<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1994
Registration No. 33-52837
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
USBANCORP, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 6711 25-1424278
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation Classification Code
organization) Number)
MAIN & FRANKLIN STREETS
JOHNSTOWN, PENNSYLVANIA 15901
(814) 533-5300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
MR. TERRY K. DUNKLE
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
USBANCORP, INC.
MAIN & FRANKLIN STREETS
JOHNSTOWN, PENNSYLVANIA 15901
(814) 533-5300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
COPIES TO:
JEFFREY P. WALDRON, ESQUIRE RAYMOND A. TIERNAN, ESQUIRE
STEVENS & LEE ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
FOUR GLENHARDIE CORPORATE CENTER 12TH FLOOR
1255 DRUMMERS LANE 734 15TH STREET N.W.
P.O. BOX 236 WASHINGTON, D.C. 20005
WAYNE, PENNSYLVANIA 19087
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH PROPOSED PROPOSED
CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED/(1)/ PER UNIT/(2)/ OFFERING PRICE/(2)/ FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $2.50 per share
(and associated stock purchase
rights)/(3)/................... 988,260 $20.375 $20,037,068.25 $6,909.33
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Based on a maximum number of shares of the Registrant's common stock which
may be issued in connection with the proposed merger of Johnstown Savings
Bank ("JSB") with and into a wholly-owned subsidiary of the Registrant.
(2) Estimated solely for purposes of calculating the registration fee and
based, in accordance with Rule 457(c), (f)(1) and (f)(3) promulgated under
the Securities Act of 1933, as amended, on the average of the high and low
prices of JSB common stock as reported on the NASDAQ National Market
System as of March 23, 1994, less $19,812,153, the amount of cash to be
paid by Registrant to shareholders of JSB in connection with the proposed
merger.
(3) Prior to the occurrence of certain events, the stock purchase rights will
not be evidenced separately from the Common Stock.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K; SHOWING THE LOCATION IN THE JOINT
PROXY STATEMENT/PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NO. LOCATION IN PROXY STATEMENT/PROSPECTUS
----------------- --------------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE
TRANSACTION
1. Forepart of Registration Outside Front Cover Page of the
Statement and Outside Registration Statement and the Joint
Front Cover Page of Prospectus Proxy Statement/Prospectus
2. Inside Front and Outside Table of Contents; Available
Back Cover Pages of Prospectus Information; Incorporation of Certain
Documents by Reference
3. Risk Factors; Ratio of Outside Front Cover Page of the Joint
Earnings to Fixed Charges Proxy Statement/Prospectus; Summary
and Other Information
4. Terms of Transaction Summary; Introduction; The Merger;
Description of USBANCORP Capital Stock;
Comparison of Rights of Holders of
USBANCORP Common Stock and JSB Common
Stock
5. Pro Forma Financial Pro Forma Financial Information
Information
6. Material Contacts with the Not Applicable
Company Being Acquired
7. Additional Information Not Applicable
Required for Reoffering
by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Legal Matters; Experts
Experts and Counsel
9. Disclosure of Commission Not Applicable
Position on Indemnification for
Securities Act Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect Business of USBANCORP; Incorporation of
to S-3 Registrants Certain Information by Reference; Pro
Forma Financial Information
11. Incorporation of Certain Incorporation of Certain Information by
Information By Reference Reference
12. Information with Respect to Not Applicable
S-3 or S-2 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
</TABLE>
<PAGE>
CROSS REFERENCE SHEET (CONTINUED)
PURSUANT TO ITEM 501(B) OF REGULATION S-K; SHOWING THE LOCATION IN THE JOINT
PROXY STATEMENT/PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NO. LOCATION IN PROXY STATEMENT/PROSPECTUS
----------------- --------------------------------------
<S> <C> <C>
14. Information with Respect to Not Applicable
Registrants Other Than
S-3 or S-2 Registrants
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect Not Applicable
to S-3 Companies
16. Information with Respect Not Applicable
to S-3 or S-2 Companies
17. Information with Respect Incorporation of Certain Information by
to Companies Other Than Reference; JSB Selected Historical
S-3 or S-2 Companies Financial Data; Pro Forma Financial
Information; JSB Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business of JSB; JSB Consolidated
Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies or Incorporation of Certain Information by
Authorizations are to be Solicited Reference; Notice of Annual Meetings of
Shareholders; Introduction; The
Merger--Dissenters' Rights of JSB
Shareholders; The Merger--Management
and Operations After the Merger;
Business of USBANCORP; JSB Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business of JSB; Interests of Certain
Persons in the Merger; Adjournment of
Meetings; Election of USBANCORP
Directors; Amendment of USBANCORP's
Articles of Incorporation; Election of
JSB Directors; Shareholder Proposals;
Other Matters; Ratification of
Appointment of JSB Independent Auditors
for 1994
19. Information if Proxies, Consents Not Applicable
or Authorizations are not to be
Solicited or in an Exchange Offer
</TABLE>
<PAGE>
[LETTERHEAD OF USBANCORP, INC. APPEARS HERE]
May 5, 1994
Dear Shareholder:
The Annual Meeting of the Shareholders of USBANCORP, Inc. ("USBANCORP") will
be held on Wednesday, June 8, 1994, at 1:30 p.m., local time, at the Radisson
Hotel, 101 Mall Boulevard, Monroeville, Pennsylvania (the "USBANCORP Annual
Meeting").
At the USBANCORP Annual Meeting, shareholders will be asked to:
1. Approve the Agreement and Plan of Merger (the "Merger Agreement"), dated
November 10, 1993, and amended January 18, 1994, among USBANCORP, United States
National Bank in Johnstown ("U.S. Bank") and Johnstown Savings Bank ("JSB"),
providing for the merger of JSB with and into U.S. Bank (the "Merger") and the
related issuance of shares of USBANCORP Common Stock to shareholders of JSB
pursuant to the Merger Agreement;
2. Vote in favor of the adjournment of the USBANCORP Annual Meeting, if
necessary, in order to give its Board of Directors more time to solicit
additional proxies in favor of the Merger Agreement and the related issuance of
USBANCORP Common Stock;
3. Elect five directors for a term of three years or until a successor has
been elected and has qualified;
4. Consider and vote upon an amendment to USBANCORP's articles of
incorporation to increase the authorized number of shares of USBANCORP Common
Stock to 12,000,000, par value $2.50; and
5. Act on such other matters as may properly come before the meeting, or any
adjournment thereof.
If the Merger is approved and completed, JSB shareholders will receive $10.13
in cash and a fraction of a share of USBANCORP Common Stock determined by
dividing $22.50 by the average closing price for USBANCORP Common Stock for the
ten trading days immediately preceding the closing date of the Merger (the
"Average Closing Price") and multiplying by .55, except that in no event will
such fraction be greater than .5053 shares or less than .4853 shares. Subject
to certain restrictions with respect to the aggregate amounts of USBANCORP
Common Stock that will be issued and cash that will be paid to JSB
shareholders, instead of $10.13 in cash and a fraction of a share of USBANCORP
Common Stock, JSB shareholders will be given the option to elect to convert
each share of JSB Common Stock into either (i) a fraction of a share of
USBANCORP Common Stock determined by dividing $22.50 by the Average Closing
Price, except that in no event will such fraction be greater than .9184 shares
or less than .8824 shares, or (ii) $22.50 in cash. USBANCORP will pay cash to
JSB shareholders in lieu of issuing fractional shares of USBANCORP Common
Stock. On April 29, 1994 the last sale price for USBANCORP Common Stock, as
reported on the NASDAQ National Market System, was $ per share.
----------------
Your attention is directed to the attached Joint Proxy Statement/Prospectus
which contains a more complete description of the terms of the Merger and
provides detailed financial, business and other information concerning JSB and
USBANCORP.
<PAGE>
The Board of Directors of USBANCORP has received an opinion from Legg Mason
Wood Walker, Incorporated, an investment banking firm, that the consideration
to be paid by USBANCORP is fair from a financial point of view to USBANCORP.
The Board of Directors of USBANCORP has carefully considered the Merger
Agreement and believes that the Merger is in the best interests of USBANCORP
and its shareholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER AND THE RELATED ISSUANCE OF
USBANCORP COMMON STOCK. YOUR BOARD OF DIRECTORS ALSO UNANIMOUSLY RECOMMENDS
THAT YOU VOTE IN FAVOR OF (1) THE ADJOURNMENT PROPOSAL, (2) THE ELECTION OF THE
NOMINEES FOR DIRECTOR, AND (3) THE AMENDMENT TO USBANCORP'S ARTICLES OF
INCORPORATION.
The affirmative vote of a majority of the shares of USBANCORP Common Stock
represented and voting at the USBANCORP Annual Meeting is necessary for
approval of the Merger and the related issuance of shares of USBANCORP Common
Stock. Your vote is important regardless of the number of shares you own. We
urge you to participate in these significant developments by marking, signing,
dating and returning promptly the enclosed proxy card in the accompanying
postage paid, preaddressed envelope, whether or not you attend the USBANCORP
Annual Meeting. Returning the proxy card does not prejudice your right to vote
your shares in person at the USBANCORP Annual Meeting if you so desire.
Sincerely yours,
/s/ Terry K. Dunkle
Terry K. Dunkle Chairman of the
Board, President and Chief
Executive Officer
<PAGE>
[LETTERHEAD OF JOHNSTOWN SAVINGS BANK APPEARS HERE]
May 5, 1994
Dear Shareholder:
The Annual Meeting of the Shareholders of Johnstown Savings Bank ("JSB") will
be held on Thursday, June 9, 1994, at 10:00 a.m., local time, at the Holiday
Inn, 250 Market Street, Crown Ball Room, Johnstown, Pennsylvania, (the "JSB
Annual Meeting"). We look forward, as do other members of the Board of
Directors and management, to greeting personally those shareholders who are
able to attend the JSB Annual Meeting.
At the JSB Annual Meeting, shareholders will be asked to:
1. Approve the Agreement and Plan of Merger (the "Merger Agreement"), dated
November 10, 1993, and amended January 18, 1994, among USBANCORP, Inc.
("USBANCORP"), United States National Bank in Johnstown ("U.S. Bank") and JSB,
providing for the merger of JSB with and into U.S. Bank (the "Merger");
2. Vote in favor of the adjournment of the JSB Annual Meeting, if necessary,
in order to give the Board of Directors more time to solicit additional proxies
in favor of the Merger Agreement;
3. Elect four directors for a term of three years or until a successor has
been elected and has qualified or, if the Merger Agreement is approved and the
Merger is completed, for the period of time from the date of the JSB Annual
Meeting to the completion of the Merger;
4. Ratify the appointment of the independent auditors for 1994; and
5. Transact such other business as may properly come before the meeting, or
any adjournment thereof.
If the Merger is approved and completed, each share of JSB Common Stock,
outstanding at the effective date of the Merger (other than shares held by
persons who have perfected their dissenters' rights) will be converted into and
become a right to receive $10.13 in cash and a fraction of a share of USBANCORP
Common Stock determined by dividing $22.50 by the average closing price for
USBANCORP Common Stock for the ten trading days immediately preceding the
closing date of the Merger (the "Average Closing Price") and multiplying by
.55, except that in no event will such fraction be greater than .5053 shares or
less than .4853 shares. Subject to certain restrictions with respect to the
aggregate amounts of USBANCORP Common Stock that will be issued and cash that
will be paid to JSB shareholders, instead of $10.13 in cash and a fraction of a
share of USBANCORP Common Stock, JSB shareholders will be given the option to
elect to convert each share of JSB Common Stock into either (i) shares of
USBANCORP Common Stock or (ii) cash, provided that USBANCORP will not issue, in
the aggregate, more than 982,197 shares of USBANCORP Common Stock or pay more
than $19,690,593 in cash to shareholders of JSB (exclusive of shares issued and
amounts paid in exchange for up to 12,000 shares of JSB Common Stock issuable
upon the exercise of stock options, amounts paid in connection with the
cancellation of options to acquire up to 94,360 shares of JSB Common Stock,
amounts paid in lieu of fractional shares and amounts paid, in excess of $22.50
<PAGE>
per share, to persons who perfect their dissenters' rights, if any). JSB may
terminate the Merger Agreement if the average closing price of USBANCORP Common
Stock as reported on the NASDAQ National Market System for the ten trading days
immediately preceding the closing date is less than $20.50 per share. USBANCORP
will pay cash to JSB shareholders in lieu of issuing fractional shares of
USBANCORP Common Stock. On April 29, 1994, the last sale price for USBANCORP
Common Stock, as reported on the NASDAQ National Market System, was $ per
share.
JSB STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE PROXY; A LETTER OF
TRANSMITTAL WILL BE PROVIDED TO YOU SHORTLY AFTER THE MERGER IS CONSUMMATED
THAT WILL CONTAIN INSTRUCTIONS CONCERNING THE EXCHANGE OF JSB STOCK
CERTIFICATES AND THE CASH/STOCK ELECTION DESCRIBED ABOVE.
Your attention is directed to the attached Joint Proxy Statement/Prospectus
which contains a more complete description of the agenda items for the JSB
Annual Meeting, including terms of the Merger and provides detailed financial,
business and other information concerning JSB and USBANCORP and their
respective subsidiaries. Consummation of the Merger is subject to certain
conditions, including approval of the Merger Agreement by JSB shareholders and
regulatory approvals. We urge you to read the Joint Proxy Statement/Prospectus
carefully.
The Board of Directors of JSB has received opinions from Alex. Brown & Sons
Incorporated, an investment banking firm, and RP Financial, Inc., a financial
advisory firm, that the consideration to be paid to JSB shareholders is fair
from a financial point of view and, after careful consideration of the Merger
Agreement, the Board believes that the Merger is in the best interests of JSB
and its shareholders. ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND RELATED TRANSACTIONS AND RECOMMENDS THAT YOU
VOTE IN FAVOR OF THE MERGER AGREEMENT AT THE JSB ANNUAL MEETING. THE BOARD OF
DIRECTORS ALSO UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL
FOR ADJOURNMENT, THE ELECTION OF THE NOMINEES FOR DIRECTOR AND THE APPOINTMENT
OF INDEPENDENT AUDITORS.
Your vote is important! The affirmative vote of the holders of shares of JSB
Common Stock representing at least 66 2/3% of the outstanding shares of JSB
Common Stock is necessary for approval of the Merger Agreement. We urge you to
participate at the JSB Annual Meeting by marking, signing, dating and returning
promptly the enclosed proxy card in the accompanying postage paid, preaddressed
envelope, whether or not you attend the JSB Annual Meeting. Returning the proxy
card does not prejudice your right to vote your shares in person at the JSB
Annual Meeting if you so desire.
On behalf of the Board of Directors, I thank you for your continued support.
Sincerely yours,
/s/ Patrick J. Coyne
Patrick J. Coyne
President and
Chief Executive Officer
<PAGE>
USBANCORP, INC.
MAIN & FRANKLIN STREETS
JOHNSTOWN, PENNSYLVANIA 15901
(814) 533-5300
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 8, 1994
----------------
Notice is hereby given that the Annual Meeting of Shareholders of USBANCORP,
Inc. ("USBANCORP") will be held on Wednesday, June 8, 1994, at 1:30 p.m. at the
Radisson Hotel, 101 Mall Boulevard, Monroeville, Pennsylvania (the "USBANCORP
Annual Meeting") to consider the following matters:
1. The approval of (a) the Agreement and Plan of Merger (the "Merger
Agreement"), dated November 10, 1993, and amended January 18, 1994, among
USBANCORP, United States National Bank in Johnstown ("U.S. Bank") and Johnstown
Savings Bank ("JSB"), which is attached as Annex A to the accompanying Joint
Proxy Statement/Prospectus, providing for the merger of JSB with and into
Johnstown Interim Bank ("JIB") (the "Interim Merger"), a wholly-owned
subsidiary of USBANCORP formed solely for the purpose of effecting the Merger
(as hereinafter defined), with JIB surviving the Interim Merger and immediately
thereafter the merger of JIB with and into U.S. Bank (the "U.S. Bank Merger")
with U.S. Bank surviving the U.S. Bank Merger (the Interim Merger and the U.S.
Bank Merger are collectively referred to herein as the "Merger"), and (b) the
issuance to JSB shareholders of shares of USBANCORP Common Stock, pursuant to
the Merger Agreement. On the effective date of the Merger, each share of JSB
Common Stock outstanding (other than shares held by persons, if any, who have
perfected their dissenters' rights) will be converted into $10.13 in cash and a
fraction of a share of USBANCORP Common Stock determined by dividing $22.50 by
the average closing price of USBANCORP Common Stock for the ten trading days
immediately preceding the closing date of the merger (the "Average Closing
Price") and multiplying by .55, except that in no event will such fraction be
greater than .5053 shares or less than .4853 shares. Subject to certain
restrictions, instead of $10.13 in cash and a fraction of a share of USBANCORP
Common Stock, JSB shareholders will be given the option to elect to convert
each share of JSB Common Stock into either (i) a fraction of a share of
USBANCORP Common Stock determined by dividing $22.50 by the Average Closing
Price, except that in no event will such fraction be greater than .9184 shares
or less than .8824 shares, or (ii) $22.50 in cash. Subject to certain
exceptions described below, USBANCORP will not issue, in the aggregate, more
than 982,197 shares of USBANCORP Common Stock or pay more than $19,690,593 in
cash to shareholders of JSB. USBANCORP may issue additional shares of USBANCORP
Common Stock and pay additional cash in exchange for up to 12,000 shares of JSB
Common Stock issuable upon the exercise of stock options and USBANCORP will pay
additional cash amounts (i) in lieu of fractional shares, and (ii) in
connection with the cancellation of options to acquire 94,360 shares of JSB
Common Stock with respect to which holders have contractually waived their
exercise rights. The number of options that will be cancelled in exchange for
cash may increase from 94,360 up to 106,360 if the holders of exercisable
options to acquire 12,000 shares do not exercise their options. In addition,
USBANCORP may pay additional cash amounts to persons who perfect their
dissenters' rights, if any. No fractional shares of USBANCORP Common Stock will
be issued. In lieu of a fractional share, USBANCORP will pay cash in an amount
equal to the fractional part of a share of USBANCORP Common Stock to which such
shareholder is entitled, multiplied by $25.50.
2. To vote on adjournment of the USBANCORP Annual Meeting, if necessary, to
permit further solicitation of proxies in the event that there are not
sufficient votes at the time of the USBANCORP Annual Meeting to constitute a
quorum or to approve the Merger Agreement and the related issuance of shares of
USBANCORP Common Stock.
3. To elect five directors for a term of three years or until a successor has
been elected and has qualified.
<PAGE>
4. To consider and vote upon an amendment to USBANCORP's articles of
incorporation to increase the number of shares of USBANCORP Common Stock to
12,000,000, par value $2.50.
5. Such other matters as may properly be brought before the USBANCORP Annual
Meeting or any adjournments thereof.
The Board of Directors of USBANCORP has fixed April 29, 1994, as the record
date, and only shareholders of record at the close of business on that date are
entitled to notice of, and to vote at, the USBANCORP Annual Meeting and any
adjournments thereof. A Joint Proxy Statement/Prospectus is set forth on the
following pages and a form of proxy is enclosed. To ensure that your vote will
be counted, please complete, sign, date and return the proxy in the enclosed
postage-paid return envelope whether or not you expect to attend the meeting in
person. If you attend the meeting, you may revoke your proxy and vote your
shares in person. However, attendance at the USBANCORP Annual Meeting will not
of itself constitute revocation of a proxy. If your shares are not registered
in your own name, you will need additional documentation from your record
holder in order to vote personally at the USBANCORP Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Betty L. Jakell
Betty L. Jakell, Secretary
Johnstown, Pennsylvania
May 5, 1994
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE USBANCORP
ANNUAL MEETING.
THE BOARD OF DIRECTORS OF USBANCORP UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
USBANCORP COMMON STOCK VOTE TO (1) APPROVE THE MERGER AGREEMENT AND THE RELATED
ISSUANCE OF USBANCORP COMMON STOCK, (2) APPROVE THE PROPOSAL TO ADJOURN THE
USBANCORP ANNUAL MEETING, IF NECESSARY, (3) ELECT THE NOMINEES STANDING FOR
ELECTION AS DIRECTORS, AND (4) APPROVE THE AMENDMENT TO USBANCORP'S ARTICLES OF
INCORPORATION.
- --------------------------------------------------------------------------------
<PAGE>
JOHNSTOWN SAVINGS BANK
SAVINGS BANK PLAZA
MARKET AT MAIN STREET
JOHNSTOWN, PENNSYLVANIA 15901
(814) 535-8900
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 9, 1994
----------------
The Annual Meeting of shareholders of Johnstown Savings Bank ("JSB") will be
held on Thursday, June 9, 1994, at 10:00 a.m. at the Holiday Inn, 250 Market
Street, Crown Ball Room, Johnstown, Pennsylvania (the "JSB Annual Meeting") to
consider the following matters:
1. The approval of the Agreement and Plan of Merger (the "Merger Agreement"),
dated November 10, 1993, and amended January 18, 1994, among JSB, USBANCORP,
Inc. ("USBANCORP") and United States National Bank in Johnstown ("U.S. Bank"),
which is attached as Annex A to the accompanying Joint Proxy
Statement/Prospectus, providing for the merger of JSB with and into Johnstown
Interim Bank ("JIB") (the "Interim Merger"), a wholly-owned subsidiary of
USBANCORP formed solely for the purpose of effecting the Merger (as hereinafter
defined), with JIB surviving the Interim Merger and immediately thereafter the
merger of JIB with and into U.S. Bank (the "U.S. Bank Merger") with U.S. Bank
surviving the U.S. Bank Merger (the Interim Merger and the U.S. Bank Merger are
collectively referred to herein as the "Merger"). On the effective date of the
Merger each share of JSB Common Stock outstanding (other than shares held by
persons, if any, who have perfected their dissenters' rights) will be converted
into $10.13 in cash and a fraction of a share of USBANCORP Common Stock
determined by dividing $22.50 by the average closing price for USBANCORP Common
Stock for the ten trading days immediately preceding the closing date of the
Merger (the "Average Closing Price") and multiplying by .55, except that in no
event will such fraction be greater than .5053 shares or less than .4853
shares. Subject to certain restrictions, instead of $10.13 in cash and a
fraction of a share of USBANCORP Common Stock, JSB shareholders will be given
the option to elect to convert all of their shares of JSB Common Stock into
either (i) shares of USBANCORP Common Stock or (ii) cash. Subject to certain
exceptions described below, USBANCORP will not issue, in the aggregate, more
than 982,197 shares of USBANCORP Common Stock or pay more than $19,690,593 in
cash to shareholders of JSB. USBANCORP may issue additional shares of USBANCORP
Common Stock and pay additional cash in exchange for up to 12,000 shares of JSB
Common Stock issuable upon the exercise of stock options and USBANCORP will pay
additional cash amounts (i) in lieu of fractional shares, and (ii) in
connection with the cancellation of options to acquire 94,360 shares of JSB
Common Stock with respect to which holders have contractually waived their
exercise rights. The number of options that will be cancelled in exchange for
cash may increase from 94,360 up to 106,360 if the holders of exercisable
options to acquire 12,000 shares do not exercise their options. In addition,
USBANCORP may pay additional cash amounts to persons who perfect their
dissenters' rights, if any. No fractional shares of USBANCORP Common Stock will
be issued. In lieu of a fractional share, USBANCORP will pay cash in an amount
equal to the fractional part of a share of USBANCORP Common Stock to which such
shareholder is entitled, multiplied by $25.50.
2. To vote on adjournment of the JSB Annual Meeting, if necessary, to permit
further solicitation of proxies by the Board of Directors to be voted in favor
of the Merger Agreement in the event that there are not sufficient votes at the
time of the JSB Annual Meeting to constitute a quorum or to approve the Merger
Agreement.
3. To elect four directors for a term of three years or until a successor has
been elected and has qualified or, if the Merger Agreement is approved and the
Merger is completed, for the period of time from the date of the JSB Annual
Meeting to the completion of the Merger.
4. To ratify the appointment of the independent auditors for 1994.
<PAGE>
5. Such other matters as may properly be brought before the JSB Annual
Meeting or any adjournments thereof.
The Board of Directors of JSB has fixed April 29, 1994 as the record date,
and only shareholders of record at the close of business on that date are
entitled to notice of, and to vote at, the JSB Annual Meeting and any
adjournments thereof. A Joint Proxy Statement/Prospectus is set forth on the
following pages and a form of proxy is enclosed. To ensure that your vote will
be counted, please complete, sign, date and return the proxy in the enclosed
postage-paid return envelope whether or not you expect to attend the meeting in
person. If you attend the meeting, you may revoke your proxy and vote your
shares in person. However, attendance at the JSB Annual Meeting will not of
itself constitute revocation of a proxy. If your shares are not registered in
your own name, you will need additional documentation from your record holder
in order to vote personally at the JSB Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gerald R. Baxter
Gerald R. Baxter, Secretary
Johnstown, Pennsylvania
May 5, 1994
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE JSB ANNUAL
MEETING. PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
THE BOARD OF DIRECTORS OF JSB UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF JSB
COMMON STOCK VOTE TO (1) APPROVE THE MERGER AGREEMENT, (2) APPROVE THE PROPOSAL
TO ADJOURN THE JSB ANNUAL MEETING, IF NECESSARY, (3) ELECT THE NOMINEES
STANDING FOR ELECTION AS DIRECTORS AND (4) RATIFY THE APPOINTMENT OF AUDITORS
FOR 1994.
- --------------------------------------------------------------------------------
<PAGE>
USBANCORP, INC. AND JOHNSTOWN SAVINGS BANK BRANCH NETWORK MAP
For a description of the USBANCORP, Inc. and Johnstown Savings Bank Branch
Network Map, see the Appendix to this Registration Statement.
[MAP]
<PAGE>
USBANCORP, INC. AND JOHNSTOWN SAVINGS BANK
JOINT PROXY STATEMENT
----------------
USBANCORP, INC.
PROSPECTUS
988,260 SHARES OF COMMON STOCK (and associated Stock Purchase Rights)
----------------
This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to shareholders of USBANCORP, Inc. ("USBANCORP") and Johnstown
Savings Bank ("JSB") in connection with the solicitation by their respective
Boards of Directors of proxies to be voted at the USBANCORP Annual Meeting of
Shareholders and the JSB Annual Meeting of Shareholders (including any
adjournments or postponements thereof), to be held on June 8, 1994 and June 9,
1994, respectively, to consider and take action upon (a) the proposed merger
(the "Interim Merger") of JSB with and into Johnstown Interim Bank ("JIB"), a
Pennsylvania commercial bank formed solely for the purpose of effecting the
Merger (as hereinafter defined), with JIB surviving the Interim Merger and
immediately thereafter the merger of JIB with and into United States National
Bank in Johnstown ("U.S. Bank"), a national banking association and a wholly-
owned subsidiary of USBANCORP (the "U.S. Bank Merger"), with U.S. Bank
surviving the U.S. Bank Merger (the Interim Merger and the U.S. Bank Merger are
collectively referred to herein as the "Merger"), (b) the election of five
directors to the USBANCORP Board of Directors and four directors to the JSB
Board of Directors, (c) in the case of JSB shareholders, the ratification of
the appointment of the independent auditors of JSB for 1994, (d) in the case of
USBANCORP shareholders (i) the amendment of USBANCORP's articles of
incorporation to increase the number of authorized shares of USBANCORP Common
Stock to 12,000,000, par value $2.50 per share and (ii) the issuance of
USBANCORP Common Stock, $2.50 par value per share, and related stock purchase
rights (the "USBANCORP Common Stock"), pursuant to the Agreement and Plan of
Merger (the "Merger Agreement"), dated November 10, 1993, and amended January
18, 1994, among USBANCORP, U.S. Bank and JSB, which is attached as Annex A to
this Proxy Statement/Prospectus, and (e) the adjournment of each of the Annual
Meetings in order to solicit additional proxies, if necessary. See "THE
MERGER," "ELECTION OF USBANCORP DIRECTORS," "ELECTION OF JSB DIRECTORS,"
"RATIFICATION OF APPOINTMENT OF JSB INDEPENDENT AUDITORS FOR 1994," "AMENDMENT
OF USBANCORP'S ARTICLES OF INCORPORATION," and "ADJOURNMENT OF MEETINGS."
This Proxy Statement/Prospectus also constitutes a prospectus of USBANCORP
with respect to 988,260 shares of USBANCORP Common Stock proposed to be issued
in connection with the Merger to JSB shareholders. See "THE MERGER--General
Terms of the Merger."
This Proxy Statement/Prospectus does not cover resales of shares of USBANCORP
Common Stock following consummation of the Merger and no person may make use of
this Proxy Statement/Prospectus in connection with any such resale.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to shareholders of USBANCORP and JSB on or about May 5, 1994.
<PAGE>
The outstanding shares of USBANCORP Common Stock are, and the shares offered
hereby will be, included for quotation on the National Association of
Securities Dealers Automated Quotation National Market System ("NASDAQ/NMS").
At April 29, 1994, there were 1,944,790 shares of USBANCORP Common Stock
outstanding. The closing price of USBANCORP Common Stock on the NASDAQ/NMS on
April 29, 1994, was $ per share.
----------------
THE SHARES OF COMMON STOCK OF USBANCORP TO BE ISSUED IN CONNECTION WITH THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EX-CHANGE
COMMISSION OR THE FEDERAL DEPOSIT INSURANCE CORPORATION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR THE FEDERAL DEPOSIT IN-SURANCE
CORPORATION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CON-TRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF USBANCORP COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
----------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS MAY 5, 1994.
<PAGE>
USBANCORP, INC.
AND
JOHNSTOWN SAVINGS BANK
JOINT PROXY STATEMENT
----------------
USBANCORP, INC.
PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION....................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 1
SUMMARY..................................................................... 3
The Companies............................................................. 3
The Meetings.............................................................. 4
The Merger................................................................ 6
Interests of Certain Persons in the Merger................................ 12
Certain Related Transactions.............................................. 12
Certain Differences in Shareholders' Rights............................... 13
Comparative Unaudited Per Share Information............................... 13
Market Prices of Common Stock............................................. 15
USBANCORP SELECTED HISTORICAL FINANCIAL DATA................................ 16
JSB SELECTED HISTORICAL FINANCIAL DATA...................................... 18
SELECTED PRO FORMA FINANCIAL DATA OF USBANCORP.............................. 19
INTRODUCTION................................................................ 21
THE MEETINGS................................................................ 21
Matters to be Considered at the Meetings.................................. 21
Record Date; Vote Required................................................ 22
Proxies; Revocation of Proxies; Solicitation.............................. 23
THE MERGER.................................................................. 24
Background and Reasons for the Merger and Recommendations of the Boards... 24
General Terms of the Merger............................................... 29
Opinions of Financial Advisors............................................ 30
Effective Date of the Merger.............................................. 39
Financing the Merger...................................................... 40
Regulatory Approvals...................................................... 40
Conditions to Consummation of the Merger.................................. 41
Representations and Warranties............................................ 41
Conduct of Business Pending the Merger.................................... 42
No Solicitation of Transactions........................................... 43
Waivers; Amendment........................................................ 44
Termination of the Merger Agreement....................................... 44
Election Procedures....................................................... 44
Exchange of JSB Stock Certificates........................................ 46
Effect of the Merger on the Business of USBANCORP and JSB................. 47
Management and Operations After the Merger................................ 47
Dissenters' Rights of JSB Shareholders.................................... 48
Effect on JSB Employee Benefit Plans...................................... 50
Tax Consequences.......................................................... 50
Accounting Treatment...................................................... 52
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Expenses................................................................. 52
USBANCORP Dividend Reinvestment Plan..................................... 52
Restrictions on Resales of USBANCORP Common Stock........................ 52
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................. 53
CERTAIN RELATED TRANSACTIONS............................................... 53
Stock Option Agreement................................................... 53
PRO FORMA FINANCIAL INFORMATION............................................ 55
Pro Forma Combined Condensed Balance Sheet............................... 55
Pro Forma Combined Condensed Statement of Income......................... 58
Pro Forma Combined Capitalization........................................ 61
DESCRIPTION OF USBANCORP CAPITAL STOCK..................................... 61
USBANCORP Preferred Stock................................................ 62
USBANCORP Common Stock................................................... 62
Shareholder Rights Plan.................................................. 63
Change In Control........................................................ 64
COMPARISON OF RIGHTS OF HOLDERS OF USBANCORP
COMMON STOCK AND JSB COMMON STOCK......................................... 65
Directors................................................................ 65
Mergers, Consolidations and Similar Transactions......................... 66
Voting................................................................... 66
Amendment of Articles and Bylaws......................................... 67
Special Meetings of Shareholders......................................... 67
BUSINESS OF USBANCORP...................................................... 67
JSB MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 67
General.................................................................. 67
Results of Operations.................................................... 68
Asset and Liability Management........................................... 80
Liquidity and Capital Resources.......................................... 82
Concentrations of Credit Risk............................................ 83
Impact of Inflation and Changing Prices.................................. 87
BUSINESS OF JSB............................................................ 87
General.................................................................. 87
The Savings Industry..................................................... 88
Operations............................................................... 88
Regulation............................................................... 102
Taxation................................................................. 104
Properties............................................................... 105
Legal Proceedings........................................................ 105
Common Stock Prices and Dividend Information............................. 106
EXPERTS.................................................................... 106
USBANCORP................................................................ 106
JSB...................................................................... 106
LEGAL MATTERS.............................................................. 107
ADJOURNMENT OF MEETINGS.................................................... 107
USBANCORP Annual Meeting................................................. 107
JSB Annual Meeting....................................................... 107
ELECTION OF USBANCORP DIRECTORS............................................ 107
General.................................................................. 107
Board and Committees..................................................... 110
Executive Compensation................................................... 110
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Retirement Plans......................................................... 114
Employment Contracts..................................................... 118
Voting Securities........................................................ 119
Financial Information.................................................... 121
Transactions with Management............................................. 121
Auditors................................................................. 121
AMENDMENT OF USBANCORP'S ARTICLES OF INCORPORATION......................... 121
ELECTION OF JSB DIRECTORS.................................................. 122
General.................................................................. 122
Shareholder Nominations to the JSB Board of Directors.................... 125
Security Ownership of Certain Beneficial Owners and Management........... 125
Board and Committees..................................................... 126
Executive Compensation................................................... 126
RATIFICATION OF APPOINTMENT OF JSB INDEPENDENT
AUDITORS FOR 1994......................................................... 133
SHAREHOLDER PROPOSALS...................................................... 133
USBANCORP................................................................ 133
JSB...................................................................... 133
OTHER MATTERS.............................................................. 133
USBANCORP................................................................ 133
JSB...................................................................... 133
JSB CONSOLIDATED FINANCIAL STATEMENTS...................................... F-1
</TABLE>
ANNEXES
A. Agreement and Plan of Merger among USBANCORP, U.S. Bank and JSB
B. Opinion of Legg Mason Wood Walker, Incorporated
C. Opinion of Alex. Brown & Sons Incorporated
D. Opinion of RP Financial, Inc.
E. Statutory Excerpts Concerning Dissenters' Rights
F. Stock Option Agreement
iii
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE
SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY USBANCORP OR JSB. THIS PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION, TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF USBANCORP OR JSB SINCE THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
USBANCORP is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). JSB is also subject to
the informational requirements of the Exchange Act, but in accordance with
Section 12(i) of the Exchange Act, currently files reports, proxy statements
and other information with the Federal Deposit Insurance Corporation (the
"FDIC").
USBANCORP has filed a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement"), pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the shares of
the USBANCORP Common Stock to be issued in the Merger. All information
concerning USBANCORP and its subsidiaries contained herein, incorporated herein
by reference or supplied herewith has been furnished by USBANCORP, and all
information concerning JSB and its subsidiaries contained herein, incorporated
herein by reference or supplied herewith has been furnished by JSB. Pursuant to
the rules and regulations of the Commission, this Proxy Statement/Prospectus
omits certain information contained in the Registration Statement. For further
information pertaining to USBANCORP and JSB and the USBANCORP Common Stock to
be issued in the Merger, reference is made to the Registration Statement,
including the exhibits filed as a part thereof.
The Registration Statement, as well as the reports, proxy statements and
other information filed by USBANCORP can be inspected at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Northwestern Atrium Center, 500 West
Madison Avenue, Suite 1400, Chicago, Illinois 60611-2511 and 14th Floor, 75
Park Place, New York, New York 10007. Copies of such material may also be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The reports,
proxy statements and other information filed by JSB can be inspected at the
offices of the FDIC at 1776 F Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or designated portions thereof are incorporated
herein by reference:
(i) That portion of USBANCORP's Annual Report and Form 10-K for the year
ended December 31, 1993 that constitutes USBANCORP's Form 10-K as filed
with the Commission on March 29, 1994.
(ii) USBANCORP's Registration Statement on Form 8-A as filed with the
Commission on December 6, 1989 with respect to USBANCORP's Series B
Preferred Stock, pursuant to Section 12(g) of the Exchange Act.
1
<PAGE>
All documents and reports filed by USBANCORP pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the USBANCORP Annual Meeting
shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS
TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE, WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST. DOCUMENTS
RELATING TO USBANCORP MAY BE REQUESTED FROM USBANCORP, MAIN & FRANKLIN STREETS,
JOHNSTOWN, PENNSYLVANIA 15901 (ATTENTION: ORLANDO B. HANSELMAN; TELEPHONE
NUMBER: (814) 533-5319). DOCUMENTS RELATING TO JSB MAY BE REQUESTED FROM JSB,
SAVINGS BANK PLAZA, MARKET AT MAIN STREET, JOHNSTOWN, PENNSYLVANIA 15901
(ATTENTION: WALTER F. RUSNAK; TELEPHONE NUMBER: (814) 535-8900). IN ORDER TO
RECEIVE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY May 18,
1994.
The Merger Agreement and the Stock Option Agreement are included herewith as
Annexes A and F, respectively, and are incorporated by reference herein.
Discussions of the terms and conditions of the Merger Agreement and the Stock
Option Agreement are summary in nature and holders of USBANCORP Common Stock
and JSB Common Stock are referred to the Merger Agreement and the Stock Option
Agreement for a more complete discussion of the terms and conditions of the
Merger, the Merger Agreement, the Stock Option Agreement and related
transactions. Also incorporated herein by reference are the documents attached
as Annexes B, C, D, and E to this Proxy Statement/Prospectus.
2
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is provided for convenience, should not be
considered complete and is qualified in its entirety by reference to the full
text of this Proxy Statement/Prospectus and the Annexes hereto. Cross
references in the Summary are to captions appearing in the body of this Proxy
Statement/Prospectus, and their page references may be obtained from the Table
of Contents. Certain capitalized terms used in this summary are defined
elsewhere in this Proxy Statement/Prospectus.
THE COMPANIES
USBANCORP
USBANCORP is a multi-bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and incorporated under the laws
of the Commonwealth of Pennsylvania. USBANCORP operates through its six direct
and indirect subsidiaries: (i) United States National Bank in Johnstown ("U.S.
Bank"), an FDIC-insured, national banking association chartered under the laws
of the United States; (ii) Three Rivers Bank and Trust Company ("Three
Rivers"), an FDIC-insured, Pennsylvania-chartered bank and trust company; (iii)
Community Bancorp, Inc. ("Community"), a Pennsylvania corporation that owns all
of the capital stock of Community Savings Bank ("Community Savings"), an FDIC-
insured, Pennsylvania-chartered savings bank; (iv) USBANCORP Trust Company (the
"Trust Company"), a trust company organized under the laws of the Commonwealth
of Pennsylvania; and (v) United Bancorp Life Insurance Company ("United Life"),
a credit life and disability insurance company organized under the laws of the
State of Arizona (collectively, the "USBANCORP Subsidiaries"). At December 31,
1993, USBANCORP had consolidated assets of approximately $1.24 billion, total
deposits of approximately $1.05 billion, and shareholders' equity of
approximately $117.0 million. Through seventeen locations in Cambria,
Clearfield, Somerset and Westmoreland Counties, Pennsylvania, U.S. Bank
conducts a general, full service banking business. At December 31, 1993, U.S.
Bank had total assets and deposits of $511.6 million and $453.0 million,
respectively. Through twelve locations in Allegheny and Washington Counties,
Pennsylvania, Three Rivers conducts a general, full-service banking business.
At December 31, 1993, Three Rivers had total assets and deposits of $340.1
million and $304.2 million, respectively. Through twelve locations in
Allegheny, Washington and Westmoreland Counties, Pennsylvania, Community
Savings conducts a general, full-service banking business. At December 31,
1993, Community Savings had total assets and deposits of $364.9 million and
$291.7 million, respectively. The Trust Company provides individual and
corporate trust services primarily to customers of USBANCORP's banking
subsidiaries. At December 31, 1993, the Trust Company had $942.6 million in
assets under management in discretionary and nondiscretionary accounts. United
Life engages in underwriting, as reinsurer, of credit life and disability
insurance within USBANCORP's six county market area. Operations of United Life
are conducted in each office of U.S. Bank, Three Rivers and Community Savings.
At December 31, 1993, United Life had total assets of $1.3 million. USBANCORP
is located at Main & Franklin Streets, Johnstown, Pennsylvania 15901. The
telephone number is (814) 533-5300.
For additional information concerning USBANCORP, its business, financial
condition and results of operations, see "AVAILABLE INFORMATION,"
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "USBANCORP SELECTED
HISTORICAL FINANCIAL DATA" and "BUSINESS OF USBANCORP."
JSB
JSB is a Pennsylvania-chartered stock savings bank that conducts business
through six branch offices in the Johnstown, Pennsylvania metropolitan area.
JSB's primary business consists of attracting deposits from
3
<PAGE>
the general public through its branch offices and using these deposits to
originate residential and commercial loans. At December 31, 1993, JSB had total
assets of $355.8 million, total deposits of $216.2 million and total
shareholders' equity of $27.6 million. JSB owns indirectly through its wholly-
owned subsidiary, SB Realty, Inc., ("SB Realty"), all of the issued and
outstanding capital stock of Standard Mortgage Corporation of Georgia, a
corporation organized under the laws of the State of Georgia ("SMC"). SMC is
licensed as a mortgage banking corporation under the Georgia Residential
Mortgage Act. As a mortgage banking company, SMC originates and sells
residential mortgage loans and services mortgage loans on behalf of JSB and
unaffiliated investors. For the year ended December 31, 1993, SMC originated
$179.9 million of residential mortgage loans. At December 31, 1993, SMC was
servicing $908.9 million of residential mortgage loans. In addition, JSB formed
Standard Mortgage Corporation of Pennsylvania ("SMC-PA") in December 1993 to
engage in mortgage banking activities. JSB is located at Savings Bank Plaza,
Market at Main Street, Johnstown, Pennsylvania 15901 and its telephone number
is (814) 535-8900.
For additional information concerning JSB, its business, financial condition
and results of operations, see "AVAILABLE INFORMATION," "JSB SELECTED
HISTORICAL FINANCIAL DATA," "JSB MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "BUSINESS OF JSB," and "JSB
CONSOLIDATED FINANCIAL STATEMENTS."
JIB
JIB was organized by USBANCORP solely to effect the Merger; it will not open
for business or operate as a commercial bank. On the Effective Date (as defined
below), pursuant to the terms of the Merger Agreement, JSB will merge with and
into JIB with JIB surviving the Interim Merger (as defined below) and
immediately thereafter JIB will merge with and into U.S. Bank with U.S. Bank
surviving the U.S. Bank Merger (as defined below).
THE MEETINGS
General
The annual meeting of the shareholders of USBANCORP will be held on
Wednesday, June 8, 1994, at 1:30 p.m. at the Radisson Hotel, 101 Mall
Boulevard, Monroeville, Pennsylvania (the "USBANCORP Annual Meeting"). See "THE
MEETINGS."
The annual meeting of the shareholders of JSB will be held on Thursday, June
9, 1994, at 10:00 a.m. at the Holiday Inn, 250 Market Street, Crown Ball Room,
Johnstown, Pennsylvania (the "JSB Annual Meeting"). See "THE MEETINGS."
Matters to be Considered at the Meetings
USBANCORP. At the USBANCORP Annual Meeting, holders of USBANCORP's common
stock, $2.50 par value, and related stock purchase rights (the "USBANCORP
Common Stock") will consider and vote upon, as a single proposal, the (i)
approval of the Agreement and Plan of Merger, dated November 10, 1993, and
amended January 18, 1994, among USBANCORP, U.S. Bank and JSB (the "Merger
Agreement"), which is attached as Annex A to this Proxy Statement/Prospectus,
providing for the merger of JSB with and into JIB (the "Interim Merger") with
JIB surviving the Interim Merger, and immediately thereafter the merger of JIB
with and into U.S. Bank (the "U.S. Bank Merger") with U.S. Bank surviving the
U.S. Bank Merger (the Interim Merger and the U.S. Bank Merger are collectively
referred to herein as the "Merger") and (ii) approval of the issuance of shares
of USBANCORP Common Stock to the shareholders of JSB pursuant to the Merger
Agreement (collectively, the "Merger Proposal"). In addition to the Merger
Proposal, shareholders of USBANCORP are being asked to (i) approve a proposal
to adjourn the USBANCORP Annual Meeting, if necessary, to constitute a quorum
or to permit further solicitation of proxies voted in favor of the Merger
Proposal, (ii) elect five directors to serve for a term of three years or until
their successors have been elected and have qualified, and (iii) approve the
proposal to amend USBANCORP's articles of
4
<PAGE>
incorporation to increase the number of authorized shares of USBANCORP Common
Stock to 12,000,000, par value $2.50. See "ADJOURNMENT OF MEETINGS," "ELECTION
OF USBANCORP DIRECTORS" and "AMENDMENT OF USBANCORP'S ARTICLES OF
INCORPORATION." USBANCORP, as sole shareholder of JIB and U.S. Bank, will
approve the Interim Merger and the U.S. Bank Merger. Shareholders will also
consider and vote upon any other matter that may properly come before the
USBANCORP Annual Meeting. See "THE MEETINGS--Matters to be Considered at the
Meetings."
