal Sold Under Other
Funds Agreements to Short-term
Purchased Repurchase Borrowings
(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
At December 31, 1993 Securities
Federal Sold Under Other
Funds Agreements to Short-term
Purchased Repurchase Borrowings
(In thousands, except rates)
Balance $ 3,900 $8,748 $270
Maximum indebtedness at any month end 20,184 10,558 353
Average balance during year 5,550 8,687 249
Average rate paid for the year 3.09% 2.16% 2.60%
Average rate on periodend balance 3.26 1.98 2.60
Average amounts outstanding during the year represent
daily averages. Average interest rates represent
interest expense divided by the related average
balances.
Included in the above borrowings is a $22,707,000
outstanding balance on a $25 million mortgage warehouse
line of credit at Standard Mortgage Corporation (a
mortgage banking subsidiary of Community). This line of
credit bears interest at a rate of 1.625% on the used
portion for which a compensating balance is maintained
and prime rate on the used portion for which no
compensating balance is maintained. This line of
credit, which expires July 1, 1996, 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
six months in maturity. The average maturity was ten
days at the end of 1995, sixty-eight days at the end of
1994 and two days at the end of 1993.
10. DEPOSITS
The following table sets forth the balance of the Company's deposits:
At December 31 1995 1994 1993
(In thousands)
Demand-
non-interest bearing $ 145,379 $ 144,012 $ 137,411
Demand-
interest bearing 99,051 102,501 101,875
Savings 216,115 246,400 232,711
Other time 717,313 703,333 576,869
Total deposits $1,177,858 $1,196,246 $1,048,866
Interest expense on deposits consisted of the following:
At December 31 1995 1994 1993
(In thousands)
Interest bearing demand $ 1,258 $ 1,653 $ 2,030
Savings 4,302 4,806 5,546
Other time 39,843 27,824 25,047
Total interest on deposits $45,403 $34,283 $32,623
The aggregate amount of certificates of deposit in
denominations of $100,000 or more at December 31, 1995,
1994, and 1993, and the related interest expense for
the three years then ended are presented below:
At or for the year ended December 31
1995 1994 1993
(In thousands)
Certificates of deposit in
denominations of
$100,000 or more $42,786 $30,246 $26,925
Related interest expense 3,149 1,238 1,175
31
USBANCORP, INC.
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:
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
At December 31, 1994
Weighted
Maturing Average Yield Balance
(In thousands)
1995 6.21% $149,000
1996 5.58 21,000
1997 5.57 1,913
1998 5.86 6,750
1999 6.09 1,250
2000 and after 7.36 20,181
Total advances $200,094
Total Federal Home Loan Bank borrowing exposure at
December 31, 1995, was $428,217,000. Total Federal Home
Loan Bank borrowings consist of $121,517,000 of term
advances and $306,700,000 of repo plus advances with
maturities of less than 90 days.
Total Federal Home Loan Bank borrowing exposure at
December 31, 1994, was $376,549,000. Total Federal Home
Loan Bank borrowings consist of $200,094,000 advances,
$69,000,000 Flexline overnight borrowings, and
$107,455,000 reverse repurchase agreements.
All Federal Home Loan Bank stock and an interest in
unspecified mortgage loans, with an aggregate statutory
value equal to the amount of the advances, have been
pledged as collateral with the Federal Home Loan Bank
of Pittsburgh.
Collateralized Mortgage Obligation:
The collateralized mortgage obligation was issued
through Community First Capital Corporation ("CFCC"), a
wholly- owned, single-purpose finance subsidiary of
Community Savings Bank. Community Savings Bank
transferred in 1988 Federal Home Loan Mortgage
Corporation ("FHLMC") securities with a book value of
approximately $31,500,000 to CFCC which were then used
as collateral for issuance of bonds with a par value of
$27,787,000 in the form of a collateralized mortgage
obligation.
There are four classes of bonds, including one class of
zero coupon bonds, which mature in the years 2000
through 2018; however, payments of the bonds may occur
prior to maturity in accordance with certain provisions
of the Trust Indenture between CFCC and the trustee.
The remaining bonds have a weighted average adjusted
effective rate of 10.25%.
Assets held in trust for the collateralized mortgage
obligation consist of the following:
At December 31 1995 1994
(In thousands)
FHLMC securities $6,449 $8,194
Accrued interest
receivable on FHLMC 82 376
Funds held by trustee 568 534
Total $7,099 $9,104
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 1995 1994
(In thousands)
Bank notes $4,800 $5,599
Other 261 207
Total long-term debt $5,061 $5,806
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, 1995, are $1,185,000 in
1996; $1,269,000 in 1997; $1,242,000 in 1998; and
$1,365,000 in 1999 and after.
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 finan-
32
USBANCORP, INC.
cial 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, 1995, and 1994,
were as follows:
Financial instruments actively traded in a secondary
market have been valued using quoted available market
prices.
1995 1994
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) 909,497 898,162 770,169 793,204
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.
1995 1994
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
Deposits with stated
maturities $592,746 $582,632 $558,694 $566,973
Short-term
borrowings 427,859 427,859 367,584 367,584
Long-term debt (including
collateralized mortgage
obligation and non-
current portion of
FHLB advances) 108,695 106,323 62,886 65,151
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.
1995 1994
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
Deposits with no
stated maturities $595,226 $595,226 $629,273 $629,273
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.
1995 1994
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
Net loans (including
loans held for sale) $830,184 $819,720 $820,301 $852,414
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.
1995 1994
Estimated Recorded Estimated Recorded
Fair Value Book Balance Fair Value Book Balance
(In thousands)
Purchased and
originated
mortgage servicing
rights $12,985 $11,372 $14,881 $11,452
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 peer comparable cost of
deposits (actual cost in 1995 of 4.27% vs. a peer
average of 4.27% as of September 30, 1995), 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 $40 million to $85 million
less than their estimated fair value shown at December
31, 1995. 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,
1995, the notional value of the Company's off-balance
sheet
33
USBANCORP, INC.
financial instruments (interest rate swaps) totalled
$95 million with an estimated fair value of
approximately ($1.1) million. There is no material
difference between the notional amount and the
estimated fair value of the remaining off-balance sheet
items which total $169.9 million and are primarily
comprised of unfunded loan commitments which are
generally priced at market at the time of funding.
Management is concerned that reasonable comparability
of these disclosed fair values between financial
institutions may not be likely due to the wide range of
permitted valuation techniques and numerous estimates
which must be made given the absence of active
secondary markets for many of the financial
instruments. This lack of uniform valuation
methodologies also introduces a greater degree of
subjectivity to these estimated fair values.
13. INCOME TAXES
The provision for federal income taxes (before SFAS 109
benefit) is summarized below:
Year ended December 31 1995 1994 1993
(In thousands)
Current $4,862 $4,748 $5,387
Deferred 1,183 1,183 97
Income tax provision
prior to cumulative
effect of change in
accounting principle $6,045 $5,931 $5,484
The reconciliation between the federal statutory tax
rate and the Company's effective consolidated income
tax rate is as follows:
Year ended December 31 1995 1994 1993
Amount Rate Amount Rate Amount Rate
(In thousands, except percentages)
Tax expense based on
federal statutory rate $7,647 35.0% $5,938 34.4% $5,682 34.4%
State income taxes 350 1.6 570 3.3 484 2.9
Tax exempt income (2,766) (12.7) (1,736) (10.1) (785) (4.7)
Goodwill and acquisition
related costs 555 2.5 557 3.2 - -
Other 259 1.3 602 3.6 103 0.6
Total provision for
income taxes before
cumulative effect of
change in
accounting principle $6,045 27.7% $5,931 34.4% $5,484 33.2%
34
USBANCORP, INC.
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 1995 1994 1993
(In thousands)
Provision for possible loan losses $ 236 $1,083 $(501)
Lease accounting 212 113 68
Accretion of discounts
on securities, net 1,170 551 324
Investment write-downs 416 22 -
Core deposit and
mortgage servicing
intangibles (209) (139) -
Deposit liability
write-down (453) (220) -
Deferred loan fees 82 76 240
Other, net (271) (303) (34)
Total $1,183 $1,183 $ 97
At December 31, 1995, and 1994, 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 1995 1994
(In thousands)
Deferred Assets:
Provision for loan losses $ 5,220 $5,456
Investment security write-
downs due to SFAS 115 - 4,821
Deferred loan fees 655 737
Tax credits and carryovers 2,045 1,570
Other 70 8
Total assets 7,990 12,592
Deferred Liabilities:
Investment security write-
ups due to SFAS 115 (1,332) -
Accumulated depreciation (1,062) (1,198)
Accretion of discount (2,143) (973)
Lease accounting (828) (616)
Core deposit and mortgage
servicing intangibles (2,222) (2,494)
Deposit liability write-down (810) (1,263)
Other (284) (293)
Total liabilities (8,681) (6,837)
Valuation allowance (325) (325)
Net deferred (liability) asset $(1,016) $5,430
The change in the net deferred asset (liability) during
1995 and 1994 was attributed to the following:
At December 31 1995 1994
(In thousands)
Investment write-downs (write-ups)
due to SFAS 115, Accounting
for Investments, and charged
to equity $(5,738) $3,927
Acquisition of Johnstown Savings
Bank 854<F1> (2,018)
Alternative minimum tax credit (379) 1,050
Deferred provision for income taxes (1,183) (1,183)
Net (decrease) increase $(6,446) $1,776
<F1>Additional deferred tax asset attributable to tax
benefits arising from completion of final JSB corporate
tax returns.
Effective January 1, 1993, the Company adopted SFAS
109, "Accounting for Income Taxes." SFAS 109 utilizes
the liability method and deferred taxes are determined
based on the estimated future tax effects of
differences between the financial statement and income
tax bases of assets and liabilities given the
provisions of the enacted tax laws. This adoption
resulted in the recognition of a non-recurring net
benefit of $1.5 million or $0.31 per share on a fully
diluted basis.
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 1995 1994 1993
(In thousands)
Service cost $399 $424 $372
Interest cost 390 362 339
Deferred asset gain (loss) 575 (371) 42
Amortization of
transition asset (17) (17) (17)
Amortization of
unrecognized prior
service cost (31) (23) (23)
Actual return on plan assets (919) 17 (421)
Amortization of gain - - (9)
Net periodic pension cost $397 $392 $283
35
USBANCORP, INC.
A reconciliation of the funded status of the plan to
the recorded net pension liability is as follows:
At December 31 1995 1994 (In thousands)
Fair value of plan assets $ 5,161 $4,306
Projected benefit obligation (6,345) (5,234)
Unfunded projected
benefit obligation (1,184) (928)
Unrecognized net transition asset (294) (311)
Unrecognized prior service cost (522) (477)
Unrecognized net loss (gain) 108 (264)
Net pension liability $(1,892) $(1,980)
The actuarial present value of benefit obligations is
as follows:
At December 31 1995 1994
(In thousands)
Accumulated benefit obligation $4,488 $3,583
Vested benefit obligation $4,301 $3,470
The following rate assumptions were used in the plan
accounting:
Jan. 1, Dec. 31, Jan. 1, Dec. 31,
Measurement Date 1995 1995 1994 1994
Discount rate
(weighted-average) 7.75% 7.00% 6.50% 7.75%
Rate of compensation
increases 4.00 3.50 3.50 4.00
Expected long-term rate
of return on plan assets
(weighted-average) 8.00 8.00 7.50 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 $764,000 in 1995; $584,000 in
1994 and $489,000 in 1993. 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 1995 1994 1993
(In thousands)
Service cost $410 $346 $162
Interest cost 259 302 114
Deferred asset gain (loss) 232 (160) 54
Amortization of
transition obligation 3 3 3
Amortization of unrecognized
prior service cost 53 54 27
Actual return on plan assets (448) (84) (144)
Amortization of loss - 17 -
Net periodic pension cost $509 $478 $216
A reconciliation of the funded status of the plan to
the recorded net pension liability is as follows:
At December 31 1995 1994
(In thousands)
Fair value of plan assets $2,958 $3,404
Projected benefit obligation (4,383) (4,487)
Unfunded projected benefit obligation (1,425) (1,083)
Unrecognized net transition obligation 22 26
Unrecognized prior service cost 669 735
Unrecognized net loss 411 82
Adjustment to recognize
minimum required liability (145) -
Net pension liability $ (468) $ (240)
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.
The actuarial present value of benefit obligations is
as follows:
At December 31 1995 1994
(In thousands)
Accumulated benefit obligation $3,425 $3,484
Vested benefit obligation $3,129 $3,273
36
USBANCORP, INC.
The following rate assumptions were used in the plan accounting:
Jan. 1, Dec. 31, Jan. 1, Dec. 31,
Measurement Date 1995 1995 1994 1994
Discount rate
(weighted-average) 7.75% 7.00% 6.50% 7.75%
Rate of compensation
increases 4.00 3.50 3.50 4.00
Expected long-term rate
of return on plan assets
(weighted-average) 8.00 8.00 7.50 8.00
Additionally, prior to July 1, 1993, eligible Community
employees participated in a non-contributory defined
multi-employer pension plan. The net pension cost for
contributions made to the plan amounted to $80,000 for
the six month period in 1993. Effective July 1, 1993,
Community's plan was merged into the Three Rivers Bank
pension plan.
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 $128,000 in 1995; $79,000 in 1994 and $27,000 in
1993.
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, 1995, is
as follows:
Year Future Minimum Lease Payments
(In thousands)
1996 729
1997 547
1998 287
1999 176
2000 and thereafter (in total) 371
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 $533,000, $540,000 and $493,000, in 1995,
1994, and 1993, 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 $169,879,000 and standby letters of
credit of $5,490,000 as of December 31, 1995.
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
37
USBANCORP, INC.
shares. Under the Plan, options can be granted (the
"Grant Date") to employees with executive, managerial,
technical, or professional responsibility, as selected
by a committee of the Board of Directors. The option
price at which a stock option may be exercised shall be
a price as determined by the board committee, but shall
not be less than 100% of the fair market value per
share of common stock on the Grant Date. The maximum
term of any option granted under the Plan cannot exceed
10 years. The following stock option activity was
recognized (amounts not rounded):
Shares Shares Option
Under Available Price
Option For Option Per Share
Balance at December 31, 1993 49,834 71,500
Options granted 25,500 (25,500) 23.875
Options granted 5,000 (5,000) 25.000
Options granted 2,500 (2,500) 21.250
Options exercised (4,000) - 22.344
Options exercised (2,967) - 17.250
Balance at December 31, 1994 75,867 38,500
Increased Authorized Options - 157,000
Options granted 20,500 (20,500) 21.438
Options granted 34,300 (34,300) 28.875
Options granted 2,000 (2,000) 30.625
Options exercised (9,647) - 17.250
Options exercised (5,832) - 22.344
Options exercised (5,200) - 23.875
Options exercised (1,667) - 25.000
Options exercised (1,500) - 21.438
Options forfeited (500) 500 22.344
Options forfeited (1,000) 1,000 23.875
Options forfeited (1,500) 1,500 21.438
Balance at December 31, 1995 105,821 141,700
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.
In October 1995, the Financial Accounting Standards
Board issued SFAS 123, "Accounting for Stock-Based
Compensation," which provides an alternative to APB
Opinion 25, "Accounting for Stock Issued to Employees,"
in accounting for stock-based compensation issued to
employees. The Statement allows for a fair value based
method of accounting for employee stock options and
similar equity instruments. However, for companies that
continue to account for stock-based compensation
arrangements under Opinion 25, SFAS 123 requires
disclosure of the proforma effect on net income and
earnings per share of its fair value based accounting
for those arrangements. These disclosure requirements
are effective for fiscal years beginning after December
15, 1995. At the present time, the Company most likely
will only adopt the disclosure provisions of SFAS 123.
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 (3%) discount from the average market
price.
In the case of purchases from USBANCORP, Inc. of
treasury or newly-issued shares of Common Stock, the
average market price is determined by averaging the
high and low sale price of the Common Stock as reported
on the NASDAQ on the relevant investment date. At
December 31, 1995, 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.
After the Rights became exercisable, the Rights
38
USBANCORP, INC.
(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. BRANCHES ACQUISITION
On April 2, 1993, the Company's Three Rivers Bank
subsidiary and Integra National Bank/Pittsburgh
consummated the acquisition of four Integra branch
offices ("Integra") located in the suburban Pittsburgh
market area pursuant to a Purchase and Assumption
Agreement (the "Agreement"). In connection with the
transaction, Three Rivers Bank assumed $88.6 million in
deposit liabilities and purchased $12.1 million of
assets; these assets consisted of: home equity and
other consumer loans; vault cash; furniture, fixtures,
and equipment; real estate together with improvements;
and safe deposit box business. In addition, Three
Rivers Bank assumed certain other liabilities including
contracts that relate to the operation of the branches
and real estate leases relating to one branch and one
ATM. In consideration for the assumption of the deposit
liabilities, Three Rivers Bank paid Integra a deposit
premium of 1.4% or $1.2 million.
