Item 1. Business - -----------------
General - -------
ESB Financial Corporation (the Company) is a Pennsylvania corporation and thrift holding company that provides a wide range of retail and commercial financial products and services to customers in western Pennsylvania through its wholly-owned subsidiary bank, ESB Bank, F.S.B. (ESB or the Bank). The Company is also the parent company of PennFirst Financial Services, Inc., a Delaware corporation engaged in the management of certain investment activities on behalf of the Company, PennFirst Capital Trust I (the Trust), a Delaware statutory business trust established during 1997 to facilitate the issuance of trust preferred securities to the public by the Company, and THF, Inc., a Pennsylvania corporation established to provide loan closing services and issue title insurance.
As of December 31, 1999, the Company had consolidated total assets of $1.03 billion and stockholders' equity of $49.9 million. For the year ended December 31, 1999, the Company realized consolidated net income and diluted net income per share of $5.8 million and $1.13, respectively.
ESB is a federally chartered, Federal Deposit Insurance Corporation (FDIC) insured stock savings bank which conducts business through 16 offices in Allegheny, Beaver, Butler and Lawrence counties, Pennsylvania. ESB operates a wholly-owned subsidiary, AMSCO, Inc., which engages in the management of certain real estate development partnerships on behalf of the Company.
The Bank is a financial intermediary whose principal business consists of attracting deposits from the general public and investing such deposits in real estate loans secured by liens on residential and commercial properties, consumer loans, commercial business loans, securities and interest-earning deposits. In addition, the Company utilizes borrowed funds, primarily advances from the Federal Home Loan Bank (FHLB) of Pittsburgh and reverse repurchase agreements to fund the Company's investing activities. The Company invests in securities issued by the U.S. government and agencies and other investments permitted by federal law and regulations.
The Company and the Bank are subject to examination and comprehensive regulation by the Office of Thrift Supervision (OTS), the chartering authority of the Bank, and the FDIC, the administrator of the Savings Association Insurance Fund (SAIF). Additionally, the Company is subject to the various reporting and filing requirements of the Securities and Exchange Commission (SEC). Customer deposits with the Bank are insured to the maximum extent provided by the law through the SAIF. The Bank is a member of the FHLB of Pittsburgh, which is one of the twelve regional banks comprising the FHLB system. The Bank is further subject to regulations of the Board of Governors of the Federal Reserve System which governs the reserves required to be maintained against deposits and certain other matters.
Recent Developments - -------------------
On July 21, 1999, the Company entered into an Agreement and Plan of Reorganization with SHS Bancorp, Inc. ("SHS"), parent company of Spring Hill Savings Bank, F.S.B., pursuant to which SHS was to merge with and into the Company, with the Company as the surviving corporation. Under the terms of the agreement, each shareholder of SHS had the right to elect to receive either $17.80 in cash or 1.30 shares of the Company common stock for each share of SHS common stock owned. The total merger consideration was payable 60% in Company common stock and 40% in cash. The Company consummated the transaction on February 10, 2000.
At December 31, 1999, SHS had total consolidated assets of $90.9 million, total consolidated liabilities of $79.1 million, including total consolidated deposits of $67.0 million and consolidated stockholders' equity of $11.8 million.
Competition - -----------
The Company and its subsidiaries face substantial competition for both loans and deposits. Numerous financial institutions, some larger and several of which are similar in size and resources to the Company, are competitors of the Company to varying degrees. Competition for loans comes principally from commercial banks, credit unions, mortgage-banking companies and savings banks. The Company competes for loans principally through the interest rates and loan fees that are charged and the efficiency and quality of services provided to borrowers, sellers, real estate brokers and attorneys. The most direct competition for deposits has historically come from commercial banks, credit unions and other depository institutions. The Company faces additional competition for deposits from securities brokers, mutual funds and insurance companies. The Company competes for deposits through pricing, service, the branch network and by offering a wide variety of products and services. Competition may increase as a result of reduced restrictions on the interstate operations of financial institutions and legislation authorizing the acquisition of savings institutions by bank holding companies.
Market Area - -----------
The Company's primary market area includes Allegheny, Butler, Beaver and Lawrence counties in western Pennsylvania. The Company's business is conducted through its corporate office located in Ellwood City, PA, and the Bank's 16 offices. Substantially all of the Bank's deposits are received from residents of their principal market area and most loans are secured by properties in western Pennsylvania.
Lending Activities - ------------------
General. As of December 31, 1999, the Company's net loans receivable amounted to $393.9 million or 38.2% of the Company's total assets. Loans secured by real estate amounted to $347.1 million or 83.6% of total loans receivable. Consumer loans and commercial business loans amounted to $59.4 million or 14.3% and $8.9 million or 2.1%, respectively, of the Company's total loan portfolio.
The Company's lending activities are conducted through the Bank. The Company's loan origination activities have primarily involved the origination of single-family residential loans and, to a lesser extent, multi-family residential mortgage loans, primarily secured by properties in the Company's market area. In addition, the Company has in recent years increased its involvement in the origination of other types of loans within its primary market area. These types include construction loans, commercial real estate loans and a variety of consumer loans. Loans originated in the Company's market area, both fixed and adjustable rate, are made primarily for retention in the Company's own portfolio. On occasion, the Company has utilized its nationwide lending authority by purchasing whole loans and loan participations secured by properties located outside its primary market area. Notwithstanding this nationwide authority, the Company estimates that approximately 95% of its mortgage loans are secured by properties located in western Pennsylvania. Moreover, substantially all of the Company's non-mortgage loan portfolio, with the exception of certain financing leases, consists of loans made to residents and businesses located in the Company's primary market area.
The following table sets forth the composition of the Company's portfolio of loans receivable in dollar amounts and in percentages as of December 31:
The following table sets forth the scheduled contractual principal repayments of loans in the Company's portfolio at December 31, 1999. Demand loans having no stated schedule of repayment and no stated maturity are reported as due within one year:
The following table sets forth the dollar amount of the Company's fixed and adjustable rate loans due after one year as of December 31, 1999:
- -------------------------------------------------------------------------------- (In thousands) Fixed Adjustable rates rates - --------------------------------------------------------------------------------
Real estate loans $ 205,474 $ 128,924 Consumer loans 33,636 2,843 Commercial business loans 1,515 2,013 --------- --------- $ 240,625 $ 133,780 ========= ========= - --------------------------------------------------------------------------------
Fixed and adjustable rate loans represented $258.3 million or 62.2% and $157.0 million or 37.8%, respectively, of the Company's total loan portfolio as of December 31, 1999.
Contractual maturities of loans do not reflect the actual term of the Company's loan portfolio. The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and enforcement of due-on-sale clauses which give the Company the right to declare a loan immediately payable in the event, among other things, that the borrower sells the real property subject to the mortgage. The average life of mortgage loans tends to increase when current market mortgage rates substantially exceed rates on existing mortgages and conversely, decrease when rates on existing mortgages substantially exceed current market interest rates.
Origination, Purchase and Sale of Loans. The Company originates loans secured by residential and commercial real estate as well as consumer and commercial business loans in its primary lending area, which includes western Pennsylvania, through officers of the Company who evaluate applications received at all of the Company's locations. Such applications are primarily received through direct customer contact and through referrals by real estate agents, attorneys and builders. The Company also originates loans secured by residential and commercial real estate in its market area through a network of correspondent lenders who offer the Bank's loan products to a variety of customers throughout western Pennsylvania. Loans originated through correspondents are underwritten according to the same strict guidelines as loans originated directly by the Company.
Applications are obtained by loan officers who are full-time, salaried employees of the Company as well as through the Company's mortgage banking correspondent relationships. The processing, underwriting and approval of real estate and commercial business loans is performed primarily at the Company's Ellwood City and Wexford offices. The Company believes this centralized approach to evaluating such loan applications allows it to review, process and approve such applications more efficiently and effectively than would be afforded by a decentralized approach. The Company also believes that this approach enhances its ability to service and monitor these types of loans. The Company's mortgage banking correspondents originate and process one-to-four family residential mortgage loans for a fee generally equal to up to 1% of the loan amount. Underwriting of these loans is performed by the Company. Due to the average size of the consumer loans originated by the Company, processing, underwriting, approval and servicing of such loans is generally performed at the branch offices where such loans are originated.
In the past, funds generated by the Company's operations have exceeded the amount of loan demand experienced in its primary market area. On occasion, the Company has used these excess funds to purchase single-family, owner-occupied residential, whole loans or loan participations. These loans are secured by real estate properties located within the U.S. As of December 31, 1999, $8.0 million or 1.9% of the Company's total loans receivable consisted of whole loans, leases and participation interests in loans purchased from other financial institutions.
