-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, oG6V9dlqiik26+b3dkyJ+XMRvggfJyCjTPvXLOFyl7LS0C3n1yAUvXgYz63gfOiS xquFX+GUM6KNJdUJ1No4/A== 0000950132-94-000237.txt : 19941010 0000950132-94-000237.hdr.sgml : 19941010 ACCESSION NUMBER: 0000950132-94-000237 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940927 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19941007 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST COMMONWEALTH FINANCIAL CORP /PA/ CENTRAL INDEX KEY: 0000712537 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 241428528 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11138 FILM NUMBER: 94552103 BUSINESS ADDRESS: STREET 1: OLD COURTHOUSE SQUARE STREET 2: 22 N SIXTH ST CITY: INDIANA STATE: PA ZIP: 15701 BUSINESS PHONE: 4123497220 MAIL ADDRESS: STREET 1: 22 NORTH SIXTH STREET STREET 2: P.O. BOS 400 CITY: INDIANA STATE: PA ZIP: 15701 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 27, 1994 First Commonwealth Financial Corporation ---------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 0-11242 25-1428528 - ------------------------------ ----------- ------------------ (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 22 North Sixth Street, Indiana, PA 15701 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (412) 349-7220 Item 2. ACQUISITION OR DISPOSITION OF ASSETS ------------------------------------ On September 27, 1994 the registrant acquired United National Bancorporation ("United") and its wholly-owned subsidiaries Unitas National Bank ("Unitas Bank") and Unitas Mortgage Corporation ("Unitas Mortgage"). United was a Pennsylvania-chartered bank holding company headquartered in Chambersburg, Pennsylvania. Unitas Bank is a nationally chartered, federally insured commercial bank also headquartered in Chambersburg, Pennsylvania. Unitas Mortgage, headquartered in Carlisle, Pennsylvania engages in the origination of mortgages for sale in the secondary mortgage market. The merger was consummated pursuant to the Agreement and Plan of Reorganization dated March 25, 1994 between the registrant and United, which was approved by the shareholders of United at a special meeting held September 27, 1994. For further information concerning the transaction, reference is made to the registrant's Registration Statement on Form S-4 (No. 33-54193) and Proxy Statement/Prospectus for such special meeting included therein, which are incorporated herein by reference. As described in the Proxy Statement/Prospectus, in the merger each issued and outstanding share of United common stock was converted into 2 shares of the registrant's common stock. The aggregate number of shares of the registrant's common stock issued in the merger was 1,538,294. On September 29, 1994 the registrant acquired Reliable Financial Corporation ("Reliable") and its wholly-owned subsidiary Reliable Savings Bank, PaSA ("Reliable Savings Bank"). Reliable was a savings and loan holding company with its principal office in Bridgeville, Pennsylvania. Reliable Savings Bank is a Pennsylvania-chartered, federally insured savings association. The merger was consummated pursuant to the Agreement and Plan of Reorganization dated April 21, 1994 between the registrant and Reliable, which was approved by the shareholders of Reliable at a special meeting held September 29, 1994. For further information concerning the transaction, reference is made to the registrant's Registration Statement on Form S-4 (No. 33-54381) and Proxy Statement/Prospectus for such special meeting included therein, which are incorporated herein by reference. As described in the Proxy Statement/Prospectus, in the merger, each issued and outstanding share of Reliable common stock was converted into 1.6 shares of the registrant's common stock. The aggregate number of shares of the registrant's common stock issued in the merger will be approximately 2,256,310. The aggregate number of shares issued by the registrant may vary due to partial shares but the amount is not expected to be material. 1 Item 7. FINANCIAL STATEMENTS AND EXHIBITS --------------------------------- (A) Financial Statements of Acquired Business UNITED NATIONAL BANCORPORATION Audited Financial Statements: Report of Independent Auditors . . . . . . . . . . . . . . . 3 Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 4 Consolidated Statements of Income. . . . . . . . . . . . . . 5 Consolidated Statements of Changes in Shareholders' Equity . 6 Consolidated Statements of Cash Flows. . . . . . . . . . . . 7 Notes to Consolidated Financial Statements . . . . . . . . . 8 Unaudited Interim Financial Statements: Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 16 Consolidated Statements of Income. . . . . . . . . . . . . . 17 Consolidated Statements of Changes in Shareholders' Equity . 18 Consolidated Statements of Cash Flows. . . . . . . . . . . . 19 Notes to Consolidated Financial Statements . . . . . . . . . 20 RELIABLE FINANCIAL CORPORATION Audited Financial Statements: Report of Independent Auditors . . . . . . . . . . . . . . . 22 Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 23 Consolidated Statements of Income. . . . . . . . . . . . . . 24 Consolidated Statements of Changes in Shareholders' Equity . 25 Consolidated Statements of Cash Flows. . . . . . . . . . . . 26 Notes to Consolidated Financial Statements . . . . . . . . . 27 Unaudited Interim Financial Statements: Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 40 Consolidated Statements of Income. . . . . . . . . . . . . . 41 Consolidated Statements of Changes in Shareholders' Equity . 42 Consolidated Statements of Cash Flows. . . . . . . . . . . . 43 Notes to Consolidated Financial Statements . . . . . . . . . 44 (B) Pro Forma Information Pro Forma Combined Condensed Balance Sheet . . . . . . . . . . 46 Pro Forma Combined Condensed Statement of Income . . . . . . . 47 2 [LETTERHEAD OF ERNST & YOUNG APPEARS HERE] Report of Independent Auditors The Board of Directors and Shareholders United National Bancorporation We have audited the accompanying consolidated balance sheets of United National Bancorporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United National Bancorporation and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, in 1993 the Corporation changed its method of accounting for income taxes. /s/ Ernst & Young January 14, 1994 3 CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
December 31 1993 1992 -------- -------- (In Thousands) Assets Cash and due from banks $ 3,758 $ 6,030 Federal funds sold 1,600 -- -------- -------- Cash and Cash Equivalents 5,358 6,030 Interest-bearing deposits in banks 33 1,686 Investment securities (Market value 1993 -- $20,363; 1992 -- $24,161) 20,008 23,740 Mortgage loans held for sale (Market value 1992 -- $5,809) -- 5,507 Loans: Real estate 37,550 36,181 Installment and consumer 38,446 38,318 Commercial, financial, and agricultural 24,881 18,854 Lease financing 28,113 18,893 -------- -------- 128,990 112,246 Less: Allowance for loan losses (1,189) (1,061) Unearned income (10,514) (9,466) -------- -------- Net Loans 117,287 101,719 Premises and equipment, net of accumulated depreciation (1993 -- $2,566; 1992 -- $2,317) 2,570 2,201 Accrued interest receivable 630 729 Other assets 1,717 1,649 -------- -------- TOTAL ASSETS $147,603 $143,261 ======== ======== Liabilities Deposits: Noninterest-bearing $ 8,776 $ 9,188 Interest-bearing 120,543 118,674 -------- -------- Total Deposits 129,319 127,862 Securities sold under agreements to repurchase 4,687 3,198 Net deferred tax liabilities 934 561 Other liabilities 381 809 -------- -------- Total Liabilities 135,321 132,430 Shareholders' Equity Preferred Stock -- $10.00 par value: Authorized and unissued 5,000,000 shares -- -- Common Stock -- $2.50 par value: Authorized 10,000,000 shares; issued and outstanding shares -- 769,147 in 1993 and 699,407 in 1992 1,923 1,748 Surplus 4,115 2,476 Retained earnings 6,244 6,607 -------- -------- Total Shareholders' Equity 12,282 10,831 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $147,603 $143,261 ======== ========
See accompanying notes. 4 CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------
Year Ended December 31 1993 1992 1991 ------- ------- ------- (In Thousands, except per share data) Interest income: Loans, including fees $10,946 $10,822 $10,625 Investment securities: Taxable 1,573 1,382 1,297 Tax-exempt 28 32 33 Other 70 216 342 ------- ------- ------- Total Interest Income 12,617 12,452 12,297 Interest expense: Deposits 4,651 5,653 7,004 Short-term borrowings 143 30 1 ------- ------- ------- Total Interest Expense 4,794 5,683 7,005 ------- ------- ------- Net Interest Income 7,823 6,769 5,292 Provision for loan losses 473 325 300 ------- ------- ------- Net Interest Income After Provision for Loan Losses 7,350 6,444 4,992 Other income: Gain on sale of mortgages 238 -- -- Trust department 138 138 157 Investment securities gains 62 15 34 Service fees and other 438 375 326 ------- ------- ------- 876 528 517 ------- ------- ------- Other expenses: Salaries and employee benefits 2,854 2,377 2,108 Occupancy expense 718 637 567 Special services 293 259 271 Taxes, other than income 57 107 98 FDIC insurance 293 268 238 Other 1,333 1,265 978 ------- ------- ------- 5,548 4,913 4,260 ------- ------- ------- Income Before Income Taxes 2,678 2,059 1,249 Income Taxes 858 641 346 ------- ------- ------- NET INCOME $ 1,820 $ 1,418 $ 903 ======= ======= ======= Per share data: Net income $2.37 $1.84 $1.17 Cash dividends .47 .43 .39
See accompanying notes. 5 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------
Common Retained Stock Surplus Earnings Total ------- ------- -------- ------- (In Thousands) Balance at January 1, 1991 $1,446 $ 846 $ 6,857 $ 9,149 Net income 903 903 Cash dividends (301) (301) 10% common stock dividend -- 57,637 shares at fair market value 144 664 (811) (3) ------ ------ ------- ------- Balance at December 31, 1991 1,590 1,510 6,648 9,748 Net income 1,418 1,418 Cash dividends (331) (331) 10% common stock dividend -- 63,375 shares at fair market value 158 966 (1,128) (4) ------ ------ ------- ------- Balance at December 31, 1992 1,748 2,476 6,607 10,831 Net income 1,820 1,820 Cash dividends (364) (364) 10% common stock dividend -- 69,740 shares at fair market value 175 1,639 (1,819) (5) ------ ------ ------- ------- Balance at December 31, 1993 $1,923 $4,115 $ 6,244 $12,282 ====== ====== ======= =======
See accompanying notes. 6 CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
Year Ended December 31 1993 1992 1991 -------- -------- ------- (In Thousands) Operating Activities Net income $ 1,820 $ 1,418 $ 903 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 473 325 300 Provision for depreciation and amortization 249 221 198 Amortization of investment security premiums and accretion of discounts, net 94 16 4 Deferred income taxes 373 180 19 Realized investment security gains (62) (15) (34) Gain on sale of mortgages (238) -- -- (Increase) decrease in other assets 31 (1,006) 238 Decrease in other liabilities (433) (273) (42) -------- -------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,307 866 1,586 Investing Activities Net increase in loans (16,041) (10,166) (1,068) Proceeds from sale of mortgages 5,745 -- -- Purchase of premises and equipment, net (618) (837) (494) Proceeds from sales of investment securities 2,555 2,016 2,183 Proceeds from maturities of investment securities 11,471 5,556 4,375 Purchase of investment securities (10,326) (14,846) (7,210) Net decrease in short-term investments 1,653 414 2,398 -------- -------- ------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (5,561) (17,863) 184 Financing Activities Net increase in deposits 1,457 10,425 3,093 Net increase in short-term borrowings 1,489 3,198 -- Cash dividends (364) (331) (301) -------- -------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,582 13,292 2,792 -------- -------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (672) (3,705) 4,562 Cash and cash equivalents at beginning of year 6,030 9,735 5,173 -------- -------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,358 $ 6,030 $ 9,735 ======== ======== =======