21. JOHNSTOWN SAVINGS BANK ("JSB")
ACQUISITION
For financial reporting purposes, the Merger ("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 years ended December 31, 1994, and
1993, after giving effect to the pro forma adjustments
as of the beginning of the periods, are as follows:
Year ended December 31 1994 1993
(In thousands, except per share data)
Net interest income $61,466 $58,024
Provision for loan losses (2,307) 3,502
Non-interest income 10,635 16,574
Non-interest expense 56,581 52,693
Provision for income taxes 6,133 6,219
Net income $11,694 $12,184
Net income per fully diluted
common share $2.06 $2.19
22. 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 $18.4 million of goodwill and $5.4 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).
39
USBANCORP, INC.
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)
1996 $ 2,356
1997 2,356
1998 2,170
1999 2,014
2000 and after 14,942
A reconciliation of the Company's intangible asset
balances for 1995 is as follows:
At December 31 (In thousands)
Total goodwill and core deposit
intangible assets at December 31, 1994 $27,009
1995 intangible amortization expense (2,473)
Goodwill reduction resulting
from additional deferred tax asset (698)
Total goodwill and core deposit
intangible assets at December 31, 1995 $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.
23. 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, 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 tied to
90 day Libor 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 $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 30 to
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
$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 will receive a fixed interest
rate of 5% and pay a floating interest rate defined as
the 90 day Libor which resets quarterly. The
counterparty in this unsecured transaction is PNC Bank.
This swap agreement was initiated to hedge interest
rate risk in a declining, stable, or modestly rising
rate environment. Specifically, this transaction fully
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 $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, 1995.
40
USBANCORP, INC.
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 1995 1994
(In thousands)
ASSETS
Cash and cash equivalents $ 314 $ 2,532
Investment securities available for sale - 15,720
Equity investment in banking subsidiaries 155,135 137,635
Equity investment in non-banking
subsidiaries 2,079 1,934
Other assets 964 1,276
TOTAL ASSETS $158,492 $159,097
LIABILITIES
Short-term borrowings $ 7,452 $ 17,669
Long-term debt - 1,988
Other liabilities 548 2,304
TOTAL LIABILITIES 8,000 21,961
STOCKHOLDERS' EQUITY
Total stockholders' equity 150,492 137,136
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $158,492 $159,097
STATEMENT OF INCOME
Year ended December 31 1995 1994 1993
(In thousands)
INCOME
Inter-entity management fees $ 3,899 $ 3,332 $ 2,988
Dividends from subsidiaries 9,237 5,530 3,927
Interest and dividend income 776 1,062 1,015
Net realized losses on
investment securities (469) (99) -
Total Income 13,443 9,825 7,930
EXPENSE
Interest expense 1,343 535 313
Salaries and employee benefits 2,885 2,670 2,201
Other expense 1,563 1,924 939
Total Expense 5,791 5,129 3,453
INCOME BEFORE INCOME TAXES
AND EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES 7,652 4,696 4,477
Provision for income taxes 641 5 (74)
Equity in undistributed
income of subsidiaries 7,510 6,619 7,955
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 15,803 11,320 12,358
Cumulative effect of change in accounting
principle (adoption of SFAS 109) - - 130
NET INCOME $15,803 $11,320 $12,488
41
USBANCORP, INC.
STATEMENT OF CASH FLOWS
Year ended December 31 1995 1994 1993
(In thousands)
OPERATING ACTIVITIES
Net income $ 15,803 $ 11,320 $ 12,488
Adjustments to reconcile net income
to net cash provided by
operating activities:
Equity in undistributed
income of subsidiaries (7,510) (6,619) (7,955)
Net cash provided by
operating activities 8,293 4,701 4,533
INVESTING AND FINANCING ACTIVITIES
Preferred stock cash dividends paid - - (397)
Common stock cash dividends paid (7,156) (4,679) (3,557)
Proceeds from issuance of common stock 497 596 637
Secondary common stock offering - - 25,988
Redemption of preferred stock - - (1,368)
Sale (Purchase) of investment securities 16,356 - (22,002)
Purchase of treasury stock (7,943) (3,064) -
(Repayment) borrowing to fund
JSB acquisition (16,669) 16,669 -
Increase in borrowings 5,600 1,000 -
Investment in subsidiaries (200) (19,498) (2,100)
Other-net (996) 3,884 (241)
Net cash used by investing and
financing activities (10,511) (5,092) (3,040)
NET (DECREASE) INCREASE
IN CASH EQUIVALENTS (2,218) (391) 1,493
CASH EQUIVALENTS AT JANUARY 1 2,532 2,923 1,430
CASH EQUIVALENTS AT DECEMBER 31 $ 314 $2,532 $2,923
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, 1995, the subsidiary banks were permitted to
upstream an additional $22,758,000 in cash dividends to
the Parent Company. The subsidiary banks also had a
combined $123,073,000 of restricted surplus and
retained earnings at December 31, 1995.
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 September 30, 1996. 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. This line of
credit is subject to annual review on July 31, 1996.
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, 1995,
$5.9 million of a total combined $12.5 million
available credit line.
42
USBANCORP, INC.
STATEMENT OF MANAGEMENT RESPONSIBILITY
January 25, 1996
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 \s\Orlando B. Hanselman
Terry K. Dunkle Orlando B. Hanselman
Chairman, Executive Vice President &
President & CEO Chief Financial Officer
43
USBANCORP, INC.
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, PA 15222-5498
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, 1995 and 1994, and
the related consolidated statements of income,
stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995.
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, 1995 and 1994, and the
results of their operations and their cash flows for
each of the three years in the period ended December
31, 1995, 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 Notes 1
and 13 to the Consolidated Financial Statements,
effective January 1, 1994 and 1993, the Company changed
its method of accounting for investments in debt and
equity securities and income taxes, respectively.
\s\Arthur Andersen LLP
Pittsburgh, Pennsylvania
January 25, 1996
44
USBANCORP, INC.
1995 MANAGEMENT'S DISCUSSION AND ANALYSIS
45
USBANCORP, INC.
46
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, 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
Year ended December 31, 1994:
First Quarter $24.50 $23.25 $0.22
Second Quarter 25.75 22.50 0.25
Third Quarter 26.00 23.50 0.25
Fourth Quarter 24.25 19.50 0.25
46
USBANCORP, INC.
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA
At or for the year ended December 31 1995 1994 1993 1992 1991
(Dollars in thousands, except per share data and ratios)
Summary of Income Statement Data:
Total interest income $ 129,715 $ 102,811 $ 85,735 $ 82,790 $ 66,446
Total interest expense 73,568 46,993 36,250 38,349 33,538
Net interest income 56,147 55,818 49,485 44,441 32,908
Provision for loan losses 285 (2,765) 2,400 2,216 900
Net interest income after provision
for loan losses 55,862 58,583 47,085 42,225 32,008
Total non-interest income 16,543 8,187 10,150 8,346 6,035
Total non-interest expense 50,557 49,519 40,715 36,248 28,862
Income before income taxes, extraordinary
item, and cumulative effect of change in
accounting principle 21,848 17,251 16,520 14,323 9,181
Provision for income taxes 6,045 5,931 5,484 5,440 2,873
Income before extraordinary item and cumulative
effect of change in accounting principle 15,803 11,320 11,036 8,883 6,308
Extraordinary item-utilization of tax loss
carryforward - - - - 1,004
Cumulative effect of change in accounting principle - - 1,452 - -
Net income $15,803 $11,320 $12,488 $8,883 $7,312
Net income applicable to common stock $15,803 $11,320 $12,385 $7,710 $6,139
Per Common Share Data:
Primary Earnings:
Net income $2.88 $2.18 $2.78 $2.67 $2.39
Income before extraordinary item,
cumulative effect of change in accounting
principle, and acquisition charge 2.88 2.54 2.45 2.67 2.00
Fully Diluted Earnings:
Net income 2.87 2.18 2.72 2.53 2.29
Income before extraordinary item,
cumulative effect of change in accounting
principle, and acquisition charge 2.87 2.54 2.41 2.53 1.97
Cash dividends declared 1.06 0.97 0.86 0.75 0.55
Book value at period end 28.34 24.57 24.67 23.08 21.71
Balance Sheet and Other Data:
Total assets $1,885,372 $1,788,890 $1,241,521 $1,139,855 $784,036
Loans and loans held for sale,
net of unearned income 834,634 868,004 727,186 648,915 430,151
Allowance for loan losses 14,914 15,590 15,260 13,752 13,003
Investment securities available for sale 427,112 259,462 428,712 366,888 -
Investment securities held to maturity 463,951 524,638 - - 289,772
Deposits 1,177,858 1,196,246 1,048,866 997,591 676,698
Long-term debt 5,061 5,806 3,445 9,409 5,888
Stockholders' equity 150,492 137,136 116,615 82,971 70,023
Full-time equivalent employees<F1> 742 780 665 644 523
Selected Financial Ratios:
Return on average total equity before
extraordinary item, SFAS 109 benefit
and acquisition charge 11.03% 10.41% 10.13% 11.41% 9.39%
Return on average assets before extraordinary
item, SFAS 109 benefit and acquisition charge 0.87 0.87 0.91 0.85 0.83
Loans and loans held for sale, net of unearned
income, as a percent of deposits, at period end 70.86 72.56 69.33 65.05 63.57
Ratio of average total equity to average assets 7.85 8.39 8.96 7.48 8.85
Common stock cash dividends as a percent of
net income applicable to common stock 36.43 44.57 32.28 28.16 22.94
Common and preferred stock cash dividends as a
percent of net income 36.43 44.57 32.84 37.64 35.30
Interest rate spread 2.94 3.47 3.72 3.93 3.69
Net interest margin 3.45 4.03 4.34 4.58 4.69
Allowance for loan losses as a percentage of loans
and loans held for sale, net of unearned income,
at period end 1.79 1.80 2.10 2.12 3.02
Non-performing assets as a percentage of loans and
loans held for sale and other real estate owned,
at period end 1.13 0.91 0.89 1.58 1.10
Net charge-offs as a percentage of average loans
and loans held for sale 0.08 0.04 0.13 0.58 0.08
Ratio of earnings to fixed charges and preferred
dividends<F2>:
Excluding interest on deposits 1.77x 2.34x 5.26x 4.05x 4.54x
Including interest on deposits 1.30 1.37 1.45 1.36 1.26
One Year GAP ratio, at period end 0.86 0.79 1.10 1.14 1.06
<F1>Full-time equivalent employees in 1994 include 115
employees as a result of JSB acquisition. Full-time
equivalent employees in 1993 include 18 employees as a
result of the Integra Branches Acquisition. Full-time
equivalent employees in 1992 include 127 employees as a
result of the Community Acquisition.
<F2>The ratio of earnings to fixed charges and preferred
dividends is computed by dividing the sum of income
before taxes, fixed charges, and preferred dividends by
the sum of fixed charges and preferred dividends. Fixed
charges represent interest expense and are shown as
both excluding and including interest on deposits.
47
USBANCORP, INC.
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain unaudited
quarterly consolidated financial data regarding the
Company:
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
1994 Quarter Ended Dec. 31<F1> Sept. 30 June 30 March 31
(In thousands, except per share data)
Interest income $31,099 $29,462 $21,184 $21,066
Non-interest income (350) 3,402 2,479 2,656
Total operating income 30,749 32,864 23,663 23,722
Interest expense 16,408 13,781 8,639 8,165
Provision for loan losses (3,800) 225 405 405
Non-interest expense 12,760 13,267 12,852 10,640
Income before income taxes 5,381 5,591 1,767 4,512
Provision for income taxes 1,708 1,887 863 1,473
Net income $3,673 $3,704 $904 $3,039
Primary Earnings Per Common Share:
Net income $0.65 $0.65 $0.19 $0.64
Fully Diluted Earnings Per Common Share:
Income before acquisition charge 0.65 0.65 0.59 0.64
Net income 0.65 0.65 0.19 0.64
Cash Dividends Declared Per Common Share 0.25 0.25 0.25 0.22
<F1>For further discussion on the change in Non-interest
income and the Provision for loan losses in the fourth
quarter of 1994 see Non-Interest Income and Allowance
and Provision for Loan Losses sections within
Management's Discussion and Analysis.
48
USBANCORP, INC.
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, 1995, 1994, AND 1993
RECENT ACQUISITION HISTORY...The following represents a
brief summary of the acquisitions which impacted the
Company's financial performance over the three year
period from January 1, 1993, through December 31, 1995.
For a more comprehensive discussion on each of these
acquisitions, see Notes to Financial Statements #20 and
#21.
Integra Branches: On April 2, 1993, the Company's Three
Rivers Bank subsidiary acquired four branch offices
located in the suburban Pittsburgh marketplace from
Integra National Bank. In connection with the
transaction, Three Rivers Bank assumed approximately
$89 million of deposit liabilities and purchased $12
million of assets, approximately $10 million of which
were consumer loans. For the deposit liabilities
assumed, Three Rivers Bank paid Integra a deposit
premium of 1.4% or $1.2 million. This acquisition
impacted the Company's financial performance for
approximately nine months in 1993 and the full years in
1994 and 1995.
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
1995. At the acquisition date, JSB had total assets of
$367 million, total loans of $125.6 million, and total
deposits of $209 million. JSB was immediately merged
into the Company's U.S. Bank subsidiary, which is also
based in Johnstown, Pennsylvania, giving U.S. Bank an
approximate 25% deposit market share leadership
position in Cambria County. JSB also had a wholly-owned
mortgage banking subsidiary, Standard Mortgage Company
of Georgia, which U.S. Bank transferred on an
intracompany basis immediately following the merger to
Community Bancorp, Inc.. Standard Mortgage Company
services approximately $1.4 billion of mortgage loans
and has combined purchased and originated mortgage
servicing rights totalling $11.4 million at December
31, 1995.
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, two of these offices have been merged
into U.S. Bank's retail delivery system to achieve
economy of scale benefits and a third office will be
consolidated into an existing U.S. Bank office in
mid-1996.
PERFORMANCE OVERVIEW...The Company's net income for
1995 was $15.8 million or $2.87 on a fully diluted per
share basis compared to net income of $11.3 million or
$2.18 per fully diluted share for 1994 and net income
of $12.5 million or $2.72 per fully diluted share for
1993. The Company's 1994 net income included a $1.9
million after-tax acquisition restructuring charge
related to the June 30, 1994, intra-market purchase of
Johnstown Savings Bank. Excluding this acquisition
charge, 1994 net income was $13.2 million or $2.54 per
fully diluted share. The
49
USBANCORP, INC.
Company's 1993 net income included a $1.5 million
non-recurring benefit due to the adoption of SFAS 109,
"Accounting for Income Taxes." Before the SFAS 109
benefit, 1993 net income was $11 million or $2.41 per
fully diluted share.
When 1995 is compared to 1994, before the acquisition
charge, the Company's net income increased by $2.6
million or 19.7% while fully diluted earnings per share
increased by $0.33 or 13.0%. The Company's return on
average equity increased by 62 basis points to 11.03%
while the return on assets remained flat at 0.87%. 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 (as the Company benefited
from a negative loan loss provision in 1994) and higher
non-interest expense. In conjunction with the JSB
acquisition, the Company issued 957,857 new shares of
common stock which caused the 5.9% increase in weighted
average fully diluted shares outstanding to 5.5
million. This increase is net of the repurchase of
423,212 shares of the Company's common stock at an
average price of $26.00 since July 1, 1994. The impact
of these net additional shares was the primary reason
that the fully diluted earnings per share growth rate
was lower than the net income growth rate experienced
in 1995. Overall, the Company demonstrated an improving
quarterly earnings trend in 1995 as fully diluted
earnings per share increased from $0.70 in the first
quarter to $0.77 in the fourth quarter. The Company's
book value per common share has increased from $24.57
at December 31, 1994, to $28.34 at December 31, 1995.
When 1994 is compared with 1993, before the
acquisition charge and SFAS 109 benefit, the Company's
net income increased by $2.2 million or 19.6% while
fully diluted earnings per share increased by a lesser
amount of $0.13 or 5.4%. The Company's return on
average assets declined modestly by four basis points
to 0.87% while the return on average equity increased
by 28 basis points to 10.41%. The Company's improved
net income was due to a negative loan loss provision
and increased net interest income resulting from the
JSB acquisition and greater balance sheet leveraging.
These positive items were partially offset by increased
non-interest expense caused largely by the JSB
acquisition and lower non-interest income due to the
realization of approximately $4 million of losses on
available for sale investment security transactions.
The 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 1994.
The following table summarizes some of the Company's
key performance indicators for each of the past three
years:
Year ended December 31 1995 1994 1993
(In thousands, except per share data and ratios)
Net income $15,803 $11,320 $12,488
Net income (before acquisition charge and
cumulative effect of adoption of SFAS 109) 15,803 13,202 11,036
Fully diluted earnings per share 2.87 2.18 2.72
Fully diluted earnings per share (before
acquisition charge and cumulative effect
of adoption of SFAS 109) 2.87 2.54 2.41
Return on average assets 0.87% 0.75% 1.03%
Return on average assets (before acquisition
charge and cumulative effect of
adoption of SFAS 109) 0.87 0.87 0.91
Return on average equity 11.03 8.92 11.46
Return on average equity (before acquisition
charge and cumulative effect of adoption
of SFAS 109) 11.03 10.41 10.13
Average fully diluted common
shares outstanding 5,500 5,192 4,589
50
USBANCORP, INC.
