ITEM 1. BUSINESS
General USBANCORP, Inc. (the "Company") is a registered bank holding company organized under the Pennsylvania Business Corporation Law and is registered under the Bank Holding Company Act of 1956, as amended (the "BHCA.") The Company became a holding company upon acquiring all of the outstanding shares of U.S. Bank ("U.S. Bank") on January 5, 1983. The Company also acquired all of the outstanding shares of Three Rivers Bank and Trust Company ("Three Rivers Bank") in June 1984, McKeesport National Bank ("McKeesport Bank") in December 1985 (which was subsequently merged into Three Rivers Bank), Community Bancorp, Inc. in March 1992 (which was also subsequently merged into Three Rivers Bank in July 1997), and Johnstown Savings Bank ("JSB") in June 1994 (which was immediately merged into U.S. Bank). Immediately following the acquisition of JSB, U.S. Bank caused the intracompany transfer by Standard Mortgage Corporation of Georgia, a wholly-owned subsidiary of JSB, of all its assets, subject to all of its liabilities, to SMC Acquisition Corporation, an indirect subsidiary of Community. SMC Acquisition Corporation was renamed Standard Mortgage Corporation of Georgia and is a mortgage banking company organized under the laws of the State of Georgia that originates, sells, and services residential mortgage loans. In addition, the Company formed United Bancorp Life Insurance Company ("United Life") in October 1987, USBANCORP Trust Company (the "Trust Company") in October 1992, and UBAN Associates, Inc. ("UBAN Associates"), in January 1997. UBAN Associates is a registered investment advisory firm that administers investment portfolios, offers operational support systems and provides asset and liability management services to small and mid-sized community banks. The Company's principal activities consist of owning and operating its five wholly-owned subsidiary entities. At December 31, 1998, the Company had, on a consolidated basis, total assets, deposits, and shareholders' equity of $2.38 billion, $1.18 billion and $142 million, respectively. The Company and the subsidiary entities derive substantially all of their income from banking and bank-related services. The Company functions primarily as a coordinating and servicing unit for its subsidiary entities in general management, credit policies and procedures, accounting and taxes, loan review, auditing, investment advisory, compliance, marketing, insurance risk management, general corporate services, and financial and strategic planning. The Company, as a bank holding company, is regulated under the BHCA, and is supervised by the Board of Governors of the Federal Reserve System (the "Board").
USBANCORP Banking Subsidiaries: U.S. Bank U.S. Bank is a state bank chartered under the Pennsylvania Banking code of 1965, as amended. Through 21 locations in Cambria, Clearfield, Somerset, and Westmoreland Counties, Pennsylvania, U.S. Bank conducts a general banking business. It is a full-service bank offering (i) retail banking services, such as demand, savings and time deposits, money market accounts, secured and unsecured loans, mortgage loans, safe deposit boxes, holiday club accounts, collection services, money orders, and traveler's checks; (ii) lending, depository and related financial services to commercial, industrial, financial, and governmental customers, such as real estate-mortgage loans, short- and medium-term loans, revolving credit arrangements, lines of credit, inventory and accounts receivable financing, commercial equipment lease financing, real estate-construction loans, business savings accounts, certificates of deposit, wire transfers, night depository, and lock box services;
and (iii) credit card operations through MasterCard and VISA. U.S. Bank also operates 26 automated bank teller machines ("ATM"s) through its 24-Hour Banking Network which is linked with MAC, a regional ATM network and CIRRUS, a national ATM network. U.S. Bank also has a wholly owned mortgage banking subsidiary - UBAN Mortgage Company. UBAN Mortgage Company was formed in January 1997 for the purpose of originating and selling mortgage loans primarily in Western Pennsylvania. Additionally, USNB Financial Services Corporation, a wholly owned subsidiary of U.S. Bank, was formed on May 23, 1997. USNB Financial Services Corporation engages in the sale of annuities, mutual funds, and insurance. U.S. Bank's deposit base is such that loss of one depositor or a related group of depositors would not have a materially adverse effect on its business. In addition, the loan portfolio is also diversified so that one industry or group of related industries does not comprise a material portion of the loan portfolio. U.S. Bank's business is not seasonal nor does it have any risks attendant to foreign sources. In October 1998, U.S. Bank changed its charter from a national bank to a state bank. Under the new charter U.S Bank is subject to supervision and regular examination by the Federal Reserve, the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation. Various federal and state laws and regulations govern many aspects of its banking operations. The following is a summary of key data (dollars in thousands) and ratios at December 31, 1998: Headquarters Johnstown, PA Chartered 1933 Total Assets $1,308,872 (55.1% of the Company's total) Total Investment Securities $688,065 (58.8% of Company's total) Total Loans (net of unearned income) $539,860 (50.6% of the Company's total) Total Deposits $615,819 (52.4% of the Company's total) Total Net Income $11,857 (56.1% of the Company's total) Asset Leverage Ratio 6.85% 1998 Return on Average Assets 0.94% 1998 Return on Average Equity 11.49% Total Full-time Equivalent Employees 379 (49.7% of the Company's total) Number of Offices 21 (46.7% of the Company's total)
Three Rivers Bank Three Rivers Bank is a state bank chartered under the Pennsylvania Banking Code of 1965, as amended. Through 24 locations in Allegheny and Washington Counties, Pennsylvania, Three Rivers Bank conducts a general retail banking business consisting of granting commercial, consumer, construction, mortgage and student loans, and offering checking, interest bearing demand, savings and time deposit services. It also operates 23 ATMs that are affiliated with MAC, a regional ATM network, and Plus System, a national ATM network.
Three Rivers Bank also offers wholesale banking services to other banks, merchants, governmental units, and other large commercial accounts. Such services include balancing services, lock box accounts, and providing coin and currency. Three Rivers Bank also has a wholly owned mortgage banking subsidiary - Standard Mortgage Corporation. Standard Mortgage Corporation, based in Atlanta, Georgia, is a mortgage banking company that originates, sells, and services residential mortgage loans. Additionally, TRB Financial Services Corporation, a wholly owned subsidiary of Three Rivers Bank was formed on August 5, 1997. TRB Financial Services Corporation engages in the sale of annuities and mutual funds. Three Rivers Bank's deposit base is such that loss of one depositor or a related group of depositors would not have a materially adverse effect on its business. In addition, the loan portfolio is also diversified so that one industry or group of related industries does not comprise a material portion of the loan portfolio. Three Rivers Bank's business is not seasonal nor does it have any risks attendant to foreign sources. As a state chartered, federally-insured bank and trust company which is not a member of the Federal Reserve System, Three Rivers Bank is subject to supervision and regular examination by the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation. Various federal and state laws and regulations govern many aspects of its banking operations. The following is a summary of key data (dollars in thousands) and ratios at December 31, 1998:
Headquarters McKeesport, PA Chartered 1965 Total Assets $1,061,987 (44.7% of the Company's total) Total Investment Securities $ 477,657 (40.8% of Company's total) Total Loans (net of unearned income) $ 526,461 (49.4% of the Company's total) Total Deposits $ 560,472 (47.6% of the Company's total) Total Net Income $ 11,259 (53.3% of the Company's total) Asset Leverage Ratio 6.47% 1998 Return on Average Assets 1.13% 1998 Return on Average Equity 16.09% Total Full-time Equivalent Employees 332 (43.6% of the Company's total) Number of Offices 24 (53.3% of the Company's total)
USBANCORP Non-Banking Subsidiaries: United Life United Life is a captive insurance company organized under the laws of the State of Arizona. United Life engages in underwriting as reinsurer of credit life and disability insurance within the Company's six county market area. Operations of United Life are conducted in each office of the Company's banking subsidiaries. United Life is subject to supervision and regulation by the Arizona Department of Insurance, the Insurance Department of the Commonwealth of Pennsylvania, and the Board of Governors of the Federal Reserve Bank. At December 31, 1998, United Life had total assets of $2.4 million and total shareholder's equity of $1.1 million.