The Company requires that all purchased loans be underwritten in accordance with its underwriting guidelines and standards. The Company reviews the loans, particularly scrutinizing the borrower's ability to repay the obligation, the appraisal and the loan-to-value ratio. Servicing of loans or loan participations purchased by the Company generally is performed by the seller, with a portion of the interest being paid by the borrower retained by the seller to cover servicing costs. As of December 31, 1999 all of the Company's purchased loans were serviced by the sellers.
The Company's residential real estate loans are generally originated under terms, conditions and documentation requirements which permit their sale in the secondary market. The Company in the past has not been an active seller of loans in the secondary market and has chosen, instead, to hold the loans it originates in its own portfolio until maturity. However, from time to time over the past several years, the Company has originated and sold 15 and 30-year fixed-rate residential loans, servicing released, as a means of satisfying the demand for such loans within the Company's primary market area when market interest rates on such loans did not meet the Company's prevailing asset/liability management and investment objectives. Any loan held in the available for sale portfolio, is subject to a takedown commitment from an investor.
The following table sets forth the Company's loan activity including, originations, purchases, principal repayments, sales, transfers to real estate acquired through foreclosure and other changes for the years ended December 31:
Loan Underwriting Policies. The Company's lending activities are subject to written non-discriminatory underwriting standards and loan procedures prescribed by the Board of Directors and management. Detailed loan applications are obtained to determine the borrower's ability to repay, and the more significant items on these applications are verified through the use of credit reports, financial statements and confirmations. Property valuations are performed by independent outside appraisers approved by the Board of Directors. The Company has established three levels of lending authority. Loans must be approved by loan officers, internal loan committees and/or, depending on the amount and characteristics of the loan, the Board of Directors.
Loans may be approved by certain loan officers within designated characteristics and dollar limits, which are established and modified from time to time to reflect expertise and experience. All loans in excess of an individual's designated limits are referred to an officer with the requisite authority or the Officers' Loan Committee of the Bank. The President and Chief Executive Officer of the Company has approved authority equal to the Federal Home Loan Mortgage Corporation's (FHLMC) maximum conforming loan amount as revised from time to time for loans secured by residential real estate, up to $100,000 for secured commercial business loans and up to $75,000 for unsecured commercial business loans and consumer loans. Other members of the Officers' Loan Committee have individual lending authorities that range from $10,000 to the FHLMC maximum conforming loan amount. The Officers' Loan Committee which consists of the President and Chief Executive Officer, Group Senior Vice President of Lending, Senior Vice President - Community Reinvestment Officer, Senior Vice President - Manager Commercial Real Estate Lending, Senior Vice President - Consumer Lending, Senior Vice President - Residential Lending Manager, Vice President - Loan Servicing Manager and Vice President - Commercial Lending is authorized to act on all loan applications up to an aggregate of $750,000.
The third level of lending authority is reserved for the Board of Directors or the Board's Executive Committee, which serve as the approval bodies for all loans above the aggregate of $750,000.
For residential real estate loans, it is the Company's policy to have a mortgage creating a valid lien on real estate and to obtain a title insurance policy, which ensures that the property is free of prior encumbrances. Borrowers must also obtain hazard insurance policies prior to closing and, when the property is in a flood plain as designated by the Department of Housing and Urban Development, flood insurance policies. Many borrowers are also required to advance funds on a monthly basis together with each payment of principal and interest to a mortgage escrow account from which disbursements for items such as real estate taxes and insurance are made.
The Company is permitted by regulation to lend up to 100% of the appraised value of the real property securing a mortgage loan. For loans secured by real property, the Company generally lends up to 80% of the appraised value of such property (the loan-to-value or LTV ratio). The Company also offers several other programs where loans are granted in excess of that limit. The primary program is available on all mortgage products, including new construction, and permits LTV ratios of up to 95% provided that private mortgage insurance is obtained. Depending on the LTV ratio, the Company requires such insurance coverage in amounts equal to 20% to 30% of the principal balance of the loan. On a more limited basis, the Company also offers other programs where loans can be granted in excess of the 80% LTV ratio. These programs are limited since they do not require private mortgage insurance. Annual production limits are established by the Board of Directors. The programs include a 90% LTV ratio mortgage product and a 100% LTV ratio home equity product. The Company has also offered products for low- and moderate-income borrowers which can exceed the 80% LTV ratio. These low- and moderate-income borrower programs were designed to help the Company fulfill its responsibilities under the Community Reinvestment Act. With respect to loans for multi-family and commercial real estate mortgages, the Company generally limits the LTV ratio to 80%.
Under federal law, loans-to-one-borrower may not exceed 15% of unimpaired capital and surplus. As of December 31, 1999, ESB was permitted to lend approximately $10.4 million to any one borrower under this standard. Loans in an amount equal to an additional 10% of unimpaired capital and surplus also may be made to a borrower if the loans are fully secured by readily marketable securities. Higher limits may be available in certain circumstances. The Company generally will limit its maximum exposure to any one borrower to $5.0 million. As of December 31, 1999, the Company had one lending relationship which exceeded the Bank's internal lending limit, but did not exceed the regulatory lending limit to one borrower at the time made or committed.
Residential Mortgage and Construction Lending. The Company offers single-family residential mortgage loans with fixed and adjustable rates of interest. As of December 31, 1999, $250.0 million or 60.2% of the total loan portfolio consisted of single-family residential mortgage loans.
Fixed rate residential loans are generally originated by the Company with 15 to 30 year terms. Substantially all of the Company's long-term, fixed rate residential mortgage loans originated include "due-on-sale" clauses, which are provisions giving the Company the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the real property subject to the mortgage. The Company enforces due-on-sale clauses.
In addition to standard fixed rate mortgage loans, the Company offers adjustable-rate mortgage loans (ARMs) with 30 year terms, on which the interest rate adjusts based upon changes in various indices which generally reflect market rates of interest. One-year ARMs presently originated by the Company have an interest rate which adjusts annually according to changes in an index that is based upon the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year, as made available by the Federal Reserve Board, plus a margin. The amount of any increase or decrease in the interest rate is limited to 2.0% per year, with a limit of 6.0% over the life of the loan. The Company also offers three, five, seven and ten-year ARM loan products with margins and caps similar to the one-year ARM product whose interest rates are fixed for the first three, five, seven or ten years after the origination date and then reprice periodically based upon an appropriate index. The first rate change on the Company's seven and ten year products is capped at 6.0%. The ARMs offered by the Company, as well as many other financial institutions, provide for initial rates of interest below the rates which would prevail were the index used for repricing applied initially. ARM loans decrease the risks associated with changing market interest rates, but involve certain risks because as interest rates increase, the underlying payments required of the borrower increase, and this could increase the potential for default. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. However, these risks have not had an adverse effect on the Company to date. When one-year ARMs are originated, the customers are qualified at the second year cap rate or 2% higher than the initial note rate, which ever is higher.
The Company also grants loans to borrowers, including developers and construction contractors, for the construction of spec homes and owner-occupied single family dwellings in the Company's primary market area. As of December 31, 1999 the Company had $42.9 million or 10.4% of the total loan portfolio outstanding in construction loans. Generally, the loan-to-value ratio for construction loans does not exceed 80%, provided that
with respect to construction/permanent loans to individual borrowers for their primary residences, the Company will lend up to 95% subject to private mortgage insurance requirements. The interest rate on the permanent portion of the financing is set upon conversion to the permanent loan, based upon terms agreed to in the loan commitment, including the index to be used, the interest-rate margin and the frequency of the adjustment.
The Company finances the purchase of developed lots and presold residential dwellings and spec homes, with various contractors in the Company's primary market area. These loans do not have a permanent portion as they are short term loans repaid via the proceeds from the sale of the lots or spec homes constructed with the loan proceeds. These projects are typically financed under builder lines-of-credit. As of December 31, 1999, builder lines-of-credit were extended to 14 builders with $5.6 million outstanding under lines approved in the aggregate amount of $14.7 million.
Commercial Real Estate and Multi-family Residential Mortgage Lending. The Company originates commercial real estate and multi-family residential mortgage loans and has in its portfolio both whole loans and participation interests. As of December 31, 1999, the Company had $54.2 million, or 13.0% of the total loan portfolio, invested in mortgages secured by commercial real estate and multi-family residential properties.
Commercial real estate and multi-family mortgage loans are generally priced at prevailing market interest rates at the time of origination. Loans originated are typically adjustable-rate loans. The commercial real estate loans in the Company's portfolio are generally secured by apartment buildings, office buildings, small retail shopping centers and other income-producing properties in the Company's primary market area.
The Company generally will not originate a commercial real estate or multi-family mortgage loan with a loan balance of greater than 80% of the appraised value of the property. The Company requires a positive cash flow at least sufficient to cover the debt service on all commercial real estate loans.