NET INTEREST INCOME AND MARGIN...The following table
summarizes the Company's net interest income
performance for each of the past three years:
Year ended December 31 1995 1994 1993
(In thousands, except ratios)
Interest income $129,715 $102,811 $85,735
Interest expense 73,568 46,993 36,250
Net interest income 56,147 55,818 49,485
Tax-equivalent adjustment 2,807 1,746 740
Net tax-equivalent interest income $58,954 $57,564 $50,225
Net interest margin 3.45% 4.03% 4.34%
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. 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.
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") as each of the Company's subsidiary
banks are members of the FHLB. Examples of FHLB
borrowings used by the Company include one year term
funds tied to 90 day Libor, 30 and 90 day wholesale
reverse repurchase agreements, and overnight Flexline
borrowings. These funds are used to purchase available
for sale and held to maturity investment securities
with durations ranging from one to three years. In
1995, the Company's total level of short-term borrowed
funds and FHLB advances averaged $449 million or 24.6%
of total assets compared to an average of $222 million
or 14.7% of total assets in 1994. These borrowed funds
had an average cost of 6.03% in 1995 which was 91 basis
points greater than the 1994 average cost of these
borrowings of 5.14% and 176 basis points greater than
the 1995 average cost of deposits which amounted to
4.27%. When compared to the Company's 1995 earning
asset yield, the net interest spread earned on assets
funded with deposits amounted to 3.50% compared to a
net interest spread of 1.73% on assets funded with
borrowed funds. Consequently, this leveraging strategy
contributes to an incremental improvement in net
interest income dollars while causing a regression in
the net interest margin percentage.
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 or minus 7.5% (see further discussion under
51
USBANCORP, INC.
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 greater than 100 basis
points; and (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 23.)
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
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 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.
Floating-rate assets such as commercial loans tied to
prime and adjustable-rate mortgage-backed securities
demonstrate the most immediate repricing benefit in a
rising interest rate environment.
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:
In an effort to diversify the Company's balance sheet
mix and reduce its overall 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
52
USBANCORP, INC.
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.
(See further discussion under Balance Sheet.)
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 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. On a quarterly basis in 1995,
the Company's cost of deposits increased in the first
and second quarters, stabilized in the third quarter,
and declined modestly in the fourth quarter.
It is important to note that the increased deposit cost
was attributed entirely to higher certificate of
deposit rates and the disintermediation caused by the
customer preference for certificates of deposit in the
higher rate environment. The Company was able to
maintain and in some cases lower the pricing on its low
cost core savings and NOW accounts during 1995. It has
been management's ongoing pricing strategy to control
the cost of funds by positioning USBANCORP's deposit
rates within the lowest quartile of deposit rates
offered by commercial banks in its market area.
Management believes that a constant level of high
quality service mitigates the impact this rate
positioning strategy has on the deposit base size and
funds availability provided that the rates offered are
not appreciably below competition. 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.
53
USBANCORP, INC.
1994 NET INTEREST PERFORMANCE OVERVIEW...When 1994 is
compared to 1993, USBANCORP's net interest income on a
tax-equivalent basis increased by $7.3 million or 14.6%
while the net interest margin percentage declined by 31
basis points to 4.03%. The increased net interest
income was due primarily to a higher volume of earning
assets resulting from the JSB acquisition and increased
balance sheet leveraging. For 1994, total average
earning assets were $274 million higher than 1993.
While the JSB acquisition and greater balance sheet
leveraging did cause an increase in net interest
income, these same two factors also contributed to a
compression in the Company's net interest margin
percentage. (See previous discussion on Balance Sheet
Leveraging.)
JSB ACQUISITION...The Company's core net interest
margin performance was negatively impacted by the JSB
acquisition and its lower net interest margin
performance (i.e., During the first half of 1994 prior
to the acquisition, JSB's net interest margin
approximated 3.20% compared to the Company's 4.33% NIM
performance for that same period). This lower margin
performance at JSB can be attributed to its more
typical savings bank balance sheet mix; this mix
includes a greater proportion of fixed-rate residential
and commercial mortgage loans and more reliance on
certificates of deposit, rather than non-interest
bearing demand deposits, as a funding source. The
Company was able to improve JSB's net interest margin
performance by approximately 70 basis points and its
annual pre-tax net interest margin dollars by
approximately $2.9 million as a result of an investment
portfolio repositioning strategy executed in the months
immediately following the acquisition. The Company
elected to sell $175 million or 90% of JSB's securities
portfolio, which was comprised primarily of
collateralized mortgage obligations yielding
approximately 5.50%, and replace it with Federal Agency
mortgage pass-through securities yielding approximately
7.2% with a similar average life of approximately 3.5
years. The Company prefers mortgage pass-through
securities because these instruments have more
predictable cash flows and less market valuation risk
than collateralized mortgage obligations. No gain or
loss was recognized on the sale of these securities for
book purposes since they had already been marked to
market through purchase accounting at the acquisition
date.
COMPONENT CHANGES IN NET INTEREST INCOME: 1994 VERSUS
1993...Regarding the separate components of net
interest income, the Company's total tax equivalent
interest income for 1994 increased by $18.1 million or
20.9% when compared to 1993. This increase was due to
the previously mentioned $274 million increase in
average earning assets which caused interest income to
rise by $18.6 million between years. This positive
factor was partially offset by an unfavorable rate
variance of $473,000 as a reduced loan portfolio yield
more than offset an improved yield for the total
investment security portfolio causing the Company's
total earning asset yield to drop by 17 basis points to
7.31%. The full year impact was felt in 1994 of the
trend of accelerated customer refinancing of mortgage
loans during the latter part of 1993. This trend
combined with limited new consumer loan growth caused
the Company's total loan portfolio yield to drop 32
basis points to 8.29%. This drop more than offset the
benefit of a 33 basis point increase in the total
investment security portfolio yield to 6.03%. This
improved security yield reflected only the partial year
benefit of several strategic initiatives executed
during the second half of 1994 in an attempt to
generate increased earnings from the securities
portfolio by taking additional managed and controlled
interest rate risk.
54
USBANCORP, INC.
At December 31, 1994, as a result of these portfolio
repositioning strategies the balance in the investment
securities portfolio totalled $784 million with a
weighted average coupon ("WAC") of 6.84% and weighted
average maturity ("WAM") of 3.8 years compared to a
total securities balance of $429 million at December
31, 1993, with a WAC of 5.45% and a WAM of 2.8 years.
The Company's total interest expense for 1994 increased
by $10.7 million or 29.6% when compared to 1993. This
increase was also caused by a $260 million increase in
average interest bearing liabilities resulting from the
previously mentioned JSB acquisition and increased FHLB
borrowings. These increased FHLB borrowings also
negatively impacted the liability mix and overall cost
of funds since the cost of these borrowings averaged
5.12% for 1994 compared to the Company's core cost of
deposits of 3.47%. This 3.47% cost of core deposits
represented a 14 basis point decline from the prior
year and was the primary factor responsible for the
$888,000 favorable rate variance in 1994. This decline
in deposit costs was primarily a result of management
repricing all deposit categories downward in the
declining interest rate environment experienced during
1993 and generally maintaining those low rates for
non-certificate of deposit products during the rising
rate environment experienced in 1994.
During the second half of 1994, the Company positioned
its certificate of deposit pricing within the upper
half of deposit rates offered by commercial banks in
its market area. This temporary increase in certificate
of deposit pricing was done for several reasons: to
help retain customers immediately after the JSB
acquisition during a critical period which included a
computer system conversion; to try to encourage
customer deposit term extension in a rising interest
rate environment, and to use lower cost deposits as a
source of funds to replace higher cost and more rate
sensitive FHLB borrowings which were being used to fund
a portion of JSB's acquired balance sheet. (The Company
returned to its more conservative pricing strategy in
1995.) As a result of the rising interest rate
environment and the increased certificate of deposit
pricing, the Company did begin to experience a shift of
funds out of low cost savings accounts and into
certificates of deposit during the fourth quarter of
1994. Specifically, approximately $11 million of funds
shifted into fixed cost certificates of deposit with
maturities generally exceeding one year with an
increased cost to the Company of approximately 400
basis points. The combination of all these price and
liability composition movements caused USBANCORP's
average cost of interest bearing liabilities to
increase by eight basis points from 3.76% during 1993
to 3.84% during 1994.
The 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.
55
USBANCORP, INC.
Year ended December 31 1995 1994 1993
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 $ 823,807 $ 71,855 8.67% $ 809,695 $ 67,114 8.29% $ 708,690 $61,027 8.61%
Deposits with banks 5,477 280 5.84 2,974 121 4.08 4,885 127 2.60
Federal funds sold
and securities purchased
under agreements to resale 2,715 165 5.94 2,330 94 4.06 12,850 383 2.98
Investment securities:
Available for sale 322,172 22,940 7.11 276,225 15,531 5.62 413,558 23,592 5.70
Held to maturity 538,028 36,726 6.82 327,910 20,777 6.38 - - -
Total investment securities 860,200 59,666 6.93 604,135 36,308 6.03 413,558 23,592 5.70
Assets held in trust for
collateralized mortgage
obligation 8,143 556 6.85 10,825 920 8.50 16,342 1,346 8.24
Total interest earning
assets/interest income 1,700,342 132,522 7.77 1,429,959 104,557 7.31 1,156,325 86,475 7.48
Non-interest earning assets:
Cash and due from banks 36,657 42,609 32,181
Premises and equipment 19,052 18,014 16,345
Other assets 85,403 39,446 24,776
Allowance for loan losses (15,146) (17,488) (14,292)
TOTAL ASSETS $1,826,308 $1,512,540 $1,215,335
Interest bearing liabilities:
Interest bearing deposits:
Interest bearing demand $ 91,596 $ 1,258 1.37% $ 106,665 $ 1,653 1.55% $ 99,090 $ 2,030 2.05%
Savings 229,423 4,302 1.88 248,265 4,806 1.94 231,025 5,546 2.40
Other time 742,133 39,843 5.37 632,040 27,824 4.40 574,182 25,047 4.36
Total interest bearing deposits 1,063,152 45,403 4.27 986,970 34,283 3.47 904,297 32,623 3.61
Federal funds purchased,
securities sold under
agreements to repurchase
and other short-term borrowings 135,784 7,053 5.17 112,846 5,349 4.79 14,486 359 2.48
Advances from Federal Home
Loan Bank 313,026 20,043 6.40 109,098 6,006 5.51 23,711 1,163 4.90
Collateralized mortgage obligation 7,388 848 11.48 9,861 1,024 10.38 14,189 1,508 10.63
Long-term debt 1,603 221 12.40 5,010 331 6.58 7,560 597 7.90
Total interest bearing
liabilities/interest expense 1,520,953 73,568 4.83 1,223,785 46,993 3.84 964,243 36,250 3.76
Non-interest bearing liabilities:
Demand deposits 136,543 138,428 122,699
Other liabilities 25,534 23,468 19,440
Stockholders' equity 143,278 126,859 108,953
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $1,826,308 $1,512,540 $1,215,335
Interest rate spread 2.94 3.47 3.72
Net interest income/net
interest margin 58,954 3.45% 57,564 4.03% 50,225 4.34%
Tax-equivalent adjustment (2,807) (1,746) (740)
Net interest income $56,147 $55,818 $49,485
56
USBANCORP, INC.
The average balance and yield on taxable securities was
$723 million and 6.95%, $522 million and 6.00%, and
$376 million and 5.71% for 1995, 1994, and 1993,
respectively. The average balance and yield on
tax-exempt securities was $137 million and 6.83%, $83
million and 6.25%, and $37 million and 5.65% for 1995,
1994, and 1993, 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.
1995 vs. 1994 1994 vs. 1993
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 $ 1,306 $3,435 $ 4,741 $ 8,234 $(2,147) $ 6,087
Deposits with banks 105 54 159 13 (19) (6)
Federal funds sold and
securities purchased under
agreements to resell 19 52 71 (519) 230 (289)
Investment securities 17,275 6,083 23,358 11,297 1,419 12,716
Assets held in trust for
collateralized mortgage
obligation (204) (160) (364) (470) 44 (426)
Total interest income 18,501 9,464 27,965 18,555 (473) 18,082
Interest paid on:
Interest bearing demand deposits (217) (178) (395) 172 (549) (377)
Savings deposits (358) (146) (504) 472 (1,212) (740)
Other time deposits 5,305 6,714 12,019 2,545 232 2,777
Federal funds purchased,
securities sold
under agreements to repurchase,
and other short-term borrowings 1,226 478 1,704 4,388 602 4,990
Advances from Federal Home
Loan Bank 12,921 1,116 14,037 4,681 162 4,843
Collateralized mortgage
obligation (305) 129 (176) (449) (35) (484)
Long-term debt 366 (476) (110) (178) (88) (266)
Total interest expense 18,938 7,637 26,575 11,631 (888) 10,743
Change in net interest income $(437) $1,827 $1,390 $6,924 $415 $7,339
LOAN QUALITY...USBANCORP's written lending policies
require underwriting, loan documentation, and credit
analysis standards to be met prior to funding any loan.
After the loan has been approved and funded, continued
periodic credit review is required. Annual credit
reviews are mandatory for all commercial loans and for
all commercial mortgages in excess of $300,000. In
addition, due to the secured nature of residential
mortgages and the smaller balances of individual
installment loans, sampling techniques are used on a
continuing basis for credit reviews in these loan
areas.
57
USBANCORP, INC.
The following table sets forth information concerning
USBANCORP's loan delinquency and other non-performing
assets:
At December 31 1995 1994 1993
(In thousands, except percentages)
Total loan delinquency
(past due 30 to 89 days) $14,324 $12,832 $10,428
Total non-accrual loans 7,517 5,446 5,304
Total non-performing assets<F1> 9,426 7,901 6,498
Loan delinquency as a percentage
of total loans and loans held for sale,
net of unearned income 1.72% 1.48% 1.43%
Non-accrual loans as a percentage of
total loans and loans held for sale,
net of unearned income 0.90 0.63 0.73
Non-performing assets as a percentage
of total loans and loans held for sale,
net of unearned income,
and other real estate owned 1.13 0.91 0.89
<F1>Non-performing assets are comprised of (i) loans
that are on a non-accrual basis, (ii) consumer loans
that are contractually past due 90 days or more as to
interest and principal payments and which are insured
for credit loss, and (iii) other real estate owned. 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, 1994, and December 31, 1995, total
loan delinquency increased by $1.5 million causing the
ratio to total loans to increase to 1.72%. This
increased delinquency occurred in the residential
mortgage loan portfolio and is largely reflective of a
difference in collection approach between the Company's
mortgage banking subsidiary (which became responsible
for all collection activities in 1995) and the
techniques employed previously by the individual
subsidiary banks. Despite the increased delinquency,
losses from the residential mortgage loan portfolio
have been minimal. The increases in both non-accrual
and non-performing categories in 1995 were due
primarily to increased non-accrual commercial loans
which have been included in specific allocation
reserves within the allowance for loan losses. The
Company's non-performing assets as a percentage of
total loans ratio of 1.13% continues to compare
favorably to peer performance which currently
approximates 1.60%.
Potential problem loans consist of loans which are
included in performing loans, but for which potential
credit problems of the borrowers have caused management
to have concerns as to the ability of such borrowers to
comply with present repayment terms. At December 31,
1995, all identified potential problem loans were
included in the preceding table.
ALLOWANCE AND PROVISION FOR LOAN LOSSES...As a
financial institution which assumes lending and credit
risks as a principal element of its business, the
Company anticipates that credit losses will be
experienced in the normal course of business.
Accordingly, 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.
58
USBANCORP, INC.
This methodology includes:
A detailed review of all classified assets to determine
if any specific reserve allocations (which includes
impaired loans) are required on an individual loan
basis.
The application of reserve allocations to all
criticized and classified assets based upon allocation
percentages which were calculated by using a five-year
historical average for actual losses incurred on loans
with an olem (other loans especially mentioned),
substandard, or doubtful rating.
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
performing loans based upon a five year historical
average for actual losses incurred from all loan review
categories.
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 fully in compliance with all regulatory
requirements.
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.
59
USBANCORP, INC.