USBANCORP Trust Company USBANCORP Trust Company is a trust company organized under Pennsylvania law in October 1992. USBANCORP Trust Company was formed to consolidate the trust functions of U.S. Bank and Three Rivers Bank and to increase market presence. As a result of this formation, the Trust Company now offers a complete range of trust services through each of the Company's subsidiary banks. At December 31, 1998, USBANCORP Trust Company had $1.36 billion in assets under management which included both discretionary and non-discretionary assets.
Executive Officers Information relative to current executive officers of the Company or its subsidiaries is listed in the following table:
Name Age Office with USBANCORP, Inc. and/or Subsidiary Terry K. Dunkle 57 Chairman, President & Chief Executive Officer of USBANCORP, Inc., and Chairman of U.S. Bank, Three Rivers Bank, and USBANCORP Trust Company Orlando B. Hanselman 39 Executive Vice President of USBANCORP, Inc., and President & Chief Executive Officer of U.S. Bank. W. Harrison Vail 58 President & Chief Executive Officer of Three Rivers Bank Ronald W. Virag, CFTA 53 President & Chief Executive Officer, USBANCORP Trust Company Kevin J. O'Neil 61 President & Chief Executive Officer, Standard Mortgage Corporation of Georgia
Mr. Dunkle succeeded Clifford A. Barton in February 1994, as Chairman, President and Chief Executive Officer of USBANCORP. In April 1988, Mr. Dunkle was appointed as President and Chief Executive Officer of U.S. Bank and Executive Vice President and Secretary of USBANCORP. Mr. Dunkle served the five previous years as Executive Vice President of Commonwealth National Bank in Harrisburg, Pennsylvania. Mr. Hanselman joined U.S. Bank in January 1987 as Vice President and Chief Financial Officer and was appointed Executive Vice President in February 1994. In May 1995, Mr. Hanselman was awarded the expanded responsibility of President and Chief Executive Officer of U.S. Bank. Mr. Vail has been President and Chief Executive Officer of Three Rivers Bank since January 1985. Mr. Virag was appointed as President and Chief Executive Officer of USBANCORP Trust Company in November 1994. Prior to joining the Trust Company, Mr. Virag served as Senior Vice President and head of trust group for Bank One in Charleston, West Virginia. Mr. O'Neil is President and Chief Executive Officer of Standard Mortgage Corporation of Georgia, a wholly-owned mortgage banking subsidiary of Three Rivers Bank. Mr. O'Neil joined the Company through the acquisition of JSB, and has 29 years of mortgage banking experience.
Monetary Policies Commercial banks are affected by policies of various regulatory authorities including the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of bank credit. Among the instruments of monetary policy used by the Board of Governors are: open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements on bank deposits. These means are used in varying combinations to influence overall growth of bank loans, investments, and deposits, and may also affect interest rate charges on loans or interest paid for deposits. The monetary policies of the Board of Governors have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.
Competition The subsidiary entities face strong competition from other commercial banks, savings banks, savings and loan associations, and several other financial or investment service institutions for business in the communities they serve. Several of these institutions are affiliated with major banking and financial institutions, such as Mellon Bank Corporation and PNC Financial Corporation, which are substantially larger and have greater financial resources than the subsidiary entities. As the financial services industry continues to consolidate, the scope of potential competition affecting the subsidiary entities will also increase. For most of the services that the subsidiary entities perform, there is also competition from credit unions and issuers of commercial paper and money market funds. Such institutions, as well as brokerage houses, consumer finance companies, insurance companies, and pension trusts, are important competitors for various types of financial services. In addition, personal and corporate trust investment counseling services are offered by insurance companies, other firms, and individuals.
Market Area The Company, headquartered in Johnstown, Pennsylvania, operates through 45 branch offices in six southwestern Pennsylvania counties with a combined population of approximately 2.2 million: Allegheny, Cambria, Clearfield, Somerset, Washington, and Westmoreland. The Company's U.S. Bank subsidiary has 21 offices and a $1.3 billion asset presence primarily in the Greater Johnstown marketplace. Three Rivers Bank has 24 offices and a $1.1 billion asset presence primarily in the suburban Pittsburgh marketplace. The momentum of the U.S. economy remains strong, as evidenced by strong consumer confidence, a rebound in exports, and a jump in federal purchases. These factors contributed to produce a 6.1% increase (annual rate) in real GDP in the fourth quarter, capping off a much stronger than expected economic expansion that stands in stark contrast to recessionary conditions covering the rest of the world. The risk of recession in 1999 has receded, although not completely. Continued low commodity prices, low interest rates, and high stock prices have given both consumers and business the wherewithal, as well as, the desire to spend. The Federal Reserve is unlikely to raise interest rates as long as inflation remains stable and employment cost increases do not accelerate. An increase in interest rates might cause the stock market to drop; triggering a sharp downturn that could turn into a recession. The economy grew 3.9% in both 1997 and 1998 without any increase in inflation. In fact, inflation decelerated even as the economy soared. The unemployment rate, at 4.3%, is at its lowest level since 1970.
Unemployment is expected to rise only marginally over the next year. Payroll jobs rose strongly in early 1999. December 1998 ended with a 245,000-job gain, which was close to the average monthly gain for 1998 when 2.9 million new jobs were created. Average hourly wages jumped by 0.5% In U.S. Bank's market area, business should continue to expand in Cambria, Bedford, and Blair counties, but slow slightly in Somerset County, the Federal Reserve predicted. Local economic developers, however, are optimistic about the Cambria and Somerset county outlook. With planned construction of an automobile dealership and a strip mall just outside Somerset Borough, manufacturers expect a business increase within the next six months. Downtown Johnstown, which has lacked growth over the years, is part of the area's recent economic revitalization. Johnstown's 1998 building permit revenues will be nearly double the amount anticipated due to more than $10 million in construction projects. Economic developers predict that this is an indication the city is moving in the right direction. Construction in the past year includes: A $5 million UPMC Lee Regional Expansion project at the Main Street hospital, a $1.5 million Rite Aid to be built in the city's Moxham section, and a $3.5 million Social Security building on Washington Street, downtown Johnstown. Unemployment reports by the state Department of Labor and Industry show the Johnstown Metropolitan Statistical Area, which encompasses Cambria and Somerset Counties, at 5.7%, the highest in Pennsylvania. This, however, represents solid improvement from the 7.2% unemployment rate in December 1997. Unemployment in Greater Johnstown is higher than suburban Pittsburgh, Pennsylvania, and the Nation, and is also subject to a greater level of volatility. In Three Rivers Bank's market area, new multi-family housing construction continues to surpass 1997 results in the metropolitan Pittsburgh area. A survey by the U.S. Census Bureau shows total number of building permit applications for multi-family units through the ten month period ending in October ran 15% higher than for the comparable period last year. Unemployment in the Pittsburgh region increased in October to 4.7%. The seasonally adjusted jobless rate was pushed up from September's 4.5% rate largely due to layoffs in the metals and mining industries. Job cuts in those and other sectors offset gains in trade, transportation and elsewhere. The unemployment rates for Pennsylvania and the suburban Pittsburgh region move in tandem and are more comparable to the National rate, but at a slower pace.
Employees The Company employed approximately 857 persons as of December 31, 1998, in full- and part-time positions. Approximately 258 non-supervisory employees of U.S. Bank are represented by the United Steelworkers of America, AFL-CIO-CLC, Local Union 8204. U.S. Bank and such employees are parties to a labor contract pursuant to which employees have agreed not to engage in any work stoppage during the term of the contract which will expire on October 15, 1999. U.S. Bank has not experienced a work stoppage since 1979. The Company successfully negotiated a four-year collective bargaining agreement with the local union which took effect October 16, 1995.
Commitments and Lines of Credit The Company's banking subsidiaries are obligated under commercial, standby, and trade-related irrevocable letters of credit aggregating $15.4 million at December 31, 1998. In addition, the subsidiary banks have issued lines of credit to customers generally for periods of up to one year. Borrowings under such lines of credit are usually for the working capital needs of the borrower. At December 31, 1998, the Company's banking subsidiaries had unused loan commitments of approximately $234.3 million.