Commercial real estate and multi-family residential mortgage lending entails significant additional risks as compared with single-family residential mortgage lending. These loans typically involve large loan balances concentrated in single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income producing properties is typically dependent on the successful operation of the related real estate project and thus may be subject to a greater extent to adverse conditions in the real estate market or in the economy in general.
Consumer Lending. As of December 31, 1999, the Company's consumer loan portfolio totaled $59.4 million or 14.3% of its total loan portfolio. Under federal law, the Company, through its subsidiary savings bank, may make secured and unsecured consumer loans in an aggregate amount up to 35% of the respective institution's total assets. The 35% limitation does not include home equity loans (loans secured by the equity in the borrower's residence but not necessarily for the purpose of improvement), home improvement loans or loans secured by deposit accounts. The Company offers consumer loans in order to provide a broader range of financial services to its customers and because the shorter terms and normally higher interest rates on such loans help the Company maintain a profitable spread between its average loan yield and its cost of funds. The Company has increased its emphasis on the origination of consumer loans within its primary market area during the past several years. The increase in consumer lending was accomplished through marketing techniques, including the targeting of specific customer profiles through the Company's branch office locations. The Company has adopted underwriting standards for such lending designed to maintain asset quality. The Company offers a variety of consumer loans, including loans secured by deposit accounts, student education loans, automobile loans, home equity loans and personal unsecured loans. On all consumer loans originated, the Company's underwriting standards include a determination of the applicant's payment history on other debts and an assessment of the borrower's ability to meet existing obligations and payment on the proposed loan.
As of December 31, 1999, the Company's largest group of consumer loans were home equity loans. The Company originates both adjustable rate home equity lines-of-credit and fixed rate home equity loans with terms up to 15 years. As of December 31, 1999, $40.2 million or 67.7% of the Company's consumer loan portfolio was made up of home equity loans.
Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk than mortgage loans because of the type and nature of the collateral and, in certain cases, the absence of collateral. The Company believes that the generally higher yields earned on consumer loans compensate for the increased credit risk associated with such loans and that consumer loans are important in its efforts to maintain diversity as well as to shorten the average maturity of its loan portfolio.
Commercial Business Lending. Commercial business loans and lines of credit of both a secured and unsecured nature are made by the Company for business purposes to incorporated and unincorporated businesses. Typically, these loans are made for the purchase of equipment, to finance accounts receivable and to finance inventory, as well as other business purposes. As of December 31, 1999, commercial business loans amounted to $8.9 million or 2.1% of the Company's total loan portfolio.
Loan Servicing. The Company services all loans it has originated for its portfolio. In addition, fees are received for servicing loans which were originated by the Company and sold to third-party investors. As of December 31, 1999, the Company had $2.4 million in loans serviced for third-party investors. Loans purchased are generally serviced by the company which originated the loans. Those companies collect a fee for servicing the loans.
Loan Origination Fees and Other Fees. The Company receives income in the form of loan origination and other fees on both loans originated and on loans purchased in the secondary market. Such loan origination fees and certain related direct loan origination costs are offset and the resulting net amount is deferred and amortized over the life of the related loan as an adjustment to the yield on the loan.
Delinquencies and Classified Assets - -----------------------------------
Delinquent Loans and Real Estate Acquired Through Foreclosure (REO). Typically, a loan is considered delinquent and a late charge is assessed when the borrower has not made a payment within fifteen days from the payment due date. When a borrower fails to make a required payment on a loan, the Company attempts to cure the deficiency by contacting the borrower. The initial contact with the borrower is made shortly after the seventeenth day following the due date for which a payment was not received. In most cases, delinquencies are cured promptly.
If the delinquency exceeds 60 days, the Company works with the borrower to set up a satisfactory repayment schedule. Loans are considered non-accruing upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed in non-accrual status, previously accrued but unpaid interest is deducted from interest income. The Company institutes foreclosure action on secured loans only if all other remedies have been exhausted. If an action to foreclose is instituted and the loan is not reinstated or paid in full, the property is sold at a judicial or trustee's sale at which the Company may be the buyer.
Real estate properties acquired through, or in lieu of, mortgage foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in loss on foreclosed real estate. The Company generally attempts to sell its REO properties as soon as practical upon receipt of clear title. The original lender typically handles disposition of those REO properties resulting from loans purchased in the secondary market.
As of December 31, 1999, the Company's non-performing assets, which include non-accrual loans, loans delinquent due to maturity, troubled debt restructuring and REO, amounted to $4.4 million or 0.43% of the Company's total assets.
Classified Assets. Regulations applicable to insured institutions require the classification of problem assets as "substandard," "doubtful," or "loss" depending upon the existence of certain characteristics as discussed below. A category designated "special mention" must also be maintained for assets currently not requiring the above classifications but having potential weakness or risk characteristics that could result in future problems. An asset is classified as substandard if not adequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. A substandard asset is characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified as substandard. In addition, these weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as loss are considered uncollectible and of such little value that their continuance as assets is not warranted.
The Company's classification of assets policy requires the establishment of valuation allowances for loan losses in an amount deemed prudent by management. Valuation allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities. When the Company classifies a problem asset as a loss, the asset is charged off.
The Company regularly reviews the problem loans and other assets in its portfolio to determine whether any require classification in accordance with the Company's policy and applicable regulations. As of December 31, 1999, the Company's classified and criticized assets amounted to $10.9 million with $4.9 million classified as substandard, $1.6 million classified as doubtful, $223,000 classified as loss and $4.2 million identified as special mention.
The following table sets forth information regarding the Company's non- performing assets as of December 31:
As of December 31, 1999, non-accrual consumer and commercial business loans included $1.6 million in non-performing Bennett Funding Group ("BFG") lease loans. The lease agreements were purchased by the Company and are secured by commercial equipment leases located in various parts of the country. On March 29, 1996, it was reported that BFG was the target of a civil complaint filed by the SEC and further reported on April 1, 1996, that BFG filed a Chapter 11 bankruptcy petition and was halting payments on the lease agreements. As a result of the foregoing, during the quarter ended March 31, 1996, the Company placed all $3.6 million of the lease agreements on non-accrual status and established a reserve of approximately $900,000 for potential losses related to such lease agreements. During the quarter ended June 30, 1997, as a result of questions concerning the ultimate collectibility of certain lease agreements and concerns with respect to the Company's security interest in the collateral securing certain of the lease agreements, the Company provided an additional $600,000 in loan loss reserves. In addition to the security interest in the leases a portion of these lease agreements were also insured against payment losses. Subsequent to the bankruptcy filing, a Bankruptcy Trustee was appointed by the U.S. Bankruptcy Court for the Northern District of New York to oversee the reorganization of BFG. As part of this reorganization process, the Trustee has challenged the claims of all involved banks with respect to their security interests. This challenge has been the subject of ongoing litigation.
On October 15, 1997, the U.S. Bankruptcy Court for the Northern District of New York ordered the Bankruptcy Trustee for BFG to pay over to the Company within 30 days thereof an aggregate of approximately $1.3 million, which represented principal payments, excluding interest accrued thereon and certain setoffs on ten of the thirteen lease agreements. Such payments reduced the outstanding balance of the lease agreements to approximately $2.3 million. The Bankruptcy Trustee filed and appeal to the Order of the Bankruptcy Court. However, in November 1997, the Company received a payment in the amount of $1.3 million from the Trustee
and applied this payment to the outstanding principal balance of the leases. Additionally, the court further ordered the Bankruptcy Trustee to turn over to the Company on a monthly basis, payments collected on such leases.
In June, 1999 the Company received approximately $245,000 in judgement of its claims against the insurance carrier. Together with the aforementioned receipt of monthly lease payments collected by the Trustee beginning in December, 1997, this further reduced the outstanding balance to approximately $1.6 million.
On November 16, 1999, the U.S. Bankruptcy Court for the Northern District of New York ordered the Bankruptcy Trustee for BFG to pay over to the Company an aggregate of approximately $605,000, which represents principal payments, excluding interest accrued thereon and certain setoffs on two of the thirteen lease agreements. Such payments together with the aforementioned receipt of monthly lease payments collected by the Trustee, reduced the outstanding balance of the lease agreements to approximately $1.0 million. The court also ordered the Bankruptcy Trustee to turn over to the Company on a monthly basis, payments collected on these two lease agreements. The Bankruptcy Trustee filed an appeal to the Order of the Bankruptcy Court. However, in January 2000, the Company received a payment in the amount of $605,000 from the Trustee and applied this payment to the outstanding principal balance of the leases. Also see BFG discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section on page 12 and 14 of the Company's 1999 Annual Report to Stockholders attached hereto as Exhibit 13.