JSB. At the JSB Annual Meeting, holders of JSB's common stock, $1.00 par
value (the "JSB Common Stock"), will consider and vote upon the approval of the
Merger Agreement. In addition to the Merger Agreement, shareholders of JSB are
being asked to (i) approve a proposal to adjourn the JSB Annual Meeting, if
necessary, to constitute a quorum or to permit solicitation of additional
proxies voted in favor of the Merger Agreement in order for the Merger
Agreement to be approved, (ii) elect four directors to serve for a term of
three years or until a successor has been elected and has qualified or, if the
Merger Agreement is approved and the Merger is completed, for the period of
time from the date of the JSB Annual Meeting to the completion of the Merger,
and (iii) ratify the appointment of KPMG Peat Marwick as JSB's independent
auditors for 1994. See "ADJOURNMENT OF MEETINGS," "ELECTION OF JSB DIRECTORS,"
and "RATIFICATION OF APPOINTMENT OF JSB INDEPENDENT AUDITORS FOR 1994."
Shareholders will also consider and vote upon any other matter that may
properly come before the JSB Annual Meeting. See "THE MEETINGS--Matters to be
Considered at the Meetings."
Record Date; Vote Required
USBANCORP. Only USBANCORP shareholders of record at the close of business on
April 29, 1994 (the "USBANCORP Record Date"), will be entitled to notice of,
and to vote at, the USBANCORP Annual Meeting. Each share of USBANCORP Common
Stock outstanding on the USBANCORP Record Date entitles its holder, as of that
date, to one vote. The affirmative vote, either in person or by proxy, of
holders representing at least a majority of shares represented and voting at
the USBANCORP Annual Meeting is required to approve the Merger Proposal. As of
the USBANCORP Record Date, there were 4,743,037 shares of USBANCORP Common
Stock entitled to be voted at the USBANCORP Annual Meeting held by
approximately 4,896 shareholders of record. On the USBANCORP Record Date, the
directors and the executive officers of USBANCORP had sole voting power with
respect to approximately 158,789 shares or approximately 3.35% of the then
outstanding shares of USBANCORP Common Stock that are entitled to be voted at
the USBANCORP Annual Meeting and shared voting power with respect to
approximately 46,936 shares or 0.99% of the then outstanding shares of
USBANCORP Common Stock entitled to be voted at the USBANCORP Annual Meeting.
The directors and executive officers of USBANCORP have indicated that they
intend to vote all shares of USBANCORP Common Stock over which they have sole
voting power for the Merger Proposal and to use their best efforts to cause all
shares of USBANCORP Common Stock over which they have shared voting power to be
voted for approval of the Merger Proposal. The affirmative vote, either in
person or by proxy, of holders representing at least a majority of the shares
represented and voting at the USBANCORP Annual Meeting is required to approve
(i) the proposal to adjourn the USBANCORP Annual Meeting and (ii) the proposal
to amend USBANCORP's articles of incorporation. It is also anticipated that the
directors and executive officers of USBANCORP will vote in favor of the
proposal to adjourn the USBANCORP Annual Meeting and the proposal to amend
USBANCORP's articles of incorporation. The five individuals receiving the
greatest number of votes shall be elected directors of USBANCORP. See "THE
MEETINGS--Record Date; Vote Required," "ADJOURNMENT OF MEETINGS," "ELECTION OF
USBANCORP DIRECTORS" and "AMENDMENT OF USBANCORP'S ARTICLES OF INCORPORATION."
JSB. Only JSB shareholders of record at the close of business on April 29,
1994 (the "JSB Record Date"), will be entitled to vote at the JSB Annual
Meeting. Each share of JSB Common Stock outstanding
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on the JSB Record Date entitles its holder, as of that date, to one vote. The
affirmative vote, either in person or by proxy, of the holders of shares
representing at least 66- 2/3% of the outstanding shares of JSB Common Stock is
required to approve the Merger Agreement. As of the JSB Record Date, there were
1,944,790 shares of JSB Common Stock entitled to be voted at the JSB Annual
Meeting held by approximately 2,058 holders of record. On the JSB Record Date,
the directors and the executive officers of JSB had sole voting power with
respect to approximately 71,983 shares or approximately 3.70% of the then
outstanding shares of JSB Common Stock that are entitled to be voted at the JSB
Annual Meeting and shared voting power with respect to approximately 194,942
shares or approximately 10.02% of the then outstanding shares of JSB Common
Stock that are entitled to be voted at the JSB Annual Meeting. As required by
USBANCORP as a condition to its execution of the Merger Agreement, the
directors and executive officers of JSB, in their individual capacities, have
entered into an agreement with USBANCORP to vote all shares of JSB Common Stock
over which they have sole voting power for approval of the Merger Agreement and
to use their best efforts to cause all shares of JSB Common Stock over which
they have shared voting power to be voted for approval of the Merger Agreement.
The affirmative vote, either in person or by proxy, of holders representing at
least a majority of the shares represented at the JSB Annual Meeting is
required to approve the proposal to adjourn the JSB Annual Meeting and the
affirmative vote of a majority of the shares eligible to be cast at the JSB
Annual Meeting is required to ratify the appointment of the independent
auditors. It is also anticipated that the directors and executive officers of
JSB will vote in favor of the proposal to adjourn the JSB Annual Meeting and
the proposal to ratify the appointment of the independent auditors. The four
individuals receiving the greatest number of votes shall be elected directors
of JSB. See "THE MEETINGS--Record Date; Vote Required," "ADJOURNMENT OF
MEETINGS," "ELECTION OF JSB DIRECTORS" and "RATIFICATION OF APPOINTMENT OF JSB
INDEPENDENT AUDITORS FOR 1994."
THE MERGER
Background of the Merger
The Merger Agreement was initially executed on November 10, 1993. On December
20, 1993, USBANCORP proposed to JSB that the parties amend the Merger Agreement
to (i) reduce the approximate per share consideration to be received by JSB
shareholders from $24.50 to $21.50 and (ii) permit JSB to solicit offers from
third parties and to enter into a merger agreement with another party provided
the merger consideration was in excess of $21.50 per share. USBANCORP proposed
to amend the Merger Agreement because it had determined that the merger, under
the terms of the original merger agreement, would result in materially greater
dilution to USBANCORP earnings per share and tangible book value per share than
originally estimated. USBANCORP was also advised by its financial advisor that
the financial advisor would be unable to deliver a fairness opinion if the
consideration remained unchanged. Receipt by USBANCORP of a fairness opinion
was a condition of closing under the November 10, 1993 merger agreement. As a
result of negotiations between the parties which commenced on January 6, 1994,
USBANCORP and JSB agreed on the per share consideration of approximately $22.50
that is described in this Proxy Statement/Prospectus. The parties also agreed
that JSB could solicit other offers for the sale or acquisition of JSB from
third parties and enter into an agreement with another party on or before
February 17, 1994 (the "Marketing Period"), provided the consideration exceeded
$22.50 per share. The respective Boards of Directors of USBANCORP and JSB met
on January 18, 1994, and each approved execution of the amendment to the Merger
Agreement. Under the Merger Agreement, as amended, JSB solicited other offers
until February 17, 1994. No other offers were received by JSB. The parties also
agreed to terminate the stock option agreement dated November 10, 1993, and to
execute a new stock option agreement dated January 18, 1994, that would become
effective after February 17, 1994. See "THE MERGER--Background and Reasons for
the Merger and Recommendations of the Boards."
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Effective Date of the Merger
The Merger will become effective at the close of business on the date on
which both (i) the Interim Merger is consummated by filing of Articles of
Merger with the Department of State of the Commonwealth of Pennsylvania in
accordance with the Pennsylvania Business Corporation Law of 1988, as amended
(the "BCL") and (ii) the U.S. Bank Merger is consummated by the filing of the
Notice of Consummation with the Office of the Comptroller of Currency (the
"OCC"), in accordance with the National Bank Act, as amended (the "National
Bank Act"), or on such later date as the Articles of Merger and the Notice of
Consummation may specify (the "Effective Date"). See "THE MERGER--Effective
Date of the Merger."
Effects of the Merger
On the Effective Date, each outstanding share of JSB Common Stock (other than
shares held by persons who have perfected dissenters' rights, if any) will be
converted into and become a right to receive $10.13 in cash and a fraction of a
share of USBANCORP Common Stock determined by dividing $22.50 by the average
closing price of USBANCORP Common Stock for the ten trading days immediately
preceding the closing date of the Merger (the "Average Closing Price") and
multiplying by .55, except that in no event will such fraction be greater than
.5053 shares or less than .4853 shares (the "Exchange Rate"), unless a holder
elects to convert all of the shares of JSB Common Stock held by such person
into either (i) a fraction of a share of USBANCORP Common Stock determined by
dividing $22.50 by the Average Closing Price, except that in no event will such
fraction be greater than .9184 shares or less than .8824 shares (the "Stock
Election"), or (ii) $22.50 in cash (the "Cash Election"). Subject to certain
exceptions described below, USBANCORP will not issue, in the aggregate, more
than 982,197 shares of USBANCORP Common Stock or pay more than $19,690,593 in
cash to shareholders of JSB. USBANCORP may issue additional shares of USBANCORP
Common Stock and pay additional cash in exchange for up to 12,000 shares of JSB
Common Stock issuable upon the exercise of stock options and USBANCORP will pay
additional cash amounts (i) in lieu of fractional shares, and (ii) in
connection with the cancellation of options to acquire 94,360 shares of JSB
Common Stock with respect to which holders have contractually waived their
exercise rights. The number of options that will be cancelled in exchange for
cash may increase from 94,360 up to 106,360 if the holders of exercisable
options to acquire 12,000 shares do not exercise their options. In addition,
USBANCORP may pay additional cash amounts to persons who perfect their
dissenters' rights, if any. The Stock Limitation and the Cash Amount shall be
collectively referred to herein as the "Merger Consideration." See "THE
MERGER--Election Procedures" for a discussion of the allocation mechanism. No
fractional shares of USBANCORP Common Stock will be issued. In lieu of
fractional shares, USBANCORP will pay cash in an amount equal to the fractional
part of a share to which a JSB shareholder is entitled, multiplied by $25.50.
See "THE MERGER--General Terms of the Merger."
In connection with the Merger, (i) options to purchase up to 106,360 shares
of JSB Common Stock granted under JSB's Employee Stock Compensation Program
prior to the date of the Merger Agreement which remain unexercised prior to the
Effective Date will be converted, on the Effective Date, into a right to
receive cash in an amount equal to (a) the difference between $22.50 and the
exercise price of each option multiplied by (b) the number of shares of JSB
Common Stock covered by such option. Holders of options to acquire 94,360
shares of JSB Common Stock have committed to USBANCORP in writing not to
exercise their options prior to consummation of the Merger. See "THE MERGER--
General Terms of the Merger."
The parties have agreed that USBANCORP will pay JSB shareholders $22.50 per
share for each share of JSB Common Stock surrendered, assuming a USBANCORP
Common Stock price between $24.50 and $25.50 per share. Both USBANCORP and JSB
shareholders who elect to receive all or a portion of the Merger Consideration
in USBANCORP Common Stock bear the risk of change in the market value of
USBANCORP Common Stock outside of such range. Therefore, the actual
consideration received by JSB shareholders who elect to receive all or a
portion of the Merger Consideration in USBANCORP Common
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Stock may be greater or less than $22.50 per share if the market value of
USBANCORP Common Stock on the Effective Date is less than $24.50 per share or
greater than $25.50 per share. As of the date of the amendment to the Merger
Agreement and as of April 29, 1994, the value of the Merger Consideration per
share of JSB Common Stock, as determined using the average closing price of
USBANCORP Common Stock immediately preceding such dates, was $22.48 and $ ,
respectively. See "THE MERGER--Conditions to Consummation of the Merger."
In an effort to assure that JSB shareholders continue to receive a cash
dividend in accordance with past practices of JSB during the pendency of the
Merger, the Merger Agreement, subject to certain restrictions, permits JSB to
pay its regular quarterly cash dividend of $.05 per share for each quarter in
1994 prior to the Effective Date if the Effective Date is not on or before
USBANCORP's record date for payment of its regular cash dividend of at least
$0.22 per share in such quarter.
Reasons for the Merger and Recommendations of the Boards of Directors
USBANCORP. The Board of Directors of USBANCORP believes the Merger is fair
to, and in the best interest of, USBANCORP and its shareholders and unanimously
recommends that its shareholders approve the Merger Proposal. The Board of
Directors of USBANCORP believes that the Merger will significantly increase its
market share in the Johnstown metropolitan area and enhance the value of its
franchise. See "THE MERGER--Background and Reasons for the Merger and
Recommendations of the Boards" and "--Opinions of Financial Advisors."
JSB. The Board of Directors of JSB believes the Merger is fair to, and in the
best interest of, JSB and its shareholders and unanimously recommends that its
shareholders approve the Merger Agreement. The JSB Board of Directors believes
that the Merger will provide significant value to its shareholders and, because
JSB shareholders are given the option to convert some or all of their JSB
Common Stock into USBANCORP Common Stock, the Merger will also enable them to
participate in USBANCORP's potential growth. The JSB Board of Directors also
believes that the Merger will result in a broader range of products and
services for JSB customers than JSB presently offers as an independent entity.
See "THE MERGER--Background and Reasons for the Merger and Recommendations of
the Boards," and "--Opinions of Financial Advisors." For information on the
interests of certain officers and directors of JSB in the Merger, see
"INTERESTS OF CERTAIN PERSONS IN THE MERGER."
Opinions of Financial Advisors
USBANCORP. Legg Mason Wood Walker, Incorporated ("Legg Mason") has served as
financial advisor to USBANCORP in connection with the Merger and has delivered
its opinion to the USBANCORP Board of Directors that the Merger Consideration
is fair from a financial point of view to USBANCORP. For additional information
concerning Legg Mason and its opinion, see "THE MERGER--Opinions of Financial
Advisors" and the opinion of Legg Mason attached as Annex B to this Proxy
Statement/Prospectus.
JSB. Alex. Brown & Sons Incorporated ("Alex. Brown") and RP Financial, Inc.
("RP Financial") have served as financial advisors to JSB in connection with
the Merger and each has provided an opinion to the JSB Board of Directors that
the Merger Consideration is fair from a financial point of view to JSB
shareholders. For additional information concerning Alex. Brown, RP Financial
and their opinions, see "THE MERGER--Opinions of Financial Advisors" and the
opinions of Alex. Brown and RP Financial attached as Annex C and Annex D,
respectively, to this Proxy Statement/Prospectus.
Financing the Merger
USBANCORP will pay approximately $19,690,593 in cash to JSB shareholders in
connection with the Merger. The source of funds to finance this portion of the
Merger Consideration will be a combination of
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interest bearing deposits with banks and the sale of investment securities
classified as available for sale. For a presentation of the pro forma effects
of the Merger, see "PRO FORMA FINANCIAL INFORMATION," and "THE MERGER--
Financing the Merger."
Conditions to Merger
The consummation of the transactions contemplated by the Merger Agreement is
subject to satisfaction or waiver of various conditions, including, among other
things, receipt of shareholder approvals and approval of various aspects of the
Merger from the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), the OCC, the FDIC and the Pennsylvania Department of Banking
(the "Department"); the absence of any material adverse change in the
consolidated assets, financial condition or results of operations, taken as a
whole, of either USBANCORP or JSB; receipt of an opinion of counsel at the
closing of the Merger with respect to certain federal income tax consequences
of the Merger satisfactory to JSB and its counsel; and other conditions
precedent customary in transactions such as the Merger. In addition, it is a
condition to JSB's obligations under the Merger Agreement that the Average
Closing Price is greater than $20.50 per share. No assurance can be given that
all such conditions will be met. See "THE MERGER--Conditions to Consummation of
the Merger."
Representations, Warranties, and Covenants
The Merger Agreement contains customary representations, warranties and
covenants for transactions similar to the Merger, including covenants which
restrict the manner in which JSB may do business to activities which are in the
ordinary course of its business, consistent with past practices. See "THE
MERGER-- Representations and Warranties," "--Conduct of Business Pending the
Merger," and "--Management and Operations After the Merger."
Waiver and Amendment
At any time prior to the Effective Date, USBANCORP and JSB may agree in a
writing signed by both parties to: (i) amend the Merger Agreement; (ii) extend
the time for performance of obligations under the Merger Agreement; (iii) waive
any inaccuracies in the representations and warranties contained in the Merger
Agreement; or (iv) waive compliance of any conditions to consummation of the
Merger. See "THE MERGER-- Waivers; Amendment."
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time on or prior to the
Effective Date: (i) by the written agreement of the parties; or (ii) by either
USBANCORP or JSB (a) if there has been a material breach of any representation,
warranty or covenant of the other party contained in the Merger Agreement which
cannot be or is not cured within 30 days after receipt by the other party of
written notice of the same; (b) if the Effective Date has not occurred prior to
September 30, 1994, unless the failure of such occurrence is due to the failure
of the party seeking to terminate to perform its obligations under the Merger
Agreement; (c) if a party has been informed in writing by a regulatory
authority that the approval sought is unlikely to be granted, unless such fact
results from a failure of the party seeking to terminate to perform its
obligations under the Merger Agreement; (d) if there has been a material
adverse change (as defined in the Merger Agreement) since September 30, 1993,
in the other party; or (e) if the other party shall communicate its
unwillingness to consummate the Merger Agreement in accordance with its terms
and conditions. See "THE MERGER--Termination of the Merger Agreement."
Election Procedures
Promptly after the Effective Date, U.S. Bank, as Exchange Agent, will mail to
each holder of record of shares of JSB Common Stock as of the Effective Date a
form to be used by each holder to make a Stock
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Election, Cash Election or no election, in which case the holder will receive
shares of USBANCORP Common Stock and cash in accordance with the Exchange Rate.
Because the aggregate cash and stock components of the Merger Consideration are
fixed within a specified range, the extent to which such elections will be
accommodated will depend upon the respective numbers of JSB shareholders who
make a Stock Election, a Cash Election or no election. Accordingly, a JSB
shareholder who elects to receive all cash may instead receive USBANCORP Common
Stock (plus cash in lieu of fractional shares) or a combination of USBANCORP
Common Stock and cash, and a JSB shareholder who elects to receive solely
USBANCORP Common Stock may instead receive cash or a combination of USBANCORP
Common Stock and cash. See "THE MERGER--Election Procedures."
JSB SHAREHOLDERS SHOULD NOT FORWARD JSB STOCK CERTIFICATES TO JSB OR
USBANCORP UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. JSB SHAREHOLDERS SHOULD
NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Management and Operations After the Merger
The members of the Board of Directors of USBANCORP and U.S. Bank in office
immediately prior to the Effective Date of the Merger will remain as members of
their respective Boards upon completion of the Merger. In addition, on the
Effective Date, and without the necessity of further corporate action by
USBANCORP, the number of directors of USBANCORP will increase by two and James
M. Edwards, Sr., and James C. Dewar, each of whom are presently directors of
JSB, will become directors of USBANCORP. In addition, one of the two new
directors will be appointed to USBANCORP's executive committee.
At the same time, the number of directors of U.S. Bank will increase by four,
and Messrs. Edwards and Dewar, together with Howard M. Picking, III and Kim W.
Kunkle, each of whom are presently directors of JSB, will become directors of
U.S. Bank. USBANCORP, as sole shareholder of U.S. Bank, has agreed in the
Merger Agreement to vote in favor of the election of these directors to the
U.S. Bank Board of Directors in each of the two succeeding years. Those
directors of JSB who are not elected to serve on the Board of Directors of U.S.
Bank will be appointed to serve for a one year term on U.S. Bank's Main Office
Advisory Board, will hold office until a successor is appointed, and will
continue to receive an annual retainer, for a period not to exceed three years,
in the amount they currently receive as JSB directors. U.S. Bank has agreed in
the Merger Agreement to use its best efforts to cause such persons to be re-
appointed to such Advisory Board in each of the two succeeding years. The
officers of USBANCORP and U.S. Bank will remain the same after the Merger. The
executive officers of JSB will not be employed by USBANCORP or any of its
subsidiaries after the Merger, but will receive certain severance payments from
USBANCORP. See "THE MERGER--Management and Operations After the Merger," and
"INTERESTS OF CERTAIN PERSONS IN THE MERGER."
USBANCORP expects to achieve cost savings and earnings enhancements following
the Merger principally through the consolidation of certain operations, the
elimination of redundant costs and the offering of additional products and
services to JSB depositors and customers. Because of the uncertainties
associated with merging two in-market institutions, and changes in the
regulatory environment and economic conditions, no assurances can be given as
to whether any particular level of cost savings or earnings enhancements will,
in fact, be realized or as to the ultimate timing of any such cost savings and
earnings enhancements. See "THE MERGER--Management and Operations After the
Merger--Consolidation of Operations; Projected Operating Cost Savings and
Earnings Enhancements."
Shareholders' Dissenters' Rights
Pursuant to Section 1607 of the Pennsylvania Banking Code of 1965, as amended
(the "PBC"), a JSB shareholder will have the right to dissent from the Merger
and to be paid cash for the "fair value" of such shareholder's shares provided
such shareholder does not vote in favor of the Merger Agreement and such
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shareholder complies with certain notice and other statutory procedures set
forth in Section 1930 and Subchapter D of Chapter 15 of the BCL. A copy of
these sections of the BCL are attached to this Proxy Statement/Prospectus as
Annex E. Pennsylvania law defines "fair value" to mean the fair value of the
shares immediately before the Merger is effected, taking into account all
relevant factors but excluding any appreciation or depreciation in anticipation
of the Merger. In order for a holder of JSB Common Stock to perfect dissenters'
rights, such holder must file with JSB, prior to the JSB Annual Meeting, a
written notice of intent to demand payment for his shares if the Merger is
effected. Neither a delivery of a proxy appointment directing a vote against
the Merger nor a vote against the Merger will constitute such written notice.
Certain additional procedures must be followed in order for a JSB shareholder
to exercise dissenters' rights. ANY DEVIATION FROM SUCH PROCEDURES MAY RESULT
IN THE FORFEITURE OF DISSENTERS' RIGHTS. Accordingly, shareholders wishing to
dissent from the Merger are urged to read carefully "THE MERGER--Dissenters'
Rights of JSB Shareholders" and Annex E to this Proxy Statement/Prospectus.
Effect on JSB Employee Benefit Plans
The employee benefit plans of JSB initially will be unaffected by the Merger
except that JSB's Deferred Compensation Plan, Employee Stock Compensation
Program, Stock Purchase Program and Executive Annual Incentive Plan will be
terminated on or immediately following the Effective Date. Subject to the
receipt of the Internal Revenue Service's (the "IRS") approval, USBANCORP
intends to amend its current employee benefit plans to cover those former
employees of JSB who become employees of USBANCORP or its subsidiaries and
terminate JSB's current employee benefit plans.
Under the Merger Agreement, subject to the foregoing, the Board of Directors
of USBANCORP is permitted to discontinue or amend any particular plan of JSB
after the Effective Date. See "THE MERGER-- Effect on JSB Employee Benefit
Plans."
Federal Income Tax Consequences
As a condition of closing, Stevens & Lee, counsel to USBANCORP, or other
counsel mutually acceptable to the parties, is required to deliver an opinion
that, under current federal income tax law and regulations, the Interim and
U.S. Bank Mergers will constitute reorganizations within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended ("Code"), and that no
gain or loss will be recognized by USBANCORP, JIB or JSB. In such event, a
holder of JSB Common Stock who receives solely USBANCORP Common Stock in
exchange for shares of JSB Common Stock in the Merger will not recognize any
gain or loss for federal income tax purposes, except with respect to cash
received in lieu of a fractional share. If the consideration received by a
holder of JSB Common Stock consists of part cash and part USBANCORP Common
Stock, a shareholder whose adjusted basis in the shares of JSB Common Stock
surrendered in the transaction is less than the value, as of the Effective
Date, of the USBANCORP Common Stock plus the amount of cash received will
realize income on the transaction. Provided the receipt of cash does not have
the effect of a dividend, such shareholders will recognize gain equal to the
lesser of (i) the excess, if any, as of the Effective Date, of the value of
USBANCORP Common Stock plus the amount of cash received, over the adjusted
basis of the shares of JSB Common Stock surrendered in the transaction, and
(ii) the amount of cash received. No loss will be recognized by a JSB
shareholder who receives part cash and part USBANCORP Common Stock in exchange
for the holder's JSB Common Stock. If the consideration received by a holder of
JSB Common Stock consists entirely of cash, in general, gain will be recognized
by the shareholder to the extent of the difference, if any, between the amount
of cash received and the adjusted tax basis of the shares of JSB Common Stock
surrendered in the transaction. The receipt of cash for shares of JSB Common
Stock pursuant to the exercise of dissenters' rights will be a taxable
transaction. Any shareholder considering the exercise of dissenters' rights
should consult a tax advisor regarding the tax
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consequences thereof. For a more complete description of federal income tax
consequences of the Merger, see "THE MERGER--Tax Consequences."
Because of the complexity of the tax laws and the individual nature of the
tax consequences of the Merger, it is recommended that each shareholder consult
a tax advisor concerning the applicable federal, state and local income tax
consequences to the shareholder of such transactions.
Accounting Treatment
The Merger will be treated as a purchase for accounting purposes. See "THE
MERGER--Accounting Treatment."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of JSB's management and the JSB Board of Directors have
interests in the Merger that are in addition to their interests as shareholders
of JSB generally. These include (i) the appointment of certain members of the
JSB Board of Directors to the Boards of USBANCORP and U.S. Bank and certain
committees thereof (as described above), (ii) payment of severance benefits to
certain executive officers resigning on the Effective Date and (iii)
indemnification, for a period of six years after the Effective Date, by
USBANCORP of all persons who served as officers and directors of JSB and JSB
subsidiaries with respect to all liabilities and claims resulting from (a)
their service as such prior to the Effective Date, in accordance with the
provisions of USBANCORP's Articles of Incorporation and Bylaws, and (b) the
Merger or any of the other transactions contemplated by the Merger Agreement.
See "INTERESTS OF CERTAIN PERSONS IN THE MERGER" and "THE MERGER--Management
and Operations After the Merger."
CERTAIN RELATED TRANSACTIONS
Stock Option Agreement
As a condition to USBANCORP's execution of the amended Merger Agreement on
January 18, 1994, JSB granted USBANCORP an option to purchase up to 19.9% of
the issued and outstanding JSB Common Stock pursuant to a stock option
agreement dated January 18, 1994 (the "Stock Option Agreement"), attached
hereto as Annex F. The option became effective on February 18, 1994, after
expiration of the Marketing Period. The option may be exercised by USBANCORP
upon the occurrence of specified events which have the potential for a third
party to effect an acquisition of control of JSB prior to the termination of
the Merger Agreement and, under certain circumstances, for a period of one year
thereafter. The exercise price per share to purchase JSB Common Stock under the
option is equal to the lower of $16.50 or the lowest price per share that JSB
accepts in a transaction which triggers the exercise of the option. The Stock
Option Agreement also permits USBANCORP to cause JSB to repurchase the option
in the event it becomes exercisable at a price equal to the difference between
the exercise price per share and the price to be paid by a third party for JSB
Common Stock multiplied by the number of shares for which the option can then
be exercised, plus certain of USBANCORP's expenses. None of such triggering
events has occurred as of the date hereof. Acquisitions of shares of JSB Common
Stock pursuant to exercises of the option would be subject to prior regulatory
approval under certain circumstances. See "CERTAIN RELATED TRANSACTIONS--Stock
Option Agreement."
Other
Pursuant to the Merger Agreement, USBANCORP granted JSB, through the end of
the Marketing Period on February 17, 1994, the right to solicit, market,
initiate or engage in discussions regarding the sale or acquisition of JSB by
any third party and to execute a definitive agreement for the sale of JSB with
any
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third party for consideration that exceeded $22.50 per share. After February
17, 1994, JSB has agreed in the Merger Agreement that it will not solicit or
engage in any discussions or negotiations with or respond to requests or
inquiries for information from any person other than USBANCORP concerning any
acquisition of JSB or any of its subsidiaries except (i) for responses in
connection with investor relations or pursuant to inquiries of government
regulatory authorities, and (ii) that JSB may respond to requests for
information, enter into discussions, respond to inquiries from and enter into
agreements with third parties if the JSB Board of Directors determines that
such actions are required to be taken by the JSB Board of Directors in the
exercise of its fiduciary duty, and it receives a written opinion of counsel to
such effect. No party made an offer to JSB during the Marketing Period. See
"THE MERGER-- No Solicitation of Transactions." In addition, the executive
officers and directors have agreed, in their individual capacities, to a "no
shop" obligation. The executive officers and directors of JSB have also agreed
to vote all shares of JSB Common Stock over which they have sole voting power
for the Merger Agreement and to use their best efforts to cause all shares of
JSB Common Stock over which they have shared voting power to be voted for
approval of the Merger Agreement. See "THE MEETINGS--Matters to be Considered
at the Meetings."
The Stock Option Agreement and the above-described agreements of JSB and of
such executive officers and directors may have the effect of precluding or
discouraging persons who might now or prior to the Effective Date be interested
in acquiring all or a significant interest in JSB from considering or proposing
such an acquisition, even if such persons were willing to pay a higher price
per share for JSB Common Stock than the price per share implicit in the Merger
Consideration at that time, or might result in a potential acquiror proposing
to pay a lower per share price to acquire JSB than it might otherwise have
proposed to pay. See "CERTAIN RELATED TRANSACTIONS--Stock Option Agreement."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Effective Date, shareholders of JSB, except shareholders who may
perfect dissenters' rights as provided by Section 1607 of the PBC, as amended
and in accordance with the procedures set forth in Subchapter D of Chapter 15
of the BCL, automatically will become shareholders of USBANCORP unless they
elect to, and do, receive all cash in exchange for their JSB Common Stock.
Their rights as shareholders of USBANCORP will be determined by the BCL and by
USBANCORP's Articles of Incorporation and Bylaws. The rights of shareholders of
USBANCORP differ from the rights of shareholders of JSB with respect to certain
important matters, including election of directors, the right to remove
directors, the right to amend the Articles of Incorporation and Bylaws, the
right to call a special meeting of shareholders, the required shareholder vote
as to certain matters, and restrictions on certain business combinations. For a
summary of these differences, see "COMPARISON OF RIGHTS OF HOLDERS OF USBANCORP
COMMON STOCK AND JSB COMMON STOCK." In addition, USBANCORP has adopted a
shareholder rights plan which is discussed under "DESCRIPTION OF USBANCORP
CAPITAL STOCK--Shareholder Rights Plan."
COMPARATIVE UNAUDITED PER SHARE INFORMATION
The following table sets forth certain unaudited comparative per share
information (i) on an historical basis for USBANCORP and JSB, (ii) on a pro
forma combined basis per share of USBANCORP Common Stock to reflect completion
of the Merger, and (iii) on a pro forma equivalent basis per share of JSB
Common Stock to reflect completion of the Merger. The pro forma information has
been prepared giving effect to the Merger on a purchase accounting basis. For a
description of the effect of purchase accounting, see "THE MERGER--Accounting
Treatment." USBANCORP expects to achieve certain operating cost savings and
earnings enhancements as a result of the Merger. Such cost savings and earnings
enhancements are not reflected in the pro forma information set forth below.
See "THE MERGER--Management and Operations After the Merger--Consolidation of
Operations; Projected Operating Cost Savings and Earnings Enhancements." The
pro forma financial information should be read in conjunction with the
historical
13
<PAGE>
consolidated financial statements of USBANCORP and JSB and the related notes
thereto included in documents incorporated by reference herein, and in
conjunction with the unaudited pro forma financial information appearing
elsewhere in this Proxy Statement/Prospectus. See "AVAILABLE INFORMATION,"
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL
INFORMATION."
The following information is not necessarily indicative of the results of
operations or combined financial position that would have resulted had the
Merger been consummated at the beginning of the periods indicated, nor is it
necessarily indicative of the results of operations of future periods or future
combined financial position.
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED DECEMBER 31,
1993
-----------------------
<S> <C>
BOOK VALUE PER COMMON SHARE
Historical:
USBANCORP............................................. $24.67
JSB................................................... 14.19
Pro Forma:
Pro forma per share of USBANCORP Common Stock......... 24.56
Equivalent pro forma per share of JSB Common Stock(1). 12.41
Equivalent pro forma per share of JSB Common Stock 22.54
plus
cash consideration(2)................................
DIVIDENDS DECLARED PER COMMON SHARE
Historical:
USBANCORP............................................. $0.86
JSB................................................... 0.15
Pro Forma:
Pro forma combined per share of USBANCORP Common 0.86
Stock..................................................
Equivalent pro forma per share of JSB Common Stock(1). 0.43
NET INCOME PER COMMON SHARE
Historical:
USBANCORP
Primary(3)........................................... $2.45
Fully diluted(3)..................................... 2.41
JSB
Primary.............................................. 1.73
Fully diluted........................................ 1.70
Pro Forma:
Combined per share of USBANCORP Common Stock
Primary(3)........................................... $2.22
Fully diluted(3)..................................... 2.19
Equivalent pro forma per share of JSB(1)
Common Stock
Primary.............................................. 1.12
Fully diluted........................................ 1.11
</TABLE>
- --------
(1) Pro forma equivalent amounts represent pro forma combined information
multiplied by the exchange ratio of .5053 shares of USBANCORP Common Stock
for each share of JSB Common Stock. The exchange ratio used in this pro
forma presentation was determined based upon the average price for
USBANCORP Common Stock for the ten trading days from February 17, 1994 to
March 4, 1994. Pro forma equivalent amounts are intended to demonstrate to
JSB shareholders the book value, dividends, and net income per share value
conferred upon JSB shareholders for each share of JSB Common Stock held
assuming in the case of book value per share that the transaction was
consummated on December 31, 1993, and assuming in the case of dividends and
net income per share that the transaction was consummated on the first day
of the one year period ended December 31, 1993. In accordance with the
terms of the Merger Agreement, the actual exchange ratio will be based upon
the average trading price for the ten trading day period immediately
preceding the Effective Date.
14
<PAGE>
(2) Equals the pro forma equivalent book value per common share of JSB plus
$10.13 per share cash consideration payable by USBANCORP to JSB
shareholders.
(3) Income before cumulative effect of change in accounting principle required
by the adoption of Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes."
MARKET PRICES OF COMMON STOCK
Both the USBANCORP Common Stock and the JSB Common Stock are included for
quotation on the NASDAQ/NMS.
The following table sets forth the closing price per share as reported on the
NASDAQ/NMS of USBANCORP Common Stock and JSB Common Stock and the equivalent
per share price for JSB Common Stock giving effect to the Merger as of: (i)
November 9, 1993, the last business day preceding public announcement of the
Merger, (ii) January 17, 1994, the last business day preceding the public
announcement of the amendment to the Merger Agreement, and (iii) April 29,
1994, the last practicable date prior to the mailing of this Proxy
Statement/Prospectus. The equivalent price per share of JSB Common Stock at
each specified date represents the closing price of a share of USBANCORP Common
Stock on such date multiplied by the applicable exchange rate for the USBANCORP
Common Stock portion of the Merger Consideration as provided for in the Merger
Agreement. Total equivalent price per share of JSB Common Stock at each
specified date represents the equivalent price per share of JSB Common Stock
plus $10.13, which equals the cash portion of the Merger Consideration to be
paid for each share of JSB Common Stock surrendered.
<TABLE>
<CAPTION>
JSB
--------------------------------
TOTAL
EQUIVALENT EQUIVALENT
MARKET MARKET
USBANCORP VALUE VALUE
HISTORICAL HISTORICAL PER SHARE PER SHARE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
November 9, 1993.................... $26.25 $19.00 $12.74 $22.87
January 17, 1994.................... 24.75 18.00 12.38 22.51
April 29, 1994......................
</TABLE>
JSB shareholders are advised to obtain current market quotations for
USBANCORP Common Stock and JSB Common Stock. Because the market price of
USBANCORP Common Stock at the Effective Date may be higher or lower than the
market price at the time the Merger Agreement was executed, at the date of
mailing of this Proxy Statement/Prospectus or at the time of the Annual
Meetings, JSB shareholders will not be assured of receiving any specific market
value of USBANCORP Common Stock at the Effective Date.
15
<PAGE>
USBANCORP SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain selected historical consolidated
summary financial data for USBANCORP. That data is derived from, and should be
read in conjunction with, the historical consolidated financial statements of
USBANCORP, including the related notes thereto, incorporated by reference in
this Proxy Statement/Prospectus. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE."
The selected historical consolidated summary financial information for the
years ended December 31, 1989, through December 31, 1993, are derived from
USBANCORP's audited consolidated financial statements. The consolidated
financial statements of USBANCORP for the years ended December 31, 1993, and
1992, have been audited by Arthur Andersen & Co., independent public
accountants, and the consolidated financial statements of USBANCORP for each of
the three years ended December 31, 1991, have been audited by Price Waterhouse,
independent accountants.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1993 1992(1) 1991 1990 1989
----------- ------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF INCOME DATA:
Total interest income... $ 85,735 $ 82,790 $ 66,446 $ 70,469 $ 69,237
Total interest expense.. 36,250 38,349 33,538 38,763 39,138
----------- ----------- ----------- ----------- -----------
Net interest income..... 49,485 44,441 32,908 31,706 30,099
Provision for loan
losses.................. 2,400 2,216 900 915 945
----------- ----------- ----------- ----------- -----------
Net interest income
after provision for
loan losses............ 47,085 42,225 32,008 30,791 29,154
Total non-interest
income.................. 10,150 8,346 6,035 5,340 5,391
Total non-interest
expense................. 40,715 36,248 28,862 27,198 27,783
----------- ----------- ----------- ----------- -----------
Income before income
taxes, extraordinary
item, and cumulative
effect of change in
accounting principle... 16,520 14,323 9,181 8,933 6,762
Provision for income
taxes................... 5,484 5,440 2,873 2,745 1,957
----------- ----------- ----------- ----------- -----------
Income before
extraordinary item, and
cumulative effect of
change in accounting
principle.............. 11,036 8,883 6,308 6,188 4,805
Extraordinary item--
utilization of net
operating loss
carryforward......... -- -- 1,004 1,474 1,711
----------- ----------- ----------- ----------- -----------
Income before cumulative
effect of change
in accounting
principle.............. 11,036 8,883 7,312 7,662 6,516
Cumulative effect of
change in accounting
principle--adoption of
SFAS No. 109........... 1,452 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income.............. $ 12,488 $ 8,883 $ 7,312 $ 7,662 $ 6,516
=========== =========== =========== =========== ===========
Net income applicable to
common stock............ $ 12,385 $ 7,710 $ 6,139 $ 6,489 $ 5,343
=========== =========== =========== =========== ===========
PER COMMON SHARE DATA:
PRIMARY EARNINGS:
Income before
extraordinary item,
and cumulative effect
of change in
accounting principle. $ 2.45 $ 2.67 $ 2.00 $ 1.97 $ 1.43
Net income............. $ 2.78 $ 2.67 $ 2.39 $ 2.55 $ 2.10
Cash dividends
declared................ 0.86 0.75 0.55 0.15 --
Book value at period
end(2).................. 24.67 23.08 21.71 19.85 17.43
Average number of
common shares
outstanding.......... 4,456,820(9) 2,888,145(10) 2,561,175 2,546,970 2,538,839
FULLY DILUTED EARNINGS:
Income before
extraordinary item,
and cumulative effect
of change in
accounting principle. $ 2.41 $ 2.53 $ 1.97 $ 1.95 $ AD(11)
Net income............. 2.72 2.53 2.29 2.41 2.06
Average number of
common shares
outstanding.......... 4,588,622(9) 3,515,217(10) 3,188,247 3,174,042 3,165,911
</TABLE>
(continued on following page)
16
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1992(1) 1991 1990 1989
----------- ------------------------ ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $ 1,241,521 $ 1,139,855 $ 784,036 $ 774,403 $ 751,228
Loans, net of unearned
income.................. 726,132 648,915 430,151 445,814 446,046
Allowance for loan
losses.................. 15,260 13,752 13,003 12,470 12,315
Investment securities
and investment
securities available
for sale(3)............ 428,712 366,888 289,772 235,722 195,978
Deposits................ 1,048,866 997,591 676,698 674,176 658,817
Long-term debt.......... 3,445 9,409 5,888 6,193 6,299
Shareholders' equity.... 116,615 82,971 70,023 65,050 58,827
SELECTED FINANCIAL
RATIOS:
Return on average total
equity before
extraordinary item, and
cumulative effect of
change in accounting
principle.............. 10.13% 11.41% 9.39% 10.00% 8.60%
Return on average assets
before extraordinary
item, and cumulative
effect of change in
accounting principle... 0.91 0.85 0.83 0.82 0.65
Loans, net of unearned
income, as a percent of
deposits, at period
end.................... 69.33 65.05 63.57 66.13 67.70
Ratio of average total
equity to average
assets................. 8.96 7.48 8.85 8.18 7.53
Common stock cash
dividends as a
percent of net income
applicable to common
stock.................. 32.28 28.16 22.94 5.90 --
Common and preferred
stock cash dividends as
a percent of net
income................. 32.84 37.64 35.30 20.31 18.00
Interest rate spread(4). 3.72 3.93 3.69 3.46 3.23
Net interest margin(5).. 4.34 4.58 4.69 4.56 4.35
Allowance for loan
losses as a percentage
of loans, net of
unearned income, at
period end(6).......... 2.10 2.12 3.02 2.80 2.76
Non-performing assets as
a percentage of loans
and other real estate
owned, at period end... 0.89 1.58 1.10 0.87 0.94
Net charge-offs as a
percentage of average
loans.................. 0.13 0.58 0.08 0.17 0.28
RATIO OF EARNINGS TO
FIXED CHARGES AND
PREFERRED DIVIDENDS(7):
Excluding interest on
deposits................ 5.26x 4.05x 4.54x 3.87x 3.17x
Including interest on
deposits................ 1.45 1.36 1.26 1.22 1.17
GAP ratio, at period
end(8).................. 1.10 1.14 1.06 0.97 1.00
</TABLE>
- --------
(1) Includes the results of operation of Community for the period from March
23, 1992.
(2) Common shareholders' equity (total shareholders' equity less preferred
stock at redemption value) divided by outstanding common shares at period
end.
(3) At September 30, 1992, USBANCORP classified its investment portfolio as
"Available for Sale."
(4) Represents the difference between the average yield earned on interest
earning assets, computed on a tax-equivalent basis, and the average rate
paid on interest bearing liabilities.
(5) Represents net interest income, computed on a tax-equivalent basis, as a
percentage of average total interest earning assets.
(6) See Note 7 of the Notes to USBANCORP's Consolidated Financial Statements.
(7) The ratio of earnings to fixed charges and preferred dividends is computed
by dividing the sum of income before taxes, fixed charges and preferred
dividends (as adjusted by the ratio of pre-tax income to net income) by
the sum of fixed charges and preferred dividends. Fixed charges represent
interest expense and are shown as both excluding and including interest on
deposits.
(8) Represents rate sensitive assets (interest earning assets which will
mature or reprice within one year) divided by rate sensitive liabilities
(interest bearing liabilities which will mature or reprice within one
year).
(9) On February 18, 1993, USBANCORP issued 1,150,000 shares of USBANCORP
Common Stock in a secondary public offering.
(10) In connection with the acquisition by USBANCORP of Community, USBANCORP
issued 388,213 shares of USBANCORP Common Stock.
(11) Anti-dilutive.
17
<PAGE>
JSB SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain selected historical consolidated
summary financial data for JSB. This data is derived from, and should be read
in conjunction with, the historical consolidated financial statements of JSB,
including the related notes thereto, included in this Proxy
Statement/Prospectus. See "JSB CONSOLIDATED FINANCIAL STATEMENTS."