Statistical Disclosures for Bank Holding Companies Certain information regarding statistical disclosure for bank holding companies pursuant to Guide 3 is provided in the 1998 Annual Report to Shareholders and such pages are incorporated herein by reference. The remaining Guide 3 information is included in this Form 10-K as listed below:
I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential Information. This section is presented on pages 54, 55, 64, 65, 66, 67 and 68. II. Investment Portfolio Information required by this section is presented on pages 22, 23, 79 and 80. III. Loan Portfolio Information required by this section appears on pages 24, 25, 81 and 82. IV. Summary of Loan Loss Experience Information required by this section is presented on pages 24, 57, 58 and 59. V. Deposits Information required by this section follows on pages 26, 82 and 83. VI. Return on Equity and Assets Information required by this section is presented on page 46. VII. Short-Term Borrowings Information required by this section is presented on page 26.
Investment Portfolio Investment securities held to maturity are carried at amortized cost while investment securities classified as available for sale are reported at fair value. At December 31, 1998, approximately 43% of the portfolio was categorized as held to maturity and 57% as available for sale.
The following table sets forth the book and market value of USBANCORP's investment portfolio as of the periods indicated:
The total securities portfolio increased by approximately $53 million between December 31, 1997, and December 31, 1998, and by $110 million between year end 1996 and year-end 1997. The Company more aggressively purchased securities in the second half of 1998 due to expected continuation of strong cash flow from mortgage-backed securities in future months and to position the balance sheet for the net inflow of approximately $70 million in cash from the First Western Branch Acquisition which will close in the first quarter of 1999. The growth in 1997 resulted from increased balance sheet leveraging in an effort to improve return on equity performance. The securities portfolio growth occurred primarily in mortgage-backed securities as the management of the cash flow from these securities provides a significant source of liquidity to the Company. The Company also had increased purchases of municipal securities as these are a key tool used to manage the effective tax rate. At December 31, 1998, investment securities having a book value of $628.4 million were pledged as collateral for public funds and other purposes as required by law. The Company and its subsidiaries, collectively, did not hold securities of any single issuer, excluding U.S. Treasury and U.S. Agencies, that exceeded 10% of shareholders' equity at December 31, 1998. Maintaining investment quality is a primary objective of the Company's investment policy which, subject to certain minor exceptions, prohibits the purchase of any investment security below a Moody's Investor Service or Standard & Poor's rating of "A." At December 31, 1998, 98.1% of the portfolio was rated "AAA" compared to 98.8% at December 31, 1997. Less than 1.0% was rated below "A" or unrated at December 31, 1998.
Loan Portfolio The following table sets forth the Company's loans by major category as of the dates set forth below:
Total loans, net of unearned income, increased by $38.6 million, or 4.0%, between December 31, 1997, and December 31, 1998. This growth occurred in commercial mortgage loans which increased by $39.2 million, or 13.0%, and real estate-mortgage loans which grew by $9.1 million, or 2.1%. The higher loan totals in commercial mortgages resulted from increased production from both middle market and small business lending (loans less than $250,000). This improved new loan production was due primarily to more effective sales efforts which have included an intensive customer calling program and canvassing of small commercial businesses. Other factors contributing to the loan growth were a stable economic environment and the first full year results from two loan production offices in the higher growth markets of Westmoreland and Centre counties. The Company experienced strong retail demand in both residential mortgages and home equity loans in 1997 which was a key factor contributing to the 6.5% growth rate. The formation of UBAN Mortgage Company and the opening of a U.S. Bank loan production office in Westmoreland County were other factors contributing to the increased residential mortgage loan growth in 1997. Total residential mortgage loans were relatively flat between 1996 and 1995 as growth in adjustable-rate mortgage loans was more than offset by principal amortization in the existing fixed-rate mortgage loan portfolio. The Company is also selling the majority of new fixed-rate mortgage product to assist in asset/liability positioning and to reduce the Company's overall dependence on residential mortgage loans. Total consumer loans declined by $6.5 million or 6.8% in 1998, $15.8 million or 14.2% in 1997, and $22.8 million, or 17.0% in 1996, due to continued net run-off in the indirect auto loan portfolio. This indirect auto loan run-off has more than offset improved production of higher yielding direct consumer loans from the Company's branch offices over each of the past three years. The amount of loans outstanding by category as of December 31, 1998, which are due in (i) one year or less, (ii) more than one year through five years, and (iii) over five years, are shown in the following table. Loan balances are also categorized according to their sensitivity to changes in interest rates.
The loan maturity information is based upon original loan terms and is not adjusted for principal paydowns and "rollovers." In the ordinary course of business, loans maturing within one year may be renewed, in whole or in part, as to principal amount at interest rates prevailing at the date of renewal. At December 31, 1998, 66.5% of total loans were fixed-rate which was comparable with the prior year. The stability in the fixed-rate percentage between years reflects continued customer preference for fixed-rate loans in this overall low interest rate environment. Also, a good portion of the commercial real estate loan growth has occurred in the five year fixed-rate area. For additional information regarding interest rate sensitivity, see "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations - Interest Rate Sensitivity."
Deposits The following table sets forth the average balance of the Company's deposits and the average rates paid thereon for the past three calendar years:
Total deposits increased by $16.3 million or 1.4% in 1998 due to the acquisition in June of 1998 of two National City branch offices with $27 million of deposits. The Company's average deposits decreased by $8.5 million or 0.7% in 1997 due to management's application of a consistent pricing strategy which emphasized profitable net interest margin management rather than increased deposit size. Customer movement toward mutual funds due to the strong returns offered by these products in a rising stock market also contributed to the deposit decline. The drop in deposits occurred primarily in savings accounts. The growth in demand deposits over each of the past two years reflects the success of new business generated in conjunction with the increased commercial lending activity.
The following table indicates the maturities and amounts of certificates of deposit issued in denominations of $100,000 or more as of December 31, 1998: Maturing in: (In thousands) Three months or less $26,876 Over three through six months 3,821 Over six through twelve months 4,192 Over twelve months 4,554 Total $39,443
ITEM 2.
ITEM 2. PROPERTIES The principal offices of the Company and U.S. Bank occupy a five-story building at the corner of Main and Franklin Streets in Johnstown plus several floors of the building adjacent thereto. The Company occupies the main office and its subsidiary entities have 33 other locations which are owned in fee. Fourteen additional locations are leased with terms expiring from April 30, 1999, to March 31, 2008.
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 legal counsel, there is no present basis to conclude that the resolution of these claims will have a material adverse effect on the Company's consolidated financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted by the Company to its shareholders through the solicitation of proxies or otherwise during the fourth quarter of the fiscal year covered by this report.
PART II ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Information relating to the Company's Common Stock is presented on pages 32 and 45. As of January 31, 1999, the Company had 5,321 shareholders of its Common Stock.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Information required by this section is presented on page 46 and 47.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this section is presented on pages 49 to 70.
ITEM 7a.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information regarding the market risk of the Company's financial instruments, see "Interest Rate Sensitivity" in the MD&A presented on pages 65 to 68. The Company's principal market risk exposure is to interest rates.
ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this section is presented on pages 13 to 40.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable for the years presented.
PART III ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this section relative to Directors of the Registrant is presented in the Proxy Statement for the Annual Meeting of Shareholders. Executive officer information has been provided in Item 1.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION Information required by this section is presented in the Proxy Statement for the Annual Meeting of Shareholders.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this section is presented in the Proxy Statement for the Annual Meeting of Shareholders.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this section is presented in the Proxy Statement for the Annual Meeting of Shareholders.
PART IV ITEM 14.
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Consolidated Financial Statements Filed: The consolidated financial statements listed below are from the 1998 Annual Report to Shareholders and Part II - Item 8. Page references are to said Annual Report.