The following table sets forth changes in the allowance
for loan losses and certain ratios for the periods ended:
Year ended December 31 1995 1994 1993 1992 1991
(In thousands, except ratios)
Balance at beginning of year: $ 15,590 $ 15,260 $ 13,752 $ 13,003 $ 12,470
Addition due to acquisitions - 3,422 - 2,122 -
Reduction due to disposition of business line (342) - - - -
Charge-offs:
Commercial 576 352 383 2,286 443
Real estate-mortgage 135 155 628 1,141 18
Consumer 589 591 750 1,031 770
Total charge-offs 1,300 1,098 1,761 4,458 1,231
Recoveries:
Commercial 183 199 338 291 332
Real estate-mortgage 41 100 27 166 157
Consumer 457 472 504 412 375
Total recoveries 681 771 869 869 864
Net charge-offs 619 327 892 3,589 367
Provision for loan losses 285 (2,765) 2,400 2,216 900
Balance at end of year $ 14,914 $ 15,590 $ 15,260 $ 13,752 $ 13,003
Loans and loans held for sale,
net of unearned income:
Average for the year $823,807 $809,695 $708,690 $623,087 $435,462
At December 31 834,634 868,004 727,186 648,915 430,151
As a percent of average loans and
loans held for sale:
Net charge-offs 0.08% 0.04% 0.13% 0.58% 0.08%
Provision for loan losses 0.03 (0.34) 0.34 0.36 0.21
Allowance for loan losses 1.81 1.93 2.15 2.21 2.99
Allowance as a percent of each of the following:
Total loans and loans held for sale,
net of unearned income 1.79 1.80 2.10 2.12 3.02
Total delinquent loans (past due 30 to 89 days) 104.12 121.49 146.34 157.29 150.00
Total non-accrual loans 198.40 286.27 287.71 245.75 387.22
Total non-performing assets 158.22 197.32 234.84 133.63 274.00
Allowance as a multiple of net charge-offs 24.09x 47.68x 17.11x 3.83x 35.43x
Total classified loans $28,355 $39,338 $38,227 $41,799 $36,012
Dollar allocation of reserve to general risk 7,471 6,643 7,635 5,437 5,597
Percentage allocation of reserve to general risk 50.09% 42.61% 50.03% 39.54% 43.04%
The Company recorded a provision for loan losses of
$285,000 in 1995, a negative provision of $2.8 million
in 1994, and a provision of $2.4 million in 1993. When
expressed as a percentage of average loans, the
provision averaged 0.03% in 1995, (0.34%) in 1994, and
0.34% in 1993. The 1995 provision amount reflected the
benefits of a continued low level of net charge-offs
(0.08% of total loans in 1995), reduced classified loan
levels (a drop of $11.0 million or 28% in 1995) and the
continued strength of the portion of the reserve
allocated to general risk (amounted to 50.1% of the
total loan loss reserve balance at December 31, 1995).
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.
60
USBANCORP, INC.
This negative provision was driven by a sustained
improvement in asset quality. The following tables show
the trend in several key measures of asset quality for
the period from January 1, 1993, through September 30,
1994, (the last quarter which would have been analyzed
prior to the recognition of the negative provision) for
the two subsidiary banks which had a negative
provision.
TABLE 1-U.S. Bank analysis of asset quality trends
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Ending Ending Ending Ending Ending Ending Ending
3/31/93 6/30/93 9/30/93 12/31/93 3/31/94 6/30/94<F1> 9/30/94<F1>
(In thousands, except ratios)
Provision for loan losses $ - $ - $ - $ - $ - $ - $ -
Charge-offs 228 208 51 109 162 174 102
Recoveries 114 121 112 172 87 126 95
Net loan charge-offs
(recoveries) 114 87 (61) (63) 75 48 7
Non-accrual loans 1,393 1,154 1,090 2,018 999 895 1,283
Non-accrual loans as a
percent of total loans 0.50% 0.40% 0.36% 0.70% 0.34% 0.33% 0.44%
Non-performing assets $3,544 $2,579 $4,493 $2,186 $1,102 $11,968 $1,362
Non-performing assets as a
percent of total loans 1.27% 0.90% 1.48% 0.76% 0.38% 0.35% 0.47%
Classified loans (loans
internally rated
substandard or doubtful) $26,950 $24,770 $26,460 $17,981 $14,645 $14,442 $14,378
Loan loss reserve balance 8,040 7,953 8,014 8,077 8,002 7,954 7,947
Dollar amount of reserve
allocated to general risk 3,792 3,639 3,646 4,515 4,603 4,546 4,501
Percentage allocated to
general risk 89.27% 84.35% 83.47% 126.75% 135.42% 133.39% 130.62%
<F1>Excludes the Johnstown Savings Bank acquisition
which was accounted for as of the close of business
June 30, 1994.
TABLE 2-Three Rivers Bank analysis of asset quality trends
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Ending Ending Ending Ending Ending Ending Ending
3/31/93 6/30/93 9/30/93 12/31/93 3/31/94 6/30/94 9/30/94
(In thousands, except ratios)
Provision for loan losses $ 225 $ 105 $ 105 $ 105 $ 105 $ 105 $ 175
Charge-offs 83 83 82 68 25 36 67
Recoveries 25 25 103 16 30 27 15
Net loan charge-offs
(recoveries) 58 58 (21) 52 (5) 9 52
Non-accrual loans 1,769 1,526 1,441 1,589 1,396 1,134 1,029
Non-accrual loans as a percent
of total loans 1.24% 0.88% 0.78% 0.85% 0.75% 0.61% 0.54%
Non-performing assets $1,944 $1,704 $1,587 $1,671 $1,424 $1,196 $1,184
Non-performing assets as
a percent of total loans 1.37% 0.98% 0.86% 0.89% 0.77% 0.65% 0.62%
Classified loans (loans
internally rated
substandard or doubtful) $11,178 $10,605 $9,779 $8,986 $9,214 $8,873 $8,704
Loan loss reserve balance 3,632 3,679 3,805 3,858 3,968 4,064 4,087
Dollar amount of reserve
allocated to general risk 1,547 1,574 1,730 1,852 2,095 2,256 2,287
Percentage allocated to
general risk 74.20% 74.77% 83.37% 92.32% 111.85% 124.78% 127.06%
It is important to note that the data contained in
table 1 for U.S. Bank excludes Johnstown Savings Bank.
Specifically, as documented in the above tables, the
improved asset quality is evidenced by:
Favorable trend for net charge-offs
Reducing amount of classified loans
Reducing amount of non-accrual loans
Reducing amount of non-performing assets
61
USBANCORP, INC.
The reduced amount of classified loans occurred in
numerous loans in varied industries which provided an
indication of the stabilization of the regional and
local economies in which the Company operates. The
movement of loans out of classified status also reduces
specific reserve allocation requirements within the
allowance for loan losses, consequently shifting funds
into the portion of the reserve allocated to general
risk. The amounts of the reserve allocated to general
risk at both subsidiaries increased over the time
period presented. This building of the general reserve
occurred despite a $0 loan loss provision at U.S. Bank
over this entire time period and two quarterly
reductions in the provision level at Three Rivers Bank
which occurred in the second quarter of 1993 and the
third quarter of 1994.
The demonstrated sustainability of the improved asset
quality during this period combined with the following
events to result in the recognition of a negative
provision in the fourth quarter of 1994:
A comprehensive regulatory examination by the Office of
the Comptroller of the Currency in the fourth quarter
of 1994 provided independent support of the Company's
improved asset quality trend and that the allowance for
loan losses was sufficiently funded.
Complete credit integration of the JSB acquisition was
finished in October 1994 and this review indicated that
JSB's loan loss reserve was adequate based on the
Company's methodology and procedural discipline. Thus,
the Company concluded that JSB's loan loss reserve was
properly stated for purchase price allocation purposes
and the existing general risk portion of the U.S. Bank
allowance for loan losses was sustained after the JSB
acquisition.
As a result of all the factors discussed and the
continued adequacy of the allowance for loan losses
subsequent to the negative provision, it was
management's and the Board of Directors judgement that
the interests of the Company's shareholders and
customers were best served by this large fourth quarter
1994 negative provision.
The Company's allowance for loan losses at December 31,
1995, was 1.79% of total loans and 158% of
non-performing assets. Both of these ratios declined
modestly from the December 31, 1994, levels of 1.80%
and 197%, respectively. 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 138%. There can be no
assurance that if asset quality deteriorates in future
periods material additions to the allowance for loan
losses will not be required; management currently
estimates, however, that the 1996 provision for loan
losses will be comparable with the 1995 provision
level.
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.
62
USBANCORP, INC.
At December 31 1995 1994 1993 1992 1991
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loan in
Each Each Each Each Each
Category Category Category Category Category
Amount of Loans<F2> Amount of Loans<F2> Amount of Loans<F2> Amount of Loans Amount of Loans
(In thousands, except percentages)
Commercial $ 2,127 12.3% $ 1,894 13.4% $ 1,637 13.6% $ 1,653 11.6% $ 4,963 27.6%
Commercial loans
secured by
real estate 3,286 21.5 5,278 19.3 4,073 17.2 4,416 19.1 <F1> -
Real estate-
mortgage 345 50.2 339 48.8 279 46.3 244 45.3 1,274 36.7
Consumer 600 16.0 1,436 18.5 1,636 22.9 2,002 24.0 1,169 35.7
Allocation to
general risk 7,471 6,643 7,635 5,437 5,597
Allocation for
impaired loans 1,085 - - - -
Total $14,914 $15,590 $15,260 $13,752 $13,003
<F1>The historical information for this category was not available.
<F2>Includes loans held for sale.
Even though real estate-mortgage loans comprise
approximately 50.2% of the Company's total loan
portfolio, only $345,000 or 2.3% 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. 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,
1995, 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 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 as 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 an investment portfolio repositioning strategy
executed late in the fourth quarter which was designed
to enhance future net interest income performance.
Specifically, $81 million of available for sale
securities with a weighted average coupon of 6.02% and
weighted average
63
USBANCORP, INC.
maturity of 29 months were sold at a $4 million loss.
The proceeds from this sale were used to purchase $77
million of securities with a WAC of 8.80% and a WAM of
49 months. The approximate 275 basis point yield
improvement on this repositioning strategy will
generate $2.1 million of additional annual pre-tax
earnings for a three year period.
a $905,000 gain realized on the disposition of Frontier
Finance Company, a subsidiary of Community. 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.
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 ("MSR"). 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. The
following chart highlights some of the key information
related to SMC's mortgage servicing portfolio:
At December 31 1995 1994
(In thousands, except percentages and prepayment data)
MSR balance $990,299 $991,269
Fair value of MSRs based upon
discounted cash flow of servicing portfolio 12,985 14,881
Fair value as a percentage of MSR balance 1.31% 1.50%
PSA prepayment speed 230 145
Weighted average portfolio interest rate 8.04% 8.03%
A rollforward of the MSRs is as follows:
(In thousands)
Balance as of December 31, 1994 $11,452
Acquisition of servicing rights 1,095
Amortization of servicing rights (1,175)
Balance as of December 31, 1995 $11,372
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).
The full year 1995 loss resulted primarily from the
first quarter sale of $34 million of fixed-rate
residential mortgage loans with a weighted average
coupon of 7.79% and a weighted average maturity of 168
months at a loss of $891,000. This sale was executed to
diversify the Company's balance sheet mix and reduce
its overall level of fixed-rate residential mortgage
loans. The majority of the proceeds from the sale were
reinvested in adjustable-rate agency securities to
increase the repricing sensitivity of the Company's
earning assets. The first quarter loss was partially
offset by $767,000 of gains generated throughout the
year on fixed-rate mortgage loan sales by the Company's
mortgage banking subsidiary.
64
USBANCORP, INC.
a $372,000 or 12.3% increase in trust fees to $3.4
million in 1995. This core trust fee growth is prompted
by increased assets under management due to the
profitable expansion of the Company's business
throughout western Pennsylvania, including the Greater
Pittsburgh marketplace. For 1995, the Trust Company's
business development efforts have generated new trust
assets amounting to $101 million which will generate
annual fees approximating $389,000. The Trust staff's
marketing skills combined with their proven ability to
deliver quality service has been the key to the
Company's annual growth rate, which has averaged 20%
over the past four years. While there can be no
assurances of continuation of this trend, these factors
provide a foundation for future growth of this
important source of fee income.
a $1.8 million increase in other income due in part to
a $872,000 increase in the net cash surrender value of
a $30 million Bank Owned Life Insurance Policy. The
remainder of the increase was 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 income for 1994 totalled $8.2 million
which represented a $2 million or 19.3% decrease when
compared to 1993. This decrease was primarily due to
the following items:
the realization of a $4 million loss on investment
securities available for sale in 1994 compared to a
$583,000 gain realized in 1993 (a net unfavorable shift
of $4.6 million). The 1994 loss resulted primarily from
the previously discussed investment portfolio
repositioning strategy executed late in the fourth
quarter which was designed to enhance future net
interest income performance. Other investment security
strategies executed in 1994 included the second quarter
sale of certain collateralized mortgage obligations in
an effort to reduce the market valuation risk of the
available for sale portfolio, enhance yield performance
and reduce cash flow volatility.
the inclusion of $1.1 million of net mortgage servicing
income generated from SMC. This amount resulted from
$1.9 million of mortgage servicing fees net of $746,000
of amortization expense of the cost of mortgage
servicing rights.
a $445,000 or 17.3% increase in trust fees to $3
million due to successful new business development
efforts which caused a 9% increase in total trust
assets.
the realization of a $763,000 gain on loan and
servicing sales in 1994 compared to a $593,000 gain for
1993. The $170,000 increase between periods was due
entirely to a $200,000 gain recognized on the sale of
the Company's $17 million student loan portfolio which
more than offset reduced gains generated on $60 million
of fixed-rate mortgage loan sales in 1994.
an $883,000 increase in other income due primarily to
additional fee income resulting from the JSB
acquisition. Examples of fee income sources
demonstrating increases are credit card charges, other
mortgage banking processing fees, ATM transaction
charges, and bond handling fees. Other income was also
supplemented by an $88,000 gain realized on the
liquidation of a real estate joint venture and a
$70,000 increase in premium income on credit life and
disability insurance sales to consumer loan customers.
65
USBANCORP, INC.
NON-INTEREST EXPENSE...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 #22.)
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
$0.23 per hundred dollars of deposits to $0.04 per
hundred dollars of deposits effective June 1, 1995.
Approximately $923 million or 78% of the Company's
deposits are covered by the BIF while the remaining
$255 million or 22% are part of the Savings Association
Insurance Fund ("SAIF"). The premium rate assessment on
deposits covered by SAIF continues at $0.23 per one
hundred dollars of deposits. In addition, a proposed
recapitalization of the SAIF may result in a one-time
special assessment to the Company sometime in 1996.
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 nonsupervisory 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.
Total 1994 non-interest expense of $49.5 million
increased by $8.8 million or 21.6% when compared to
1993 due in part to the recognition of a $2.4 million
pre-tax acquisition restructuring charge associated
with the Company's acquisition of Johnstown Savings
Bank. Excluding this charge, total non-interest expense
increased by $6.4 million or 15.6% when 1994 is
compared to 1993. The acquisition of JSB was the
primary reason for the increase experienced in each of
the expense line items and is evidenced by the
following more significant changes:
a $3,359,000 or 16.8% increase in salaries and employee
benefits expense due entirely to planned wage increases
approximating 4%, 69 additional average full-time
equivalent employees resulting from the JSB and Integra
Branches acquisitions and a $343,000 increase in
pension/profit sharing expense.
66
USBANCORP, INC.
a $1,221,000 increase in net occupancy and equipment
expense as a result of the additional branch facilities
and equipment acquired with the JSB and Integra
Branches acquisitions and higher utilities and
repair/maintenance expenses due in part to the harsh
winter early in 1994.
a $974,000 increase in amortization expense due
entirely to the amortization of the goodwill and core
deposit intangibles resulting from the JSB and Integra
Branches acquisition.
a $419,000 increase in FDIC deposit insurance expense
caused by the additional deposits associated with the
acquisitions.
a $214,000 decrease in other expense due to reduced
other real estate owned expense and economy of scale
benefits derived from the elimination of outside data
processing fees, as Community's data processing is now
performed internally by the centralized Western Region
Operations Center.
NET OVERHEAD BURDEN... The Company's net overhead to
tax equivalent net interest income ratio showed
improvement as it declined from 60.7% in 1994 to 57.7%
in 1995. (The 1994 amount is exclusive of the
acquisition charge.) The successful integration of JSB
and the cost savings from intra-market consolidation
opportunities combined with higher non-interest income
to cause the improvement noted in 1995. Employee
productivity ratios also continued to demonstrate
improvement as total assets per employee were $2.5
million at the end of 1995, a 10.8% improvement over
the 1994 year-end total of $2.3 million assets per
employee, and a 36.1% increase over the 1993 amount of
$1.9 million. The Company's efficiency ratio
(non-interest expense divided by total revenue) has
declined from a high of 73.1% in 1991 to 67.0% in 1995.
Management expects to reduce the Company's efficiency
ratio to below its 60% goal in the next twelve to
eighteen months through additional productivity
enhancements, operational efficiencies, and growth of
fee income.
JSB INTEGRATION BENEFITS...During 1995, the Company
continued the process of integrating JSB into its U.S.
