<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
--------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT:
(DATE OF EARLIEST EVENT REPORTED)
MARCH 10, 1995
--------------
UJB FINANCIAL CORP.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 1-6451 22-1903313
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (COMMISSION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NO.)
301 CARNEGIE CENTER, P. O. BOX 2066
PRINCETON , NEW JERSEY 08543-2066
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(609) 987-3200
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE> 2
Item 5. Other Events.
The Registrant hereby files certain financial statements and other
materials from Registrant's 1994 Annual Report to Shareholders.
Item 7. Financial Statements and Exhibits.
(c) Exhibits:
(1) Selected portions of the UJB Financial Corp. 1994
Annual Report to Shareholders, namely:
Consolidated Balance Sheets at December 31, 1994 and
December 31, 1993; Consolidated Statements of Income
for the years ended December 31, 1994, December 31,
1993 and December 31, 1992; Consolidated Statements
of Cash Flows for the years ended December 31, 1994,
December 31, 1993 and December 31, 1992; Consolidated
Statements of Shareholders' Equity at December 31,
1994, December 31, 1993 and December 31, 1992; and
Notes to Consolidated Financial Statements.
-1-
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: March 10, 1995 UJB FINANCIAL CORP.
By: /s/ William J. Healy
William J. Healy
Executive Vice President
and Comptroller
-2-
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
(1) Selected portions of the UJB Financial Corp. 1994 Annual
Report to Shareholders, namely:
Consolidated Balance Sheets at December 31, 1994 and December
31, 1993; Consolidated Statements of Income for the years
ended December 31, 1994, December 31, 1993 and December 31,
1992; Consolidated Statements of Cash Flows for the years
ended December 31, 1994, December 31, 1993 and December 31,
1992; Consolidated Statements of Shareholders' Equity at
December 31, 1994, December 31, 1993 and December 31, 1992;
and Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 1
UJB FINANCIAL CORP. AND SUBSIDIARIES
Summary of Selected Financial Data
<TABLE>
<CAPTION>
Not covered by independent auditors' report 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS (IN THOUSANDS)
Interest income................................................................. $ 960,973 $ 907,628 $ 979,008
Interest expense................................................................ 344,869 331,720 429,725
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income.......................................................... 616,104 575,908 549,283
Provision for loan losses....................................................... 84,000 95,685 139,555
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses.......................... 532,104 480,223 409,728
Non-interest income............................................................. 177,335 179,522 177,503
Non-interest expenses........................................................... 505,246 554,190 511,013
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes............................................ 204,193 105,555 76,218
Federal and state income taxes (benefit)........................................ 72,312 26,953 19,430
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of a change in accounting principle... 131,881 78,602 56,788
Cumulative effect of a change in accounting principle........................... (1,731) 3,816 --
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 130,150 $ 82,418 $ 56,788
===============================================================================================================================
COMMON SHARE DATA
Net income (loss)............................................................... $ 2.35 $ 1.50 $ 1.09
Cash dividends declared......................................................... .94 .69 .60
Book value at year end.......................................................... 19.53 18.23 17.38
Market value at year end........................................................ 24.13 24.00 24.25
Number of registered common shareholders at year end............................ 20,323 21,173 22,139
Average common shares outstanding (in thousands)................................ 54,697 53,917 50,398
Common shares outstanding at year end (in thousands)............................ 55,005 54,261 53,493
Common stock dividend payout.................................................... 40.00% 46.00% 55.05%
===============================================================================================================================
BALANCE SHEET DATA (AT YEAR END, IN THOUSANDS)
Total assets.................................................................... $15,429,472 $13,789,641 $14,114,550
Total deposits.................................................................. 12,567,791 11,751,499 12,087,328
Total loans..................................................................... 9,656,574 8,743,708 8,928,580
Shareholders' equity............................................................ 1,104,260 1,019,252 959,492
Allowance for loan losses....................................................... 214,161 244,154 277,449
Long-term debt.................................................................. 204,754 208,654 216,945
===============================================================================================================================
OPERATING RATIOS
Return on average assets........................................................ .88% .59% .41%
Return on average common equity................................................. 12.36 8.32 6.37
Net interest margin............................................................. 4.63 4.62 4.49
Efficiency ratio................................................................ 60.4 64.4 65.4
===============================================================================================================================
LOAN QUALITY RATIOS
Allowance for loan losses to year-end loans..................................... 2.22% 2.79% 3.11%
Net charge offs to average loans................................................ .86 1.46 1.73
Non-performing loans to year-end loans.......................................... 1.74 2.91 4.09
===============================================================================================================================
CAPITAL RATIOS
Average total equity to average total assets.................................... 7.19% 7.12% 6.48%
Tier I capital to average assets (leverage)..................................... 7.02 7.20 6.79
Tier I capital to risk-adjusted assets.......................................... 9.27 9.64 9.18
Total capital to risk-adjusted assets........................................... 12.04 12.67 12.26
===============================================================================================================================
OTHER DATA (AT YEAR END)
Number of banking offices....................................................... 270 264 265
Number of employees (full-time equivalent)...................................... 6,143 6,300 6,405
Number of employees (full-time)................................................. 5,361 5,557 5,750
Number of employees (part-time)................................................. 987 931 820
===============================================================================================================================
</TABLE>
Selected Financial Data has been restated to reflect the merger of VSB Bancorp.
Per share data from the year 1989 and prior was not restated as VSB Bancorp was
a mutual association.
See accompanying consolidated financial statements and notes.
NA - Not applicable.
38
<PAGE> 2
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986 1985
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,134,624 $ 1,217,082 $ 1,132,793 $ 943,985 $ 813,357 $ 747,027 $ 729,390
634,432 723,064 653,402 505,487 415,464 404,955 427,086
- ---------------------------------------------------------------------------------------------------------------------------------
500,192 494,018 479,391 438,498 397,893 342,072 302,304
167,650 251,888 51,955 40,090 33,315 38,194 24,492
- ---------------------------------------------------------------------------------------------------------------------------------
332,542 242,130 427,436 398,408 364,578 303,878 277,812
150,125 170,509 123,690 114,998 107,103 105,341 74,050
454,731 441,221 386,614 356,250 327,153 302,627 268,912
- ---------------------------------------------------------------------------------------------------------------------------------
27,936 (28,582) 164,512 157,156 144,528 106,592 82,950
3,684 (17,166) 42,973 39,127 38,095 19,277 11,076
- ---------------------------------------------------------------------------------------------------------------------------------
24,252 (11,416) 121,539 118,029 106,433 87,315 71,874
-- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
$ 24,252 $ (11,416) $ 121,539 $ 118,029 $ 106,433 $ 87,315 $ 71,874
=================================================================================================================================
$ .46 $ (.29) $ 2.62 $ 2.58 $ 2.31 $ 2.02 $ 1.79
.60 1.02 1.11 1.01 .91 .82 .73
16.92 17.09 18.67 17.02 15.47 13.97 12.02
14.63 7.13 18.88 20.75 22.25 23.75 23.75
22,653 23,159 22,407 22,042 18,819 19,211 19,109
48,279 47,230 43,785 43,113 42,166 40,655 37,204
48,515 47,726 44,077 43,474 42,753 41,428 38,120
130.43% NA 42.37% 39.15% 39.39% 40.59% 40.78%
=================================================================================================================================
$13,727,539 $13,156,273 $12,511,455 $11,198,616 $ 10,430,982 $ 9,584,132 $ 8,307,047
11,620,247 10,912,739 9,623,498 9,176,608 8,143,268 7,986,219 6,912,046
8,937,873 8,860,622 8,509,331 7,476,451 6,719,347 5,909,764 4,788,088
850,873 845,551 898,222 823,082 772,566 626,255 503,105
292,490 265,148 122,719 108,485 96,292 84,602 69,624
65,152 72,960 82,055 87,937 89,196 108,670 118,262
=================================================================================================================================
.18% (.09)% 1.05% 1.11% 1.10% 1.01% .93%
2.70 (1.53) 14.15 15.61 15.68 15.16 15.15
4.18 4.29 4.79 4.86 4.99 5.11 5.06
66.8 66.1 61.7 61.4 59.9 60.9 62.5
=================================================================================================================================
3.27% 2.99% 1.44% 1.45% 1.43% 1.43% 1.45%
1.58 1.25 .47 .40 .35 .44 .32
5.07 4.94 2.21 1.41 .75 1.02 1.07
=================================================================================================================================
6.30% 6.95% 7.63% 7.49% 7.32% 6.80% 6.26%
6.10 6.07 7.35 7.40 7.44 NA NA
8.27 8.23 NA NA NA NA NA
9.77 9.83 NA NA NA NA NA
=================================================================================================================================
267 272 257 249 247 245 246
6,584 6,565 6,443 6,524 6,332 6,247 6,086
5,904 5,855 5,756 5,827 5,704 5,624 5,479
880 889 842 1,061 1,012 1,001 975
=================================================================================================================================
</TABLE>
39
<PAGE> 3
UJB FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
------------------------------
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks (Note 3) .............................................................. $ 925,421 $ 725,174
Federal funds sold and securities purchased under agreements to resell ........................ 44,875 99,500
- -----------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 970,296 824,674
- -----------------------------------------------------------------------------------------------------------------------------------
Interest bearing deposits with banks ............................................................. 18,809 19,962
Trading account securities ....................................................................... 33,513 29,735
Investment securities available for sale (Note 4) (Market value of $201,215 in 1994
and $1,177,585 in 1993) ....................................................................... 201,215 1,162,088
Investment securities (Note 5) (Market value of $3,902,439 in 1994
and $2,728,994 in 1993) ....................................................................... 4,092,988 2,685,650
Loans (Notes 6, 7 and 23) ........................................................................ 9,656,574 8,743,708
Less: Allowance for loan losses (Note 8) ...................................................... 214,161 244,154
- -----------------------------------------------------------------------------------------------------------------------------------
Net loans 9,442,413 8,499,554
- -----------------------------------------------------------------------------------------------------------------------------------
Premises and equipment (Note 9) .................................................................. 167,905 171,439
Assets held for accelerated disposition .......................................................... 90,888 --
Accrued interest receivable ...................................................................... 89,926 74,487
Other real estate owned, net (Note 10) ........................................................... 31,449 74,780
Due from customers on acceptances ................................................................ 21,159 20,126
Other assets (Notes 1 and 18) .................................................................... 268,911 227,146
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $15,429,472 $13,789,641
===================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing demand deposits .......................................................... $ 3,260,641 $ 2,805,819
Interest bearing deposits:
Savings and time deposits .................................................................. 8,936,009 8,719,094
Commercial certificates of deposit $100,000 and over ....................................... 371,141 226,586
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 12,567,791 11,751,499
- -----------------------------------------------------------------------------------------------------------------------------------
Other borrowed funds (Note 11) ................................................................... 1,333,430 619,687
Long-term debt (Note 12) ......................................................................... 204,754 208,654
Accrued interest payable ......................................................................... 30,234 23,340
Bank acceptances outstanding ..................................................................... 21,159 20,126