Allowance for Loan Losses. Management establishes reserves for estimated losses on loans based upon its evaluation of the pertinent factors underlying the types and quality of loans; historical loss experience based on volume and types of loans; trend in portfolio volume and composition; level and trend in non-performing assets; detailed analysis of individual loans for which full collectibility may not be assured; determination of the existence and realizable value of the collateral and guarantees securing such loans; and the current economic conditions affecting the collectibility of loans in the portfolio. The Company analyzes its loan portfolio each month to determine the appropriateness of its allowance for losses. Management believes that the Company's allowance for losses as of December 31, 1999 of $4.8 million is appropriate to cover embedded losses in the portfolio.
The following table sets forth an analysis of the allowance for losses on loans receivable for the years ended December 31:
Interest-Earning Deposits - -------------------------
The Company maintains daily interest-earning cash accounts at the FHLB of Pittsburgh. The accounts consist generally of excess funds, which are available to meet loan funding requirements, investment and mortgage-backed securities purchases and withdrawal of deposit accounts. Such funds also satisfy, in part, the OTS liquidity requirement. The accounts earn interest daily at a rate, which approximates the rate on federal funds. Such funds are withdrawable upon demand and are not federally insured. Interest-bearing deposits at the FHLB of Pittsburgh totaled $4.7 million as of December 31, 1999.
Investment Activities - ---------------------
General. The Company's investment activities involve investment in numerous types of investment securities, including U.S. Treasury obligations and securities of various federal agencies, certificates of deposit at insured banks and savings institutions, commercial paper, corporate debt securities, tax-exempt obligations (including primarily municipal obligations of state and local governments), mutual funds and federal funds.
The Company also maintains a portfolio of mortgage-backed securities which are insured or guaranteed by FHLMC, the Federal National Mortgage Association (FNMA) and the Government National Mortgage Association (GNMA). Mortgage-backed securities increase the quality of the Company's assets by virtue of the guarantees that back them, are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of the Company.
On June 30, 1999, the Company reclassified its held to maturity portfolio to the available for sale portfolio. See also "Notes to Consolidated Financial Statements" section on page 27 of the Company's 1999 Annual Report to Stockholders attached hereto as Exhibit 13.
The following table summarizes the Company's investment securities as of:
The following table summarizes the Company's mortgage-backed securities as of:
The following table sets forth the activity in the Company's mortgage-backed securities for the years ended December 31:
The following table shows the contractual maturities of the Company's investment and mortgage-backed securities portfolio as of December 31, 1999, excluding equity securities which have no maturity dates.
- -------------------------------------------------------------------- (In thousands) Available for sale ----------------------------- Amortized Fair cost value - -------------------------------------------------------------------- Due in one year or less $ 18,113 $ 18,177 Due from one year to five years 22,425 22,805 Due from five to ten years 47,609 46,374 Due after ten years 488,217 471,462 --------- --------- $ 576,364 $ 558,818 ========= ========= - --------------------------------------------------------------------
Due to prepayments of the underlying loans collateralizing mortgage-backed securities, the actual maturities of the securities are expected to be substantially less than the scheduled maturities.
As a member of the FHLB system, the Bank is required to meet certain minimum levels of liquid assets, which are subject to change from time to time. The Company's liquidity fluctuates with deposit flows, funding requirements for loans and other assets and the relative returns between liquid investments and various loan products.
The Board of Directors has established an investment policy, which provides for priorities for the Company's investments with respect to the safety of the principal amount, liquidity, generation of income, management of interest rate risk and capital appreciation. The policy permits investment in various types of liquid assets including, among others, U.S. Treasury and federal agency securities, municipal obligations, investment grade corporate bonds, and federal funds.
Sources of Funds - ----------------
General. The Company's primary sources of funds for its lending and investment activities are deposits, principal and interest payments on loans and mortgage-backed securities, interest on securities and interest-bearing deposits, advances from the FHLB of Pittsburgh and reverse repurchase agreement borrowings.
Deposits. The Company offers a wide variety of deposit accounts with a range of interest rates and terms. The primary types of deposit accounts are regular savings, checking and money market accounts and certificate accounts. The primary source of these deposits is the market area in which the Bank's offices are located. The Company typically relies on customer service, advertising and existing relationships with customers to attract and retain deposits. Deposit flows are significantly influenced by the general state of the economy, general market interest rates and the effects of competition. The Company typically pays competitive interest rates within its market area but does not seek to match the highest rates paid by competing institutions in its primary market area.
The following table sets forth the distribution of the Company's deposits by type as of December 31:
The Company had a total of $62.0 million, $51.9 million and $43.3 million in deposits of $100,000 or more as of December 31, 1999, 1998 and 1997, respectively.
The following table sets forth, by various rate categories, the amount of time deposits outstanding as of December 31, 1999 which mature in the periods presented:
The following table sets forth, by various rate categories, the amount of time deposit accounts outstanding as of December 31:
As of December 31, 1999, the Company had jumbo certificates in amounts of $100,000 or more maturing as follows:
The following table sets forth the net deposit flows during the year ended December 31:
Borrowings. While deposits are the preferred source of funds for the Company's lending and investment activities and general business purposes, the Company, also borrows funds from the FHLB of Pittsburgh and through reverse repurchase agreements with third parties. In addition, the Company participates as an authorized depository for treasury tax and loan accounts on behalf of the Federal Reserve Bank of Cleveland (FRB of Cleveland). Advances from the FHLB of Pittsburgh are secured by the Company's stock in the FHLB, a portion of its first mortgage loans and certain investment securities. The FHLB has a variety of different advance programs, each with different interest rates, provisions, maximum sizes and maturities. As of December 31, 1999 the Company had outstanding advances with the FHLB of $317.5 million. See also "Regulation - Regulation of the Bank - Federal Home Loan Bank System".
The Company has entered into sales of securities under agreements to repurchase (reverse repurchase agreements). Fixed coupon reverse repurchase agreements are treated as financings and the obligations to repurchase securities sold are reflected as a liability of the Company. The dollar amount of securities underlying the agreements remains as an asset of the Company. The securities underlying the agreements were delivered to independent third party brokerage firms who arranged the transaction.
The following table sets forth the Company's borrowing as of December 31:
The following table presents certain information regarding aggregate short-term (maturities within one year) borrowings of the Company as of and for the years ended December 31:
Trust Preferred Securities. On December 9, 1997, the Trust, a statutory business trust established under Delaware law that is a subsidiary of the Company, issued $25.3 million, 8.625% Trust Preferred Securities (Preferred Securities) with a stated value and liquidation preference of $10 per share. The Trust's obligations under the Preferred Securities issued are fully and unconditionally guaranteed by the Company.
The proceeds from the sale of the Preferred Securities were utilized by the Trust to invest in $25.3 million of 8.625% Junior Subordinated Debentures (the Subordinated Debt) of the Company. The Subordinated Debt is unsecured and ranks subordinate and junior in right of payment to all indebtedness, liabilities and obligations of the Company. The Subordinated Debt primarily represents the sole assets of the Trust. Interest on the Preferred Securities is cumulative and payable quarterly in arrears. The Company has the right to optionally redeem the Subordinated Debt prior to the maturity date of December 31, 2027, on or after December 31, 2002, at 100% of the stated liquidation amount, plus accrued and unpaid distributions, if any, at the redemption date.
Under the occurrence of certain events, specifically, a tax event, investment company event or capital treatment event as more fully defined in the Indenture dated December 7, 1997, the Company may redeem in whole, but not in part, the Subordinated Debt prior to December 31, 2027.
Proceeds from any redemption of the Subordinated Debt would cause a mandatory redemption of the Preferred Securities and the common securities having an aggregate liquidation amount equal to the principal amount of the Subordinated Debt redeemed.
Subsidiaries - ------------
The Bank is permitted by current OTS regulations to invest an amount up to 2% of its respective assets in stock, paid-in surplus and secured and unsecured loans in service corporations. The Bank may invest an additional 1% of its assets when the additional funds are utilized for community or inner-city purposes. In addition, federally chartered savings institutions under certain circumstances also may make conforming loans to service corporations in which the lender owns or holds more than 10% of the capital stock in an aggregate amount of up to 50% of regulatory capital. Savings institutions meeting these requirements also may make, subject to the loans-to-one borrower limitations, an unlimited amount of conforming loans to service corporations in which the lender does not own or hold more than 10% of the capital stock of certain other corporations meeting specified requirements.
At December 31, 1999, ESB was authorized under the current regulations to have a maximum investment of $19.9 million in service corporations, exclusive of the additional 1% of assets investment permitted for community or inner-city purposes but inclusive of the ability to make conforming loans to its subsidiaries. On that date, ESB had a $671,000 investment in AMSCO, Inc. (AMSCO), its wholly owned service corporation.