The selected historical consolidated summary financial information for the
years ended December 31, 1989, through December 31, 1993, are derived from
JSB's audited consolidated financial statements. The consolidated financial
statements of JSB for the years ended December 31, 1993, and 1992, have been
audited by KPMG Peat Marwick, independent public accountants. The consolidated
financial statements of JSB for each of the three years ended December 31,
1991, have been audited by Ernst & Young, independent public accountants.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF INCOME DATA:
Total interest income... $ 22,603 $ 23,282 $ 24,287 $ 24,938 $ 25,900
Total interest expense.. 12,162 12,778 15,924 17,275 18,651
----------- ----------- ----------- ----------- -----------
Net interest income
before provision for
loan losses............ 10,441 10,504 8,363 7,663 7,249
Provision for loan
losses.................. 1,102 2,505 867 294 2,241
----------- ----------- ----------- ----------- -----------
Net interest income
after provision for
loan losses............ 9,339 7,999 7,496 7,369 5,008
----------- ----------- ----------- ----------- -----------
Total other operating
income.................. 6,582 5,246 4,404 2,578 2,000
Total other operating
expense................. 11,000 13,013 10,178 9,240 19,120
----------- ----------- ----------- ----------- -----------
Income (loss) before
provision for (benefit
from) income taxes and
cumulative effect of
change in accounting
principle.............. 4,921 232 1,722 707 (12,112)
Provision for (benefit
from) income taxes...... 1,560 (677) 110 (116) 7
----------- ----------- ----------- ----------- -----------
Income before cumulative
effect of change in
accounting principle... 3,361 909 1,612 823 (12,119)
Cumulative effect of
change in accounting
for income taxes....... -- 1,673 -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ 3,361 $ 2,582 $ 1,612 $ 823 $ (12,119)
=========== =========== =========== =========== ===========
Net income (loss) per
share................... $ 1.73 $ 1.33 $ 0.83 $ 0.42 $ (6.25)
=========== =========== =========== =========== ===========
PER COMMON SHARE DATA:
Cash dividends declared. $ 0.15 $ -- $ -- $ -- $ --
Book value per share at
period end.............. 14.19 12.56 11.23 10.39 9.97
Average number of shares
outstanding............. 1,940,160 1,940,150 1,940,150 1,940,150 1,940,150
BALANCE SHEET DATA:
Total assets............ $ 355,798 $ 320,444 $ 293,623 $ 278,571 $ 298,677
Total liabilities....... 328,218 296,083 271,844 258,404 279,333
Loans and mortgage-
backed securities held
to maturity (net of
allowances)............ 303,161 272,723 249,293 232,464 201,917
Investment securities,
investment securities
available for sale and
mortgage-backed
securities available
for sale and held in
trading account........ 21,908 10,498 12,617 14,722 47,163
Deposits................ 216,206 222,162 223,586 215,294 246,792
FHLB advances and other
borrowings.............. 108,378 70,590 44,648 39,446 27,828
Shareholders' equity.... 27,580 24,361 21,779 20,167 19,344
SELECTED OTHER DATA:
Return on average
equity.................. 13.07% 11.23% 7.67% 4.17% (52.97)%
Return on average
assets.................. 0.98 0.85 0.56 0.29 (4.07)
Average equity to
average assets.......... 7.51 7.54 7.30 6.84 7.69
Net interest rate
spread.................. 3.22 3.76 3.21 2.93 2.62
Net yield on interest-
earning assets.......... 3.28 3.80 3.19 2.96 2.68
</TABLE>
18
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA OF USBANCORP
The following tables set forth selected pro forma income statement
information of USBANCORP for the year ended December 31, 1993, assuming the
Merger was consummated at the beginning of the period presented. All of the
following selected financial information should be read in conjunction with the
unaudited pro forma financial information, including the notes thereto,
appearing elsewhere in this Proxy Statement/Prospectus. See "PRO FORMA
FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
---------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA AND AVERAGE SHARES OUTSTANDING)
<S> <C>
SUMMARY OF INCOME DATA:
Total interest income.................. $ 106,447
Total interest expense................. 48,423
---------
Net interest income.................... 58,024
Provision for loan losses............. 3,502
---------
Net interest income after provision for
loan losses............................ 54,522
Total non-interest income.............. 16,574
Total non-interest expense............. 52,693
---------
Income before income taxes and
cumulative effect of change in
accounting principle.................. 18,403
Provision for income taxes............ 6,219
---------
Income before cumulative effect of
change in accounting principle......... $ 12,184
=========
PER COMMON SHARE DATA BEFORE CUMULATIVE
EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE:
PRIMARY EARNINGS:
Primary net income..................... $ 2.22
Fully diluted net income............... 2.19
Average fully diluted shares
outstanding............................ 5,570,236
SELECTED FINANCIAL RATIOS BEFORE
CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE:
Return on average assets............... 0.78%
Return on average equity............... 9.19
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, REGULATORY
CAPITAL RATIOS(1) 1993 REQUIREMENT EXCESS
- ----------------- ---------------- --------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. BANK:
Tier 1 risk-based capital..... $ 44,676 13.02% $13,728 4.00% $30,948 9.02%
Total risk-based capital...... 48,966 14.27 27,455 8.00 21,511 6.27
Tier 1 leverage ratio......... 44,676 8.74 25,559 5.00 19,117 3.74
USBANCORP:
Tier 1 risk-based capital..... 113,718 14.72 30,893 4.00 82,825 10.72
Total risk-based capital...... 123,372 15.97 61,787 8.00 61,585 7.97
Tier 1 leverage ratio......... 113,718 9.18 61,931 5.00 51,787 4.18
<CAPTION>
PRO FORMA AT DECEMBER 31, REGULATORY
CAPITAL RATIOS(1) 1993 REQUIREMENT EXCESS
- ----------------- ---------------- --------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. BANK:
Tier 1 risk-based capital..... $ 74,433 13.59% $21,906 4.00% $52,527 9.59%
Total risk-based capital...... 81,279 14.84 43,813 8.00 37,466 6.84
Tier 1 leverage ratio......... 74,433 8.71 42,713 5.00 31,720 3.71
USBANCORP:
Tier 1 risk-based capital..... 124,567 12.75 39,072 4.00 85,495 8.75
Total risk-based capital...... 136,777 14.00 78,144 8.00 58,633 6.00
Tier 1 leverage ratio......... 124,567 7.88 79,085 5.00 45,482 2.88
</TABLE>
- --------
(1) All ratios are calculated on a tangible basis eliminating core deposit
intangible and goodwill from each capital category and from adjusted
assets.
20
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to shareholders of
USBANCORP in connection with the solicitation of proxies by the Board of
Directors of USBANCORP for use at the Annual Meeting of Shareholders of
USBANCORP (the "USBANCORP Annual Meeting") to be held on Wednesday, June 8,
1994, at 1:30 p.m. local time, at the Radisson Hotel, 101 Mall Boulevard,
Monroeville, Pennsylvania and at any adjournments thereof for the purposes set
forth in the USBANCORP Notice of Annual Meeting of Shareholders.
This Proxy Statement/Prospectus is also being furnished to shareholders of
JSB in connection with the solicitation of proxies by the Board of Directors of
JSB for use at the Annual Meeting of Shareholders of JSB (the "JSB Annual
Meeting") to be held on Thursday, June 9, 1994, at 10:00 a.m. local time, at
the Holiday Inn, 250 Market Street, Crown Ball Room, Johnstown, Pennsylvania,
and at any adjournments thereof for the purposes set forth in the JSB Notice of
Annual Meeting of Shareholders.
All information contained herein relating to USBANCORP and JSB has been
furnished by their respective managements. USBANCORP and JSB have each relied
upon the information furnished by the other as to the accuracy and completeness
thereof.
THE MEETINGS
MATTERS TO BE CONSIDERED AT THE MEETINGS
USBANCORP
At the USBANCORP Annual Meeting, holders of the USBANCORP Common Stock will
consider and vote upon, as a single proposal, the approval of the Merger
Agreement, which is attached as Annex A to this Proxy Statement/Prospectus and
the issuance of up to 988,260 shares of USBANCORP Common Stock to holders of
JSB Common Stock pursuant to the Merger Agreement (the "Merger Proposal"). In
addition to the Merger Proposal, shareholders of USBANCORP will be asked to (i)
approve a proposal to adjourn the USBANCORP Annual Meeting, if necessary, to
permit further solicitation of proxies in the event that there are not
sufficient votes at the time of the USBANCORP Annual Meeting to constitute a
quorum or to approve the Merger Proposal, (ii) elect five new directors for a
term of three years and (iii) approve an amendment to USBANCORP's articles of
incorporation to increase the authorized number of shares of USBANCORP Common
Stock to 12,000,000, par value $2.50. Shareholders will also consider and vote
upon such other matters as may be properly brought before the USBANCORP Annual
Meeting.
THE BOARD OF DIRECTORS OF USBANCORP HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE ISSUANCE OF THE SHARES OF USBANCORP COMMON STOCK IN
CONNECTION WITH THE MERGER AND UNANIMOUSLY RECOMMENDS A VOTE FOR (I) APPROVAL
OF THE MERGER PROPOSAL, (II) APPROVAL OF THE ADJOURNMENT PROPOSAL, (III)
ELECTION OF THE NOMINEES FOR DIRECTOR AND (IV) AMENDMENT OF USBANCORP'S
ARTICLES OF INCORPORATION.
JSB
At the JSB Annual Meeting, holders of JSB Common Stock will consider and vote
upon the approval of the Merger Agreement. In addition to the Merger Agreement,
holders of JSB Common Stock will be asked to (i) approve a proposal to adjourn
the JSB Annual Meeting, if necessary, to permit solicitation of additional
proxies in favor of the Merger Agreement in the event that there are not
sufficient votes at the time of the JSB Annual Meeting to constitute a quorum
and to approve the Merger Agreement, (ii) elect four directors for a term of
three years, or, if the Merger Agreement is approved and the Merger is
completed, for the period of time from the date of the JSB Annual Meeting to
the completion of the Merger, and (iii) ratify the appointment of KPMG Peat
Marwick as the independent auditors for 1994. Shareholders will also consider
and vote upon such other matters as may be properly brought before the JSB
Annual Meeting.
21
<PAGE>
THE BOARD OF DIRECTORS OF JSB HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND UNANIMOUSLY RECOMMENDS A VOTE FOR (I) APPROVAL OF THE MERGER AGREEMENT,
(II) APPROVAL OF THE ADJOURNMENT PROPOSAL, (III) ELECTION OF THE BOARD'S
NOMINEES FOR DIRECTOR AND (IV) RATIFICATION OF THE APPOINTMENT OF THE
INDEPENDENT AUDITORS FOR 1994.
RECORD DATE; VOTE REQUIRED
USBANCORP
USBANCORP's Board of Directors has fixed the close of business on April 29,
1994, as the date for determining shareholders entitled to notice of and to
vote at the USBANCORP Annual Meeting (the "USBANCORP Record Date"). Only
holders of record of USBANCORP Common Stock on the USBANCORP Record Date will
be entitled to notice of, and to vote at, the USBANCORP Annual Meeting or any
adjournments thereof. As of the USBANCORP Record Date there were 4,743,037
shares of USBANCORP Common Stock issued and outstanding, which were owned by
approximately 4,896 shareholders of record.
The presence in person or by proxy of the holders of a majority of
outstanding USBANCORP Common Stock entitled to vote at such meeting is required
to constitute a quorum at the USBANCORP Annual Meeting. Each share of USBANCORP
Common Stock entitles its holder to one vote with respect to all matters
properly submitted for action at the USBANCORP Annual Meeting. The affirmative
vote, either in person or by proxy, of a majority of the shares represented and
voting at the USBANCORP Annual Meeting is required to approve (i) the Merger
Proposal, (ii) the proposal to adjourn the USBANCORP Annual Meeting and (iii)
the amendment to USBANCORP's articles of incorporation. The five persons
receiving the highest number of votes will be elected directors of USBANCORP.
On the USBANCORP Record Date, the directors and executive officers of USBANCORP
had sole voting power with respect to approximately 158,789 shares or 3.35% of
the then outstanding shares of USBANCORP Common Stock that are entitled to vote
at the USBANCORP Annual Meeting and shared voting power with respect to
approximately 46,936 shares or approximately 0.99% of the then outstanding
shares of USBANCORP Common Stock that are entitled to vote at the USBANCORP
Annual Meeting. USBANCORP has been advised that such directors and executive
officers intend to vote all shares of USBANCORP Common Stock over which they
have sole voting power in favor of the Merger Proposal and to use their best
efforts to cause all shares of USBANCORP Common Stock over which they have
shared voting power to be voted for the Merger Proposal. It is also anticipated
that directors and executive officers of USBANCORP will vote in favor of the
adjournment proposal, the nominees for election as USBANCORP directors and the
proposal to amend USBANCORP's articles of incorporation.
HOLDERS OF USBANCORP COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO USBANCORP IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
JSB
JSB's Board of Directors has fixed the close of business on April 29, 1994,
as the date for determining shareholders entitled to notice of, and to vote at,
the JSB Annual Meeting (the "JSB Record Date"). Only holders of record of JSB
Common Stock on the JSB Record Date will be entitled to notice of and to vote
at the JSB Annual Meeting or any adjournments or postponements thereof. As of
the JSB Record Date there were 1,944,790 shares of JSB Common Stock issued and
outstanding, which were owned by approximately 2,058 shareholders of record.
The presence in person or by proxy of the holders of a majority of
outstanding JSB Common Stock entitled to vote at such meeting is required to
constitute a quorum at the JSB Annual Meeting. Each share of JSB Common Stock
entitles its holder to one vote with respect to all matters properly submitted
for action at
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the JSB Annual Meeting. The affirmative vote, either in person or by proxy, of
holders representing at least 66-2/3% of the outstanding shares of JSB Common
Stock is required to approve the Merger Agreement. Shares of JSB Common Stock
as to which the "ABSTAIN" box has been marked on the proxy card will be counted
as present for purposes of determining whether a quorum is present; however,
because approval of the Merger Agreement requires a two-thirds majority of all
outstanding shares of JSB Common Stock, abstentions, broker non-votes or a
failure to vote in person or by proxy will have the same legal effect as a vote
against the Merger Agreement. The affirmative vote, either in person or by
proxy, of a majority of the shares represented and voting at the JSB Annual
Meeting is required in order to approve (i) the proposal to adjourn the JSB
Annual Meeting and (ii) the ratification of the appointment of the independent
auditors. The four persons receiving the highest number of votes will be
elected directors of JSB. As of the JSB Record Date, the directors and
executive officers of JSB had sole voting power with respect to approximately
71,983 shares or 3.70% of the then outstanding shares of JSB Common Stock that
are entitled to vote at the JSB Annual Meeting and shared voting power with
respect to approximately 194,942 shares or approximately 10.02% of the then
outstanding shares of JSB Common Stock that are entitled to vote at the JSB
Annual Meeting. As a condition to entering into the Merger Agreement, USBANCORP
required that the directors and certain executive officers of JSB, in their
individual capacities, to enter into agreements with USBANCORP to vote all
shares of JSB Common Stock over which they have sole voting power for approval
of the Merger Agreement and to use their best efforts to cause all shares of
JSB Common Stock over which they have shared voting power to be voted for
approval of the Merger Agreement. It is also anticipated that directors and
executive officers of JSB will vote in favor of the adjournment proposal, the
proposal to ratify the appointment of the independent auditors and the nominees
for election as JSB directors.
HOLDERS OF JSB COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO JSB IN THE ENCLOSED POSTAGE-
PAID ENVELOPE. FAILURE TO RETURN YOUR PROPERLY EXECUTED PROXY CARD OR FAILURE
TO ATTEND AND VOTE AT THE JSB ANNUAL MEETING IN PERSON WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT.
PROXIES; REVOCATION OF PROXIES; SOLICITATION
All properly executed proxies received in time for the USBANCORP Annual
Meeting and the JSB Annual Meeting (collectively, the "Meetings") and not
revoked prior to exercise will be voted in accordance with the instructions
contained therein. Proxies received by either party that do not contain voting
instructions will be voted in favor of each proposal submitted to the
shareholders of such party and for the nominees for election as directors of
such party. As to any other matter properly brought before the Meetings and
submitted to a shareholder vote, all proxies will be voted in accordance with
the judgment of the proxy holders, provided, however, that such discretionary
authority will only be exercised to the extent permissible under applicable
federal securities laws. It is not expected that any matter other than those
referred to herein will be brought before either of the Meetings.
A shareholder who has executed and returned a proxy may revoke it at any time
before it is voted by giving written notice to the Secretary of USBANCORP
(Betty L. Jakell, USBANCORP, Main and Franklin Streets, Johnstown, Pennsylvania
15901) or JSB (Gerald R. Baxter, Johnstown Savings Bank, Market at Main Street,
Johnstown, Pennsylvania 15901), as the case may be, by executing a later dated
proxy, or by attending and voting in person at the USBANCORP Annual Meeting or
the JSB Annual Meeting. Attendance, without voting in person at the Meetings,
will not of itself constitute revocation of a proxy. If a shareholder's shares
are not held in the shareholder's name, such shareholder will need additional
documentation from the record holder in order to vote personally at either of
the Meetings.
Pursuant to Section 1607 of the PBC, shareholders of JSB have dissenters'
rights of appraisal in connection with the Merger. FAILURE TO FOLLOW THE
PROCEDURES FOR DISSENTERS' RIGHTS SET FORTH IN THE
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THE BCL WILL RESULT IN LOSS OF SUCH RIGHTS. For a complete discussion of
dissenters' rights and the manner in which shareholders of JSB may perfect such
rights, see "THE MERGER--Dissenters' Rights of JSB Shareholders."
JSB and USBANCORP will bear equally the expenses incurred in printing and
mailing this Proxy Statement/Prospectus. All other expenses incurred by or on
behalf of the parties in connection with the Merger Agreement and the
transactions contemplated thereby will be borne by the party incurring the
same. Some officers, directors and employees of JSB and USBANCORP may solicit
proxies in person, by mail, telegram, telephone or otherwise. None of such
persons will be specially engaged for such purpose or will receive any
compensation for assisting in the solicitation of proxies. JSB and USBANCORP
have each retained Morrow & Co., Inc. ("Morrow") to solicit proxies on behalf
of each entity in favor of the Merger. JSB and USBANCORP have each agreed to
pay Morrow a fee of $4,000 plus expenses, and to indemnify Morrow against
certain liabilities in connection with the solicitation of proxies. Pursuant to
the Merger Agreement, USBANCORP has agreed to reimburse JSB for all proxy
solicitation expenses. Arrangements will also be made with brokerage houses and
other custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of stock held of record by such persons, and
USBANCORP and JSB will reimburse such custodians, nominees and fiduciaries of
their respective shares for their reasonable out-of-pocket expenses in
connection therewith.
SHAREHOLDERS OF JSB SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. AS DESCRIBED BELOW UNDER THE HEADING "THE MERGER--EXCHANGE OF JSB STOCK
CERTIFICATES," EACH JSB SHAREHOLDER WILL BE PROVIDED WITH MATERIALS FOR
EXCHANGING SHARES OF JSB COMMON STOCK AS PROMPTLY AS PRACTICABLE AFTER THE
EFFECTIVE DATE.
THE MERGER
BACKGROUND AND REASONS FOR THE MERGER AND RECOMMENDATIONS OF THE BOARDS
Background
In July 1993, Emerald Asset Management ("Emerald"), a money management firm
that is familiar with both USBANCORP and JSB, suggested to USBANCORP's
management that an acquisition by USBANCORP of JSB was achievable. In a letter
dated July 29, 1993, USBANCORP and Emerald agreed that Emerald would act as an
intermediary between USBANCORP and JSB in exchange for a finder's fee of 0.30%
of the consideration paid by USBANCORP to JSB shareholders. Emerald has been
paid $71,000 as a result of the execution of the Merger Agreement and will be
paid an additional $59,000 if the Merger is consummated.
Management of USBANCORP presented the possible transaction to USBANCORP's
executive committee on August 23, 1993, and received authority to pursue the
matter further. Preliminary discussions occurred between the managements of
USBANCORP and JSB in September and October 1993. In the first week of November
1993, managements of the two companies entered into serious negotiations
concerning a possible acquisition. During this time, representatives of each
party performed due diligence of the other's business and operations.
Negotiations on the terms of the Merger were completed on November 9 and 10,
1993. Due to the price offered by USBANCORP, JSB did not solicit other offers
or enter into negotiations with any other party.
At a meeting of the USBANCORP Board of Directors held on November 10, 1993,
the management of USBANCORP, as well as USBANCORP's legal advisor and Legg
Mason Wood Walker, Incorporated ("Legg Mason"), USBANCORP's financial advisor,
reviewed, among other things, a summary of
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management's due diligence findings and the terms of the proposed Merger. Based
on that review and consideration of the factors discussed herein, including the
oral fairness opinion provided by Legg Mason, the USBANCORP Board of Directors
unanimously approved and authorized the execution of the Merger Agreement.
At a meeting of the JSB Board of Directors held on November 10, 1993, the
management of JSB, as well as JSB's legal advisor and RP Financial, Inc. ("RP
Financial"), JSB's financial advisor, reviewed, among other things, a summary
of management's due diligence findings and the terms of the proposed Merger.
Based on that review, the oral opinion of RP Financial, and consideration of
the factors discussed herein, the JSB Board of Directors unanimously approved
and authorized the execution of the Merger Agreement.
The Merger Agreement was initially executed on November 10, 1993. Certain
directors and officers of JSB executed in favor of USBANCORP a Letter Agreement
dated November 10, 1993, and JSB granted to USBANCORP an option to acquire
19.9% of JSB Common Stock at $16.50 per share pursuant to a Stock Option
Agreement between JSB and USBANCORP dated November 10, 1993.
On December 20, 1993, USBANCORP proposed to JSB that the parties enter into
an amendment to the Merger Agreement to (i) reduce the approximate
consideration to be received by JSB shareholders from $24.50 per share to
$21.50 per share and (ii) permit JSB to solicit offers for the sale or
acquisition of JSB from third parties through January 21, 1994 and enter into a
merger agreement with another party during that period provided the merger
consideration was in excess of $21.50 per share. USBANCORP made the proposal to
amend the Merger Agreement because it had determined that, based upon the
original $24.50 per share merger consideration and certain modifications of the
purchase accounting adjustments determined by USBANCORP's independent
accountants, the Merger would result in materially greater dilution to
USBANCORP's earnings per share and tangible book value per share than
originally estimated. USBANCORP was also advised by its financial advisor, Legg
Mason, that it would be unable to deliver a written fairness opinion to
USBANCORP with respect to the Merger if the merger consideration remained
unchanged. Receipt by USBANCORP of a written fairness opinion from Legg Mason
was a condition of closing under the Merger Agreement executed on November 10,
1993.
The Board of Directors of JSB met on December 21, 1993 to evaluate
USBANCORP's proposal but deferred any decision with respect to the new
proposal. The JSB Board of Directors held several additional meetings during
the last week of December and the first week of January to further consider
USBANCORP's proposal and to consult with its professional advisors regarding
JSB's available alternatives and obligations as well as the terms and
conditions of the Merger Agreement.
Negotiations between the parties commenced again on January 6, 1994, at a
meeting held at JSB, continued thereafter and culminated in JSB proposing, on
or about January 10, 1994, the Merger Consideration described in this Proxy
Statement/Prospectus based on a formula relating to the price of USBANCORP
Common Stock. Under the JSB proposal, JSB would be permitted to solicit other
offers for the sale or acquisition of JSB for a period of time (the "Marketing
Period") and enter into an agreement with a third party provided the merger
consideration exceeded $22.50 per share. After negotiation, the parties agreed
that the Marketing Period would end on February 17, 1994. The parties also
agreed that the stock option agreement executed on November 10, 1993, would
terminate and a new stock option agreement would be executed that would be
effective only after expiration of the Marketing Period. USBANCORP management
agreed to recommend the JSB proposal to the USBANCORP Board of Directors. The
respective Boards of Directors of USBANCORP and JSB met on January 18, 1994,
and each approved execution of the amendment to the Merger Agreement.
On January 6, 1994, JSB hired an additional financial advisor, Alex. Brown &
Sons Incorporated ("Alex. Brown"), to assist JSB in connection with the
negotiation of the amended Merger Agreement and in connection with the
solicitation of offers from third parties during the Marketing Period.
Immediately after the commencement of the Marketing Period, Alex. Brown
contacted nine potential third party acquirors
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which it, along with the management of JSB, believed would have a strategic
and/or financial interest in the possible acquisition of JSB.
Of the original nine institutions initially contacted, three expressed an
interest in further exploration of a possible acquisition of JSB. The three
parties that expressed such an interest (the "Interested Parties") executed
Confidentiality Agreements and were given access to certain public and non-
public financial and operating information regarding JSB, both on a historical
and projected basis, in the form of a Confidential Offering Memorandum prepared
by JSB and Alex. Brown. The Interested Parties were given the opportunity by
Alex. Brown to ask for further detail or any clarification regarding the
contents of the Offering Memorandum, and were instructed by Alex. Brown to
render preliminary written indications of value of JSB by February 4, 1994.
By February 4, 1994, each of the Interested Parties had contacted Alex. Brown
and indicated their respective desires not to pursue further discussions
regarding the possible acquisition of JSB.
During the Marketing Period, which was widely publicized, no other potential
third party acquiror, exclusive of the nine potential third party acquirors
originally contacted, indicated to Alex. Brown an interest in initiating
discussions regarding the possible acquisition of JSB.
Subsequent to the execution of the amendment to the Merger Agreement, as
required by USBANCORP as a condition to its execution of the amendment to the
Merger Agreement, certain directors and officers of JSB executed, in favor of
USBANCORP, a letter agreement dated January 18, 1994 (the "Letter Agreement"),
pursuant to which the officers and directors have agreed in their individual
capacities, among other things, (i) to be present at the JSB Annual Meeting so
that all JSB Common Stock owned beneficially by them will be counted for the
purpose of determining the presence of a quorum, to vote all shares over which
they have sole voting power and to use their best efforts to cause shares over
which they have shared voting power to be voted for approval of the Merger
Agreement and against the approval of any other merger, business combination or
similar transaction involving JSB, and not to vote in favor of any proposal to
amend or rescind their prior vote, (ii) prior to the JSB Record Date for the
JSB Annual Meeting, not to sell, transfer or otherwise dispose of any JSB
Common Stock owned by such officers and directors over which they have sole
disposition power, and to use their best efforts to prevent the sale, transfer
or disposition of shares of JSB Common Stock over which they have shared
disposition power, and after the JSB Record Date not to sell, transfer or
otherwise dispose of any JSB Common Stock over which they have sole disposition
power without the prior written consent of USBANCORP and to use their best
efforts to prevent the sale, transfer or disposition of shares of JSB Common
Stock over which they have shared disposition power without the prior written
consent of USBANCORP, which consent shall not be unreasonably withheld, and
(iii) subject to their fiduciary duty as directors or officers to shareholders,
not to initiate or engage in any negotiations or discussions with a third party
with respect to the sale, transfer or other disposition of any JSB Common
Stock. In addition, prior to the execution of the amendment of the Merger
Agreement, JSB granted to USBANCORP an option to acquire 19.9% of the JSB
Common Stock at 16.50 per share pursuant to a Stock Option Agreement between
JSB and USBANCORP, dated January 18, 1994. A copy of the form of Letter
Agreement executed by the directors of JSB is included as Exhibit 1 to the
Merger Agreement at Annex A to this Proxy Statement/Prospectus. See "CERTAIN
RELATED TRANSACTIONS--Stock Option Agreement."
USBANCORP's Reasons for the Merger and Recommendation of USBANCORP Board
USBANCORP's acquisition strategy consists of identifying financial
institutions with similar business philosophies that operate in markets
geographically within, or contiguous to, those of USBANCORP. From a financial
perspective, USBANCORP seeks acquisitions that will be accretive or result in
no more than limited and acceptable initial book value and earnings per share
dilution; USBANCORP expects acquisitions to provide an ability to accrete
earnings per share over an acceptable time frame after the acquisition to
recover any initial dilution and to provide required rates of return
commensurate with the performance of its
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other subsidiaries. Acquisitions are also evaluated in terms of asset quality,
interest rate risk, core deposit base stability, potential operating
efficiencies, and management abilities.
In the view of USBANCORP's Board of Directors, the Merger constitutes an
acquisition that meets USBANCORP's acquisition strategy and significantly
enhances USBANCORP's franchise value and market share in the Johnstown
metropolitan area. Upon consummation of the Merger, USBANCORP's total assets
and total deposits will increase 29% and 20%, respectively, and U.S. Bank will
have a 26% deposit market share in Cambria County, compared to its current
market share of 15%.
In addition to this conclusion that the Merger will result in an enhancement
of USBANCORP's franchise value, in determining to make the offer to acquire JSB
and enter into the Merger Agreement, USBANCORP's Board of Directors also
considered a number of other material factors, including the following: (i) the
historical financial condition, operating results and operating budgets,
capital levels, asset quality, and future prospects of USBANCORP and JSB and
their projected future value and prospects as separate entities and on a
combined basis; (ii) pro forma financial information on the Merger, including,
among other things, earnings per share dilution analysis and ratio impact
information; (iii) initial book value dilution analysis; (iv) the
sustainability of core earnings and potential for growth; (v) a comparison of
the price it proposed to offer in the Merger to other comparable mergers,
based, among other things, on multiples of book value and earnings per share;
(vi) the tax-free nature of the transaction to USBANCORP (see, generally, "Tax
Consequences" below); (vii) historical stock price information for both
USBANCORP and JSB; (viii) the effect of the Merger on the short and long term
trading prices for USBANCORP Common Stock; (ix) the benefits and disadvantages,
from a financial point of view, of the upper limit on the Exchange Rate (as
defined below) for JSB Common Stock; (x) the provisions of the Merger Agreement
allowing USBANCORP to terminate the Merger Agreement if certain conditions are
not satisfied (see "Conditions to Consummation of the Merger" and "Termination
of the Merger Agreement" below); (xi) industry, regulatory, economic and market
conditions; (xii) JSB's willingness, at USBANCORP's insistence, to grant
USBANCORP an option to acquire 19.9% of JSB's outstanding shares of common
stock; and (xiii) the written opinion from Legg Mason as to the fairness to
USBANCORP from a financial point of view of the Merger Consideration to be paid
by USBANCORP (see "Opinions of Financial Advisors" below).
In approving the transaction, the Board of Directors of USBANCORP did not
specifically identify any one factor or group of factors as being more
significant than any other factor in the decision making process, although
individual directors may have given one or more factors more weight than other
factors.
The emphasis of the USBANCORP Board of Directors' discussion in considering
the transaction, however, was on the financial aspects of the transaction,
particularly (i) the strategic fit and enhanced franchise value, discussed
above, (ii) the upper limit on the Exchange Rate and the ability of USBANCORP,
by reason thereof, to fix the number of shares issued in connection with the
Merger and thus the relative amount of earnings per share dilution (see "PRO
FORMA FINANCIAL INFORMATION"), (iii) USBANCORP's belief that it will be able to
recover such dilution through cost savings and earnings enhancements within
twenty-four (24) months (see "Management and Operations After the Merger"
below), (iv) the relative strength of JSB's balance sheet and its growth in
earnings in recent years (see "JSB SELECTED HISTORICAL FINANCIAL DATA"), (v)
the relative strength of the historical combined USBANCORP consolidated pro
forma balance sheet and capital ratios (see "PRO FORMA FINANCIAL INFORMATION")
and (vi) Legg Mason's written opinion as to the fairness to USBANCORP from a
financial point of view of the Merger Consideration to be paid by USBANCORP
(see "Opinions of Financial Advisors" below).
Although substantial analysis has been performed, identification of all the
pre-tax cost savings and potential earnings enhancements associated with this
in-market consolidation has not been completed. In evaluating such savings and
benefits, the USBANCORP Board of Directors considered that most of the initial
savings would be offset by one-time expenses relating to the corporate
acquisition and post-acquisition integration process; these non-recurring costs
will approximate $2.5 million pre-tax and will be recognized in
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the quarter in which the Merger is consummated. These costs are necessary to
realize approximately $3.8 million pre-tax of specifically identified annual
savings resulting from economy of scale benefits to be achieved in this intra-
market acquisition. Of these savings, $1.9 million are expected to be realized
in the first year of the Merger with the full $3.8 million in annual savings
being realized in the second year and thereafter. However, no assurances can be
given that such earnings enhancements and cost savings will be realized at any
given time in the future. See "PRO FORMA FINANCIAL INFORMATION."
THE USBANCORP BOARD OF DIRECTORS RECOMMENDS THAT USBANCORP SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE MERGER PROPOSAL.
JSB's Reasons for the Merger and Recommendation of JSB Board
In reaching its determination that the Merger and Merger Agreement are fair
to, and in the best interests of, JSB and its shareholders, the JSB Board of
Directors consulted with its financial advisors, as well as with JSB's
management, and considered a number of factors, including, without limitation,
the following: (i) the JSB Board of Directors' belief that the terms of the
Merger Agreement are attractive in that the Merger Agreement allows JSB
shareholders to become shareholders of USBANCORP, a company that the JSB Board
of Directors believes has positive future prospects; (ii) the financial advice
and the written opinions of Alex. Brown and RP Financial that the Merger
Consideration is fair to JSB shareholders from a financial point of view; (iii)
USBANCORP's agreement to make certain directors of JSB directors of USBANCORP
and U.S. Bank; (iv) USBANCORP's agreement to allow certain employees of JSB to
continue as employees of USBANCORP after the Merger and to make certain
severance payments to executive officers and employees resigning on the
Effective Date; (v) pro forma financial information on the Merger, including,
among other things, earnings per share, dilution analysis and ratio impact
information; (vi) the sustainability of core earnings by USBANCORP and
potential for growth; (vii) the tax-free nature of the transaction to JSB (see,
generally, "Tax Consequences" below); (viii) historical stock price information
for both USBANCORP and JSB; (ix) the benefits and disadvantages, from a
financial point of view, of the range of possible Exchange Rates for JSB Common
Stock; (x) the provisions of the Merger Agreement allowing JSB to terminate the
Merger Agreement if certain conditions are not satisfied (see "Conditions to
Consummation of the Merger" and "Termination of the Merger Agreement" below);
(xi) the JSB Board's review, based on a presentation by JSB's management,
regarding JSB's due diligence and its analysis of the business, operations,
management, earnings and financial condition of USBANCORP on both a historical
and a prospective basis, of (A) the enhanced opportunities for operating
efficiencies, particularly in terms of integration of operations and support
functions such as product development, asset-liability management, marketing,
data processing, loan review and finance and accounting, that could result from
the Merger and (B) the enhanced opportunities for growth that the Merger would
make possible, particularly the ability to access the managerial and other
resources of USBANCORP in designing future products and services that JSB does
not now offer and in responding to changing competitive, technological and
regulatory environments; (xii) the JSB Board's belief that the combined
enterprise, having a greater size and greater resources than JSB, could offer
JSB's customers a broader range of products and services than JSB presently
offers as an independent entity; (xiii) the JSB Board's review of alternatives
to the Merger (including the alternatives of remaining independent and growing
internally, remaining independent for a period of time and then selling JSB and
remaining independent and growing through future acquisitions), including the
range of possible values to JSB's shareholders obtainable through
implementation of such alternatives and the timing and likelihood of actually
receiving such values; (xiv) the JSB Board's review (prior to and during the
Marketing Period and otherwise) of possible affiliation partners for JSB other
than USBANCORP, likely acquisition prices which would be paid by possible
affiliation partners, the prospects of such other possible affiliation partners
and the likelihood of any such affiliation; (xv) the JSB Board's review of the
book value per share of JSB Common Stock of $14.19 at December 31, 1993,
compared to the consideration payable by USBANCORP and comparative multiples of
book value, earnings per share and market price paid in other comparable recent
acquisitions of savings banks and thrifts; and (xvi) the current and
prospective economic environment and competitive constraints facing financial
institutions, including JSB and USBANCORP.
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THE JSB BOARD BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR AND IN THE BEST
INTEREST OF JSB SHAREHOLDERS AND HAS UNANIMOUSLY RECOMMENDED THAT SHAREHOLDERS
OF JSB APPROVE THE MERGER AGREEMENT AT THE JSB ANNUAL MEETING.
GENERAL TERMS OF THE MERGER
The detailed terms and conditions of the Merger are contained in the Merger
Agreement, which is attached to this Proxy Statement/Prospectus as Annex A and
incorporated herein. The following description of such terms and conditions
does not purport to be complete and is qualified in its entirety by reference
to the Merger Agreement.
Pursuant to the Merger Agreement, USBANCORP has caused Johnstown Interim Bank
("JIB") to be organized as a wholly-owned subsidiary of USBANCORP. Subject to
certain terms and conditions contained in the Merger Agreement, on the
Effective Date, the Merger will be consummated in two steps. The first step
will be the Interim Bank Merger in which JSB will merge with and into JIB with
JIB surviving the Interim Bank Merger. The second step will occur immediately
thereafter and will be the U.S. Bank Merger in which JIB will merge with and
into U.S. Bank, with U.S. Bank surviving the U.S. Bank Merger. Upon
consummation of the Merger, the separate existence of JSB will cease. All
property, rights, powers, duties, obligations and liabilities of JSB will
automatically, by operation of law, be transferred to U.S. Bank. The Articles
of Incorporation and Bylaws of U.S. Bank in effect on the Effective Date will
govern the surviving corporation until altered, amended or repealed in
accordance with applicable law.
If the Merger is approved by the shareholders of USBANCORP and JSB and by the
appropriate regulatory authorities and if certain other conditions are
satisfied or waived (see "Regulatory Approvals," "Conditions to Consummation of
the Merger" and "Termination of the Merger Agreement" below), the Merger will
become effective as of the close of business on the date on which the Articles
of Merger and Notice of Consummation are filed with the Department of State of
the Commonwealth of Pennsylvania and the OCC, respectively, or on such other
date and time as may be specified in the Articles of Merger and Notice of
Consummation. It is presently anticipated that the Effective Date will occur in
the second quarter of 1994, but no assurance can be given that the conditions
to consummation of the Merger will be satisfied or that this timetable will be
met.
On the Effective Date, each share of JSB Common Stock issued and outstanding
immediately prior to the Effective Date (except for shares of JSB Common Stock
held by persons who have perfected their dissenters' rights as described under
the heading "Dissenters' Rights of JSB Shareholders" below) will be converted
into $10.13 in cash and a fraction of a share of USBANCORP Common Stock
determined by dividing $22.50 by the average closing price of USBANCORP Common
Stock for the ten trading days immediately preceding the Effective Date (the
"Average Closing Price") and multiplying by .55, except that in no event shall
such fraction be greater than .5053 shares or less than .4853 shares (the cash
and the fraction of a share of USBANCORP Common Stock are collectively called
the "Exchange Rate"). Any record holder of JSB Common Stock may specify, by
executing an Election Statement, that all of the shares of such record holder's
JSB Common Stock be converted into a fraction of a share of USBANCORP Common
Stock determined by dividing $22.50 by the Average Closing Price, except that
in no event shall such fraction be greater than .9184 shares or less than .8824
shares, or, in the alternative, that all of the shares of such record holder's
JSB Common Stock be converted into $22.50 in cash. If no such election is made
by a JSB shareholder, such record holder's shares will be converted in
accordance with the Exchange Rate. Subject to certain exceptions described
below, USBANCORP will not issue, in the aggregate, more than 982,197 shares of
USBANCORP Common Stock or pay more than $19,690,593 in cash to shareholders of
JSB. USBANCORP may issue additional shares of USBANCORP Common Stock and pay
additional cash in exchange for up to 12,000 shares of JSB Common Stock
issuable upon the exercise of stock options and USBANCORP will pay additional
cash amounts (i) in lieu of fractional shares, and (ii) in connection with
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the cancellation of options to acquire 94,360 shares of JSB Common Stock with
respect to which holders have contractually waived their exercise rights. The
number of options that will be cancelled in exchange for cash may increase from
94,360 up to 106,360 if the holders of exercisable options to acquire 12,000
shares do not exercise their options. In addition, USBANCORP may pay additional
cash amounts to persons who perfect their dissenters' rights, if any. Because
the aggregate amount of the cash and stock components of the Merger
Consideration are fixed at between 943,316 shares and 982,197 shares of
USBANCORP Common Stock (depending on the Average Closing Price) and $19,690,593
(exclusive of additional amounts paid as described above), the extent to which
elections will be accommodated will depend upon the respective number of JSB
shareholders who elect cash, stock or fail to make an election. If the Merger
had been consummated on December 31, 1993, JSB shareholders would have acquired
between 16.67% and 17.24% of the outstanding shares of USBANCORP Common Stock
on a pro forma basis. See "Election Procedures" below.
At the time the Exchange Rate was determined, the parties agreed that
USBANCORP would pay JSB shareholders consideration equal to approximately
$22.50 per share for each share of JSB Common Stock surrendered, assuming a
USBANCORP Common Stock price of between $24.50 and $25.50 per share. Because
the number of shares of USBANCORP Common Stock to be delivered to JSB
shareholders who elect to receive all or a portion of the Merger Consideration
in the form of USBANCORP Common Stock in connection with the Merger is fixed
within a specified range, both USBANCORP and JSB shareholders bear the risk of
change in the market value of USBANCORP Common Stock outside this range.
Therefore, the actual consideration received by JSB shareholders who elect to
receive all or a portion of the Merger Consideration in the form of USBANCORP
Common Stock may be greater or less than $22.50 per share depending upon the
market value of USBANCORP Common Stock prior to the Effective Date. As of the
date of the Merger Agreement and as of April 29, 1994, the value of the Merger
Consideration, as calculated using the Average Closing Price at these dates,
was $22.48 and $ , respectively.
In connection with the Merger, (i) options to purchase up to 106,360 shares
of JSB Common Stock granted under JSB's Employee Stock Compensation Program
prior to the date of the Merger Agreement which remain unexercised prior to the
Effective Date will be converted, on the Effective Date, into a right to
receive cash in an amount equal to (a) the difference between $22.50 and the
exercise price of each option multiplied by (b) the number of shares of JSB
Common Stock covered by such option. Holders of options to acquire 94,360
shares of JSB Common Stock have committed to USBANCORP in writing not to
exercise their options prior to consummation of the Merger.
In an effort to assure that JSB shareholders continue to receive a cash
dividend in accordance with past practices of JSB during the pendency of the
Merger, the Merger Agreement, subject to certain restrictions, permits JSB to
pay its regular quarterly cash dividend if the Effective Date is not on or
before USBANCORP's record date for payment of its regular cash dividend of at
least $0.22 per share in the first quarter of 1994 and each quarter thereafter,
the Merger Agreement permits JSB, consistent with past practices, and subject
to certain restrictions, to pay a regular quarterly cash dividend not to exceed
$0.05 per share for each such calendar quarter.
No fractional shares of USBANCORP Common Stock will be issued pursuant to the
Merger. JSB shareholders who would otherwise be entitled to receive a
fractional share will receive, in lieu thereof, cash equal to the fractional
part of a share of USBANCORP Common Stock to which such shareholder is entitled
multiplied by $25.50.
OPINIONS OF FINANCIAL ADVISORS
USBANCORP
USBANCORP retained Legg Mason to render an opinion to the USBANCORP Board of
Directors with respect to the fairness from a financial point of view of the
Merger Consideration to be paid by USBANCORP in the Merger. Legg Mason is a
nationally recognized investment banking firm regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated
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underwritings, competitive biddings, secondary distributions of listed and
unlisted securities and private placements. USBANCORP selected Legg Mason as
its financial advisor based upon its qualifications, expertise and reputation,
as well as its prior investment banking relationship and familiarity with
USBANCORP.
At a meeting of the USBANCORP Board of Directors on January 18, 1994, Legg
Mason delivered a written opinion to the USBANCORP Board of Directors that, as
of such date, the Merger Consideration was fair to USBANCORP from a financial
point of view. The full text of the opinion of Legg Mason, which sets forth the
assumptions made, matters considered and limitations on the reviews undertaken,
is attached hereto as Annex B and is incorporated herein by reference, and
should be read in its entirety in connection with this Proxy
Statement/Prospectus. The summary of the opinion of Legg Mason set forth herein
is qualified in its entirety by reference to the opinion.
In arriving at its opinion, Legg Mason, among other things: (i) reviewed the
financial terms of the Merger Agreement; (ii) reviewed Annual Reports and Form
10-Ks or Form F-2s for the three years ended December 31, 1992, for USBANCORP
and JSB; (iii) reviewed certain interim financial information for the three
quarters ended September 30, 1993, including Form 10-Qs and Form F-4s for
USBANCORP and JSB; (iv) analyzed certain other financial statements, data,
reports and analyses for USBANCORP and JSB prepared by their respective
managements, including preliminary financial statements with respect to the
quarter and year ended December 31, 1993, for USBANCORP and JSB and the budget
of JSB for fiscal 1994; (v) analyzed certain financial projections of
USBANCORP, both on a stand-alone and combined basis, prepared by the management
of USBANCORP; (vi) discussed the current operations, financial condition and
prospects of USBANCORP and JSB with the managements of USBANCORP and JSB; (vii)
reviewed with management of USBANCORP the results of their due diligence
examination of JSB and the expected cost savings related to the Merger; (viii)
reviewed the reported market prices and historical trading activity of
USBANCORP Common Stock and JSB Common Stock; (ix) compared certain financial
and stock market information for USBANCORP and JSB with similar information for
certain other publicly traded companies; (x) reviewed the financial terms of
certain recent business combinations involving financial institutions; (xi)
considered the views of management of USBANCORP regarding the strategic
importance of the Merger; and (xii) analyzed the pro forma financial impact of
the Merger on USBANCORP.
Legg Mason relied without independent verification upon the accuracy and
completeness of all the financial and other information reviewed by it for
purposes of its opinion. In that regard, Legg Mason assumed that the financial
forecasts, including, without limitation, projected cost savings and earnings
enhancements, were reasonably prepared on a basis reflecting the best currently
available judgments and estimates of the managements of USBANCORP and JSB and
that such forecasts will be realized in the amounts and at the times
contemplated thereby. Legg Mason is not an expert in the evaluation of loan
portfolios or the allowances for possible loan losses with respect thereto and
has assumed, without independent verification, that such allowances for JSB are
in the aggregate adequate to cover such losses. In addition, Legg Mason has not
reviewed individual credit files nor has it made or obtained an independent
evaluation or appraisal of the assets and liabilities of USBANCORP or JSB or
any of their subsidiaries.
The following is a summary of the financial analyses performed by Legg Mason
in connection with its opinion:
Pro Forma Merger Analysis. Legg Mason analyzed certain pro forma effects on
USBANCORP from the Merger in 1994 and 1995 assuming the payment, for each share
of JSB Common Stock, of $10.13 in cash and a fraction of a share of USBANCORP
Common Stock determined by dividing $22.50 by the Average Closing Price and
multiplying by .55, except that in no event shall such fraction be greater than
.5053 or less than .4853. Based on certain assumptions, including those by
USBANCORP management with respect to cost savings from the Merger during the
twelve-month period following completion of the Merger and thereafter and the
stand alone earnings projections of USBANCORP and JSB, the analysis showed that
the Merger would be dilutive to USBANCORP's earnings per share in 1994 by
approximately 7% and accretive
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to its earnings per share in 1995 by approximately 8%. In addition, the pro
forma merger analysis showed the merger would be neutral to USBANCORP's 1993
year-end book value and dilutive to its 1993 year-end tangible book value.