Bank subsidiary in order to realize the targeted
minimum of $3.8 million of pre-tax savings
opportunities resulting from this intra-market
consolidation. 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 two JSB branches into the
Company's existing retail delivery system, the
consolidation of back room check clearing and item
processing operations, the consolidation of several
administrative functions such as executive
administration, accounting and internal audit, the
transfer of all subsidiary banks' mortgage servicing to
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 favorable pre-tax benefits recognized
during 1995 due to these initiatives amounted to
approximately $5.0 million. Overall, the Company has
retained approximately 50 employees or just 42% of the
original JSB total of 120 full-time equivalent
employees (excluding SMC).
67
USBANCORP, INC.
INCOME TAX EXPENSE...The Company's provision for income
taxes for 1995 was $6.0 million reflecting an effective
tax rate of 27.7%. The Company's income tax provision
for 1994 was $5.9 million or an effective tax rate of
34.4%. The $114,000 increase in income tax expense was
due entirely to the higher level of pre-tax earnings in
1995 as 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 $61.2 million higher on average in
1995 as compared to 1994 and amounted to $187.3
million. The tax-free asset holdings consisted of
municipal investment securities, bank owned life
insurance, and commercial loan tax anticipation notes.
Effective January 1, 1993, the Company adopted SFAS
109, "Accounting For Income Taxes." This adoption
resulted in the recording of a deferred tax asset of
$1.5 million and a corresponding credit to the income
statement as a cumulative effect of change in
accounting principle. Excluding this non-recurring
benefit, the Company's provision for income taxes for
1993 was $5.5 million reflecting an effective tax rate
of 33.2%.
OTHER MATTERS-COLLECTIVE BARGAINING AGREEMENT...The
Company announced on October 17, 1995, that its
wholly-owned subsidiary, U.S. Bank in Johnstown
("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 nonsupervisory 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. In the
view of the management of the Company and the Bank, the
agreement is fair and reasonable to all parties and is
consistent with the concept of shared proportionate
sacrifice designed to assist the Company in achieving
its announced goal of reaching a 13% return on equity
in 1996. The Bank introduced the shared proportionate
sacrifice concept in June and subsequently in September
when a "1996 salary freeze and temporary one year
salary rollback" was announced for all officers. The
1996 temporary one year rollback starts at 10% for
executive officers and reduces to 3% for first level
officers.
The principal features of the collective bargaining
agreement are as follows:
The term of the agreement is four years.
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)
will receive 90% on 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.
68
USBANCORP, INC.
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.
The Company estimates that the net present value of the
savings negotiated under the contract and one year
roll-backs will approximate $1.5 million.
BALANCE SHEET...The Company's total consolidated assets
were $1.885 billion at December 31, 1995, compared with
$1.789 billion at December 31, 1994, which represents
an increase of $96.5 million or 5.4% due to increased
leveraging of the balance sheet. Total investment
securities increased by $106.9 million as purchases of
adjustable-rate mortgage-backed securities, municipal
securities and mortgage pass-through securities were
made to utilize the funds provided by overall net loan
portfolio run-off and increased leveraging of the
balance sheet. The increase in other assets reflects
the purchase of a $30 million Bank Owned Life Insurance
policy.
Total loans and loans held for sale declined by
approximately $34.5 million or 4.0% in 1995 due
primarily to the first quarter sale of $34 million of
fixed-rate residential mortgage loans, a $5 million
reduction in consumer loans due to the disposition of a
business line, the maturity of $20 million of
commercial loan tax anticipation notes which were not
replaced, and continued net loan run-off experienced in
the indirect auto loan portfolio. During the second
half of 1995, however, total loans and loans held for
sale did increase by $32.8 million or 4.1% due
primarily to increased commercial loan demand. Total
commercial and commercial mortgage loans grew by $16.9
million or 6.3% 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 newly formed small business loan center
approved 219 applications for $14 million and closed
133 loans for $8.5 million with an average approval
time of 48 hours. The Company will continue to
aggressively focus on this market segment in 1996 in an
effort to continue the loan growth momentum that was
established in the second half of 1995.
Total deposits decreased by $18.4 million or 1.5% since
December 31, 1994, as the Company's conservative
deposit pricing structure has contributed to modest
deposit run-off in 1995. The Company's total borrowed
funds position increased by $101.4 million in 1995, due
to additional leveraging of the balance sheet with FHLB
borrowings. Overall, the Company's asset leverage ratio
was 6.63% at December 31, 1995.
The Company now carries $18.4 million of goodwill and
$5.4 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 25% market share
leadership position in Cambria County-one of its
primary markets.
the intra-market consolidation opportunities are
generating significant ongoing earnings enhancements
which approximated $5 million in 1995.
69
USBANCORP, INC.
INTEREST RATE SENSITIVITY...Asset/liability management
involves managing the risks associated with changing
interest rates and the resulting impact on the
Company's net interest income and capital. The
management and measurement of interest rate risk at
USBANCORP is performed by using the following tools: 1)
simulation modeling which analyzes the impact of
interest rate changes on net interest income and
capital levels over specific future time periods by
projecting the yield performance of assets and
liabilities in numerous varied interest rate
environments; 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.
The following table presents a summary of the Company's
static GAP positions at December 31, 1995:
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)
Rate sensitive assets:
Loans $ 182,502 $ 66,002 $ 109,366 $ 469,978 $ 827,848
Investment securities and
assets held in trust for
collateralized mortgage obligation 282,307 43,992 58,177 509,003 893,479
Short-term assets 14,397 - - - 14,397
Other assets - - 30,872 - 30,872
Total rate sensitive assets $ 479,206 $ 109,994 $ 198,415 $ 978,981 $1,766,596
Rate sensitive liabilities:
Deposits:
Non-interest bearing deposits $ - $ - $ - $ 145,379 $ 145,379
NOW and Super NOW - - - 99,051 99,051
Money market 134,685 - - - 134,685
Other savings - - - 216,115 216,115
Certificates of deposit of $100,000
or more 19,717 5,962 1,980 15,127 42,786
Other time deposits 115,857 98,626 129,302 196,057 539,842
Total deposits 270,259 104,588 131,282 671,729 1,177,858
Borrowings 469,089 1,084 10,367 53,642 534,182
Total rate sensitive liabilities $ 739,348 $ 105,672 $ 141,649 $ 725,371 $1,712,040
Off-balance sheet hedges (75,000) - - 75,000 -
Interest sensitivity GAP:
Interval (185,142) 4,322 56,766 178,610 $ -
Cumulative $(185,142) $(180,820) $(124,054) $ 54,556 $ 54,556
Period GAP ratio 0.72x 1.04x 1.40x 1.22x
Cumulative GAP ratio 0.72 0.77 0.86 1.03
Ratio of cumulative GAP to total assets (9.82)% (9.59)% (6.58)% 2.89%
70
USBANCORP, INC.
When December 31, 1995, is compared to December 31,
1994, the Company's six month cumulative GAP ratio
became more negative while the one year cumulative GAP
ratio became less negative. As separately disclosed in
the above table, the hedge transactions (described in
detail in Note #23) reduced the negativity of both the
six month and one year GAP by $75 million. The purchase
of adjustable-rate mortgage-backed securities and
adjustable-rate mortgage loans throughout 1995 to
replace maturing securities and sold fixed-rate
mortgage loans increased the earning asset sensitivity
and also contributed to the reduction in the negativity
of the one year static GAP position since the majority
of these assets reprice annually.
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,
1995, the balance in these accounts totalled $450
million or 23.9% of total assets. Within the above
static GAP table, approximately $135 million or 30% of
the total $450 million of low cost core deposits are
assumed to be rate sensitive liabilities which reprice
in one year or less; this 30% assumption is based upon
historical experience in varying interest rate
environments and is consistently used for all GAP
ratios presented. The Company recognizes that the
pricing of these accounts is somewhat inelastic when
compared to normal rate movements and generally assumes
that up to a 250 basis point increase in rates will not
necessitate a change in the cost of these accounts.
Indeed, throughout the rising interest rate period from
January 1, 1994, through June 30, 1995, the Company was
able to hold steady the pricing of these accounts
despite seven Federal Reserve rate movements which
caused a total 275 basis point increase in both the fed
funds and prime rate. As discussed earlier in the net
interest margin section of the M.D.&A., the Company did
experience a disintermediation of some deposits between
the low cost accounts and certificates of deposit
during this rising interest rate period. This
disintermediation of deposits slowed in the second half
of 1995 as interest rates began to decline.
Accordingly, the Company believes in 1996 that it will
be able to maintain the rates on these accounts and
even modestly lower the rates for some products such as
NOW 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. As
a result of these GAP limitations, management places
primary emphasis on simulation modeling to manage and
measure interest rate risk. At December 31, 1995, these
varied economic interest rate simulations indicated
that the maximum negative variability of USBANCORP's
net interest income over the next twelve month period
was (5.7%) 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%). 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%.
71
USBANCORP, INC.
Within the investment portfolio at December 31, 1995,
47.9% of the portfolio is currently classified as
available for sale ("AFS") and 52.1% as held to
maturity ("HTM"). This compares to a portfolio
composition breakdown of 33.1% AFS and 66.9% HTM at
December 31, 1994. 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 HTM
portfolio. A net total of $131 million in securities
were reclassified from HTM to AFS with $58 million
subsequently sold to improve the ongoing earnings of
the securities portfolio. This repositioning strategy
will provide a five basis point improvement in the
total investment portfolio yield or approximately
$500,000 of additional pre-tax earnings in 1996. The
available for sale classification also 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 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 $169 million at December 31, 1995,
compared to $146 million at December 31, 1994. Maturing
and repaying loans, as well as, the monthly cash flow
associated with certain asset- and mortgage-backed
securities are other sources of asset liquidity.
Liability liquidity can be met by attracting deposits
with competitive rates, using repurchase agreements,
buying federal funds, or utilizing the facilities of
the Federal Reserve or the Federal Home Loan Bank
systems. USBANCORP's subsidiaries utilize a variety of
these methods of liability liquidity. At December 31,
1995, USBANCORP's subsidiaries had approximately $246
million of unused lines of credit available under
informal arrangements with correspondent banks compared
to $55 million at December 31, 1994. These lines of
credit enable USBANCORP's subsidiaries to purchase
funds for short-term needs at current market rates.
Additionally, each of the Company's subsidiary banks
are members of the Federal Home Loan Bank which
provides the opportunity to obtain intermediate to
longer term advances up to approximately 80% of their
investment in assets secured by one- to four-family
residential real estate. This would suggest a remaining
current total available Federal Home Loan Bank
aggregate borrowing capacity of approximately $282
million. Furthermore, USBANCORP had available at
December 31, 1995, $5.9 million of a total $12.5
million unsecured line of credit.
72
USBANCORP, INC.
Liquidity can be further analyzed by utilizing the
Consolidated Statement of Cash Flows. Cash equivalents
increased by $6.3 million between December 31, 1995,
and December 31, 1994, due to $65.2 million of net cash
provided by financing activities and $22.0 million of
net cash provided by operating activities. This more
than offset $80.8 million of net cash used by investing
activities. Within investing activities, purchases of
investment securities exceeded the cash proceeds from
investment security maturities and sales by
approximately $86.1 million due to increased leveraging
of the balance sheet. Cash advanced for new loan
fundings totalled $304 million and was approximately
$35.8 million less than the cash received from loan
principal payments and sales. The Company also used $30
million of cash to purchase Bank Owned Life Insurance
in 1995. Within financing activities, cash generated
from the sale of new certificates of deposit exceeded
cash payments for maturing certificates of deposit by
$15.2 million. Demand and savings deposits have
experienced a net decrease of $33.6 million.
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...The following table highlights the
Company's compliance with the required regulatory
capital ratios for each of the periods presented:
At December 31 1995 1994
Amount Ratio Amount Ratio
(In thousands, except ratios)
Risk Adjusted Capital Ratios
Tier 1 capital $ 123,251 13.63% $ 117,480 12.45%
Tier 1 capital minimum 36,162 4.00 37,745 4.00
Excess $ 87,089 9.63% $ 79,735 8.45%
Total capital 134,552 14.88 129,275 13.70
Total capital minimum 72,325 8.00 75,489 8.00
Excess $ 62,227 6.88% $ 53,786 5.70%
Total risk adjusted assets $ 904,062 $ 943,614
Asset Leverage Ratio
Tier 1 capital 123,251 6.63 117,480 6.64
Minimum requirement 92,907 5.00 88,462 5.00
Excess $ 30,344 1.63% $ 29,018 1.64%
Total adjusted assets $1,858,131 $1,769,234
73
USBANCORP, INC.
Between December 31, 1994, and December 31, 1995, the
Company's risk adjusted capital ratios increased due to
overall net growth in equity and a reduced level of
risk adjusted assets. The asset leverage ratio was
relatively consistent as it decreased by only one basis
point between years as the Company continued to
leverage its capital strength in an effort to enhance
total shareholder return. The Company used funds
provided by a new $10 million unsecured line of credit
to repurchase 295,512 shares or $7.9 million of its
common stock during 1995. The rate on this unsecured
line of credit floats at 50 basis points under the
prime rate. Through December 31, 1995, the Company has
repurchased a total of 423,212 shares of its common
stock at a total cost of $11 million. The Company plans
to continue its treasury stock repurchase program in
1996 which currently permits a maximum total repurchase
authorization of $18 million. The maximum price per
share at which the Company can repurchase stock is 130%
of book value. At December 31, 1995, the Company's
common stock market price was $33 per share or 116.4%
of book value. This represented a 57% improvement from
the December 31, 1994, common stock market price of $21
per share or 85.5% of book value.
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 $1.06 for 1995 which was a 9.3% increase over
the $0.97 per share dividend for 1994. The dividend
yield on the Company's Common Stock now approximates
3.3% compared to an average Pennsylvania bank holding
company 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.
74
USBANCORP, INC.
FORM 10-K
75
USBANCORP, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
XX Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1995
For the fiscal year ended
or
Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to
Commission File Number 0-11204
Commission File Number
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
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class
Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $2.50 Par Value
(Title of class)
Share Purchase Rights
(Title of class)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
the registrant was required to file such reports) and
(2) has been subject to such filing requirements for
the past 90 days. XX Yes No
State the aggregate market value of the voting stock
held by non-affiliates of the registrant. The aggregate
market value shall be computed by reference to the
price at which the stock was sold, or the average bid
and asked prices of such stock, as of a specified date
within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405.) $176,681,821.75
as of January 31, 1996.
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. 5,313,739 shares were outstanding as
of January 31, 1996.
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, 1995, are incorporated by
reference into Parts I and II.
Portions of the proxy statement for the annual
shareholders' meeting are incorporated by reference in
Part III.
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (229.405
of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. XX
Exhibit Index is located on page 77.
76
USBANCORP, INC.
FORM 10-K INDEX
PART I Page
Item 1.Business 78
Item 2.Properties 89
Item 3.Legal Proceedings 90
Item 4.Submission of Matters to a Vote of Security Holders 90
PART II
Item 5.Market for the Registrant's Common Stock and
Related Stockholder Matters 90
Item 6.Selected Consolidated Financial Data 90
Item 7.Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations 90
Item 8.Consolidated Financial Statements and
Supplementary Data 90
Item 9.Changes In and Disagreements With Accountants On
Accounting and Financial Disclosure 90
PART III
Item 10.Directors and Executive Officers of the Registrant 91
Item 11.Executive Compensation 91
Item 12.Security Ownership of Certain Beneficial Owners
and Management 91
Item 13.Certain Relationships and Related Transactions 91
PART IV
Item 14.Exhibits, Consolidated Financial Statement
Schedules, and Reports on Form 8-K 91
Signatures 94
77
USBANCORP, INC.
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 and USBANCORP Trust
Company (the "Trust Company") in October 1992. The
Company's principal activities consist of owning and
operating its five wholly-owned subsidiary entities. At
December 31, 1995, the Company had, on a consolidated
basis, total assets, deposits, and shareholders' equity
of $1.89 billion, $1.18 billion and $150 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 21
locations in Cambria, Clearfield, Somerset, and
Westmoreland Counties, Pennsylvania, U.S. Bank conducts
a general banking business. It is a full-service bank
offering (i) retail banking services, such as demand,
savings and time
78
USBANCORP, INC.
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 21 automated bank teller machines ("ATM")
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, 1995:
Headquarters Johnstown, PA
Chartered 1933
Total Assets $1,102,586
(58.5% of the Company's total)
Total Investment Securities $ 565,518
(63.5% of Company's total)
Total Loans (net of unearned income) $ 443,196
(53.1% of the Company's total)
Total Deposits $ 624,870
(53.0% of the Company's total)
1995 Net Income $ 9,413
(59.6% of the Company's total)
Asset Leverage Ratio 6.87%
1995 Return on Average Assets 0.87%
1995 Return on Average Equity 10.21%
Total Full-time Equivalent Employees 349
(47.0% of the Company's total)
Number of Offices 21
(46.6% of the Company's total)
Three Rivers Bank
Three Rivers Bank is a state bank chartered under the
Pennsylvania Banking Code of 1965, as amended (the
"Pennsylvania Banking Code.") Through 12 locations in
Allegheny and Washington Counties, Pennsylvania, Three
Rivers Bank conducts a general retail banking business
consisting of granting commercial, consumer,
construction, mortgage and student loans, and offering
checking, interest bearing demand, savings and time
deposit services. It also operates 12 ATMs that are
79
USBANCORP, INC.