Accrued expenses and other liabilities (Notes 15 and 18) ......................................... 167,844 147,083
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 14,325,212 12,770,389
- -----------------------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 19, 20 and 21)
Shareholders' equity (Notes 12, 13, 15 and 16):
Preferred stock: Authorized 4,000,000 shares without par value:
Series B:Authorized 1,200,000 shares; issued and outstanding 600,166
in 1994 and 1993, adjustable-rate cumulative, $50 stated value .......................... 30,008 30,008
Common stock par value $1.20:
Authorized 130,000,000 shares; issued and outstanding 55,005,306
in 1994 and 54,260,768 in 1993 .......................................................... 66,006 65,113
Surplus ....................................................................................... 413,429 398,723
Retained earnings ............................................................................. 604,066 525,408
Net unrealized gain (loss) on investment securities, net of tax ............................... (9,249) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,104,260 1,019,252
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $15,429,472 $13,789,641
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE> 4
UJB FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
(Dollars in thousands, except per share data) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans (Note 7) .................................................. $ 706,049 $ 670,705 $ 713,987
Interest on investment securities (Note 5):
Taxable ........................................................................... 195,904 177,549 217,383
Tax-exempt ........................................................................ 22,823 25,448 30,206
Interest on investment securities available for sale (Note 4) ........................ 34,300 31,023 10,782
Interest on Federal funds sold and securities purchased under agreements to resell ... 600 955 4,615
Interest on trading account securities ............................................... 668 1,297 1,367
Interest on deposits with banks ...................................................... 629 651 668
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 960,973 907,628 979,008
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on savings and time deposits ................................................ 239,714 271,345 366,023
Interest on commercial certificates of deposit $100,000 and over ..................... 13,639 7,319 16,320
Interest on borrowed funds (Notes 11 and 12) ......................................... 91,516 53,056 47,382
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 344,869 331,720 429,725
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income ............................................................ 616,104 575,908 549,283
Provision for loan losses (Note 8 ) .................................................. 84,000 95,685 139,555
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 532,104 480,223 409,728
- ------------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts .................................................. 64,474 60,474 54,356
Service and loan fee income .......................................................... 42,008 34,626 32,900
Trust income ......................................................................... 21,792 21,852 19,837
Investment securities gains (Notes 4 and 5) .......................................... 1,888 8,877 18,485
Trading account gains ................................................................ 670 1,884 1,804
Other ................................................................................ 46,503 51,809 50,121
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 177,335 179,522 177,503
- ------------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES
Salaries ............................................................................. 183,339 185,570 179,457
Pension and other employee benefits (Note 15) ........................................ 53,386 58,601 51,209
Occupancy, net (Notes 9 and 19) ...................................................... 50,749 48,487 47,872
Furniture and equipment (Notes 9 and 19) ............................................. 49,065 45,592 42,404
FDIC assessment ...................................................................... 27,933 29,244 26,047
Other real estate owned expenses (Note 10) ........................................... 18,287 40,925 38,092
Advertising and public relations ..................................................... 10,843 10,517 10,578
Restructuring charge ................................................................. -- 21,500 --
Other (Note 17) ...................................................................... 111,644 113,754 115,354
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 505,246 554,190 511,013
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes ..................................................... 204,193 105,555 76,218
Federal and state income taxes (Note 18) ............................................. 72,312 26,953 19,430
- ------------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a change in accounting principle ............ 131,881 78,602 56,788
Cumulative effect of a change in accounting principle (Notes 15 and 18) .............. (1,731) 3,816 --
====================================================================================================================================
Net Income $ 130,150 $ 82,418 $ 56,788
====================================================================================================================================
Net Income Per Common Share:
Income before cumulative effect of a change in accounting principle ............ $ 2.38 $ 1.43 $ 1.09
Cumulative effect of a change in accounting principle (Notes 15 and 18) .............. (.03) .07 --
====================================================================================================================================
Net Income Per Common Share $ 2.35 $ 1.50 $ 1.09
====================================================================================================================================
Average Common Shares Outstanding (in thousands) 54,697 53,917 50,398
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE> 5
UJB FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
(Dollars in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income .................................................................... $ 130,150 $ 82,418 $ 56,788
Adjustments to reconcile net income to net cash provided by operating
activities:
Provisions for loan losses and other real estate owned ...................... 94,573 127,747 167,524
Depreciation, amortization and accretion, net ............................... 33,352 27,876 22,776
Restructuring charge ........................................................ -- 21,500 --
Deferred income tax (benefit) ............................................... 19,030 (5,725) (4,811)
Gains on sales of investment and trading account securities ................. (2,558) (10,761) (20,289)
Gains on sales of mortgages held for sale ................................... (500) (3,492) (3,511)
Gains on sales of other real estate owned ................................... (1,457) (1,716) (1,484)
Proceeds from sales of other real estate owned .............................. 44,927 62,012 79,464
Proceeds from sales of mortgages held for sale .............................. 146,435 321,226 314,379
Originations of mortgages held for sale ..................................... (118,627) (269,655) (329,436)
Net increase in trading account securities .................................. (3,108) (5,890) (16,902)
(Increase) decrease in accrued interest receivable and other assets ......... (167,957) (26,381) 19,834
Increase (decrease) in accrued interest payable, accrued expenses and
other liabilities ......................................................... 28,688 31,145 (6,166)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 202,948 350,304 278,166
- -------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities .................................. -- -- 193,976
Proceeds from maturities of investment securities ............................. 975,071 1,283,651 938,997
Purchases of investment securities ............................................ (1,700,063) (1,833,506) (2,500,286)
Purchases of investment securities available for sale ......................... (11,471) (316,303) --
Proceeds from maturities of investment securities available for sale .......... 261,098 192,605 178,961
Proceeds from sales of investment securities available for sale ............... 5,109 517,906 1,051,453
Net decrease (increase) in interest bearing deposits with banks ............... 1,153 (6,143) 12,087
Proceeds from sales of loans .................................................. -- 84,836 --
Net increase in loans ......................................................... (1,061,876) (109,388) (220,687)
Purchases of premises and equipment, net ...................................... (16,589) (14,592) (8,389)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,547,568) (200,934) (353,888)
- -------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in demand and savings deposits ................................... 258,291 362,450 1,197,745
Net increase (decrease) in time deposits ...................................... 558,001 (698,279) (730,664)
Net increase (decrease) in short-term borrowings .............................. 719,371 (84,574) (330,574)
Principal payments on long-term debt, net ..................................... (10,568) (28,075) (26,949)
Proceeds from issuance of debt, net of related expenses ....................... 1,040 20,000 172,489
Dividends paid ................................................................ (49,817) (34,806) (30,888)
Proceeds from issuance of common stock, net of related expense ................ -- -- 68,345
Proceeds from issuance of common stock under dividend reinvestment and
other stock plans ........................................................... 15,256 15,186 13,577
Other, net .................................................................... (1,332) (3,301) 954
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,490,242 (451,399) 334,035
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents .............................. 145,622 (302,029) 258,313
Cash and cash equivalents at beginning of year ................................ 824,674 1,126,703 868,390
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 970,296 $ 824,674 $ 1,126,703
===============================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid:
Interest payments ........................................................... $ 337,975 $ 345,805 $ 451,858
Income tax payments ......................................................... 60,063 28,913 22,059
Noncash investing activities:
Loans made in conjunction with the sale of other real estate owned .......... 9,891 17,112 510
Transfer of investments (from) to investment securities available for sale .. (707,808) 666,687 1,737,999
Transfer of loans to other real estate owned ................................ 41,017 51,784 139,489
Transfer of assets to assets held for accelerated disposition, net .......... 90,888 -- --
===============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE> 6
UJB FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Net Total
Preferred Common Retained Unrealized Shareholders'
(Dollars in thousands) Stock Stock Surplus Earnings Gain (Loss) Equity
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991.................... $30,008 $58,219 $308,509 $455,909 $ (1,772) $ 850,873
Net income, 1992........................... -- -- -- 56,788 -- 56,788
Proceeds from issuance of common stock
(4,000,000 shares)...................... -- 4,800 63,545 -- -- 68,345
Cash dividends declared:
Preferred stock......................... -- -- -- (1,847) -- (1,847)
Common stock............................ -- -- -- (29,756) -- (29,756)
Common stock issued:
Dividend reinvestment and other stock
plans (779,140 shares)............... -- 935 10,833 -- -- 11,768
Exercise of stock options, net (198,396
shares).............................. -- 238 1,571 -- -- 1,809
Change in valuation allowance for
marketable equity securities............ -- -- -- -- 1,512 1,512
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 30,008 64,192 384,458 481,094 (260) 959,492
- -----------------------------------------------------------------------------------------------------------------------
Net income, 1993........................... -- -- -- 82,418 -- 82,418
Cash dividends declared:
Preferred stock......................... -- -- -- (1,801) -- (1,801)
Common stock............................ -- -- -- (36,303) -- (36,303)
Common stock issued:
Dividend reinvestment and other stock
plans (459,430 shares)............... -- 551 9,918 -- -- 10,469
Exercise of stock options, net (308,395
shares).............................. -- 370 4,347 -- -- 4,717
Change in valuation allowance for
marketable equity securities............ -- -- -- -- 260 260
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 30,008 65,113 398,723 525,408 -- 1,019,252
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investment
securities upon adoption of a change in
accounting principle, net of tax........ -- -- -- -- 9,355 9,355
Adjustment for the pooling of a company
with a different fiscal year end........ -- -- 343 1,769 -- 2,112
Net income, 1994........................... -- -- -- 130,150 -- 130,150
Cash dividends declared:
Preferred stock......................... -- -- -- (1,835) -- (1,835)
Common stock............................ -- -- -- (51,426) -- (51,426)
Common stock issued:
Dividend reinvestment and other stock
plans (353,345 shares)............... -- 424 8,635 -- -- 9,059
Exercise of stock options, net (391,193
shares).............................. -- 469 5,728 -- -- 6,197
Change in unrealized gain (loss) on
investment securities, net of tax....... -- -- -- -- (18,604) (18,604)
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $30,008 $66,006 $413,429 $604,066 $ (9,249) $1,104,260
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting Policies
BUSINESS UJB Financial Corp. (UJB Financial) commenced operations on October 1,
1970, as a New Jersey corporation and as a bank holding company registered under
the Bank Holding Company Act of 1956. Through its bank and active non-bank
subsidiaries, UJB Financial provides a full range of banking services and
certain non-bank services to individual and corporate customers in a competitive
environment. UJB Financial is regulated by various Federal and state agencies
and is subject to periodic examination by those regulatory authorities.
PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements
include the accounts of UJB Financial and all of its subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.
Prior period consolidated financial statements and related footnote disclosures
have been restated to include the acquisition of VSB Bancorp, Inc. This
acquisition occurred on July 1, 1994 and was accounted for on the
pooling-of-interests method. Palisade Savings Bank, FSB acquired on September
16, 1994, was recorded under the purchase method of accounting, with the
operating results included from the date of acquisition.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from these estimates.
CASH FLOW REPORTING The Consolidated Statements of Cash Flows are presented
using the indirect method. Cash and cash equivalents include cash on hand,
amounts due from banks, Federal funds sold, and securities purchased under
agreements to resell. Generally, Federal funds are sold for one day periods and
securities purchased under agreements to resell are short-term, highly liquid
assets.
SECURITIES Effective January 1, 1994, Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115) was adopted. As required by SFAS No. 115, securities
are classified into one of three investment categories: trading account
securities, investment securities available for sale and investment securities.
Securities that are purchased specifically for short-term appreciation and held
with the intent of selling in the near future are classified as trading account
securities. Securities purchased with the intent and ability to hold until
maturity are classified as investment securities. All other securities,
including equity securities, are classified as investment securities available
for sale.
Trading account securities are reported at market value on a specific
identification basis. Realized and unrealized gains and losses are reported in
non-interest income as trading account gains.
Securities are classified as available for sale where there is intent to
hold the securities for an indefinite period of time, but not necessarily to
maturity. Investments classified as available for sale may be sold in response
to changing market and interest rate conditions, or as part of an overall
asset/liability management strategy. These securities are reported at fair value
with unrealized gains and losses reported, net of tax, in shareholders' equity.
Realized gains and losses are reported in non-interest income as investment
securities gains.
Investment securities are held for long-term investment upon evaluation of
intent and the ability to hold these securities until maturity. The investment
securities are recorded at amortized cost.
Transfers of securities between categories are at fair value as of the
transfer date, with the accounting treatment of unrealized gains or losses
determined by the category into which the security is transferred.
LOANS Loans are stated at principal amounts outstanding, net of unearned
discounts and net deferred loan origination fees and costs. Interest income on
loans is accrued and credited to interest and fees on loans as earned. Loan
origination fees and certain direct loan origination costs are deferred and
recognized over the estimated life of the loan as an adjustment to the loan's
yield. Other loan fees are recorded as earned and included in non-interest
income.
NON-PERFORMING LOANS Non-performing loans generally consist of commercial
non-accrual and renegotiated loans. These loans are classified as non-accrual
loans when they are past due 90 days or more as to principal or interest, or
where reasonable doubt exists as to timely collectibility. At the time a loan is
placed on non-accrual status, previously accrued and uncollected interest is
reversed against interest income. Interest collections on non-accrual loans are
generally credited to interest income when received. However, if ultimate
collectibility of principal is in doubt, interest collections are applied as
principal reductions. After principal and interest payments are brought current
and future collectibility is reasonably assured, loans are returned to accrual
status.
Renegotiated loans are loans whose contractual interest rates have been
reduced to below market rates or other significant concessions made due to a
borrower's financial difficulties. Interest on renegotiated loans is generally
credited to interest income when received.
Consumer loans are charged off when they are 120 days past due. Accruals
cease at 180 days on home equity loans, and uncollected interest is reversed
against interest income. Past due residential mortgage loans and home equity
loans are monitored and charged off when deemed uncollectible.
ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is a valuation reserve
available for losses incurred or expected on extensions of credit. Credit losses
arise primarily from the loan portfolio, but may also be derived from other
credit-related sources including commitments to extend credit, guarantees,
standby letters of credit, and derivatives. Additions are made to the allowance
through periodic provisions which are charged to earnings. All losses of
principal are charged to the allowance when the loss actually occurs or when a
determination is made that a loss is probable. Subsequent recoveries, if any,
are added back to the allowance.
44
<PAGE> 8
The adequacy of the allowance for loan losses is determined through a
quarterly review of outstanding extensions of credit. The impact of economic
conditions on the creditworthiness of the borrowers is given consideration, as
well as loan loss experience, changes in the composition and volume of the loan
portfolio, and management's assessment of the risk inherent in the loan
portfolio. These and other factors are used in assessing the overall adequacy of
the allowance for loan losses and the resulting provision for loan losses.
PREMISES AND EQUIPMENT Premises, furniture and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation and amortization
charges are computed using the straight-line method. Premises, furniture and
equipment are depreciated over the estimated useful life of the assets, except
for leasehold improvements, which are amortized over the term of the lease or
the estimated useful life of the asset, if shorter. Estimated useful lives are
ten to forty years for premises, and three to ten years for furniture and
equipment. The cost of major renewals and improvements are capitalized.
Expenditures for maintenance and repairs are expensed as incurred.
Premises and major items of furniture and equipment are removed from
property accounts upon disposition at their carrying amount, and gains or losses
on such transactions are included in other non-interest income or expense.
ASSETS HELD FOR ACCELERATED DISPOSITION In December 1994, certain commercial
accruing and non-accruing loans and other real estate owned properties were
identified for sale under an accelerated disposition program. These assets were
transferred into an accelerated disposition classification and were written down
to their estimated net realizable value. The valuation of the assets in this
classification will be determined quarterly and will be carried at the lower of
the initially established carrying value or a new net realizable value.
Additional write downs, if any, will be charged against earnings.
OTHER REAL ESTATE OWNED Other real estate owned includes both foreclosed and
in-substance foreclosed property. In-substance foreclosed property includes
properties for which borrowers have little or no equity or prospects for
building equity in the collateral and for which the loan repayment can only be
expected from the operation or sale of the collateral. When a property is
acquired through foreclosure or in-substance foreclosure, the excess of the
carrying amount over fair value, if any, is charged to the allowance for loan
losses.
An allowance for other real estate owned has been established to maintain
these properties at the lower of cost or fair value less estimated cost to sell.
Other real estate owned is shown net of the allowance. The allowance is
established through charges to other real estate owned expense. Operating
results of other real estate owned, including rental income, operating expenses,
and gains and losses realized from the sale of properties owned, are recorded in
other real estate owned expense.
DERIVATIVES Derivative financial instruments are primarily used in the
management of interest rate risk and are accounted for on an accrual basis.
Interest income or expense arising from these instruments is recorded as a yield
adjustment to the related hedged assets or liabilities. Gains or losses on the
termination of interest rate swaps are deferred and amortized as an adjustment
to the yield of the hedged asset or liability over its remaining life.
INCOME TAXES The amount provided for income taxes is based on income reported
for consolidated financial statement purposes after elimination of income which
is exempt from Federal income tax. Such tax-exempt income is derived primarily
from investment securities of states and political subdivisions and certain
commercial and mortgage loans.
On January 1, 1993, Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109) was adopted. Under SFAS No. 109,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates to differences between the
financial statement carrying amounts and tax basis of existing assets and
liabilities. The effect of a change in tax rate on deferred taxes is recognized
in the period of the enactment date. The cumulative effect at January 1, 1993,
of this change in the method of accounting for income taxes has been included in
the Consolidated Statements of Income for the year ended December 31, 1993.