AMSCO was incorporated in 1974 as a wholly-owned subsidiary of ESB to engage in real estate development, property management and condominium conversions, independently or in conjunction with joint ventures. As of December 31, 1999 AMSCO had total assets, consisting primarily of investments in three joint ventures, of $2.2 million.
The first joint venture, ESB Bank Building Associates, consists of a 99% interest in a partnership with a businessman in Wexford, PA which owns a commercial office building partially utilized as a branch office and loan production office for ESB. ESB provided financing for the project. On January 19, 1999, the Company opened its newly constructed full service, branch office located in Wexford, Allegheny County, a quarter mile north of the former branch location. The office space is leased from ESB Bank Building Associates. As of December 31, 1999, AMSCO had a $515,000 investment in ESB Bank Building Associates.
The second joint venture, McCormick Place, consists of a 40% interest in a partnership with two local developers. McCormick Place purchased approximately 9 acres of undeveloped land in Moon Township, Allegheny County, PA in April 1998 and developed the land into a 12 lot subdivision for the purpose of selling the lots for single family residential construction. ESB is providing financing for the project. As of December 31, 1999, 3 of the 12 lots remain unsold. On that date, AMSCO had a $25,000 investment in McCormick Place.
The third joint venture, Madison Woods, consists of a 40% interest in a partnership with the same two local developers involved in McCormick Place. Madison Woods purchased approximately 57 acres of undeveloped land in Moon Township, Allegheny County, PA beginning in October 1998 and developed the land into a 56 lot
subdivision for the purpose of selling the lots for single family residential construction. ESB is providing financing for the project. As of December 31, 1999, 54 of the 56 lots remain unsold. On that date, AMSCO had a $80,000 investment in Madison Woods.
A savings institution is required to deduct the amount of investment in, and extensions of credit to, a subsidiary engaged in activities not permissible for national banks. Because the acquisition and development of real estate is not a permissible activity for national banks, the investments in and loans to any subsidiary of the Bank which are engaged in such activities are subject to exclusion from their respective regulatory capital calculation. See "Regulation - - Regulation of the Bank - Regulatory Capital Requirements".
REGULATION
Set forth below is a brief description of certain laws and regulations, which relate to the regulation of the Company and the Bank. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere herein does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. Certain federal banking laws have been recently amended. See "Regulation-Regulation of the Company-Financial Modernization."
Regulation of the Company - -------------------------
General. The Company is a registered savings and loan holding company pursuant to the Home Owners' Loan Act, as amended (HOLA). As such, the Company is subject to OTS regulations, examinations, supervision and reporting requirements. As a subsidiary of a savings and loan holding company, ESB is subject to certain restrictions in its dealings with the Company and affiliates thereof.
Activities Restrictions. There are generally no restrictions on the activities of a savings and loan holding company, which controls only one subsidiary savings association on or before May 4, 1999. However, if the Director of the OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings association, the Director may impose such restrictions as deemed necessary to address such risk, including limiting (i) payment of dividends by the savings association; (ii) transactions between the savings association and its affiliates; and (iii) any activities of the savings association that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the saving association. Notwithstanding the above rules as to permissible business activities of unitary savings and loan holding companies, if the savings association subsidiary of such a holding company fails to meet a qualified thrift lender (QTL) test, then such unitary holding company also shall become subject to the activities restrictions applicable to multiple savings and loan holding companies and, unless the savings association requalifies as a QTL within one year thereafter, shall register as, and become subject to the restrictions applicable to, a bank holding company. See "Regulation - Regulation of the Bank - Qualified Thrift Lender Test".
When a savings and loan holding company acquires control of a second savings association and holds it as a separate institution, the holding company becomes a multiple savings and loan holding company. As a general rule, multiple savings and loan holding companies are subject to restrictions on their activities that are not imposed on a savings and loan holding company controlling only one institution. They could not commence or continue any business activity other than: (i) those permitted for a bank holding company under section 4(c) of the Bank Holding Company Act (unless the Director of the OTS by regulation prohibits or limits such 4(c) activities); (ii) furnishing or performing management services for a subsidiary savings association; (iii) conducting an insurance agency or escrow business; (iv) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings association; (v) holding or managing properties used or occupied by a subsidiary savings association; (vi) acting as trustee under deeds of trust; or (vii) those activities authorized by regulation as of March 5, 1987 to be engaged in by multiple savings and loan holding companies.
The HOLA requires every savings association subsidiary of a savings and loan holding company to give the OTS at least 30 days advance notice of any proposed dividends to be made on its guarantee, permanent or other non-withdrawable stock, or else such dividend will be invalid. See "--Regulation of the Bank--Restrictions on Capital Distributions."
Limitations on Transactions with Affiliates. Transactions between savings associations and any affiliate are governed by Section 11 of the HOLA and Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings association is any company or entity which controls, is controlled by or is under common control with the savings association. In a holding company context, the parent holding company of a savings association (such as the Company) and any companies which are controlled by such parent holding company are affiliates of the savings association. Generally, Sections 23A and 23B (i) limit the extent to which the savings association or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such association's capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus and (ii) require that all transactions be on terms substantially the same, or at least favorable, to the association or subsidiary as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and similar other types of transactions. In addition to the restrictions imposed by Sections 23A and 23B, Section 11 of the HOLA prohibits a savings association from (i) making a loan or other extension of credit to an affiliate, except for any affiliate which engages only in certain activities which are permissible for bank holding companies, or (ii) purchasing or investing in any stocks, bonds, debentures, notes or similar obligations of any affiliate, except for affiliates which are subsidiaries of the savings association.
In addition, Section 22(g) and (h) of the Federal Reserve Act places restrictions on loans to executive officers, directors and principal stockholders. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% stockholder of a savings institution ("a principal stockholder"), and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings institution's loans to one borrower limit (generally equal to 15% of the institution's unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the institution and (ii) does not give preference to any director, executive officer or principal stockholder, or certain affiliated interests of either, over other employees of the savings institution. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings institution to all insiders cannot exceed the institution's unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. At December 31, 1999, the Bank was in compliance with the above restrictions.
Restrictions on Acquisitions. Except under limited circumstances, savings and loan holding companies are prohibited from acquiring, without prior approval of the Director of the OTS, (i) control of any other savings association or savings and loan holding company or substantially all the assets thereof or (ii) more than 5% of the voting shares of a savings association or holding company thereof which is not a subsidiary. Except with the prior approval of the Director of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company's stock, may acquire control of any savings association, other than a subsidiary savings association, or of any other savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings associations in more than one state if (i) the multiple savings and loan holding company involved controls a savings association which operated a home or branch office located in the state of the association to be acquired as of March 5, 1987; (ii) the acquirer is authorized to acquire control of the savings association pursuant to the emergency acquisition provisions of the Federal Deposit Insurance Act (FDIA); or (iii) the statutes of the state in which the association to be acquired is located specifically permit institutions to be acquired by the state-chartered banks or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings associations).
The Federal Reserve Board may approve an application by a bank holding company to acquire control of a savings association. A bank holding company that controls a savings association may merge or consolidate the assets and liabilities of the savings association with, or transfer assets and liabilities to, any subsidiary bank which is a member of the Bank Insurance Fund with the approval of the appropriate federal banking agency and
the Federal Reserve Board. As a result of these provisions, there have been a number of acquisitions of savings associations by bank holding companies in recent years.
Financial Modernization. Under the Gramm-Leach-Bliley Act enacted into law on November 12, 1999, no company may acquire control of a savings and loan holding company after May 4, 1999, unless the company is engaged only in activities traditionally permitted to a multiple savings and loan holding company or newly permitted to a financial holding company under section 4(k) of the Bank Holding Company Act. Existing savings and loan holding companies and those formed pursuant to an application filed with the OTS before May 4, 1999, may engage in any activity including non-financial or commercial activities provided such companies control only one savings and loan association that meets the Qualified Thrift Lender test. Corporate reorganizations are permitted, but the transfer of grandfathered unitary thrift holding company status through acquisition is not permitted.
Regulation of the Bank - ----------------------
General. The Bank is a federally chartered savings bank, the deposits of which are federally insured and backed by the full faith and credit of the U.S. Government. Accordingly, the Bank is subject to broad federal regulation and oversight by the OTS and the FDIC extending to all aspects of its operations. The Bank is a member of the FHLB of Pittsburgh and is subject to certain limited regulation by the Federal Reserve Board.
Federal Savings Association Regulation. The OTS has extensive regulatory authority over the operations of savings associations. As part of this authority, savings associations are required to file periodic reports with the OTS and are subject to periodic examinations by the OTS. Such regulation and supervision is primarily intended for the protection of depositors.