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, 1995:
Headquarters McKeesport, PA
Chartered 1965
Total Assets $407,689
(21.6% of the Company's total)
Total Investment Securities $198,403
(22.3% of Company's total)
Total Loans (net of unearned income) $179,864
(21.6% of the Company's total)
Total Deposits $298,759
(25.4% of the Company's total)
1995 Net Income $ 4,981
(31.5% of the Company's total)
Asset Leverage Ratio 6.62%
1995 Return on Average Assets 1.35%
1995 Return on Average Equity 19.39%
Total Full-time Equivalent Employees 197
(26.5% of the Company's total)
Number of Offices 12
(26.7% 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. Under the direction of
personnel transferred to Community from U.S. Bank and
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USBANCORP, INC.
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 $1.3 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 22, 1996, 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, 1995:
Headquarters Monroeville, PA
Chartered 1890
Total Assets $370,363
(19.6% of the Company's total)
Total Investment Securities $124,313
(14.0% of Company's total)
Total Loans (net of unearned income) $211,374
(25.3% of the Company's total)
Total Deposits $254,229
(21.6% of the Company's total)
1995 Net Income $ 2,558
(16.2% of the Company's total)
Asset Leverage Ratio 7.11%
1995 Return on Average Assets 0.67%
1995 Return on Average Equity 10.14%
Total Full-time Equivalent Employees 149
(20.1% of the Company's total)
Number of Offices 12
(26.7% of the Company's total)
81
USBANCORP, INC.
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, 1995, United Life had total assets of $1.5
million and total shareholder's equity of $809,000.
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, 1995, USBANCORP Trust Company
had $1.04 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 54 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 36 Executive Vice President, and
Chief Financial Officer
of USBANCORP, Inc., and
President & Chief
Executive Officer of U.S. Bank.
W. Harrison Vail 55 President & Chief Executive
Officer of Three Rivers
Bank, and President &
Chief Executive Officer of
Community Bancorp, Inc., and
Community Savings Bank
Louis Cynkar 51 Executive Vice President and
Corporate Senior
Commercial Loan Officer,
USBANCORP, Inc.
Ronald W. Virag, CFTA 50 President & Chief Executive
Officer, USBANCORP Trust
Company
Kevin J. O'Neil 58 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. Cynkar joined U. S. Bank in 1986 as Senior
Vice President, commercial lending. He received his
present title in May 1995. Mr. Virag was appointed as
President and Chief Executive Officer of
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USBANCORP, INC.
USBANCORP Trust Company in November 1994. 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 26
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 45 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 21 offices
and a $1.1 billion asset presence primarily in the
Greater Johnstown marketplace. Community Bank and Three
Rivers Bank have a combined 24 offices and a $778
million asset presence in the western region, largely
comprised of the suburban Pittsburgh marketplace.
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USBANCORP, INC.
The national economic forecasts for 1996 point to
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 three
percent. The Pennsylvania economy tends to parallel the
national economy, but at a slower pace. The seasonally
adjusted unemployment rate for December 1995 increased
to 6.3%, compared with the seasonally adjusted December
1994 unemployment rate of 5.9% The forecast for 1996 is
minimal growth.
The Greater Johnstown economy generally trails
Pennsylvania and the nation; however, the seasonally
adjusted unemployment rate for December 1995 increased
to 9.5% compared with 8.5% for December 1994. Recent
economic activity in the Johnstown region includes:
The proposed 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.
Between 180 and 200 people will be working for BRW
Steel Corp. in Cambria County when steel-making begins
in March with the aid of a continuous caster.
Fifty-nine people currently are on the job at BRW
facilities in Johnstown and Franklin Borough.
GTE Telephone Operations is cutting 52 jobs in its
Southwest District-which consists primarily of Cambria
and Somerset counties-as part of a three-year corporate
reduction.
Johnstown Area Regional Industries is looking to expand
its small-business incubator as part of a $1.3 million
fund drive.
Seven Springs Mountain Resort has unveiled a $15
million expansion plan to attract and accommodate more
skiers, add dining facilities and improve lifts and
trails.
The area around the Johnstown Galleria continues to
grow. A Staples office-supply superstore and Toys "R"
Us have opened and Lowe's Home Center plans to build a
store on one of the outparcels.
Officials of the Cambria County War Memorial have plans
for a $16-$19 million project that would turn the
facility into a three-story mini-convention center with
a 500 seat dining area and up to 11,000 permanent
seats.
As evidenced by the above, Greater Johnstown continues
to shift from an over-reliance on heavy industry to a
more diversified economy including more light
manufacturing and service related businesses. This
diversification of the local economy is further
exemplified by the nature of the ten largest
non-government employers in the region which include:
three hospitals; a state-wide electric utility; a
regional food retailer; a steel manufacturer; a ladies
apparel manufacturer; a national life insurance
company; and a long distance trucking company.
The Greater Pittsburgh region, where Three Rivers Bank
and Community operate, correlates closely with the
national economy. 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:
Mirror Systems, Inc. was granted a three-year, $30
million exclusive distribution agreement with
Freightliner Corporation. Company officials said the
agreement is expected to generate 175 jobs. Mirror
Systems has developed a liquid crystal mirror and
display device for the transportation industry.
84
USBANCORP, INC.
Westinghouse Electric Corporation eliminated 225 jobs
in Pittsburgh as part of a restructuring. The
restructuring cut 110 jobs at its Downtown headquarters
and 115 jobs at the company's Science, Technology and
Quality organization in Churchill.
Cleveland based National City Corporation will acquire
Integra Financial Corp. for $2.1 billion. This could
result in the loss of about 1,000 Integra "back office"
jobs, and the closing of some of Integra's 260
branches.
Sony Chemical Corporation of America, a maker of
thermal transfer ribbon used in printing bar code
labels, has moved its headquarters from Chicago to
Pittsburgh. While the chemical division is small
compared to the Japanese giant's local television
manufacturing operation, the move is expected to create
about 100 jobs.
A proposed $35 million distribution hub could further
boost Roadway Package System Inc.'s role in the soaring
airport-area economy. RPS, the nation's second-largest
ground and second-day air shippers of
business-to-business packages, is finishing plans to
build an automated distribution hub in Moon Township.
The Pittsburgh economy is generally well diversified as
exemplified by the ten largest non-government employers
in the region which include: USAir; the University of
Pittsburgh; Westinghouse; two money center banks; two
steel and related resources companies; and a
multi-state retailer.
The Company believes that the state and regional
economies will continue this diversification throughout
1996 and remain in a slow positive expansion period.
Consequently, the Company's marketplace should continue
to display modest growth.
Employees
The Company employed approximately 805 persons as of
December 31, 1995, in full- and part-time positions.
Approximately 261 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 $5.5 million at December
31, 1995. 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, 1995, the Company's banking
subsidiaries had unused loan commitments of
approximately $169.9 million.
Statistical Disclosures for Bank Holding Companies
Certain information regarding statistical disclosure
for bank holding companies pursuant to Guide 3 is
provided in the 1995 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 56, 57, 70, 71, and
72.
85
USBANCORP, INC.
II.
Investment Portfolio
Information required by this section is presented on
pages 26, 27, 28, 86,
and 87.
III.
Loan Portfolio
Information required by this section appears on pages
29, 30, 87, 88, and 89.
IV.
Summary of Loan Loss Experience
Information required by this section is presented on
pages 29, 58, 59, 60, 61, 62, and 63.
V.
Deposits
Information required by this section follows on pages
31 and 89.
VI.
Return on Equity and Assets
Information required by this section is presented on
page 47.
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, 1995, approximately 52% of the portfolio
was categorized as held to maturity and 48% as
available for sale. Prior to the adoption of SFAS 115,
the entire securities portfolio was classified as
available for sale and carried at the lower of
amortized cost or market value.
The following table sets forth the book and market
value of USBANCORP's investment portfolio as of the
periods indicated:
Investment Securities
Available for Sale at December 31 1995 1994 1993
(In thousands)
Book Value:
U.S. Treasury $ 22,431 $ 23,411 $ 13,333
U.S. Agency 12,408 31,372 72,648
State and municipal 58,698 1,479 44,547
Mortgage-backed securities 296,669 175,215 251,631
Other securities 30,869 37,087 46,553
Total book value of investment securities
available for sale $421,075 $268,564 $428,712
Total market value of investment securities
available for sale $427,112 $259,462 $432,315
Investment Securities
Held to Maturity at December 31 1995 1994 1993
(In thousands)
Book Value:
U.S. Treasury $ 796 $ 398 $ -
U.S. Agency 31,512 35,879 -
State and municipal 97,900 125,489 -
Mortgage-backed securities 330,312 360,146 -
Other securities 3,431 2,726 -
Total book value of investment securities
held to maturity $463,951 $524,638 $ -
Total market value of investment
securities held to maturity $471,191 $501,485 $ -
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USBANCORP, INC.
The total securities portfolio increased by
approximately $107 million between December 31, 1994,
and December 31, 1995. This growth resulted from
increased balance sheet leveraging in an effort to
improve return on equity performance. The securities
portfolio growth occurred primarily in adjustable-rate
mortgage-backed securities and municipal securities.
Adjustable-rate securities were 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 was a key factor contributing to the drop in
the Company's effective tax rate from 34.4% in 1994 to
27.7% in 1995.
The $355.4 million increase in 1994 can be attributed
to the following: $190.1 million securities acquired
through the acquisition of JSB, and a $122 million
increase due primarily to increased leveraging of the
Company's balance sheet through the utilization of
funding sources from the Federal Home Loan Bank.
Subsequent to the JSB acquisition, the Company elected
to sell approximately 90% of JSB's securities portfolio
(see further discussion under JSB Acquisition on page
54). Within the portfolio, the Company placed an
emphasis on the purchase of mortgage-backed securities,
which provide a more predictable cash flow stream than
CMO's, and municipal securities in an effort to
generate increased tax-free earnings.
At December 31, 1995, investment securities having a
book value of $234.4million 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, 1995.
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, 1995,
97.5% of the portfolio was rated "AAA" and 97.9% was
rated at least "AA" as compared to 96.1% and 97.0%,
respectively, at December 31, 1994. Only 1.2% was rated
below "A" or unrated at December 31, 1995.
Loan Portfolio
The following table sets forth the Company's loans by
major category as of the dates set forth below:
At December 31 1995 1994 1993 1992 1991
(In thousands)
Commercial $103,546 $116,702 $ 99,321 $ 76,667 $122,974
Commercial loans secured
by real estate 179,793 168,238 126,044 125,846 <F2>
Real estate-mortgage<F1> 414,967 407,177 338,778 298,963 163,985
Consumer 133,820 161,642 167,883 158,342 159,586
Loans 832,126 853,759 732,026 659,818 446,545
Less: Unearned income 2,716 3,832 5,894 10,903 16,394
Loans, net of unearned income $829,410 $849,927 $726,132 $648,915 $430,151
<F1>At December 31, 1995, and 1994, real
estate-construction loans constituted 2.8% and 2.3% of
the Company's total loans, net of unearned income,
respectively.
<F2>The historical information for this category was not
available.
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
87
USBANCORP, INC.
tax anticipation notes which were not replaced.
Consumer loans dropped by $27.8 million or 17.2% due to
the continued 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 newly
formed small business loan center approved 219
applications for $14 million and closed 133 loans for
$8.5 million with an average approval time of 48 hours.
The Company will continue to aggressively focus on this
market segment in 1996 in an effort to continue the
loan growth momentum that was established in the second
half of 1995.
Excluding $125.6 million of loans acquired with the JSB
acquisition and $17 million of student loans sold,
total loans and loans held for sale increased by $32.2
million or 4.4% between December 31, 1993, and December
31, 1994. This growth occurred primarily in the second
and third quarters of 1994 and reflects the economic
stability and diversification of both regions of the
Company's marketplace-Greater Johnstown and suburban
Pittsburgh. The majority of the loan growth occurred in
the commercial loan portfolio which grew by $11.5
million or 11.6%. The Company experienced increased
demand for both taxable and tax-free commercial loans
in 1994. Total real estate loans (including home equity
products) also grew modestly by 3.7% during 1994
despite the Company's practice of selling all newly
originated 30 year fixed-rate mortgage loans amounting
to approximately $60 million in 1994. This commercial
and mortgage loan growth more than offset reduced
consumer loan balances caused largely by the sale of
the Company's $17 million student loan portfolio late
in the second quarter of 1994. Management elected to
divest of this line of business since future
profitability will be adversely impacted by scheduled
changes in regulations and servicing requirements.
Consumer loan balances have also been negatively
impacted by intense competitive pressures in the
indirect auto loan business segment.
The amount of loans outstanding by category as of
December 31, 1995, 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 $28,991 $ 42,585 $ 31,970 $103,546
Commercial loans
secured by real estate 20,311 73,651 85,831 179,793
Real estate-mortgage 33,387 51,212 330,368 414,967
Consumer 15,743 97,806 20,271 133,820
Total $98,432 $265,254 $468,440 $832,126
Loans with fixed-rate $31,213 $193,388 $315,583 $540,184
Loans with floating-rate 67,219 71,866 152,857 291,942
Total $98,432 $265,254 $468,440 $832,126
Percent composition of maturity 11.8% 31.9% 56.3% 100.0%
Fixed-rate loans as a percentage
of total loans 64.9%
Floating-rate loans as a
percentage of total loans 35.1%
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.
88
USBANCORP, INC.
At December 31, 1995, 64.9% of total loans were
fixed-rate compared to 73.1% at December 31, 1994. This
reduced dependence on fixed-rate loans reflects the
success of several strategies executed during 1995
which included: the generation of $44.5 million 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 35.1% at December
31, 1995. 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 1995 1994 1993
Amount Rate Amount Rate Amount Rate
(In thousands, except rates)
Demand-non-interest bearing $ 136,543 -% $ 138,428 -% $ 122,699 -%
Demand-interest bearing 91,596 1.37 106,665 1.55 99,090 2.05
Savings 229,423 1.88 248,265 1.94 231,025 2.40
Other time 742,133 5.37 632,040 4.40 574,182 4.36
Total deposits $1,199,695 4.27% $1,125,398 3.47% $1,026,996 3.61%
The Company's deposits decreased $18.4 million or 1.5%
since December 31, 1994. The decline in deposits can be
attributed to management's application of the
previously discussed pricing philosophy which
emphasizes profitable net interest margin management
rather than increased deposit size. The Company's
deposit mix changes reflect a customer preference for
certificates of deposit, rather than lower cost NOW and
savings accounts in 1995.
The following table indicates the maturities and
amounts of certificates of deposit issued in
denominations of $100,000 or more as of December 31,
1995:
Maturing in:
(In thousands)
Three months or less $19,717
Over three through six months 5,962
Over six through twelve months 1,980
Over twelve months 15,127
Total $42,786
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. Fifteen additional
locations are leased with terms expiring from November
1, 1996, to December 31, 2005.
89
USBANCORP, INC.
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 46. As of January 31, 1996,
the Company had 6,212 shareholders of its Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Information required by this section is presented on
page 47.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Information required by this section is presented on
pages 49 to 74.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Information required by this section is presented on
pages 17 to 42.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable for the years presented.
90
USBANCORP, INC.
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 1995 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, 43
Report of Independent Public Accountants, 44
Consolidated Financial Statement Schedules:
These schedules are not required or are not applicable
under Securities and Exchange Commission accounting
regulations and therefore have been omitted.
Reports on Form 8-K:
Current Report on Form 8-K dated October 26, 1995.
USBANCORP, Inc. announced on October 17, 1995, that its
wholly-owned subsidiary, U.S. Bank in Johnstown, has
reached a new four year collective bargaining agreement
with the United Steelworkers of America, AFL-CIO-CLC,
Local Union 8204.
91
USBANCORP, INC.
Exhibits:
The exhibits listed below are filed herewith or to other filings.
Exhibit Prior Filing or Exhibit
Number Description Page Number Herein
3.1 Articles of Incorporation,
as amended on February 24, 1995. Exhibit III, Part II to
Form S-14 File No. 2-79639
Exhibit 4.2 to Form S-2
File No. 33-685
Exhibit 4.3 to Form S-2
File No. 33-685
Exhibit 4.1 to Form S-3
File No. 33-56604
3.2 Bylaws, as amended and restated
on February 24, 1995. Exhibit IV, Part II to
Form S-14
File No. 2-79639
Exhibit 3.2
4.1 Rights Agreement, dated as of
February 24, 1995, between USBANCORP,
Inc. and USBANCORP Trust Company, as
Rights Agent. Exhibit 1 to Form 8-A
Dated March 1, 1995
10.1 Agreement and Plan of Merger, dated
November 10, 1993, as amended on
January 18, 1994, among USBANCORP,
Inc., United States National Bank
in Johnstown, and Johnstown
Savings Bank. Exhibit 2.1 to Form S-4
File No. 33-52837
10.2 Agreement, dated June 22, 1994,
between USBANCORP, Inc.
and Terry K. Dunkle. Exhibit 10.2 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
10.4 Agreement, dated October 25, 1994,
between USBANCORP,
Inc. and Louis Cynkar. Exhibit 10.4 to 1994
Form 10-K
Filed March 22, 1995
10.5 Agreement, dated October 25, 1994,
between USBANCORP,
Inc. and Dennis J. Fantaski. Exhibit 10.5 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 1995 Annual Report to Shareholders. Page 1
22 Subsidiaries of the Registrant. Below
24.1 Consent of Arthur Andersen LLP.
92
USBANCORP, INC.