See accompanying notes. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1993 1. Significant Accounting Policies Principles of Consolidation United National Bancorporation (the Corporation) and its subsidiaries (Unitas National Bank [the Bank], Unitas Real Estate Corp., Unitas Commercial Leasing Corp., Unitas Financial Corp., Unitas Life Insurance Co., Unitas Mortgage Corp., and Unitas Services Corp.) provide financial services. The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. Investments in subsidiaries are carried at the parent company's equity in the underlying net assets. Mortgage Loans Held for Sale The Bank identified a pool of conventional fixed-rate mortgages at December 31, 1992 which it was holding for sale. Mortgage loans held for sale are carried at the aggregate of lower of cost or market value. No loans were held for sale at December 31, 1993. Investment and Mortgage-Backed Securities Investment securities are stated at cost adjusted for amortization of premiums and accretion of discounts. Security gains and losses are determined using the specific identification method. In classifying debt securities acquired and held in the investment portfolio, management continually evaluates the Corporation's ability to hold the securities to maturity as well as its intent to hold the securities for the foreseeable future. Management's evaluation of the Corporation's ability to hold securities to maturity is based on an evaluation of its ability to satisfy liabilities in the normal course of business and meet regulatory and legal requirements such as minimum capital requirements. Additionally, management continually evaluates the probability of events that might occur which may cause the Corporation to sell debt securities. Currently, management is not aware of such probable events; thus all debt securities are classified as investment securities at December 31, 1993. Revenue Recognition Interest on loans is recognized based upon the principal amount outstanding. The accrual of interest income is discontinued when circumstances indicate that collection is questionable. When interest accruals are discontinued, interest credited to income in the current year is reversed. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest. Allowance for Loan Losses The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses in the portfolio. Management's determination of the adequacy of the allowance is based on the risk characteristics of the portfolio, past loan loss experience, local economic conditions, and such other relevant factors which, in management's judgment, deserve recognition. The allowance is increased by provisions for loan losses charged to operations. Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are charged to operations over the estimated useful lives of the assets, computed by the straight-line method. Lease Financing The Corporation provides equipment (principally automobiles) financing through lease arrangements. Direct financing leases are stated at the aggregate of lease payments receivable plus estimated residual values (1993 -- $10,340,000; 1992 -- $5,891,000). Unearned income on direct financing leases is amortized over the lease term resulting in an approximate level rate of return. 8 - -------------------------------------------------------------------------------- 1. Significant Accounting Policies (continued) Per Share Data Net income and dividends per share have been restated to reflect a 10 percent stock dividend to shareholders of record December 9, 1993, payable January 18, 1994. The effect of common stock equivalents is not significant for any period presented. Cash Flow Information For purposes of the statements of cash flows, the Corporation considers cash and due from banks and federal funds sold as cash and cash equivalents. Generally, federal funds are purchased and sold for one-day periods. Cash paid during the years ended December 31, 1993, 1992, and 1991 for interest was $4,883,000, $5,961,000, and $5,314,000, respectively. Cash paid for income taxes was $585,000 in 1993, $544,000 in 1992, and $288,000 in 1991. Accounting Change -- Income Taxes The Corporation adopted FASB Statement No. 109, "Accounting for Income Taxes," in the first quarter of its fiscal year ended December 31, 1993. The Corporation adopted the Statement on a prospective basis without restating any prior years and has determined that the effect of its implementation on the Corporation's financial position and results of operations was not material for 1993 or 1992. In accordance with FASB Statement No. 109, the liability method is used in accounting for income taxes. Deferred income taxes are provided for differences between the tax basis of an asset or liability and its reported amount in the financial statements at the statutory tax rates that will be in effect when the differences are expected to reverse. Recently Issued FASB Statement The Corporation is required to adopt FASB Statement No. 115, "Accounting for Certain Investment in Debt and Equity Securities," in the first quarter of its fiscal year ending December 31, 1994 and will be required to adopt FASB Statement No. 114, "Accounting by Creditors for Impairment of a Loan," in the first quarter of its fiscal year ending December 31, 1995. The Corporation has determined that the effect of its implementation of these FASB Statements on the Corporation's financial position and results of operations will not be material. 2. Restrictions on Cash and Due from Banks The Bank is required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances for the year ended December 31, 1993 was approximately $1,130,000. 3. Investment Securities The amortized cost and estimated market value of investment securities were as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- --------- (In Thousands) December 31, 1993: U.S.Treasury securities and obligations of U.S. government corporations and agencies $ 17,006 $ 281 $ (17) $ 17,270 Obligations of states and political subdivisions 200 3 -- 203 Corporate securities 800 29 -- 829 Foreign securities 250 19 -- 269 Mortgage-backed securities 1,195 40 -- 1,235 --------- ---------- ---------- --------- Total debt securities 19,451 372 (17) 19,806 Equity securities 557 -- -- 557 --------- ---------- ---------- --------- Total $ 20,008 $ 372 $ (17) $ 20,363 ========= ========== ========== =========
9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- 3. Investment Securities (continued)
Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ---------- --------- (In Thousands) December 31, 1992: U.S.Treasury securities and obligations of U.S. government corporations and agencies $ 18,822 $ 329 $ (80) $ 19,071 Obligations of states and political subdivisions 550 22 -- 572 Corporate securities 1,316 48 (4) 1,360 Foreign securities 249 22 -- 271 Mortgage-backed securities 2,244 84 -- 2,328 --------- ---------- ---------- --------- Total debt securities 23,181 505 (84) 23,602 Equity securities 559 -- -- 559 --------- ---------- ---------- --------- Total $ 23,740 $ 505 $ (84) $ 24,161 ========= ========== ========== =========
At December 31, 1993 and 1992, investment securities with a carrying value of $14,649,000 and $9,830,000, respectively, were pledged as collateral to secure public deposits and for other purposes. The amortized cost and estimated market value of debt securities at December 31, 1993, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated Amortized Market Cost Value --------- --------- (In Thousands) Due in one year or less $ 850 $ 863 Due after one year through five years 12,068 12,249 Due after five years through ten years 5,338 5,459 Due after ten years -- -- ------- ------- 18,256 18,571 Mortgage-backed securities 1,195 1,235 ------- ------- $19,451 $19,806 ======= =======
Proceeds from sales of investments in debt securities during 1993 were $2,555,000. Gross gains of $62,000 and gross losses of $-0- were realized on those sales. Proceeds from sales of investments in debt securities during 1992 were $2,016,000. Gains of $35,000 and gross losses of $20,000 were realized on those sales. Proceeds from such sales were $2,183,000 in 1991. Gains of $41,000 were realized on those sales and a loss of $7,000 was realized on the sale of an interest-bearing time deposit. 4. Related Party Loans Certain directors and executive officers of the Corporation and the Bank, including their associates and companies, have loans with the Bank. Such loans were made in the ordinary course of business at the Bank's normal credit terms including interest rate and collateralization and do not represent more than a normal risk of collection. Total loans to these persons amounted to approximately $1,893,000 and $1,958,000 at December 31, 1993 and 1992, respectively. During 1993, $257,000 of new loans were made and repayments totalled $322,000. 10 - -------------------------------------------------------------------------------- 5. Allowance for Loan Losses Changes in the allowance for loan losses for each of the three years ended December 31, 1993 were as follows:
1993 1992 1991 ------ ------ ------ (In Thousands) Balance beginning of year $1,061 $ 910 $ 802 Provision charged to operations 473 325 300 Recoveries on loans 24 36 12 Loans charged off (369) (210) (204) ------ ------ ----- Balance end of year $1,189 $1,061 $ 910 ====== ====== =====
6. Regulatory Matters Dividends are paid by the Corporation from its assets which are mainly provided by dividends from the Bank. However, certain regulatory restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans, or advances. As of December 31, 1993, the Bank had retained earnings of $7,982,000 of which $3,070,000 was available for distribution to the Corporation as dividends without prior regulatory approval. Under Federal Reserve regulation, the Bank also is limited as to the amount it may loan to its affiliates, including the Corporation, unless such loans are collateralized by specified obligations. At December 31, 1993, the maximum amount available for transfer from the Bank to the Corporation in the form of loans approximated 20 percent of consolidated net assets. The Bank is also required to maintain minimum amounts of capital to total "risk-weighted" assets, as defined by the banking regulators. At December 31, 1993, the Bank was required to have minimum Tier I and total capital ratios of 4.00 percent and 8.00 percent, respectively. The Bank's actual ratios at that date were 10.72 percent and 11.76 percent, respectively. The Bank's leverage ratio at December 31, 1993 was 8.26 percent. 7. Income Taxes Effective January 1, 1993, the Corporation changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, "Accounting for Income Taxes" (see Note 1, "Accounting Changes"). As permitted under the new rules, prior years' financial statements have not been restated. There was no cumulative effect of adopting Statement No. 109 as of January 1, 1993. There was no effect on the pre-tax income from continuing operations as a result of the adoption of Statement No. 109. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1993 are as follows (In Thousands): Deferred tax liabilities: Leasing activity $2,205 Other 99 ------ Total Deferred tax liabilities 2,304 Deferred tax assets: Allowance for loan loss 188 Alternative minimum tax carryforward 1,182 ------ Total deferred tax assets 1,370 ------ Net deferred tax liabilities $ 934 ======
11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 7. Income Taxes (continued) The provision for income taxes is summarized as follows:
Liability Method Deferred Method --------------------------------------- 1993 1992 1991 ------ ------ ------ (In Thousands) Current $ 485 $ 461 $ 327 Deferred 373 180 19 ------ ------ ------ Income taxes $ 858 $ 641 $ 346 ====== ====== ======
Deferred taxes resulted from the following timing differences for the years ended December 31, 1992 and 1991:
1992 1991 ------ ------ (In Thousands) Leasing activities $ 199 $ (42) Allowance for loan losses (69) (66) Alternative minimum tax 58 178 Other (8) (51) ----- ----- $ 180 $ 19 ===== =====
Income taxes applicable to investment securities gains included in the provision for income taxes totaled $21,000 in 1993, $5,000 in 1992, and $12,000 in 1991. A reconciliation of the provision for income taxes and the amount which would have been provided at statutory rates is as follows:
Liability Method Deferred Method ----------------------------------- 1993 1992 1991 ------ ------ ------ (In Thousands) Tax at statutory rate on pre-tax income $ 911 $ 700 $ 425 Effect of tax-exempt income (53) (59) (68) Other -- -- (11) ----- ----- ----- Income taxes $ 858 $ 641 $ 346 ===== ===== =====
8. Pension Plan The Corporation has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation. The Corporation's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. No contributions were made in 1993, 1992, or 1991. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. The following table sets forth the Plan's funded status and amounts recognized in the Corporation's financial statements at December 31:
1993 1992 ------ ------ (In Thousands) Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $751 in 1993 and $574 in 1992 $ (764) $ (588) ======= ====== Projected benefit obligation for service rendered to date $(1,100) $ (890) Plan assets at fair value, primarily listed stocks and bonds 1,126 1,064 ------- ------ Plan assets in excess of projected benefit obligation 26 174 Unrecognized net loss from past experience different from that assumed 188 78 Unrecognized net transition asset (195) (215) ------- ------ Prepaid pension cost included in other assets $ 19 $ 37 ======= ======
12 - -------------------------------------------------------------------------------- 8. Pension Plan (continued) Net pension expense (income) included the following components:
1993 1992 1991 ------ ------ ------ (In Thousands) Service cost-benefits earned during the period $ 60 $ 48 $ 40 Interest cost on projected benefit obligation 77 63 53 Actual return on plan assets (83) (79) (74) Net amortization and deferral (14) (20) (20) ----- ----- ---- Net periodic pension expense (income) $ 40 $ 12 $ (1) ===== ===== ====