Consolidated Financial Statements: USBANCORP, Inc. and Subsidiaries Consolidated Balance Sheet, 13 Consolidated Statement of Income, 14 Consolidated Statement of Comprehensive Income, 15 Consolidated Statement of Changes in Stockholders' Equity, 16 Consolidated Statement of Cash Flows, 17 Notes to Consolidated Financial Statements, 19 Statement of Management Responsibility, 41 Report of Independent Public Accountants, 42
Consolidated Financial Statement Schedules: These schedules are not required or are not applicable under Securities and Exchange Commission accounting regulations and therefore have been omitted.
Reports on Form 8-K: There were no reports on Form 8-K for the quarter ended December 31, 1998.
Exhibits: The exhibits listed below are filed herewith or to other filings.
Exhibit Prior Filing or Exhibit Number Description Page Number Herein 3.1 Articles of Incorporation, as amended on February 24, 1995. Exhibit III, Part II to Form S-14 File No. 2-79639 Exhibit 4.2 to Form S-2 File No. 33-685 Exhibit 4.3 to Form S-2 File No. 33-685 Exhibit 4.1 to Form S-3 File No. 33-56604 3.2 Bylaws, as amended and restated on February 24, 1995. Exhibit IV, Part II to Form S-14 File No. 2-79639 Exhibit 3.2 4.1 Rights Agreement, dated as of February 24, 1995, between Exhibit 1 to Form 8-A USBANCORP, Inc. and USBANCORP Dated March 1, 1995 Trust Company, as Rights Agent.
10.2 Agreement, dated June 22, 1994, between USBANCORP, Inc. Exhibit 10.2 to 1994 Form 10-K and Terry K. Dunkle. Filed March 22, 1995
10.3 Agreement, dated October 25, 1994, between USBANCORP, Exhibit 10.3 to 1994 Form 10-K Inc. and W. Harrison Vail. Filed March 22, 1995
10.6 Loan Agreement, dated December 19, 1997, between Exhibit 10.6 to 1997 Form 10-K USBANCORP, Inc. and PNCBANK. Filed March 24, 1998
10.7 Agreement, dated October 25, 1994, between USBANCORP, Exhibit 10.7 to 1994 Form 10-K Inc. and Orlando B. Hanselman. Filed March 22, 1995
10.8 1991 Stock Option Plan, dated August 23, 1991, as amended Exhibit 10.8 to 1994 Form 10-K and restated on February 24, Filed March 22, 1995 1995.
10.9 Agreement, dated December 1, 1994, between USBANCORP, Exhibit 10.9 to 1994 Form 10-K Inc. and Ronald W. Virag. Filed March 22, 1995
10.10 Agreement, dated July 15, 1994, between USBANCORP, Exhibit 10.10 to 1994 Form 10-K Inc. and Kevin J. O'Neil. Filed March 22, 1995 10.11 Collective Bargaining Agreement, dated October 16, 1995, Exhibit 10.1 to Form 8-K/A between United States National Dated March 1, 1996 Bank in Johnstown and Steel Workers of America, AFL-CIO-CLC Local Union 8204.
13 1998 Annual Report to Shareholders. Page 1
22 Subsidiaries of the Registrant. Below
24.1 Consent of Arthur Andersen LLP
EXHIBIT A (22) Subsidiaries of the Registrant Percent Jurisdiction Name of Ownership of Organization U.S. Bank 100% Commonwealth of Main and Franklin Streets Pennsylvania P.O. Box 520 Johnstown, PA 15907
Three Rivers Bank and Trust Company 100% Commonwealth of 633 State Route 51, South Pennsylvania Jefferson Borough P.O. Box 10915 Pittsburgh, PA 15236
United Bancorp Life Insurance Company 100% State of Arizona 101 N. First Avenue #2460 Phoenix, AZ 85003
USBANCORP Trust Company 100% Commonwealth of Main and Franklin Streets Pennsylvania P.O. Box 520 Johnstown, PA 15907
UBAN Associates, Inc. 100% Commonwealth of 110 Regent Court, Suite 104 Pennsylvania State College, PA 16801
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. USBANCORP, Inc. (Registrant) Date: February 26, 1999 By: /s/Terry K. Dunkle TERRY K. DUNKLE Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 26, 1999:
/s/ Terry K. Dunkle TERRY K. DUNKLE, Chairman, President and Chief Executive Officer; Director /s/ Jeffrey A. Stopko JEFFREY A. STOPKO, Senior Vice President and Chief Financial Officer /s/ Jerome M. Adams JEROME M. ADAMS, Director /s/ Clifford A. Barton CLIFFORD A. BARTON, Director /s/ Michael F. Butler MICHAEL F. BUTLER, Director /s/ James C. Dewar JAMES C. DEWAR, Director /s/ James M. Edwards, Sr. JAMES M. EDWARDS, SR., Director
RICHARD W. KAPPEL, Director /s/ Margaret A. O'Malley MARGARET A. O'MALLEY, Director /s/ Mark E. Pasquerilla MARK E. PASQUERILLA, Director /s/ Jack Sevy JACK SEVY, Director /s/ Thomas C. Slater THOMAS C. SLATER, Director /s/ James C. Spangler JAMES C. SPANGLER, Director /s/ Robert L. Wise ROBERT L. WISE, Director
USBANCORP, INC. directors, general officers, advisory board, community offices, and shareholder information
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USBANCORP, Inc. Board of Directors
Jerome M. Adams Senior Partner, Adams, Myers & Baczkowski Attorneys-at-Law Clifford A. Barton Retired; Former Chairman, President & CEO, USBANCORP, Inc. Michael F. Butler Business Consultant & Attorney-at-Law James C. Dewar President & CEO, Geo. C. Dewar, Inc.; Retired President & CEO, Dewar's Car World Terry K. Dunkle Chairman, President & CEO, USBANCORP, Inc. James M. Edwards, Sr. Retired President & CEO, WJAC, Incorporated Richard W. Kappel Retired CEO, Secretary & Treasurer, Wm. J. Kappel Wholesale Co.
Margaret A. O'Malley Attorney-at-Law Yost & O'Malley Mark E. Pasquerilla Vice Chairman & President, Crown American Realty Trust Jack Sevy Retired; Former Owner & Operator, New Stanton West Auto/Truck Plaza Thomas C. Slater Owner, President & Director, Slater Laboratories, Inc. Clinical Laboratory James C. Spangler Retired; Former Owner, Somerset Auction and Transfer, Inc. Robert L. Wise President, GPU International, Inc., GPU Power, Inc., and GPU Generation, Inc.
General Officers Terry K. Dunkle Chairman, President & Chief Executive Officer Orlando B. Hanselman Executive Vice President Gary M. McKeown Senior Vice President, Manager of Credit Policy and Administration & Assistant Secretary Dan L. Hummel Senior Vice President & Marketing Director Jeffrey A. Stopko, CPA Senior Vice President & Chief Financial Officer John Suierveld, Jr. Senior Vice President & Chief Auditor Anthony M.V. Eramo Vice President & Manager of Specialized Accounting Ray M. Fisher Vice President & Chief Investment Officer John H. Follansbee, III Vice President, Compliance John J. Legath Vice President, CRA/Community Development Leslie N. Morgenstern Vice President & Manager, Loan Review Betty L. Jakell Corporate Secretary
U.S. Bank Board of Directors Clifford A. Barton Retired; Former Chairman, President & CEO, USBANCORP, Inc. Michael F. Butler Business Consultant & Attorney-at-Law William F. Casey CEO, Conemaugh Health System, Inc. Edward J. Cernic, Sr. President, Cernic Enterprises, Inc. Daniel R. DeVos President and CEO, Concurrent Technologies Corporation James C. Dewar President & CEO, Geo. C. Dewar, Inc.; Retired President & CEO, Dewar's Car World Bruce E. Duke III, M.D. Surgeon, Valley Surgeons Terry K. Dunkle Chairman, President & CEO, USBANCORP, Inc. James M. Edwards, Sr. Retired President & CEO, WJAC, Incorporated Orlando B. Hanselman President & CEO, U.S. Bank, and Executive Vice President, USBANCORP, Inc. Kim W. Kunkle President & CEO, Laurel Holding Company Rev. Christian R. Oravec President, St. Francis College Margaret A. O'Malley Attorney-at-Law Yost & O'Malley Mark E. Pasquerilla Vice Chairman & President, Crown American Realty Trust Howard M. Picking, III President, The Picking Company Sara A. Sargent President, The Sargent's Group
Fred R. Shaffer Senior Pharmacist/Director, Findley's Pharmacy, Inc. Thomas C. Slater Owner, President & Director, Slater Laboratories, Inc. Clinical Laboratory James C. Spangler Retired; Former Owner, Somerset Auction and Transfer, Inc. Robert L. Wise President, GPU International, Inc., GPU Power, Inc., and GPU Generation, Inc.