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
93
USBANCORP, INC.
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 23, 1996 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 23, 1996:
/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/Robert A. Allen
ROBERT A. ALLEN, Director
/s/Clifford A. Barton
CLIFFORD A. BARTON, Director
/s/Michael F. Butler
MICHAEL F. BUTLER, Director
/s/Louis Cynkar
LOUIS CYNKAR, Director
/s/James C. Dewar
JAMES C. DEWAR, Director
/s/James M. Edwards, Sr.
JAMES M. EDWARDS, SR., Director
/s/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
94
USBANCORP, INC.
1995
DIRECTORS, GENERAL OFFICERS,
and ADVISORY BOARD
COMMUNITY OFFICES
SHAREHOLDER INFORMATION
95
USBANCORP, INC.
THIS PAGE IS INTENTIONALLY LEFT BLANK.
96
USBANCORP, INC.
USBANCORP, INC.
Board of Directors
Jerome M. Adams
Senior Partner,
Adams, Myers & Baczkowski
Attorneys-at-Law
Robert A. Allen
Retired; Former President,
Sani-Dairy
Clifford A. Barton
Retired; Former Chairman, President & CEO,
USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank
& Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Michael F. Butler
Business Consultant &
Attorney-at-Law
Louis Cynkar
Executive Vice President &
Corporate Senior Commercial
Loan Officer, USBANCORP, Inc.
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
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 Corporation
General Officers
Terry K. Dunkle
Chairman, President
& Chief Executive Officer
Orlando B. Hanselman
Executive Vice President &
Chief Financial Officer
Louis Cynkar
Executive Vice President &
Corporate Senior Commercial
Loan Officer
Gary M. McKeown
Senior Vice President, Manager of
Credit Policy and Administration
& Assistant Secretary
Ray M. Fisher
Vice President &
Chief Investment Officer
John H. Follansbee, III
Vice President, Compliance
Dan L. Hummel
Vice President &
Marketing Director
John J. Legath
Vice President, Community
Reinvestment Administration
Leslie N. Morgenstern
Vice President & Manager,
Loan Review
Jeffrey A. Stopko, CPA
Vice President,
Chief Accounting Officer
& Manager of Corporate
Services
John Suierveld, Jr.
Vice President &
Chief Auditor
James E. Vennebush
Vice President &
Manager, General Services
Betty L. Jakell
Secretary
97
USBANCORP, INC.
U.S. BANK
Board of Directors
Robert A. Allen
Retired; Former President,
Sani-Dairy
Clifford A. Barton
Retired; Former Chairman, President
& CEO, USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Michael F. Butler
Business Consultant &
Attorney-at-Law
William F. Casey
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
& Chief Financial Officer,
USBANCORP, Inc.
Kim W. Kunkle
President & CEO,
Laurel Holding Company
James F. O'Malley
Senior Lawyer,
Yost & O'Malley,
Attorneys-at-Law
Rev. Christian R. Oravec
President,
St. Francis College
Frank J. Pasquerilla
Chairman of the Board
& CEO, Crown American
Realty Trust
Howard M. Picking, III
President,
Miller-Picking Corporation
Fred R. Shaffer
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 Corporation
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
Robert S. Berezansky
Vice President,
Commercial Lending
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,
Community Banking
Kermit L. Miller
Vice President &
Branch Manager
Victor L. Tatum
Vice President &
Commercial Equipment
Leasing Manager
Directors Emeriti
John N. Crichton
Owen D. Griffith
John L. Williams
Advisory Board
Orlando B. Hanselman, Chairman
Dr. Frank H. Blackington, III
Robert A. Cameron
Edward J. Cernic
Teresa T. Chianese
David N. Crichton
Max J. Critchfield
John M. Kriak
Frank J. Kuzemchak
Joseph E. Lacue
David J. Rizzo
Carl R. Sax
Fred R. Shaffer
Marlin C. Sherbine
James C. Spangler
Joseph E. Stevens, Sr.
John B. Stockton
Harvey Supowitz
98
USBANCORP, INC.
THREE RIVERS BANK
Board of Directors
Jerome M. Adams
Senior Partner,
Adams, Myers, & Baczkowski
Attorneys-at-Law
Clifford A. Barton
Retired; Former Chairman, President
& CEO, USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
Janey D. Barton
Retired; Vice President,
Three Rivers Bank &
Trust Company
Terry K. Dunkle
Chairman, President &
CEO, USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
J. Terrence Farrell
Attorney-at-Law
James R. Ferry
President,
Ferry Electric Company
Electrical Contractor
Michael D. Hanna, Jr.
President, Tippecanoe
Insurance Agency, Inc.
Stephen I. Richman
Senior Partner,
Ceisler, Richman, Smith
Law Firm
Jack Sevy
Retired; Former Owner & Operator,
New Stanton West
Auto/Truck Plaza
W. Harrison Vail
President & CEO,
Three Rivers Bank &
Trust Company
General Officers
Terry K. Dunkle
Chairman of the Board
W. Harrison Vail
President & Chief Executive Officer
Louis S. Klippa
Executive Vice President,
Chief Operating Officer
& Secretary
Jeryl L. Graham
Senior Vice President,
Commercial Loan Division
Harry G. King
Senior Vice President,
Community Banking
James F. Ackman
Vice President,
Consumer Loans
Robert J. DeGrazia
Vice President,
Information Systems
Anita L. Elder
Vice President
& Credit Administrator
Vincent W. Locher
Vice President &
Commercial Loan Officer
Patricia M. Smarra
Vice President
& Operations Officer
Robert J. Smerker
Vice President,
Operations, Bank Secrecy
Act Officer &
Assistant Secretary
Mary Pat Soltis
Vice President,
Sales & Business Development
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
CEO, Secretary & Treasurer,
Wm. J. Kappel Wholesale Co.
John H. Kunkle, Jr.
Retired; Former Vice-Chairman
& Director, Commonwealth Land
Title Insurance Co.
Thomas J. McCaffrey
Grubb & Ellis Company
William C. McNary
Retired; Financial Consultant,
CIGNA Individual
Financial Services Co.
Edward W. Seifert
Attorney-at-Law, Partner,
Reed, Smith, Shaw & McClay
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,
Compliance Officer,
CRA Officer & Secretary
Richard L. Barron
Vice President,
Human Resources
Fred Geisler
Vice President,
Mortgage Lending
Delbert O. Hague
Vice President,
Residential Lending
99
USBANCORP, INC.
USBANCORP TRUST COMPANY
Board of Directors
Jerome M. Adams
Senior Partner,
Adams, Myers & Baczkowski
Attorneys-at-Law
Clifford A. Barton
Retired; Former Chairman, President
& CEO, USBANCORP, Inc., and
Chairman of the Board of
United States National Bank,
Three Rivers Bank &
Trust Company,
Community Bancorp, Inc., and
USBANCORP Trust Company
John N. Crichton
Chairman, Concurrent
Technologies Corporation
Louis Cynkar
Executive Vice President
& Corporate Senior Commercial
Loan Officer, USBANCORP, 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
William M. George
President, PA AFL-CIO
Orlando B. Hanselman
Executive Vice President & CFO
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 Corporation
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. Chimalewski
Vice Presdient & Trust
Business Development Officer
Judith A. Duchene
Vice President &
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
Trust Company Offices
Main and Franklin Streets, 11th Floor
U.S. Bank Building
P.O. Box 520
Johnstown, Pennsylvania 15907-0520
500 Fifth Avenue, 2nd Floor
Three Rivers Bank and
Trust Company Building
McKeesport, Pennsylvania 15132-2500
2681 Moss Side Boulevard, First Floor
Community Savings Building
Monroeville, Pennsylvania 15146-3394
100
USBANCORP, INC.
U.S. BANK
OFFICE LOCATIONS
(1)Main Office Downtown
Main & Franklin Streets
Johnstown, PA 15901
(814) 533-5300
(1)Westmont Office
110 Plaza Drive
Johnstown, PA 15905-1286
(814) 255-6836
(1)University Heights Office
1404 Eisenhower Boulevard
Johnstown, PA 15904-3289
(814) 266-9691
(1)East Hills Office
1219 Scalp Avenue
Johnstown, PA 15904-3182
(814) 266-3181
(1)Richland Mall Office
3200 Elton Road
Johnstown, PA 15904-0546
(814) 266-8965
(1)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
(1)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
(1)Lovell Park Office
179 Lovell Ave.
Ebensburg, PA 15931-9004
(814) 472-5200
Nanty Glo Office
928 Roberts Street
Nanty Glo, PA 15943-1303
(814) 749-9227
Nanty Glo Drive-In
1383 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
(1)Galleria Mall Office
500 Galleria Drive Suite 100
Johnstown, PA 15904-8911
(814) 266-5969
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
(1)Seward Office
#1, Roadway Plaza
Seward, PA 15954-9501
(814) 446-5655
Windber Office
1501 Somerset Avenue
Windber, PA 15963-1745
(814) 467-4591
Central City Office
104 Sunshine Avenue
Central City, PA 15926-1129
(814) 754-4141
(1)Somerset Office
108 W. Main Street
Somerset, PA 15501-2035
(814) 445-4193
(1)Derry Office
112 South Chestnut Street
Derry, PA 15627-1938
(412) 694-8887
THREE RIVERS BANK
OFFICE LOCATIONS
(1)Boston Office
1701 Boston Hollow Road
McKeesport, PA 15135-1217
(412) 754-2014
(1)Century III Office
269 Clairton Boulevard
Pittsburgh, PA 15236-1499
(412) 653-7199
(1)Franklin Mall Office
1500 W. Chestnut Street
Washington, PA 15301-5871
(412) 228-0065
(1)Glassport Office
600 Monongahela Avenue
Glassport, PA 15045-1608
(412) 664-8760
(1)Jefferson Borough Office
Route 51, South
P.O. Box 10915
Pittsburgh, PA 15236-0915
(412) 382-1000
(1)Liberty Boro Office
3107 Liberty Way
McKeesport, PA 15133-2198
(412) 664-8707
(1)McKeesport Office
500 Fifth Avenue
McKeesport, PA 15132-2500
(412) 664-8715
(1)Motor Bank
1415 Fifth Avenue
McKeesport, PA 15132-2427
(412) 664-8755
(1)Port Vue Office
1194 Romine Avenue
McKeesport, PA 15133-3596
(412) 664-8975
(1)Rainbow Village Office
1 Rainbow Village
Shopping Center
White Oak, PA 15131-2415
(412) 664-8771
(1)South Strabane Office
590 Washington Road
Washington, PA 15301-9621
(412) 225-9800
(1)University Office
2016 Eden Park Boulevard
McKeesport, PA 15132-7619
(412) 664-8780
(1)Remote 24-Hour Banking Locations
Main Office, Main & Franklin Streets,
Johnstown
Richland Mall, Elton Road, Johnstown
Lee Hospital, Main Street, Johnstown
Century III Mall, West Mifflin
Sheetz, Broad Street, Johnstown
The Galleria, Johnstown
Sheetz, Graham Avenue, Windber
BiLo Supermarket, Scalp Avenue,
Johnstown
Hills, Clairton Road, West Mifflin
Shop & Save, Ohio Avenue, Glassport
Wal-Mart, Oak Spring Road, Washington
Washington Mall, Oak Springs Road,
Washington
COMMUNITY SAVINGS BANK
OFFICE LOCATIONS
(1)Lawrenceville
4319 Butler Street
Pittsburgh, PA 15201-3094
(412) 681-8390
(1)New Kensington
2 Feldarelli Square
2300 Freeport Road
New Kensington, PA 15068-4669
(412) 335-9811
(1)North Side
401 East Ohio Street
Pittsburgh, PA 15212-5588
(412) 231-4300
(1)Northway Mall
1002 Northway Mall
Pittsburgh, PA 15237-3098
(412) 364-8692
(1)Moon Township
914 Narrows Run Road
Coraopolis, PA 15108-2306
(412) 262-2210
(1)Monroeville
2681 Moss Side Boulevard
Monroeville, PA 15146-3394
(412) 856-8410
(1)North Versailles
Great Valley Shopping Center
500 Lincoln Highway
North Versailles, PA 15137-1524
(412) 829-1360
(1)Baldwin
Brownsville Plaza
5253 Brownsville Road
Pittsburgh, PA 15236-2796
(412) 655-2217
(1)Carrick
1817 Brownsville Road
Pittsburgh, PA 15210-3999
(412) 881-3500
(1)Bethel Park
2739 South Park Road
Bethel Park, PA 15102-3805
(412) 835-2100
(1)Finleyville
3576 Sheridan Avenue
Finleyville, PA 15332-1018
(412) 348-6626
(1)Jeannette
401 Clay Avenue
Jeannette, PA 15644-2124
(412) 527-1501
(1)24-Hour Banking Available
101
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
Gruntal & Co., Incorporated
14 Wall Street
New York, NY 10005
Telephone: (212) 267-8800
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.
227 Franklin Street
Suite 408
Johnstown, PA 15907
Telephone: (814) 535-5551
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
Ryan, Beck & Co., Inc.
80 Main Street
West Orange, NJ 07052
Telephone: (800) 325-7926
Sandler O'Neill & Partners, L.P.
2 World Trade Center
104th Floor
New York, NY 10048
Telephone: (800) 635-6860
Sherwood Securities Corp.
10 Exchange Place
15th Floor
Jersey City, NJ 07302
Telephone: (800) 435-1235
Wheat First Securities
100 Pasquerilla Plaza
P.O. Box 96
Johnstown, PA 15907
Telephone: (814) 535-1516
Form 10-K
USBANCORP, Inc.'s Annual Report to the Securities and
Exchange Commission on Form 10-K is integrated within
this Annual Report.
Corporate Offices
The corporate offices of USBANCORP, Inc. are located in
the United States National Bank Building at Main and
Franklin Streets, Johnstown, PA 15901.
Mailing address: P.O. Box 430
Johnstown, PA 15907-0430
(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, 1996, there were 6,212 shareholders
of common stock and 5,313,739 shares outstanding. Of
the total shares outstanding, approximately 233,000 or
4% are held by insiders (directors and executive
officers) while approximately 1,759,069 or 33% are held
by institutional investors (mutual funds, employee
benefit plans, etc.).
Dividend Reinvestment
Shareholders seeking information about USBANCORP,
Inc.'s dividend reinvestment plan should contact Betty
L. Jakell, Executive Office, at (814) 533-5158.
Information
Analysts, investors, shareholders, and others seeking
financial data about USBANCORP, Inc. or any of its
subsidiaries annual and quarterly reports, proxy
statements, 10-K, 10-Q, 8-K, and call reports-are asked
to contact Orlando B. Hanselman, Executive Vice
President & Chief Financial Officer at (814) 533-5319.
102
ANNEX A TO USBANCORP, INC. 1995 ANNUAL REPORT & FORM 10-K
The following is a listing of the graphs presented in
USBANCORP, Inc.'s 1995 Annual Report & Form 10-K.
Page 2: The following six graphs present Financial
Highlights-At A Glance:
The first graph is an area graph showing non-
performing assets as a percentage of loans and OREO at
December 31 for the periods presented:
1991 1992 1993 1994 1995
1.10% 1.58% 0.89% 0.91% 1.13%
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 second graph is a bar graph showing the
allowance for loan losses as a percentage of total non-
accrual loans at December 31 for the periods presented:
103
1991 1992 1993 1994 1995
387.22% 245.75% 287.71% 286.27% 198.40%
The allowance for loan losses helps protect a
bank's future earnings from losses due to credit risk.
USBANCORP's allowance reflects a reserve of $1.98 for
each $1.00 of non-accrual loans.
The third graph is a bar graph showing the
Company's efficiency ratio:
1991 1992 1993 1994 1995
73.10% 67.63% 67.44% 67.53% 66.97%
The efficiency ratio reflects the company's
ability to generate revenue and control its non-interest
expenses. Over the last five years. USBANCORP has
significantly improved its performance in this key area
of profitability. It is USBANCORP's goal to achieve an
efficiency ratio of less than 60% during the next 12 to
18 months.
The fourth graph is a bar graph showing assets
per full time equivalent employee at December 31 for the
periods presented (in thousands):
1991 1992 1993 1994 1995
$1,499 $1,770 $1,867 $2,293 $2,541
USBANCORP is aggressively capturing the financial
benefits from each of our past acquisitions. Improved
employee productivity is one such integral benefit from
these acquisitions.