UJB Financial and its subsidiaries file a consolidated Federal income tax
return, and the amount of income tax expense or benefit is computed and
allocated on a separate return basis.
INTANGIBLE ASSETS Other assets include goodwill which represents the excess of
the purchase price over the estimated fair value of identifiable net assets
acquired through purchase acquisitions. Goodwill is being amortized on a
straight-line method over the future periods estimated to be benefited, ranging
from ten to forty years. Goodwill amounted to $31,998,000 and $13,561,000 at
December 31, 1994 and 1993, respectively.
Core deposit intangibles and other identifiable intangibles amounted to
$16,004,000 and $15,003,000 at December 31, 1994 and 1993, respectively, and are
being amortized over their estimated future periods of benefit ranging from five
to ten years.
RETIREMENT PLANS UJB Financial and its subsidiaries have several formal
non-contributory retirement plans which cover substantially all employees.
Annual contributions are made to the plans in amounts not less than the minimum
regulatory requirements. The costs associated with these benefits are accrued
based on actuarial assumptions and included in non-interest expenses.
INCOME PER SHARE Income per common share is calculated by dividing net income,
less the dividend on the adjustable-rate cumulative preferred stock, by the
average daily number of common shares outstanding during the period. Common
stock equivalents are not included in the calculation as they are not material.
45
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2 Acquisitions
In December 1993, UJB Financial entered into an agreement to acquire VSB
Bancorp, Inc. (VSB) and its wholly owned subsidiary Valley Savings Bank. The
transaction, accounted for as a pooling of interests, was consummated on July 1,
1994. UJB Financial common stock was exchanged at the rate of .7727 for each
share of VSB common stock. There were 2,628,912 shares of UJB Financial common
stock issued for 3,402,619 shares of VSB common stock.
Separate results of operations of the entities for the two years prior to
acquisition were as follows:
<TABLE>
<CAPTION>
In thousands 1993 1992
- ---------------------------------------------------------------------
<S> <C> <C>
Net interest income:
UJB Financial $563,135 $538,225
VSB Bancorp, Inc. 12,773 11,058
- ---------------------------------------------------------------------
$575,908 $549,283
=====================================================================
Net income:
UJB Financial $78,055 $ 53,824
VSB Bancorp, Inc. 4,363 2,964
- ---------------------------------------------------------------------
$82,418 $ 56,788
=====================================================================
</TABLE>
Prior to the combination, VSB's fiscal year ended September 30. In
recording the pooling of interests, an adjustment has been made to stockholders'
equity as of January 1, 1994 to reflect the effect of including VSB's results of
operations for the three months ended December 31, 1993.
In May 1994, UJB Financial entered into an agreement to purchase Palisade
Savings Bank, FSB (Palisade). On September 16, 1994, the acquisition of Palisade
was completed at a cost of $42,156,000 and the transaction was recorded under
the purchase method. Palisade had total assets of $324,237,000, loans of
$164,843,000 and deposits of $266,678,000. Results of operations are included
from the acquisition date. The acquisition of Palisade resulted in goodwill of
$19,942,000 which is being amortized over fifteen years.
The proforma results of operations for the period January 1, 1994 to
September 16, 1994 and for the year ended December 31, 1993, assuming Palisade
had been acquired as of January 1, 1993, would not have been significantly
different from those presented in the Consolidated Statements of Income.
On January 19, 1995, UJB Financial announced a definitive agreement to
acquire Bancorp New Jersey, Inc. (Bancorp) for a combination of cash and stock
with an approximate value of $88,900,000. Bancorp is a bank holding company with
assets of $480,371,000, loans of $293,363,000 and deposits of $421,993,000. It
operates New Jersey Savings Bank with 12 banking offices - nine in Somerset
County, two in Hunterdon County and one in Mercer County.
Note 3 Restrictions on Cash and Due From Banks
Certain subsidiary banks are required to maintain reserve balances with a
Federal Reserve Bank based principally upon deposits. These reserve balances
averaged $359,124,000 in 1994 and $332,881,000 in 1993.
Note 4 Investment Securities Available for Sale
The following is a comparative summary of investment securities available for
sale at December 31:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
In thousands Cost Gains Losses Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
U.S. Government and
Federal agencies $ 122,974 $ 2 $ 13,251 $ 109,725
Other securities:
Mortgage-backed 55,090 - 2,885 52,205
Equities, net 35,605 4,810 1,130 39,285
- ----------------------------------------------------------------------------
Total, other 90,695 4,810 4,015 91,490
- ----------------------------------------------------------------------------
$ 213,669 $ 4,812 $ 17,266 $ 201,215
============================================================================
1993
U.S. Government and
Federal agencies $ 669,841 $ 8,051 $ 174 $ 677,718
Other securities:
Mortgage-backed 474,554 3,914 816 477,652
Other debt 3,500 - 30 3,470
Equities, net 14,193 4,552 - 18,745
- ----------------------------------------------------------------------------
Total, other 492,247 8,466 846 499,867
- ----------------------------------------------------------------------------
$1,162,088 $16,517 $ 1,020 $1,177,585
============================================================================
</TABLE>
The amortized cost and market value of investment securities available for
sale at December 31, 1994 are distributed by contractual maturity. However,
mortgage-backed securities and other securities which may have principal
prepayment provisions are distributed to a maturity category based on the
estimated average life. These prepayments are not scheduled over the life of the
investment, but are reflected as adjustments to the final maturity distribution.
The following is a summary of the expected maturity distribution at
December 31, 1994:
<TABLE>
<CAPTION>
Amortized Market
In thousands Cost Value
- ------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ - $ -
Due after one year through five years 60,316 57,961
Due after five years through ten years 90,900 81,117
Due after ten years 26,848 22,852
Marketable equity securities, net 35,605 39,285
- ------------------------------------------------------------------------
$ 213,669 $ 201,215
========================================================================
</TABLE>
Gains and losses were realized on sales of investment securities available
for sale as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Gains $1,591 $11,147 $14,783
Losses - (2,816) (63)
- ---------------------------------------------------------------------
Net gains $1,591 $ 8,331 $14,720
=====================================================================
</TABLE>
Interest and dividend income on investment securities available for sale
was as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government and Federal agencies $ 20,504 $17,082 $10,290
Other securities 13,796 13,941 492
- --------------------------------------------------------------------
$ 34,300 $31,023 $10,782
====================================================================
</TABLE>
The carrying value of securities pledged to secure public funds, securities
sold under agreements to repurchase, and for other purposes required by law was
$62,485,000 at December 31, 1994.
46
<PAGE> 10
Note 5 Investment Securities
The following is a comparative summary of investment securities at December 31:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
In thousands Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
U.S. Government and
Federal agencies $2,016,615 $ 517 $ 100,643 $1,916,489
States and political
subdivisions 331,000 11,749 3,319 339,430
Other securities:
Mortgage-backed 1,725,367 275 99,128 1,626,514
Other debt 20,006 -- -- 20,006
- ----------------------------------------------------------------------------------------------
Total, other 1,745,373 275 99,128 1,646,520
- ----------------------------------------------------------------------------------------------
$4,092,988 $ 12,541 $ 203,090 $3,902,439
==============================================================================================
1993
U. S. Government and
Federal agencies $1,485,425 $ 23,169 $ 7,494 $1,501,100
States and political
subdivisions 308,004 28,274 520 335,758
Other securities:
Mortgage-backed 860,642 1,827 1,869 860,600
Other debt 31,579 2 45 31,536
- ----------------------------------------------------------------------------------------------
Total, other 892,221 1,829 1,914 892,136
- ----------------------------------------------------------------------------------------------
$2,685,650 $ 53,272 $ 9,928 $2,728,994
==============================================================================================
</TABLE>
The amortized cost and the market value of investment securities at
December 31, 1994 are distributed by contractual maturity. However,
mortgage-backed securities and other securities which may have principal
prepayment provisions are distributed to a maturity category based on the
estimated average life. These prepayments are not scheduled over the life of the
investment, but are reflected as adjustments to the final maturity distribution.
The following is a summary of the expected maturity distribution at
December 31, 1994:
<TABLE>
<CAPTION>
Amortized Market
In thousands Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 205,032 $ 202,936
Due after one year through five years 1,611,676 1,532,341
Due after five years through ten years 1,559,869 1,466,963
Due after ten years 716,411 700,199
- --------------------------------------------------------------------------------
$4,092,988 $3,902,439
================================================================================
</TABLE>
Gains and losses were realized on early redemptions and sales of investment
securities as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in debt securities:
Gains on early redemptions $303 $ 732 $ --
Gains on sales -- -- 4,189
Losses on early redemptions and sales (6) (186) (850)
- -------------------------------------------------------------------------
297 546 3,339
Net gains on marketable equity securities -- -- 426
- -------------------------------------------------------------------------
Net securities gains $297 $ 546 $3,765
=========================================================================
</TABLE>
Interest and dividend income on investment securities was as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government and Federal agencies $107,700 $146,926 $200,497
States and political subdivisions 22,816 25,204 30,514
Other securities 88,211 30,867 16,578
- --------------------------------------------------------------------------------
$218,727 $202,997 $247,589
================================================================================
</TABLE>
The carrying value of securities pledged to secure public funds, securities
sold under agreements to repurchase, and for other purposes required by law was
$2,395,564,000 at December 31, 1994.