General Officers Terry K. Dunkle Chairman of the Board Orlando B. Hanselman President & Chief Executive Officer Leo J. Fronczek Senior Vice President, Management Information Systems & Security Officer Jeryl L. Graham Senior Vice President, Lending & Leasing Wayne A. Kessler Senior Vice President, Community Banking Douglas B. Bickmore Vice President & Commercial Equipment Leasing Manager James S. Bubenko Vice President & Manager of Retail Credit Operations Timothy D. McDonald Vice President, Life Insurance and Annuities Mark D. Shelhammer Vice President, Community Banking
Directors Emeriti John N. Crichton John L. Williams
Advisory Board Orlando B. Hanselman, Chairman Edward J. Cernic David N. Crichton George B. Kaufman Mark Miller William C. Polacek David J. Rizzo Carl R. Sax
Three Rivers Bank Board of Directors Jerome M. Adams Senior Partner, Adams, Myers, & Baczkowski Attorneys-at-Law Clifford A. Barton Retired; Former Chairman, President & CEO, USBANCORP, Inc. Terry K. Dunkle Chairman, President & CEO, USBANCORP, Inc. J. Terrence Farrell Attorney-at-Law Marylouise Fennell, Ed.D. Higher Education Consultant James R. Ferry President, Ferry Electric Company Electrical Contractor Richard W. Kappel Retired; CEO, Secretary & Treasurer, Wm. J. Kappel Wholesale Co. Stephen I. Richman Senior Partner, Ceisler, Richman, Smith Law Firm Edward W. Seifert Attorney-at-Law, Partner, Reed, Smith, Shaw & McClay Jack Sevy Retired; Former Owner & Operator, New Stanton West Auto/Truck Plaza W. Harrison Vail President & CEO, Three Rivers Bank & Trust Company
General Officers Terry K. Dunkle Chairman of the Board W. Harrison Vail President & Chief Executive Officer James G. Caliendo Senior Vice President, Community Banking, Planning & Business Development Thomas J. Chunchick Senior Vice President, CRA, Compliance & Branch Operations Harry G. King Senior Vice President, Bank Support Services Louis S. Klippa Senior Vice President & Chief Operating Officer Vincent W. Locher Senior Vice President & Chief Commercial Loan Officer James F. Ackman Vice President, Retail Lending Richard L. Barron Vice President, Human Resources
Fred Geisler Vice President, Mortgage Lending Patricia M. Smarra Vice President, Operations Robert J. Smerker Vice President, Operations, Bank Secrecy Act Officer & Assistant Secretary Mary Pat Soltis Vice President, Sales & Business Development Hudson Stoner Vice President, Small Business Center
Directors Emeriti J. Paul Farrell William R. Hoag
USBANCORP Trust Company Board of Directors Jerome M. Adams Senior Partner, Adams, Myers & Baczkowski Attorneys-at-Law Clifford A. Barton Retired; Former Chairman, President & CEO, USBANCORP, Inc. John N. Crichton Chairman, Concurrent Technologies Corporation Terry K. Dunkle Chairman, President & CEO, USBANCORP, Inc. J. Terrence Farrell Attorney-at-Law William M. George President, PA AFL-CIO Richard W. Kappel CEO, Secretary & Treasurer, Wm. J. Kappel Wholesale Co. Kim W. Kunkle President & CEO, Laurel Holding Company Rev. Christian R. Oravec President, St. Francis College Fred R. Shaffer Senior Pharmacist/Director, Findley's Pharmacy, Inc. W. Harrison Vail President & CEO, Three Rivers Bank & Trust Company Ronald W. Virag, CTFA President & CEO, USBANCORP Trust Company Robert L. Wise President, GPU Generation, Inc.
General Officers Terry K. Dunkle Chairman of the Board Orlando B. Hanselman Vice Chairman Ronald W. Virag, CTFA President & Chief Executive Officer Jeffrey A. Stopko, CPA Treasurer David L. Mordan, CPA Senior Vice President & Manager of Institutional Trust Services Gerald R. Baxter, CPA, CTFA Vice President & Manager of Personal Trust Services Nicholas E. Debias, Jr. Vice President, Institutional Trust Frank J. Lapinsky Vice President & Trust Investment Officer James P. McCarthy, CPA Vice President, Tax & Financial Planning Carol D. Stern, CTFA Vice President, Personal Trust William S. Townsend Vice President & Trust Investment Officer M. Randolph Westlund, CFA Vice President & Chief Investment Officer
Director Emeritus James F. O'Malley, Esq. Senior Lawyer, Yost & O'Malley Attorneys-at-Law
Trust Company Offices
Main and Franklin Streets, 11th Floor U.S. Bank Building P.O. Box 520 Johnstown, Pennsylvania 15907-0520
500 Fifth Avenue, 2nd Floor Three Rivers Bank and Trust Company Building McKeesport, Pennsylvania 15132-2500
UBAN Associates, Inc. General Officers Terry K. Dunkle Chairman of the Board Ray M. Fisher President & Chief Executive Officer Wendy L. Rager Vice President & Chief Operating Officer
UBAN Associates, Inc., Office 110 Regent Court, Suite 104 State College, PA 16801-7966
U.S. Bank OFFICE LOCATIONS a Main Office Downtown 216 Franklin Street P.O. Box 520 Johnstown, PA 15907-0520 (814) 533-5300 a Westmont Office 110 Plaza Drive Johnstown, PA 15905-1211 (814) 255-6836 a University Heights Office 1404 Eisenhower Boulevard Johnstown, PA 15904-3280 (814) 266-9691 a East Hills Office 1219 Scalp Avenue Johnstown, PA 15904-3182 (814) 266-3181 a Eighth Ward Office 1059 Franklin Street Johnstown, PA 15905-4303 (814) 535-8317 West End Office 163 Fairfield Avenue Johnstown, PA 15906-2392 (814) 533-5436 a Carrolltown Office 101 S. Main Street Carrolltown, PA 15722-0507 (814) 344-6501 a Barnesboro Office 103 10th Street Barnesboro, PA 15714-1342 (814) 948-9540 Ebensburg Office 104 S. Center Street Ebensburg, PA 15931-1656 (814) 472-8706 a Lovell Park Office 179 Lovell Avenue Ebensburg, PA 15931-0418 (814) 472-5200 Nanty Glo Office 928 Roberts Street Nanty Glo, PA 15943-1303 (814) 749-9227 Nanty Glo Drive-In 1383 Shoemaker Street Nanty Glo, PA 15943-1252 (814) 749-0955 a Galleria Mall Office 500 Galleria Drive Suite 100 Johnstown, PA 15904-8911 (814) 266-5969 a St. Michael Office 900 Locust Street St. Michael, PA 15951-0393 (814) 495-5514 a Coalport Office Main Street, P.O. Box 356 Coalport, PA 16627-0356 (814) 672-5303 * Seward Office #1, Roadway Plaza Seward, PA 15954-9501 (814) 446-5655 a Windber Office 1501 Somerset Avenue Windber, PA 15963-1745 (814) 467-4591 Central City Office 104 Sunshine Avenue Central City, PA 15926-1129 (814) 754-4141 a Somerset Office 108 W. Main Street Somerset, PA 15501-2035 (814) 445-4193 a Derry Office 112 South Chestnut Street Derry, PA 15627-1938 (724) 694-8887 a Mobile Branch U.S. Bank operates a Mobile Bank Branch that circulates to various businesses and locations throughout the Bank's service area on a scheduled basis.