The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 8 percent and 7 percent, respectively, at December 31, 1993 and 1992. The expected long-term rate of return on plan assets was 8 percent in 1993 and 7 percent in 1992 and 8.5 percent in 1991. 9. Loan Commitments and Standby Letters of Credit Loan commitments are made to accommodate the financial needs of the Bank's customers. Standby letters of credit commit the Bank to make payments on behalf of customers when certain specified future events occur. They primarily are issued to facilitate customers' trade transactions. Historically, more than 90 percent of standby letters of credit expire unfunded. Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Bank's normal credit policies. Collateral (e.g., securities, receivables, inventory, equipment) is obtained based on management's credit assessment of the customer. The Bank's maximum exposure to credit loss for loan commitments (unfunded loans and unused lines of credit, including home equity lines of credit) and standby letters of credit outstanding at December 31, 1993 was as follows (In Thousands):
Loan commitments: Home equity loans $ 828 Lines of credit 793 Real estate construction 907 Standby letters of credit 498 ------ Total $3,026 ======
Loan commitments and standby letters of credit were $1,828,000 and $651,000, respectively, at December 31, 1992. 10. Concentration of Credit Risk Most of the Bank's business is with customers in the five county area of Central Pennsylvania where it has full-service branch locations. The Bank's consumer and real estate loan portfolios are principally to borrowers throughout this market area. The Bank requires collateral on all real estate exposures and generally requires loan-to-value ratios of no greater than 80 percent. The Bank's lease portfolio includes customers in this area as well as other parts of South Central Pennsylvania. The commercial, financial, and agricultural portfolio is diversified with no industry comprising greater than 10 percent of total loans outstanding. Collateral requirements on such loans are determined on a case-by-case basis based on management's credit evaluations of the respective borrower. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - -------------------------------------------------------------------------------- 11. Shareholders' Equity In 1987, the Corporation established a dividend reinvestment and stock purchase plan. Shareholders of common stock may participate in the plan which provides that additional shares of common stock may be purchased with reinvested dividends at prevailing market prices. To the extent that shares are not available on the open market, the Corporation has reserved 266,200 shares of common stock to be issued under the dividend reinvestment plan. The Corporation has reserved 133,100 shares covered by the 1986 Stock Option Plan which expires January 1997. The Plan permits the granting of stock options, including incentive stock options (ISOs) and nonqualified stock options (NQSOs) to key employees. Options may be accompanied by stock appreciation rights (SARs). The exercise of a SAR requires the surrender of an unexercised related option. The purchase price of the common stock covered by each ISO will not be less than 100 percent (85 percent for NQSOs) of the fair market value of the stock on the date of the grant of such option. The duration of each option granted under the Plan will not exceed 10 years from the date of grant. No option will be exercisable during the year ending on the first anniversary date of the granting of such option. The Plan provides that SARs will be automatically exercised on the last business day prior to the expiration of the related option if, on that date, the fair market value of a share of common stock exceeds the per share price of the related option. In the event of termination of employment, options will generally remain exercisable until the earlier of the expiration of the option term or three months from the date of termination of employment. At December 31, 1993, all option holders have expressed their intention to exercise the fixed award portion of their plan. Accordingly, no compensation expense has been recorded. Had the holders intended to exercise the SAR portion of their plan, compensation expense of approximately $528,000, based on the market value of the Corporation's shares at December 31, 1993, would have been recorded. The changes in option shares outstanding are as follows:
Year Ended December 31 1993 1992 1991 ------ ------ ------ Options outstanding at beginning of year 34,243 17,303 17,303 Options granted at $10.52-$16.14 per share 15,400 16,940 -- ------ ------ ------ Options outstanding at end of year 49,643 34,243 17,303 ====== ====== ====== Options available for grant at December 31 83,457 ====== Options exercisable at December 31 34,243 ======
12. United National Bancorporation (Parent Company Only) Financial Information
December 31 1993 1992 ------ ------ (In Thousands) Balance Sheet Assets Cash $ 37 $ 43 Investment in: Bank subsidiary 12,209 10,770 Nonbank subsidiaries 36 18 ------- ------- Total Assets $12,282 $10,831 ======= ======= Shareholders' Equity $12,282 $10,831 ======= =======
14 - -------------------------------------------------------------------------------- 12. United National Bancorporation (Parent Company Only) Financial Information (continued)
Year Ended December 31 1993 1992 1991 ------ ------ ------ Statements of Income (In Thousands) Income: Dividends from Bank subsidiary $ 404 $ 370 $ 351 Other 12 40 -- ------- ------- ------- 416 410 351 Expenses 53 41 35 ------- ------- ------- Income before equity in undistributed net income of subsidiaries 363 369 316 Equity in undistributed net income of: Bank subsidiary 1,439 1,049 583 Nonbank subsidiaries 18 -- 4 ------- ------- ------- Net income $ 1,820 $ 1,418 $ 903 ======= ======= =======
Year Ended December 31 1993 1992 1991 ------ ------ ------ Statements of Cash Flows (In Thousands) Operating activities Net income $ 1,820 $ 1,418 $ 903 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries (1,457) (1,049) (587) Other (5) (8) (3) ------- ------- ----- Net cash provided by operating activities 358 361 313 Financing activities Cash dividends (364) (331) (301) ------- ------- ----- Net cash used by financing activities (364) (331) (301) ------- ------- ----- Increase (decrease in cash) (6) 30 12 Cash at beginning of year 43 13 1 ------- ------- ----- Cash at end of year $ 37 $ 43 $ 13 ======= ======= =====
15 United National Bancorporation and Subsidiaries Consolidated Balance Sheets (Unaudited)
June 30, December 31, 1994 1993 ---------- ------------ (000's) Assets Cash and due from banks $ 3,937 $ 3,758 Federal funds sold 1,400 1,600 -------- -------- Cash and cash equivalents 5,337 5,358 Interest-bearing deposits in banks 54 33 Investment Securities: Held to Maturity (fair value 1994 - 5,930 20,008 $5,950; 1993 - $20,363) Available for Sale at fair value 13,562 -- Loans: Real estate 37,946 37,550 Installment and Consumer 39,836 38,446 Commercial, financial, and agricultural 22,931 24,881 Lease financing 28,832 28,113 -------- -------- Total Loans 129,545 128,990 Less: Allowance for loan losses (1,325) (1,189) Unearned income (10,212) (10,514) -------- -------- Net Loans 118,008 117,287 Premises and equipment, net of accumulated depreciation (1994-$2,724; 1993-$2,378) 2,545 2,570 Other assets 2,538 2,347 -------- -------- Total Assets $147,974 $147,603 ======== ======== Liabilities Deposits: Noninterest-bearing $ 9,667 $ 8,776 Interest-bearing 123,402 120,543 -------- -------- Total Deposits 133,069 129,319 Securities sold under agreements to repurchase 673 4,687 Other liabilities 1,639 1,315 -------- -------- Total Liabilities 135,381 135,321 Shareholders' Equity Preferred Stock-$10.00 par value: Authorized and unissued 5,000,000 shares -- -- Common Stock-$2.50 par value: Authorized 10,000,000 shares: issued and outstanding - 769,147 shares 1,923 1,923 Surplus 4,115 4,115 Retained earnings 6,555 6,244 -------- -------- Total Shareholders' Equity 12,593 12,282 -------- -------- Total Liabilities and Shareholders' Equity $147,974 $147,603 ======== ========
See accompanying notes. 16 United National Bancorporation and Subsidiaries Consolidated Statements of Income (unaudited)
Three Months Six Months Ended June 30, Ended June 30, ----------------- ----------------- 1994 1993 1994 1993 ---- ---- ---- ---- (000's) (000's) Interest Income Loans Including Fees $ 2,606 $ 2,837 $ 5,246 $ 5,541 Investments 298 433 579 862 Other 10 6 23 44 -------- -------- -------- -------- Total Interest Income 2,914 3,276 5,848 6,447 Total Interest Expense 999 1,233 1,990 2,526 -------- -------- -------- -------- Net Interest Income 1,915 2,043 3,858 3,921 Provision for Loan Losses 99 75 198 150 -------- -------- -------- -------- Net Interest Income After Provision for Loan Losses 1,816 1,968 3,660 3,771 Gain (loss) on Sale of Mortgages 0 (1) 9 238 Other Income 137 144 306 266 Other Expense 1,487 1,443 2,893 2,709 -------- -------- -------- -------- Income Before Income Taxes 466 668 1,082 1,566 Income Taxes 148 221 346 507 -------- -------- -------- -------- Net Income $ 318 $ 447 $ 736 $ 1,059 ======== ======== ======== ======== Net Income Per Share $ 0.41 $ 0.58 $ 0.96 $ 1.38 Cash Dividends Per Share $ 0.13 $ 0.12 $ 0.26 $ 0.24 Average Number of Shares Outstanding 769,147 769,147 769,147 769,147
See accompanying notes. 17 United National Bancorporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, ---------------- 1994 1993 ------ ------ (In Thousands) Operating Activities: Net Income $ 736 $1,059 Adjustments to reconcile net income to net cash provided by operating activities: Provision for Loan Losses 198 150 Provision for Depreciation & Amortization 159 120 Amortization of Investment Security Premiums and Accretion of Discounts, net 30 48 Deferred Income Taxes 131 192 Gain on Sale of Loans (8) (238) Realized Investment Security Gains (18) 0 (Increase) Decrease in Other Assets (191) (37) Increase (Decrease) in Other Liabilities 193 (91) ------ ------ Net Cash Provided By Operating Activities 1,230 1,203 Investing Activities: Net (Increase) Decrease in Loans (946) (9,958) Proceeds from sale of Mortgage Loans 153 5,009 Purchase of premises and equipment, net (134) (439) Proceeds from sales of AFS investment securities 1,493 0 Proceeds from maturities of AFS investment securities 1,852 0 Proceeds from maturities of HTM investment securities 3,648 3,532 Purchase of AFS investment securities (6,588) 0 Purchase of HTM investment securities (244) (6,827) Net (increase) decrease in short term investments (21) 1,667 ------ ------ Net Cash Used In Investing Activities (787) (7,016) Financing Activities: Net Increase (Decrease) in Deposits 3,750 4,364 Net Increase (Decrease) in short-term borrowings (4,014) 769 Cash Dividends (200) (182) ------ ------ Net Cash Provided By (Used In) Financing Activities (464) 4,951 ------ ------ Decrease in Cash and Cash Equivalents (21) (862) Cash and Cash Equivalents, Beginning of Period 5,358 6,030 ------ ------ Cash and Cash Equivalents, End of Period $5,337 $5,168 ====== ======
See accompanying notes. 18 United National Bancorporation and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
Unrealized Common Retained Gain (Loss) Stock Surplus Earnings AFS Securities Total ------ ------- -------- -------------- ----- Balance at 12/31/92 $1,748 $2,476 $6,607 $ 0 $10,831 Net income 1,059 1,059 Cash Dividends (182) (182) ------ ------ ------ ----- ------- Balance at 6/30/93 $1,748 $2,476 $7,484 $ 0 $11,708 ====== ====== ====== ===== ======= Balance at 12/31/93 $1,923 $4,115 $6,244 $ 0 $12,282 Net Income 736 736 Cash Dividends (200) (200) Changes in unrealized gain (loss) on securities available for sale, net of tax effect (225) (225) ------ ------ ------ ----- ------- Balance at 6/30/94 $1,923 $4,115 $6,780 $(225) $12,593 ====== ====== ====== ===== =======
See accompanying notes. 19 UNITED NATIONAL BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) June 30, 1994 BASIS OF PRESENTATION - --------------------- Note 1 Management Representation: The accompanying unaudited consolidated - ------ -------------------------- financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1994 are not necessarily indicative of the results that may be expected for the year ended December 31, 1994. For further information, refer to the consolidated financial statements and footnotes thereto included in United National Bancorporation's annual report on Form 10-K for the year ended December 31, 1993. Note 2 Reserve For Possible Loan Losses: (In thousands) - ------ ---------------------------------
1994 1993 ------ ------ Reserve balance January 1 $1,189 $1,061 Additions: Provision charged to operating expenses 198 150 Recoveries of previously charged off loans 21 15 Deductions: Loans charged off 82 102 ------ ------ Reserve balance June 30 $1,326 $1,124
Note 3 Cash Flow Disclosures: (In thousands) - ------ ---------------------- Cash paid during the first three months of the year for interest and income taxes were as follows:
1994 1993 ------ ------ Interest $2,016 $2,635 Income Taxes 215 315