Comparable Transaction Analysis. Legg Mason reviewed a group of 28
transactions announced since the beginning of 1993 with values greater than $20
million involving acquisitions of thrifts with assets of less than $1 billion
that Legg Mason deemed comparable in terms of location and profitability. Legg
Mason calculated, as of the respective dates of announcement of such
transactions, the multiple of last twelve months ("LTM") earnings, market
value, book value and tangible book value implied by the consideration to be
received by the shareholders of the acquired company in each such transaction.
Legg Mason also computed the median of these multiples of LTM earnings, market
value, book value and tangible book value. The analysis yielded a range of
transaction values as a multiple of LTM earnings of 8.0x to 21.1x, with a
median of 15.9x, a range of transaction values as a multiple of market value of
1.08x to 2.09x, with a median of 1.53x, a range of transaction values as a
multiple of book value of .71x to 2.29x, with a median of 1.64x, and a range of
transaction values as a multiple of tangible book value of 1.14x to 2.29x, with
a median of 1.65x.
Based on the market value of USBANCORP Common Stock as of January 17, 1994,
and financial data as of December 31, 1993, Legg Mason also compared the Merger
on the above bases to selected transactions within the above group that Legg
Mason deemed to be in-market in nature and thereby present significant cost
saving opportunities. The range of transaction values as a multiple of LTM
earnings in these transactions was 13.5x to 20.1x, with a median of 15.9x,
compared to 14.2x for the Merger, and the range of transaction values as a
multiple of tangible book value was 1.59x to 2.12x, with a median of 1.82x,
compared to 1.62x for the Merger.
Discounted Cash Flow Analysis. Using discounted cash flow analysis, Legg
Mason estimated the present value of the future dividend streams that JSB could
produce over a five-year period under various circumstances. Legg Mason then
estimated the terminal value of JSB's common equity at the end of five years by
applying a range of 9x to 11x JSB's terminal year earnings. In arriving at
terminal year earnings, Legg Mason used JSB's projections for 1994 and 1995, as
adjusted by USBANCORP, and assumed 5% growth in earnings per share after 1995.
The analysis assumed realization of the expected $3.8 million in annual pre-tax
cost savings and revenue enhancements. The analysis also assumed a dividend
payout rate of 25% in 1994 and 35% thereafter. The dividend streams and
terminal values were then discounted to present values using discount rates
ranging from 9% to 13%, which reflect different assumptions regarding the
required rates of return of holders or prospective buyers of JSB Common Stock.
The foregoing analysis indicated a range of present values of JSB on a stand-
alone basis from $20.13 per share to $28.25 per share.
Analysis at Various Prices for USBANCORP. Legg Mason reviewed the implied
value of the Merger Consideration at USBANCORP Common Stock prices ranging from
$20.50 to $27.50 per share, including prices between $24.50 and $25.50 per
share where the exchange ratio is structured to vary between .4853 and .5053
producing a constant transaction value. Based on the aggregate and per share
Merger Consideration implied at these various prices, Legg Mason calculated the
multiple of JSB's LTM earnings, market value, book value and tangible book
value produced in the Merger. This analysis yielded a range of transaction
values as a multiple of earnings of 13.0x to 14.9x, a range of transaction
values as a multiple of market value of 1.41x to 1.62x, a range of transaction
values as a multiple of book value of 1.45x to 1.67x and a range of transaction
values as a multiple of tangible book value of 1.48x to 1.69x. At USBANCORP
Common Stock prices between $24.50 and $25.50 per share, this analysis yielded
a transaction value as a multiple of LTM earnings of 14.2x, a transaction value
as a multiple of market value of 1.55x, a transaction value as a multiple of
book value of 1.60x and a transaction value as a multiple of tangible book
value of 1.62x.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analysis or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying Legg Mason's opinion. In arriving at its fairness determination,
Legg Mason considered the results of all such analyses. No
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company or transaction used in the above analysis as a comparison is identical
to USBANCORP or JSB or the contemplated transaction. The analyses were prepared
by Legg Mason solely for the purpose of providing its opinion to the USBANCORP
Board of Directors as to the fairness of the Merger Consideration to be paid by
USBANCORP and do not purport to be appraisals or necessarily reflect the prices
at which businesses or securities actually may be sold. Analyses based upon
forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses.
As described above, Legg Mason's opinion was one of many factors taken into
consideration by the USBANCORP Board of Directors in making its determination
to approve the Merger Agreement. Legg Mason's opinion is directed only to the
fairness from a financial point of view of the Merger Consideration to be paid
by USBANCORP in the Merger, and does not address any other aspect of the
Merger. Although the foregoing summary describes the material aspects of the
analyses performed by Legg Mason in connection with its opinion, it does not
purport to be a complete description of all the analyses performed by Legg
Mason and is qualified by reference to the written opinion of Legg Mason set
forth in Annex B hereto, which shareholders are urged to read in its entirety.
In the ordinary course of its business, Legg Mason trades the equity
securities of USBANCORP and JSB for its own account and the accounts of
customers, and, accordingly, may at any time hold a long or short position in
such securities.
USBANCORP has paid Legg Mason $150,000 for its services, including
reimbursement for its out-of-pocket expenses, and has agreed to indemnify Legg
Mason against certain liabilities, including certain liabilities under the
federal securities laws.
JSB
During the negotiations that culminated in the November 10, 1993 execution of
the original Merger Agreement, the JSB Board of Directors retained RP Financial
as its financial advisor in connection with the Merger and requested RP
Financial to deliver its opinion with respect to the fairness of the Merger
from a financial point of view to JSB shareholders. Prior to executing the
original merger agreement, RP Financial provided an oral opinion to the JSB
Board of Directors on November 10, 1993, that the proposed merger consideration
was fair to shareholders of JSB from a financial point of view. Before RP
Financial delivered a written opinion regarding the proposed merger
consideration, USBANCORP and JSB renegotiated the merger consideration which
led to the execution of the amended Merger Agreement on January 18, 1994.
Subsequent to the proposal on December 20, 1993, by USBANCORP to JSB to reduce
the merger consideration, JSB also retained Alex. Brown to deliver, among other
things, its opinion with respect to the fairness of the Merger from a financial
point of view to JSB shareholders.
Alex. Brown. JSB retained Alex. Brown to act as JSB's financial advisor in
connection with the Merger and related matters. Alex. Brown was selected to act
as JSB's financial advisor based upon its qualifications, expertise and
reputation, as well as Alex. Brown's familiarity with JSB's business and market
area. Alex. Brown regularly publishes research reports regarding the financial
services industry and the businesses and securities of publicly owned companies
in that industry. Alex. Brown does not publish research reports relating to JSB
nor actively makes a market in JSB common stock.
On January 18, 1994, at the meeting at which the JSB Board of Directors
approved and adopted the amendment to the Merger Agreement, Alex. Brown
delivered a written opinion to the JSB Board of Directors that as of such date
the consideration to be received by the shareholders of JSB for each share of
JSB Common Stock, cash in the amount of $10.13 and a fraction of a share of
USBANCORP Common Stock as follows: (a) if the Average Closing Price on the
Closing Date is less than or equal to $24.50 per share, then .5053 shares of
USBANCORP Common Stock; (b) if the Average Closing Price on the Closing Date is
greater than or equal to $25.50 per share, then .4853 shares of USBANCORP
Common Stock; or (c) if the Average
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Closing Price on the Closing Date is greater than $24.50 per share but less
than $25.50 per share, then the conversion ratio will be determined by dividing
$22.50 by the Average Closing Price and multiplying the resulting figure by
.55, was fair to the shareholder of JSB from a financial point of view. Alex.
Brown did not determine or recommend the type or amount of Merger
Consideration. No limitations were imposed by the JSB Board of Directors upon
Alex. Brown with respect to the investigations made or procedures followed by
it in rendering its opinion.
The full text of Alex. Brown's opinion, which sets forth assumptions made,
matters considered and limits on the review undertaken, is attached hereto as
Annex C and is incorporated herein by reference. JSB shareholders are urged to
read the Alex. Brown opinion in its entirety. The following summary of the
opinion delivered by Alex. Brown is qualified in its entirety by reference to
the full text of the opinion.
In rendering its opinion, Alex. Brown (i) reviewed the Merger Agreement,
certain publicly available business and financial information concerning JSB
and USBANCORP and certain internal financial analyses and forecasts for JSB
prepared by JSB management, (ii) held discussions with members of senior
management of JSB regarding the past and current business operations, financial
condition, and future prospects of JSB, (iii) reviewed the reported price and
trading activity for JSB Common Stock and USBANCORP Common Stock and compared
certain financial and stock market information for JSB and USBANCORP and
similar information for certain other companies, the securities of which are
publicly traded, (iv) reviewed the financial terms of certain recent business
combinations which Alex. Brown deemed comparable in whole or in part, and (v)
performed such other studies and analyses as Alex. Brown considered
appropriate.
Alex. Brown relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinion. With respect to the financial
forecasts reviewed by Alex. Brown in rendering its opinion, Alex. Brown assumed
that such forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of JSB as to the
future financial performance of JSB. Alex. Brown did not make an independent
evaluation or appraisal of the assets or liabilities of JSB nor was it
furnished with any such appraisal.
The summary set forth below does not purport to be a complete description of
the analyses performed by Alex. Brown in this regard. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, notwithstanding the separate
factors discussed below, Alex. Brown believes that its analyses must be
considered as a whole and that selecting portions of its analyses or of the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinion. No
one of the analyses performed by Alex. Brown was assigned a greater
significance than any other. In performing its analyses, Alex. Brown made
numerous assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond JSB's or
USBANCORP's control. The analyses performed by Alex. Brown are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. Additionally, analyses
relating to the values of businesses do not purport to be appraisals or to
reflect the prices at which businesses actually may be sold.
Analysis of Selected Publicly Traded Companies. In preparing its opinion,
Alex. Brown, using publicly available information, compared selected financial
information including book value, tangible book value, recent earnings, asset
quality ratios and loan loss reserve levels, for JSB and a group of thrift
organizations.
The group comprised 12 thrifts located in the Commonwealth of Pennsylvania
that possessed an asset base between $100 million and $1.0 billion
("Pennsylvania Community Thrift Comparables Group"). The Pennsylvania Community
Thrift Comparables Group included Chester Valley Bancorp, Inc., First
Harrisburg Bancorp, Fidelity Bancorp, Inc., Harleysville Savings Bank, Laurel
Capital Group, Inc., Progress
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Financial Corp., Prime Bancorp, Inc., Parkvale Financial Corp., PennFirst
Bancorp, Inc., Reliable Financial Corp., First Shenango Bancorp, Inc. and York
Financial Corp. As of September 30, 1993, the relative multiples of the market
price of JSB Common Stock and the mean market price of the common stock of the
Pennsylvania Community Thrift Comparables Group to such selected financial data
was: to stated book value, 136.7% for JSB and 122.1% for the Pennsylvania
Community Thrift Comparables Group; to tangible book value, 139.0% for JSB and
123.0% for the Pennsylvania Community Thrift Comparables Group; and to total
assets, 7.8% for JSB and 8.4% for the Pennsylvania Community Thrift Comparables
Group. However, as the Pennsylvania Community Thrift Comparables Group
exhibited stronger profitability during the nine months ended September 30,
1993 than JSB, earnings multiple comparisons with this group were deemed
inappropriate by Alex. Brown.
Analysis of Comparable Acquisition Transactions. In preparing its opinion,
Alex. Brown analyzed certain comparable merger and acquisition transactions for
thrift institutions based upon the acquisition price relative to stated book
value, latest twelve months earnings, total assets and the premiums to core
deposits. The market price premium, which is measured against the market price
of the common stock of the acquired corporation one month prior to the
acquisition's announcement, was not deemed relevant due to the stock price
volatility resulting from JSB's previously announced and subsequently
renegotiated merger transaction with USBANCORP. The analysis included a review
and comparison of the mean multiples represented by a sample of recently
effected or pending thrift acquisitions nationwide having a transaction value
between $30 million and $150 million which were announced since January 1, 1992
(a total of 61 transactions), as segmented into: (i) transactions in
Pennsylvania, West Virginia, Virginia, Delaware, New Jersey and Maryland (12)
("Regionally-Segmented Transactions"); (ii) transactions in which the selling
thrift demonstrated a return on average assets of between 0.50% and 1.00%
during the year of an announced acquisition (25) ("Profitability-Segmented
Transactions"); (iii) transactions in which the selling thrift had non-
performing assets between 1.00% and 2.00% for the most recent quarter prior to
an announced acquisition (20) ("Asset Quality-Segmented Transactions"); and
(iv) nationwide thrift transactions announced since January 1, 1993 (33) ("More
Recent Transactions").
Based on the closing stock price of USBANCORP Common Stock on January 17,
1994 ($24.75), the Merger Consideration at January 18, 1994, was $22.50 per JSB
share (the "Comparison Value"). The relative multiples of the Comparison Value
and each of the comparable acquisition transaction segmentations are provided
in the following table:
<TABLE>
<CAPTION>
PURCHASE PRICE TO
-----------------
CORE DEPOSIT
TRANSACTION GROUP BOOK VALUE ASSETS PREMIUM
- ----------------- ---------- ------ ------------
<S> <C> <C> <C>
Comparison Value................................. 165.2% 13.4% 9.1%
Comparable acquisition transactions
(a) Nationwide................................. 144.7 11.9 6.1
(b) Regionally-Segmented....................... 123.0 10.7 3.8
(c) Profitability-Segmented.................... 136.1 10.8 5.3
(d) Asset Quality-Segmented.................... 154.8 12.7 7.2
(e) More Recent................................ 162.6 13.2 7.5
</TABLE>
Discounted Cash Flow Analysis. Using discounted cash flow analysis, Alex.
Brown estimated the present value of the future dividend streams that JSB could
produce over a five year period, under different assumptions as to required
equity levels, if JSB performed in accordance with JSB management forecasts and
certain variants thereof. Alex. Brown also estimated the terminal value for
JSB's common equity after the five year period by applying book value
acquisition multiples (123%-165%) derived from the average price to book
multiples generated by the different segmentations in the comparable
transaction analysis. The dividend streams and terminal values were then
discounted to present values using discount rates ranging from 12.5% to 17.5%
which reflect different assumptions regarding the required rates of return of
holders or prospective buyers of JSB Common Stock.
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Reference Range. Based in part on the several analyses discussed above, Alex.
Brown developed, for purposes of its opinion, a reference range for the value
of JSB Common Stock of $13.49 to $21.83 per share of JSB Common Stock. The
values reflected in the foregoing reference range were considered along with
the other analyses performed by Alex. Brown and were not intended to represent
the price at which 100% of the JSB Common Stock could actually be sold. The
foregoing reference ranges were based in part on the application of economic
and financial models and are not necessarily indicative of actual values, which
may be significantly more or less than such estimates. The reference ranges do
not purport to be appraisals.
Compensation of Financial Advisor. Pursuant to the terms of an engagement
letter dated January 6, 1994, JSB has agreed to pay Alex. Brown a fee of
$200,000 for acting as a financial advisor in connection with the Merger,
including rendering its opinion. Of this fee, $25,000 was paid to Alex. Brown
upon execution of the engagement letter, $50,000 of this fee was paid to Alex.
Brown upon signing of the amendment to the Merger Agreement and the balance of
this fee is payable to Alex. Brown upon consummation of the Merger. Whether or
not the Merger is consummated, JSB has agreed to reimburse Alex. Brown for
certain reasonable out-of-pocket expenses and has also agreed to indemnify
Alex. Brown and certain related persons against certain liabilities relating to
or arising out of its engagement.
RP Financial. RP Financial was selected by JSB to act as its financial
advisor because of RP Financial's expertise in the valuation of businesses and
their securities in connection with mergers and acquisitions of savings and
loans, savings banks and savings and loan holding companies. RP Financial has
not previously acted as financial advisor to JSB. Pursuant to a letter
agreement dated November 5, 1993, RP Financial will receive from JSB a fee of
$30,000, plus reimbursement of certain out-of-pocket expenses, for its services
in connection with the Merger. Due to the subsequent revision to the Merger
Agreement, RP Financial was paid an additional fee of $5,200 to compensate RP
Financial for the additional analyses which were required.
The full text of RP Financial's opinion, which sets forth assumptions made,
matters considered and limits on the review undertaken, is attached hereto as
Annex D and is incorporated herein by reference. JSB shareholders are urged to
read the RP Financial opinion in its entirety. The following summary is
qualified in its entirety by reference to the full text of the opinion.
JSB has agreed to indemnify and hold harmless RP Financial, any affiliates of
RP Financial and the respective directors, officers, agents and employees of RP
Financial who act for or on behalf of RP Financial from and against any and all
losses, claims, damages and liabilities caused by or arising out of any untrue
statement of a material fact contained in the information supplied by JSB to RP
Financial or an omission to state a material fact contained in the information
supplied by JSB to RP Financial or an omission to state a material fact in the
information so provided that is required to be stated or necessary to make the
statements not misleading. Pursuant to their agreement, JSB will not be
required to indemnify RP Financial for any such losses, claims, damages and
liabilities if RP Financial is determined to be negligent or otherwise at
fault, or if RP Financial is determined to have failed to exercise such due
diligence and to conduct such independent investigations as the circumstances
indicate; provided, however, that RP Financial will be entitled to
indemnification for any such losses, claims, damages and liabilities to the
extent that RP Financial reasonably relied upon information furnished by JSB
whether or not JSB is determined to have been negligent or otherwise at fault.
In addition, if RP Financial is entitled to indemnification from JSB under the
agreement and in connection therewith incurs legal expenses in defending any
legal action challenging the opinion of RP Financial where RP Financial is not
negligent or otherwise at fault or is found by a court of law to be not
negligent or otherwise at fault, JSB will indemnify RP Financial for all
reasonable expenses.
RP Financial reviewed and analyzed the following material in conjunction with
its valuation of JSB and the adequacy of the Merger Consideration: (1) the
Merger Agreement, dated November 10, 1993, and amended January 18, 1994,
inclusive of exhibits and the Stock Option Agreement; (2) the following
information for JSB: (a) audited financial statements for the fiscal years
ended December 31, 1989, through 1992, included or incorporated in Annual
Reports to Shareholders, or Annual Reports on Form 10-Ks or
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Form F-2s and unaudited financial statements for the nine months ended
September 30, 1993, and internal reports for the twelve months ended December
31, 1993, (b) proxy statements for 1992 and 1993, (c) the budget plan for
calendar year ended December 31, 1994 and (d) unaudited internal and regulatory
financial reports and analyses prepared by management and other related
corporate records and documents regarding various aspects of JSB's assets and
liabilities, particularly rates, volumes, maturities, market values, trends,
credit risk, interest rate risk and liquidity risk of JSB's assets,
liabilities, off-balance sheet assets, commitments and contingencies; (3) the
following information for USBANCORP: (a) audited financial statements for the
calendar years ended December 31, 1989, through 1992, included or incorporated
in Annual Reports and Form 10-Ks including shareholder and internal reports,
and unaudited financial statements for the nine months ended September 30,
1993, and internal reports for the twelve months ended December 31, 1993, (b)
proxy statements for 1992 and 1993, (c) the 1994 budget, (d) unaudited internal
and regulatory financial reports prepared by management and other related
corporate records and documents regarding various aspects of USBANCORP's assets
and liabilities, particularly rates, volumes, maturities, market values,
trends, credit risk, interest rate risk and liquidity risk of USBANCORP's
assets, liabilities, off-balance sheet assets, commitments and contingencies;
(4) discussions with JSB's current management and USBANCORP's management
regarding past and current business operations, financial condition and future
prospects of the respective institutions; (5) USBANCORP's results compared to
the latest publicly-available published financial statements, operating results
and market pricing of publicly-traded banks and bank holding companies,
including those with comparable characteristics and those headquartered in
Pennsylvania; (6) market value information and pricing ratios of USBANCORP
Common Stock, such as market capitalization, volume, price history,
price/earnings ratio, price/book ratio, price/tangible book ratio, price/assets
ratio, dividend yield and dividend payout ratio, compared to other publicly-
traded banks and bank holding companies, including those with comparable
characteristics and those headquartered in Pennsylvania; (7) the trading market
for the JSB Common Stock compared to similar information for savings
institutions or savings and loan holding companies with comparable resources,
financial condition, earnings, operations and markets, including those
operating in Pennsylvania; (8) JSB's financial, operational and market area
characteristics compared to similar information for comparable savings
institutions or savings and loan holding companies, including those operating
in Pennsylvania; (9) the potential for growth and profitability for JSB and
USBANCORP in their respective markets, specifically regarding competition by
other banks, savings institutions, mortgage banking companies and other
financial services companies, economic projections in the local market area and
the impact of the regulatory, legislative and economic environments on
operations of the thrift and banking industries; (10) the financial terms,
financial and operating conditions and market areas of other recent business
combinations of comparable savings institutions and savings and loan holding
companies; and (11) the potential pro forma impact of the Merger on USBANCORP's
financial condition, operating results and per share figures.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
JSB and USBANCORP as furnished by the respective institutions to RP Financial
for review for purposes of its opinion, as well as publicly-available
information regarding other financial institutions and economic data. With
respect to the financial forecasts RP Financial reviewed for each institution,
RP Financial assumed that they had been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the managements of each
respective institution. RP Financial did not review individual credit files nor
did RP Financial perform or obtain any independent appraisals or evaluations of
the assets, liabilities, subsidiaries and potential and/or contingent
liabilities of JSB and USBANCORP. In addition, JSB informed RP Financial and RP
Financial assumed, with JSB's consent, that the Merger will be recorded as a
purchase under generally accepted accounting principles ("GAAP"). RP Financial
expresses no opinion on matters of a legal, regulatory, tax or accounting
nature or the ability of the Merger as set forth in the Merger Agreement to be
consummated.
RP Financial's opinion was based solely upon the information available to it
and the economic, market and other circumstances as they existed as of January
18, 1994; events occurring after that date could materially affect the
assumptions used in preparing the opinion.
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In connection with rendering its opinion, RP Financial performed a variety of
financial analyses, which are summarized below. Although the evaluation of the
fairness, from a financial point of view, of the consideration to be paid in
the Merger was to some extent subjective based on the experience and judgment
of RP Financial, and not merely the result of mathematical analysis of
financial data, RP Financial principally relied on three basic financial
valuation methodologies in its determinations. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. RP Financial believes its analyses must be
considered as a whole and that selecting portions of such analyses and factors
considered by RP Financial without considering all such analyses and factors
could create an incomplete view of the process underlying RP Financial's
opinion. In its analyses, RP Financial made numerous assumptions with respect
to business, market, monetary and economic conditions, industry performance and
other matters, many of which are beyond the control of JSB and USBANCORP. The
analyses were prepared by RP Financial solely for the purpose of providing its
opinion as to the fairness of the Merger Consideration to the JSB Board of
Directors and do not purport to be appraisals or necessarily reflect the prices
at which businesses or securities actually may be sold. Any estimates contained
in RP Financial's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than such estimates.
None of the analyses performed by RP Financial was assigned a greater
significance by RP Financial than any other.
Based upon the discounted cash flow analysis and comparable companies and
comparable acquisition analyses and other factors, including but not limited to
the future prospects of JSB as an independent savings bank, RP Financial
rendered its written opinion that the Merger Consideration, as revised, was
fair from a financial point of view. RP Financial believes that the Merger
Consideration, as revised, is fair on the basis of these analyses. Although the
Merger Consideration appears to be less attractive than initially offered, the
Merger will be less dilutive to USBANCORP Common Stock than at the higher
price, a key aspect in that a portion of the Merger Consideration is in the
form of USBANCORP Common Stock.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis, RP
Financial estimated the present value of future dividends based on JSB's
current payout ratio over a five-year period under alternative strategies and
the present value of the sale-of-control value at the end of the fifth year,
reflecting a range of multiples to book value of 1.25 to 1.75 times. Three
alternative strategies were analyzed as set forth in the following pages,
reflecting a base case scenario, an aggressive growth scenario and a profit
improvement scenario. The price/tangible book multiples incorporated in RP
Financial's analysis were primarily based on the annual average price/tangible
book multiple for completed acquisitions of savings institutions falling within
the range of 1.12 to 1.29 for the last five years, and, to a lesser extent,
pending acquisitions currently averaging 1.64 times. The dividend streams and
sale-of-control values were then discounted to present values using a 12%
discount rate which reflects the required rates of return on comparably
publicly-traded savings institutions. The range of present values per fully
diluted share of JSB's common stock resulting from these assumptions were
$16.68 to $25.61. The value of the Merger Consideration per share of JSB Common
Stock was $22.50 based on the average closing price of USBANCORP Common Stock
on January 17, 1994, which fell in the upper end of the range of computed
present values.
Comparable Acquisition Transactions. RP Financial compared the Merger on the
basis of stated multiples of stated book value, tangible book value and
earnings of JSB implied by the Merger Consideration to be paid to the holders
of JSB Common Stock, as of the date of determination with the same ratios in
pending acquisitions and consummated acquisitions during 1992 and 1993 to date
of savings and loan associations, savings banks and savings and loan holding
companies in Pennsylvania and also those RP Financial deemed comparable in
terms of size, location, capitalization, profitability and operating strategy
and who were also publicly-traded prior to their acquisition. Such comparable
acquisitions included institutions with total assets between $200 million and
$1 billion, consisting primarily of institutions based in the Mid-Atlantic and
rustbelt regions of the country, including Pennsylvania. JSB's acquisition
pricing multiples, as determined by the last ten trading days for USBANCORP
Common Stock and at the minimum price, fell in the upper portion of the range
of 19 comparable completed acquisitions in terms of price/tangible
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book value and price/earning ratios and exceeded the medians paid in these
transactions of 1.3 times tangible book value and 12.2 times earnings, and fell
in the lower portion of the range of 12 comparable pending acquisitions in
terms of price/tangible book value and price/earnings ratios, exceeded by the
medians offered in these pending transactions of 1.7 times tangible book value
and 16.5 times earnings. JSB's acquisition pricing multiples, as determined by
the last ten trading days for USBANCORP Common Stock and at the minimum price,
exceeded the multiples of all of four completed Pennsylvania acquisitions
during 1992 and 1993, whose median price/tangible book value and price/earnings
ratios were approximately 1.0 and 8.5 times, respectively, and fell in the
upper middle of the range of the four pending Pennsylvania acquisitions whose
median price/tangible book value and price/earnings ratios were approximately
1.5 and 15.4 times, respectively.
No company or transaction used in this composite analysis is identical to JSB
or the Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies involved and other factors that could affect the public trading
values of the securities of the company or companies to which they are being
compared.
Impact Analysis. RP Financial analyzed the effect of the Merger on the
earnings per share and book value per share based on pro forma analyses
prepared by the management of USBANCORP and its independent accountants and
certain estimates by RP Financial. At the time performed, this analysis
indicated that the Merger would be dilutive to USBANCORP's earnings per share
for the nine month period ended September 30, 1993, before factoring in the
potential earnings synergies through an anticipated reduction in duplicate
staffing, other expenses and expanded products and services offerings. RP
Financial's analysis also took into account the Merger's dilutive effect on
USBANCORP's book value and tangible book value per share at September 30, 1993.
RP Financial also considered the dilutive impact of the Merger on the pro forma
capitalization of USBANCORP. In addition, RP Financial's analysis considered
the dilutive impact of the Merger to forecasted earnings as reflected in
USBANCORP's 1994 budget, which also incorporated the impact of expected merger
synergies as well as the one-time net impact of one time gains on asset
liquidations and acquisition related expenses. It is RP Financial's
understanding that, based on conversations with USBANCORP and JSB, pro forma
earnings incorporating anticipated synergies beyond the first year are
currently expected to be accretive. The impact analysis was based on data
available at the time performed and should not be construed as indicative of
the actual impact of the Merger upon consummation or future impact of the
Merger following consummation.
As described above, RP Financial's opinion and presentation to the JSB Board
of Directors was one of many factors taken into consideration by the JSB Board
of Directors in making its determination to approve the Merger Agreement.
Although the foregoing summary describes the material provisions of the written
opinion presented by RP Financial to the JSB Board of Directors on January 18,
1994, in connection with its opinion of that date, it does not purport to be a
complete description of all the analyses performed by RP Financial and is
qualified by reference to the written opinion of RP Financial set forth in
Annex D hereto.
Based on the foregoing, RP Financial has advised the JSB Board of Directors
that, in its opinion, the financial terms of the Merger are fair to JSB and its
shareholders. The opinion of RP Financial is directed toward the consideration
to be received by JSB shareholders and does not constitute a recommendation to
any JSB shareholder to vote for the Merger Agreement.
EFFECTIVE DATE OF THE MERGER
The Merger will become effective at the close of business on the date on
which all conditions to the closing of the Merger Agreement have been satisfied
(including the receipt of all shareholder and regulatory approvals) or are
waived, and on which both (i) the Interim Merger is consummated by filing of
Articles of Merger with the Department of State of the Commonwealth of
Pennsylvania in accordance with the BCL, and (ii) the U.S. Bank Merger is
consummated by the filing of the Notice of Consummation with the Office
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of the Comptroller of the Currency (the "OCC"), in accordance with the National
Bank Act, or on such later date as the Articles of Merger and the Notice of
Consummation may specify.
FINANCING THE MERGER
USBANCORP will pay no more than $19,690,593 in cash to JSB shareholders in
connection with the Merger exclusive of amounts paid (i) in exchange for JSB
Common Stock issuable upon the exercise of stock options, (ii) in connection
with the cancellation of options to acquire JSB Common Stock, (iii) in lieu of
fractional shares and (iv) in excess of $22.50 to holders of JSB Common Stock,
if any, who perfect their dissenters' rights. The source of funds to finance
this portion of the consideration will be a combination of interest bearing
deposits with banks and the sale of investment securities classified as
available for sale. See "PRO FORMA FINANCIAL INFORMATION."
REGULATORY APPROVALS
One or more separate steps of the Merger is subject to approval of the
Pennsylvania Department of Banking (the "Department"), the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board"), the OCC and the
Federal Deposit Insurance Corporation (the "FDIC").
Pennsylvania Department of Banking
USBANCORP's formation of JIB and the Interim Merger are subject to approval
by the Department under the PBC. An application to form JIB was filed with the
Department on November 23, 1993, and was approved on December 22, 1993. JIB was
incorporated on December 22, 1993. An application for the Interim Merger of JIB
and JSB was filed on March 17, 1994. Under the PBC, the Department will conduct
an investigation to determine whether the Interim Merger will be consistent
with adequate and sound banking and in the public interest on the basis of (i)
the financial history and condition of the parties, (ii) their prospects, (iii)
the character of their management, (iv) the potential effect of the Interim
Merger on competition and (v) the convenience and needs of the area primarily
to be served by the resulting corporation. In ruling upon the application, the
Department must also take into consideration whether the Interim Merger will
adequately protect the interests of the depositors, other creditors and
shareholders of JSB.
Federal Reserve Board
The formation of JIB by USBANCORP is also subject to prior approval by the
Federal Reserve Board under Section 3 of the Bank Holding Company Act of 1956,
as amended (the "BHCA"). Under Section 3 of the BHCA, the Federal Reserve Board
must withhold approval of the formation of JIB if it finds that the transaction
would result in a monopoly or be in furtherance of any combination or
conspiracy to monopolize or attempt to monopolize the business of banking in
any geographic area. In addition, the Federal Reserve Board may not approve the
transaction if it finds that the effect thereof may be substantially to lessen
competition or to tend to create a monopoly or would in any other manner be in
restraint of trade, unless it finds that the anti-competitive effects are
clearly outweighed in the public interest by the probable effects of the
transaction in meeting the convenience and needs of the communities to be
served. In each case, the Federal Reserve Board will also take into
consideration the financial and managerial resources and future prospects of
the banking subsidiaries following the transactions, as well as the compliance
records of such banking subsidiaries with the Community Reinvestment Act. The
Federal Reserve Board has indicated that it will not approve a significant
acquisition unless the resulting institution has adequate capitalization taking
into account, among other things, asset quality. An application for approval by
the Federal Reserve Board was filed on March 17, 1994.
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Federal Deposit Insurance Corporation
The FDIC must approve the Interim Merger and the granting of deposit
insurance to JIB. Application for FDIC approval of the Interim Merger and the
granting of deposit insurance was filed on March 18, 1994. In approving the
Interim Merger, Section 18(c) of the Federal Deposit Insurance Act (the "FDIA")
requires the FDIC to follow the same guidelines the Federal Reserve Board must
follow in approving the formation of JIB. See "Regulatory Approvals--Federal
Reserve Board."
Office of the Comptroller of the Currency
The U.S. Bank Merger is subject to the approval of the OCC, as primary
regulator of U.S. Bank, under Section 18(c) of the FDIA and Section 215a of the
National Bank Act. Application for such approval was filed with the OCC on
March 17, 1994. Under Section 18(c) of the FDIA, the OCC must follow the same
guidelines as the Federal Reserve Board must follow in approving the formation
of JIB. See "Regulatory Approvals--Federal Reserve Board."
CONDITIONS TO CONSUMMATION OF THE MERGER
In addition to the regulatory approvals described above and the approval of
the Merger Agreement by the respective shareholders of USBANCORP and JSB,
consummation of the Merger is contingent upon the satisfaction or waiver of a
number of other conditions, including, among others: (i) the continued accuracy
in all material respects of the representations and warranties made by, and the
performance of and compliance with, in all material respects, all covenants and
obligations of, USBANCORP and JSB contained in the Merger Agreement; (ii) the
due and valid authorization by USBANCORP, U.S. Bank and JSB of the execution,
delivery and performance of the Merger Agreement, and receipt by JSB and
USBANCORP of copies of certified resolutions of the other party evidencing such
authorizations; (iii) the absence of any order, decree or injunction which
enjoins or prohibits consummation of the Merger; (iv) the declaration and
continued effectiveness of the registration statement filed by USBANCORP with
the Securities and Exchange Commission (the "SEC") (of which this Proxy
Statement/Prospectus is a part) registering the shares of USBANCORP Common
Stock to be issued in the Merger (the "Registration Statement"); (v) the due
registration or qualification of USBANCORP Common Stock in all states in which
such action is required; (vi) receipt of legal opinions with respect to matters
of corporate law; (vii) the absence of any material adverse change (as defined
in the Merger Agreement) since September 30, 1993, in either USBANCORP or JSB;
(viii) receipt by USBANCORP and JSB of an opinion of counsel, dated the
Effective Date, with respect to certain tax matters in form and substance
reasonably satisfactory to USBANCORP and JSB; and (ix) as a condition of JSB's
obligation only, the Average Closing Price being equal to or greater than
$20.50. On the Effective Date, USBANCORP and JSB must each present to the other
a certificate stating that certain of these conditions have been satisfied.
REPRESENTATIONS AND WARRANTIES
The representations and warranties of JSB and USBANCORP are set forth in
Articles II and III of the Merger Agreement. These representations and
warranties, among other things, relate to: (i) the organization, good standing
and capitalization of USBANCORP, JSB and their respective subsidiaries; (ii)
the corporate power and authority of each party to enter into the Merger
Agreement; (iii) the substantial compliance by USBANCORP, U.S. Bank and JSB
with all applicable statutes, codes, ordinances, judgments, orders, writs,
decrees, rules and regulations; (iv) the absence of any violation by USBANCORP,
U.S. Bank and JSB of their respective Articles of Incorporation, Articles of
Association or Bylaws or any agreement or similar instrument that in any
respect could materially adversely affect their respective activities or
operations, properties or assets or the execution and delivery of the Merger
Agreement and the transactions contemplated thereby; (v) the truth and
correctness in all material respects of the information contained in the
Registration Statement at the time it is declared effective, the regulatory
applications, and all documents filed with or submitted to any federal or state
regulatory agency by USBANCORP and JSB in connection with the Merger;
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(vi) the fact that the regulatory reports delivered by USBANCORP and JSB to the
other have been prepared in conformity with applicable regulatory accounting
principles and practices applied on a consistent basis and present fairly, or
will present fairly, the financial position, results of operations and changes
in shareholders' equity of JSB and USBANCORP respectively; (vii) the fact that
the financial statements delivered by USBANCORP and JSB to the other have been
prepared inconformity with GAAP applied on a consistent basis and present
fairly, in all material respects, the consolidated financial position of the
respective parties and their subsidiaries; (viii) the fact that any consents
required in connection with the Merger Agreement or the Merger have been
provided; (ix) the fact that USBANCORP, JSB and their respective subsidiaries
hold all licenses, franchises and permits necessary for the lawful conduct of
their businesses and have complied in all material respects with applicable
laws, statutes, orders, rules or regulations of any federal, state or local
governmental authority relating to them; (x) the fact that, to their knowledge,
neither USBANCORP, JSB, their respective subsidiaries nor any properties owned
or operated by any of them are not and have not been in violation of any
Environmental Law, as defined in the Merger Agreement, that would have a
material adverse effect on their respective assets, financial condition or
results of operations; (xi) the due delivery of the securities documents
delivered by USBANCORP and JSB to the other, and compliance, in all material
respects, with the Exchange Act and the applicable rules and regulations of the
Commission; (xii) the validity of title to real and personal property and
assets owned by JSB; (xiii) the validity of all material leases executed by JSB
and its subsidiaries and the absence of any existing material default or event
which with notice or lapse of time or otherwise would constitute a material
default under such leases by JSB, its subsidiaries or by the lessor with
respect thereto; (xiv) due filing of tax returns and the payment of taxes due
and the compliance with all other tax matters relating to each of USBANCORP,
JSB and their respective subsidiaries; (xv) except as disclosed in JSB's
financial statements, the absence of any material transaction between JSB and
any related party as described in the Merger Agreement; (xvi) the absence of
liability of USBANCORP, JSB, their respective subsidiaries and any pension plan
maintained by any of these parties to the Pension Benefit Guaranty Corporation
or the IRS and the compliance by such plans with the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); (xvii) the existence of any
employment contracts with JSB; (xviii) the absence or existence of any material
litigation pending or threatened against USBANCORP, JSB and their respective
subsidiaries except that JSB makes no representation concerning any legal,
administrative, arbitration or other proceeding, claim or action arising out of
or relating to JSB's execution of the amendment to the Merger Agreement or the
transactions contemplated thereby; (xix) except for Emerald, the absence of any
brokers or finders retained in connection with the Merger; (xx) the adequacy of
the amount of insurance carried by JSB and its subsidiaries; (xxi) the adequacy
of the allowance for loan losses reflected in the Regulatory Reports and
balance sheets of the parties; and (xxii) the absence of any material adverse
change in the assets, financial condition or results of operations of
USBANCORP, JSB and their respective subsidiaries, taken as a whole.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, JSB has agreed, among other things, that,
prior to the Effective Date, without the prior written consent of USBANCORP,
JSB and each JSB subsidiary will conduct its business and operations only in
the ordinary course, and will use their best efforts to preserve their business
organizations intact, to maintain good relationships with their employees and
to preserve their goodwill with their customers and others having business
relations with them. For purposes of the Merger Agreement, it is not deemed to
be conduct in the ordinary course of business for JSB to (i) make any capital
expenditure of $50,000 or more, (ii) make any sale, assignment, transfer or
other disposition of assets (other than investment securities and residential
mortgage loans sold in the ordinary course of business) having a book or market
value, whichever is less, in the aggregate, of more than $50,000, other than a
pledge of assets to secure government deposits, the exercise of trust powers,
sale of assets received in satisfaction of debts previously contracted in the
ordinary course of business or transactions in investment securities by a JSB
subsidiary or repurchase agreements made, in each case, in the ordinary course
of business or (iii) undertake any lease, contract or other commitment for its
account, other than in the normal course of providing credit to
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customers as part of its banking business, involving an unbudgeted payment of
$50,000 in the aggregate, or containing a material financial commitment and
extending beyond 12 months from the date of the Merger Agreement. Further, both
parties have agreed that, prior to the Effective Date, each will give to the
other reasonable access during normal business hours to their respective
properties, books and records and will furnish to the other information
concerning their respective affairs.
JSB has also agreed to certain restrictions on the conduct of its activities
pending the Merger. The Merger Agreement provides, among other things, that
neither JSB nor any JSB subsidiary may, without the prior written consent of
USBANCORP (i) issue, sell, purchase, acquire, redeem or grant options or rights
to purchase shares of its capital stock, except upon the exercise of
outstanding options; (ii) change the number of authorized shares of its capital
stock; (iii) set aside or pay any dividend except that JSB may pay a regular
quarterly cash dividend, consistent with past practices, not to exceed $.05 per
share for each successive quarter prior to the Effective Date, if the Effective
Date is not on or before the record date for payment by USBANCORP of a regular
cash dividend of at least $.22 per share in such quarter, provided that such
dividend shall not exceed 30% of JSB's consolidated net income for such quarter
without reference to securities gains or losses resulting from changes in
accounting principles or other extraordinary items; (iv) enter into any
contract, arrangement or commitment, except in the ordinary course of business,
consistent with past practices or as permitted by the Merger Agreement; (v)
enter into, amend or terminate any material contract or employment contract or
grant any severance or termination pay other than in accordance with Exhibit 3
and Exhibits 6A through 6D to the Merger Agreement; (vi) implement or amend any
employee pension, retirement, bonus or other benefit plan; (vii) sell or
otherwise dispose of the capital stock of any subsidiary other than in the
ordinary course of business; (viii) merge or consolidate JSB with any other
corporation; (ix) make any acquisition of all or any substantial portion of the
business or assets of any other person, firm or organization; (x) sell or lease
all or any substantial portion of the assets or business of JSB; (xi) make any
material change in the nature of its business or operations; (xii) amend its
Articles of Incorporation or Bylaws; (xiii) incur any indebtedness for borrowed
money other than in the ordinary course of business consistent with past
practice; (xiv) take any action which would result in any of the
representations and warranties set forth in the Merger Agreement becoming
materially untrue; (xv) change any method, practice or principle of accounting
except changes required as a result of changes in GAAP; (xvi) waive, release,
grant or transfer any rights of value or modify or change in any material
respect any existing agreement to which JSB or any JSB subsidiary is a party,
other than in the ordinary course of business, consistent with past practice;
(xvii) compromise, extend or restructure any loan with an unpaid principal
balance exceeding $250,000; (xviii) sell, exchange or otherwise dispose of any
investment securities held for investment, or any securities or loans that are
held for sale prior to scheduled maturity, other than consistent with past
practice agreed upon by the parties; (xix) make any investment in capital stock
or securities of any other entity not rated "A" or higher either by Standard &
Poor's Corporation or Moody's Investment Services, Inc., other than in the
ordinary course of business consistent with past practice or JSB's existing
investment policy; (xx) except consistent with past practice, make any loan or
other credit facility commitment (including without limitation, lines of credit
and letters of credit) to any affiliate or compromise, extend, renew or modify
any such commitment outstanding; (xxi) except consistent with past practice,
enter into, renew, extend or modify any other transaction with any affiliate;
(xxii) enter into any swap or similar commitment, agreement or arrangement
which is not consistent with past practice and which increases the credit or
interest rate risk over the levels existing at September 30, 1993; or (xxiii)
agree to do any of the foregoing or take any action that would constitute a
breach of representation or warranty contained therein, or permit any
subsidiary to do so.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that, except as described below, commencing
upon expiration of the Marketing Period (See "Background and Reasons for the
Merger and Recommendations of the Boards" herein), JSB will not, and JSB will
not permit its affiliates, officers, directors, employees, agents or
representatives to, directly or indirectly, solicit, encourage, initiate or
engage in discussions or negotiations
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with, or respond to requests for information, inquiries or other communications
from, any person other than USBANCORP concerning the Merger Agreement, or any
acquisition of JSB, or any JSB subsidiary, or any assets or business of either
JSB or any JSB subsidiary, except that JSB's officers and directors may respond
to inquiries of stock analysts, regulatory authorities and shareholders in the
ordinary course of business. JSB also may respond to unsolicited inquiries from
third parties and/or engage in discussions, negotiations, or agreements or
understandings or authorize any of its directors, officers, employees or agents
to do so if the JSB Board of Directors, after receipt of a written opinion of
counsel, determines that such actions are required in the exercise of their
fiduciary duties. Further, the Merger Agreement requires JSB to notify
USBANCORP immediately if any such discussions or negotiations are sought by, or
if any such requests for information, inquiries or communications are received
from, any person other than USBANCORP.
As a condition to USBANCORP entering into the amendment to the Merger
Agreement, the directors of JSB have executed a Letter Agreement in which they
have agreed in their individual capacities, among other things, not to initiate
or engage in any negotiations or discussions with any party other than
USBANCORP with respect to any offer, sale, transfer, or other disposition of,
any shares of JSB Common Stock. Such directors have also agreed to vote shares
of JSB Common Stock owned by them in favor of the Merger Agreement. A copy of
the form of letter agreement executed by the directors of JSB is included as
Exhibit 1 to the Merger Agreement attached hereto as Annex A. See "Background
and Reasons for the Merger and Recommendations of the Boards" above.