Three Rivers Bank OFFICE LOCATIONS a Boston Office 1701 Boston Hollow Road McKeesport, PA 15135-1217 (412) 754-2014 Braddock Office 823 Braddock Avenue Braddock, PA 15104-1714 (412) 351-0400 a Century III Office 269 Clairton Boulevard Pittsburgh, PA 15236-1499 (412) 653-7199 a Franklin Mall Office 1500 W. Chestnut Street Washington, PA 15301-5871 (724) 228-0065 Glassport Office 600 Monongahela Avenue Glassport, PA 15045-1608 (412) 664-8760 a Jefferson Borough Office Route 51, South P.O. Box 10915 Pittsburgh, PA 15236-0915 (412) 382-1000 Liberty Boro Office 3107 Liberty Way McKeesport, PA 15133-2198 (412) 664-8707 McKeesport Office 500 Fifth Avenue McKeesport, PA 15132-2500 (412) 664-8715 a Motor Bank 1415 Fifth Avenue McKeesport, PA 15132-2427 (412) 664-8755 a Port Vue Office 1194 Romine Avenue McKeesport, PA 15133-3596 (412) 664-8975 a Rainbow Village Office 1 Rainbow Village Shopping Center White Oak, PA 15131-2415 (412) 664-8771 a South Strabane Office 590 Washington Road Washington, PA 15301-9621 (724) 225-9800 a University Office 2016 Eden Park Boulevard McKeesport, PA 15132-7619 (412) 664-8780 Lawrenceville 4319 Butler Street Pittsburgh, PA 15201-3094 (412) 681-8390 a Kiski 451 Hyde Park Road Leechburg, PA 15656-9458 (724) 845-8642 a New Kensington 2 Feldarelli Square 2300 Freeport Road New Kensington, PA 15068-4669 (724) 335-9811 a North Side 600 East Ohio Street Pittsburgh, PA 15212-5588 (412) 231-4300 a Northway Mall 1002 Northway Mall Pittsburgh, PA 15237-3098 (412) 364-8692 a Monroeville 2681 Moss Side Boulevard Monroeville, PA 15146-3394 (412) 856-8431 a North Versailles Great Valley Shopping Center 500 Lincoln Highway North Versailles, PA 15137-1524 (412) 829-1360 a Carrick 1817 Brownsville Road Pittsburgh, PA 15210-3999 (412) 881-3500 a Bethel Park 2739 South Park Road Bethel Park, PA 15102-3805 (412) 835-2100 a Finleyville 3576 Sheridan Avenue Finleyville, PA 15332-1018 (724) 348-6626 a Jeannette 401 Clay Avenue Jeannette, PA 15644-2124 (724) 527-1501 a = 24-Hour Banking Available
Remote Banking Locations Main Office, Main & Franklin Streets, Johnstown Lee Hospital, Main Street, Johnstown The Galleria, Johnstown BiLo Supermarket, Scalp Avenue, Johnstown Derry BP - Pit Stop Quick Shop, Derry Robyn's Shoppe, Nanty Glo Hill's, 7005 Clairton Rd., West Mifflin Gogas Service Station, Cairnbrook Community College of Allegheny County, North Campus, Pittsburgh Community College of Allegheny County, Allegheny Campus, Pittsburgh Shop & Save, Ohio Avenue, Glassport Washington Mall, Oak Springs Road, Washington
Shareholder Information Securities Markets USBANCORP, Inc. Common Stock is publicly traded and quoted on the NASDAQ National Market System. The common stock is traded under the symbol of "UBAN." The listed market makers for the stock are:
Herzog, Heine, Geduld, Inc. 525 Washington Boulevard Jersey City, NJ 07310 Telephone: (212) 908-4156
Legg Mason Wood Walker, Inc. 969 Eisenhower Boulevard Oak Ridge East Johnstown, PA 15904 Telephone: (814) 266-7900
F. J. Morrissey & Co., Inc. 1700 Market Street Suite 1420 Philadelphia, PA 19103-3913 Telephone: (215) 563-8500
Keefe Bruyette & Woods, Inc. Two World Trade Center 85th Floor New York, NY 10048 Telephone: (800) 342-5529
Oppenheimer & Co., Inc. Oppenheimer Tower 200 Liberty Street One World Financial Center New York, NY 10281 Telephone: (212) 667-7000
Parker/Hunter, Inc. 416 Main Street Johnstown, PA 15901 Telephone: (814) 535-8403
Sandler O'Neill & Partners, L.P. 2 World Trade Center 104th Floor New York, NY 10048 Telephone: (800) 635-6860
Weeden & Co. L.P. 145 Madison Ave. Greenwich, CT 06830 Telephone: (203) 861-7600
Form 10-K USBANCORP, Inc.'s Annual Report to the Securities and Exchange Commission on Form 10-K is integrated within this Annual Report.
Corporate Offices The corporate offices of USBANCORP, Inc. are located in the United States National Bank Building at Main and Franklin Streets, Johnstown, PA 15901. Mailing address: P.O. Box 430 Johnstown, PA 15907-0430 (814) 535-5300
Agents The transfer agent and registrar for USBANCORP, Inc.'s common stock is: Boston EquiServe Investor Relations Department P.O. Box 644 Mail Stop 45-02-09 Boston, MA 02102-0644 1-800-730-4001
Shareholder Data As of January 31, 1999, there were 5,321 shareholders of common stock and 13,508,353 shares outstanding. Of the total shares outstanding, approximately 662,030 or 5% are held by insiders (directors and executive officers) while approximately 3,545,044 or 26% are held by institutional investors (mutual funds, employee benefit plans, etc.).
Dividend Reinvestment Shareholders seeking information about USBANCORP, Inc.'s dividend reinvestment plan should contact Betty L. Jakell, Executive Office, at (814) 533-5158
Information Analysts, investors, shareholders, and others seeking financial data about USBANCORP, Inc. or any of its subsidiaries annual and quarterly reports, proxy statements, 10-K, 10-Q, 8-K, and call reports - are asked to contact Jeffrey A. Stopko, Senior Vice President & Chief Financial Officer at (814) 533-5310.
ANNEX A TO USBANCORP, INC. 1998 ANNUAL REPORT & FORM 10-K
The following is a listing of the graphs presented in USBANCORP, Inc.'s 1998 Annual Report & Form 10-K.
Page 2: The following six graphs present Financial Highlights-At A Glance:
The top left graph is a bar graph showing the Company's diluted earnings per share:
1994 1995 1996 1997 0.73% 0.96% 1.28% 1.54% 1.48%
Earnings per share growth is a key determinant of shareholder value and the Company s ongoing financial soundness. Over the past five years, USBANCORP's annual rate of earnings per share growth has approximated 12%.
The middle left graph is a bar graph showing dividends per common share:
1994 1995 1996 1997 1998 $0.32 $0.35 $0.46 $0.53 $0.60
USBANCORP's believes that growing common dividend payment is an important component of total shareholder return. USBANCORP s dividends paid to shareholders have increased at an average annual rate of approximately 17% over the past five years. The Company declared, for the third consecutive year, a special dividend which amounted to $0.06 per share in 1998.
The bottom left graph is an area graph showing non- performing assets as a percentage of loans and OREO at December 31 for the periods presented:
1994 1995 1996 1997 1998 0.91% 1.13% 0.92% 0.89% 0.77%
Asset quality is critical to a bank's safety and ongoing earnings power. Non-performing assets are those loans and foreclosed properties that are not generating income and represent collection risk. USBANCORP's non-performing asset ratio continued to trend downward in 1998 and remained favorably lower than peer.
The top right graph is a bar graph showing the Company's return on equity for the periods presented:
1994 1995 1996 1997 1998 8.92% 11.03% 13.36% 15.00% 14.13 %
Return on equity (ROE) is a standard measurement of a company s profitability. USBANCORP has a disciplined ROE focus throughout all organizational levels and business lines within the Company. USBANCORP achieved a 14.13% ROE in 1998.