Note 6 Loans
The composition of the loan portfolio, net of unearned discount and net deferred
loan origination fees and costs, at December 31, was as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial $3,921,747 $3,365,998
Construction and development 705,602 869,847
- --------------------------------------------------------------------------------
Total commercial loans 4,627,349 4,235,845
Commercial mortgages 1,461,571 1,565,413
Residential mortgages 1,329,417 928,248
- --------------------------------------------------------------------------------
Total mortgage loans 2,790,988 2,493,661
Home equity 1,529,468 1,393,007
Auto loans 504,574 422,846
Other instalment 204,195 198,349
- --------------------------------------------------------------------------------
Total instalment loans 2,238,237 2,014,202
- --------------------------------------------------------------------------------
$9,656,574 $8,743,708
================================================================================
</TABLE>
Residential mortgage loans held for sale amounted to $3,536,000 at December
31, 1994 and $30,844,000 at December 31, 1993. These loans are accounted for at
the lower of aggregate cost or market value.
Subsidiaries of UJB Financial have granted loans to officers and directors
of the company and its significant subsidiaries and to their associates. Related
party loans are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than normal risk of collectibility.
The aggregate dollar amount of these loans was $86,016,000 and $67,818,000 at
December 31, 1994 and 1993, respectively. During 1994, there were $37,792,000 of
new loans made and repayments totaled $19,594,000.
Note 7 Non-Performing Loans
At December 31, non-performing loans were as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans $164,909 $250,691
Renegotiated loans 2,738 3,582
- --------------------------------------------------------------------------------
$167,647 $254,273
================================================================================
</TABLE>
The following information is presented for those loans classified as
non-performing at December 31:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------
<S> <C> <C> <C>
Income that would have been recorded
under original contract terms $16,074 $21,573 $27,831
Less interest income received 1,693 3,787 3,843
- --------------------------------------------------------------------
Lost income on non-performing loans
at year end $14,381 $17,786 $23,988
====================================================================
</TABLE>
47
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 8 Allowance for Loan Losses
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $244,154 $277,449 $292,490
Allowance of purchased entity 1,833 -- --
Add provision charged to expense 84,000 95,685 139,555
- --------------------------------------------------------------------------------
329,987 373,134 432,045
- --------------------------------------------------------------------------------
Less charge offs:
Commercial 72,586 105,677 142,381
Mortgage 14,974 12,000 9,322
Instalment 8,684 25,598 15,627
- --------------------------------------------------------------------------------
Total charge offs 96,244 143,275 167,330
- --------------------------------------------------------------------------------
Add recoveries:
Commercial 11,788 10,513 7,652
Mortgage 2,617 287 492
Instalment 2,965 3,495 4,590
- --------------------------------------------------------------------------------
Total recoveries 17,370 14,295 12,734
- --------------------------------------------------------------------------------
Net charge offs 78,874 128,980 154,596
- --------------------------------------------------------------------------------
Write downs on transfer to assets
held for accelerated disposition 36,952 -- --
- --------------------------------------------------------------------------------
Balance, December 31 $214,161 $244,154 $277,449
================================================================================
</TABLE>
On January 1, 1995, Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (SFAS No. 114) and SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" will be adopted. These Statements address the accounting for
impaired loans and specify how allowances for credit losses related to these
impaired loans should be determined. The adoption of these Statements is not
expected to have a material effect on the allowance for loan losses or to the
existing income recognition and charge off policies for non-performing loans.
Upon adoption of SFAS No. 114, in-substance foreclosures will be classified as
non-performing loans.
Note 9 Premises and Equipment
The major components of premises and equipment at December 31, were as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 18,476 $ 17,897
Premises and leasehold improvements 194,014 189,427
Furniture and equipment 137,214 129,445
- --------------------------------------------------------------------------------
349,704 336,769
Less accumulated depreciation and amortization 181,799 165,330
- --------------------------------------------------------------------------------
$167,905 $171,439
================================================================================
</TABLE>
Amounts charged to non-interest expenses for depreciation and amortization
amounted to $20,124,000 in 1994, $20,489,000 in 1993 and $20,644,000 in 1992.
Note 10 Other Real Estate Owned
At December 31, other real estate owned consisted of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Other real estate owned $ 35,967 $ 71,120
In-substance foreclosures 10,459 34,777
- --------------------------------------------------------------------------------
46,426 105,897
Less allowance for other real estate owned 14,977 31,117
- --------------------------------------------------------------------------------
$ 31,449 $ 74,780
================================================================================
</TABLE>
Transactions in the allowance for other real estate owned were as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $31,117 $13,416 $ 2,612
Add provision charged to expense 10,573 32,062 27,969
- --------------------------------------------------------------------------------
41,690 45,478 30,581
Less: Write downs on sales 16,818 14,361 17,165
Write downs on transfer to assets
held for accelerated disposition 9,895 -- --
- --------------------------------------------------------------------------------
Balance, December 31 $14,977 $31,117 $13,416
================================================================================
</TABLE>
Note 11 Other Borrowed Funds
Other borrowed funds at December 31, consisted of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under agreements to repurchase $ 948,697 $ 274,255
Federal funds purchased 172,255 160,554
Treasury tax and loan deposits 135,746 85,322
Commercial paper 42,211 33,359
Federal Home Loan Bank advances 4,620 36,699
Other 29,901 29,498
- --------------------------------------------------------------------------------
$1,333,430 $ 619,687
================================================================================
</TABLE>
Lines of credit are available to support commercial paper borrowings and
for general corporate purposes on which interest approximates the prime lending
rate at the time of borrowing. Unused lines amounted to $40,000,000 at December
31, 1994.
Commitment fees on the credit facilities and the lines of credit amounted to
$86,000 in 1994, $161,000 in 1993 and $236,000 in 1992.
Note 12 Long-Term Debt
Long-term debt at December 31, consisted of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
8.625% Subordinated notes due December 10, 2002 $175,000 $175,000
7.95% Senior notes due August 25, 2003 20,000 20,000
7.75% Sinking fund debentures due November 1, 1997 9,338 10,715
Other 416 2,939
- ---------------------------------------------------------------------------
$204,754 $208,654
===========================================================================
</TABLE>
The 8.625% subordinated notes were issued in 1992 and are unsecured.
Interest is payable semi-annually on June 10 and December 10 of each year. The
notes are not subject to redemption prior to maturity. No sinking fund is
provided for the notes.
The 7.95% ten year maturity private placement senior notes were issued in
1993 with interest payable quarterly on the twenty-fifth day of each February,
May, August and November. UJB Financial shall have the option, on any interest
payment date, to prepay the notes in whole or in part, but in no event shall the
prepayment
48
<PAGE> 12
be less than $1,000,000, subject to certain contractual prepayment provisions.
The 7.75% sinking fund debentures are currently redeemable at the option of
UJB Financial at 100% of the principal amount, plus accrued interest. An annual
sinking fund of $700,000 is calculated to retire 52.5% of this issue prior to
maturity. UJB Financial may, at its option, increase its sinking fund payment in
any year by making an additional payment not in excess of the mandatory sinking
fund payment. The debentures are redeemable, through the sinking fund, at the
principal amount thereof plus accrued interest. At December 31, 1994, $162,000
was being held to satisfy future sinking fund requirements.
Certain of the above long-term debt agreements include restrictions upon the
creation of liens by UJB Financial, the disposition of stock of subsidiaries,
the payment of cash dividends and the creation of funded debt, as defined. At
December 31, 1994, under the most restrictive limitations, consolidated retained
earnings of $249,399,000 were unrestricted and available for dividends, and the
amount of additional funded debt, as defined, that could be created was
$298,799,000.
The principal amount of long-term debt due in the following year is included
in other borrowed funds. Principal amounts due, including sinking fund payments,
for the years 1995 through 1997 are $1,419,000, $1,116,000 and $8,638,000. No
principal amounts are due for 1998 and 1999.
Note 13 Common and Preferred Stock
At December 31, 1994, approximately 7,582,000 common shares were reserved for
issuance under the Dividend Reinvestment Plan, Incentive Stock and Option Plan,
Stock Option Plans, Savings Incentive Plan and Long-Term Performance Stock Plan.
At December 31, 1994, UJB Financial had 4,000,000 shares of preferred stock
authorized of which 600,166 shares of Series B Preferred Stock were outstanding.
Each outstanding share of Series B Preferred Stock has a $50 stated value, is
non-convertible and has no voting rights. Dividends are cumulative and are
payable quarterly on February 1, May 1, August 1, and November 1 of each year.
For each quarterly period, the dividend rate will be determined in advance of
such period, and the dividend rate will be 1.5% less than the highest of the
Three Month Treasury Bill Rate, the Ten Year Constant Maturity Rate or the
Thirty Year Constant Maturity Rate. The dividend rate for any dividend period
will not be less than 6% per annum or greater than 11% per annum.
The preferred stock is redeemable at the option of UJB Financial, in whole
or in part, plus accrued and unpaid dividends. The preferred stock may be
redeemed prior to May 1, 1995 at a redemption price of $51.50 per share and,
thereafter, at $50 per share. Dividends in the amounts of $3.07, $3.00 and $3.06
per share were declared on the Series B Preferred Stock for 1994, 1993 and 1992,
respectively.
A Shareholder Rights Plan exists which is designed to ensure fair and equal
treatment for all UJB Financial shareholders in the event of any proposal to
acquire UJB Financial. The terms of the plan provide that effective August 28,
1989, each share of common stock also represents one "right." Each right will
entitle the holder to buy one one-hundredth of a share of a new series of
preferred stock upon the occurrence of certain events. In addition, upon the
occurrence of certain other events, holders of the rights will be entitled to
purchase either shares of this new preferred stock or shares in an "acquiring
person" at half their fair market value as determined under the plan.