WAIVERS; AMENDMENT
Subject to applicable law, (i) the Merger Agreement may be amended at any
time prior to the Effective Date, by written action taken by duly authorized
officers of USBANCORP, U.S. Bank, and JSB, and (ii) USBANCORP, U.S. Bank, and
JSB, by written action taken by duly authorized officers of each, may (a)
extend the time for performance of obligations of either party under the Merger
Agreement, (b) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or in any document delivered pursuant to the
Merger Agreement, or (c) waive compliance with any agreements or conditions to
consummation of the Merger.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Date, notwithstanding prior shareholder approval, by (i)
the mutual written consent of USBANCORP, U.S. Bank and JSB, or (ii) by any
party if (a) the Merger shall not have occurred prior to September 30, 1994,
unless the failure to consummate the transaction resulted from the failure of
the party seeking to terminate the Merger Agreement to perform its obligations
under the Merger Agreement, (b) such party has been informed in writing by a
Regulatory Authority that the consent or approval needed from that Regulatory
Authority is unlikely to be granted, unless such fact is due to the failure of
the party seeking to terminate the Merger Agreement to perform or observe its
obligations under the Merger Agreement, (c) there has been any material breach
by the other party of any covenant, agreement or other obligation of the other
party contained in the Merger Agreement, if such breach continues for a period
of 30 days after the receipt of written notice of the same, (d) there has been
a Material Adverse Change (as defined in the Merger Agreement) in USBANCORP or
JSB since September 30, 1993, or (e) if the other party shall communicate its
unwillingness to consummate the Merger in accordance with the terms and
conditions of the Merger Agreement.
ELECTION PROCEDURES
Promptly after the Effective Date, the Trust Company, acting in the capacity
of exchange agent for USBANCORP (the "Exchange Agent"), will mail an election
form, a letter of transmittal and other appropriate transmittal materials
(collectively, the "Election Form") to each person who, as of the Effective
Date, holds shares of JSB Common Stock.
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The Election Form will permit a holder of shares of JSB Common Stock to elect
with respect to such holder's shares to receive cash (the "Cash Election"), to
receive shares of USBANCORP Common Stock (the "Stock Election") or to make no
such election (the "No Election Shares") in which case such holder will receive
shares of USBANCORP Common Stock and cash in accordance with the Exchange Rate.
To the extent that any holder of shares of JSB Common Stock has not submitted
an effective, properly completed Election Form to the Exchange Agent in
accordance with the procedures and within the time periods set forth in the
Election Form, such shares shall be deemed to be No Election Shares.
In connection with the exchange of shares of JSB Common Stock pursuant to the
Merger Agreement, USBANCORP will issue a number of shares of USBANCORP Common
Stock that will be no less than 943,321 shares and no more than 988,260 shares
(the "Stock Limitation") and will pay to shareholders of JSB a dollar amount of
cash that will be no less than $19,690,593 and no more than $19,812,153 (the
"Cash Amount"). In each case, the exact number of shares constituting the Stock
Limitation and exact amount of cash constituting the Cash Amount will be
determined upon the Effective Date and will be dependent upon (i) final
determination of the exchange ratio which is dependent on the Average Closing
Price, and (ii) the number of shares of JSB Common Stock outstanding on the
Effective Date which may increase from the 1,944,790 shares outstanding on the
JSB Record Date by up to 12,000 shares pursuant to the exercise of options.
Because the aggregate cash and stock components of the Merger Consideration
will be fixed, the extent to which elections by holders of JSB Common Stock
will be accommodated will depend upon the respective number of JSB shareholders
who elect cash, stock or make no election. Accordingly, a JSB shareholder who
elects to receive cash may instead receive cash and shares of USBANCORP Common
Stock and a JSB shareholder who elects to receive shares of USBANCORP Common
Stock may instead receive shares of USBANCORP Common Stock and cash.
The cash and stock allocation will be made by the Exchange Agent as
follows:
(i) If subscriptions for USBANCORP Common Stock do not exceed the Stock
Limitation, the USBANCORP Common Stock and the Cash Amount shall be
allocated as follows: (a) First, all shares of JSB Common Stock covered by
an effective Election Form which designates a Stock Election will be
converted into a fraction of a share of USBANCORP Common Stock as follows:
(i) if the Average Closing Price on the Effective Date is less than or
equal to $24.50 per share, then .9184 shares of USBANCORP Common Stock;
(ii) if the Average Closing Price on the Effective Date is greater than or
equal to $25.50 per share, then .8824 shares of USBANCORP Common Stock; or
(iii) if the Average Closing Price on the Effective Date is greater than
$24.50 but less than $25.50 per share, then the conversion ratio will be
determined by dividing $22.50 by the Average Closing Price; (b) Second, all
shares of JSB Common Stock which are No Election Shares shall be converted
into a fraction of a share of USBANCORP Common Stock and $10.13 in cash and
shares of USBANCORP Common Stock as follows: (i) if the Average Closing
Price on the Effective Date is less than or equal to $24.50 per share, then
.5053 shares of USBANCORP Common Stock; (ii) if the Average Closing Price
on the Effective Date is greater than or equal to $25.50 per share, then
.4853 shares of USBANCORP Common Stock; or (iii) if the Average Closing
Price on the Effective Date is greater than $24.50 per share, but less than
$25.50 per share, then the conversion ratio will be determined by dividing
$22.50 by the Average Closing Price and multiplying the resulting figure by
.55; (c) Third, all shares of JSB Common Stock which are subject to
dissenters' rights shall be allocated cash equal to an aggregate amount of
$22.50 per share; and (d) Fourth, shareholders whose shares of JSB Common
Stock are covered by an effective Election Form which designates a Cash
Election shall each have a pro rata portion of their shares of JSB Common
Stock converted, at the rate of $22.50 per share of JSB Common Stock, into
a pro rata portion of the remaining unallocated Cash Amount, and their
remaining shares of JSB Common Stock shall be converted into USBANCORP
Common Stock as if such shareholders had made a Stock Election with respect
to such remaining shares.
(ii) If subscriptions for USBANCORP Common Stock exceed the Stock
Limitation, the USBANCORP Common Stock and the Cash Amount shall be
allocated as follows: (a) First, all shares of JSB Common Stock which are
subject to dissenters' rights shall be allocated a portion of the Cash
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Amount equal to an aggregate amount of $22.50 per share; (b) Second, all
shares of JSB Common Stock covered by an effective Election Form which
designates a Cash Election shall be converted into cash at the rate of
$22.50 per share; (c) Third, all shares of JSB Common Stock which are No
Election Shares shall be converted into cash and USBANCORP Common Stock in
accordance with the Exchange Rate; and (d) Fourth, shareholders whose
shares of JSB Common Stock are covered by an effective Election Form which
designates a Stock Election shall each have a pro rata portion of their
shares of JSB Common Stock converted into a pro rata portion of the number
of shares of remaining USBANCORP Common Stock available for conversion by
reason of the Stock Limitation at the exchange ratio specified for a Stock
Election, and their remaining shares of JSB Common Stock shall be converted
into cash at the rate of $22.50 per share.
An election to receive cash or stock will be properly made only if the
Exchange Agent has received a properly completed Election Form in accordance
with the procedures and within the time periods set forth in the Election Form.
An Election Form will be properly completed only if accompanied by certificates
representing all shares of JSB Common Stock covered thereby. Any Election Form
may be revoked or changed by the person submitting such Election Form by
written notice to the Exchange Agent, provided such notice is received by the
Exchange Agent in accordance with the procedures and within the time periods
set forth in the Election Form. All Election Forms will be deemed revoked if
the Exchange Agent is notified in writing by USBANCORP or JSB that the Merger
Agreement has been terminated. The certificates representing JSB Common Stock
relating to any revoked Election Form will be returned without charge to the
person submitting such Election Form to the Exchange Agent. The Exchange Agent
will have sole discretion to determine when any election, modification or
revocation is received and whether any such election, modification or
revocation has been properly made.
EXCHANGE OF JSB STOCK CERTIFICATES
Promptly after the Effective Date, the Exchange Agent will mail an Election
Form to each former holder of record of shares of JSB Common Stock together
with instructions for the exchange of JSB stock certificates for the
consideration into which JSB Common Stock is being converted in the Merger. The
Election Form will specify that delivery shall be effected and risk of loss and
title to certificates previously representing JSB Common Stock will pass only
upon receipt of such certificates by the Exchange Agent.
JSB SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE THE
ELECTION FORM AND INSTRUCTIONS. JSB SHAREHOLDERS SHOULD NOT RETURN STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
Upon surrender to the Exchange Agent of one or more certificates for shares
of JSB Common Stock, together with a properly completed Election Form, the
Exchange Agent will issue and mail to the holder thereof (i) a certificate or
certificates representing the number of shares of USBANCORP Common Stock to
which such holder is entitled, where applicable, and (ii) a check for the cash
amount (without interest) in lieu of any fractional shares of USBANCORP Common
Stock and, with respect to shares of JSB Common Stock that are converted wholly
or partially into the right to receive cash, plus the cash amount (without
interest) of the Merger Consideration to which such holder is entitled. A
certificate for shares of USBANCORP Common Stock, or any check representing
cash in lieu of fractional shares or the cash portion of the Merger
Consideration, may be issued or paid in a name other than the name in which the
surrendered certificate is registered only if (i) the certificate surrendered
is properly endorsed in blank, accompanied by a guaranteed signature and
otherwise in proper form for transfer; and (ii) the person to whom certificates
for shares of USBANCORP Common Stock is to be issued or to whom cash is to be
paid pays to the Exchange Agent any transfer or other taxes required by reason
of the issuance or payment to a person other than the registered holder of the
certificate for shares of JSB Common Stock which are surrendered. All shares of
USBANCORP Common Stock issued and all cash payments made upon the surrender by
holders of JSB Common Stock of one or more certificates evidencing such shares
shall have been deemed issued and/or paid as the case may be, in full
satisfaction of all rights pertaining to such shares of JSB Common Stock,
subject, however, to
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USBANCORP's obligation to pay any dividends or make any other distribution with
a record date prior to the Effective Date which may have been declared or made
by JSB on such shares of JSB Common Stock in accordance with the Merger
Agreement on or prior to the Effective Date and which remain unpaid on the
Effective Date.
All shares of USBANCORP Common Stock issued pursuant to the Merger will be
deemed issued as of the Effective Date. Certificates which represent shares of
JSB Common Stock that (i) will be converted into shares of USBANCORP Common
Stock on the Effective Date and (ii) are outstanding on the Effective Date,
will be deemed to evidence ownership of the shares of USBANCORP Common Stock
into which those shares will be converted by virtue of the Merger. However,
until such certificates are surrendered for exchange after completion of the
Merger, holders of such certificates will not be paid any dividends declared
and paid by USBANCORP on the USBANCORP Common Stock. When such certificates are
surrendered any accrued but unpaid dividends will be paid without interest.
After the Effective Date, there will be no transfers on the transfer books of
JSB of JSB Common Stock that was outstanding immediately prior to the Effective
Date. If, after the Effective Date, certificates representing such shares are
presented for transfer to the Exchange Agent, they will be cancelled and
exchanged for the consideration into which such shares have been exchanged in
accordance with the terms of the Merger Agreement.
EFFECT OF THE MERGER ON THE BUSINESS OF USBANCORP AND JSB
The Merger will have a significant effect on JSB and its depositors,
employees and customers. Deposit pricing will be conformed to U.S. Bank's
generally lower deposit rates. In addition, customers of JSB will be offered
USBANCORP's broader array of products and services, including expanded
wholesale banking products and corporate and personal trust services tailored
to meet the needs of businesses, consumers and employee benefit plans.
Operationally, a number of functions that were out-sourced by JSB will be
performed by USBANCORP, including data processing, asset/liability management
and investment portfolio management. USBANCORP also has preliminary plans to
centralize all mortgage servicing in JSB's mortgage banking subsidiary,
Standard Mortgage Corporation of Georgia.
After the Effective Date, certain employees of JSB and its subsidiaries will
be terminated and will receive severance benefits as set forth on Exhibit 3 to
the Merger Agreement attached as Annex A hereto. USBANCORP will use reasonable
efforts to provide continued employment within the USBANCORP organization to
certain employees of JSB and its subsidiaries.
Management of USBANCORP believes that the Merger will have no negative impact
on USBANCORP's present external dividend policies or the sustainability of the
current common stock dividend. Rather, management of USBANCORP believes the
anticipated growth opportunities provided by the Merger will allow USBANCORP to
continue paying its dividends from current cash flow and further support future
planned periodic per share increases in the common stock dividend.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Management
There will be no change in the Board of Directors or executive officers of
USBANCORP resulting from the Merger, except that on the Effective Date the
number of directors of USBANCORP shall be increased by two, thereby increasing
the number of directors to eighteen. Messrs. James M. Edwards, Sr. and James C.
Dewar, each of whom are presently directors of JSB, will become directors of
USBANCORP to fill the newly created vacancies. Each of the named individuals
will serve until the annual meeting of USBANCORP shareholders at which the
class of directors into which he is placed stands for election, which shall be
the term expiring in 1995 with respect to Mr. Dewar and the term expiring in
1996 with respect to Mr. Edwards. Mr. Edwards will also be appointed to the
Executive Committee of USBANCORP's Board of Directors. Under the Merger
Agreement, USBANCORP has agreed to use its best efforts to cause such persons
appointed as directors of USBANCORP to be renominated for an additional term
upon expiration of their initial terms.
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Further, on the Effective Date, and without the necessity of further
corporate action, the number of directors of U.S. Bank shall be increased by
four, thereby increasing the number of directors to nineteen. Messrs. Edwards
and Dewar, together with Howard M. Picking, III and Kim W. Kunkle, each of whom
are directors of JSB will become directors of U.S. Bank to fill the vacancies.
Under the Merger Agreement, U.S. Bank has agreed to use its best efforts to
cause such persons to be re-elected in each of the two succeeding years, and
USBANCORP, as sole shareholder of U.S. Bank, has agreed to vote for the
election of such directors. Those directors of JSB who are not appointed to
serve on U.S. Bank's Board of Directors shall be appointed by the U.S. Bank
Board of Directors to serve for one year terms on U.S. Bank's Main Office
Advisory Board and shall hold office until their successors are appointed and
have qualified, and will continue to receive an annual retainer, for a period
not to exceed three years, in the amount they currently receive as JSB
directors. U.S. Bank has agreed in the Merger Agreement to use its best efforts
to re-appoint these directors to such Advisory Board in each of the two
succeeding years.
On the Effective Date, the officers of USBANCORP and of U.S. Bank, duly
elected and holding office, shall remain officers of USBANCORP and U.S. Bank,
respectively.
Consolidation of Operations; Projected Operating Cost Savings and Earnings
Enhancements
Although substantial analysis has been performed, identification of all the
pre-tax cost savings and potential earnings enhancements associated with this
in-market consolidation has not been completed. In evaluating such savings and
benefits, the USBANCORP Board of Directors considered that most of the initial
savings would be offset by one-time expenses relating to the corporate
acquisition and post-acquisition integration process; these non-recurring costs
will approximate $2.5 million pre-tax and will be recognized in the quarter in
which the Merger is consummated. These costs are necessary to realize
approximately $3.8 million pre-tax of specifically identified annual savings
resulting from economy of scale benefits to be achieved in this intra-market
acquisition. Of these savings, $1.9 million are expected to be realized in the
first year of the Merger with the full $3.8 million in annual savings being
realized in the second year and thereafter. See "PRO FORMA FINANCIAL
INFORMATION."
Because of the uncertainties associated with an in-market merger, changes in
the regulatory environment and changes in economic conditions, no assurances
can be given that (i) any particular level of cost savings and earnings
enhancements will be realized, (ii) such savings and earnings enhancements will
be realized over the time period currently anticipated, and (iii) such savings
and earnings enhancements will not be offset to some degree by increases in
other expenses, including expenses resulting from integrating the two
companies.
DISSENTERS' RIGHTS OF JSB SHAREHOLDERS
General
Pursuant to Section 1607 of the PBC, and in accordance with the BCL, any
shareholder of JSB has the right to dissent from the Merger, and to obtain
payment of the "fair value" (as defined therein) of such holder's JSB Common
Stock, in the event that the Merger is consummated.
Any shareholder of JSB who contemplates exercising a holder's right to
dissent is urged to read carefully the provisions of Section 1930 and
Subchapter D of Chapter 15 of the BCL attached hereto as Annex E. The following
is a summary of the steps to be taken if the right to dissent is to be
exercised, and should be read in connection with the full text of Section 1930
and Subchapter D of Chapter 15 of the BCL. Each step must be taken in the
indicated order and in strict compliance with the applicable provisions of the
statute in order to perfect dissenters' rights. The failure of any shareholder
to comply with the aforesaid steps will result in the shareholder receiving the
consideration contemplated by the Merger Agreement in the event that the Merger
is consummated. See "THE MERGER--General Terms of the Merger."
Any written notice or demand which is required in connection with the
exercise of dissenters' rights, whether before or after the Effective Date,
must be sent to JSB, at Savings Bank Plaza, Market at Main Street, Johnstown,
Pennsylvania 15901, Attention: Corporate Secretary.
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Fair Value
The term "fair value" means the value of JSB Common Stock immediately before
the effectuation of the Merger taking into account all relevant factors, but
excluding any appreciation or depreciation in anticipation of the Merger.
Notice of Intention to Dissent
A JSB shareholder who wishes to dissent must file with JSB, prior to the vote
of shareholders on the Merger at the JSB Annual Meeting, a written notice of
intention to demand payment of the fair value of such holder's JSB Common Stock
if the Merger is effected, must effect no change in the beneficial ownership of
his JSB Common Stock from the date of such written notice through the Effective
Date, and must refrain from voting his JSB Common Stock to approve the Merger
Agreement. Neither a proxy nor a vote against approval of the Merger will
constitute the necessary written notice of intention to dissent.
Notice to Demand Payment
If the Merger Agreement is approved by the required vote of JSB's
shareholders, JSB will mail a notice to all dissenters who gave due notice of
intention to demand payment and who refrained from voting in favor of the
Merger Agreement. The notice will state where and when a written demand for
payment must be sent and certificates for JSB Common Stock must be deposited in
order to obtain payment, and will include a form for demanding payment and a
copy of Subchapter D of Chapter 15 of the BCL. The time set for receipt of the
demand for payment and deposit of stock certificates will be not less than 30
days from the date of mailing of the notice.
Failure to Comply with Notice to Demand Payment, etc.
A JSB shareholder who fails to timely demand payment or fails to timely
deposit his JSB Common Stock certificates, as required by JSB's notice, will
forfeit his dissenters' rights,and if prior to the Effective Date, his shares
of JSB Common Stock will be considered to be No Election Shares, or if
subsequent to the Effective Date, such JSB shareholder will receive cash in the
amount of $22.50 per share.
Payment of Fair Value of Shares
Promptly after the Effective Date, or upon timely receipt of demand for
payment if the Merger already has been effectuated, JSB will either remit to
dissenters who have made demand and have deposited their stock certificates the
amount that JSB estimates to be the fair value of the JSB Common Stock or give
written notice that no such remittance is being made. The remittance or notice
will be accompanied by (i) a closing balance sheet and statement of income of
JSB for a fiscal year ending not more than 16 months before the date of
remittance together with the latest available interim financial statements,
(ii) a statement of JSB's estimate of the fair value of the JSB Common Stock
and (iii) a notice of the right of the dissenter to demand supplemental payment
under the BCL accompanied by a copy of Subchapter D of Chapter 15 of the BCL.
Estimate by Dissenter of Fair Value of Shares
If a dissenter believes that the amount stated or remitted by JSB is less
than the fair value of the JSB Common Stock, a dissenter may send to JSB his
own estimate of the fair value of the JSB Common Stock, which shall be deemed
to be a demand for payment of the amount of the deficiency. If JSB remits
payment of its estimated value of a dissenter's JSB Common Stock and the
dissenter does not file his own estimate within 30 days after the mailing by
JSB of its remittance, the dissenter will be entitled to no more than the
amount remitted to him by JSB.
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Valuation Proceedings
Within 60 days after the latest to occur of the Effective Date, timely
receipt by JSB of any demands for payment, or timely receipt by JSB of any
estimates by dissenters of fair value, if any demands for payment remain
unsettled, JSB may file in the Court of Common Pleas of Cambria County (the
"Court") an application requesting that the fair value of the JSB Common Stock
be determined by the Court. In such case, all dissenters, wherever residing,
whose demands have not been settled, shall be made parties to the proceeding as
in an action against their shares, and a copy of the application shall be
served on each such dissenter.
If JSB were to fail to file such an application, then any dissenter, on
behalf of all dissenters who have made a demand and who have not settled their
claim against JSB may file an application in the name of JSB at any time within
the 30-day period after the expiration of the 60-day period and request that
the fair value be determined by the Court. The fair value determined by the
Court may, but need not, equal the dissenters' estimates of fair value. If no
dissenter files such an application, then each dissenter entitled to do so
shall be paid JSB's estimate of the fair value of the JSB Common Stock and no
more, and may bring an action to recover any amount not previously remitted,
plus interest at a rate the Court finds fair and equitable.
JSB intends to negotiate in good faith with any dissenting shareholders. If
after negotiation a claim cannot be settled, then JSB intends to file an
application requesting that the fair value of the JSB Common Stock be
determined by the Court.
Costs and Expenses
The costs and expenses of any valuation proceedings in the Court, including
the reasonable compensation and expenses of any appraiser appointed by the
Court to recommend a decision on the issue of fair value, will be determined by
the Court and assessed against JSB except that any part of the costs and
expenses may be apportioned and assessed by the Court against all or any of the
dissenters who are parties and whose action in demanding supplemental payment
the Court finds to be dilatory, obdurate, arbitrary, vexatious or in bad faith.
EFFECT ON JSB EMPLOYEE BENEFIT PLANS
The employee benefit plans of JSB initially will be unaffected by the Merger
except that JSB's Deferred Compensation Plan, Employee Stock Compensation
Program, Stock Purchase Program and Executive Annual Incentive Plan will be
terminated on or immediately following the Effective Date. Subject to the
receipt of the IRS's approval, USBANCORP intends to amend its current employee
benefit plans to cover those former employees of JSB who become employees of
USBANCORP or its subsidiaries and terminate JSB's current employee benefit
plans.
The Board of Directors of USBANCORP shall cause a study to be made of the
respective employee benefit plans maintained by USBANCORP and its subsidiaries
with a view to the possible combination of the JSB and USBANCORP plans and
unification of the benefits thereunder, to the extent practicable. Subject to
the foregoing, USBANCORP's Board of Directors may discontinue or amend any
particular benefit plan of JSB after the Effective Date.
TAX CONSEQUENCES
The following is a summary description of the material federal income tax
consequences of the Interim Merger and U.S. Bank Merger. This summary is not a
complete description of all the tax consequences of the Merger and, in
particular, may not address federal income tax considerations that may affect
the treatment of a shareholder who acquired JSB Common Stock pursuant to an
employee stock option. Each shareholder's individual circumstances may affect
the tax consequences of the Merger to such shareholder. In addition, no
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information is provided herein with respect to the tax consequences of the
Merger under applicable foreign, state or local laws. Consequently, each JSB
shareholder is advised to consult a tax advisor as to the specific tax
consequences of the Merger.
Completion of the Interim Merger and U.S. Bank Mergers is conditioned upon
there being delivered to both USBANCORP and JSB the opinion of Stevens & Lee,
counsel to USBANCORP (or in the event Stevens & Lee is unwilling to deliver
such opinion, the opinion of Elias, Matz, Tiernan & Herrick L.L.P. or other
counsel acceptable to the parties), that for federal income tax purposes, under
current law, assuming that the Interim Merger and U.S. Bank Merger will take
place as described in the Merger Agreement, among other things, the Interim and
U.S. Bank Mergers will constitute reorganizations within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). In that
case, the material federal income tax consequences of the Merger will be as set
forth below.
Except for any loan loss reserve that may be required to be recaptured with
respect to JSB, no gain or loss will be recognized by USBANCORP, JIB or JSB in
connection with the Interim Merger. Further, no gain or loss will be recognized
by USBANCORP, JIB, or U.S. Bank in connection with the U.S. Bank Merger.
The federal income tax consequences of the Interim Merger to JSB shareholders
depend in part on the form of consideration received by them. A shareholder who
receives solely USBANCORP Common Stock in exchange for all shares of JSB Common
Stock actually owned by him will not recognize any gain or loss upon such
exchange for federal income tax purposes. The tax basis of the USBANCORP Common
Stock received will be the same as the tax basis of the JSB Common Stock
surrendered in exchange therefor. If the JSB Common Stock surrendered is held
as a capital asset at the time of the exchange, the holding period of USBANCORP
Common Stock received will include the holding period of shares of JSB Common
Stock surrendered. (See the discussion below for the tax consequences of the
receipt of cash in lieu of fractional share interests of USBANCORP Common
Stock).
A shareholder who receives cash in exchange for all of his shares of JSB
Common Stock will (unless the receipt of cash has the effect of the receipt of
a dividend--see discussion below) recognize a gain or loss for federal income
tax purposes equal to the difference between the cash received and the
shareholder's tax basis in the JSB Common Stock surrendered in exchange
therefor. Assuming such shareholder holds JSB Common Stock as a capital asset,
such gain or loss will be capital gain or loss, and will be long-term capital
gain or loss if the shareholder's holding period is more than one year. There
are limitations on the extent to which shareholders may deduct capital losses
from ordinary income.
If the consideration received in the Merger by a JSB shareholder consists of
part cash and part USBANCORP Common Stock, and such shareholder's adjusted
basis in the shares of JSB Common Stock surrendered in the transaction is less
than the value, as of the Effective Date, of the USBANCORP Common Stock plus
the amount of cash received, such shareholder will realize taxable income on
the transaction. Such a shareholder will recognize a gain equal to the lesser
of (i) the excess, if any, of the value, as of the Effective Date, of the
USBANCORP Common Stock plus the amount of cash received over the adjusted basis
of the shares of JSB Common Stock surrendered in the transaction and (ii) the
amount of cash received, provided the exchange does not have the effect of a
dividend. In such case, the gain will be characterized as a capital gain if the
JSB Common Stock exchanged was a capital asset in the hands of the shareholder.
The determination of whether a cash payment has the effect of the distribution
of a dividend will be made in accordance with the provisions and limitations of
Section 302 of the Code, taking into account the stock ownership attribution
rules of Section 318 of the Code. Determination of whether a payment will be
treated as having the effect of a dividend is made by comparing a JSB
shareholder's interest (both actual and constructive) in JSB to his interest in
USBANCORP following the Merger (both actual and constructive), as if his entire
interest were exchanged for USBANCORP Common Stock and a portion of that stock
was redeemed for the cash actually received in the Merger. Because the
determination of whether a payment will be treated as having the effect of the
distribution of a dividend will generally depend upon the facts and
circumstances of each JSB shareholder, JSB shareholders are strongly advised to
consult their own tax
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advisors regarding the tax treatment of cash received in the Merger. In the
event the shareholder realizes a loss, under current laws, such loss will not
be currently allowed and is not recognized for federal income tax purposes.
Such disallowed loss would be reflected in the adjusted tax basis of the shares
of USBANCORP Common Stock received in the Merger. The shareholder's basis in
the USBANCORP Common Stock received will equal his basis in the JSB Common
Stock less the cash received and increased by any dividend income and gain
recognized and, provided the JSB Common Stock surrendered was held as a capital
asset at the time of the exchange, the holding period of USBANCORP Common Stock
received will include the holding period of shares of JSB Common Stock
surrendered.
Holders of JSB Common Stock who receive cash in lieu of fractional share
interests of JSB Common Stock will be treated as having received such fraction
of a share of USBANCORP Common Stock and then as having received cash in
redemption of the fractional share interest, subject to the provisions and
limitations of Section 302 of the Code.
Backup Withholding
Unless an exemption applies, the Exchange Agent will be required to withhold,
and will withhold, 31% of any cash payments to which a shareholder or other
payee is entitled pursuant to the Merger Agreement unless the shareholder or
other payee provides his tax identification number (social security number or
employer identification number), certifies that such number is correct, and
certifies that he is not otherwise subject to backup withholding. Each
shareholder and, if applicable, each other payee should complete and sign the
Substitute Form W-9 that will be included as part of the transmittal letter to
avoid backup withholding, unless an applicable exemption exists and is proved
in a manner satisfactory to USBANCORP and the Exchange Agent.
ACCOUNTING TREATMENT
As required by GAAP, the purchase method of accounting will be used by
USBANCORP to reflect the Merger upon consummation. Under purchase accounting,
the tangible and intangible assets and liabilities of JSB as of the Effective
Date will be recorded at their respective fair market values, to the extent of
the purchase price, and added to those of USBANCORP. See "PRO FORMA FINANCIAL
INFORMATION."
EXPENSES
The expenses incurred in printing and mailing the Registration Statement and
this Proxy Statement/Prospectus will be shared equally by the parties hereto.
All other expenses incurred by or on behalf of the parties in connection with
the Merger Agreement and the transactions contemplated thereby, including
accounting, investment banking and legal fees, will be borne by the party
incurring the same, except that USBANCORP has agreed to reimburse JSB for the
fees and expenses of Morrow who has been retained by JSB and USBANCORP, to
solicit proxies, on behalf of each entity, in favor of the Merger.
USBANCORP DIVIDEND REINVESTMENT PLAN
USBANCORP currently maintains a Dividend Reinvestment Plan in order to
provide shareholders of USBANCORP with a simple and convenient method of
investing cash dividends in additional shares of USBANCORP Common Stock without
payment of any brokerage commission or service charge. This plan relates only
to dividends paid on USBANCORP Common Stock. Shareholders of JSB who become
shareholders of USBANCORP will be eligible to participate in this plan after
the Effective Date.
RESTRICTIONS ON RESALES OF USBANCORP COMMON STOCK
The shares of USBANCORP Common Stock issuable in the Merger have been
registered under the Securities Act, but this registration does not cover
resales by shareholders of JSB who may be deemed to
52
<PAGE>
control or be under common control with JSB at the time of the Effective Date
and who therefore may be deemed "affiliates" of JSB as that term is used in
Rule 145 under the Securities Act. Such affiliates may not sell their shares of
USBANCORP Common Stock acquired in connection with the Merger except pursuant
to: (i) an effective registration statement under the Securities Act covering
such shares of USBANCORP Common Stock; (ii) the conditions contemplated by
paragraph (d) of Rule 145; or (iii) another applicable exemption from the
registration requirements of the Securities Act. The management of JSB will
notify those persons whom it believes may be such affiliates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of JSB's management, the JSB Board of Directors and all JSB
employees have certain interests in the Merger that are in addition to their
interests as shareholders of JSB generally. As a part of the Merger, Messrs.
James M. Edwards, Sr. and James C. Dewar, members of the JSB Board of
Directors, will be appointed to the USBANCORP Board of Directors, and Messrs.
Edwards and Dewar together with Howard M. Picking, III and Kim W. Kunkle will
be appointed to the U.S. Bank Board of Directors. All other directors of JSB
will become members of the U.S. Bank Main Office Advisory Board and will
continue to receive an annual retainer in the amount they currently receive as
JSB directors for a period not to exceed three years.
Following the Effective Date, Messrs. Coyne, Andres, Pugh and Rusnak will not
continue in the employ of JSB or USBANCORP. In connection with such
termination, Messrs. Coyne, Andres, Pugh and Rusnak will receive in the
aggregate $1.5 million, $459,868, $444,270, and $402,738 respectively. Such
amounts are being paid (i) pursuant to the terms and conditions of employment,
retirement and/or severance agreements, and (ii) in consideration for the
cancellation of options held by such officers to purchase shares of JSB Common
Stock in accordance with the terms and condition of the Merger Agreement.
In accordance with the Merger Agreement, for a period of six years after the
Effective Date, USBANCORP has agreed to indemnify, defend and hold harmless,
and advance expenses in matters subject to indemnification, the officers and
directors of JSB and JSB subsidiaries with respect to (i) all liabilities and
claims made against them resulting from their service as such prior to the
Effective Date, in accordance with USBANCORP's Articles of Incorporation and
Bylaws and (ii) the Merger and all other transactions contemplated by the
Merger Agreement.
CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENT
As a condition to entering into the amended Merger Agreement, JSB executed
and delivered to USBANCORP the Stock Option Agreement dated as of January 18,
1994 (the "Stock Option Agreement"). Pursuant to the Stock Option Agreement,
USBANCORP was granted an option to purchase up to 19.9% of the issued and
outstanding JSB Common Stock after expiration of the Marketing Period, at a
price per share equal to the lower of $16.50 or the lowest price that a person
or group, other than USBANCORP or an affiliate of USBANCORP, paid or offers to
pay upon the occurrence of one of the specified events which triggers the
option, subject to the terms and conditions set forth therein. The option may
only be exercised upon the occurrence of certain events, including the
acquisition by a person or group of a significant number of shares of JSB
Common Stock, JSB entering into an agreement to merge, consolidate or sell
assets, or a public announcement by a third party of an intent to acquire
control of JSB under certain circumstances. The Stock Option Agreement is
attached as Annex F to this Proxy Statement/Prospectus.
The Stock Option Agreement, together with (i) JSB's agreement not to solicit
other transactions relating to the acquisition of JSB by a third party after
expiration of the Marketing Period (see "THE MERGER--No
53
<PAGE>
Solicitation of Transactions") and (ii) the agreement of JSB's directors and
executive officers to vote their shares in favor of the Merger Agreement (see
"THE MEETINGS--Matters to be Considered at the Meetings"), has the effect of
discouraging persons who might now or prior to the Effective Date be interested
in acquiring all of or a significant interest in JSB from considering or
proposing such an acquisition, even if such persons were prepared to pay a
higher price per share for JSB Common Stock than the price per share USBANCORP
has agreed to pay. Certain attempts to acquire JSB or an interest in JSB would
cause the option to become exercisable as described above. Such right would
significantly increase the cost to a potential acquiror of acquiring JSB
compared to its cost had the Stock Option Agreement not been entered into by
USBANCORP and JSB. In addition, exercise of the option would increase the
ability of USBANCORP to obtain the approval of the shareholders to complete an
alternative transaction. Acquisition of shares of JSB Common Stock pursuant to
exercises of the option would be subject to prior regulatory approval under
certain circumstances.
54
<PAGE>
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF DECEMBER 31, 1993
The following unaudited pro forma combined condensed balance sheet
information reflects (i) the historical consolidated balance sheets of
USBANCORP and JSB as of December 31, 1993 and (ii) the pro forma combined
condensed balance sheet of USBANCORP as of such date, after giving effect to
the Merger on a purchase accounting basis effective as of such date. Financial
statements of USBANCORP issued before consummation of the Merger will not be
restated retroactively to reflect JSB's historical financial position or
results of operations. Because the historical financial statements of USBANCORP
will not be restated retroactively following consummation of the Merger, the
pro forma financial information included in this Proxy Statement/Prospectus is
presented for information purposes only. Such pro forma financial information
does not necessarily reflect what the actual results of USBANCORP would be
following consummation of the Merger. The unaudited information should be read
in conjunction with the historical consolidated financial statements of
USBANCORP and JSB, including the respective notes thereto, incorporated by
reference or included in this Proxy Statement/Prospectus. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "JSB CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
USBANCORP
--------------------------------------
PRO FORMA PRO FORMA
USBANCORP JSB ADJUSTMENTS COMBINED
------------ ---------- -------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks.. $ 38,606 $ 3,100 $ -- $ 41,706
Interest bearing deposits
with banks............... 4,809 5,349 (4,809)(A) 5,349
Federal funds sold and
securities purchased
under agreements to
resell.................. 7,000 -- -- 7,000
Investment securities and
investment securities
available for sale...... 428,712 174,681 (16,760)(B) 586,633
Assets held in trust for
collateralized mortgage
obligation.............. 13,815 -- -- 13,815
Loans held for sale...... 1,054 32,759 179(C) 33,992
Loans.................... 732,026 125,768 4,388(C) 862,182
Less: Unearned income.. 5,894 -- -- 5,894
Allowance for loan
losses............ 15,260 3,083 -- 18,343
------------ ---------- ----------- ------------
Net Loans.............. 710,872 122,685 4,388 837,945
Premises and equipment... 16,960 2,655 812(D) 20,427
Accrued income
receivable............... 8,892 2,147 -- 11,039
Mortgage servicing
purchased................ -- 7,342 1,260(E) 8,602
Other assets............. 10,801 5,080 13,683(F) 29,564
------------ ---------- ----------- ------------
TOTAL ASSETS............ $1,241,521 $355,798 $ (1,247) $1,596,072
============ ========== =========== ============
LIABILITIES
Non-interest bearing
deposits................. $ 137,411 $ 3,957 $ -- $ 141,368
Interest bearing
deposits................. 911,455 212,249 (2,114)(G) 1,121,590
------------ ---------- ----------- ------------
Total Deposits........... 1,048,866 216,206 (2,114) 1,262,958
</TABLE>
(continued on next page)
55
<PAGE>
<TABLE>
<CAPTION>
USBANCORP
--------------------------------------
PRO FORMA PRO FORMA
USBANCORP JSB ADJUSTMENTS COMBINED
------------ ---------- -------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Federal funds purchased
and securities sold under
agreements to repurchase. $ 12,648 $ -- $ -- $ 12,648
Other short-term
borrowings................ 270 15,267 -- 15,537
Advances from Federal Home
Loan Bank................. 31,285 89,000 1,176(H) 121,461
Collateralized mortgage
obligation................ 12,674 -- -- 12,674
Long-term debt............ 3,445 4,111 -- 7,556
Other liabilities......... 15,718 3,634 3,702(I) 23,054
------------ ---------- ---------- ------------
TOTAL LIABILITIES........ 1,124,906 328,218 2,764 1,455,888
------------ ---------- ---------- ------------
SHAREHOLDERS' EQUITY
Common stock.............. 11,815 1,944 510(J) 14,269
Surplus................... 70,720 15,065 6,050(K) 91,835
Retained earnings......... 34,080 10,571 (10,571)(L) 34,080
------------ ---------- ---------- ------------
TOTAL SHAREHOLDERS'
EQUITY.................... 116,615 27,580 (4,011) 140,184
------------ ---------- ---------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY...... $1,241,521 $355,798 $ (1,247) $1,596,072
============ ========== ========== ============
</TABLE>
- -------
Note A: The total cash component of the acquisition price is calculated as
shown below:
<TABLE>
<S> <C>
JSB Common Stock outstanding at December 31, 1993............ 1,943,790
Cash payment per share....................................... 10.13
-----------
$19,691,000
Cash cost of option buyout and executive deferred
compensation................................................ 3,217,000
-----------
TOTAL CASH PAYMENT BY USBANCORP.............................. $22,908,000
===========
</TABLE>
The financing of the cash component of the acquisition price was assumed
to come from the reduction in:
<TABLE>
<S> <C>
Interest bearing deposits with banks......................... 4,809,000
Investment securities available for sale..................... 18,099,000
-----------
$22,908,000
===========
</TABLE>
The remaining acquisition price will be in the form of USBANCORP Common
Stock. The conversion is shown below:
<TABLE>
<S> <C>
JSB Common Stock outstanding at December 31, 1993............ 1,943,790
USBANCORP Common Stock Conversion Factor..................... .505*
---------
TOTAL USBANCORP COMMON STOCK ISSUED.......................... 981,614**
</TABLE>
Although in the aggregate, 55% of the JSB Common Stock outstanding will
be converted into USBANCORP Common Stock and 45% of the JSB Common Stock
outstanding will be converted into cash, the amount of stock and cash to
be received by a JSB shareholder will depend upon the respective number
of JSB shareholders who make a Cash Election, Stock Election or no
election. See "THE MERGER--Election Procedures." No fractional shares of
USBANCORP Common Stock will be issued.
* The exchange ratio used in this pro forma presentation was determined
based upon the average price for USBANCORP Common Stock for the ten
trading days from February 17, 1994, to March 4, 1994. In accordance
with the terms of the Merger Agreement, the actual exchange ratio will
be based upon the average trading price for the ten trading day period
immediately preceding the Effective Date.
** Excludes the potential exercise of outstanding options to acquire 12,000
shares of JSB Common Stock. If such options are totally exercised, the
USBANCORP Common Stock to be issued would be increased to approximately
988,260 shares. For purposes of this pro forma presentation, these
options are included in the cash cost of the option buyout in Note A
above.
(continued on next page)
56
<PAGE>
Note B: The adjustment of the investment security portfolio reflects the
$1,339,000 write-up of Johnstown Savings Bank's portfolio to its
estimated market value using market quotations and other comparable
information, and the downward adjustment of $18,099,000 reflecting the
use of USBANCORP securities in funding the cash portion of the
acquisition price as described in Note A.
Note C: The adjustment of the loan portfolio reflects the write-up of
Johnstown Savings Bank's portfolio to its estimated market value by
discounting the portfolio using the estimated remaining lives of the
various types of loans and estimated current interest rates.
Note D: The adjustment reflects the write-up of Johnstown Savings Bank's
premises and equipment to estimated market value based upon current
independent appraisals.
Note E: The adjustment of the Purchased Mortgage Servicing Portfolio reflects
the write-up of Johnstown Savings Bank's portfolio to its estimated
market value by using a discounted cash flow approach in valuing
future service fee income and related costs. This approach
incorporates mortgage prepayment assumptions in order to project
mortgage attrition rates.
Note F: The adjustment of other assets reflects:
(1) The $963,000 write-up of Other Real Estate Owned property to its
estimated market value based upon recent independent appraisals.
(2) The recording of a $2,499,000 core deposit intangible related to
checking, savings, and money market accounts based upon a
comprehensive core deposit valuation study.
(3) The recording of $10,221,000 of goodwill based upon the following
calculation:
<TABLE>
<S> <C>
Total USBANCORP Common Shares issued
pursuant to Note A........................................ 981,614
USBANCORP implied stock value based upon an average
of ten trading days from February 17, 1994,
through March 4, 1994..................................... $24.01
-----------
Market value of shares exchanged........................... $23,569,000
Total Cash payment by USBANCORP pursuant to Note A......... $22,908,000
-----------
Total Market Acquisition Price............................. $46,477,000
===========
</TABLE>
<TABLE>
<S> <C>
Deduct:
Johnstown Savings Bank's December 31, 1993 Capital........ (27,580,000)
Mark to Market Adjustment of Net Assets................... (12,378,000)
</TABLE>
<TABLE>
<S> <C>
Add:
Adjustment for Net Deferred Tax Liability (See Note I)..... 3,702,000
-----------
Goodwill generated from transaction........................ $10,221,000
===========
</TABLE>
Note G: Adjustment of the Certificate of Deposit liability to reflect the
write-down of JSB's portfolio to its estimated market value by
discounting the portfolio using the estimated remaining lives of the
savings certificates and estimated current interest rates.
Note H: The adjustment of the Advances from the Federal Home Loan Bank
reflects the write-up of JSB's portfolio to its estimated market value
by discounting the debt using the estimated remaining lives of the
various advances and estimated current interest rates.
Note I: The increase to other liabilities reflects the establishment of a net
deferred tax liability on the $12,378,000 net asset mark-to-market
adjustments discussed in Notes B through H above (excluding Goodwill
in Note F) and the cash payment for vested options and executive
severance. This net liability was established at the Company's highest
enacted marginal tax rate of 35%.
Note J: The elimination of JSB Common Stock and the recording of issuance of
981,614 shares of USBANCORP Common Stock at a par value of $2.50
pursuant to Note A.
NoteK: The elimination of JSB's Surplus and the recording of the issuance of
981,614 shares of USBANCORP Common Stock at the implied stock value of
$24.01 per share pursuant to Note F less the par value pursuant to Note
J.
Note L: The elimination of JSB's retained earnings.
57
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER
31, 1993
The following unaudited pro forma combined condensed statements of income
reflect the historical consolidated statements of income of USBANCORP and JSB,
as indicated below, for each period presented and the pro forma combined
condensed statements of income of USBANCORP, after giving effect to the Merger
on a purchase accounting basis. The pro forma combined condensed statements of
income were prepared on the assumption that the Merger had been effective as of
the beginning of the period presented. See "THE MERGER--Accounting Treatment."
The unaudited information should be read in conjunction with the historical
consolidated financial statements of USBANCORP and JSB, including the
respective notes thereto, incorporated by reference or included in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"JSB CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
USBANCORP
----------------------
YEAR ENDED PRO FORMA PRO FORMA
DECEMBER 31, 1993 USBANCORP JSB ADJUSTMENTS COMBINED(K)
- ----------------- ----------- ---------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on
loans..................... $60,715 $13,364 $ (560)(A) $ 73,519
Federal funds sold,
securities purchased
under
agreements to resell and
interest bearing
deposits with banks...... 510 101 (125)(B) 486
Investment securities and
investment securities
available for sale.......