The middle right graph is an bar graph showing treasury stock buy-back (dollar value of shares):
1994 1995 1996 1997 1998 3,064,000 7,943,000 8,531,000 11,637,000 30,346,000
USBANCORP uses an active treasury stock repurchase program to enhance both return on equity and earnings per share performance. During 1998, the Company returned $30 million to its shareholders through open market repurchases of 1.2 million shares of USBANCORP common stock. Improved liquidity in our stock resulting from the 3 for 1 stock split completed in July was one factor contributing to the increased number of shares repurchased in 1998.
The bottom right graph is a bar graph showing the Company's non-interest income to total revenue for the periods presented:
1994 1995 1996 1997 1998 17.90% 22.80% 23.40% 23.20% 26.60%
To help battle the earning s pressures resulting from shrinking net interest margins, USBANCORP has strategically focused on growing non-interest revenue. Non-interest income grew by 17% in 1998 and contributed to the non-interest income to total revenue ratio improving to 26.6%. The Company has targeted a non- interest income to total revenue ratio of 30% as a critical strategic goal needed to diversify our revenue stream and generate future earnings per share growth.
Page 4: The top left graph is a bar graph showing common stock price per share at December 31:
1994 1995 1996 1997 1998 $7.00 $11.00 $13.92 $23.33 $19.88
The bottom left graph is an bar graph showing treasury stock buy-back (number of shares):
1994 1995 1996 1997 1998 3,064,000 7,943,000 8,531,000 11,637,000 30,346,000
Page 5: Appearing in the margin is a "call out" reflecting the quote:
My husband and I actually paid a higher rate of interest to get our refinancing done at Three Rivers Bank. We were willing to pay the extra percent in exchange for the personalized services we received. Cindy Sollosi, Findleyville, PA
Page 6: Appearing in the top left margin is a "call out" reflecting the quote:
I am well-satisfied with the services of USNB Financial Services. I recently converted my IRAs over to a mutual fund account. If the bank did not have this service available, I would have taken my money to a brokerage firm. I rely on a reputable bank that I trust to provide me with good information. Thomas Heider, Davidsville, PA.
Appearing in the bottom left margin is a "call out" reflecting the quote:
The high level of service at a reasonable cost makes USBANCORP Trust Company our provider of choice for our 401(k) Pension Plan. Ed Johnson, Manager, Human Resources Retirement Plan Trustee T.W. Phillips Gas and Oil Co., Butler, PA.
Page 7: Appearing in the top left margin is a "call out" reflecting the quote:
From a business standpoint the U.S. Bank Bank Mobile is fantastic. From a community standpoint it s a real asset and convenience to the people who live here (in Nicktown, PA). Joe Shimko, Nicktown, PA.
Appearing in the bottom left margin is a "call out" reflecting the quote:
My husband and I both work full-time. Getting to a bank during normal working hours is next to impossible. A few months ago I started using the services of the Three Rivers Bank Call Center and have been completely satisfied with the convenience and flexibility. Nancy Engle, Washington, PA.
Page 8: Appearing in the top left margin is a "call out" reflecting the quote:
The financial support provided by U.S. Bank and the volunteer and leadership support from employees helps make the Johnstown Folkfest a continuing success. The Folkfest is the premier event which brings together the entire community to celebrate and showcase our rich heritage. Richard Burkert, Executive Director, Johnstown Area Heritage Association (JAHA), Johnstown, PA.
Appearing in the bottom left margin is a "call out" reflecting the quote:
After participating in the U.S. Bank - sponsored Year 2000 seminar, we knew where and how to start taking more pro-active measures to ensure compliance. Ellen Zalevsky, Chief Financial Officer, Westmoreland Housing Authority, Greensburg, PA.
Page 9: The top left graph is a bar graph showing the Company's return on equity for the periods presented:
1994 1995 1996 1997 1998 8.92% 11.03% 13.36% 15.00% 14.13 %
Page 10: This page shows a service area map showing the Company s six county area and also a closeup map with the location of the branches.
Page 45: The bottom left graph is a bar graph showing dividends per common share:
1994 1995 1996 1997 1998 $0.32 $0.35 $0.46 $0.53 $0.60
The graph at the bottom right is area graph showing market capitalization at December 31 (in thousands):
1994 1995 1996 1997 1998 $117,225 $175,246 $212,132 $357,241 $268,625
Page 49: The top left graph is a bar graph showing net income (in thousands):
1994 1995 1996 1997 1998 $13,320 $15,803 $20,019 $23,497 $21,144
The graph at the bottom left is an bar graph showing total common shares outstanding at December 31:
1994 1995 1996 1997 1998 16,745,685 15,931,467 15,243,012 14,681,154 13,512,317
Page 50: The top left graph is a bar graph showing diluted earnings per share:
1994 1995 1996 1997 1998 $0.73 $0.96 $1.28 $1.54 $1.48
The bottom left graph is a bar graph showing the Company's return on equity for the periods presented: 1994 1995 1996 1997 1998 8.92% 11.03% 13.36% 15.00% 14.13%
Page 51: The top left graph is a bar graph showing average loans to average deposits ratio for the periods presented:
1994 1995 1996 1997 1998 71.87% 69.15% 74.35% 83.81% 87.57%
The graph at the bottom left is a bar graph showing tax equivalent net interest income (NII) in thousands and data points showing the net interest margin (NIM) percentage:
1994 1995 1996 1997 1998 NII $57,564 $58,954 $64,092 $69,798 $68,106 NIM 4.03% 3.45% 3.52% 3.43% 3.17%
Page 52: The top left graph is a pie chart showing the liability funding mix at December 31, 1998:
Deposits 51% Borrowing 42% Equity 7%
The graph at the bottom left is a pie chart showing loan portfolio composition at December 31, 1998, by loan type:
Commercial 13% Commercial secured by real estate 32% Real estate - mortgage 47% Consumer 8%
Page 53: The graph at the top left is a pie chart showing the deposit composition at December 31, 1998:
DDA 14%, CD's 49% Savings & NOW 22%, Money market 15%
The bottom left graph is a area graph showing net interest margin dollars (in thousands):
1994 1995 1996 1997 1998 $55,918 56,147 61,138 66,859 $65,230
The bottom right graph is a bar graph showing net interest margin percentage:
1994 1995 1996 1997 1998 4.03% 3.45% 3.52% 3.43% 3.17%
Page 56: The top left graph is an area graph showing non-performing assets as a percentage of loans and OREO at December 31 for the periods presented:
1994 1995 1996 1997 1998 0.91% 1.13% 0.92% 0.89% 0.77%
The bottom left graph is an bar graph showing the allowance for loan losses as a percentage of total non-performing assets at December 31 for the periods presented:
1994 1995 1996 1997 1998 197.32% 158.22% 153.72% 136.75% 130.22
Page 57: The top left graph is an area graph showing the allowance for loan losses as a percentage of loans at December 31 for the periods presented:
1994 1995 1996 1997 1998 1.80% 1.79% 1.42% 1.22% 1.01%
Page 58: The top left graph is a bar graph showing the loan loss provision as a percentage of average loans:
1994 1995 1996 1997 1998 (0.34%) 0.03% 0.01% 0.02% 0.06%
The bottom left graph is a bar graph showing the net charge-offs as a percentage of average loans:
1994 1995 1996 1997 1998 0.04% 0.08% 0.20% 0.14% 0.19%
Page 59: The top left graph is an bar graph showing non-interest income (in thousands):
1994 1995 1996 1997 1998 $8,187 $16,543 $18,689 $20,203 $23,689
The bottom left graph is a bar graph showing the Company's non-interest income to total revenue for the periods presented:
1994 1995 1996 1997 1998 17.90% 22.80% 23.40% 23.20% 26.60%