The fifth graph is a bar graph showing the
return on equity before extraordinary item, SFAS #109
benefit and acquisition charge:
1991 1992 1993 1994 1995
9.39% 11.41% 10.13% 10.41% 11.03%
104
The return on average equity (ROE) is a standard
measurement of a bank's profitability. USBANCORP's 1995
ROE was 11.03%. It is USBANCORP's goal to realize an
intermediate 13% ROE in 1996 as a platform for further
enhancement in future years.
The sixth graph is a area graph showing net
interest income (in thousands):
1991 1992 1993 1994 1995
$32,908 $44,441 $49,485 $55,818 $56,147
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 first graph is a bar graph showing net
income before extraordinary item, SFAS #109 benefit, and
acquisition charge (in thousands):
1991 1992 1993 1994 1995
$6,308 $8,883 $11,036 $13,202 $15,803
USBANCORP's net income has shown progressive
growth. Such income is a key determinant of shareholder
value and the Company's ongoing financial soundness.
The second graph is a bar graph showing
dividends per common share:
1991 1992 1993 1994 1995
$0.55 $0.75 $0.86 $0.97 $1.06
105
Common dividends per share represent a payment by
the company from its accumulated shareholder wealth.
When this cash is paid to the shareholder it is no longer
available to the company. Many shareholders, however,
choose to reinvest these dividends in the company.
The third graph is a bar graph showing common
stock price per share at December 31:
1991 1992 1993 1994 1995
$18.00 $22.00 $23.75 $21.00 $33.00
A second key element of shareholder return is the
price appreciation of each common share. USBANCORP's
common stock price per share has appreciated 57% in 1995.
The fourth graph is a bar graph showing common
dividend yield (based upon dividends declared and
purchased at average market price each year):
1991 1992 1993 1994 1995
3.50% 3.70% 3.50% 4.20% 4.13%
The common dividend yield is similar to the
interest rate on a deposit. Common dividends are only
one element of total shareholder return. The average
common dividend yield for Pennsylvania bank holding
companies was, as of January 31, 1996, 2.8%. USBANCORP's
yield on this same date approximated 3.3%.
The fifth graph is a bar graph showing book
value per common share at December 31:
1991 1992 1993 1994 1995
$21.71 $23.08 $24.67 $24.57 $28.34
106
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 31%
since December 31, 1991.
The sixth graph is an area graph showing asset
leverage ratio compared to the management minimum target
of 6% and the regulatory requirement of 5%:
1991 1992 1993 1994 1995
8.56% 7.08% 9.18% 6.64% 6.63%
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: The graph at the top left is a bar graph
showing common stock price per share at December 31:
1991 1992 1993 1994 1995
$18.00 $22.00 $23.75 $21.00 $33.00
The graph at the bottom left is a bar graph
showing common stock price to book value at December 31:
1991 1992 1993 1994 1995
82.91% 95.32% 96.27% 85.47% 116.44%
Page 6: The graph at the top left is a bar graph
showing the return on equity before extraordinary item,
SFAS #109 benefit and acquisition charge:
1991 1992 1993 1994 1995
9.39% 11.41% 10.13% 10.41% 11.03%
107
The graph at the bottom left is a area graph
showing pre-tax income (in thousands):
1991 1992 1993 1994 1995
$9,181 $14,323 $16,520 $17,251 $21,848
Page 7: The graph in the center left is a bar graph
showing the Company's efficiency ratio:
1991 1992 1993 1994 1995
73.10% 67.63% 67.44% 67.53% 66.97%
Page 8: The graph at the top left is a area graph
showing market capitalization at December 31 (in
thousands):
1991 1992 1993 1994 1995
$60,993 $77,751 $99,250 $117,225 $175,246
The graph at the bottom left is a pie chart
showing 1995 gross revenue contribution by product
segment.
Investments 40%, Trust 2%,
Commercial 19%, Wholesale 1%,
Consumer 38%,
Page 9: The graph at the top left 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%
The bottom left graph is a bar graph showing
average loans to average deposits ratio at December 31
for the periods presented:
1991 1Q95 2Q95 3Q95 4Q95
71.95% 72.14% 67.22% 66.45% 69.90%
Page 10: The graph is a bar graph showing assets per
full time equivalent employee at December 31 for the
periods presented (in thousands):
1991 1992 1993 1994 1995
$1,499 $1,770 $1,867 $2,293 $2,541
108
Page 11: The top left graph is an bar graph showing non-
interest income excluding investment security gains and
losses (in thousands):
1991 1992 1993 1994 1995
$6,085 $7,953 $9,567 $12,159 $15,841
The bottom left graph is a bar graph showing
trust fee income (in thousands):
1991 1992 1993 1994 1995
$1,633 $2,054 $2,578 $3,023 $3,395
NOTE: The average annual growth rate in trust fee
income is 20.2%.
Page 12: The left graph is a pie chart showing the
composition of 1995 trust assets (dollar amounts in
thousands and percentages):
Corporate trust $313,070 30%
Employee benefits
(excluding Pathroad) $366,386 35%
Personal trust
(excluding Pathroad) $307,199 30%
Pathroad $56,340 5%
Page 13: The graph at the top left is a bar graph
showing net income per common share before extraordinary
item, SFAS #109 benefit, and acquisition charge (fully
diluted basis):
1991 1992 1993 1994 1995
$1.97 $2.53 $2.41 $2.54 $2.87
109
The bottom left graph is a bar graph showing
book value per common share at December 31:
1991 1992 1993 1994 1995
$21.71 $23.08 $24.67 $24.57 $28.34
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 46: The bottom left graph is a bar graph showing
dividends per common share:
1991 1992 1993 1994 1995
$0.55 $0.75 $0.86 $0.97 $1.06
The bottom right graph is a bar graph showing
common stock price per share at December 31:
1991 1992 1993 1994 1995
$18.00 $22.00 $23.75 $21.00 $33.00
Page 49: The graph at the top left is a bar graph
showing total assets at December 31 for the periods
presented (in thousands):
1991 $ 784,036
1992 $1,139,855
1993 $1,241,521
1994 $1,788,890
1995 $1,885,372
The graph at the bottom left is a bar graph
showing net income per common share before extraordinary
item, SFAS #109 benefit and acquisition charge (fully
diluted basis):
1991 1992 1993 1994 1995
$1.97 $2.53 $2.41 $2.54 $2.87
Page 50: The graph at the top left is an bar graph
showing return on average assets before extraordinary
item, SFAS #109 benefit, and acquisition charge:
1991 1992 1993 1994 1995
0.83% 0.85% 0.91% 0.87% 0.87%
110
The graph at the bottom left is an area graph
showing total common shares outstanding at December 31:
1991 1992 1993 1994
2,568,189 2,982,124 4,726,181 5,582,155
1995
5,310,489
Page 51: The top left graph is a bar graph showing net
income (in thousands):
1991 1992 1993 1994 1995
$7,312 $8,883 $12,488 $11,320 $15,803
The graph at the bottom left is a bar graph
showing tax equivalent net interest income (NII) in
thousands and data points showing the net interest margin
(NIM) percentage:
1991 1992 1993 1994 1995
NII $32,449 $45,249 $50,225 $57,564 $58,954
NIM 4.69% 4.58% 4.34% 4.03% 3.45%
Page 52: The top left graph is a area graph showing net
interest income (in thousands):
1991 1992 1993 1994 1995
$32,908 $44,441 $49,485 $55,818 $56,147
The bottom left graph is a bar graph showing
average loans to average deposits for the periods
presented:
1991 1992 1993 1994 1995
65.47% 68.23% 69.01% 71.82% 68.67%
111
Page 53: The graph at the top 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%
The bottom left graph is a pie chart showing
the liability funding mix at December 31, 1995:
Deposits 63%
Borrowings 29%
Equity 8%
Page 54: The top 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%
The graph at the bottom left is a bar graph
showing tax equivalent net interest income (NII) in
thousands and data points showing the net interest margin
(NIM) percentage:
1991 1992 1993 1994 1995
NII $32,449 $45,249 $50,225 $57,564 $58,954
NIM 4.69% 4.58% 4.34% 4.03% 3.45%
Page 55: The graph at the top left is a pie chart
showing the deposit composition as of December 31, 1994:
DDA 12%, CD's 48%
Savings & NOW 29%, Money market 11%
The bottom left graph is a pie chart showing
the liability funding mix at December 31, 1994:
Deposits 67%
Borrowings 25%
Equity 8%
112
Page 58: The top left graph is a bar graph showing non-
performing assets as a percentage of loans and OREO at
December 31 for the periods presented:
1991 1992 1993 1994 1995
1.10% 1.58% 0.89% 0.91% 1.13%
The bottom left graph is a bar graph showing
the allowance for loan losses as a percentage of loans at
December 31 for the periods presented:
1991 1992 1993 1994 1995
3.02% 2.12% 2.10% 1.80% 1.79%
Page 59: The top left graph is a bar graph showing the
allowance for loan losses as a percentage of total non-
accrual loans at December 31 for the periods presented:
1991 1992 1993 1994 1995
387.22% 245.75% 287.71% 286.27% 198.40%
The bottom left graph is a bar graph showing
the loan loss provision as a percentage of average
loans:
1991 1992 1993 1994 1995
0.21% 0.36% 0.34% (0.34%) 0.03%
Page 62: The left graph is a bar graph showing the net
charge-offs as a percentage of average loans:
1991 1992 1993 1994 1995
0.08% 0.58% 0.13% 0.04% 0.08%
Page 63: The bottom left graph is a area graph showing
the allowance for loan losses as a percentage of loans at
December 31 for the periods presented:
1991 1992 1993 1994 1995
3.02% 2.12% 2.10% 1.80% 1.79%
113
Page 64: The top left graph is an bar graph showing the
components of non-interest income (in thousands):
1991 1992 1993 1994 1995
All other $1,994 $3,187 $3,520 $1,148 $9,057
Deposit
service
charges $1,376 $1,916 $2,771 $2,779 $2,937
Cash pro-
cessing
fees $1,032 $1,189 $1,281 $1,237 $1,154
Trust fees $1,633 $2,054 $2,578 $3,023 $3,395
The bottom left graph is an bar graph showing
non-interest income excluding investment security gains
and losses (in thousands):
1991 1992 1993 1994 1995
$6,085 $7,953 $9,567 $12,159 $15,841
Page 65: 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):
1991 1992 1993 1994 1995
$631 $650 $943 $1,027 $1,043
Note: 65.29% growth rate from 1991 to 1995.
The bottom left graph is a bar graph showing
trust fee income (in thousands):
1991 1992 1993 1994 1995
$1,633 $2,054 $2,578 $3,023 $3,395
Page 66: The top left graph is an bar graph showing the
components of non-interest expense excluding acquisition
charge (in thousands):
1991 1992 1993 1994 1995
All other $8,506 $11,083 $12,605 $13,973 $16,017
FDIC Ins. $1,381 $ 2,040 $ 2,157 $ 2,576 $1,728
Occupancy
Equipment $4,320 $ 5,087 $ 6,001 $ 7,222 $ 7,507
Salaries &
benefits $14,655 $18,038 $19,952 $23,311 $25,305
114
The bottom left graph is a bar graph showing
total non-interest expense (in thousands):
1991 1992 1993 1994 1995
$28,862 $36,248 $40,715 $49,519 50,557
Page 67: The top left graph is an area graph showing net
overhead expense (excluding acquisition charge) to
average assets:
1991 1992 1993 1994 1995
3.01% 2.68% 2.51% 2.32% 1.86%
Note: Net overhead expense calculations exclude
$3.8 million net security losses recognized in the fourth
quarter of 1994 which resulted from a specific investment
portfolio restructuring strategy.
The bottom left graph is a bar graph showing
the Company's efficiency ratio:
1991 1992 1993 1994 1995
73.10% 67.63% 67.44% 67.53% 66.97%
Page 68: The top left graph is a bar graph showing net
overhead expense as a percentage of tax equivalent net
interest income (excluding acquisition charge):
1991 1992 1993 1994 1995
68.24% 61.66% 60.86% 60.99% 57.70%
Note: Net overhead expense calculations exclude
$3.8 million of net security losses recognized in the
fourth quarter 1994 which resulted from a specific
investment restructuring strategy.
The bottom left graph is a bar graph showing
employee productivity which is average assets per
employee (in thousands):
1991 1992 1993 1994 1995
$1,499 $1,770 $1,867 $2,293 $2,541
115
Page 69: The graph at the top left is a bar graph
showing total assets at December 31 for the periods
presented (in thousands):
1991 $ 784,036
1992 $1,139,855
1993 $1,241,521
1994 $1,788,890
1995 $1,885,372
The bottom left graph is a bar graph showing
average loans to average deposits ratio at December 31
for the periods presented:
1994 1Q95 2Q95 3Q95 4Q95
71.95% 72.14% 67.22% 66.45% 69.90%
Page 71: The top 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:
1991 1992 1993 1994 1995
1.06x 1.14x 1.10x 0.79x 0.86x
The graph at the top 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 72: The top left graph is a pie chart showing the
liability funding mix at December 31, 1995:
Deposits 63%
Borrowings 29%
Equity 8%
The bottom left graph is a pie chart showing
the liability funding mix at December 31, 1994:
Deposits 67%
Borrowings 25%
Equity 8%
116
Page 73: The top 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%
The bottom left graph is a bar graph showing
the risk-based capital ratio compared to a regulatory
requirement of 8.00%:
1991 1992 1993 1994 1995
13.70% 12.54% 15.97% 13.70% 14.88%
Page 74: The bottom left graph is an area graph showing
the asset leverage ratio compared to the management
minimum target of 6% and the regulatory requirement of
5%:
1991 1992 1993 1994 1995
8.56% 7.08% 9.18% 6.64% 6.63%
The graph at the bottom right is an area graph
showing the market capitalization at December 31 for the
periods presented (in thousands):
1991 1992 1993 1994 1995
$60,993 $77,751 $99,250 $117,225 $175,246
Page 78: 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%,
117
Page 79: The top left graph is a bar graph showing pre-
tax income (in thousands):
1991 1992 1993 1994 1995
$9,181 $14,323 $16,520 $17,251 $21,848
Page 80: The top left graph is a bar graph showing net
income before extraordinary item, SFAS #109 benefit, and
acquisition charge (in thousands):
1991 1992 1993 1994 1995
$6,308 $8,883 $11,036 $13,202 $15,803
Page 81: The graph at the top left is a pie chart
showing the distribution of 1995 net income:
Common dividend payout 36.43%
Retained for internal capital 63.57%
growth
The graph at the bottom left is a pie chart
showing the distribution of 1994 net income:
Common dividend payout 44.57%
Retained for internal capital 55.43%
growth
Page 82: The top left graph is a pie chart showing the
composition of 1995 trust assets (dollars in thousands
and percentages):
Corporate trust $313,070 30%
Employee benefits
(excluding Pathroad) $366,386 35%
Personal trust
(excluding Pathroad) $307,199 30%
Pathroad $56,340 5%
Page 83: The middle left graph is a bar graph showing
the Company's tier one capital as a percentage of risk
adjusted assets at December 31 compared to a regulatory
requirement of 4.00%:
1991 1992 1993 1994 1995
12.45% 11.29% 14.72% 12.45% 13.63%
118
Page 84: The middle left graph is an area graph showing
non-performing assets as a percentage of loans and OREO
at December 31 for the periods presented:
1991 1992 1993 1994 1995
1.10% 1.58% 0.89% 0.91% 1.13%
Page 85: The middle left graph is a bar graph showing
assets per full time equivalent employee at December 31
for the periods presented (in thousands):
1991 1992 1993 1994 1995
$1,499 $1,770 $1,867 $2,293 $2,541
Page 86: The middle 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 87: The top left graph is a pie chart showing the
investment portfolio liquidity(scheduled maturities) as
of December 31, 1994:
Less than 1 year is 6%
Greater than 1 year but less than 5 years is 64%
Greater than 5 year but less than 10 years is 24%
Greater than 10 years is 6%
Page 88: The graph at the top left 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%
119
The bottom left graph is a pie chart showing
loan portfolio composition at December 31, 1994 by loan
type:
Commercial 14%
Commercial secured by real estate 20%
Real estate - mortgage 47%
Consumer 19%
Page 89: The graph at the top 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%
The graph at the bottom left is a pie chart
showing the deposit composition as of December 31, 1994:
DDA 12%, CD's 48%
Savings & NOW 29%, Money market 11%
Page 102: 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):
1991 1992 1993 1994 1995
7.86x 8.70x 9.85x 8.27x 11.50x
The graph at the bottom right is a bar graph
showing common stock price to book value at December 31:
1991 1992 1993 1994 1995
82.91% 95.32% 96.27% 85.47% 116.44%
120
Exhibit 24.1
Arthur Andersen LLP
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to
the incorporation of our report dated January 25, 1996,
included in this form 10-K, into USBANCORP, Inc.'s
previously filed Registration Statements on Form S-3
(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
Pittsburgh, Pennsylvania,
March 25, 1996