Note 4 Change in Accounting Method: The Corporation adopted Statement of - ------ ---------------------------- Financial Accounting Standards No. 109 ("Statement 109"), "Accounting for Income Taxes" effective January 1, 1993. FAS No. 109 is an asset and liability approach for financial accounting and reporting for income taxes. As permitted by Statement 109, UNB has elected not to restate the financial statements of any prior year and the cumulative effect of the change had no material impact on the balance sheet or income statement in the first quarter of 1993. The Corporation adopted Statement of Financial Accounting Standards No. 115 "Accounting for certain Investments in Debt and Equity Securities" in the first quarter of 1994. Accordingly, Management reviewed the investment portfolio and classified certain securities as "Available-for-Sale". Such securities will be marketed-to-market on a quarterly basis, with net unrealized gains (losses), net of taxes, posted to equity capital. 20 UNITED NATIONAL BANCORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Note 5 Proposed Business Combination: On March 25, 1994, UNB signed a - ------ ------------------------------ Definitive Agreement to merge the Corporation into First Commonwealth Financial Corporation of Indiana, PA ("FCFC"). Total assets of the combined entity will exceed $2.0 billion, affording our bank subsidiary, Unitas National Bank, and active nonbank subsidiary, Unitas Mortgage Corporation, excellent long term growth and profitability potential. We are confident that this partnership will open significant opportunities for these subsidiaries as they become independent affiliates of FCFC. Management of UNB anticipates acquisition costs to UNB in excess of $200 thousand during 1994; however, Management is not aware of forseeable future events which would otherwise materially alter the profitability or safety and soundness of UNB. We expect certain cost savings in noninterest expenditures subsequent to the merger. 21 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- Independent Auditors' Report [LETTERHEAD OF EDWARDS LEAP & SAUER APPEARS HERE] To the Board of Directors and Stockholders Reliable Financial Corporation Reliable Savings Bank, PaSA Bridgeville, Pennsylvania We have audited the accompanying consolidated balance sheets of Reliable Financial Corporation (the "Corporation") and subsidiary as of September 30, 1993 and 1992 and the related consolidated statements of income, changes in retained earnings and stockholders' equity and cash flows for the years ended September 30, 1993 and 1992 and the statements of income, changes in retained earnings and stockholders' equity and cash flows of Reliable Savings Bank, PaSA (the "Savings Bank") for the year ended September 30, 1991. These financial statements are the responsibility of the Corporation's and the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Reliable Financial Corporation and subsidiary as of September 30, 1993 and 1992 and the results of their operations and cash flows for the years then ended and the results of operations and cash flows of Reliable Savings Bank, PaSA for the year ended September 30, 1991, in conformity with generally accepted accounting principles. Edwards Leap & Sauer Pittsburgh, Pennsylvania November 5, 1993 22 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- Consolidated Balance Sheets ================================================================================
September 30, 1993 1992 ------------------------- (in thousands) ASSETS Cash $ 1,029 $ 955 Interest-bearing deposits in other institutions 20,587 33,763 Investment securities, at cost (approximate market value of $35,856 and $12,796, respectively) 30,718 7,813 Federal Home Loan Bank stock, at cost 922 1,101 Loans 85,255 99,459 Allowance for loan losses (700) (495) Mortgage-backed securities, at cost (approximate market value of $6,117 and $226, respectively) 5,930 224 Accrued interest receivable 348 91 Premises and equipment, net 2,553 2,627 Other assets 141 265 -------- -------- $146,783 $145,803 ======== ======== ================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposit accounts $114,619 $114,099 Accrued interest payable 829 924 Advances from borrowers for taxes and insurance 707 650 Other liabilities 824 553 -------- -------- 116,979 116,226 RETAINED EARNINGS AND STOCKHOLDERS' EQUITY Common stock, par value $0.01 per share, 4,000,000 shares authorized, 1,460,242 shares issued of which 1,398,862 are outstanding 15 15 Additional paid-in capital 13,657 13,657 Retained earnings--substantially restricted 17,348 15,905 -------- -------- 31,020 29,577 Less: Treasury stock; 61,380 shares at cost (1,216) -0- -------- -------- $146,783 $145,803 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 23 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- Consolidated Statements of Income ================================================================================
Years Ended September 30, 1993 1992 1991 ------------------------------------------ (in thousands, except per share data) INTEREST INCOME Loans $ 9,012 $ 10,537 $ 11,250 Investment securities 1,662 1,224 941 Dividends 191 215 222 --------- --------- ------- 10,865 11,976 12,413 ================================================================================================================ INTEREST EXPENSE Deposit accounts 4,500 6,147 7,912 --------- --------- ------- NET INTEREST INCOME 6,365 5,829 4,501 - ---------------------------------------------------------------------------------------------------------------- PROVISION FOR LOAN LOSSES 250 200 155 --------- --------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,115 5,629 4,346 ================================================================================================================ NON-INTEREST INCOME Net gain on sales of investment securities 1,133 261 -0- Net gain on sales of real estate owned 49 11 -0- Other 317 191 162 --------- --------- ------- 7,614 6,092 4,508 ================================================================================================================= NON-INTEREST EXPENSES Compensation 859 766 660 Employee benefits 183 114 124 Occupancy expense 308 295 287 Deposit insurance 236 267 221 Data processing 343 332 296 Other 646 446 336 --------- --------- ------- 2,575 2,220 1,924 --------- --------- ------- INCOME BEFORE INCOME TAXES 5,039 3,872 2,584 ================================================================================================================ PROVISION FOR INCOME TAXES 1,884 1,529 872 --------- --------- ------- NET INCOME $ 3,155 $ 2,343 $ 1,712 ========= ========= ======= ================================================================================================================ NET INCOME PER COMMON SHARE $ 2.21 $ 1.61 N/A* ========= ========= ======= Weighted average shares used in computing net income per common share 1,425,596 1,457,944 N/A* ========= ========= =======
* Not Applicable The accompanying notes are an integral part of these consolidated financial statements. 24 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- Consolidated Statement of Changes in Stockholders' Equity ================================================================================
Additional Common Paid-In Retained Treasury Stock Capital Earnings Stock Total ------------------------------------------------------------------- (in thousands) Balance at September 30, 1990 (Reliable Savings Bank) $-0- $ -0- $12,361 $ -0- $12,361 Net Income -0- -0- 1,712 -0- 1,712 ======================================================================================================================= Balance at September 30, 1991 (Reliable Savings Bank) -0- -0- 14,073 -0- 14,073 Proceeds from issuance of common stock 15 13,657 -0- -0- 13,672 Net Income -0- -0- 2,343 -0- 2,343 Dividends declared -0- -0- (511) -0- (511) ======================================================================================================================= Balance at September 30, 1992 15 13,657 15,905 -0- 29,577 Net Income -0- -0- 3,155 -0- 3,155 Treasury stock (purchased 72,712 shares) -0- -0- -0- (1,420) (1,420) Treasury stock (reissued 11,332 shares) -0- -0- (91) 204 113 Dividends declared -0- -0- (1,621) -0- (1,621) ======================================================================================================================= Balance at September 30, 1993 $ 15 $13,657 $17,348 $(1,216) $29,804 ==== ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 25 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows ================================================================================
Years Ended September 30, 1993 1992 1991 ---------------------------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,155 $ 2,343 $ 1,712 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 137 138 134 Net accretion/amortization of premiums and discounts 13 (1) (1) Net gain on sales of investment securities (1,133) (261) -0- Net gain on sales of real estate owned (49) (11) -0- Unamortized loan fees (427) (73) (51) Provision for loan losses 250 200 155 Increase (decrease) in cash due to changes in assets and liabilities: Accrued interest receivable (257) (13) 160 Other assets 124 (118) (15) Accrued interest payable (95) (200) 16 Other liabilities 73 137 (29) ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,791 2,141 2,081 ==================================================================================================================== CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investment securities -0- 800 1,000 Proceeds from sales of and redemption of investment securities 1,766 424 -0- Purchase of investment securities (23,550) (6,709) -0- Redemption (purchase) of FHLB stock 179 -0- (140) Net loans repaid by customers 13,742 11,357 519 Purchase of mortgage-backed securities (5,977) -0- -0- Proceeds from sales of real estate owned 1,163 39 13 Premises and equipment expenditures (63) (45) (94) Net change in long-term interest-bearing deposits in other institutions -0- -0- 790 ------- ------- ------- NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (12,740) 5,866 2,088 ==================================================================================================================== CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposit accounts 520 (5,332) 7,782 Net increase (decrease) in advances from borrowers for taxes and insurance 57 (103) (123) Proceeds from issuance of common stock, net of issuance costs of $930 -0- 13,672 -0- Purchase of treasury stock (1,420) -0- -0- Proceeds from reissuance of treasury stock 113 -0- -0- Dividends paid (1,423) (219) -0- ------- ------- ------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (2,153) 8,018 7,659 ==================================================================================================================== NET CHANGE IN CASH AND CASH EQUIVALENTS (13,102) 16,025 11,828 Cash and cash equivalents at beginning of year 34,718 18,693 6,865 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $21,616 $34,718 $18,693 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 26 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- Notes To Consolidated Financial Statements Years ended September 30, 1993, 1992 and 1991 ================================================================================ Note A--Significant Accounting Policies Principles of Consolidation: The consolidated financial statements as of and for the years ended September 30, 1993 and 1992 include Reliable Financial Corporation and its wholly-owned subsidiary, Reliable Savings Bank, PaSA. The consolidated financial statements for the year ended September 30, 1991 include Reliable Savings Bank, PaSA and its wholly-owned subsidiary, Reliable Savings Service Corporation. All significant intercompany balances and transactions have been eliminated. Investment Securities: Investment securities are carried at cost, adjusted for amortization of premium and accretion of discount over the term of the security using the interest method or methods which approximate the interest method. Gains or losses on the sale of securities are recognized upon realization using both the weighted average and the specific-identification methods. All securities currently owned are classified as held for investment as management has the ability to hold such investments until maturity and the intent to hold them for the foreseeable future. Mortgage-Backed Securities: Mortgage-backed securities are stated at cost, adjusted for amortization of premium and accretion of discount using the interest method or methods which approximate the interest method. The Corporation has the ability and management's intention is to hold such assets to maturity. Should any be sold, gains and losses will be recognized based on the specific identification method. Loans and Allowance for Loan Losses: Loans are stated at the amount of unpaid principal less the undisbursed portion of loans and unamortized loan fees. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible. Real Estate Owned (REO): Real estate acquired in satisfaction of a loan and in-substance foreclosures are reported in other assets. In-substance foreclosures are properties in which a borrower with little or no equity in the collateral, effectively abandons control of the property or has no economic interest to continue involvement in the property. The borrower's ability to rebuild equity based on current financial conditions is also considered doubtful. Properties acquired by foreclosure or deed in lieu of foreclosure and properties classified as in-substance foreclosures are transferred to REO and recorded at the lower of cost or fair value at the date actually or constructively received. Fair value is measured by market transactions. If there are no active markets for similar items, fair value is determined by discounting a forecast of expected cash flows at a rate commensurate with the risk involved. 27 - -------------------------------------------------------------------------------- Interest Income: Interest on loans is recorded when earned. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection is questionable. Loan origination fees are deferred and recognized over the life of the loan as an adjustment of yield (interest income). Depreciation: The Savings Bank generally computes depreciation on the straight-line method for financial reporting purposes over the assets' estimated useful lives which range from 7 to 50 years for buildings and leasehold improvements and from 5 to 10 years for furniture and fixtures. Depreciation for tax purposes is computed under the straight-line method for assets placed in service prior to January 1, 1981. Assets placed in service after December 31, 1980 are depreciated under the provisions of Accelerated Cost Recovery System (ACRS) or the Modified Accelerated Cost Recovery System (MACRS), which stipulates that the cost of assets be recovered over recovery lives as determined by the Internal Revenue Code. As a result, there may be timing differences between book depreciation and tax depreciation. Income Taxes: Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes. The differences relate principally to depreciation of premises and equipment, recognition of interest income and the provision for loan losses. Earnings per Share: Earnings per share are calculated on the basis of the weighted average number of shares outstanding. As a result of the stock conversion, as described in Note P, the newly issued stock was outstanding for 184 days during the fiscal year ended September 30, 1992. Options to purchase an additional 34,000 shares at $10/share, as described in Note L, were available for the year ended September 30, 1993, with 11,332 shares actually purchased during the quarter ended March 31, 1993. Therefore, the weighted average number for shares outstanding was 1,425,596 and 1,457,944 at September 30, 1993 and 1992, respectively. Cash Equivalents: For the purposes of the Statements of Cash Flows, the Corporation and the Savings Bank consider all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Cash equivalents totaled $20,586,837, $33,762,891 and $18,201,160 at September 30, 1993, 1992 and 1991, respectively. Net loans transferred to real estate owned, a non-cash operating activity, totaled $1,138,140, $0 and $32,943 in the years ended September 30, 1993, 1992 and 1991, respectively. Reclassification of Prior Years' Statements: Certain items previously reported in the prior years' financial statements have been reclassified to conform with the current year's classifications. These reclassifications have no effect on net income. 28 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- Note B--Investment Securities Investment securities at September 30 are summarized as follows:
September 30, 1993 --------------------------------------------------------- Carrying Unrealized Unrealized Market Amount Gains Losses Value ----------- ---------- ----------- ----------- U.S. Treasury notes $ 8,983,966 $ 69,784 $-0- $ 9,053,750 U.S. agency obligations 17,000,000 129,662 -0- 17,129,662 State and municipal obligations 3,264,441 81,893 -0- 3,346,334 Corporate debt 499,044 5,656 -0- 504,700 Federal Home Loan Mortgage Corporation common stock 970,103 4,851,772 -0- 5,821,875 ----------- ---------- ---------- ----------- $30,717,554 $5,138,767 $-0- $35,856,321 =========== ========== ========== ===========
September 30, 1993 --------------------------------------------------------- Carrying Unrealized Unrealized Market Amount Gains Losses Value ----------- ---------- ----------- ----------- U.S. Treasury notes $ 1,997,485 $ 33,765 -0- $ 2,031,250 U.S. agency obligations 2,500,000 85,781 -0- 2,585,781 State and municipal obligations 1,715,000 14,580 -0- 1,729,580 Corporate debt 497,666 1,709 -0- 499,375 Federal Home Loan Mortgage Corporation common stock 1,102,353 4,847,647 -0- 5,950,000 ----------- ---------- --------- ----------- $ 7,812,504 $4,983,482 $-0- $12,795,986 =========== ========== ========= ===========
Years Ended September 30, --------------------------- 1993 1992 ----------- ---------- Gross realized gains: Federal Home Loan Mortgage Corporation common stock $ 1,133,333 $ 261,061 =========== ===========
The maturities of investment securities at September 30, 1993 were as follows:
Carrying Market Amount Value ----------- ----------- Due in one year or less $ 2,143,883 $ 2,165,600 Due from one to five years 25,693,568 25,879,269 Due from five to ten years 1,910,000 1,989,577 Due after ten years -0- -0- Marketable equity security 970,103 5,821,875 ----------- ----------- $30,717,554 $35,856,321 =========== ===========
29 - --------------------------------------------------------------------------- Note C--Loans Loans at September 30 consisted of the following:
1993 1992 ----------- ------------ Residential mortgage $78,782,333 $ 93,049,040 Real estate construction 5,765,420 5,450,472 Commercial real estate 1,837,585 456,171 Non-residential and land 1,941,955 2,391,215 Loans on deposit accounts 1,047,040 1,020,583 Home improvement loans 53,662 64,077 Consumer 570,623 391,259 ----------- ------------ 89,998,618 102,822,817 Less: Undisbursed portion of loans 3,555,533 1,749,066 Unamortized loan fees 1,188,441 1,615,346 ----------- ------------ $85,254,644 $ 99,458,405 =========== ============
As of September 30, loans secured by one-to-four family residences represented 93.94% and 95.80% of the total loan portfolio for 1993 and 1992, respectively. Total loans on non-accrual status at September 30, 1993 and 1992 totaled approximately $2,600,000 and $1,200,000, respectively. Changes in the allowance for loan losses were as follows:
Years Ended September 30, ------------------------------------ 1993 1992 1991 -------- -------- -------- Balance, beginning of year $495,000 $295,000 $155,000 Provision charged to operations 250,000 200,000 154,619 Loans charged off (44,768) -0- (14,619) -------- -------- -------- $700,232 $495,000 $295,000 ======== ======== ========
The Savings Bank primarily grants residential mortgage loans to customers in Allegheny and Washington counties, Pennsylvania. The Savings Bank maintains a diversified loan portfolio and the ability of its debtors to honor their contracts is not substantially dependent on any particular economic business sector. - -------------------------------------------------------------------------------- Note D--Accrued Interest Receivable Accrued interest receivable at September 30 consisted of the following:
1993 1992 --------- --------- Loans $ 1,449 $ 5,254 Investments 346,343 86,126 -------- ------- $347,792 $91,380 ======== =======
30 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- Note E--Premises and Equipment Premises and equipment at September 30 consisted of the following:
1993 1992 ---------- ---------- Land $ 120,253 $ 120,253 Building 2,305,845 2,301,456 Leasehold improvements 258,024 242,691 Furniture and fixtures 862,535 819,555 ---------- ---------- 3,546,657 3,483,955 Less: Accumulated depreciation 993,171 856,769 ---------- ---------- $2,553,486 $2,627,186 ========== ==========
Depreciation expense totaled $136,402, $138,110 and $133,844 for the years ended September 30, 1993, 1992 and 1991, respectively. - -------------------------------------------------------------------------------- Note F--Federal Home Loan Bank Stock The Savings Bank is required to own stock of the Federal Home Loan Bank based on a percentage of net residential mortgages outstanding. During the year ended September 30, 1993, the Savings Bank was required to redeem stock to the Federal Home Loan Bank at its cost basis. The amount of common stock owned was $922,100 and $1,100,800 at September 30, 1993 and 1992, respectively. - -------------------------------------------------------------------------------- Note G--Deposit Accounts Deposit accounts at September 30 consisted of the following:
Weighted Average Rate At 1993 1992 September 30, ---------------------- ----------------------- 1993 Amount % Amount % --------------- ------------ ---- ------------ ---- Regular Passbook Savings 2.75% $ 29,843,096 26% $ 28,599,688 25% Other Passbook Savings 2.75% 774,857 1% 1,229,640 1% Christmas Club Savings 2.75% 630,625 1% 670,033 1% Money Market Accounts 2.80% 14,771,856 13% 14,035,181 12% NOW Checking Accounts 2.25% 6,296,495 5% 5,633,579 5% Certificate Accounts Maturities: 6 months or less 3.07% 15,680,504 14% 17,098,033 15% 6 months to 1 year 3.34% 10,430,759 9% 12,458,547 11% 1 year to 3 years 4.79% 12,272,065 11% 13,576,041 12% More than 3 years 7.00% 19,762,189 17% 17,334,740 15% ------------ ---- ------------ ---- 58,145,517 51% 60,467,361 53% Non-Interest Bearing Accounts 4,156,062 3% 3,463,672 3% ------------ ---- ------------ ---- $114,618,508 100% $114,099,154 100% ============ ==== ============ ====
Certificates of deposit with balances exceeding $100,000 totaled $1,234,650 and $1,026,810 at September 30, 1993 and 1992, respectively. The Savings Bank paid cash of approximately $4,600,000, $6,300,000, and $7,900,000 in interest on deposits during the years ended September 30, 1993, 1992 and 1991, respectively. 31 - -------------------------------------------------------------------------------- Interest expense for the years ended September 30 is summarized as follows:
1993 1992 1991 -------------- -------------- -------------- Savings and NOW accounts $ 1,494,143 $ 1,890,983 $ 1,976,217 Time deposits 3,005,806 4,256,044 5,936,262 -------------- -------------- -------------- $ 4,499,949 $ 6,147,027 $ 7,912,479 ============== ============== ==============
- -------------------------------------------------------------------------------- Note H--Stockholders' Equity Retained earnings at September 30, 1992, the most recent date for which tax returns were filed, included approximately $4,917,000 for which no provision for federal income tax has been made. These amounts represent allocations of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses will create income for tax purposes only, which will be subject to the then current corporate income tax rate. Treasury stock is shown at cost and consists of 61,380 shares of the Corporation's stock at September 30, 1993. The Corporation purchased 72,712 shares of Treasury stock at an average price per share of approximately $19.50 and reissued 11,332 shares which cost approximately $18.00 per share, at $10.00 per share during the year ended September 30, 1993. The reissuance was in conjunction with the Benefit Plans as described in Note L. - -------------------------------------------------------------------------------- Note I--Income Taxes In addition to charging income for taxes actually paid or payable, the provision for income taxes can reflect deferred income tax credits which result from timing differences in computing income for financial and income tax reporting. There were no deferred tax credits included in the income tax provisions for the years ended September 30, 1993, 1992 and 1991. The principal timing differences are a result of recognition of bad debt deductions, interest income, loan fees and accelerated depreciation methods. For Federal income tax purposes the Savings Bank is permitted a tax bad debt deduction unrelated to any loan loss provision for book purposes. This deduction is computed by one of two methods, the experience method taking into account the six year moving average of net charge-offs to loans, and the percentage of taxable income method, subject to certain limitations. The amount of the tax bad debt deduction for the year ended September 30, 1992 was $-0-and approximately $145,000 for the short tax year ended September 30, 1991. Due to the limitations referenced above, no tax bad debt deduction is anticipated for the tax year ended September 30, 1993. The Corporation made income tax payments of $1,847,644 and $1,442,703 during the years ended September 30, 1993 and 1992, respectively. The Savings Bank made income tax payments of $866,270 during the year ended September 30, 1991. The income tax provision at September 30 consisted of the following:
1993 1992 1991 -------------- -------------- ------------ Federal income taxes $ 1,587,873 $ 1,209,935 $ 687,308 State income taxes 296,037 318,782 184,705 -------------- -------------- ------------ $ 1,883,910 $ 1,528,717 $ 872,013 ============== ============== ============