Page 60: The top left graph is a bar graph showing the Company's SMC residential mortgage loans originated (in thousands) for the periods presented:
1994 1995 1996 1997 1998 $85,469 $147,254 $205,085 $253,418 $449,739
The bottom left graph is a bar graph showing trust fee income (in thousands):
1994 1995 1996 1997 1998 $3,023 $3,395 $3,708 $4,022 $4,430
Page 61: The top left graph is an bar graph showing the components of non-interest income (in thousands):
1994 1995 1996 1997 1998 All other $492 $7,780 $8,345 $8,746 $11,461 Deposit service charges $2,779 $2,937 $3,264 $3,323 $3,409 Mortgage Banking Revenue $1,893 $1,431 $3,372 $4,112 $4,339 Trust fees $3,023 $3,395 $3,708 $4,022 $4,430
The bottom left graph is a bar graph showing non-interest expense (in thousands):
1994 1995 1996 1997 1998 $49,519 $50,557 $52,474 $54,104 $59,200
Page 62: The top left graph is an bar graph showing the components of non-interest expense (in thousands):
1994 1995 1996 1997 1998 All other $14,605 $15,278 $17,057 $15,860 $18,674 Goodwill & Core Dep. Amortization $ 1,805 $2,473 $2,360 $2,356 $2,308 Occupancy Equipment $ 7,222 $ 7,507 $7,574 $7,691 $8,111 Salaries & benefits $23,311 $25,305 $25,483 $28,197 $30,427
The bottom left graph is a bar graph showing net overhead expense as a percentage of net interest income (excluding net security gains and losses):
1994 1995 1996 1997 1998 60.67% 60.58% 53.71% 49.70% 56.55%
Page 64: The top left graph is a bar graph showing the Company s efficiency ratio for the periods presented:
1994 1995 1996 1997 1998 75.31% 66.97% 63.39% 60.11% 64.84%
The bottom left graph is a bar graph showing the Company's income per employee for the periods presented:
1994 1995 1996 1997 1998 $15,429 $20,915 $26,604 $30,721 $27,682
Page 65: The graph at the top left is a bar graph showing total assets at December 31 for the periods presented (in thousands):
1994 $1,788,890 1995 $1,885,372 1996 $2,087,112 1997 $2,239,110 1998 $2,377,081
The graph at the bottom left is bar graph showing total loans at December 31 for the periods presented (in thousands):
1994 1995 1996 1997 1998 $868,004 $834,634 $939,726 $989,575 $1,066,321
Page 67: The top left graph is an bar graph showing the Company's one year GAP ratio at December 31 for the periods presented:
1994 1995 1996 1997 1998 0.79x 0.86x 0.79x 0.88x 1.03x
The graph at the bottom left is a pie chart showing the deposit composition at December 31, 1998:
DDA 14%, CD's 49% Savings & NOW 22%, Money market 15%
Page 68: The top left graph is a pie chart showing the liability funding mix at December 31, 1998:
Deposits 51% Borrowing 42% Equity 7%
The bottom left graph is a pie chart showing the investment portfolio liquidity (scheduled maturities) at December 31, 1998:
Less than 1 year is 7% Greater than 1 year but less than 5 years is 38% Greater than 5 year but less than 10 years is 25% Greater than 10 years is 30%
Page 69: The top left graph is an area graph showing asset leverage ratio compared to the management minimum target of 6%:
1994 1995 1996 1997 1998 6.64% 6.63% 6.51% 6.25% 6.62%
The bottom left graph is a bar graph showing the Company's total risk- based capital ratio at December 31 compared to a regulatory requirement of 8.00%:
1994 1995 1996 1997 1998 13.70% 14.88% 14.16% 14.12% 14.52%
Page 70: The top left graph is an bar graph showing treasury stock buy-back (dollar value of shares):
1994 1995 1996 1997 1998 3,064,000 7,943,000 8,531,000 11,637,000 30,346,000
The bottom left graph is a pie chart showing 1998 net income contribution by product (dollars in thousands):
Community Banking $9,896, Trust $791, Mortgage Banking $252, Investment/Parent $10,205,
The bottom right graph is a pie chart showing 1997 net income contribution by product ( dollars in thousands):
Community Banking $10,888, Trust $724, Mortgage Banking $1,285, Investment/Parent $10,600,
Page 73: The top left graph is a bar graph showing net income (in thousands):
1994 1995 1996 1997 1998 $11,320 $15,803 $20,019 $23,497 $21,144
The bottom left graph is a bar graph showing book value per common share at December 31:
1994 1995 1996 1997 1998 $8.19 $9.45 $9.97 $10.77 $10.48
Page 74: The top left graph is a bar graph showing the Company's return on equity for the periods presented:
1994 1995 1996 1997 1998 8.92% 11.03% 13.36% 15.00% 14.13 %
The bottom left graph is a bar graph showing the Company's diluted earnings per share::
1994 1995 1996 1997 1998 0.73% 0.96% 1.28% 1.54% 1.48%
Page 75: The graph at the top left is a bar graph showing total loans at December 31 for the periods presented (in thousands):
1994 1995 1996 1997 1998 $868,004 $834,634 $939,726 $989,575 $1,066,321
Page 76: The graph at the top left is a bar graph showing trust assets. The graph presents the book value of client assets which is discretionary and non- discretionary at December 31 (in millions):
1994 1995 1996 1997 1998 $1,027 $1,043 $1,157 $1,122 $1,357
Note: 32% growth rate from 1994 to 1998.
Page 77: The graph at the top left of the page is a bar graph showing total assets at December 31 for the periods presented (in thousands):
1994 $1,788,890 1995 $1,885,372 1996 $2,087,112 1997 $2,239,110 1998 $2,377,081
Page 78: The top left graph is a bar graph showing average loans to average deposits ratio for the periods presented:
1994 1995 1996 1997 1998 71.87% 69.15% 74.35% 83.81% 87.57%
The bottom left graph is a bar graph showing the Company's income per employee for the periods presented:
1994 1995 1996 1997 1998 $15,429 $20,915 $26,604 $30,721 $27,682
Page 79: The top left graph is a bar graph showing assets per full-time equivalent employee at December 31 for the periods presented (in thousands):
1994 1995 1996 1997 1998 $2,070 $2,419 $2,588 $2,814 $2,977
Page 80: The top left graph is a pie chart showing the investment portfolio liquidity (scheduled maturities) as of December 31, 1998:
Less than 1 year is 7% Greater than 1 year but less than 5 years is 38% Greater than 5 year but less than 10 years is 25% Greater than 10 years is 30%
The bottom left graph is a pie chart showing the investment portfolio liquidity (scheduled maturities) as of December 31, 1997:
Less than 1 year is 5% Greater than 1 year but less than 5 years is 30% Greater than 5 year but less than 10 years is 28% Greater than 10 years is 37%
Page 81: The graph at the middle left is a pie chart showing loan portfolio composition at December 31, 1998, by loan type:
Commercial 13% Commercial secured by real estate 32% Real estate - mortgage 47% Consumer 8%
The graph at the left of the page is a pie chart showing loan portfolio composition at December 31, 1997, by loan type:
Commercial 14% Commercial secured by real estate 31% Real estate - mortgage 46% Consumer 9%
Page 83: The graph at the bottom left is a pie chart showing the deposit composition as of December 31, 1998:
DDA 14%, CD's 49% Savings & NOW 22%, Money market 15%
Page 96: The graph at the bottom right is a bar graph showing common stock price to book value at December 31:
1994 1995 1996 1997 1998 85.47% 116.44% 139.63% 225.87% 189.57%
The graph at the bottom right is a bar graph showing market price to diluted earnings per share for the periods presented:
1994 1995 1996 1997 1998 9.63x 11.50x 10.90x 15.84x 13.43x
Exhibit 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our report dated January 22, 1999 included in this Form 10-K, into USBANCORP, Inc.'s previously filed Registration Statements on Form S-3 (Registration No. 33-56604); Form S-3 (Registration No. 333-50225); Form S-8 (Registration No. 33-53935); Form S-8 (registration No. 33-55845); Form S-8 (Registration No. 33-55207) and Form S-8 (Registration No. 33-55211).
/s/Arthur Andersen LLP ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania March 25, 1999