The investment and lending authority of the Bank is prescribed by federal laws and regulations, and is prohibited from engaging in any activities not permitted by such laws and regulations. These laws and regulations generally are applicable to all federally chartered savings associations and many also apply to state-chartered savings associations.
There are limitations on the aggregate amount of loans that a savings association could make to any one borrower, including related entities. For further information about the Company's regulatory lending limits, see "Business - - Lending Activities - Loan Underwriting Policies".
OTS enforcement authority over all savings associations and their holding companies includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inaction may provide the basis for enforcement action, including misleading or untimely reports filed with the OTS.
Insurance of Accounts. The deposits of the Bank are insured up to $100,000 per insured member (as defined by law and regulation) by the SAIF, administered by the FDIC and are backed by the full faith and credit of the U.S. Government. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the FDIC. The FDIC also has the authority to initiate enforcement actions against savings associations, after giving the OTS an opportunity to take such action.
The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances, which could result in termination of the Bank's deposit insurance.
On September 30, 1996, President Clinton signed into law legislation which eliminated the premium differential between SAIF-insured institutions and BIF-insured institutions by recapitalizing the SAIF's reserves to the
required ratio. The legislation required all SAIF member institutions to pay a one-time special assessment to recapitalize the SAIF, with the aggregate amount to be sufficient to bring the reserve ratio in the SAIF to 1.25% of insured deposits. The legislation also provided for the merger of the BIF and the SAIF, with such merger being conditioned upon the prior elimination of the thrift charter.
Implementing FDIC regulations imposed a one-time special assessment equal to 65.7 basis points for all SAIF-assessable deposits as of March 31, 1995, which was accrued as an expense on September 30, 1996. The Company's one-time special assessment amounted to $2.2 million ($1.3 million net of tax) or $.31 per diluted share. The payment of such special assessment had the effect of immediately reducing the Company's capital by such amount.
In the fourth quarter of 1996, the FDIC lowered the assessment rates for SAIF members to reduce the disparity in the assessment rates paid by BIF and SAIF members. Beginning October 1, 1996, effective SAIF rates generally range from zero basis points to 27 basis points, except that during the fourth quarter of 1996, the rates for SAIF members ranged from 18 basis points to 27 basis points in order to include assessments paid to the Financing Corporation (FICO). From 1997 through 1999, SAIF members paid 6.5 basis points to fund the FICO, while BIF member institutions paid approximately 1.3 basis points. The Company's insurance premiums, which had amounted to 23 basis points, were thus reduced to 6.5 basis points effective January 1, 1997.
Liquidity Requirements. The Bank is required to maintain an average daily balance of liquid assets equal to at least 4% of the sum of its respective average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less. This liquidity requirement may be changed from time to time by the OTS to any amount within the range of 4.0% to 10.0% depending upon economic conditions and savings flows of all savings banks and is currently 4.0%.
Liquid assets for purposes of this ratio include specified short-term assets (e.g., cash, certain time deposits, certain banker's acceptances and short-term U.S. Government obligations), and long-term assets (e.g., U.S. Government obligations of more than one and less than five years and state agency obligations with a minimum term of 18 months). The OTS designates as liquid assets certain mortgage-related securities with less than one year to maturity. Monetary penalties may be imposed for failure to meet liquidity requirements. As of December 31, 1999, ESB's liquidity ratio was in compliance with regulatory requirements at 18.1%. The sources of liquidity and capital resources discussed above are believed by management to be sufficient to fund outstanding loan commitments and meet other obligations. The Company has consistently maintained liquidity levels in excess of the minimum requirements.
Regulatory Capital Requirements. OTS capital regulations require savings institutions to satisfy minimum capital standards: risk-based capital requirements, a leverage requirement and a tangible capital requirement. Savings institutions must meet each of these standards in order to be deemed in compliance with OTS capital requirements. In addition, the OTS may require a savings institution to maintain capital above the minimum capital levels.
All savings institutions are required to meet a minimum risk-based capital requirement of total capital (core capital plus supplementary capital) equal to 8% of risk-weighted assets (which includes the credit risk equivalents of certain off-balance sheet items). In calculating total capital for purposes of the risk-based requirement, supplementary capital may not exceed 100% of core capital. A savings institution is also required to maintain tangible capital in an amount at least equal to 1.5% of its adjusted total assets.
In March 1999, the federal banking agencies amended their risk-based and leverage capital standards to make uniform their regulations. In particular, the agencies made risk-based capital treatments for construction loans on presold residential properties, real estate loans secured by junior liens on 1 to 4-family residential properties, and investments in mutual funds consistent among the agencies, and simplified and made uniform the agencies' Tier 1 leverage capital standards. The most highly-rated institutions must maintain a minimum Tier1 leverage ratio of 3.0 percent, with all other institutions required to maintain a minimum leverage ratio of 4.0 percent. (In addition, under the prompt corrective action provisions of the OTS regulations, all but the most highly-rated institutions must maintain a minimum leverage ratio of 4% in order to be adequately capitalized. See "--Prompt
Corrective Action"). The OTS regulations now state that higher-than-minimum capital levels may be required if warranted, and that institutions should maintain capital levels consistent with their risk exposures.
As of December 31, 1999, ESB was in compliance with all regulatory capital requirements with tangible, core and risk-based capital ratios of 6.5%, 6.5% and 16.9%, respectively.
The OTS regulations provide that minimum capital levels higher than those provided in the regulations may be established by the OTS for individual savings institutions, upon a determination that the savings institution's capital is or may become inadequate in view of its circumstances. The OTS regulations provide that higher individual minimum regulatory capital requirements may be appropriate in circumstances where, among others: (1) a savings institution has a high degree of exposure to interest rate risk, prepayment risk, credit risk, concentration of credit risk, certain risks arising from nontraditional activities, or similar risks or a high proportion of off-balance sheet risk; (2) a savings institution is growing, either internally or through acquisitions, at such a rate that supervisory problems are presented that are not dealt with adequately by OTS regulations; and (3) a savings institution may be adversely affected by activities or condition of its holding company, affiliates, subsidiaries or other persons or savings institutions with which it has significant business relationships. The Bank is not subject to any such individual minimum regulatory capital requirement.
A savings institution which is not in capital compliance or which is otherwise deemed to require more than normal supervision is subject to restrictions on its ability to grow pursuant to Regulatory Bulletin 3a-1. In addition, a provision of HOLA generally provides that the Director of OTS must restrict the asset growth of savings institutions not in regulatory compliance, subject to a limited exception for growth not exceeding interest credited.
A savings institution which is not in capital compliance is also automatically subject to the following: (i) new directors and senior executive officers and employment contracts for senior executive officers must be approved by the OTS in advance; (ii) the savings institution may not accept or renew any brokered deposits; (iii) the savings institution is subject to higher OTS assessments as a capital-deficient institution; and (iv) the savings institution may not make any capital distributions without prior written approval.
Any savings association that fails any of the capital requirements is subject to possible enforcement actions by the OTS or the FDIC. Such actions could include a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on an association's operations, termination of federal deposit insurance and the appointment of a conservator or receiver. Certain actions are required by law, as discussed below. The OTS's capital regulation provides that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions.
Prompt Corrective Action. Under Section 38 of the FDIA as added by the Federal Deposit Insurance Corporation Improvement Act (FDICIA), each federal banking agency is required to implement a system of prompt corrective action for institutions which it regulates. In September 1992, the federal banking agencies (including the OTS) adopted substantially similar regulations which are intended to implement Section 38 of the FDIA. These regulations became effective December 19, 1992. Under the regulations, a savings association shall be deemed to be (i) "well capitalized" if it has total risk-based capital of 10.0% or more, has a Tier 1 risk-based ratio of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and is not subject to any order or final capital directive to meet and maintain a specific capital level for any capital measure, (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 4.0% or more and a Tier 1 leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized," (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less than 4.0% or a Tier 1 leverage capital ratio that is less than 4.0% (3.0% under certain circumstances), (iv) "significantly undercapitalized" if it has a total risk-based ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0% or a Tier 1 leverage capital ratio that is less than 3.0%, and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Section 38 of the FDIA and the regulations promulgated thereunder also specify circumstances under which the OTS may reclassify a well capitalized savings association as adequately capitalized and may require an adequately capitalized savings association or an undercapitalized savings
association to comply with supervisory actions as if it were in the next lower category (except that the OTS may not reclassify a significantly undercapitalized savings association as critically undercapitalized). At December 31, 1999, ESB was in the "well capitalized" category.