32 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- The provision for federal income taxes differs from that computed at the statutory corporate tax rate primarily due to the following:
1993 1992 1991 -------------- -------------- ------------ Statutory tax rate 34.0% 34.0% 34.0% Decrease in deferred loan fees (2.9) (.6) (1.4) Exempt interest, dividends, net (.9) (.6) (.7) Change in accounting method -0- -0- .2 Bad debt deduction 1.7 1.8 .1 Capital loss carryover -0- (.5) -0- Other, net (.4) (2.8) (5.6) -------------- -------------- ------------ Effective tax rate 31.5% 31.3% 26.6% ============== ============== ============
State income taxes are paid on income determined in accordance with generally accepted accounting principles. In February of 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes", that supersedes SFAS No. 96 and APB 11. The primary changes incorporated in SFAS 109 include, among other things, relaxation of the criteria for recognizing deferred tax assets and reduction in the complexity of calculating deferred taxes by reducing the need to schedule the reversal of temporary differences year-by-year. The statement is effective for fiscal years beginning after December 15, 1992. The Corporation plans to adopt SFAS 109 in the first quarter of fiscal 1994. The adoption of SFAS 109 will require the Corporation to change to the liability method for financial accounting and reporting for income taxes. The Corporation currently estimates that its deferred tax liability would be decreased by approximately $370,000. The resulting benefit will be recorded through the income statement and reported as a cumulative effect of a change in an accounting principle. - -------------------------------------------------------------------------------- Note J--Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") of 1989 FIRREA was signed into law on August 9, 1989 and regulations for savings institutions' minimum capital requirements went into effect on December 7, 1989. In addition to its capital requirements, FIRREA includes provisions for changes in the federal regulatory structure for institutions including a new deposit insurance system, increased deposit insurance premiums, and restricted investment activities with respect to noninvestment-grade corporate debt and certain other investments. FIRREA also increases the required ratio of housing-related assets in order to qualify as a savings institution. The regulations require institutions to have a minimum regulatory tangible capital equal to 1.5 percent of total assets and, a minimum 3 percent core capital ratio. The risk-based capital ratio requirement is 8.0 percent of total risk adjusted assets as of December 31, 1992. Prior to December 31, 1992 it was 7.2% of total risk adjusted assets. The Savings Bank, at September 30, 1993, meets all regulatory tangible capital, core capital and risk-based capital requirements of 8.0 percent, as defined by FIRREA. Failure to meet these capital requirements would expose the Savings Bank to regulatory sanctions, including limitations on asset growth. The following table shows that the Savings Bank is in compliance with regulatory capital standards: 33 - --------------------------------------------------------------------------------
Percent of Adjusted Amount Total Assets ---------- -------------- (dollars in thousands) GAAP capital $ 25,903 18.19% ========== ============== Tangible capital $ 25,903 18.19% Tangible capital requirement 2,135 1.50% ---------- -------------- Excess $ 23,768 16.69% ========== ============== Core capital $ 25,903 18.19% Core capital requirement 4,271 3.00% ---------- -------------- Excess $ 21,632 15.19% ========== ============== Risk-based capital $ 26,603 42.71% Minimum risk-based capital requirement 4,984 8.00% ---------- -------------- Excess $ 21,619 34.71% ========== ==============
Risk-based capital includes supplementary capital of $700,232, representing the general allowance for loan losses. The following is a reconciliation of net income and retained earnings (as shown in these audited financial statements) to net income and retained earnings as presented in the Office of Thrift Supervision quarterly reports:
September 30, 1993 September 30, 1992 ------------------------- ------------------------- Twelve Twelve Months Ended Balance Months Ended Balance ------------ ------- ------------ ------- Retained Retained Net Income Earnings Net Income Earnings ------------ -------- ------------ -------- (in thousands) Balances on regulatory reports $3,203 $19,067 $2,208 $15,864 Add (deduct) audit adjustments for: Income (loss) of parent (48) (7) 41 41 Other activity -0- (1,712) 94 -0- ------ ------- ------ ------- Balances on accompanying consolidated financial statements $3,155 $17,348 $2,343 $15,905 ====== ======= ====== =======
Other activity for the year ended September 30, 1993 consists of dividends declared of approximately $1,621,000 and the effect of treasury stock reissued at approximately $91,000 less than the purchase price. - -------------------------------------------------------------------------------- Note K--Commitments In the normal course of business, there are various outstanding commitments and contingent liabilities, such as commitments to extend credit. These commitments involve, to varying degrees, elements of credit risk in excess of amounts recognized in the balance sheets. Loan commitments are made to accommodate the financial needs of the Savings Bank's customers. These arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Savings Bank's normal credit policies and loan underwriting standards. Collateral is obtained based on management's credit assessment of the customer. Management currently expects no loss from these activities. 34 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- The Savings Bank's maximum exposure to credit loss for loan commitments (unfunded loans) outstanding at September 30, 1993 and 1992, was $3,330,720 and $1,272,000, respectively. Commitments for fixed rate loans totaled $2,741,720 and $773,000 at September 30, 1993 and 1992, respectively, with rates ranging from 6.5% to 12%. The Savings Bank had outstanding commitments at September 30, 1993 and 1992 of $-0- and $324,000, respectively to purchase investment securities. Lease commitments: Annual rentals under long-term monthly operating leases for property amounted to $22,800 in 1993, 1992 and 1991. At September 30, 1993, the minimum rental commitment, including any current renewal options under existing leases with initial or remaining terms of more than one year was as follows:
Years Ending Gross Rental September 30 Expense ------------ ----------- 1994 $ 23,900 1995 24,000 1996 24,000 1997 13,900 1998 10,800 Remaining term 1,800 -------- TOTAL COMMITMENT $ 98,400 ========
- -------------------------------------------------------------------------------- Note L--Pension, Retirement and Benefit Plans On August 9, 1991, the Savings Bank elected to terminate its previously existing defined benefit pension plan. Under Statement of Financial Accounting Standards No. 88 (SFAS 88), "Employer's Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", a termination of a defined benefit plan is considered both a settlement (an irrevocable transaction relieving an employer of the responsibility for a pension benefit obligation) and a curtailment (elimination for employees of the accrual of defined benefits for future service). All balances in the plan as of September 30, 1991, which were determined by actuaries to equal $845,627 vested in the plan participants in relation to their respective present values determined at a weighted average discount rate and long-term rate of return on plan assets of 7.5% in the plan as of the termination date. Therefore, there was no settlement or curtailment gain or loss associated with the termination. The plan trust continued to hold the plan assets until distribution of $861,351 on January 20, 1992. By definition, the accumulated benefit obligation is the value of the assets. Pension expense for 1991 totaled $31,377. On June 25, 1991, the Savings Bank adopted a 401(k) retirement plan, whereby the employees may elect to make pre-tax contributions through a salary reduction of up to 10% of their monthly salary. The Savings Bank may match dollar for dollar up to 5% of employees' monthly salary reduction or make elective contributions to the Plan. The Savings Bank's contributions to the Plan were $29,047, $22,786 and $1,770 for the years ended September 30, 1993, 1992 and 1991, respectively. On January 23, 1992, the Board of Directors of the Savings Bank adopted the Reliable Savings Bank, PaSA Recognition and Retention Plan ("RRP") as a method of providing officers and key employees with a proprietary interest in Reliable Financial Corporation. All employees of the Savings Bank and its affiliates are eligible to receive awards from the plan. The standard vesting rate of an award is 20% per year commencing one year from the date of the award. In August, 1992 an award under the RRP was granted to President Stephen Grippi, representing 6,000 shares which were purchased at $17.50 per share. Vesting under this award is 33 1/3% over three years. Amortization, on a straight line basis over three (3) years, of this award for the years 35 ended September 30, 1993 and 1992 totaled $49,500 and $3,500, respectively. During the year ended September 30, 1993, 2,000 shares had vested. On January 14, 1992, the Board of Directors of Reliable Financial adopted Reliable Financial Corporation 1992 Incentive Stock Option Plan (the "Option Plan") and the Reliable Financial Corporation 1992 Stock Option Plan for Nonemployee Directors (the "Directors' Plan"). Under the Option Plan, options may only be granted to officers and other key employees. The Option Plan is designed to encourage the continued employment of these employees and to attract new employees by facilitating their purchase of a stock interest in Reliable Financial. Options granted under the Option Plan may include both incentive stock options ("ISOs") within the meaning of Section 422A of the Internal Revenue Code and nonstatutory stock options ("Nonstatutory Options"). The Pension Committee will, from time to time, select employees to whom Options are to be granted and the number of Options to be granted based upon the employee's performance, compensation and the nature of his responsibilities, duties and functions. Pursuant to the Option Plan, up to 109,518 shares of Reliable Financial common stock may be issued or transferred for the exercise of options to purchase shares of common stock. The Committee will determine the dates on which each Option will become exercisable. Each ISO will continue to be exercisable over a maximum period of ten years from the date granted, and each Nonstatutory Option will be exercisable over a period of ten years and one day from the date granted. Under circumstances set forth in the Option Plan, all or a portion of the Options may be exercised for specified periods following termination of employment. An Option may not be transferred by an optionee during his or her lifetime. The exercise price per share of Common Stock covered by an Option shall be the fair market value of Common Stock on the date of grant. The shares purchased upon exercise of an Option are to be paid for in cash or through the delivery of previously-acquired shares of Common Stock or in a combination of cash and such shares. The Pension Committee, with shareholder ratification, has granted to President Grippi options under the Option Plan to purchase 12,000 shares of stock. One-third of these options were exercised on the first anniversary date of the conversion. The Directors' Plan is designed to promote the growth and profitability of Reliable Financial and the Savings Bank and to provide non-employee directors with an incentive to assume the significant duties and responsibilities entailed therewith. Benefits under the Directors' Plan are granted to non-employee directors, a group currently consisting of 4 people. Pursuant to the Directors' Plan, up to 36,506 shares of the common stock of Reliable may be issued or transferred pursuant to the exercise of options to purchase shares of common stock ("Directors' Options"). Directors' Options may only be granted to members of Reliable's Board of Directors who are not employees of Reliable, the Savings Bank or any other subsidiary or affiliate thereof on the date the Directors' Options are granted. Directors' Options granted under the Directors' Plan are nonstatutory stock options. The Directors' Plan provides that each of the 4 non-employee directors serving at the consummation of the conversion of the Savings Bank from mutual to stock form receive options to purchase 5,500 shares of Reliable common stock. New directors, subsequently elected, also receive the option to purchase 5,500 shares, to the extent shares remain available under the Directors' Plan. The exercise price of the outstanding Directors' Options is $10.00 per share, which was the fair market value of Reliable's common stock on the date of grant. No Directors' Option may be exercised after the expiration of ten years and one day from the date of grant of such option. One-third of these Directors' Options were exercised on the first anniversary of the date of grant. 36 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- Note M--Reliable Financial Corporation Reliable Financial Corporation was formed on November 7, 1991 to acquire 100% of the common stock of Reliable Savings Bank, PaSA as a result of the Savings Bank's conversion from mutual to stock form. Prior to March 30, 1992, Reliable Financial Corporation had no significant assets. Reliable Financial Corporation currently has no independent business operations. Certain items previously reported in the prior years' financial statements have been reclassified to conform with the current year's classifications. These reclassifications have no effect on the consolidated net income. The condensed financial information for Reliable Financial Corporation as of and for the years ended September 30, 1993 and 1992 is as follows:
BALANCE SHEETS 1993 1992 ------------ ----------- ASSETS Interest-bearing deposits $ 4,416,208 $ 7,134,702 Investment in Reliable Savings Bank 11,830,791 8,627,252 Prepaid taxes 839 42,572 ----------- ----------- $16,247,838 $15,804,526 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Dividends Payable $ 489,602 $ 292,048 Accrued expenses 27,212 8,148 ----------- ----------- 516,814 300,196 Stockholders' Equity Common stock, par value $0.01 per share, 4,000,000 shares authorized, 1,460,242 shares issued and outstanding 14,602 14,602 Additional paid-in capital 13,657,743 13,657,743 Retained earnings 3,275,153 1,831,985 Treasury stock, at cost (1,216,474) -0- ----------- ----------- 15,731,024 15,504,330 ----------- ----------- $16,247,838 $15,804,526 =========== =========== STATEMENTS OF INCOME Interest and other operating income $ 159,708 $ 108,733 Dividends from Reliable Savings Bank -0- 511,086 ----------- ------------ 159,708 619,819 EXPENSES Operating expenses 208,344 16,586 ----------- ------------ INCOME (LOSS) BEFORE TAXES (48,636) 603,233 PROVISION FOR INCOME TAXES -0- 51,243 ----------- ------------ INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY (48,636) 551,990 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY 3,203,539 1,791,080 ----------- ----------- NET INCOME $ 3,154,903 $ 2,343,070 =========== ===========
37 - ------------------------------------------------------------------------------ STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES 1993 1992 --------------- --------------- Net income $ 3,154,903 $ 2,343,070 Adjustments to reconcile net income to net cash provided by operating activities: Increase (decrease) in cash due to changes in assets and liabilities: Equity in undistributed earnings of subsidiary (3,203,539) (1,791,080) Prepaid taxes 41,732 (42,572) Accrued expenses 19,064 8,148 --------------- --------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 12,160 517,566 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Reliable Savings Bank stock -0- (6,836,171) --------------- --------------- NET CASH USED BY INVESTING ACTIVITIES -0- (6,836,171) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock, net -0- 13,672,345 Purchase of treasury stock (1,420,240) -0- Proceeds from reissuance of treasury stock 113,320 -0- Dividends paid (1,423,734) (219,038) --------------- --------------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (2,730,654) 13,453,307 --------------- --------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (2,718,494) 7,134,702 Cash and cash equivalents at beginning of year 7,134,702 -0- --------------- --------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,416,208 $ 7,134,702 =============== ===============
- -------------------------------------------------------------------------------- Note N--Supplemental Information The following condensed statement summarizes the financial position of the Savings Bank's wholly-owned subsidiary, Reliable Savings Service Corporation, which has been consolidated with the financial statements of Reliable Savings Bank, PaSA at September 30, 1992 (immediately prior to liquidation). Under the authority of the Board of Directors of the Savings Bank, liquidation of the service corporation was approved as of September 30, 1992. The statement is presented as supplemental information only and is not necessary for the fair presentation of the consolidated financial statements. RELIABLE SAVINGS SERVICE CORPORATION CONDENSED BALANCE SHEET September 30, 1992 (immediately prior to liquidation) ASSETS Cash in bank $ -0- Receivable--Parent 5,764 ----------- $ 5,764 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Common stock $ 21,000 Additional paid-in capital 40,000 Retained earnings (deficit) (55,236) ----------- $ 5,764 ===========
38 Reliable Financial Corporation and Subsidiary - -------------------------------------------------------------------------------- Note O--Related-Party Transactions Certain officers and directors and their affiliates of Reliable Savings Bank, PaSA were indebted to the Savings Bank at September 30, 1993 and 1992. Related party loans are made on substantially the same terms as those prevailing at the time for comparable transactions with unrelated persons and generally do not involve more than normal risk of collectibility. The aggregate dollar amount of these loans (exclusive of loans to any such person which in the aggregate do not exceed $60,000 at September 30, 1993) was $706,387 and $726,979 at September 30, 1993 and 1992, respectively. During the year ended September 30, 1993 and 1992, $67,000 and $87,900 of new loans were made to related parties and repayments by any such person(s) totaled $87,592 and $90,336, respectively. - -------------------------------------------------------------------------------- Note P--Conversion On March 16, 1992, the members of the Savings Bank formally approved the Plan of Conversion under which the Savings Bank converted from a Pennsylvania-chartered mutual savings and loan association to a Pennsylvania-chartered permanent reserve fund capital stock savings and loan association. Included in the Plan of Conversion was the formation of a holding company, Reliable Financial Corporation, which owns all of the common stock of Reliable Savings Bank, PaSA, as its wholly-owned subsidiary. The conversion was consummated on March 30, 1992. - -------------------------------------------------------------------------------- Note Q--Accounting Standards In addition to SFAS 109, as previously discussed in Note I, certain other recent accounting standards relating to the Corporation have been promulgated by the Financial Accounting Standards Board. Statement of Financial Accounting Standards No. 107 requires entities to disclose the fair value of "Financial Instruments" for which it is practicable to estimate fair value, with certain exceptions. Statement of Financial Accounting Standards No. 114 addresses the accounting by creditors for impairment of certain loans. Statement of Financial Accounting Standards No. 115 relates to accounting for certain investments in debt and equity securities. The Corporation is not currently required to and has elected not to adopt early implementation of any of these standards. The impact of such adoption was not determined at this time. 39 RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) - --------------------------------------------------------------------------------
June 30, September 30, ASSETS 1994 1993 ---------- ------------- Cash $ 748 $ 1,029 Interest-bearing deposits in other institutions 15,530 20,587 -------- -------- Cash and Cash Equivalents 16,278 21,616 FHLMC stock available for sale (market value 717 - of $5,143 at June 30, 1994) Investment securities, at cost (market value 38,386 30,718 of $37,210 and $35,586) Mortgage-backed securities, at cost (market value 5,049 5,930 of $4,938 and $6,117) Federal Home Loan Bank stock, at cost 848 922 Loans 87,568 85,255 Allowance for possible loan losses (850) (700) Accrued interest receivable 419 348 Premises and equipment, net 2,456 2,553 Other assets 484 141 -------- -------- $151,355 $146,783 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposit accounts $116,415 $114,619 Accrued interest payable 555 829 Advances from borrowers for taxes and insurance 2,164 707 Other liabilities 1,504 824 -------- -------- 120,638 116,979 -------- -------- STOCKHOLDERS' EQUITY Common stock, $0.01 par value; 4,000,000 shares 15 15 authorized; 1,460,242 shares issued; 1,410,194 and 1,398,862 shares outstanding Additional paid-in capital 13,657 13,657 Retained earnings - substantially restricted 18,043 17,348 -------- -------- 31,715 31,020 Less: Treasury stock, at cost 998 1,216 -------- -------- 30,717 29,804 -------- -------- $151,355 $146,783 ======== ========
See notes to consolidated financial statements. 40 RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share and share data) - --------------------------------------------------------------------------------
Three Months Nine Months Ended June 30, Ended June 30, 1994 1993 1994 1993 INTEREST INCOME Loans $ 1,674 $ 2,033 $ 5,273 $ 6,126 Interest-bearing deposits in other institutions 103 188 299 610 FHLMC stock available for sale 33 29 84 86 Investment securities 576 436 1,599 1,162 Mortgage-backed securities 76 76 235 146 Dividends 46 47 126 146 ---------- ---------- ---------- ---------- 2,508 2,809 7,616 8,276 INTEREST EXPENSE Deposit accounts 1,032 1,110 3,124 3,420 ---------- ---------- ---------- ---------- NET INTEREST INCOME 1,476 1,699 4,492 4,856 PROVISION FOR POSSIBLE LOAN LOSSES 50 50 150 150 ---------- ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 1,426 1,649 4,342 4,706 NON-INTEREST INCOME Net gain on sales of FHLMC stock 1,308 215 1,542 698 Net gain on real estate owned - 42 - 37 Other 77 86 266 231 ---------- ---------- ---------- ---------- 2,811 1,992 6,150 5,672 ---------- ---------- ---------- ---------- NON-INTEREST EXPENSE Compensation 233 219 677 639 Employee benefits 47 45 138 136 Occupancy expense 84 78 240 226 Deposit insurance 66 52 200 169 Data processing 85 85 246 256 Other 484 146 803 451 ---------- ---------- ---------- ---------- 999 625 2,304 1,877 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN TAX ACCOUNTING METHOD 1,812 1,367 3,846 3,795 PROVISION FOR INCOME TAXES 906 479 1,723 1,431 ---------- ---------- ---------- ---------- INCOME BEFORE CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN TAX ACCOUNTING METHOD 906 888 2,123 2,364 CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN TAX ACCOUNTING METHOD - - 365 - ---------- ---------- ---------- ---------- NET INCOME $ 906 $ 888 $ 2,488 $ 2,364 ========== ========== ========== ========== PER SHARE DATA (BASED ON AVERAGE SHARES OUTSTANDING) Income before cumulative effect of change in tax accounting method $ 0.46 $ 0.63 $ 1.50 $ 1.65 ---------- ---------- ---------- ---------- Cumulative effect of change in tax accounting method - - 0.26 - ---------- ---------- ---------- ---------- Net income $ 0.64 $ 0.63 $ 1.76 $ 1.65 ========== ========== ========== ========== Cash dividends declared $ 0.40 $ 0.30 $ 1.20 $ 0.80 ========== ========== ========== ========== Weighted average shares outstanding 1,417,043 1,411,584 1,414,268 1,428,712 ========== ========== ========== ==========
See notes to consolidated financial statements. 41 RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NINE MONTHS ENDED JUNE 30, 1994 AND 1993 (Unaudited) (In thousands) - --------------------------------------------------------------------------------
Common Additional Retained Treasury Total stock Paid-In Capital Earnings Stock ----------------------------------------------------------- Balance at September 30, 1992 $15 $13,657 $15,905 $-0- $29,577 Net Income -0- -0- 2,364 -0- 2,364 Treasury stock (purchased -0- -0- -0- (1,420) (1,420) 72,712 shares) Treasury stock (reissued -0- -0- (91) 204 113 11,332 shares) Dividends declared -0- 0- (1,131) -0- (1,131) --- ------- ------- ------- ------- Balance at June 30, 1993 $15 $13,657 $17,047 $(1,216) $29,503 === ======= ======= ======= ======= - --------------------------- Balance at September 30, 1993 $15 $13,657 $17,348 $(1,216) $29,804 Net Income -0- -0- 2,488 -0- 2,488 Treasury stock (reissued -0- -0- (105) 218 113 11,332 shares) Dividends declared -0- -0- (1,688) -0- (1,688) --- ------- ------- ----- ------- Balance at June 30, 1994 $15 $13,657 $18,043 $(998) $30,717 === ======= ======= ===== =======
See notes to consolidated financial statements. 42 RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 1994 AND 1993 (Unaudited) (In thousands) - --------------------------------------------------------------------------------