Taxable................. 21,494 8,777 (1,206)(C) 29,065
Tax-Exempt.............. 1,670 361 -- 2,031
Assets held in trust for
collateralized mortgage
obligation............... 1,346 -- -- 1,346
---------- ---------- ----------- -----------
Total Interest Income..... $85,735 $22,603 $ (1,891) $106,447
---------- ---------- ----------- -----------
INTEREST EXPENSE
Deposits.................. 32,623 8,111 473 (D) 41,207
Federal funds purchased,
securities sold under
agreements to repurchase
and other
short-term borrowings.... 359 430 -- 789
Advances from the Federal
Home Loan Bank........... 1,163 3,522 (462)(E) 4,223
Collateralized mortgage
obligation .............. 1,508 -- -- 1,508
Long-term debt............ 597 99 -- 696
---------- ---------- ----------- -----------
Total Interest Expense.... $36,250 $12,162 $ 11 $ 48,423
---------- ---------- ----------- -----------
NET INTEREST INCOME....... 49,485 10,441 (1,902) 58,024
Provision for loan losses. 2,400 1,102 -- 3,502
---------- ---------- ----------- -----------
</TABLE>
(continued on next page)
58
<PAGE>
<TABLE>
<CAPTION>
USBANCORP
-----------------------
YEAR ENDED PRO FORMA PRO FORMA
DECEMBER 31, 1993 USBANCORP JSB ADJUSTMENTS COMBINED(K)
- ----------------- ----------- ----------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES............ $47,085 $ 9,339 $(1,902) $ 54,522
NON-INTEREST INCOME
Trust fees.............. 2,578 211 -- 2,789
Net realized gains on
investment securities
and investment
securities available
for sale............... 593 811 -- 1,404
Net realized gains on
loans and loans held
for sale............... 583 1,370 -- 1,953
Wholesale cash
processing fees........ 1,281 -- -- 1,281
Service charges on
deposit accounts....... 2,771 360 -- 3,131
Mortgage servicing
income ................ -- 2,390 (158)(F) 2,232
Other income............ 2,344 1,440 -- 3,784
------- ------ -- -------
Total Non-Interest $10,150 $6,582 $ (158) $16,574
Income................. ------- ------ ---------- -------
NON-INTEREST EXPENSE
Salaries and employee
benefits................ $19,952 $5,387 $ -- $25,339
Net occupancy expense... 3,393 638 19 (G) 4,050
Equipment Expense....... 2,608 512 -- 3,120
Professional fees....... 2,167 198 -- 2,365
FDIC deposit insurance
expense................. 2,157 571 -- 2,728
Other expense........... 10,438 3,694 959 (H) 15,091
------- ------ ------ -------
Total Non-Interest 40,715 11,000 978 52,693
Expense................. ------- ------ ------ -------
INCOME BEFORE INCOME
TAXES AND CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE... 16,520 4,921 (3,038) 18,403
Provision for income 5,484 1,560 (825)(I) 6,219
taxes................... ----- ----- ------ -------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN $11,036 $3,361 $(2,213) $12,184
ACCOUNTING PRINCIPLE... ======= ====== ======= =======
PER COMMON SHARE DATA
BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
Primary:
Net income............. $2.45 $1.73 $2.22(J)
Average number of
shares outstanding...... 4,456,820 1,940,160 5,438,434
Fully Diluted:
Net income............. $2.41 $1.70 $2.19
Average number of
shares outstanding...... 4,588,622 1,975,534 5,570,236
Cash Dividends Declared. $0.86 $0.15 $0.86
</TABLE>
- --------
Note A: The current net period amortization of the write-up to fair value of
the loans of JSB on a combination of the interest method and straight
line basis over an average life of approximately 5 years.
Note B: The adjusting entry reflects the loss of earnings on the cash financing
of the acquisition of $4,809,000 at an average yield of 2.60% for 1993.
Note C: The adjusting entry reflects the loss of earnings on the cash financing
of the acquisition of $18,099,000 at an average rate of 5.70% for 1993.
Additionally, the adjustment also incorporates the current period
amortization of the write-up to fair value of the Investment Security
portfolio of JSB primarily on a level yield basis over an average life
of 8 years. This amortization amounted to $174,000 in 1993.
(continued on next page)
59
<PAGE>
Note D: The current period amortization of the write-down to fair value of the
savings certificates of deposit of JSB on the interest method over an
average life of approximately 3 years.
Note E: The current period accretion of the write-up to fair value of the
Advances from the Federal Home Loan Bank of Pittsburgh on the interest
method over 2.50 years.
Note F: The current period amortization of the write-up to fair value of the
Purchased Mortgage Servicing rights of JSB on an 8-year straight line
basis which approximates a level yield method.
Note G: The increase in the current period depreciation expense related to the
net write-up of premises and equipment on a straight line basis over 9
years excluding the write-up for land and property held for sale.
Note H: The increase in other expense reflects the amortization of the $2.5
million core deposit premium on a straight line basis over 9 years, and
the amortization of the $10.2 million of goodwill on a straight line
basis over 15 years.
Note I: The reduction in current period income tax expense with respect to the
adjustments described in the Notes above at a 35% effective tax rate
exclusive of goodwill amortization.
Note J: Earnings per share are based upon the combined historical income of
USBANCORP and JSB including the effects of the pro forma and purchase
accounting adjustments. For the purposes of calculating pro forma
earnings per share, the 981,614 shares of USBANCORP Common Stock issued
to JSB shareholders were assumed to be issued as of the beginning of
the period presented.
Note K: The pro forma income statement excludes, on a pre-tax basis in the
first year of acquisition, approximately $2.5 million of expected one
time costs related primarily to general severance pay for displaced
employees, data processing system conversion costs, and other general
acquisition related costs. These costs are necessary to realize
approximately $3.8 million of specifically identified annual savings
resulting from economy of scale benefits to be achieved in this intra-
market acquisition. These savings, of which 50% or $1.9 million are
expected to be realized in the first year of acquisition with the full
$3.8 million being realized in the years thereafter, are also excluded
from the pro-forma income statement.
Based on the assumptions in the above presented pro forma financial data, the
net impact on pre-tax income of the amortization of the purchase accounting
adjustments as described above for the five full calendar years subsequent to
the consummation of the merger:
DECREASE IN PRE-TAX INCOME
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Pre-Tax Income Effect... ($1,880,644) ($1,817,602) ($1,999,504) ($2,237,988) ($1,755,906)
============ ============ ============ ============ ============
</TABLE>
60
<PAGE>
PRO FORMA COMBINED CAPITALIZATION
As of December 31, 1993
The following unaudited pro forma combined capitalization table reflects (i)
the historical consolidated capitalization of USBANCORP and JSB as of December
31, 1993, and (ii) the pro forma combined capitalization of USBANCORP as of
such date, after giving effect to the Merger on a purchase accounting basis
effective as of such date. Also set forth below are certain pro forma
consolidated capital ratios for USBANCORP at December 31, 1993. The unaudited
information should be read in conjunction with the historical consolidated
financial statements of USBANCORP and JSB, including the respective notes
thereto, incorporated by reference or included in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"JSB CONSOLIDATED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
USBANCORP JSB ADJUSTMENTS COMBINED
--------- ------- ----------- ----------
<S> <C> <C> <C> <C>
LONG-TERM DEBT...................... $ 3,445 $ 4,111 $ -- $ 7,556
-------- ------- -------- --------
SHAREHOLDERS' EQUITY
Common Stock, par value $2.50 per
share; 6,000,000 shares authorized;
4,726,181 shares issued and
outstanding on December 31, 1993... 11,815 1,944 510 (A) 14,269
Surplus............................. 70,720 15,065 6,050 (B) 91,835
Retained Earnings................... 34,080 10,571 (10,571)(C) 34,080
-------- ------- -------- --------
TOTAL SHAREHOLDERS' EQUITY.......... 116,615 27,580 (4,011) 140,184
-------- ------- -------- --------
TOTAL LONG-TERM DEBT AND
SHAREHOLDERS' EQUITY................ $120,060 $31,691 $ (4,011) $147,740
======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
REGULATORY USBANCORP
MINIMUM AT DECEMBER 31, 1993
---------- --------------------
<S> <C> <C>
PRO FORMA CONSOLIDATED CAPITAL RATIOS
Tier 1 capital to risk-adjusted assets.......... 4.00% 12.75%
Total capital to risk-adjusted assets........... 8.00 14.00
Tier 1 Leverage Ratio(D)(E)..................... 5.00 7.88
</TABLE>
- --------
Note A: The elimination of JSB Common Stock and the recording of the issuance
of 981,614 shares of USBANCORP Common Stock at a par value of $2.50 per
share.
Note B: Reflects the elimination of JSB's surplus and the recording of the
issuance of 981,614 shares of USBANCORP Common Stock at the implied
stock value of $24.01 per share (determined based upon the average
price for USBANCORP Common Stock for the ten trading days from February
17, 1994 to March 4, 1994) less the $2.50 par value per share of
USBANCORP Common Stock. The actual amount of surplus to be recorded
will depend upon the average trading price of USBANCORP Common Stock
for the ten trading days immediately preceding the Effective Date.
Note C: The elimination of JSB's retained earnings.
Note D: The leverage ratio is defined as the ratio of Tier 1 capital to total
assets, net of goodwill and other intangibles.
Note E: Federal Reserve Board Guidelines provide that all bank holding
companies (other than those that meet certain criteria) maintain a
minimum leverage ratio of 3%, plus an additional cushion of 100 to 200
basis points. The guidelines also state that banking organizations
experiencing internal growth or making acquisitions will be expected to
maintain "strong capital positions" substantially above the minimum
supervisory levels without significant reliance on intangible assets.
The guidelines do not provide guidance as to the meaning of "strong"
and the Federal Reserve Board has not indicated to USBANCORP whether or
not it considers USBANCORP's leverage ratio as strong.
DESCRIPTION OF USBANCORP CAPITAL STOCK
The authorized capital stock of USBANCORP currently consists of 6,000,000
shares of USBANCORP Common Stock, par value $2.50 per share, and 2,000,000
shares of preferred stock without par value
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("USBANCORP Preferred Stock"). USBANCORP is seeking to increase the number of
authorized shares of USBANCORP Common Stock to 12,000,000. See "AMENDMENT OF
USBANCORP'S ARTICLES OF INCORPORATION." As of April 29, 1994, there were
4,743,037 shares of USBANCORP Common Stock issued and outstanding. All 552,000
shares of USBANCORP Series A $2.125 Cumulative Convertible Non-Voting Preferred
Stock issued and outstanding at December 31, 1992, were converted or redeemed
by the end of the second quarter of 1993. There are no other shares of capital
stock of USBANCORP authorized, issued or outstanding, except that as of March
15, 1994, (i) 276,207 shares were reserved for issuance under USBANCORP's
Dividend Reinvestment Common Stock Purchase Plan and (ii) 46,000 shares are
reserved for issuance under USBANCORP's Incentive Stock Option Plan. USBANCORP
has no rights authorized, issued or outstanding, except rights associated with
the USBANCORP Shareholder Rights Plan. See "Shareholder Rights Plan" below.
USBANCORP PREFERRED STOCK
USBANCORP's Board of Directors has the authority to issue Preferred Stock
from time to time as a class without a series, or in one or more series. The
Preferred Stock may be issued with such voting, dividend, redemption, sinking
fund, conversion, exchange, liquidation and other rights as shall be determined
by resolution of the USBANCORP Board of Directors, without the approval of the
holders of USBANCORP Common Stock. All shares of one series must be identical,
and all series will rank equally except with respect to the rights particular
to each series fixed by the USBANCORP Board of Directors. USBANCORP Preferred
Stock will have a preference over USBANCORP Common Stock as to the payment of
dividends, as to the right to distribution of assets upon redemption of shares
or upon liquidation of USBANCORP, or as to both dividends and assets, and such
other preferences as may be fixed by the USBANCORP Board of Directors.
There is currently no class of USBANCORP Preferred Stock issued and
outstanding.
USBANCORP COMMON STOCK
Dividends
The holders of USBANCORP Common Stock are entitled to share ratably in
dividends when and if declared by the USBANCORP Board of Directors from funds
legally available therefor, subject to the preferences which may be granted to
holders of the USBANCORP Preferred Stock.
Voting Rights
Each holder of USBANCORP Common Stock has one vote for each share held on
matters presented for consideration by the shareholders, except that
shareholders are entitled to cumulate their votes with respect to the election
of directors.
Classification of Board of Directors
The USBANCORP Board of Directors is divided into three classes, each serving
three-year terms, so that approximately one-third of the directors of USBANCORP
are elected at each annual meeting of the shareholders of USBANCORP.
Classification of the USBANCORP Board of Directors has the effect of decreasing
the number of directors that could be elected in a single year by any person
who seeks to elect its designees to a majority of the seats on the USBANCORP
Board of Directors and thereby could impede a change in control of USBANCORP.
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Preemptive Rights
The holders of USBANCORP Common Stock have no preemptive rights to acquire
any additional shares of USBANCORP Common Stock.
Issuance of Stock
USBANCORP's articles of incorporation authorize the USBANCORP Board of
Directors to issue authorized shares of USBANCORP Common Stock and USBANCORP
Preferred Stock without shareholder approval. However, USBANCORP Common Stock
is included for quotation on the NASDAQ/NMS, which requires shareholder
approval of the issuance of additional shares of USBANCORP Common Stock or
securities convertible into USBANCORP Common Stock if the issuance of such
securities (i) is in connection with the acquisition of a company, is not in
connection with a public offering for cash, and the securities issued have or
will have voting power equal to or in excess of 20% of the voting power
outstanding before such issuance, (ii) is in connection with the acquisition of
a company in which a director, officer or substantial shareholder of USBANCORP
has a 5% or greater interest and the issuance of the securities could result in
an increase in outstanding common stock or voting power of 5% or more, (iii) is
in connection with a transaction other than a public offering at a price less
than the greater of book or market value, and will equal 20% or more of the
common stock or 20% or more of the voting power outstanding before issuance, or
(iv) would result in a change in control of USBANCORP. Under NASDAQ/NMS rules,
shareholder approval is also required for the establishment of a stock option
or purchase plan in which stock may be acquired by officers and directors other
than a broadly-based plan in which other security holders of USBANCORP or
employees of USBANCORP participate. Under applicable NASDAQ/NMS rules, approval
of USBANCORP shareholders is required prior to issuance of the number of shares
of USBANCORP Common Stock to be issued in this Merger.
Liquidation Rights
In the event of liquidation, dissolution or winding-up of USBANCORP, whether
voluntary or involuntary, the holders of USBANCORP Common Stock will be
entitled to share ratably in any of its assets or funds that are available for
distribution to its shareholders after the satisfaction of its liabilities (or
after adequate provision is made therefor) and after payment of any liquidation
preferences of any outstanding USBANCORP Preferred Stock.
SHAREHOLDER RIGHTS PLAN
Each share of USBANCORP Common Stock has attached to it one right (a "Right")
issued pursuant to a Shareholder Protection Rights Agreement, dated November
10, 1989 (the "Rights Agreement"). Each Right will initially entitle a holder
to buy one-tenth of a share of USBANCORP Series B Preferred Stock at a price of
$40.00, subject to adjustment (the "Exercise Price"). The Rights become
exercisable if a person, group or other entity acquires or announces a tender
offer for 20% or more of the USBANCORP Common Stock. They can also be exercised
if a person or group who has become a beneficial owner of at least 10% of the
USBANCORP Common Stock is declared by the USBANCORP Board to be an "adverse
person" (as defined in the Rights Agreement). Under the Rights Agreement, any
person, group or entity will be deemed a beneficial owner of USBANCORP Common
Stock if such person, group or entity would be deemed to beneficially own
USBANCORP Common Stock under the rules of the Commission which generally
require that such person, group or entity have, or have the right to acquire
within sixty (60) days, voting or dispositive power with respect to USBANCORP
Common Stock; provided, however, that the Rights Agreement excludes from the
definition of beneficial owner, holders of revocable proxies, employee benefit
plans of USBANCORP or its subsidiaries and the Trust Company. After the Rights
become exercisable, the Rights (other than rights held by a 20% beneficial
owner or an "adverse person") will entitle the holders to purchase, under
certain circumstances, either USBANCORP Common Stock or common stock of the
potential acquiror having a value equal to twice the Exercise Price. USBANCORP
is generally entitled to redeem the Rights at
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$.01 per Right at any time until the twentieth business day following public
announcement that a 20% position has been acquired or the Board of Directors
has designated a holder of USBANCORP Common Stock an adverse person. The Rights
expire on November 10, 1994. The Rights Agreement may have the effect of
deterring or discouraging a nonnegotiated tender or exchange offer for
USBANCORP, the acquisition of a large block of USBANCORP Common Stock and the
removal of USBANCORP management.
CHANGE IN CONTROL
Pennsylvania Law
The BCL contains certain provisions applicable to USBANCORP which may have
the effect of impeding a change in control of USBANCORP. These provisions,
among other things, (1) require that, following any acquisition by any person
or group of 20% of a public corporation's voting power, the remaining
shareholders have the right to receive payment for their shares, in cash, from
such person or group in an amount equal to the "fair value" of their shares,
including an increment representing a proportion of any value payable for
acquisition of control of the corporation; and (2) prohibit for five years
after an interested shareholder's acquisition date, a "business combination"
(which includes a merger or consolidation of the corporation or a sale, lease
or exchange of assets having a minimum specified aggregate value or
representing a minimum specified percentage earning power or net income of the
corporation) with a shareholder or group of shareholders beneficially owning
20% or more of a public corporation's voting power.
In April 1990, the Pennsylvania legislature further amended the BCL to expand
the antitakeover protections afforded by Pennsylvania law by redefining the
fiduciary duty of directors and adopting disgorgement and control-share
acquisition statutes. To the extent applicable to USBANCORP at the present
time, this legislation generally (1) expands the factors and groups (including
shareholders) which the Board of Directors can consider in determining whether
a certain action is in the best interests of the corporation; (2) provides that
the Board of Directors need not consider the interests of any particular group
as dominant or controlling; (3) provides that directors, in order to satisfy
the presumption that they have acted in the best interests of the corporation,
need not satisfy any greater obligation or higher burden of proof with respect
to actions relating to an acquisition or potential acquisition of control; (4)
provides that actions relating to acquisitions of control that are approved by
a majority of "disinterested directors" are presumed to satisfy the directors'
standard unless it is proven by clear and convincing evidence that the
directors did not assent to such action in good faith after reasonable
investigation; and (5) provides that the fiduciary duty of directors is solely
to the corporation and may be enforced by the corporation or by a shareholder
in a derivative action, but not by a shareholder directly. One of the effects
of the new fiduciary duty provisions may be to make it more difficult for a
shareholder to successfully challenge the actions of the Board of Directors in
a potential change in control contest. The legislation provided a time frame
during which companies could elect not to be covered by the disgorgement and
control-share acquisition statute. USBANCORP opted out of coverage of the
disgorgement and control-share acquisition statute pursuant to a Bylaw
amendment. The legislation contains no express or implied mechanism for
reversing the election although it may be legally permissible to reverse this
action. USBANCORP has no intention of taking any action to reverse its
election.
Federal Law
The Federal Change in Bank Control Act of 1978, as amended, prohibits a
person or group of persons from acquiring "control" of a bank holding company
unless the Federal Reserve Board has been given 60 days' prior written notice
of such proposed acquisition and, within that time period, the Federal Reserve
Board has not issued a notice disapproving the proposed acquisition or
extending, for up to another 30 days, the period during which such a
disapproval may be issued. An acquisition may be made prior to the expiration
of the disapproval period if the Federal Reserve Board issues written notice of
its intent not to disapprove the action.
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Under a rebuttable presumption established by the Federal Reserve Board, the
acquisition of more than 10% of a class of voting stock of a bank holding
company with a class of securities registered under Section 12 of the Exchange
Act would, under the circumstances set forth in the presumption, constitute the
acquisition of control.
In addition, any "company" would be required to obtain the approval of the
Federal Reserve Board under the BHCA before acquiring 25% (5% in the case of an
acquiror that is a bank holding company) or more of the outstanding shares of
USBANCORP Common Stock, or such lesser number of shares as constitute control
over USBANCORP.
COMPARISON OF RIGHTS OF HOLDERS OF USBANCORP COMMON STOCK AND JSB COMMON STOCK
USBANCORP and JSB are both incorporated under the laws of the Commonwealth of
Pennsylvania. However, the rights of the shareholders of USBANCORP are governed
by the BCL as well as USBANCORP's articles of incorporation and bylaws and the
rights of the shareholders of JSB are governed by the PBC and JSB's articles of
incorporation and bylaws. Upon consummation of the Merger, the shareholders of
JSB will become shareholders of USBANCORP and their rights will be governed by
the BCL and by USBANCORP's articles of incorporation and bylaws. Certain
differences between the rights of JSB's shareholders and USBANCORP's
shareholders are described below.
DIRECTORS
Cumulative Voting
USBANCORP's shareholders may cumulate their votes in the election of
directors. This means each shareholder may multiply the number of shares held
by such shareholder by the number of directors to be elected and cast the
resulting number of votes for one nominee or distribute them among the nominees
as such shareholder desires. Cumulative voting enhances the voting power of
minority shareholders and the ability of a USBANCORP shareholder to wage a
successful proxy contest and obtain representation on USBANCORP's Board of
Directors. JSB does not permit its shareholders to cumulate their votes for the
election of directors.
Classification of the Board
Both the USBANCORP and the JSB articles of incorporation provide for a
classified Board of Directors under which approximately one-third of the
directors are elected each year for a three-year term.
Removal of Directors
Any or all of the directors of USBANCORP may be removed without cause by the
affirmative vote of USBANCORP's shareholders entitled to cast not less than
two-thirds of the total votes which are entitled to be cast by the USBANCORP
shareholders at an annual meeting for the election of directors. Directors of
JSB may be removed without cause by the affirmative vote of JSB shareholders
holding at least a majority of the total votes entitled to be cast for the
election of directors at a duly constituted meeting of shareholders called
expressly for such purpose and may be removed from office with cause by the
affirmative vote of JSB shareholders holding not less than a majority of the
total votes entitled to be cast by the shareholders.
Advance Notice of Nominations of Director Candidates
Pursuant to USBANCORP's bylaws, a shareholder of USBANCORP may nominate a
person to serve on the USBANCORP Board of Directors only if such shareholder
gives USBANCORP written notice delivered or mailed to the President of
USBANCORP not less than 60 days nor more than 90 days prior to any meeting of
shareholders called for the election of directors.
Neither JSB's articles of incorporation nor its bylaws provide for
shareholder nomination of a person for election to serve on the JSB Board.
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Directors' Liability
USBANCORP's bylaws limit the circumstances under which directors (but not
officers or directors acting in their capacity as officers) could be held
personally liable for monetary damages arising out of any action taken or the
failure to take any action unless:
(i) such director has breached or failed to perform the duties of his
office as provided by applicable law, and such breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness;
(ii)the responsibility or liability of a director is pursuant to a
criminal statute; or
(iii)the liability of a director is for the payment of taxes pursuant to a
local, state or federal law.
The personal liability of JSB's directors has been similarly limited.
Indemnification
USBANCORP's bylaws provide that the directors, officers, agents and employees
of USBANCORP shall be indemnified against liability to the extent not
prohibited under Pennsylvania law. Under Pennsylvania law, a corporation may
indemnify any person against a third party action and, to a more limited
extent, against a derivative action, if the person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of the corporation and, with respect to any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. In addition, under
Pennsylvania law, expenses of defending any third party or derivative action
may be advanced by a corporation to any person upon receipt of an undertaking
by or on behalf of such person to repay the amount if it is ultimately
determined that such person is not entitled to be indemnified under law. If a
person defending any third party or derivative action prevails on the merits or
otherwise, a Pennsylvania corporation must pay expenses actually and reasonably
incurred by such person in connection with such defense.
JSB's articles of incorporation contain substantially the same provisions
concerning indemnification and advancement of expenses as those allowed under
Pennsylvania law.
MERGERS, CONSOLIDATIONS AND SIMILAR TRANSACTIONS
The USBANCORP articles of incorporation and bylaws do not require a super-
majority vote to effect a merger, sale of assets, liquidation or other
significant transaction. Therefore, in accordance with the provisions of the
BCL, the affirmative vote of at least a majority of the votes cast by all the
shareholders entitled to vote on any such transaction is required for approval.
The JSB articles of incorporation and bylaws require the vote of the holders
of not less than 80% of all outstanding JSB Common Stock to effect a merger,
sale of assets, liquidation or other significant transaction, unless approved
by 67% of the whole JSB Board of Directors at a time prior to the acquisition
of 10% or more of the outstanding JSB Common Stock by the person or corporation
effecting the change in control.
Because USBANCORP's articles of incorporation do not contain any limitation
on the acquisition of USBANCORP Common Stock, USBANCORP is more susceptible to
a nonnegotiated tender or exchange offer and thus, a change in control.
VOTING
Except with respect to the election of directors, see "Directors--Cumulative
Voting" herein, each shareholder of USBANCORP Common Stock has one vote for
each share of USBANCORP Common Stock held.
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JSB's articles of incorporation also provide that each holder of JSB Common
Stock shall be entitled to one vote for each share held.
AMENDMENT OF ARTICLES AND BYLAWS
USBANCORP's articles of incorporation may be amended by the affirmative vote
of holders of a majority of the total voting stock eligible to be cast by
USBANCORP shareholders at any duly noticed and called regular or special
meeting of the shareholders. USBANCORP's bylaws may be amended by the
affirmative vote of a majority of the USBANCORP Board of Directors then in
office at any regular or special meeting of the USBANCORP Board of Directors.
JSB's articles of incorporation may be amended only after proposed by the JSB
Board of Directors and approved by a majority of the votes entitled to be cast
at any duly noticed and called regular or special meeting of JSB shareholders.
JSB's bylaws provide for amendment by an affirmative vote of a majority of the
entire JSB Board of Directors or by a majority of the votes entitled to be cast
at any duly noticed and called regular or special meeting of the JSB
shareholders.
In general, the requirements that the JSB Board of Directors must propose any
amendment to JSB's articles of incorporation means that USBANCORP shareholders
have a greater ability to effect fundamental changes in the articles of
incorporation of USBANCORP, including changes that may facilitate a change in
control of USBANCORP as a result of a proxy contest or a nonnegotiated tender
or exchange offer.
SPECIAL MEETINGS OF SHAREHOLDERS
USBANCORP's bylaws provide that special meetings of the USBANCORP
shareholders may be called at any time by the President, by the USBANCORP Board
of Directors, or by any two or more directors of USBANCORP. JSB's bylaws
provide that special meetings of the JSB shareholders may be called at any time
by the President, by a majority of the JSB Board of Directors or upon written
request of the holders of not less than one-half of outstanding JSB capital
stock entitled to vote at the meeting, voting together as a single class.
BUSINESS OF USBANCORP
Financial and other information relating to USBANCORP, including information
relating to USBANCORP's directors and executive officers, is set forth or
incorporated by reference in USBANCORP's Annual Report on Form 10-K for the
year ended December 31, 1993, which is incorporated herein by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
JSB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The operations of JSB are affected by many factors, including regulatory,
economic and competitive factors that influence interest rates, loan demand and
deposit activity. The operations of JSB are also affected by legislative
changes, such as the Federal Deposit Insurance Corporation Improvement Act of
1992 (the "FDICIA"), which was enacted into law to reform and reorganize the
federal deposit insurance system and the regulatory structure applicable to
savings institutions such as JSB. The FDICIA and additional regulatory
pronouncements enacted within the scope of regulatory agency authority have had
the effect of increasing the amount of premiums to be paid for deposit
insurance by banks and savings institutions, increasing the amount of capital
required to be maintained by savings institutions for regulatory purposes and
imposing
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various investment and other restrictions on the operations of savings
institutions. JSB management anticipates that there will be future proposals
brought forth for Congressional and/or regulatory agency consideration that may
affect the regulations governing savings institutions, such as JSB. The overall
effect of any proposed changes on JSB will depend upon their final form and
implementation schedule and cannot be determined at this time.
JSB is a Pennsylvania-chartered savings bank subject to the regulatory
authority of the Department and the FDIC. Prior to March 9, 1993, when JSB
converted from a federally-chartered savings bank to a state-chartered savings
bank, JSB was subject to the regulatory authority of the FDIC and the OTS.
RESULTS OF OPERATIONS
General
The operating results of JSB depend primarily on its net interest income,
which is the difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities. Interest rates paid and
yields earned by JSB are related to interest rates prevailing generally in the
marketplace, which are significantly affected by changes in general economic
conditions and the policies of the federal government. JSB's operating results
are also affected by the level of its provisions for loan losses due to other
operating income, which includes mortgage servicing income (net of amortization
of the cost of purchased mortgage servicing rights) and other loan service
fees, gains on sales of mortgage loans available for sale, gains on the sale of
securities available for sale, other fee income, and its other operating
expenses, which include salaries and employee benefits, occupancy and equipment
expense, provisions for losses and other charges relating to real estate owned
and deposit insurance premiums.
JSB reported net income of $3.4 million in 1993 as compared to net income of
$2.6 million for 1992 and net income of $1.6 million in 1991. The increase in
net income for 1993 as compared with the prior year was primarily attributable
to an increase in net interest income after the provision for loan losses, an
increase in other operating income, which was primarily the result of
substantial increases in gain and other income on the sale of property
previously acquired by foreclosure, and a decrease in other operating expenses,
which was primarily the result of a substantial reduction in the provision for
losses and other related charges relating to real estate acquired by
foreclosure.
Partially offsetting these increases in income and decreases in expenses in
1993, as compared with 1992, were increases in the provision for income taxes.
The results of operations in 1992 were also benefitted by a non-recurring
cumulative effect, at January 1, 1992, of the change in accounting principle
for income taxes. See "Income Taxes" below.
JSB's net interest income before provision for loan losses decreased by
$63,000 or 0.6% in 1993, following an increase of $2.1 million or 25.6% in
1992. However, during 1993, $1.1 million was added to JSB's allowance for loan
losses as compared to $2.5 million in 1992. Loan loss provisions were reduced
in 1993 as the result of improvements in JSB's loan asset quality. JSB's net
interest income after provision for loan losses therefore increased by $1.3
million or 16.7% in 1993.
Total other operating income increased by $1.3 million or 25.5% in 1993,
following an increase of $842,000 or 19.1% in 1992. The increase in total other
operating income during 1993 was attributable to a $976,000 increase in income
derived from the sale of real estate acquired by foreclosure, and an aggregate
increase of $360,000 or 7.1% in all other income categories, which include net
mortgage servicing income and other loan service fees, net gains on the sale of
loans available for sale and investment and MBS securities, and other
miscellaneous income.
Total other operating expenses decreased by $2.0 million or 15.5% in 1993,
following an increase of $2.8 million or 27.9% in 1992. The decrease in other
operating expenses in 1993 was due to a $3.3 million
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reduction in the provision recorded for losses and other related charges
associated with real estate acquired by foreclosure, partially offset by an
aggregate increase of $1.3 million or 13.1% in all other expense categories,
which include salaries and employee benefits, occupancy and equipment expenses,
FDIC insurance premiums, non-recurring expenses related to the planned Merger,
the non-recurring termination gain for JSB's defined benefit plan recorded in
1992, and other miscellaneous expenses.
The increase in net income for 1992, as compared with the prior year, was
primarily attributable to a $504,000 increase in net interest income after the
provision for loan losses, a $842,000 increase in other operating income,
primarily due to a $849,000 increase in the gains recognized from the sale of
investment securities, and a decline in net income tax expense from a net
expense of $110,000 in 1991, to a net benefit of $677,000 in 1992. In addition,
the results of operations in 1992 were also benefitted by a $1.7 million non-
recurring cumulative effect of the change in accounting principle for income
taxes.
Partially offsetting these increases in income and decreases in expenses were
a $1.7 million increase in provisions for losses and other expenses relating to
real estate acquired by foreclosure, and $1.0 million in increases related to
certain other operating expenses.
JSB's net interest income before provision for loan losses increased by $2.1
million or 25.6% in 1992. During 1992, JSB recorded $2.5 million in provisions
for loan losses compared to $867,000 in 1991. Additional provisions for loan
losses were considered necessary due to the continued deterioration in national
real estate markets experienced throughout 1992. JSB's net interest income
after provision for loan losses was therefore increased by $504,000 or 6.7% in
1992.
Total other non-interest operating income increased by $842,000 or 19.1% in
1992. The increase in total other operating income during 1992, as compared
with the previous year, was attributable to an $849,000 increase in securities
sales gains, which was partially offset by an aggregate decrease in all other
non-interest income categories of $6,000.
Total other non-interest operating expenses increased by $2.8 million or
27.9% in 1992. The increase in other operating expenses in 1992, as compared
with 1991, was due to a $1.8 million or 120.8% increase in the provision
recorded for losses and other related charges associated with real estate
acquired by foreclosure, and an aggregate $1.0 million or 11.8% increase in all
other non-interest expense categories, which include salaries and employee
benefits, occupancy and equipment expenses, FDIC insurance premiums, a
reduction in the non-recurring curtailment gain for JSB's defined benefit plan
recorded in 1991, and other miscellaneous non-interest expenses.
Net Interest Income
Net interest income is determined by JSB's interest rate spread (i.e., the
difference between the yields earned on its interest earning assets and the
rates paid on its interest-bearing liabilities) and the relative amounts of
interest-earning assets and interest-bearing liabilities.
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The following table presents the average balance and the interest and
dividends earned or paid on each major class of interest-earning assets and
interest-bearing liabilities during the periods indicated, as well as certain
information related to the yields earned and rates paid thereon:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1993 1992 1991
------------------------ ------------------------ --------------------------
(DOLLARS IN THOUSANDS)
YIELD
RATE AT AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
12/31/93 BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- -------- ------ -------- -------- ------ -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(1)................ 8.49% $156,719 $13,364 8.53% $158,243 $14,882 9.40% $173,514 $16,909 9.75%
Mortgage-backed
securities............. 5.96 136,007 7,682 5.65 101,425 7,310 7.21 66,601 5,731 8.60
Investment securities
and other.............. 6.41 25,522 1,557 6.10 16,797 1,090 6.49 21,844 1,647 7.54
---- -------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning
assets................. 7.17 318,248 22,603 7.10 276,465 23,282 8.42 261,959 24,287 9.27
---- -------- ------- ---- -------- ------- ---- -------- ------- ----
Deposits................ 3.46 219,581 8,111 3.69 218,850 10,216 4.67 220,839 13,582 6.15
FHLB Advances........... 4.59 73,375 3,522 4.80 35,182 2,060 5.86 25,333 1,871 7.39
Other borrowed funds.... 1.87 20,717 529 2.55 20,022 502 2.51 16,553 471 2.85
---- -------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities............ 3.67 313,673 12,162 3.88 274,054 12,778 4.66 262,725 15,924 6.06
---- -------- ------- ---- -------- ------- ---- -------- ------- ----
Net interest income..... $10,441 $10,504 $ 8,363
======= ======= =======
Net interest spread..... 3.50% 3.22% 3.76% 3.21%
==== ==== ==== ====
Net interest-earning
assets.................. $ 4,575 $ 2,411 $ (766)
======== ======== ========
Net yield on interest-
earning assets......... 3.63% 3.28% 3.80% 3.19%
==== ==== ==== ====
Ratio of interest-
earning assets to
interest-bearing 1.01 1.01 1.00
liabilities............ ==== ==== ====
</TABLE>
- --------
(1) Average outstanding balance includes $588,000, $3.1 million and $5.9
million of non-accrual loans as of December 31, 1993, 1992, and 1991,
respectively.
The following table presents the dollar amount of changes in income and
expense attributable to changes in volume and the amount attributable to
changes in rate. Any changes attributable to both volume and rate which cannot
be segregated have been allocated proportionately:
<TABLE>
<CAPTION>
1993 COMPARED TO 1992 1992 COMPARED TO 1991 1991 COMPARED TO 1990
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
-------------------------- ------------------------- -------------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------- ------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans................... $ (143) $(1,375) $(1,518) $(1,488) $ (539) $(2,027) $(1,345) $ (307) $(1,652)
Mortgage-backed
securities.............. 2,492 (2,120) 372 2,997 (1,418) 1,579 2,565 (580) 1,985
Investment securities
and other............... 566 (99) 467 (381) (176) (557) (856) (128) (984)
------- ------- -------- ------- ------- ------- ------- ------- -------
Total interest-earning
assets.................. 2,915 (3,594) (679) 1,128 (2,133) (1,005) 364 (1,015) (651)
------- ------- -------- ------- ------- ------- ------- ------- -------
Deposits................ 34 (2,139) (2,105) (122) (3,244) (3,366) (590) (1,291) (1,881)
FHLB advances........... 2,236 (774) 1,462 727 (538) 189 300 (109) 191
Other borrowed funds.... 17 10 27 99 (68) 31 189 150 339
------- ------- -------- ------- ------- ------- ------- ------- -------
Total interest-earning
liabilities............. 2,287 (2,903) (616) 704 (3,850) (3,146) (101) (1,250) (1,351)
------- ------- -------- ------- ------- ------- ------- ------- -------
Net interest income..... $ 628 $ (691) $ (63) $ 424 $ 1,717 $ 2,141 $ 465 $ 235 $ 700
======= ======= ======== ======= ======= ======= ======= ======= =======
</TABLE>
JSB's net interest income before provision for loan losses decreased by
$63,000 or 0.6% in 1993, following an increase of $2.1 million or 25.6% in
1992. JSB's net interest income (net interest income divided by average
interest-earning assets) was 3.28% in 1993 as compared with 3.80% for 1992 and
3.19% for 1991.
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The decrease in net interest income during 1993 was due to a decline in
interest-earning asset yields due to accelerated refinancings of higher-
yielding, fixed-rate residential and commercial real estate mortgages and
mortgage-backed securities ("MBS") which were replaced by relatively lower-
yielding mortgages and investments, and a reduction in asset yields due to the
scheduled repricing of adjustable-rate mortgages and MBS in JSB's portfolio.
The increase in net interest income in 1992, as compared with 1991, was
primarily the result of generally reduced interest rates, particularly short-
term interest rates. These rate reductions had the effect of reducing the
interest cost of deposits and borrowed funds more than the concurrent reduction
in loan and other investment yields during the year.
Interest Income
Interest income decreased by $679,000 or 2.9% in 1993 and $1.0 million or
4.1% in 1992. Interest income decreased in 1993 primarily as a result of
declines in general interest rates which reduced JSB's yield on newly-
originated loans, new investment security purchases, and adjustable-rate loans
and investments that underwent a scheduled repricing during the year. The
weighted average yield on interest-earning assets was 7.10%, 8.42% and 9.27% in
1993, 1992, and 1991, respectively. The effect of the reduction in yield on
total interest income during 1993 was partially offset by a $41.8 million
increase in average interest-earning assets as compared with 1992.
In 1993, the management of JSB continued to restructure JSB's asset
portfolios by decreasing the amount of residential mortgage loans classified as
held-to-maturity, commercial business and consumer loans and increasing the
amount of MBS and residential mortgage loans classified as available-for-sale.
JSB's total loan portfolio (net of related reserves) increased by $3.7 million
or 2.4% in 1993.
In 1993, mortgage loan interest declined $696,000 or 6.5% due to declines in
the yields generated by JSB's investment in residential mortgage loans and
declines in the average balance of commercial real estate and residential
mortgage loans, excluding loans available for sale.
During 1993, JSB management elected to sell a substantial portion of its
newly-originated residential mortgage loans in order to achieve better matching
of average asset and liability durations, thereby reducing interest-rate risk
for future periods. Accordingly, the balance of residential mortgage loans,
excluding loans classified as available-for-sale, declined from $50.7 million
at December 31, 1992, to $47.4 million at December 31, 1993. The residential
mortgage loan portfolio average balance, excluding loans classified as
available-for-sale, decreased 4.9% from $51.6 million in 1992 to $49.0 million
in 1993. In addition, there was a decline in the average yield generated by the
residential loan portfolio from 8.94% in 1992 to 7.96% in 1993. The decline in
residential mortgage loan yield during 1993 was due to the effects of generally
declining interest rates on adjustable-rate residential mortgages which
repriced as scheduled during the year and increased refinancings of higher-
yielding, fixed-rate mortgages.
The average balance of commercial real estate loans held by JSB declined from
$51.5 million in 1992 to $42.7 million in 1993. The average yield generated by
the commercial real estate loan portfolio increased from 8.87% in 1992 to 8.88%
in 1993.
During 1993, the weighted average yield in the loan portfolio was enhanced by
consumer lending activities. Consumer loans generally have shorter terms and
higher interest rates than mortgage loans because of the type and nature of the
collateral and, in certain cases, the absence of collateral. At December 31,
1993, JSB had $27.5 million in consumer loans. See "Concentrations of Credit
Risk" below.
In 1993, interest income from MBS increased $372,000 or 5.1% as compared with
1992. This increase was due primarily to a $34.6 million or 34.1% increase in
JSB's average invested balance in MBS from $101.4 million in 1992 to $136.0
million in 1993. This increase was partially offset by a decline in the average
yield
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<PAGE>
derived from MBS from 7.21% in 1992 to 5.65% in 1993. This decline in yield on
MBS was due to general declines in interest rates, accelerated prepayments of
higher-yielding securities, and JSB management's decision to increase through
purchases the relative percentage of shorter duration MBS. MBS yields also
declined in 1993, as compared to the previous year, due to the effects of
generally declining interest rates on adjustable-rate MBS which repriced during
the year, and to the maturity of a portion of JSB's portfolio of relatively
higher-yielding MBS which were replaced by lower-yielding securities during the
course of the year.
JSB substantially increased its investment in MBS in 1993 and 1992, based on
JSB management's analysis of this type of security's relative attributes and
risks. Because MBS are collateralized by diversified pools of individual
residential mortgages and the majority of the type held by JSB are additionally
guaranteed as to the timely payment of principal and interest by an agency of
the U.S. Government (Government National Mortgage Association) or a government-
sponsored enterprise (Federal National Mortgage Association or the Federal Home
Loan Mortgage Corporation), their risk of default is low. During 1993 and 1992,
economic conditions, primarily relating to general interest rates and the
availability of new residential mortgage loan production nationally, combined
to make the net yields available from MBS attractive relative to alternatively
available investments. Additional advantages of MBS, as compared with loan
investments, include their negligible servicing costs and relatively
predictable cash flows. MBS can also be used to provide liquidity because they
are readily marketable and commonly used to provide collateral for borrowed
funds.
Interest and dividends on investment securities and other earning assets
increased by $467,000 or 42.8% in 1993, following a decrease of $557,000 or
33.8% in 1992. The increase in this income category in 1993 as compared with
1992, was due to a $8.7 million increase in the average balance invested in
these securities, partially offset by a decline in the average yield generated
by these securities from 6.49% in 1992 to 6.10% in 1993. Interest and dividend
yields declined in 1993, primarily as a result of generally declining short-
term interest rates during the year.
Interest income on loans in 1993 and 1992 was adversely affected by the
amount of JSB's non-accrual loans and troubled debt restructurings as discussed
below. During 1993 and 1992, JSB estimates that it would have recorded $341,000
and $522,000, respectively, of additional interest on loans if loans did not
have to be restructured and non-accrual loans had been current in accordance
with their terms. See Notes 3 and 4 to the "JSB CONSOLIDATED FINANCIAL
STATEMENTS."
In 1992, mortgage loan interest declined $1.7 million or 13.7% due to
reductions in JSB's level of investment in relatively high-yielding commercial
real estate mortgage loans and declines in the yields generated by residential
mortgage loans. As part of JSB management's ongoing efforts to reduce JSB's
out-of-state commercial real estate mortgage loans, JSB has generally declined
to refinance maturing loans of this type. As a result, the commercial real
estate mortgage loan portfolio average balance declined from $66.2 million in
1991 to $49.0 million in 1992. The average yield generated by the commercial
real estate loan portfolio declined from 8.91% in 1991 to 8.87% in 1992. The
decline in yield during 1992 was primarily due to the effects of generally
declining interest rates on adjustable-rate mortgages which repriced as
scheduled during the year and increased refinancings of higher-yielding, fixed-
rate mortgage loans.
The balance of residential mortgage loans, excluding loans classified as
available-for-sale, declined from $55.4 million at December 31, 1991, to $50.7
million at December 31, 1992. The residential mortgage loan portfolio average
balance, excluding loans available-for-sale, decreased 9.5% from $57.0 million
in 1991 to $51.6 million in 1992. In addition, there was a decline in the
average yield generated by the residential loan portfolio from 9.68% in 1991 to
8.94% in 1992. The decline in residential mortgage loan yield during 1992 was
due to the effects of generally declining interest rates on adjustable-rate
residential mortgages which repriced as scheduled during the year and increased
refinancings of higher-yielding fixed-rate mortgages.
In 1992, interest income from MBS increased $1.6 million or 27.5% as compared
with 1991. This increase was due primarily to a $34.8 million or 52.3% increase
in JSB's average invested balance in MBS from $66.6 million in 1991 to $101.4
million in 1992. This increase was partially offset by a decline in the
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<PAGE>
average yield derived from MBS from 8.60% in 1991 to 7.21% in 1992. This
decline in yield on MBS was due to JSB management's decision to increase
through purchases the relative percentage of adjustable-rate MBS and shorter
duration MBS derivative securities.
Interest Expense
Interest expense decreased by $616,000 or 4.8% in 1993, following a decrease
of $3.1 million or 19.8% in 1992. Interest expense decreased in 1993 and 1992
primarily as a result of declines in short-term interest rates generally, which
reduced JSB's cost of funds for both deposits and other borrowings. The
weighted average rate paid on interest-bearing liabilities was 3.88%, 4.66%,
and 6.06% in 1993, 1992, and 1991, respectively. This reduction in the cost of
funds was partially offset by a $39.6 million increase in average interest-
bearing liabilities during 1993 as compared with 1992.
Deposit interest expense declined $2.1 million or 20.6% in 1993, as compared
with 1992, due primarily to a reduction in the weighted average rate paid on
deposits from 4.67% in 1992 to 3.69% in 1993. The effect on deposit interest
expense of this reduction in the cost of funds for deposits was slightly
reduced by an increase of $731,000 in the average deposit balance during 1993
as compared with 1992. Interest expense on FHLB advances increased $1.5 million
or 71.0% in 1993 as compared with the previous year. The increase was due to a
$38.2 million increase in the average balance of these advances, partially
offset by a decrease in the weighted average rate paid on FHLB advances from
5.86% in 1992 to 4.80% in 1993. Interest expense related to other borrowed
funds increased $28,000 or 5.5% in 1993 as compared to 1992. The increase was
attributable to an increase in the weighted average cost of such funds from
2.51% in 1992 to 2.55% in 1993 and an increase of $695,000 in the average
amount borrowed. The increase in the average balance for other borrowed funds
was due to increased levels of mortgage origination activities in 1993
experienced by Standard Mortgage Corporation ("SMC"). The cost of such advances
relates to the balance and timing of mortgage servicing escrow deposits
controlled by SMC during the year. Escrow deposits are used as compensating
balances to reduce SMC's cost of funds for advances it obtains from an
unaffiliated lender. For additional information relating to SMC, see "Mortgage
Banking Activities" below and Note 13 to the "JSB CONSOLIDATED FINANCIAL
STATEMENTS."