Note 14 Restrictions on Subsidiary Bank Dividends
Certain bank regulatory limitations exist on the availability of subsidiary bank
undistributed net assets for the payment of dividends to UJB Financial Parent
Corporation without the prior approval of the bank regulatory authorities.
The Federal Reserve Act, which affects the New Jersey state member bank,
restricts the payment of dividends in any calendar year to the net profit of the
current year combined with retained net profits of the preceding two years. The
Pennsylvania state-chartered bank may declare a dividend up to the amount of
accumulated net profit. In addition to these statutory restrictions, the
subsidiary banks are required to maintain adequate levels of capital under
FDICIA. At December 31, 1994, the total undistributed net assets of the
subsidiary banks were $1,079,115,000 of which $199,405,000 was available under
the most restrictive limitations for the payment of dividends to UJB Financial
Parent Corporation.
Note 15 Benefit Plans
UJB Financial has several trusteed non-contributory defined benefit retirement
plans covering substantially all of its employees. The benefits are based on
years of service and the employees' final average compensation. The funding
policy is to contribute annually an amount that can be deducted for Federal
income tax purposes. Contributions are intended to provide not only for benefits
attributed for service to date, but also for those expected to be earned in the
future.
The following table sets forth the plans' funding status and amounts
recognized in the consolidated financial statements at December 31:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated benefit obligation,
including vested benefits of
$118,784 in 1994, $108,491 in
1993 and $91,037 in 1992 $(128,070) $(116,035) $ (97,968)
===============================================================================
Projected benefit obligation for
service rendered to date $(157,157) $(146,772) $(126,318)
Plan assets at fair value 135,567 144,497 134,498
- -------------------------------------------------------------------------------
Plan assets (under) over projected
benefit obligation (21,590) (2,275) 8,180
Unrecognized transition asset (8,727) (11,101) (13,476)
Unrecognized prior service cost 753 (7) (7)
Unrecognized net loss from
past experience which is different
from that assumed, and effect of
changes in assumptions 23,560 6,020 2,014
- -------------------------------------------------------------------------------
Accrued pension cost $ (6,004) $ (7,363) $ (3,289)
===============================================================================
Net pension expense components:
Service cost $ 6,736 $ 6,833 $ 6,030
Interest cost 11,210 10,510 9,620
Actual return on plan assets 7,879 (14,987) (11,719)
Net deferral and amortization (22,074) 2,049 (390)
- -------------------------------------------------------------------------------
Net pension expense $ 3,751 $ 4,405 $ 3,541
===============================================================================
</TABLE>
The plans' assets were principally invested in units of mutual funds. The
weighted average discount rates for the plans were 8.0% in 1994, 7.5% in 1993
and 8.0% in 1992. The rate of increase in
49
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
future compensation levels used in determining the actuarial present value of
the projected benefit obligation was 5.5% in 1994 and 1993 and 6.0% in 1992. The
expected long-term rate of return on plan assets was 9.0% in 1994, 1993 and
1992.
In addition to pension benefits, certain health care and life insurance
benefits are made available to retired employees. In 1993 UJB Financial adopted,
on a prospective basis, Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
No. 106). Under SFAS No. 106 the costs of such benefits are accrued based on
actuarial assumptions from the date of hire to the date the employee is fully
eligible to receive the benefits. Prior to the adoption of SFAS No. 106, the
costs of these benefits were expensed as paid and amounted to $1,039,000 in
1992.
The following table sets forth the net periodic postretirement benefit cost
and accumulated postretirement benefit obligation (APBO) at December 31:
<TABLE>
<CAPTION>
In thousands 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation (APBO) $(33,055) $(35,009)
Fair value of assets -- --
- -------------------------------------------------------------------------------
Projected benefit obligation funded status (33,055) (35,009)
Unrecognized transition obligation 24,514 26,414
Unrecognized prior service cost 141 --
Unrecognized loss 3,156 5,731
- -------------------------------------------------------------------------------
Accrued APBO $ (5,244) $ (2,864)
===============================================================================
Net postretirement benefit cost components:
Service cost $ 322 $ 305
Interest cost 2,248 2,303
Amortization of transition obligation 1,355 1,390
- -------------------------------------------------------------------------------
Net postretirement benefit cost $ 3,925 $ 3,998
===============================================================================
</TABLE>
For measurement purposes, the cost of medical benefits was projected to
increase at a rate of 14.0% in 1994, 15.0% in 1993 and thereafter decreasing
linearly to 6.0% over eight years. Increasing the assumed health care cost trend
by one percent in each year would increase the accumulated postretirement
benefit obligation as of January 1, 1994 by $1,504,000 and the aggregate of the
service and interest components of net periodic postretirement benefit cost for
the year ended December 31, 1994 by $127,000. The present value of the
accumulated benefit obligation assumed an 8.0% and a 7.5% discount rate in 1994
and 1993, respectively. The rate of increase used in future compensation levels
was 5.5% in 1994 and 1993.
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits"(SFAS No. 112) was issued in November 1992 to
establish accounting for benefits provided to former or inactive employees after
employment but before retirement. SFAS No. 112 requires that employers accrue
the costs associated with providing benefits, such as salary and benefit
continuation under disability plans, when payment of the benefits is probable
and the amount of the obligation can be reasonably estimated. Effective January
1, 1994, UJB Financial adopted SFAS No. 112. UJB Financial recognized the
January 1, 1994 SFAS No. 112 transitional liability of $2,663,000. During 1994,
net costs of $2,945,000 were recognized, of which $2,174,000 were paid. At
December 31, 1994, the resultant SFAS No. 112 liability was $3,434,000.
Management incentive plans have been established with the intention of
providing added incentive to key executives to increase the profits of the
company. The executives and the amount of the awards are subject to limits as
set forth in the plans. Accruals for the plans amounted to $3,258,000,
$1,640,000 and $1,420,000 in 1994, 1993 and 1992, respectively.
There is a Savings Incentive Plan which covers substantially all employees
with one or more years of service. The Plan permits eligible employees to make
basic contributions to the Plan up to 3% of base compensation in 1994, 1993 and
1992, and additional contributions up to 12% of base compensation. Under the
Plan, the employer provides a matching contribution equal to 65% in 1992, 1993
and through October 31, 1994 of the basic contributions. Effective November 1,
1994, the employer matching contribution was increased to 100%. Matching
contributions to the Plan amounted to $2,446,000, $2,084,000 and $1,863,000 in
1994, 1993 and 1992, respectively.
Certain subsidiaries have other incentive plans and profit sharing
agreements. Accruals under these plans amounted to $1,959,000, $1,826,000 and
$1,525,000 in 1994, 1993 and 1992, respectively.
The Incentive Stock and Option Plan and previous Long-Term Performance
Stock Plans of UJB Financial and the VSB Management Recognition and Retention
Plan and Trust provide for the grant of shares of common stock in the form of
restricted stock awards. Shares issued as stock awards were 60,250 in 1994,
73,431 in 1993 and 83,766 in 1992. The shares awarded are subject to certain
forfeiture restrictions as set forth in the Plans.
Note 16 Stock Option Plans
The Stock Option Plans permit UJB Financial common stock to be issued to key
employees of the company and its subsidiaries. The options granted under the
Plans are intended to be either Incentive Stock Options or Non-Qualified
Options.
Options have been granted to purchase common stock principally at the fair
market value of the stock at the date of grant. Options are exercisable starting
one year after the date of grant and generally expire ten years from the date of
grant. Upon the exercise of options, proceeds received in excess of par value of
the shares are credited to surplus.
Changes in options outstanding during the past three years were as follows:
<TABLE>
<CAPTION>
Price Range
Shares Per Share
- -------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, December 31, 1991
(1,794,044 shares exercisable) 2,857,830 $ 3.745 to $29.438
Granted during 1992 562,593 7.864 to 17.000
Exercised during 1992 242,975 7.875 to 20.375
Expired or cancelled during 1992 55,353 7.864 to 29.438
- -------------------------------------------------------------------------------
Outstanding, December 31, 1992
(2,559,502 shares exercisable) 3,122,095 3.745 to 29.438
Granted during 1993 489,382 12.133 to 25.063
Exercised during 1993 390,554 3.745 to 29.438
Expired or cancelled during 1993 31,127 7.875 to 29.438
- -------------------------------------------------------------------------------
Outstanding, December 31, 1993
(2,700,414 shares exercisable) 3,189,796 3.745 to 29.438
Granted during 1994 449,500 24.688
Exercised during 1994 486,573 7.864 to 28.333
Expired or cancelled during 1994 65,329 7.875 to 29.438
- -------------------------------------------------------------------------------
Outstanding, December 31, 1994
(2,637,894 shares exercisable) 3,087,394 $ 7.864 to $29.438
===============================================================================
</TABLE>
50
<PAGE> 14
Note 17 Other Expenses
Other expenses consisted of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Professional and other fees $ 37,113 $ 40,263 $ 44,742
Communications (postage and telephone) 18,905 18,535 17,350
Merchant card processing fees 15,156 14,464 12,534
Other 40,470 40,492 40,728
- -----------------------------------------------------------------------------
$111,644 $113,754 $115,354
=============================================================================
</TABLE>
Note 18 Income Taxes
Effective January 1, 1993, Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109) was adopted on a prospective basis.
The cumulative effect of the adoption resulted in a positive effect to earnings
of $3.8 million, or $.07 per share.