Qualified Thrift Lender Test. Under Section 2303 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996, a savings association can comply with the QTL test by either meeting the QTL test set forth in the HOLA and implementing regulations or qualifying as a domestic building and loan association as defined in Section 7701(a)(19) of the Internal Revenue Code of 1986, as amended (Code). The QTL test set forth in the HOLA requires a thrift institution to maintain 65% of portfolio assets in Qualified Thrift Investments (QTIs). Portfolio assets are defined as total assets less intangibles, property used by a savings institution in its business and liquidity investments in an amount not exceeding 20% of assets. Generally, QTIs are residential housing related assets. At December 31, 1999, the amount of the Bank's assets which were invested in QTIs exceeded the percentage required to qualify the Bank under the QTL test. A savings institution that does not meet the QTL test must either convert to a bank charter or comply with the following restrictions on its operations: (i) the institution may not engage in any new activity or make any new investment, directly or indirectly, unless such activity or investment is permissible for a national bank; (ii) the branching powers of the institution shall be restricted to those of a national bank; (iii) the institution shall not be eligible to obtain any advances from its FHLB; and (iv) payment of dividends by the institution shall be subject to the rules regarding payment of dividends by a national bank. Upon the expiration of three years from the date the institution ceases to be a QTL, it must cease any activity and not retain any investment not permissible for a national bank and immediately repay any outstanding FHLB advances (subject to safety and soundness considerations).
Restrictions on Capital Distributions. The OTS regulates capital distributions by savings banks, which include cash dividends, stock redemptions or repurchases, cash-out mergers, interest payments on certain convertible debt and other transactions charged to the capital account of a savings association to make capital distributions. In January 1999, the OTS amended its capital distribution regulation to bring such regulations into greater conformity with the other bank regulatory agencies. Under the regulation, certain savings associations would not be required to file with the OTS. Specifically, savings associations that would be well capitalized following a capital distribution would not be subject to any requirement for notice or application unless the total amount of all capital distributions, including any proposed capital distribution, for the applicable calendar year would exceed an amount equal to the savings association's net income for that year to date plus the savings association's retained net income for the preceding two years. Because the Bank is a subsidiary of the Company, the regulation, however, would require the Bank to provide notice to the OTS of its intent to make a capital distribution, unless an application is otherwise required. The Bank does not believe that the regulation will adversely affect its ability to make capital distributions.
Federal Home Loan Bank System. The Bank is a member of the FHLB System which consists of 12 regional FHLBs, with each subject to supervision and regulation by the Federal Housing Finance Board. The FHLBs provide a central credit facility primarily for member savings institutions. ESB as a member of the FHLB of Pittsburgh, is required to acquire and hold shares of capital stock in that FHLB in an amount equal to at least 1.0% of the aggregate principal amount of its unpaid residential mortgage loans, home purchase contracts and similar obligations at the beginning of each year, or 5.0% of its advances (borrowings) from the FHLB of Pittsburgh, whichever is greater. As of December 31, 1999, ESB had an $18.4 million investment in the stock of the FHLB of Pittsburgh, and was in compliance with this requirement.
Advances from the FHLB of Pittsburgh are secured by a member's shares of stock in the FHLB of Pittsburgh, certain types of mortgages and other assets. Interest rates charged for advances vary depending upon maturity, the cost of funds to the FHLB of Pittsburgh and the purpose of the borrowing. As of December 31, 1999, the Company had $317.5 million in borrowings from the FHLB of Pittsburgh outstanding.
The FHLBs are required to provide funds for the resolution of troubled savings banks and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. These contributions also could have an
adverse effect on the value of FHLB stock in the future. For the year ended December 31, 1999, dividends paid by the FHLB of Pittsburgh to the Company totaled $1.2 million.
Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain reserves against their transaction accounts (primarily NOW and Super NOW checking accounts) and certain non-personal time deposits. At December 31, 1999, the Bank was in compliance with the applicable requirements. However, because required reserves must be maintained in the form of vault cash or a noninterest bearing account at a Federal Reserve Bank, the effect of this reserve requirement is to reduce an institution's earning assets.
Branching by Federal Associations. The OTS "Policy Statement on Branching by Federal Savings Associations" permits interstate branching to the full extent permitted by statute (which is essentially unlimited).
Generally, federal law prohibits federal thrifts from establishing, retaining or operating a branch outside the state in which the federal association has its home office unless the association meets the Internal Revenue's domestic building and loan test (generally, 60% of a thrift's assets must be housing-related) (IRS Test). The IRS Test requirement does not apply if: (i) the branch(es) result(s) from an emergency acquisition of a troubled thrift (however, if the troubled association is acquired by a bank holding company, does not have its home office in the state of the bank holding company bank subsidiary and does not quality under the IRS Test, its branching is limited to the branching laws for state-chartered banks in the state where the thrift is located); (ii) the law of the state where the branch would be located would permit the branch to be established if the federal association were chartered by the state in which its home office is located; or (iii) the branch was operated lawfully as a branch under state law prior to the association's conversion to a federal charter.
The OTS will also evaluate a branching applicant's record of compliance with the Community Reinvestment Act of 1977, as amended (CRA). A poor CRA record may be the basis for denial of a branching application.
Safety and Soundness. FDICIA requires each federal banking regulatory agency to prescribe, by regulation or guideline, standards for all insured depository institutions and depository institution holding companies relating to (i) internal controls, information systems and audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v) asset growth; (vi) compensation, fees and benefits; and (vii) such other operational and managerial standards as the agency determines to be appropriate. The compensation standards would prohibit employment contracts or other compensatory arrangements that provide excess compensation, fees or benefits or could lead to material financial loss. In addition, each federal banking regulatory agency must prescribe, by regulation or guideline, standards relating to asset quality, earnings and stock valuation as the agency determines to be appropriate. Effective August 9, 1995, the federal banking agencies, including the OTS, implemented final rules and guidelines concerning standards for safety and soundness required to be prescribed by regulation pursuant to Section 39 of the FDIA. In general, the standards relate to (1) operational and managerial matters; (2) asset quality and earnings; and (3) compensation. The operational and managerial standards cover (a) internal controls and information systems, (b) internal audit systems, (c) loan documentation, (d) credit underwriting, (e) interest rate exposure, (f) asset growth, and (g) compensation, fees and benefits. Under the asset quality and earnings standards, the Bank is required to establish and maintain systems to (i) identify problem assets and prevent deterioration in those assets, and (ii) evaluate and monitor earnings and ensure that earnings are sufficient to maintain adequate capital reserves. Finally, the compensation standard states that compensation will be considered excessive if it is unreasonable or disproportionate to the services actually performed by the individual being compensated. Effective October 1, 1996, the federal banking agencies also adopted asset quality and earnings standards. If a savings institution fails to meet any of the standards promulgated by regulation, then such institution will be required to submit a plan within 30 days to the OTS specifying the steps it will take to correct the deficiency. In the event that a savings institution fails to submit or fails in any material respect to implement a compliance plan within the time allowed by the federal banking agency, Section 39 of the FDIA provides that the OTS must order the institution to correct the deficiency and may (1) restrict asset growth; (2) require the savings institution to increase its ratio of tangible equity to assets; (3) restrict the rates of interest that the savings institution may pay; or (4) take any other action that would better carry out the purpose of prompt corrective action. The Bank believes that it has been and will continue to be in compliance with each of the standards as they have been adopted by the OTS.
FEDERAL AND STATE TAXATION
General. The Company and the Bank are subject to federal income taxation in the same general manner as other corporations with some exceptions, including particularly the reserve for bad debts discussed below. The following discussion of federal taxation is intended to only summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to the thrifts.
Method of Accounting. For federal income tax purposes, the Company currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax returns.
Bad Debt Reserves. Prior to 1996, the Bank was permitted under the Code to deduct an annual addition to a reserve for bad debts in determining taxable income, subject to certain limitations. Subsequent to 1995, the Bank's bad debt deduction is based on actual net charge-offs. Bad debt deductions for income tax purposes are included in taxable income of later years only if the Bank's base year bad debt reserve is used subsequently for purposes other than to absorb bad debt losses. Because the Bank does not intend to use the reserve for purposes other than to absorb losses, no deferred income taxes have been provided prior to 1987. Retained earnings at December 31, 1998 (the most recent date for which a tax return has been filed) include approximately $13.9 million representing such bad debt deductions for which no deferred income taxes have been provided.
Distributions. If the Bank distributes cash or property to its sole stockholder, and the distribution is treated as being from its pre-1987 bad debt reserves, the distribution will cause the Bank to have additional taxable income. A distribution to stockholders is deemed to have been made from pre-1987 bad debt reserves to the extent that (a) the distribution exceeds the Bank's accumulated earnings and profit subsequent to December 31, 1951 or (b) the distribution is a "non-dividend distribution". A distribution in respect of stock is a non- dividend distribution to the extent that, for federal income tax purposes, (i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the institution, or (iii) in the case of a current distribution, together with all other such distributions during the taxable year, exceeds the current and post- 1951 accumulated earnings and profits of the Bank. The amount of additional taxable income created by a non-dividend distribution is an amount that when reduced by the tax attributable to it is equal to the amount of the distribution.