Deposit interest expense declined $3.4 million or 24.8% in 1992, as compared
with 1991, due primarily to a reduction in the weighted average rate paid on
deposits from 6.15% in 1991 to 4.67% in 1992. The effect on deposit interest
expense of this reduction in the cost of funds for deposits was enhanced by a
decrease of $2.0 million in the average deposit balance during 1992 as compared
with 1991. Interest expense on FHLB advances increased $189,000 or 10.1% in
1992 as compared with the previous year. The increase was due to a $9.8 million
increase in the average balance of these advances, partially offset by a
decrease in the weighted average rate paid on FHLB advances from 7.39% in 1991
to 5.86% in 1992. Interest expense related to other borrowed funds increased
$31,000 or 6.5% in 1992 as compared to 1991. The increase was attributable to
an increase of $3.5 million in the average balance of borrowed funds in 1992 as
compared to 1991, partially offset by a decrease in the weighted average cost
of such funds from 2.85% in 1991 to 2.51% in 1992.
For additional information relating to JSB's liabilities, see Notes 9, 10 and
11 to the "JSB CONSOLIDATED FINANCIAL STATEMENTS."
Provision for Loan Losses
Due to the credit risks involved in lending activities, JSB management
systematically reviews the quality of JSB's loan portfolio. Provisions charged
to operating results for specific estimated losses on individual loans are made
whenever uncertainty arises as to the ongoing willingness and ability of a
borrower to repay any loan obligation to JSB. Charge-offs against established
allowances are made when a significant impairment in value is deemed to have
occurred. General loan loss provisions are established by JSB on the basis of
JSB management's review of historical experience, the volume and composition of
the loan portfolio, industry standards, the status of past due principal and
interest payments, economic conditions (particularly as they
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<PAGE>
relate to market areas where JSB has a significant concentration of loans) and
other factors related to the collectibility of JSB's loan portfolio.
During 1993, $1.1 million in provisions for loan losses was recorded as
compared to $2.5 million and $867,000 during 1992 and 1991, respectively. The
decrease in JSB's 1993 provision for loan losses, in comparison with 1992,
reflects JSB management's assessment of the improving conditions for commercial
real estate generally and, more specifically, in the market areas where JSB's
loan collateral is located. In addition to the factors considered in
establishing general loan loss provisions, as described above, JSB's allowance
for loan losses considers (1) the amount and fair market value of collateral
supporting non-accrual loans and troubled debt restructurings, which are
primarily the result of adverse real estate markets in Texas, Colorado, and
Georgia; and (2) charge-off experience for commercial real estate loans secured
by properties primarily in these states. At December 31, 1993, JSB had
approximately $11.2 million, $4.1 million and $5.6 million of multi-family
residential and commercial real estate loans secured by properties located in
Texas, Colorado, and Georgia, respectively.
The increase in JSB's 1992 provision for loan losses, in comparison with
1991, reflected JSB management's assessment of the continued deterioration,
evidenced throughout 1992, in national real estate valuations generally and,
more specifically, in the market areas where JSB's loan collateral is located.
At December 31, 1992, JSB had approximately $17.1 million, $5.3 million and
$7.9 million of multi-family residential and commercial real estate loans
secured by properties located in Texas, Colorado, and Georgia, respectively.
At December 31, 1993, JSB's total allowance for loan losses amounted to $3.1
million or 1.9% of the total loan portfolio, as compared to $4.1 million or
2.6% at December 31, 1992, and $3.0 million or 1.8% at December 31, 1991. For a
reconciliation of the activity in JSB's allowance for loan losses and
additional information, see Note 3 to the "JSB CONSOLIDATED FINANCIAL
STATEMENTS."
JSB management records provisions for loan losses which it believes are
adequate to cover potential future losses on JSB's loan portfolio. To the
extent JSB must alter its assumptions, additional information becomes available
to JSB management, or real estate markets in which JSB has conducted lending
activities remain depressed, it may become necessary for JSB to increase its
provisions for loan losses in the future. JSB management believes that JSB has
adequate loan loss reserves at December 31, 1993. However, it continues to
monitor JSB's loan portfolio and will make loan loss reserve adjustments as
necessary. In addition, loan classifications and loss reserves, as determined
by JSB management, are subject to periodic examination by regulatory agencies.
JSB management cannot predict whether future regulatory examinations will
require any changes in JSB's loan classifications or loan loss reserves.
Other Operating Income
Total other non-interest operating income increased by $1.3 million or 25.5%
in 1993, following an increase of $842,000 or 19.1% in 1992. The increase in
total other operating income during 1993, as compared with 1992, was
attributable to a $976,000 increase in recovery income from the sale of real
estate acquired by foreclosure in prior years, a $129,000 increase in other
miscellaneous income, a $103,000 increase in net loan servicing income and
other loan service fees, a $69,000 increase in gains on the sale of investment
and mortgage-backed available for sale securities, and a $60,000 increase in
gains on the sale of loans.
During 1993, JSB recognized $1.1 million in gains and other income arising
from the sale of real estate acquired by foreclosure as compared with $166,000
in 1992. This income arose from the liquidation of properties during the year
at prices in excess of the properties' carrying values. At December 31, 1993,
JSB had reduced its holdings of commercial and multi-family residential real
estate acquired by foreclosure to two properties with a book value of $822,000
(before applicable reserves) from 20 properties with a book value of $6.6
million (before applicable reserves) at December 31, 1992.
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<PAGE>
The $129,000 or 17.4% increase in other (miscellaneous) operating income in
1993, as compared with the previous year, was due to general increases in JSB's
fee schedules due to general inflationary trends and competitive factors and to
an increased emphasis by JSB management on the generation of fee income. In
particular, JSB was successful during 1993, in increasing its fee-based
business transaction account relationships.
Loan servicing income and other loan servicing fees, net of applicable
amortization expense for purchased mortgage servicing rights ("PMSR") increased
$102,000 or 4.5% in 1993 as compared with the previous year. The increase was
primarily due to a $108,000 or 4.5% decrease in PMSR amortization expense in
1993 as compared with 1992. During 1993, SMC serviced a mortgage portfolio for
others with an average balance of $867.5 million as compared with an average
balance of $844.8 million in 1992. For additional information relating to SMC,
see "Mortgage Banking Activities" below and Note 13 to the "JSB CONSOLIDATED
FINANCIAL STATEMENTS."
During 1993, JSB recorded net gains of $811,000 on the sale of $51.7 million
in primarily fixed-rate securities previously classified as available-for-sale.
The securities were sold as part of JSB's asset/liability management strategy
in response to changes in interest rates, resultant prepayment risk and other
factors related to interest rate and resultant prepayment risk changes. Gains
on the sale of investment and MBS securities are dependent on market and
economic conditions and, accordingly, there can be no assurances that the gains
experienced in prior years can be achieved in the future. In addition, during
1993, JSB sold $223.4 million in residential mortgage loans realizing a net
profit of $1.4 million, an increase of $60,000 in comparison to the previous
year. These sales were completed in the normal course of business. JSB sells
such loans in order to reduce its concentration of long-term fixed-rate assets
as part of its on-going strategy to reduce its overall interest-rate risk. The
increase in 1993, as compared with the previous year, was primarily due to
increased loan origination volumes, which provided increased loan and related
servicing rights volumes classified as available-for-sale. Gains on the sale of
loans are dependent on market and economic conditions and, accordingly, there
can be no assurances that the gains experienced in prior years can be achieved
in the future. See "Subsidiary Operations" below.
The increase in total other operating income during 1992, as compared with
1991, was primarily attributable to an $849,000 increase in gains on the sale
of securities. This increase was partially offset by a $127,000 decrease in net
mortgage servicing and other loan service fee income in 1992 as compared with
the previous year.
During 1992, JSB recorded net gains of $742,000 on the sale of $57.8 million
in primarily fixed-rate securities. The securities were sold as part of JSB's
asset/liability management strategy in response to changes in interest rates,
resultant prepayment risk and other factors related to interest rate and
resultant prepayment risk changes. Net mortgage servicing income was $2.3
million or 45.0% of total other operating income, and $2.4 million or 56.0% of
total other operating income, respectively, in 1992 and 1991. Mortgage
servicing income and other loan service fees are primarily attributable to
SMC's mortgage banking activities. Such fees decreased in 1992 due to a
$958,000 increase in the amortization expense associated with PMSR. During
1992, SMC experienced significant mortgage loan refinancing activity which
reduced the outstanding balance of its PMSR. Mortgage servicing organizations
nationwide experienced increased refinancing activity due to generally lower
interest rates. Accordingly, SMC increased the amortization rate associated
with PMSR in 1992. This effect on net servicing income was partially offset by
an increase in the average balance of PMSR in SMC's portfolio as refinanced
loans were replaced with newly-originated loans. During 1992, SMC serviced a
mortgage portfolio for others with an average balance of $844.8 million as
compared with an average balance of $743.7 million in 1991.
Other Operating Expenses
Total other non-interest operating expenses decreased by $2.0 million or
15.5% in 1993 following an increase of $2.8 million or 27.9% in 1992. The
decrease in operating expenses in 1993 as compared with the
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previous year was due to a $3.3 million or 99.3% reduction in provisions for
losses and other charges relating to real estate acquired by foreclosure and a
$36,000 or 3.0% reduction in occupancy and equipment expenses. These reductions
in operating expenses were partially offset by a $413,000 increase in non-
recurring expenses related to the planned acquisition of JSB by USBANCORP, a
$409,000 or 13.4% increase in other miscellaneous operating expenses, a
$304,000 or 6.0% increase in salaries and benefits expense, a $122,000
reduction in the gain received from the termination of JSB's defined benefit
plan in 1991, and a $58,000 or 11.4% increase in FDIC deposit insurance premium
expenses.
The provision for losses and other related charges associated with real
estate acquired by foreclosure decreased $3.3 million in 1993 following an
increase of $1.8 million in 1992. The decrease in the provision and other
related charges associated with real estate acquired by foreclosure in 1993 was
due to improvements in valuations for commercial real estate nationally and
more specifically in the areas where JSB's loans are concentrated, and to JSB's
favorable experience in 1993 with respect to the liquidation of foreclosed
properties. The $1.8 million increase in provision for losses and other charges
associated with real estate acquired by foreclosure in 1992 was necessitated by
continued valuation declines, evidenced throughout 1992, in national real
estate markets, and more specifically, in the geographic areas where JSB's real
estate acquired by foreclosure is located. JSB management believes that JSB has
provided sufficient reserves to allow for the liquidation of existing real
estate acquired by foreclosure without material impact on the future operating
results of the institution. For a reconciliation of the activity in JSB's
reserve for losses on real estate owned, see Note 4 to the "JSB CONSOLIDATED
FINANCIAL STATEMENTS."
During the fourth quarter of 1993, JSB incurred $413,000 in expenses related
to the planned acquisition of JSB by USBANCORP. These expenses were for
accounting, legal and other professional advice and services required to
evaluate and ultimately negotiate the transaction terms. JSB management
believes that a similar level of professional services expense will be required
to complete the proposed merger transaction in 1994. These expenses will be
charged to operations as they are incurred in 1994.
Other miscellaneous operating expenses increased $409,000 or 13.4% in 1993,
as compared with 1992, primarily as a result of a $255,000 increase in data
processing costs resulting from the installation of a new out-sourced data
processing system in late 1992, and a $205,000 increase in professional
services, performed by unaffiliated entities, related to the management of
JSB's commercial real estate loan portfolio.
Salaries and benefits expense increased by $304,000 or 6.0% in 1993 as
compared with the previous year. The increase in salaries and employee benefits
during 1993 was attributable to small increases in staffing levels at JSB and
SMC and to normal cost increases due to general price inflation, particularly
in the area of employee benefit expenses.
In addition to the $1.8 million increase in the provision and other related
expenses associated with real estate acquired by foreclosure, other operating
expenses increased in 1992 due to a $520,000 reduction, as compared with 1991,
in non-recurring gains associated with the 1991 termination of JSB's defined
benefit employee pension plan, a $281,000 increase in other miscellaneous
categories, a $183,000 increase in salaries and employee benefit costs, and a
$43,000 increase in FDIC deposit insurance premiums.
During 1992, JSB recognized a non-recurring reversion gain of $122,000
following the final settlement of the plan liabilities relating to its
qualified non-contributory defined benefit employee retirement plan, which was
terminated in 1991. The plan previously covered all full-time employees who had
attained a minimum age requirement and met a required period of service. During
1991, JSB recognized a curtailment gain of $642,000 on the termination of the
defined benefit employee retirement plan. Effective November 1, 1991, JSB
adopted a defined contribution employee retirement plan that covers
substantially all employees of JSB and its subsidiaries. See Note 6 to the "JSB
CONSOLIDATED FINANCIAL STATEMENTS" for a more detailed explanation of JSB's
employee retirement plan.
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Other miscellaneous operating expenses increased $281,000 or 10.1% in 1992.
The increase in other operating expenses during 1992, as compared with 1991,
was primarily the result of JSB's increased use of external sources for support
services such as data processing and check processing operations and, to a
lesser degree, due to general inflationary pressures on a variety of JSB's
miscellaneous expense categories. JSB management has determined that JSB can
reduce overall operating costs through increased utilization of cost-effective
external processing service providers. JSB management expects that the fees
paid for such processing services will continue to be more than offset by
reductions in other expense categories, such as salaries and employee benefits
and occupancy and equipment charges.
Salaries and benefits expense increased by $183,000 or 3.7% in 1992. The
increase in salaries and employee benefits during 1992 as compared with 1991
was attributable to normal cost increases due to general price inflation.
Deposit insurance premiums paid to the FDIC increased $58,000 and $43,000 in
1993 and 1992, respectively. The increases in 1993 and 1992 were due to
increases in the deposit insurance premiums charged to all depository
institutions nationally. Under the provisions of the FDICIA, Congress
authorized additional deposit insurance premium increases, as may be required,
to re-capitalize the FDIC insurance fund in order to ensure the continued
stability of the banking system in the United States. In response to this
legislation, the FDIC initiated a system of risk-based premium assessments
based on a regulatory agency determination of a financial institution's capital
adequacy and level of need for greater than normal supervision. The
introduction of this system of risk-based assessments, on January 1, 1992, had
the effect of raising deposit insurance costs for the majority of depository
institutions nationwide.
Income Taxes
JSB is subject to the general provisions of the Code and the Pennsylvania
Mutual Thrift Tax Act, which taxes JSB's Pennsylvania-sourced income based on a
calculation substantially in accordance with GAAP. SMC is separately subject to
the applicable income tax laws of the State of Georgia.
Effective January 1, 1992, JSB adopted Statement of Financial Accounting
Standards No. 109 ("SFAS-109"), "Accounting for Income Taxes." SFAS-109
requires current-year recognition of the net income effect of future tax
benefits, such as net operating and capital loss carryforwards, and certain
timing differences between business entities' financial statements and tax
returns, subject to a valuation allowance.
During 1993, JSB recorded income tax expenses of $1.6 million as compared
with a net benefit of $677,000 in 1992. Accordingly, income tax expense
increased $2.3 million in 1993 as compared with the preceding year. The
increase in this expense was due to the exhaustion of net operating tax loss
carryforwards in 1993 and to an increase in pre-tax net income, before the
cumulative effect at January 1, 1992, of the change in the principle of
accounting for income taxes, to $4.9 million in 1993 from $232,000 in 1992.
Deferred tax assets, net of applicable valuation reserves, decreased by
$979,000, or 39.8%, to $1.4 million at December 31, 1993. Federal and state
income taxes currently payable were $431,000 at December 31, 1993.
Adoption of this change in accounting principle required JSB to record a
deferred tax asset, net of applicable valuation reserves, of $1.7 million on
January 1, 1992. This net non-recurring gain was credited to operations in 1992
as the cumulative effect of a change in accounting principle for income taxes.
A benefit from income taxes of $677,000 was credited to operations during 1992
in recognition of a net increase in JSB's deferred tax asset and for federal
and state taxes currently payable. Deferred tax assets, net of applicable
valuation reserves, increased by $787,000, or 47.0%, to $2.5 million at
December 31, 1992. Federal and state income taxes currently payable were
$110,000 at December 31, 1992.
For 1991, JSB recorded a provision for state and federal income taxes of
$110,000. The provision for income taxes, recorded in 1991, consisted of
$116,000 in Georgia state income taxes and a net benefit from federal income
taxes of $6,000. The benefit from federal income taxes resulted from $16,000 in
adjustments
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<PAGE>
favoring JSB for prior period returns net of the 1991 Alternative Minimum Tax
provision of $10,000. During 1991, JSB, on a consolidated basis, derived
benefit from net operating loss carryforwards and general business tax credit
carryforwards that substantially reduced its effective federal and Pennsylvania
state income tax rates. JSB is subject to the provisions of the federal
Alternative Minimum Tax, notwithstanding the benefit derived from its net
operating and capital loss carryforwards. For additional information, see Notes
1, 7 and 13 to the "JSB CONSOLIDATED FINANCIAL STATEMENTS."
Subsidiary Operations
SMC is a second-tier, wholly-owned subsidiary of JSB which conducts mortgage
banking activities in the southeastern United States. SMC recorded earnings of
$440,000, $564,000, and $893,000 for the periods ended December 31, 1993, 1992,
and 1991, respectively. Earnings decreased $124,000 or 21.9% in 1993, following
a decrease of $329,000 or 36.8% in 1992. The decrease in earnings in 1993 was
primarily due to a $272,000 or 4.5% increase in operating expenses partially
offset by a $77,000 or 1.1% increase in revenues and a $71,000 or 20.1%
decrease in income taxes.
Revenues increased $77,000 or 1.1% in 1993 as compared with 1992 primarily
due to a $162,000 or 12.5% increase in interest income due primarily to
increased loan origination activity which increased the average balance of
loans classified as available-for-sale from $13.3 million in 1992 to $18.2
million in 1993. The increase in net income was partially offset by an $85,000
or 1.5% aggregate decrease in other revenues sources, which include loan
origination and processing fees, loan servicing fees and late charges, net
gains on the sale of loans, and other miscellaneous revenue sources.
Operating expenses increased $272,000 in 1993 primarily as a result of
increased staffing and additional variable expenses associated with increased
loan origination activity, increased loan servicing volumes, and, to a lesser
extent, cost increases associated with general price inflation. During 1993,
SMC originated $179.9 million in new residential mortgage loans as compared
with origination of $176.0 million in 1992. Income tax expense declined in
1993, as compared with 1992, due to the decline in pre-tax net income from
$918,000 in 1992 to $723,000 in 1993.
Earnings decreased $329,000 or 36.8% in 1992 as compared with 1991. The
decrease in earnings in 1992 was primarily due to a $1.7 million or 40.2%
increase in operating expenses partially offset by a $1.1 million or 19.2%
increase in revenues and a $282,000 or 44.3% decrease in income taxes.
Revenues increased $1.1 million in 1992, as compared with 1991, primarily due
to a $710,000 increase in servicing fee revenues and a $385,000 increase in
interest income on loans classified as available-for-sale. Servicing fee
revenues increased in 1992 due to increased servicing volumes. The average
balance of loans serviced for others increased from $743.7 million in 1991 to
$844.8 million in 1992. Interest income increased primarily as a result of
increased loan origination activity which increased the average balance of
loans classified as available-for-sale from $9.2 million in 1991 to $13.3
million in 1992.
Operating expenses increased $1.7 million in 1992 primarily as a result of a
$958,000 or 67.2% increase in amortization expense for PMSR and a $735,000 or
30.3% increase in other operating expenses. Amortization expense associated
with PMSR increased in 1992 because SMC experienced significant refinancing
activity which had the effect of reducing the outstanding balance of its PMSR.
Mortgage servicing organizations nationwide experienced increased refinancing
activity due to generally lower interest rates. Other operating expenses
increased in 1992 due primarily to increased staffing and additional variable
expenses associated with increased loan origination activity, increased loan
servicing volumes, and, to a lesser extent, cost increases associated with
general price inflation. During 1992, SMC originated $176.0 million in new
residential mortgage loans as compared with originations of $129.7 million in
1991. Income tax expense declined $282,000 or 41.7% in 1992, as compared with
1991, due to the decline in pre-tax net income from $1.5 million in 1991 to
$918,000 in 1992.
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<PAGE>
SMC paid JSB $42,000 and $180,000 for the years ended December 31, 1993 and
1992, respectively, in management and other fees to compensate JSB for direct
and indirect expenditures JSB incurred on behalf of SMC during the year. In
addition, $283,000 and $302,000 representing 34% of SMC's federally taxable net
income for charges in lieu of federal income taxes were assessed SMC and
allocated to JSB during 1993 and 1992, respectively. The income tax charge to
SMC was made under the provisions of a tax-sharing agreement between the two
entities.
As a mortgage banking company, SMC originates and sells residential mortgage
loans and services loan assets owned by JSB and unaffiliated investors within
its mortgage servicing portfolio. SMC's ability to originate residential
mortgage loans is largely dependent upon levels of interest rates and the level
of housing sales activity within its market area, which affect the degree to
which consumers obtain new loans and refinance existing loans and which in turn
are affected by general economic conditions and by policies of regulatory
authorities and other factors. SMC's ability to sell residential mortgage loans
to supply funds for the origination of new loans is affected by the secondary
market for such loans, including but not limited to the operations, level of
activity, and underwriting criteria of the various federal agencies or
government-sponsored enterprises which are involved in this type of activity.
The level of interest rates also affects SMC's operations to the extent that
it originates loans without pre-existing commitments by investors to purchase
such loans or which are not otherwise fully hedged against changes in interest
rates, thus subjecting SMC to gains or losses on loan sales because the value
of such loans fluctuates inversely with changes in interest rates. In addition,
SMC creates separable and saleable mortgage-servicing rights when loans are
originated. The costs of originating loans and developing servicing rights are
substantially offset by collected origination fees.
SMC has, at various times, originated loans which were not the subject of
pre-existing purchase commitments but were hedged against changes in interest
rates. As a result of gains from the sale of loans and separable mortgage
servicing rights, SMC realized a $1.0 million, a $1.1 million, and $1.1 million
gain on sale of loans and originated mortgage servicing rights in 1993, 1992,
and 1991, respectively.
At December 31, 1993, SMC had commitments from investors for $15.9 million of
SMC's $16.6 million of loans classified as available-for-sale. In addition, SMC
had commitments to purchase or originate loans classified as available-for-sale
totaling $23.2 million at December 31, 1993. Commitments to purchase or
originate such loans are partially hedged against losses arising from adverse
changes in general interest rates due to SMC's practice of utilizing fixed-
price forward delivery commitments for a portion of its origination
commitments. SMC had purchase commitments from investors for approximately
26.2% of SMC's unfunded loan origination commitments at December 31, 1993. In
addition, SMC is further insulated from potential losses arising from the
effects of adverse interest-rate movements by its ability to offset a
significant portion of such potential losses on loan sales with premiums
received arising from the concurrent sale of related mortgage servicing rights.
SMC's largest source of revenue is fee income from rights held by it to
collect payments on and otherwise service loans. SMC has emphasized servicing
fee income in recent years because such income is less volatile than income
based directly on the origination and sale of loans. The amount of loans
serviced by SMC for others increased from $840.5 million at December 31, 1992,
to $908.9 million at December 31, 1993. The increase in loans serviced was due
to the creation of new mortgage loan servicing rights resulting from SMC's loan
origination activities and the purchase of rights from unaffiliated entities.
At December 31, 1993, SMC had $7.3 million of PMSR, which decreased from the
$7.8 million at December 31, 1992. The decrease in the carrying value of the
PMSR was due to the net effects of amortization expense related to such rights,
as previously described. Notwithstanding SMC's emphasis on servicing fee
income, in 1993, business considerations primarily relating to general interest
rates and the availability of newly originated residential mortgage loans
nationally, dictated that SMC sell a portion of loans originated by it on a
servicing-released basis, which increases the amount received for the loans
upon sale but decreases future servicing income.
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<PAGE>
SMC's ability to retain loan servicing rights upon the sale of loans originated
by it in the future will be dependent on liquidity, capital needs and other
business considerations.
SMC's source of funds for lending and other purposes is a line of credit
(warehouse line) from an unaffiliated lender secured by loans originated by SMC
for sale in the secondary market and a non-revolving commercial loan commitment
from an unaffiliated lender secured by a perfected interest in mortgage
servicing rights. At December 31, 1993, SMC had received advances from
nonaffiliates in the amount of $15.2 million from the mortgage warehouse line
and $4.1 million for the commercial loan. The available credit under the
warehouse line was $9.8 million at December 31, 1993.
The loan agreements for the warehouse line of credit and commercial loan
provide for interest rates ranging from 1% to the prevailing prime interest
rate plus 1%, depending upon the level of compensating balances maintained on
deposit with the unaffiliated lender. The compensating balances are derived
from escrow funds held for taxes and insurance payments, loan principal and
interest collections in transit, and corporate cash balances. During 1993, SMC
maintained average monthly compensating balances with the lender in the amount
of $22.8 million. Interest expense recorded in connection with the commercial
loan and mortgage warehouse line during 1993 was $392,000 for an effective rate
of 1.87% on the combined average outstanding balances during the year. For
additional information relating to SMC, including condensed financial
statements, see Note 13 to the "JSB CONSOLIDATED FINANCIAL STATEMENTS."
ASSET AND LIABILITY MANAGEMENT
JSB has adopted an Interest-Rate Risk Management Policy which is intended to
decrease JSB's vulnerability to material and sustained changes in interest
rates. In addition, JSB employs an independent investment advisory firm to
provide specialized simulation modeling services and advice regarding the
structure of JSB's interest-earning asset portfolio. The purpose of JSB's
interest rate risk management program is to insulate, in so far as possible,
the impact on JSB's earnings from changes in interest rates. JSB's
Asset/Liability Management Committee is charged with the responsibility of
implementing and managing this program on an ongoing basis and for reporting
the status of the program to the JSB Board of Directors at least monthly. The
Committee monitors the imbalance between the relatively longer-term nature of
JSB's interest-earning assets and the term of its interest-bearing liabilities.
One of the strategies adopted by JSB during 1991, and continued in 1992 and
1993, called for a reduced emphasis on certificates of deposit, with a
concurrent increased emphasis on demand deposits and borrowed funds as a source
of funds for investment in interest-earning assets. This strategy was effective
in its intended goal of lowering JSB's overall cost of funds while
simultaneously decreasing interest-rate risk.
Historically, JSB's emphasis on small to medium-sized (generally $1.0 million
or less) loans secured by existing commercial and multi-family residential
properties was integral to JSB's asset/liability management efforts because
these loans generally have adjustable interest rates and maturities of nine
years or less. Multi-family residential and commercial real estate loans
amounted to $42.8 million or 12.0% and 26.9% of JSB's total assets and total
loan portfolio, respectively, at December 31, 1993. As a result of the
increased risk associated with such loans, JSB, in recent periods, has changed
its strategy to emphasize adjustable-rate, one-to-four family residential
loans, consumer loans, and MBS, as discussed above.
At December 31, 1993, JSB's interest-earning assets which were scheduled to
mature or reprice within one year or less amounted to $156.2 million or 46.9%
of interest-earning assets, as compared to $150.7 million or 51.1% of earning
assets at December 31, 1992. At December 31, 1993, the principal balance of
JSB's interest-bearing liabilities which were scheduled to mature or reprice
within one year or less amounted to $183.8 million or 56.4% of the interest-
bearing liabilities of JSB, as compared to $159.1 million or 54.2% of interest-
bearing liabilities at December 31, 1992. JSB's interest-bearing liabilities
which are scheduled to mature or reprice within one year exceed its interest-
earning assets with similar characteristics by $27.6 million or 8.3% of total
interest-earning assets at December 31, 1993, as compared to $8.4 million or
2.9%
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<PAGE>
of total interest-earning assets at December 31, 1992. This difference between
repricing or maturing assets and liabilities within one year is referred to as
JSB's one-year "gap" position. The gap position is typically described as
"negative" when liabilities repricing or maturing exceed assets repricing or
maturing in a given future time period. Because of JSB's negative one-year gap
position, material and sustained increases in interest rates would have the
general tendency to adversely affect JSB's net interest income, whereas
material and sustained decreases in interest rates would have the general
tendency to produce the opposite effect. Offsetting these predicted effects are
estimable changes in the prepayment rates of certain assets and the renewal
rates of certain deposit products during and following such periods of material
and prolonged interest rate changes. JSB management's analysis of these factors
indicates that JSB's net interest margin exposure to changes in interest rates
is less than would be predicted by JSB's negative one-year gap position.
JSB's analysis of the maturity and repricing of assets and liabilities
incorporates certain assumptions concerning the amortization and prepayment of
such assets and liabilities. The major assumptions are that all adjustable-rate
instruments are believed to be rate sensitive on the next contractual rate
adjustment date, that fixed-rate mortgage loans and fixed-rate MBS will prepay
at a rate that is estimable based on historical norms, that only 34.6% of
savings, money market and NOW accounts are rate sensitive in the one-year
period, and that all fixed-rate liabilities are rate sensitive as of the
contractual maturity date. JSB management believes that these assumptions
approximate actual experience and considers them reasonable, although the
actual amortization and repayment of assets and liabilities may vary
substantially.
The following table summarizes the amounts of interest-earning assets and
interest-bearing liabilities outstanding as of December 31, 1993, which are
expected to mature, prepay, or reprice in each of the future time periods
shown. Except as stated below, the amounts of assets or liabilities shown which
mature or reprice during a particular period were determined in accordance with
the contractual terms of the asset or liability. Adjustable floating-rate
assets are included in the period in which interest rates are next scheduled to
adjust rather than in the period in which they are due. Fixed-rate loans and
MBS are included in the periods in which they are anticipated to be repaid
based on scheduled maturities and estimated repayment rates based upon
historical experience. Money market deposit accounts, which are also generally
subject to immediate withdrawal, are included in the "six months or less"
period. Savings passbook and NOW accounts are spread among the periods shown in
accordance with historical experience and JSB management's belief that such
deposits are generally non-interest rate-sensitive core deposits.
81
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
SIX
SIX MONTHS ONE YEAR THREE YEARS FIVE YEARS
MONTHS THROUGH THROUGH THROUGH THROUGH OVER
OR LESS 1 YEAR 3 YEARS 5 YEARS TEN YEARS TEN YEARS TOTAL
-------- -------- -------- ----------- ---------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-earning
deposits with other
institutions........... $ 5,349 $ -- $ -- $ -- $ -- $ -- $ 5,349
Adjustable-rate mortgage
loans and mortgage-
backed securities...... 35,422 37,288 26,398 12,903 8,168 -- 120,179
Fixed-rate mortgage
loans and mortgage-
backed securities...... 37,268 16,509 42,637 22,887 29,793 4,053 153,147
Consumer and other
loans................... 11,351 5,707 5,973 2,941 1,341 -- 27,313
Commercial business
loans and leases........ 5,069 17 53 34 164 163 5,500
Investment securities
and other investments... 250 1,970 3,569 2,120 4,203 9,796 21,908
Other non-interest
earning assets.......... -- -- -- -- -- -- 22,402
-------- -------- -------- ------- ------- ------- --------
Total assets............ $ 94,709 $ 61,491 $ 78,630 $40,885 $43,669 $14,012 $355,798
======== ======== ======== ======= ======= ======= ========
INTEREST-BEARING
LIABILITIES:
Passbook, club and
escrow accounts......... $ 5,060 $ 4,597 $ 14,625 $ 9,540 $12,103 $10,569 $ 56,494
NOW and Money Market
accounts................ 17,845 10,441 13,329 4,036 4,800 2,737 53,188
Certificate accounts.... 43,993 29,561 23,863 8,087 1,767 457 107,728
FHLB advances........... 55,000 2,000 13,000 6,500 12,500 -- 89,000
Other borrowings........ 15,267 -- -- 4,111 -- -- 19,378
Other non-interest
bearing liabilities..... -- -- -- -- -- -- 2,430
Shareholders' equity.... -- -- -- -- -- -- 27,580
-------- -------- -------- ------- ------- ------- --------
Total liabilities and
shareholders' equity.... $137,165 $ 46,599 $ 64,817 $32,274 $31,170 $13,763 $355,798
======== ======== ======== ======= ======= ======= ========
Maturity or repricing
gap during the period... $(42,456) $ 14,892 $ 13,813 $ 8,611 $12,499 $ 249
======== ======== ======== ======= ======= =======
Cumulative gap.......... $(42,456) $(27,564) $(13,751) $(5,140) $ 7,359 $ 7,608
======== ======== ======== ======= ======= =======
Ratio of gap during the
period to total assets.. -11.9% 4.2% 3.9% 2.4% 3.5% 0.1%
======== ======== ======== ======= ======= =======
Ratio of cumulative gap
to total assets......... -11.9% -7.7% -3.9% -1.4% 2.1% 2.1%
======== ======== ======== ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Shareholders' equity totaled $27.6 million or 7.8% of total assets at
December 31, 1993, as compared to $24.4 million or 7.6% of total assets at
December 31, 1992, and $21.8 million or 7.4% of total assets at December 31,
1991. The increase in shareholders' equity during the past two years was the
result of JSB's consolidated earnings of $3.4 million and $2.6 million in 1993
and 1992, respectively, less dividends paid of $291,000 in 1993 and a credit to
capital resulting from the adoption at December 31, 1993, of Statement of
Accounting Standards No. 115 ("SFAS-115"), "Accounting for Investments in
Certain Debt and Equity Securities," in the amount of $122,000. SFAS-115
requires that unrealized market value changes relative to amortized historical
book value of investment securities categorized as "available-for-sale" shall
be credited (or charged), after computation of related tax effects, to a
separate component of shareholders' equity. At December 31, 1993, JSB held
securities categorized as available-for-sale with aggregate market values of
$184,000 in excess of aggregate amortized historical cost. After allowing for
the potential timing-difference tax effects of this unrealized appreciation, in
accordance with the provisions of SFAS-115, the net increase in shareholders'
equity was $122,000 as a result of the adoption of this change in accounting
principle.
Regulatory capital standards have been established which require JSB to
maintain: (1) leverage capital in an amount not less than 3% to 5% of JSB's
adjusted total assets; (2) risk-based capital in an amount not less than 4.0%
of JSB's risk-adjusted assets; and (3) total capital in an amount currently
equal to 8.0% of risk-adjusted assets. At December 31, 1993, JSB was in
compliance with all applicable regulatory capital requirements which were in
effect as of that date, with leverage, risk-based and total capital ratios of
7.6%, 13.2% and 14.5%, respectively.
Failure to comply with applicable regulatory capital requirements can result
in capital directives from the appropriate regulatory agencies, restrictions on
or prohibitions on growth and other limitations on a savings institution's
operations and activities. JSB's primary sources of funds to support lending
and other general business activities have been deposits and amortization and
prepayments of outstanding loans and
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<PAGE>
investments. JSB may also borrow from the FHLB of Pittsburgh and other
unaffiliated sources. At December 31, 1993, JSB had $89.0 million of FHLB
advances (including $50.5 million in fixed-rate advances with various
maturities, $24.5 million in advances funded under a line of credit agreement
which is subject to daily interest-rate repricing and $14.0 million in
adjustable-rate advances) and $107.7 million of certificates of deposit. At
December 31, 1993, $18.5 million in fixed-rate FHLB advances, $35.5 million in
FHLB adjustable-rate advances, and $73.6 million in certificates of deposit
were scheduled to mature within one year. JSB management believes that JSB has
adequate resources to fund these commitments, that all of these commitments
will be funded by the required date, and that it can adjust the rates paid by
JSB on savings certificates to retain deposits in changing interest rate
environments. For additional information, see Notes 9, 10, and 11 to the "JSB
CONSOLIDATED FINANCIAL STATEMENTS."
Under regulation imposed by the Department and the FDIC, JSB is required to
maintain a minimum balance of liquid assets (cash, cash equivalents, bankers'
acceptances, commercial paper and certain readily marketable securities
classified as available-for-sale) to meet the foreseeable requirements for
liquid cash on an ongoing basis. Appropriate levels of liquidity are subject to
case-by-case evaluation by the Department and the FDIC. Such evaluation would
consider factors such as JSB's capital position, historical liquidity
requirements and other factors as deemed appropriate by regulatory examiners.
Normally, financial institutions, such as JSB, would be required to maintain
liquid assets in the amount of not less than 20% of withdrawable deposits,
short-term borrowings and other short-term obligations. Monetary penalties may
be imposed for failure to meet such liquidity requirements. JSB management
believes that JSB maintains and has maintained sufficient short-term and liquid
assets (including loans and securities available-for-sale) to meet the
liquidity standards of the Department and the FDIC. At December 31, 1993, JSB
held sufficient liquid assets in the form of cash on hand, FHLB deposits, loans
and investments available-for-sale, and other loans and investments maturing
within one-year to ensure, in the opinion of JSB management, full compliance
with these liquidity standards.
Shareholders' Equity
Retained earnings are substantially restricted in connection with regulations
related to the insurance of savings accounts, which require JSB to maintain
certain reserves. In addition, JSB is required to meet certain minimum leverage
and risk-weighted assets to capital ratios adopted by the FDIC and the
Department.
The regulatory agencies have adopted the requirements of 3% to 5% leveraged
(core) capital and 8% risk-adjusted capital. The following table sets forth a
comparison of JSB's capital position to the minimum regulatory requirements as
of December 31, 1993.
<TABLE>
<CAPTION>
RATIO REQUIREMENTS ACTUAL
- ----- ------------ ------
<S> <C> <C>
Leverage (core)............................................. 3.0%-5.0%(1) 7.6%
Risk based capital-Tier I................................... 4.0%(2) 13.2%
Total (Tier I and II)....................................... 8.0%(3) 14.5%
</TABLE>
- --------
(1) JSB Common Stock, additional paid-in-capital and retained earnings, less
intangible assets, divided by total assets. The current requirement is 3.0%
for banks with the highest regulatory rating and 4.0-5.0% for all others.
(2) JSB Common Stock, additional paid-in-capital and retained earnings, less
intangible assets, divided by risk-adjusted total assets. The current
requirement is 4.0%.
(3) The sum of Tier I and Tier II capital and the allowance for loan losses
(limited to 1.25% of risk-adjusted total assets), divided by risk-adjusted
total assets. The current requirement is 8.0%.
CONCENTRATIONS OF CREDIT RISK
Financial institutions, such as JSB, generate profits primarily through
lending and investing activities. The risk of loss from lending and investing
activities includes the possibility that a loss may occur from the
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<PAGE>
failure of another party to perform according to the terms of the loan or
investment agreement. This possibility of loss is known as credit risk.
Credit risk is increased by lending and/or investing activities that
concentrate a financial institution's earning assets in such a way as to expose
the institution to a material loss from any single occurrence or group of
related occurrences. Diversifying the institution's assets to prevent
concentrations is one way in which a financial institution can reduce potential
losses due to credit risk. Examples of asset concentrations would include, but
not be limited to, geographic concentrations, loans or investments of a single
type, multiple loans to a single borrower, loans made to a single type of
industry or against a single type of property and loans of an imprudent size
relative to the overall size of the institution.
JSB has adopted policies designed to substantially reduce concentrations
within its investment portfolio. The primary investment vehicle for JSB during
1993 was MBS which are comprised of diversified individual residential mortgage
loans. The majority of the MBS held by JSB are additionally guaranteed as to
the timely repayment of principal and interest by an agency of the United
States Government (Government National Mortgage Association) or a government-
sponsored enterprise (Federal National Mortgage Association or the Federal Home
Loan Mortgage Corporation).
Investments in other securities, such as corporate securities, are made to
enhance JSB's overall net interest margin, to provide a countercyclical balance
to other JSB earnings and to provide and maintain liquidity within the
guidelines of applicable regulations. JSB's current investment policy is
designed to maintain a balance of high-quality, diversified investments to
minimize risk. At December 31, 1993, JSB held securities with an amortized cost
of $169.6 million, of which $147.7 million was invested in MBS ($115.8 million
classified as available-for-sale) and the substantial majority of the remaining
$21.9 million ($21.8 million classified as available-for-sale) was invested in
U.S. Government agency and investment-grade corporate securities.
JSB management has taken steps to reduce its exposure to credit risk by
diversifying its assets. Historically, JSB emphasized small to medium-sized
(generally $1.0 million or less) loans secured by existing commercial and
multi-family residential properties located within its market area and
nationwide. As a result of the increased credit risk associated with such
loans, in recent periods JSB has changed its strategy to emphasize one-to-four
family residential loans classified as available-for-sale, consumer loans and
MBS.
Notwithstanding JSB management's efforts to reduce its credit risk exposure
in commercial property loans, JSB continues to have a substantial multi-family
residential and commercial real estate loan portfolio relative to its total
asset size. These loan types amounted to $42.8 million or 12.0% and 27.5% of
JSB's total assets and total loan portfolio (net of reserves), respectively, at
December 31, 1993.
The following table sets forth JSB's commercial real estate and multi-family
residential loan portfolio by property type as of December 31 1993:
<TABLE>
<CAPTION>
NON-ACCRUAL LOANS AND
PERFORMING TROUBLED DEBT RESTRUCTURINGS
--------------- ----------------------------
(DOLLARS IN THOUSANDS)
1993 1992 1993 1992
------- ------- -------------- --------------
<S> <C> <C> <C> <C>
Multi-family dwelling............. $ 8,535 $ 7,908 $ -- $ 842
Mixed-use apartments.............. -- 616 -- --
Hotel/Motel....................... 2,541 2,655 -- 213
Retail strip centers.............. 14,277 15,037 936 1,005
Office............................ 4,266 6,982 289 1,391
Commercial........................ 3,991 3,866 664 1,758
Other............................. 6,869 3,406 426 --
------- ------- -------------- --------------
$40,479 $40,470 $ 2,315 $ 5,209
======= ======= ============== ==============
</TABLE>
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<PAGE>
The following table sets forth the geographic distribution of JSB's
performing mortgage loan portfolio as of December 31, 1993:
<TABLE>
<CAPTION>
COMMERCIAL AND MULTI-
FAMILY
RESIDENTIAL MORTGAGES RESIDENTIAL MORTGAGES
------------------------ ------------------------
(DOLLARS IN THOUSANDS)
BALANCE % NUMBER BALANCE % NUMBER
LOCATION 1993 TOTAL OF LOANS 1993 TOTAL OF LOANS
- -------- ------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania.................. $17,578 43.42% 32 $42,469 90.44% 1,350
Texas......................... 9,576 23.65 42 380 0.81 51
Colorado...................... 4,079 10.07 19 221 0.47 2
Georgia....................... 5,206 12.86 9 2,615 5.57 67
Other......................... 4,040 10.00 7 1,274 2.71 82
------- ------ --- ------- ------ -----
$40,479 100.00% 109 $46,959 100.00% 1,552
======= ====== === ======= ====== =====
</TABLE>
The following table sets forth the geographic distribution of JSB's
performing mortgage loan portfolio as of December 31, 1992:
<TABLE>
<CAPTION>
COMMERCIAL AND MULTI-
FAMILY
RESIDENTIAL MORTGAGES RESIDENTIAL MORTGAGES
------------------------ ------------------------
(DOLLARS IN THOUSANDS)
BALANCE % NUMBER BALANCE % NUMBER
LOCATION 1992 TOTAL OF LOANS 1992 TOTAL OF LOANS
- -------- ------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania.................. $ 9,006 22.25% 27 $44,325 88.17% 1,545
Texas......................... 14,471 35.76 65 447 0.89 53
Colorado...................... 5,294 13.08 26 226 0.45 2
Georgia....................... 6,793 16.79 13 4,510 8.97 91
Other......................... 4,906 12.12 10 766 1.52 20
------- ------ --- ------- ------ -----
$40,470 100.00% 141 $50,274 100.00% 1,711
======= ====== === ======= ====== =====
</TABLE>
The following table sets forth the geographic distribution JSB's non-accrual
loans and troubled debt restructurings as of December 31, 1993:
<TABLE>
<CAPTION>
COMMERCIAL AND MULTI-
FAMILY
RESIDENTIAL MORTGAGES RESIDENTIAL MORTGAGES
------------------------ ------------------------
(DOLLARS IN THOUSANDS)
BALANCE % NUMBER BALANCE % NUMBER
LOCATION 1993 TOTAL OF LOANS 1993 TOTAL OF LOANS
- -------- ------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania.................. $ -- 0.00% -- $427 99.77% 12
Texas......................... 1,600 69.11 4 -- 0.00 --
Georgia....................... 426 18.40 1 1 0.23 1
Other......................... 289 12.49 1 -- 0.00 --
------ ------ --- ---- ------ ---
$2,315 100.00% 6 $428 100.00% 13
====== ====== === ==== ====== ===
</TABLE>
85
<PAGE>
The following table sets forth the geographic distribution of JSB's non-
accrual loans and troubled debt restructurings as of December 31, 1992:
<TABLE>
<CAPTION>
COMMERCIAL AND MULTI-
FAMILY
RESIDENTIAL MORTGAGES RESIDENTIAL MORTGAGES
------------------------ ------------------------
(DOLLARS IN THOUSANDS)
BALANCE % NUMBER BALANCE % NUMBER
LOCATION 1992 TOTAL OF LOANS 1992 TOTAL OF LOANS
- -------- ------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania.................. $ 213 4.09% 1 $379 85.17% 14
Texas......................... 2,668 51.22 7 -- -- --
Georgia....................... 1,116 21.42 2 66 14.83 2
Other......................... 1,212 23.27 2 -- -- --
------ ------ --- ---- ------ ---
$5,209 100.00% 12 $445 100.00% 16
====== ====== === ==== ====== ===
</TABLE>
At December 31, 1993 and 1992, JSB had $1.7 million or 0.5% of total assets
and $6.6 million or 2.1% of total assets, respectively, classified as real
estate owned. The reserve for losses associated with real estate owned at
December 31, 1993 and 1992, was $240,000 and $2.1 million, respectively. The
following tables set forth the geographic distribution of JSB's real estate
owned as of December 31:
<TABLE>
<CAPTION>
COMMERCIAL AND MULTI-
FAMILY
RESIDENTIAL MORTGAGES RESIDENTIAL MORTGAGES
------------------------ ------------------------
(DOLLARS IN THOUSANDS)
BALANCE % NUMBER BALANCE % NUMBER
LOCATION 1993 TOTAL OF LOANS 1993 TOTAL OF LOANS
- -------- ------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania.................. $ 208 25.30% 1 $ 20 2.20% 1
Georgia....................... 614 74.70 1 721 79.41 7
Other......................... -- 0.00 -- 167 18.39 7
------ ------ --- ---- ------ ---
$ 822 100.00% 2 $908 100.00% 15
====== ====== === ==== ====== ===
<CAPTION>
BALANCE % NUMBER BALANCE % NUMBER
LOCATION 1992 TOTAL OF LOANS 1992 TOTAL OF LOANS
- -------- ------- ------ -------- ------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania.................. $ 596 9.01% 1 $ 11 100.00% 1
Texas......................... 3,037 45.92 13 -- 0.00 --
Colorado...................... 811 12.26 2 -- 0.00 --
Georgia....................... 2,170 32.81 4 -- 0.00 --
------ ------ --- ---- ------ ---
$6,614 100.00% 20 $ 11 100.00% 1
====== ====== === ==== ====== ===
</TABLE>
The following table sets forth JSB's commercial real estate owned by property
type as of December 31:
<TABLE>
<CAPTION>
1993 1992
------------------------ -------------------------
(DOLLARS IN THOUSANDS)
% NUMBER % NUMBER
PROPERTY TYPE BALANCE TOTAL OF LOANS BALANCE TOTAL OF LOANS
- ------------- ------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Retail strip centers......... $ -- --% -- $2,556 38.65% 6
Office....................... 614 74.70 1 -- -- --
Commercial................... 208 25.30 1 2,476 37.44 11
Other........................ -- -- -- 985 14.89 2
Multi-family dwellings....... -- -- -- 597 9.02 1
---- ------ --- ------ ------ ---
$822 100.00% 2 $6,614 100.00% 20
==== ====== === ====== ====== ===
</TABLE>
Substantially all of JSB's consumer loan portfolio is secured (where
applicable) by assets located in and around JSB's general market area.