The provision for income taxes in the Consolidated Statements of Income
consists of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision
Federal $45,077 $23,223 $20,234
State 8,205 9,455 4,007
- ----------------------------------------------------------------------------
53,282 32,678 24,241
Deferred provision (benefit)
Federal 13,681 (682) (4,811)
State 5,349 (5,043) --
- ----------------------------------------------------------------------------
19,030 (5,725) (4,811)
- ----------------------------------------------------------------------------
Total income tax provision $72,312 $26,953 $19,430
============================================================================
</TABLE>
A summary of the differences between the actual income tax provision and
the amounts computed by applying the statutory Federal income tax rate to income
is as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax at statutory rate $71,468 $ 36,944 $ 25,914
Increase (decrease) in taxes resulting from:
Tax-exempt interest income (9,491) (10,523) (12,407)
State taxes, net of Federal tax effect 8,810 2,868 2,645
Other, net 1,525 (2,336) 3,278
- -----------------------------------------------------------------------------
Total income tax provision $72,312 $ 26,953 $ 19,430
=============================================================================
</TABLE>
The significant Federal and state temporary differences which comprise the
deferred tax assets and liabilities presented at December 31, are as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Provision for loan losses $ 84,379 $ 99,033
Provision for other real estate owned 10,098 12,744
Restructuring charge 2,479 8,773
Alternative minimum tax credit carry forwards -- 3,055
Net unrealized loss on securities available for sale 5,695 --
Other 19,919 12,421
- -------------------------------------------------------------------------------
122,570 136,026
Deferred tax liabilities:
Leasing operations (12,601) (10,601)
Other (4,432) (6,553)
- -------------------------------------------------------------------------------
(17,033) (17,154)
- -------------------------------------------------------------------------------
Net deferred tax asset $105,537 $118,872
===============================================================================
</TABLE>
Included in deferred tax assets "Other" is a valuation allowance which has
been established against certain Federal and state temporary differences. The
valuation allowance was $7,756,000 at December 31, 1994 compared with $7,346,000
at December 31, 1993 and $7,150,000 at January 1, 1993. At December 31, 1994,
there was a deferred state tax asset of $5,077,000 resulting from operating loss
carry forwards. This asset was reserved by the valuation allowance.
UJB Financial is not aware of any factors which would generate significant
differences between taxable income and pretax book income in future years except
for the effects of the reversal of current or future net deductible temporary
differences. However, there can be no assurances that there will not be any
significant differences in the future, if circumstances change.
Management believes, based upon current facts, that more likely than not
there will be sufficient taxable income in future years to realize the net
deferred tax asset. However, there can be no assurance about the level of future
earnings.
The significant components which affected the net deferred tax asset were
as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for loan losses and other real estate
owned on tax return in excess of provision
charged to operating expense $ 15,859 $ 2,875 $ 383
Loan interest income recognized on tax return
less than amount included in operating income 293 1,867 297
Depreciation expense on tax return less than
amount charged to operating expense (1,613) (1,625) (584)
Income from loan securitization included
in operating income, but not reflected
on tax return -- -- (2,532)
Adjustment of securities to market value
not reflected on tax return -- (261) 134
Restructuring charge 6,294 (8,773) --
Utilization of the alternative minimum
tax credit carry forward 3,055 5,090 --
Other, net (4,858) (4,898) (2,509)
- ----------------------------------------------------------------------------------------------------
Income (loss) from operations 19,030 (5,725) (4,811)
Net unrealized loss on securities available for sale (5,695) -- --
- ----------------------------------------------------------------------------------------------------
Total $ 13,335 $(5,725) $(4,811)
====================================================================================================
</TABLE>
Included in shareholders' equity are income tax benefits attributable to
restricted stock awards and the exercise of non-qualified stock options of
$1,957,000, $1,207,000 and $403,000 for the years ended December 31, 1994, 1993
and 1992, respectively.
Note 19 Lease Commitments
Non-interest expenses include rentals for premises and equipment of $38,403,000
in 1994, $34,435,000 in 1993 and $31,969,000 in 1992, after reduction for
sublease rentals of $2,684,000, $2,894,000, and $3,164,000 in each of the
respective years. At December 31, 1994, UJB Financial and its subsidiaries were
obligated under a number of non-cancellable leases for premises and equipment,
many of which provide for increased rentals based upon increases in real estate
taxes and the cost of living index. These leases, most of which have renewal
provisions, are principally non-financing leases. Minimum rentals under the
terms of these leases for years 1995 through 1999 are $36,412,000, $29,754,000,
$26,837,000, $20,704,000, and $12,853,000, respectively. Minimum rentals due
after 1999 are $67,974,000.
51
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 20 Contingent Liabilities
UJB Financial and its subsidiaries may, from time to time, be defendants in
legal proceedings relating to the conduct of their business.
UJB Financial was a defendant in a class action lawsuit brought by
plaintiffs alleged to have owned or purchased securities of UJB Financial.
Following pre-trial discovery, the parties agreed in principle to settle the
action. A portion of this settlement is expected to be recovered through
insurance carried by UJB Financial and the remaining balance has been fully
reserved.
In the best judgment of management, the consolidated financial position of
UJB Financial and subsidiaries will not be affected materially by the final
outcome of any pending legal proceedings or other contingent liabilities and
commitments.
Note 21 Off-Balance-Sheet Financial Instruments
In the ordinary course of business, UJB Financial and its subsidiaries enter
into a variety of financial instruments that are recorded off the balance sheet.
This reporting is considered appropriate where either the exchange of the
underlying asset or liability has not yet occurred or the notional amounts are
used solely as a means to determine the cash flows to be exchanged. These
off-balance-sheet financial instruments are primarily divided into two
categories; credit-related financial instruments and derivative financial
instruments.
Credit-related financial instruments are principally customer related,
while derivative financial instruments are acquired primarily for
asset/liability management purposes. Credit-related financial instruments
include commitments to extend credit, standby letters of credit and commercial
letters of credit. UJB Financial's derivative financial instruments are limited
to interest rate swaps, interest rate caps, and foreign exchange contracts.
The following table summarizes the notional amount of significant
off-balance-sheet financial instruments at December 31:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Credit-related instruments:
Commitments to extend credit $3,642,423 $3,525,521
Standby letters of credit 291,612 266,631
Commercial letters of credit 93,229 136,239
Derivative instruments:
Interest rate swaps 923,541 1,019,042
Interest rate caps 47,895 23,386
Foreign exchange contracts 45,496 21,683
================================================================================
</TABLE>
CREDIT-RELATED FINANCIAL INSTRUMENTS Commitments to extend credit are legally
binding agreements to lend to a customer provided all established contractual
conditions are met. These commitments generally have fixed expiration dates and
usually require the payment of a fee. UJB Financial did not issue fixed-rate
loan commitments that could be locked in during the commitment period.
Standby letters of credit are conditional guarantees issued to ensure the
performance of a customer to a third party and are generally terminated through
the fulfillment of a specific condition or through the lapse of time.
Commercial letters of credit are conditional commitments, generally less
than 180 days, issued to guarantee payment by a customer to a third party upon
proof of an international trade shipment. The short-term nature of these
instruments limit their credit risk.
Fees received from credit-related financial instruments are recognized over
the terms of the contracts and are generally included in non-interest income in
service and loan fee income.
The credit risk associated with these financial instruments is essentially
the same as that involved in extending loans to customers. Credit risk is
managed by limiting the total amount of arrangements outstanding and by applying
normal credit policies. Many of the commitments to extend credit are expected to
expire without being drawn upon and, therefore, the amounts do not necessarily
represent future cash flow requirements.
DERIVATIVE FINANCIAL INSTRUMENTS At December 31, 1994, the notional value of the
derivative financial instruments portfolio consisted of $923,541,000 of interest
rate swaps, $47,895,000 of interest rate caps and $45,496,000 of foreign
exchange contracts.
Activities involving interest rate swaps are primarily attributed to
asset/liability risk management efforts. Asset/liability risk management
objectives are aimed at stabilizing net interest income through periods of
changing interest rates. The interest rate swaps were acquired to hedge interest
rate risk on certain interest earning assets and interest bearing liabilities.
Interest rate swaps are contractual agreements between two parties to
exchange interest payments at particular intervals, computed on different terms,
on a specified notional amount. The notional amounts represent the base on which
interest due each counterparty is calculated and do not represent the potential
for gains or losses associated with the market risk or credit risk of such
transactions.
Under the terms of the interest rate swaps at December 31, 1994, there were
$855,000,000 of contracts to receive fixed payments of 5.90% with an expected
maturity of July 1997, and an average payout based on LIBOR plus .74%.
Additionally, there were $68,541,000 of interest rate swaps to receive payments
at LIBOR and make fixed payments of 5.55% with an expected maturity of January
1996. These swaps have resulted in a decrease of $1,176,000 in net interest
income during 1994 and an increase of $6,775,000 in 1993.
Credit-related losses can occur in the event of non-performance by the
counterparties to the derivative financial instruments. The credit risk that
results from interest rate swaps is represented by the fair value of contracts
that have a positive value at the reporting date. At December 31, 1994, the
total amount of credit risk was $1,121,000; however, this amount can increase or
decrease if interest rates change. To minimize the risk of credit losses, UJB
Financial monitors the credit standing of the counterparties and only transacts
with those that have AA credit ratings or better.
Interest rate caps are purchased from brokers to accommodate those
customers who desire interest rate protection on variable rate loans. There is
nominal risk associated with these products as the credit rating of the
counterparty is closely monitored.
UJB Financial enters into contracts to purchase or sell foreign currency to
be delivered at a future date to facilitate customer transactions. The notional
amount represents the outstanding contracts at year end.
52
<PAGE> 16
Note 22 Fair Value of Financial Instruments
The fair value of financial instruments is the amount at which an asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced liquidation. Fair value estimates are made at a specific
point in time based on the type of financial instrument and relevant market
information.