Minimum Tax. For taxable years beginning after December 31, 1986, the Code imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax generally will apply to a base of regular taxable income plus certain tax preferences (alternative minimum taxable income or AMTI) and will be payable to the extent such AMTI is in excess of regular income tax. Items of tax preference that constitute AMTI include (a) tax-exempt interest on newly-issued (generally, issued on or after August 8, 1986) private activity bonds other than certain qualified bonds and (b) 75% of the excess (if any) of (i) adjusted current earnings as defined in the Code, over (ii) AMTI (determined without regard to this preference and prior to reduction by net operating losses). Net operating losses can offset no more than 90% of AMTI. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. As of December 31, 1999, the Company has a minimum tax credit carry forward of $647,000.
Pennsylvania Taxation. The Company is subject to the Pennsylvania Corporate Net Income Tax and Capital Stock and Franchise Tax. The Corporate Net Income Tax rate is currently 9.99% and is imposed on the Company's unconsolidated taxable income for federal purposes with certain adjustments. In general, the Capital Stock Tax is a property tax imposed at a rate of 1.199% of a corporation's capital stock value, which is determined in accordance with a fixed formula based on average net income and net worth.
The Bank is subject to tax under the Pennsylvania Mutual Thrift Institutions Tax Act (MITA), which imposes a tax at a rate of 11.5% of a qualified thrift savings institution's net earnings, determined in accordance with generally accepted accounting principles, as shown on its books. For fiscal years beginning in 1983, and thereafter, net operating losses may be carried forward and allowed as a deduction for three succeeding years. MITA exempts qualified savings institutions from all other corporate taxes imposed by Pennsylvania for state tax purposes, and from all local taxes imposed by political subdivisions thereof, except taxes on real estate and real estate transfers.
Interest earned on U.S. and Commonwealth of Pennsylvania government obligations are exempt from MITA income tax.
Other Matters. The Company and its subsidiaries file a consolidated federal income tax return. Tax years 1996, 1997 and 1998 are open under the statute of limitations and subject to review by the Internal Revenue Service.
Personnel - ---------
As of December 31, 1999, the Company had 134 full-time and 51 part-time employees, respectively. The employees are not represented by a collective bargaining unit, and the Company considers its relationship with its employees to be good.
Item 2.
Item 2. Properties - -------------------
The following table sets forth certain information with respect to the offices and real property of the Company as of December 31, 1999:
PROP
Item 3.
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 counsel, there is no present basis to conclude that the resolution of these claims will have a material adverse impact on the consolidated financial condition or results of operations of the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------
Not applicable.
PART II -------
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters - ------------------------------------------------------------------------------
The information required herein is incorporated by reference from the section captioned "Stock and Dividend Information" on pages 51 and 52 of the Company's 1999 Annual Report to Stockholders attached hereto as Exhibit 13 (1999 Annual Report).
Item 6.
Item 6. Selected Financial Data - --------------------------------
The information required herein is incorporated by reference from the section captioned "Selected Consolidated Financial Data" on page 4 of the Company's 1999 Annual Report.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - -------------
The information required herein is incorporated by reference from the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 5 to 20 of the Company's 1999 Annual Report.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk - --------------------------------------------------------------------
The information required herein is incorporated by reference from the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset and Liability Management" on pages 15 to 18 of the Company's 1999 Annual Report.
Item 8.
Item 8. Financial Statements and Supplementary Data - ----------------------------------------------------
The information required herein is incorporated by reference from pages 21 to 50 of the Company's 1999 Annual Report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------- Financial Disclosure - --------------------
None.
PART III --------
Item 10.
Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------
The information required herein is incorporated by reference from the section captioned "Election of Directors" on pages 6 to 11 of the definitive proxy statement of the Company (Proxy Statement).
Item 11.
Item 11. Executive Compensation - --------------------------------
The information required herein is incorporated by reference from the section captioned "Executive Compensation" on pages 11 to 19 of the Company's Proxy Statement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------
The information required herein is incorporated by reference from pages 2 to 5 of the Company's Proxy Statement.
Management of the Company knows of no arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change of control of the registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions - --------------------------------------------------------
The information required herein is incorporated by reference from the subsection captioned "Executive Compensation - Indebtedness of Management" on pages 19 and 20 of the Company's Proxy Statement.
PART IV -------
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------------------------------------------------------------------------
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) The following financial statements are incorporated by reference from Item 8 hereof (See Exhibit 13):
Accountants' Report
Consolidated Statements of Financial Condition as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(2) All schedules for which provision is made in the applicable accounting regulation of the SEC are omitted because of the absence of conditions under which they are required or because the required information is included in the Consolidated Financial Statements and related notes thereto.
(3) (a) The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibit Index.
No. Exhibits --- --------
3 (a) Amended and Restated Articles of Incorporation (1) 3 (b) Bylaws(1) 4 Specimen Common Stock Certificate (2) 10(a) Stock Option Plan (2) (6) 10(b) Employee Stock Ownership Plan (2) (6) 10(c) Management Development and Recognition Plan and Trust Agreement (2) (6) 10(d) Employment Agreement with Charlotte A. Zuschlag (2) (6) 10(e) 1992 Stock Incentive Plan (3) (6) 10(f) 1997 Stock Option Plan (4) (6) 10(g) Change of Control Agreement among the Company, ESB and Charles P. Evanoski (Representative of similar agreements entered into with Frank D. Martz, Todd F. Palkovich and Robert C. Hilliard) (5) (6) 10(h) Employment Agreement between the Company and Charlotte A. Zuschlag (6) 10(i) Employment Agreement between the Bank and Charlotte A. Zuschlag (6) 11 Statement RE Computation of Per Share Earnings 13 1999 Annual Report to Stockholders 22 Subsidiaries of the Registrant - Reference is made to Item 1. "Business - Subsidiaries" for the required information. 23 Consent of KPMG LLP 27 Financial Data Schedule
(1) Incorporated by reference from the Current Report on Form 8-K filed by the Company with the SEC on March 27, 1991.
(2) Incorporated by reference from the Registration Statement on Form S-4 (Registration No. 33-39219) filed by the Company with the SEC on March 1, 1991.
(3) Incorporated by reference from the Annual Report on Form 10-K filed by the Company with the SEC on March 29, 1993.
(4) Incorporated by reference from the Annual Report on Form 10-K filed by the Company with the SEC on March 30, 1998.
(5) Incorporated by reference from the Annual Report on Form 10-K filed by the Company with the SEC on March 30, 1999.
(6) Management contract or compensatory plan or arrangement.
(b) The Company filed a Form 8-K dated December 21, 1999, to report the declaration of a cash dividend of $0.09 per common share payable on January 25, 2000 to stockholders of record at the close of business on December 31, 1999.
(c) See (a)(3) above for all exhibits filed herewith and the exhibit index
(d) There are no other financial statements and financial statement schedules which were excluded from the 1999 Annual Report which are required to be included herein.
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.
ESB FINANCIAL CORPORATION
Date: March 30, 2000 By: /s/ Charlotte A. Zuschlag -------------------------- Charlotte A. Zuschlag President and Chief Executive Officer (Duly Authorized Representative)
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 and on the dates indicated.
By: /s/ Charlotte A. Zuschlag Date: March 30, 2000 ---------------------------- Charlotte A. Zuschlag President and Chief Executive Officer, Director (Principal Executive Officer)
By: /s/ Charles P. Evanoski Date: March 30, 2000 ---------------------------- Charles P. Evanoski Group Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
By: /s/ William B. Salsgiver Date: March 30, 2000 ---------------------------- William B. Salsgiver Chairman of the Board of Directors
By: /s/ Herbert S. Skuba Date: March 30, 2000 ---------------------------- Herbert S. Skuba Vice Chairman of the Board of Directors
By: /s/ George William Blank, Jr. Date: March 30, 2000 ---------------------------- George William Blank, Jr. Director
By: /s/ Charles Delman Date: March 30, 2000 ---------------------------- Charles Delman Director
By: /s/ Lloyd L. Kildoo Date: March 30, 2000 ---------------------------- Lloyd L. Kildoo Director
By: /s/ Edmund C. Smith Date: March 30, 2000 ---------------------------- Edmund C. Smith Director
By: /s/ Edwin A. Thaner Date: March 30, 2000 ---------------------------- Edwin A. Thaner Director