1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,488 $ 2,364 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 104 102 Net accretion of discounts on investment securities (10) (5) Gain on sales of FHLMC stock (1,542) (698) Net gain on sale of real estate owned - (46) Unamortized loan fees (145) (336) Deferred income taxes (370) - Provision for possible loan losses 150 150 Increase (decrease) in cash due to changes in assets and liabilities: Accrued interest receivable (71) (108) Other assets 27 100 Accrued interest payable (274) (322) Other liabilities (680) 74 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,037 1,275 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of mortgage-backed securities - (5,977) Purchases of investment securities (12,628) (17,530) Proceeds from sales of FHLMC stock 1,796 1,247 Proceeds from redemptions and maturities of investment securities 4,000 - Proceeds from redemption of FHLB stock 74 179 Proceeds from sale of real estate owned 819 Net (increase) decrease in loans (2,250) 13,542 Principal payments on mortgage-backed securities 881 - Premises and equipment expenditures - (50) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (8,127) (770) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposit accounts 1,796 1,767 Net increase in advances from borrowers for taxes and insurance 1,456 1,446 Purchase of treasury stock - (1,420) Proceeds from sale of treasury stock 113 113 Dividends paid (1,613) (1,004) ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,752 902 ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (5,338) (5,593) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,616 34,718 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $16,278 $29,125 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid on deposits $ 3,398 $ 3,741 Income taxes paid $ 1,348 $ 1,315 Loans transferred to real estate owned $ - $ 1,138 Investment securities transferred to FHLMC stock available for sale $ 928 $ -
See notes to consolidated financial statements. 43 RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED JUNE 30, 1994 AND 1993 - ------------------------------------------------------------------------------- NOTE 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and nine-month periods ended June 30, 1994, are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 1994. The interim consolidated financial statements and the following discussion should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Corporation's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. NOTE 2. EARNINGS PER SHARE Earnings per common share are based on the weighted average number of common shares outstanding and common share equivalents in each period. Weighted average shares outstanding include common share equivalents under the available stock option plans. NOTE 3. FHLMC STOCK AVAILABLE FOR SALE Investment securities to be held for indefinite periods of time including investment securities that management intends to use as part of its asset/liability strategy, and that may be sold in response to changes in interest rates, changes in prepayment risk, or other similar factors are classified as available for sale and are recorded at the lower of aggregate cost or market. Specifically, management has classified only the FHLMC stock as available for sale. NOTE 4. INVESTMENT SECURITIES Investments in debt securities which management has the ability and intent to hold to maturity or on a long-term basis are carried at cost. Premiums and discounts are amortized to expense and accreted to income over the life of the securities using a method which approximates the level yield method. Gain or loss on the sale of investment securities, if any, are based on the specific identification method. 44 RELIABLE FINANCIAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NINE MONTHS ENDED JUNE 30, 1994 AND 1993 - -------------------------------------------------------------------------------- NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement No. 114 "Accounting by Creditors for the Impairment of a Loan" which effective for fiscal years beginning after December 15, 1994. Statement No. 114 addresses the methods to be used by a creditor to measure the impairment of a loan and the proper recognition of a change in the value of an impaired loan. Management believes that the effect of adopting this statement on Reliable's consolidated financial statements would not be material. Also in May 1993, the FASB issued Statement No. 115 "Accounting for Certain Investments in Debt and Equity Securities" which is effective for fiscal years beginning after December 15, 1993. Statement No 115 addresses the definition of, accounting for and disclosure of debt and equity securities. In accordance with this statement, securities will be classified into and accounted for based on three distinct categories: securities held to maturity, securities available for sale and trading securities. Management is currently evaluating the impact of this statement on Reliable's consolidated financial statements. NOTE 6. RECLASSIFICATIONS Certain items previously reported in the September 30, 1993 consolidated financial statements have been reclassified to conform with the current quarter's classifications. These reclassifications have no effect on net income. NOTE 7. PENDING MERGER TRANSACTION On April 21, 1994, the registrant entered into a definitive agreement to be acquired by First Commonwealth Financial Corporation ("FCFC") of Indiana, Pennsylvania. FCFC was incorporated in Pennsylvania in 1982 and is registered as a bank holding company which is currently affiliated with 7 wholly owned bank subsidiaries. In addition, FCFC owns a data processing subsidiary and a trust company subsidiary both headquartered in Indiana, Pennsylvania an FCFC also has joint venture interest in a credit life insurance company. Through its subsidiary banking network, FCFC traces its banking origins to 1880 and conducts its business through 69 community banking offices in 51 communities throughout 14 countries of central and western Pennsylvania. FCFC has total assets of approximately $2 billion and employs over 900 persons. The share of FCFC are traded on New York Stock Exchange under the symbol "FCF". The agreement provides for the issuance of 1.6 shares of FCFC's common stock for each share of the registrant's common stock. It is anticipated that the acquisition will be accounted for as a pooling of interests. 45 PRO FORMA COMBINED CONDENSED BALANCE SHEET (FCFC, United and Reliable) June 30, 1994 (Unaudited) The following unaudited Pro Forma Combined Balance Sheet combines the historical balance sheets of First Commonwealth Financial Corporation ("FCFC"), United National Bancorporation ("United") and Reliable Financial Corporation ("Reliable") as if the mergers had become effective on June 30, 1994. This balance sheet should be read in conjunction with the First Commonwealth Financial Corporation Consolidated Financial Statements, the United National Bancorporation Consolidated Financial Statements and the Reliable Financial Corporation Consolidated Financial Statements and the notes thereto appearing elsewhere in this Form 8-K. See "Certain Information About the Pro Forma Combined Financial Data." The merger between FCFC and United was a separate and independent transaction from the merger between FCFC and Reliable. The consummation of the Reliable merger was not a condition precedent to the United merger, and the consummation of the United merger was not a condition precedent to the Reliable merger.
As Reported ---------------------------------- FCFC United Reliable Pro Forma 6/30/94 6/30/94 6/30/94 Adjustments Combined -------- -------- ---------- ----------- ---------- ASSETS Cash and due from banks........................... $ 50,766 $ 3,937 $ 748 $ 55,451 Investment securities............................. 805,925 19,492 45,000 870,417 Money market investments.......................... 397 1,454 15,530 17,381 Loans, net........................................ 1,057,637 118,008 86,718 1,262,363 Premises and equipment............................ 22,248 2,545 2,456 27,249 Other assets...................................... 44,024 2,538 903 47,465 ---------- -------- -------- ---------- ---------- Total assets.............................. $1,980,997 $147,974 $151,355 $ -0- $2,280,326 ========== ======== ======== ========== ========== LIABILITIES Deposits.......................................... $1,621,015 $133,069 $116,415 $1,870,499 Short-term borrowings............................. 157,020 673 -0- 157,693 Other liabilities................................. 13,892 1,639 4,223 19,754 Long-term debt.................................... 7,639 -0- -0- 7,639 ---------- -------- -------- ---------- ---------- Total liabilities......................... 1,799,566 135,381 120,638 2,055,585 SHAREHOLDERS' EQUITY Common stock...................................... 18,642 1,923 15 (a) (1,938) 22,437 (a) 3,795 Additional paid-in capital........................ 74,556 4,115 13,657 (a) (17,772) 90,471 (a) 15,915 Retained earnings................................. 101,492 6,780 18,043 (a) (998) 125,317 Treasury stock.................................... -0- -0- (998) (a) 998 -0- Unrealized gain (loss) on securities available for sale.............................. (8,527) (225) -0- (8,752) Deferred compensation............................. (4,732) -0- -0- (4,732) ---------- -------- -------- ---------- ---------- Total shareholders' equity................ 181,431 12,593 30,717 224,741 ---------- -------- -------- ---------- ---------- Total liabilities and shareholders' equity.................. $1,980,997 $147,974 $151,355 $ -0- $2,280,326 ========== ======== ======== ========== ========== Book value per common share....................... $9.73 $16.37 $21.78 $10.02
(a) Reflects issuance of 1,538,294 shares of FCFC Common Stock for 769,147 shares of United Common Stock, and 2,256,310 shares of FCFC Common Stock for 1,410,194 shares of Reliable Common Stock. 46 PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME (FCFC, United and Reliable) (Unaudited) The following unaudited Pro Forma Combined Condensed Statements of Income for the six months ended June 30, 1994, and the years ended December 31, 1993, 1992 and 1991 for FCFC and United, and the six months ended June 30, 1994 and the years ended September 30, 1993, 1992 and 1991 for Reliable combine the historical statements of income of FCFC, United and Reliable as if the mergers had become effective on January 1, 1991 as described in "Certain Information About the Pro Forma Combined Financial Data." Pro forma net income and net income per share were calculated before the cumulative effect of accounting changes. These income statements should be read in conjunction with the First Commonwealth Financial Corporation Consolidated Financial Statements, the United National Bancorporation Consolidated Financial Statements, the Reliable Financial Corporation Consolidated Financial Statements and the related notes thereto appearing elsewhere in this Form 8-K. The merger between FCFC and United was a separate and independent transaction from the merger between FCFC and Reliable. The consummation of the Reliable merger was not a condition precedent to the United merger, and the consummation of the United merger was not a condition precedent to the Reliable merger.
Six Months Years Ended December 31, Ended ------------------------------------- June 30, 1994 1993 1992 1991 ------------- ----------- ----------- ----------- (in thousands, except per share amounts) Interest income Interest and fees on loans....................... $ 51,875 $ 106,079 $ 105,971 $ 103,232 Interest and dividends on investment securities.. 24,979 48,360 47,164 41,337 Interest on money market securities.............. 62 761 2,710 5,942 ----------- ----------- ----------- ----------- Total interest income........................ 76,916 155,200 155,845 150,511 ----------- ----------- ----------- ----------- Interest expense Interest on deposits............................. 29,604 63,192 71,706 80,400 Interest on short-term borrowings................ 3,234 3,639 1,753 1,570 Interest on long-term debt....................... 236 456 454 456 ----------- ----------- ----------- ----------- Total interest expense....................... 33,074 67,287 73,913 82,426 ----------- ----------- ----------- ----------- Net interest income.......................... 43,842 87,913 81,932 68,085 Provision for possible loan losses............... 1,410 2,920 3,744 5,401 ----------- ----------- ----------- ----------- Net interest income after provision for possible loan losses................... 42,432 84,993 78,188 62,684 Net security gains.............................. 1,800 3,528 955 711 Other income.................................... 5,484 10,972 9,410 7,497 Other expenses.................................. 30,302 59,367 54,958 46,050 ----------- ----------- ----------- ----------- Income before taxes.......................... 19,414 40,126 33,595 24,842 Applicable income taxes......................... 6,412 12,461 9,246 6,243 ----------- ----------- ----------- ----------- Net income................................... $ 13,002 $ 27,665 $ 24,349 $ 18,599 =========== =========== =========== =========== Average common shares outstanding................... 21,410,953 22,461,272 21,978,270 20,899,175 Net income per share................................ $0.61 $1.23 $1.11 $0.89
47 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: October 5, 1994 FIRST COMMONWEALTH FINANCIAL CORPORATION By: /S/JOHN J. DOLAN ---------------------------------- John J. Dolan Sr. Vice President, Comptroller and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----