Because no quoted market price exists for a significant portion of
UJB Financial's financial instruments, the fair values of such financial
instruments are derived based on the amount and timing of future cash flows,
estimated discount rates, as well as management's best judgment with respect to
current economic conditions. Many of these estimates involve uncertainties and
matters of significant judgment and cannot be determined with precision.
The fair value information provided is indicative of the estimated fair
values of those financial instruments and should not be interpreted as an
estimate of the value of UJB Financial taken as a whole. The disclosures do not
address the value of recognized and unrecognized non-financial assets and
liabilities or the value of future anticipated business.
The following methods and assumptions were used to estimate the fair values
of significant financial instruments at December 31, 1994 and 1993.
CASH, SHORT-TERM INVESTMENTS AND CUSTOMER ACCEPTANCES These financial
instruments have relatively short maturities or no defined maturities but are
payable on demand, with little or no credit risk. The carrying amounts reported
in the Consolidated Balance Sheets approximate fair value.
INVESTMENTS AND TRADING ACCOUNT SECURITIES Trading account securities and
investment securities available for sale are reported at their respective fair
values in the Consolidated Balance Sheets. These values were based on quoted
market prices. The fair values of investment securities held to maturity were
also based upon quoted market prices.
LOANS The fair value of loans is estimated using a combination of techniques
including discounted estimated future cash flows and, where available, quoted
market prices of similar instruments. The loan portfolios are segmented based
upon loan type, credit quality and repricing characteristics. The fair values of
most fixed-rate loans are estimated using discounted cash flow models taking
into consideration current rates that would be offered to borrowers with similar
credit risk for loans with similar remaining terms. The fair values of variable
rate loans are estimated by reducing their carrying values by their
corresponding general and specific credit reserves. Non-performing loans are
primarily valued based upon the net realizable value of the loan's underlying
collateral.
DEPOSITS The estimated fair values of demand and savings deposits are equal to
the amounts recognized in the Consolidated Balance Sheets. These amounts do not
recognize the fair value of core deposit intangibles, which represent the value
of a core deposit base with an expected duration.
The fair values for medium to long-term deposit liabilities are calculated
by discounting estimated future cash flows using current rates offered for
deposits of similar remaining maturities.
BORROWED FUNDS AND BANK ACCEPTANCES The fair values for borrowed funds are
calculated by discounting estimated future cash flows using current rates
offered for borrowings of similar remaining maturities. Due to the short
maturities of bank acceptances, their carrying value approximates fair value.
LONG-TERM DEBT The fair value of long-term debt is based upon quoted market
prices. For long-term debt issuances where quoted market prices are not
available, the fair values are determined using discounted cash flow analyses.
OTHER The estimated fair values of accrued interest receivable, accrued interest
payable and assets held for accelerated disposition are deemed to be equal to
the amounts recognized in the Consolidated Balance Sheets.
OFF-BALANCE-SHEET INSTRUMENTS The estimated fair values of derivative financial
instruments are based upon quoted market prices, without consideration of the
market values related to the hedged on-balance-sheet financial instruments. For
commitments to extend credit and letters of credit, the fair values would
approximate fees currently charged to enter into similar agreements.
The following table presents the carrying amounts and fair values of
financial instruments at December 31:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------------
Carrying Fair Carrying Fair
In millions Value Value Value Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term
investments $ 989.1 $ 989.1 $ 844.6 $ 844.6
Trading account securities 33.5 33.5 29.7 29.7
Investment securities
available for sale 201.2 201.2 1,162.1 1,177.6
Investment securities 4,093.0 3,902.4 2,685.7 2,729.0
Loans, net 9,442.4 9,474.5 8,499.6 8,929.8
Assets held for
accelerated disposition 90.9 90.9 -- --
Accrued interest receivable 89.9 89.9 74.5 74.5
Due from customers
on acceptances 21.2 21.2 20.1 20.1
Financial Liabilities:
Deposits $12,567.8 $12,560.0 $11,751.5 $11,777.6
Other borrowed funds 1,333.4 1,331.0 619.7 619.7
Long-term debt 204.8 203.4 208.7 218.8
Accrued interest payable 30.2 30.2 23.3 23.3
Bank acceptances outstanding 21.2 21.2 20.1 20.1
Off-balance-sheet instruments:
Interest rate swaps NA $ (52.0) NA $ (1.2)
Loan commitments NA (20.3) NA (19.7)
Standby letters of credit NA (2.9) NA (2.7)
Commercial letters of credit NA (.1) NA (.2)
- --------------------------------------------------------------------------------------------------------
</TABLE>
NA - Not applicable, off-balance-sheet financial instruments
53
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 23 Concentrations of Credit Risk
UJB Financial's credit policy emphasizes diversification of risk among
industries and borrowers. Concentrations of credit risk, whether on or off the
balance sheet, exist in relation to certain groups of customers or
counterparties. A group concentration arises when a number of customers or
counterparties have similar economic characteristics that would cause their
ability to meet contractual obligations to be similarly affected by changes in
economic or other conditions. UJB Financial does not have a significant exposure
to any individual customer or counterparty. At December 31, 1994, the ten
largest credit relationships have outstanding loan balances of $345,858,000 and
have unexercised commitments of $288,357,000.
UJB Financial's business is concentrated in New Jersey and eastern
Pennsylvania. A significant portion of the total loan portfolio is secured by
real estate or other collateral located in these states. This concentration is
mitigated by the diversification of the loan portfolio among instalment,
residential mortgage, commercial mortgage, construction and commercial loans.
The commercial loan portfolio, excluding construction and development loans,
represents approximately 41% of the entire loan portfolio and has no
concentration greater than 5% to any specific industry.
Note 24 Parent Corporation Information
As part of the comprehensive restructuring program, on August 31, 1994 UJB
Financial Parent Corporation transferred a significant portion of its operations
to United Jersey Bank. This included the transfer of 649 employees and
$26,269,000 of assets, primarily premises and equipment. Beginning September 1,
1994, the operating results of these functions were recorded in the operating
results and financial condition of United Jersey Bank. UJB Financial Parent
Corporation information is as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
---------------------------------
In thousands 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 118,252 $ 152,024
Interest bearing deposits with banks 5,000 5,000
Investment securities 4,994 3,738
Investment in subsidiaries 1,098,670 963,406
Due from subsidiaries 156,832 149,410
Premises and equipment 503 20,665
Other assets 18,063 24,467
- -------------------------------------------------------------------------------------------------
Total Assets $1,402,314 $1,318,710
=================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper $ 42,211 $ 33,359
Accrued expenses and other liabilities 51,505 60,384
Long-term debt 204,338 205,715
- -------------------------------------------------------------------------------------------------
Total liabilities 298,054 299,458
Total shareholders' equity 1,104,260 1,019,252
- -------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,402,314 $1,318,710
=================================================================================================
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
In thousands 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING INCOME
Management and service charges to subsidiaries $ 29,322 $38,994 $40,177
Dividends from subsidiaries 56,441 40,311 33,266
Interest from subsidiaries 17,026 16,356 10,763
Investment securities gains -- -- 422
Other interest 300 120 390
Other 202 12 (204)
- --------------------------------------------------------------------------------------------------
Total operating income 103,291 95,793 84,814
- --------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Salaries and employee benefits 26,491 32,887 28,924
Interest 19,586 20,044 11,247
Occupancy and equipment 3,983 5,768 5,776
Other 9,298 11,797 14,098
- --------------------------------------------------------------------------------------------------
Total operating expenses 59,358 70,496 60,045
- --------------------------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed net income of subsidiaries 43,933 25,297 24,769
Federal and state income taxes (benefit) (4,114) (701) 450
- --------------------------------------------------------------------------------------------------
48,047 25,998 24,319
Equity in undistributed net income of subsidiaries 82,103 56,420 32,469
- --------------------------------------------------------------------------------------------------
Net Income $130,150 $82,418 $56,788
==================================================================================================
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
In thousands 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 130,150 $ 82,418 $ 56,788
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,794 2,481 3,070
Decrease (increase) in other assets 6,404 (10,677) (478)
(Decrease) increase in accrued
expenses and other liabilities (7,122) 13,697 7,759
Equity in undistributed net
income of subsidiaries (82,103) (56,420) (32,469)
Other, net -- -- (213)
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities 49,123 31,499 34,457
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities -- -- 9,354
Net (increase) decrease in
short-term investments -- (5,000) 10
Payments received on advances to subsidiaries 205,611 191,761 128,300
Advances to subsidiaries (198,189) (168,000) (216,709)
Proceeds from sale of assets -- -- 17,732
Purchases of premises and equipment, net (2,069) (817) (1,242)
Capital contributions to subsidiaries (56,476) (55,000) (35,000)
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities (51,123) (37,056) (97,555)
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in commercial paper 8,852 (29,502) (17,950)
Net decrease in borrowed funds -- (5,250) (74,750)
Proceeds from issuance of long-term
debt, net of related expenses -- 20,000 172,489
Principal payments on long-term debt (3,134) (21,830) (18,047)
Dividends paid (49,817) (34,806) (30,888)
Proceeds from issuance of common stock, net 15,256 15,186 81,922
Other, net (2,929) (2,891) 2,101
- --------------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (31,772) (59,093) 114,877
- --------------------------------------------------------------------------------------------------
(Decrease) increase in cash equivalents (33,772) (64,650) 51,779
Cash equivalents at beginning of year 152,024 216,674 164,895
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 118,252 $152,024 $216,674
==================================================================================================
</TABLE>
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