Unsecured loans are generally granted only to residents of the
86
<PAGE>
Commonwealth of Pennsylvania, substantially all of whom reside in or around
JSB's general market area. The following table classifies JSB's consumer loan
portfolio by collateral type as of December 31:
<TABLE>
<CAPTION>
BALANCE BALANCE
COLLATERAL TYPE 1993 1992
- --------------- ------- -------
(IN THOUSANDS)
<S> <C> <C>
Unsecured:
Credit card and installment loans............................. $ 6,692 $ 7,378
Secured:
Revolving loans secured by 1-4 dwelling units................. 2,499 2,601
Loans on deposits............................................. 238 278
Home improvement loans........................................ 5,452 5,884
Education loans............................................... 6,864 6,045
Auto and other loans.......................................... 5,728 9,818
------- -------
Total consumer loans.......................................... $27,473 $32,004
======= =======
</TABLE>
JSB also originates and services commercial business loans secured by
business assets, personal guarantees and liens on secondary collateral other
than the real estate occupied by the business. These loan types amounted to
$5.5 million or 1.5% and 3.5% of JSB's total assets and total loan portfolio,
respectively, at December 31, 1993. Substantially all of JSB's commercial loan
and indirect financing lease portfolio is secured by assets located in and
around JSB's general market area.
JSB also has exposure to credit risk resulting from relatively large loans
made to single borrowers or affiliated groups of borrowers. At December 31,
1993, JSB had 32 commercial business, commercial real estate and multi-family
residential loans with outstanding principal balances in excess of $500,000.
The total outstanding balance for these loans was $33.3 million. At December
31, 1993, total loans with outstanding balances in excess of $500,000 included
30 loans totaling $32.4 million (net of general valuation reserves of
$474,000), that were performing as originally agreed, and two loans totalling
$900,000 (net of general valuation reserves of $58,000) that were categorized
as non-accrual and/or troubled debt restructurings.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein have
been prepared in accordance with GAAP, which requires the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation.
Unlike many industrial companies, substantially all of the assets and
liabilities of JSB are monetary in nature. As a result, interest rates have a
more significant impact on JSB's performance than the general level of
inflation. Over short periods of time, interest rates may not move in the same
direction or in the same magnitude as inflation.
BUSINESS OF JSB
GENERAL
JSB is a Pennsylvania-chartered, Bank Insurance Fund (the "BIF")--insured
stock savings bank conducting business from six offices in Johnstown,
Pennsylvania. Originally organized under Pennsylvania law in 1870, JSB operated
under a federal charter from February 1985 until March 1993. JSB obtained
federal insurance of accounts in 1934. In October 1986, JSB converted from a
mutual savings bank to a stock savings bank. In addition, JSB operates SMC, a
wholly-owned, second-tier subsidiary headquartered in Atlanta, Georgia. SMC
conducts mortgage banking activities in the southeastern United States. For
additional information relating to JSB's subsidiaries, see "Subsidiaries"
below.
87
<PAGE>
At December 31, 1993, JSB had $355.8 million of total assets and $27.6
million of shareholders' equity and, based on total assets, is the largest
savings institution and the third largest financial institution headquartered
in the Johnstown metropolitan area.
JSB historically has been primarily engaged in attracting deposits from the
general public through its branch offices and using such deposits primarily to
originate loans secured by first liens on single-family (one-to-four units) and
multi-family (over four units) residential, commercial real estate, commercial
business and consumer loans. JSB has also invested, directly and indirectly, in
securities issued by the United States Government and agencies thereof,
securities issued by government-sponsored enterprises, municipal and corporate
debt securities, corporate equity securities, and has provided trust services
to its customers. For additional information relating to JSB's investments, see
"Investment Activities" below.
JSB is subject to examination and comprehensive regulation by the Department,
which is JSB's chartering authority and the FDIC, the administrator of the BIF.
JSB is a member of the FHLB, which is one of the 12 regional banks comprising
the Federal Home Loan Bank System (the "FHLB System").
JSB's principal executive offices are located at Savings Bank Plaza, Market
at Main Streets, Johnstown, Pennsylvania 15901 and its telephone number is
(814) 535-8900.
THE SAVINGS INDUSTRY
The operating results of JSB are significantly influenced by its net interest
income, which equals the difference between income on interest-earning assets
(primarily loans and investments) and expense on interest-bearing liabilities
(primarily deposits and borrowings). The interest income and expense of savings
institutions, including JSB, are significantly affected by the volatility and
level of general market rates of interest and by the regulatory, economic and
competitive environment in which the savings industry operates. JSB has
implemented asset and liability management strategies which are designed to
reduce JSB's vulnerability to changes in interest rates. See "JSB MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Asset
and Liability Management."
Although interest rates generally have declined from the levels reached in
the early 1980's, there can be no assurance that interest rates will not
increase from their current levels and adversely affect JSB's results of
operations. Moreover, JSB will continue to be affected by these and other
market and economic conditions, such as inflation and factors affecting the
markets for debt and equity securities, as well as legislative, regulatory,
accounting and tax changes which are beyond its control.
The operations of JSB are also affected by legislative changes such as the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
and the FDICIA, which were enacted into law to reform and reorganize the
federal deposit insurance system and the regulatory structure applicable to
savings institutions such as JSB. These Acts and additional regulatory
pronouncements enacted within the scope of regulatory agency authority have had
the effect of increasing the amount of premiums to be paid for deposit
insurance by banks and savings institutions, increasing the amount of capital
required to be maintained by savings institutions for regulatory purposes and
imposing various investment and other restrictions on the operations of
financial institutions. Following the enactment of FIRREA, the deposits in
certain savings institutions, such as JSB, are insured by the BIF, as
administered by the FDIC, up to legally permissible limits.
OPERATIONS
Lending Activities
Loan Portfolio Composition. At December 31, 1993, JSB's total loan portfolio,
excluding mortgage-backed securities, amounted to $159.0 million ("total loan
portfolio"), representing approximately 44.7% of its $355.8 million of total
assets at that date.
88
<PAGE>
Contractual Maturities of Loans. The following table sets forth the
contractual maturities of JSB's loan portfolio as of December 31, 1993, by
categories of loans.
<TABLE>
<CAPTION>
PRINCIPAL REPAYMENTS AND RATE ADJUSTMENTS
CONTRACTUALLY DUE IN YEAR(S) ENDED DECEMBER 31,
-------------------------------------------------------------------
(IN THOUSANDS)
TOTAL
OUTSTANDING
AT
DECEMBER 31, ONE YEAR ONE YEAR TO THREE TO FIVE TO GREATER THAN
1993 OR LESS THREE YEARS FIVE YEARS TEN YEARS TEN YEARS
------------ -------- ----------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE LOANS:
Residential (one to
four units)............. $47,387 $26,939 $11,758 $5,742 $2,348 $600
Commercial/multi-family
(over four units).... 42,794 11,471 13,272 9,801 8,220 30
Construction Loans..... 3,099 3,099 -- -- -- --
Residential mortgage
loans available for
sale (at cost which
approximates market). 32,759 19,367 4,242 3,022 4,221 1,907
Consumer Loans......... 27,473 17,218 5,973 2,941 1,341 0
Commercial business
loans and leases..... 5,500 5,086 53 34 164 163
-------- ------- ------- ------- ------- ------
Total(1).............. $159,012 $83,180 $35,298 $21,540 $16,294 $2,700
======== ======= ======= ======= ======= ======
</TABLE>
- --------
(1) Of the $75.8 million of loans contractually due after December 31, 1994,
$34.5 million have fixed-rates of interest and $41.3 million have
adjustable or floating rates of interest.
Contractual maturities of loans do not necessarily reflect the actual term of
JSB's loan portfolio. The average life of loans is less than their contractual
maturity because of scheduled principal payments and prepayments. The average
life of loans tends to further decrease during periods where rates on existing
loans substantially exceed current loan rates due to increased prepayment
activity.
Origination, Purchase and Sale of Loans. JSB has historically had general
authority to originate and purchase loans secured by real estate located
throughout the United States. As discussed herein under "Commercial Real Estate
and Multi-Family Residential Lending," JSB had, prior to mid-1987, utilized
this nationwide lending authority as a means to employ the funds available to
it and to increase the interest-rate sensitivity of its assets.
In 1989, JSB entered into a Supervisory Agreement/ Memorandum of
Understanding ("Supervisory Agreement") with the OTS, JSB's then primary
federal regulator, and the FDIC, which significantly restricted the lending
authority of JSB with regard to loans secured by commercial or multi-family
residential real estate. The Supervisory Agreement, which expired in April
1992, primarily prohibited JSB from originating or purchasing any commercial or
multi-family residential real estate loans. A November 1990 amendment to the
Supervisory Agreement allowed for the refinancing of existing commercial real
estate and multi-family residential loans under limited circumstances. A
successor Supervisory Agreement between JSB and the OTS, to which the FDIC was
not a party, was entered into in July 1992. This Agreement limited JSB's
lending authority for commercial and multi-family residential real estate to
loans secured by collateral within 100 miles of JSB's Johnstown offices. This
Supervisory Agreement was terminated when JSB converted to a Pennsylvania
charter in March 1993.
JSB originates loans secured by residential properties located in its market
area, as well as commercial business and consumer loans, through salaried
officers who evaluate applications received at any of JSB's offices. Such
applications are primarily attributable to referrals from real estate brokers
and builders, depositors and walk-in customers. In addition, JSB historically
originated loans secured by commercial and
89
<PAGE>
multi-family residential real estate located outside of its market area,
particularly Texas, Colorado and Georgia. During the fourth quarter of 1986,
JSB adopted the policy of phasing-out the origination of commercial and multi-
family residential real estate loans in Texas and Colorado as a result of the
unfavorable market conditions in those locations and, during 1987, de-
emphasized this type of lending generally. See "Commercial Real Estate and
Multi-Family Residential Lending" below.
Primarily due to economic conditions in Johnstown, JSB historically has had
substantially more funds available for lending than lending opportunities in
the Johnstown area. As a result, and in order to increase the interest-rate
sensitivity and shorten the maturity of its loan portfolio, JSB had, prior to
May 1987, emphasized small to medium-sized (generally $1 million or less) loans
secured by existing commercial properties and multi-family residential
properties located in selected markets nationwide. Such loans had been
originated by JSB outside of its market area since the early 1960's. JSB has
also originated single-family residential real estate loans in selected markets
outside of the Johnstown area, primarily Atlanta, Georgia.
At December 31, 1993, JSB's out-of-state loan portfolio amounted to $29.7
million, of which $25.2 million and $4.5 million is comprised of commercial
real estate and multi-family residential mortgage loans and single-family
residential mortgage loans, respectively, including, in the aggregate, $11.5
million in Texas ($9.9 million performing and $1.6 million non-performing or
troubled debt restructuring), $4.3 million in Colorado (all loans currently
performing) and $8.2 million in Georgia ($7.8 million performing and $427,000
nonperforming or troubled debt restructuring). Real estate loans secured by
properties located outside of JSB's market area were primarily referred to JSB
by mortgage banking firms with which JSB has had long-standing relationships. A
significant percentage of such loans are serviced by the originating mortgage
banking firm for a fee. Such loans generally were originated by JSB and are not
participations in loans originated by other lenders.
On December 3, 1987, JSB acquired the residential loan origination rights,
certain loan servicing rights and related assets from the mortgage banking firm
of Standard Mortgage Corporation of Georgia. JSB has retained the name
"Standard Mortgage Corporation of Georgia." SMC is a mortgage banking company
located in Atlanta, Georgia, originating single-family residential real estate
loans and servicing loans for other financial institutions. Substantially all
of the single-family residential real estate loans secured by properties
located outside JSB's market area were either purchased from or originated
through SMC and are located in the Atlanta metropolitan area. For a further
discussion of SMC, see "JSB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Subsidiary Operations."
A predominant portion of JSB's commercial and multi-family residential real
estate loans were originated with adjustable interest rates with maturities of
nine years or less with interest rates which are scheduled to adjust at least
every one, three, or five years in accordance with an index based on United
States Government securities. Such loans have balloon payments at the end of
the original term and are amortized on a 25- or 30-year schedule. Commercial
real estate loans and multi-family residential real estate loans are generally
considered to involve a higher degree of risk of loss than single-family
residential loans. JSB has taken steps to minimize the risks associated with
commercial and multi-family residential loans. These steps include the
cessation of all new loan activity for such loans outside of JSB's primary
market area in western Pennsylvania, and improved monitoring of existing loans,
borrowers and collateral properties. See "Real Estate Owned, Non-Accrual Loans
and Troubled Debt Restructurings" below.
Since 1989, JSB has emphasized the sale of newly-originated fixed-rate
residential mortgage loans in the secondary market due to management's desire
to increase JSB's mortgage servicing income and other loan service fees while
reducing JSB's exposure to credit and interest rate risk. This strategy has
been accomplished, primarily through the increase in the operations of SMC.
During 1993, 1992, and 1991, SMC originated $179.9 million, $176.0 million, and
$129.7 million, respectively, of residential mortgage loans which were
available-for-sale in the secondary market. In 1993, JSB also increased its
origination of residential real estate loans available-for-sale in western
Pennsylvania. At December 31, 1993, JSB had $32.8
90
<PAGE>
million of residential mortgage loans available-for-sale, of which $16.6
million was the result of SMC's operations. For additional information with
respect to SMC's mortgage banking activities, see "JSB MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Mortgage Banking
Activities" and Notes 13 and 16 to the "JSB CONSOLIDATED FINANCIAL STATEMENTS."
JSB management believes that JSB's written internal policies, and the
procedures developed to ensure compliance with those policies, governing the
use of real estate appraisals and the determination of collateral adequacy for
real estate loans, are in accordance with applicable FDIC and Department
regulations.
The following table shows total loans originated, purchased, sold and repaid
during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loan origination:
Single-family residential......................... $ 13,517 $ 8,026 $ 13,649
Multi-family residential.......................... 2,750 650 --
Commercial........................................ 8,413 160 1,373
Real estate construction.......................... 3,391 272 820
Residential mortgage loans available-for-sale..... 233,841 207,181 141,112
-------- -------- --------
Total mortgage origination....................... 261,912 216,289 156,954
Non-mortgage loan origination:
Commercial business............................... 1,871 859 615
Consumer.......................................... 15,466 19,760 19,374
Indirect financing leases......................... -- -- 92
-------- -------- --------
Total loan origination........................... 279,249 236,908 177,035
Purchases of loans and participations.............. 6,521 -- --
-------- -------- --------
Total origination and purchases.................. 285,770 236,908 177,035
Less:
Principal repayments............................... 53,474 45,385 39,407
Sale of loans..................................... 226,519 195,924 144,300
Other, net(1)..................................... 2,864 6,196 5,535
-------- -------- --------
Net increase (decrease) in loans................... $ 2,913 $(10,597) $(12,207)
======== ======== ========
</TABLE>
- --------
(1) Consists primarily of loans which became real estate owned, net loan
charge-offs, loans to facilitate the sale of other real estate owned and
unamortized discounts on mortgages purchased.
Single-Family Residential Real Estate Lending. JSB offers single-family
residential mortgage loans with fixed and adjustable rates of interest. At
December 31, 1993, $47.4 million or 29.8% of JSB's total loan portfolio
consisted of single-family residential loans categorized as held-to-maturity.
Since 1985, JSB has been emphasizing the origination of adjustable-rate,
single-family residential loans. These loans generally have 15- to 30-year
terms with interest rates that adjust every one, three, or five years in
accordance with an index which is based on United States Government securities.
At December 31, 1993, 1992 and 1991, adjustable-rate, single-family residential
loans, all of which were categorized as held-to-maturity, represented $35.5
million or 22.3%, $24.6 million or 15.8%, and $37.0 million or 22.2%,
respectively, of JSB's total loan portfolio.
JSB also originates, on a limited basis, fixed-rate, single-family
residential loans with 15- and 30-year terms. Virtually all of JSB's fixed-
rate, single-family residential loans are originated under terms and conditions
which permit their sale in the secondary market and JSB retains servicing on
all such loans which
91
<PAGE>
are sold in the secondary market. At December 31, 1993, 1992, and 1991 fixed-
rate, single-family residential loans, excluding such loans categorized as
available-for-sale, represented $11.9 million or 7.5%, $26.1 million or 16.7%,
and $18.3 million or 11.0%, respectively, of JSB's total loan portfolio at such
dates.
Commercial Real Estate and Multi-Family Residential Lending. As previously
discussed, JSB's authority to originate or purchase commercial real estate and
multi-family residential loans was substantially limited under the terms of the
Supervisory Agreement from April 1989 through March 1993. JSB renewed limited
origination activities in loans of this type during 1993.
The commercial real estate and multi-family residential loans originated by
JSB were generally originated with maturities of nine years or less with
interest rates which are scheduled to adjust at least every one, three, or five
years in accordance with an index based on United States Government securities.
Such loans have balloon payments at the end of the original term and are
amortized on a 25- or 30-year schedule. Generally, there is no limit on the
amount which the interest rate may adjust over the life of the loan. Commercial
real estate and multi-family residential lending entails significant additional
risks as compared with single-family residential property lending. Commercial
real estate and multi-family residential loans typically involve large loan
balances to single borrowers or groups of related borrowers and the payment
experience on such loans is typically dependent on the successful operation of
the real estate project. The success of such projects is sensitive to changes
in supply and demand conditions in the market for commercial and multi-family
residential real estate as well as economic conditions generally. See "Real
Estate Owned, Non-Accrual Loans and Troubled Debt Restructurings" below.
Residential Mortgage Loans Available-for-sale. At December 31, 1993 and 1992,
JSB had $32.8 million and $20.7 million, respectively, of residential mortgage
loans available-for-sale as compared to $9.6 million at December 31, 1991. For
additional information relating to JSB's portfolio of residential mortgage
loans available-for-sale, see "JSB MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Mortgage Banking Activities" and
Notes 13 and 16 to the "JSB CONSOLIDATED FINANCIAL STATEMENTS."
Consumer Lending. JSB has been originating various types of consumer loans
since 1981 in order to expand the range of financial services offered to its
customers. JSB currently offers a wide variety of consumer loans, including
home improvement and home equity loans; loans that are secured by personal
property, including automobiles; credit cards; educational and personal loans.
At December 31, 1993 and 1992, $27.5 million or 17.3% and $32.0 million or
20.5%, respectively, of JSB's total loan portfolio consisted of consumer loans.
This represents a decrease from $32.8 million, the level of consumer loans at
December 31, 1991. The decrease in consumer loans at December 31, 1993, in
comparison with the previous year, was primarily attributable to a $4.1 million
decrease in automobile loans. Consumer loans generally have shorter terms and
higher interest rates which help JSB to maintain a positive spread between its
average yield on loans and its cost of funds. The increase in consumer lending
reflects JSB's desire to shorten the term and increase the yield of its loan
portfolio. JSB intends to continue to emphasize the origination of consumer
loans within its market area. Consumer loans generally have shorter terms and
higher interest rates than mortgage loans because of the type of collateral
and, in certain cases, the absence of collateral.
Consumer loans may be made on both a secured and unsecured basis. At December
31, 1993, JSB estimates that approximately 24.4% of its consumer loan portfolio
was unsecured. Unsecured loans consist in part of credit extended pursuant to
Visa Gold and Master Card credit cards. At December 31, 1993, JSB had extended
an aggregate of $5.7 million of credit pursuant to such cards.
Commercial Business Lending. In 1982, JSB established a commercial lending
department which primarily provides loans to medium and small-sized businesses
located in JSB's market area. At December 31, 1993, $5.5 million or 3.5% of
JSB's total loan portfolio consisted of commercial business loans of which
$795,000 consisted of commercial lines of credit outstanding at year end. In
addition, at such date, JSB also had outstanding $479,000 of unfunded
commitments for commercial lines of credit.
92
<PAGE>
JSB's commercial business loans encompass a broad variety of purposes,
including general working capital loans and loans to finance inventory and
equipment. Substantially all of JSB's commercial business loans have maturities
of five years or less and interest rates which float in accordance with a
designated prime lending rate. Commercial business loans may be made on both a
secured and unsecured basis. At December 31, 1993, JSB estimates that
approximately 14.5% of its commercial business loan portfolio was unsecured.
JSB estimates that the average size of the commercial business loans in its
portfolio at December 31, 1993, amounted to approximately $50,000. This type of
lending generally has higher yields and increased credit risk associated with
it.
Loan Fee and Servicing Income. In addition to interest earned on loans, JSB
receives income through servicing of loans and fees in connection with loan
origination and commitments, loan modifications, late payments, and fees for
miscellaneous services related to its loans. Income from these activities
varies from period to period with the volume and type of loans originated and
purchased. For additional information regarding loan fees and servicing income,
see "JSB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Other Operating Income."
Real Estate Owned, Non-Accrual Loans and Troubled Debt Restructurings. When a
borrower fails to make a required payment on a loan, JSB attempts to cause the
default to be cured by contacting the borrower. In general, contacts are made
after a payment is more than 15 days past due and a late charge is assessed at
that time. In most cases, defaults are cured promptly. If the delinquency on a
mortgage loan exceeds 90 days and is not cured through JSB's normal collection
procedures or an acceptable arrangement is not worked out with the borrower,
JSB will institute measures to remedy the default, including commencing a
foreclosure action or, in special circumstances, accepting from the mortgagor a
voluntary deed of the secured property in lieu of foreclosure.
If foreclosure is effected, the property is sold at a public auction or by
agreement with an individual purchaser. Real estate acquired by JSB as a result
of foreclosure or by deed-in-lieu of foreclosure is classified as real estate
acquired by foreclosure until it is sold. When property is acquired, it is
recorded at the lower of carrying or market value at the date of acquisition
and any writedown resulting therefrom is charged to the allowance for loan
losses. All income and expenses pertaining to the property from that date
forward are credited or charged to income in the period incurred. Costs
incurred for the improvement or development of such property are expensed. See
Note 4 to the "JSB CONSOLIDATED FINANCIAL STATEMENTS."
Loans are placed on non-accrual status when, in the judgment of JSB
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest
income. JSB does not accrue interest on loans that are 90 days or more past
due. See Notes 3 and 4 to the "JSB CONSOLIDATED FINANCIAL STATEMENTS." Funds
received from a borrower on a non-accrual loan, with certain limited
exceptions, are applied toward the reduction of the outstanding principal
balance of the loan.
In order to avoid foreclosing on certain of JSB's loans which have been
identified by JSB management as potential real estate owned, JSB may instead
restructure the loan. A restructuring of a debt constitutes a troubled debt
restructuring for purposes of Statement of Financial Accounting Standards No.
15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring" if
JSB, for economic or legal reasons related to a debtor's financial condition,
grants a concession to the debtor that JSB would not otherwise consider. Such
concessions typically involve a reduction in the interest rate, interest-only
payments or an extension of the term of the loan.
The following table sets forth information regarding non-accrual loans, loans
which are troubled debt restructurings and real estate acquired by foreclosure
or deed-in-lieu thereof held by JSB at the dates indicated. All of JSB's
troubled debt restructurings are commercial real estate loans.
93
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Residential real estate loans....... $ 428 $ 445 $ 884 $ 651 $ 362
Commercial real estate loans........ -- 2,128 4,716 4,941 4,677
Consumer loans...................... 160 219 106 147 114
Commercial business loans........... -- 302 163 1,016 288
------ ------ ------ ------- -------
Total.............................. 588 3,094 5,869 6,755 5,441
Troubled debt restructurings........ 2,315 3,080 3,389 3,545 7,371
------ ------ ------ ------- -------
Total............................. $2,903 $6,174 $9,258 $10,300 $12,812
====== ====== ====== ======= =======
Total non-accrual loans and troubled
debt restructurings
to total loans...................... 1.83% 3.96% 5.55% 5.77% 6.77%
====== ====== ====== ======= =======
Total real estate acquired by
foreclosure, net of related
reserves............................ $1,490 $4,569 $6,177 $ 6,313 $ 5,259
====== ====== ====== ======= =======
Total non-accrual loans, troubled
debt restructurings and real estate
acquired by foreclosure, net of
related reserves, to total assets... 1.23% 3.35% 5.35% 5.96% 6.05%
====== ====== ====== ======= =======
</TABLE>
Interest income on loans in 1993 and 1992 was adversely affected by the
amount of JSB's non-accrual loans and troubled debt restructurings. During 1993
and 1992, JSB estimates that it would have recorded $343,000 and $522,000,
respectively, of additional interest on loans if loans did not have to be
restructured and non-accrual loans had been current in accordance with their
terms. See Note 4 to the "JSB CONSOLIDATED FINANCIAL STATEMENTS."
JSB has developed a policy for the establishment of general reserve
allocations against specific loans, loans which are not classified, and the
circumstances in which a charge-off of assets is warranted. Specifically, JSB
has determined that it will generally establish a minimum general reserve
allocation against the outstanding balance of a classified loan depending upon
factors such as technical deficiencies in documentation, the borrower's
inability to continually meet his debt service obligations or delinquency.
Additional general reserve allocations may also be made as deemed necessary.
General reserves for loans which are not classified are based upon JSB
management's review of historical experience, the volume and composition of the
loan portfolio, industry standards, economic conditions as they relate to
market areas where JSB has a significant concentration of loans, and other
factors related to the collectibility of JSB's loan portfolio. Specific loans
or portions thereof are charged-off as a loss to the extent that the value of
the asset securing the loan, established by an appraisal or various net
realizable value techniques, is less than the outstanding principal balance of
the loan. If a portion of a loan is charged-off as a loss, JSB will also
establish a general reserve allocation for the remaining balance after the
charge-off, to the extent general reserve allocations have not been previously
established in such amount. For a description of regulations concerning the
classification of assets, see "Regulation--Classification of Assets" below.
94
<PAGE>
The following table sets forth the amount of loans, the amount charged-off as
loss and the amount of reserves maintained against such loans at December 31,
1993, with respect to JSB's loans which are performing pursuant to their
original terms by type of loan (excluding leases, construction loans and
residential mortgage loans available-for-sale) within the states of
Pennsylvania, Texas, Colorado, Georgia and all other states combined.
<TABLE>
<CAPTION>
PENNSYLVANIA TEXAS COLORADO
-------------------- -------------------- -------------------
LOANS LOSS RESERVE LOANS LOSS RESERVE LOANS LOSS RESERVE
------- ---- ------- ------ ---- -------- ------ ---- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-4 family.............. $42,469 $ 1 $ 89 $ 380 $ -- $ -- $ 221 $-- $ --
Commercial real estate
and multi-family........ 17,578 275 1,536 9,576 877 320 4,079 23 117
Commercial business
loans................... 5,494 62 31 -- -- -- -- -- --
Consumer loans.......... 26,167 193 439 26 -- -- 5 -- --
------- ---- ------ ------ ---- ---- ------ --- ----
Total.................. $91,708 $531 $2,095 $9,982 $877 $320 $4,305 $23 $117
======= ==== ====== ====== ==== ==== ====== === ====
</TABLE>
<TABLE>
<CAPTION>
GEORGIA OTHER
------------------- -------------------
LOANS LOSS RESERVE LOANS LOSS RESERVE
------ ---- ------- ------ ---- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1-4 family............................. $2,615 $ -- $ -- $1,274 $ -- $ --
Commercial real estate and multi-
family................................. 5,206 569 145 4,040 450 135
Commercial business loans.............. -- -- -- -- -- --
Consumer loans......................... 106 -- -- 1,009 -- --
------ ---- ---- ------ ---- ----
Total................................. $7,927 $569 $145 $6,323 $450 $135
====== ==== ==== ====== ==== ====
</TABLE>
The following table sets forth the amount of loans, the amount charged-off as
loss and the amount of reserves maintained against such loans at December 31,
1993, with respect to JSB's non-accrual loans and troubled debt restructurings
by type of loan (excluding leases, construction loans and residential mortgage
loans available-for-sale) within the states of Pennsylvania, Texas, Colorado,
Georgia and all other states combined.
<TABLE>
<CAPTION>
PENNSYLVANIA TEXAS COLORADO
------------------- -------------------- ------------------
LOANS LOSS RESERVE LOANS LOSS RESERVE LOANS LOSS RESERVE
----- ---- -------- ------ ---- -------- ----- ---- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-4 family.............. $427 $-- $66 $ -- $-- $ -- $-- $-- $--
Commercial real estate
and multi-family........ -- -- -- 1,600 -- 109 -- -- --
Commercial business
loans................... -- -- -- -- -- -- -- -- --
Consumer loans.......... 158 -- -- -- -- -- -- -- --
---- --- --- ------ --- ---- --- --- ---
Total.................. $585 $-- $66 $1,600 $-- $109 $-- $-- $--
==== === === ====== === ==== === === ===
</TABLE>
<TABLE>
<CAPTION>
GEORGIA OTHER
------------------ ------------------
LOANS LOSS RESERVE LOANS LOSS RESERVE
----- ---- ------- ----- ---- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1-4 family................................ $ 1 $-- $-- $ -- $-- $--
Commercial real estate and multi-family... 426 -- 32 289 -- 22
Commercial business loans................. -- -- -- -- -- --
Consumer loans............................ -- -- -- 2 -- --
---- --- --- ---- --- ---
Total.................................... $427 $-- $32 $291 $-- $22
==== === === ==== === ===
</TABLE>
The $2.3 million troubled debt restructuring commercial real estate loans at
December 31, 1993, consisted of six loans, of which four loans in an aggregate
amount of $1.6 million are located in Texas, one loan in the amount of $289,000
is located in Tennessee, and one loan in the amount of $426,000 is located in
Georgia. At December 31, 1993, total loans with outstanding balances in excess
of $500,000 included 32 loans totalling $32.4 million (net of allocated general
valuation allowances of $474,000) that were performing as originally agreed,
and two loans totalling $923,000 (net of allocated general valuation allowances
of $58,000) that were categorized as non-accrual and/or troubled debt
restructurings.
95
<PAGE>
Allowance for Loan Losses. The amount of the provision for loan losses is
determined by JSB management after considering potential losses in the loan
portfolio as represented by delinquencies and the risks inherent in the loan
portfolio. In 1993, JSB charged-off as loss loans in an aggregate amount of
$2.5 million and provided $1.1 million to its loan loss reserves. At December
31, 1993, JSB's allowance for loan losses totalled $3.1 million. Due to the
risks inherent in lending activities, further charge-offs and reserves may be
necessary in the future. For additional information, see "JSB MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
Provision for Loan Losses" and Notes 3 and 4 to the "JSB CONSOLIDATED FINANCIAL
STATEMENTS."
JSB management believes that JSB had adequate loan loss reserves at December
31, 1993. However, it continues to monitor JSB's loan portfolio and will make
loan loss reserve adjustments as necessary. In addition, loan classifications
and loss reserves, as determined by management, are subject to periodic
examination by the Department and the FDIC. JSB management cannot predict with
certainty whether future regulatory examinations will require any changes in
JSB's loan classifications or loan loss reserves.
The following table summarizes activities in JSB's allowance for loan losses
during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period....................... $ 4,056 $ 2,987 $ 3,889 $ 4,546 $ 4,214
-------- -------- -------- -------- --------
Charge-offs:
Residential real estate
loans........................ 1 -- 10 12 --
Commercial real estate
loans........................ 2,194 1,709 1,791 1,051 1,851
Consumer loans.............. 193 111 169 128 82
Commercial business loans... 62 8 383 21 26
-------- -------- -------- -------- --------
Total loans charged-off.... 2,450 1,828 2,353 1,212 1,959
Less: Recoveries............. 375 392 584 261 50
-------- -------- -------- -------- --------
Net charge-offs............. 2,075 1,436 1,769 951 1,909
-------- -------- -------- -------- --------
Provision for losses charged
to operations:
Residential real estate
loans........................ 9 40 30 30 143
Commercial real estate
loans........................ 950 2,430 811 238 1,788
Consumer loans.............. 117 20 15 15 135
Commercial business loans... 26 15 11 11 175
-------- -------- -------- -------- --------
Total provision for losses
charged
to operations........... 1,102 2,505 867 294 2,241
-------- -------- -------- -------- --------
Balance at end of period..... $ 3,083 $ 4,056 $ 2,987 $ 3,889 $ 4,546
======== ======== ======== ======== ========
Average loans outstanding.... $126,975 $144,972 $163,350 $179,434 $190,900
======== ======== ======== ======== ========
Ratio of net charge-offs
during the period
to average loans outstanding
during the period........... 1.63% 0.99% 1.08% 0.53% 1.00%
======== ======== ======== ======== ========
Period-end loans............. $155,444 $151,786 $163,288 $174,574 $184,487
======== ======== ======== ======== ========
Ratio of balance at end of
period to period-end loans.. 1.98% 2.67% 1.83% 2.23% 2.46%
======== ======== ======== ======== ========
</TABLE>
Impairment of Loans
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114 ("SFAS-114"), "Accounting by Creditors for Impairment of a Loan," that
addresses accounting procedures for impaired
96
<PAGE>
loans by creditors. SFAS-114 is applicable to all creditors (such as financial
institutions) and to collateralized as well as uncollateralized loans,
including loans that are troubled debt restructuring with a modification of
terms. It does not apply to the following: (1) Large groups of smaller-balance
homogeneous loans that are collectively evaluated for aggregate impairment, (2)
Loans that are carried at the lower of fair value or cost, (3) Leases, and (4)
Debt securities as defined by SFAS-115, "Accounting for Certain Investments in
Debt and Equity Securities."
Under SFAS-114, such loans are to be measured (1) at the present value of
expected future cash flows discounted at the loan's effective interest rate,
(2) at the loan's observable market price, or (3) at the fair value of the
collateral if the loan is collateral dependent. A loan will be considered
collateral dependent when the creditor determines that foreclosure is probable
and the loan is expected to be repaid solely by the underlying collateral.
SFAS-114 amends currently promulgated GAAP to indicate that creditors should
evaluate the collectibility of both contractual interest and contractual
principal of all receivables when assessing the need for a loss accrual.
The provisions of SFAS-114 are applicable to financial statements for fiscal
years beginning after December 15, 1994, with earlier application encouraged.
Because SFAS-114 contains complex language, the effects on JSB's future
operating results can not be fully determined at this time, however, JSB
management does not believe that the application of SFAS-114 will have a
material effect on reported earnings at the time of adoption.
Investment Activities
Investments in MBS and other securities are made to enhance JSB's overall net
interest margin, to provide a countercyclical balance to other JSB earnings,
and to provide and maintain liquidity within the guidelines of applicable
regulations. JSB's investment policy is designed to maintain a balance of high-
quality, diversified investments to minimize risks. At December 31, 1993, JSB
held securities with an amortized historical cost of $169.6 million and a
market value of $169.6 million, of which $147.7 million was invested in MBS and
the substantial majority of the remaining $21.9 million was invested in a
highly diversified investment-grade portfolio of investment securities of which
$13.4 million consisted of municipal securities, $7.0 million consisted of
government agency bonds and $1.5 million consisted of corporate securities. See
Note 2 to the "JSB CONSOLIDATED FINANCIAL STATEMENTS."
In December 1993, JSB adopted SFAS-115, "Accounting for Certain Investments
in Debt and Equity Securities," which specifies a methodology for the
classification of securities as either held-to maturity, available-for-sale or
as trading assets. Securities are classified at the time of purchase as
investment securities if it is management's intent and JSB has the ability to
hold the securities until maturity. These securities are carried on JSB's books
at cost, adjusted for amortization of premium and accretion of discount on a
level-yield basis. Alternatively, securities are classified as available-for-
sale if it is management's intent at the time of purchase to hold the
securities for an indefinite period of time and/or to use the securities as
part of JSB's asset/liability management strategy. Securities available-for-
sale include securities which may be sold in response to changes in interest
rates, resultant changes in prepayment risk and other factors related to
interest rate or prepayment risk. These securities are reported at fair value
with unrealized aggregate appreciation (depreciation) excluded from income and
credited (charged) to a separate component of shareholders' equity.
Securities classified as trading assets are reported at fair value with
unrealized aggregate appreciation (depreciation) included in current income.
JSB had $28.5 million of securities classified as held-to-maturity, $137.6
million classified as available-for-sale, and $3.5 million classified as
trading assets. At December 31, 1993, the portfolio of securities designated as
available-for-sale had an aggregate market value which exceeded book value by
$184,000. After allowing for the potential temporary difference tax effects of
the recognition of the unrealized aggregate
97
<PAGE>
appreciation in this portfolio, as required by SFAS-115, shareholders' equity
was increased $122,000 or 0.4% at December 31, 1993.
During 1993, JSB recorded a pre-tax net gain of approximately $811,000 from
the sale of approximately $14.3 million of fixed-income securities and $37.4
million of MBS. Securities sales gains are dependent upon numerous economic and
market factors. Accordingly, there can be no assurance that gains of this
magnitude can be realized in future periods.
The following table sets forth JSB's short-term investments, investment
securities portfolio and FHLB stock at their respective carrying values at the
dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term investments:
Interest-earning deposits in other banks............... $ 5,349 $ 7,629 $ 3,452
------- ------- -------
Investment securities:
Available for sale:
United States Government and agency obligations....... 6,880 1,985 --
Obligations of state and political subdivisions....... 13,433 -- --
Corporate bonds....................................... 1,444 2,992 --
------- ------- -------
Total available for sale............................ 21,757 4,977 --
------- ------- -------
Held to maturity:
United States Government and agency obligations....... -- 4,500 --
Corporate bonds....................................... 22 891 12,313
Other bonds and investments........................... 30 30 183
Marketable equity securities.......................... 99 100 121
------- ------- -------
Total held to maturity.............................. 151 5,521 12,617
------- ------- -------
Total investment securities......................... 21,908 10,498 12,617
------- ------- -------
FHLB stock.............................................. 5,056 2,775 1,778
------- ------- -------
Total investments..................................... $32,313 $20,902 $17,847
======= ======= =======
</TABLE>
The following table sets forth the amortized cost, estimated market value,
weighted average life and weighted average yield of JSB's investment securities
portfolio at December 31, 1993.
<TABLE>
<CAPTION>
WEIGHTED
ESTIMATED AVERAGE WEIGHTED
AMORTIZED MARKET LIFE AVERAGE
COST VALUE (IN YEARS) YIELD
--------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
Corporate bonds....................... $ 1,415 $ 1,444 3.4 7.77%
United States Government and agency
bonds.................................. 7,000 6,880 9.8 6.09
Obligations of state and political
subdivisions........................... 13,364 13,433 11.7 7.32
------- ------- -----
21,779 21,757 6.95
------- ------- -----
Held to maturity:
Corporate bonds....................... 22 22 20.9 11.63
Other bonds and investments........... 30 30 5.2 7.17
Marketable equity securities.......... 99 99 N/A 0.00
------- ------- ---- -----
151 151 3.12
------- ------- -----
Total investment securities............ $21,930 $21,908 6.92%
======= ======= =====
</TABLE>
98
<PAGE>
Sources of Funds
General. Deposits obtained through branch offices have traditionally been the
principal source of JSB's funds for use in lending and for other general
business purposes. In addition, JSB derives funds from the amortization and
prepayment of outstanding investments and loans and through the sale of loans
and investments available-for-sale. JSB also is eligible to borrow from the
FHLB of Pittsburgh and other sources.
Deposits. JSB's current deposit products include passbook savings accounts,
negotiable order of withdrawal ("NOW") accounts, money market deposit accounts,
business checking accounts, and certificates of deposit ranging in terms from
three months to five years. Included among these deposit products are
Individual Retirement Account ("IRA") certificates and Keogh retirement
certificates. JSB does not normally issue negotiable-rate certificates of
deposit because of the adequacy and stability of its deposit base.
JSB's deposits are obtained primarily from residents of Cambria County, and
JSB management estimates that an insignificant amount of JSB's deposits are
obtained from customers residing outside of western Pennsylvania. JSB attracts
deposit accounts primarily by offering a wide variety of services and accounts,
competitive interest rates, and convenient office locations and service hours.
JSB's six office locations and service hours are supplemented by eight
automatic teller machines ("ATMs"), most of which remain generally accessible
to customers during times when JSB's branches are closed. JSB participates in
the regional ATM network known as "MAC" and the nationwide ATM network known as
"Cirrus."
The following table sets forth the distribution of JSB's deposits by type of
deposit as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1993 1992 1991
----------------- ----------------- -----------------
% OF % OF % OF
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Passbook and club
accounts................. $ 55,290 25.5% $ 52,472 23.6% $ 49,130 21.9%
NOW and Super NOW
accounts
and demand deposits..... 20,496 9.5 24,107 10.9 17,213 7.7
Business checking........ 5,465 2.6 4,763 2.1 2,911 1.3
Money market deposit
accounts................. 27,227 12.6 20,692 9.3 20,624 9.2
-------- ----- -------- ----- -------- -----
Total.................. 108,478 50.2 102,034 45.9 89,878 40.1
-------- ----- -------- ----- -------- -----
Certificates:
6 month................. 24,791 11.5 33,074 14.9 34,477 15.5
9 month................. 8,456 3.9 16,201 7.3 20,986 9.4
12 month................. 15,567 7.2 14,652 6.6 18,702 8.4
18 month................. 4,300 1.9 4,699 2.1 5,045 2.3
24 month................. 1,874 0.9 1,798 0.8 1,892 0.8
30 month................. 11,886 5.5 12,519 5.6 14,010 6.3
36 month................. 5,721 2.7 2,873 1.3 2,526 1.1
42 month................. 1,264 0.6 1,390 0.6 1,742 0.8
48 month................. 830 0.3 919 0.4 748 0.3
60 month................. 5,780 2.7 5,055 2.3 4,947 2.2
Other.................... 9,022 4.2 8,426 3.9 9,901 4.4
IRA and Keogh accounts... 18,237 8.4 18,522 8.3 18,732 8.4
-------- ----- -------- ----- -------- -----
Total certificate
accounts................. 107,728 49.8 120,128 54.1 133,708 59.9
======== ===== ======== ===== ======== =====
Total deposits........ $216,206 100.0% $222,162 100.0% $223,586 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
99
<PAGE>
It has been the policy of JSB to attempt to control the flow of deposits by
pricing its accounts to remain generally competitive with other financial
institutions in its market area, but does JSB not necessarily seek to match the
highest rates paid by competing institutions.
The following table sets forth the net deposit flows of JSB during the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1992 1991
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
(Decrease) before interest credited............... $(14,067) $(11,621) $(5,212)
Interest credited................................. 8,111 10,197 13,504
-------- -------- -------
Net deposit increase (decrease)................... $ (5,956) $ (1,424) $ 8,292
======== ======== =======
</TABLE>
Although market demand generally dictates which deposit maturities and rates
will be accepted by the public, JSB, pursuant to its interest rate risk
management policy, intends to continue reducing its emphasis on certificates of
deposit, with a concurrent increased emphasis on demand deposits. The ability
of JSB to attract and maintain deposits and JSB's cost of funds have been, and
will continue to be, significantly affected by economic conditions.
The following table presents by various interest rate categories the amount
of certificate accounts at the date indicated and the amount of certificate
accounts at such date which mature during the periods indicated.
<TABLE>
<CAPTION>
AMOUNT AT DECEMBER 31, 1993
MATURING
----------------------------------
AFTER AFTER
ONE YEAR TWO YEARS
WITHIN THROUGH THROUGH AFTER
DECEMBER 31, ONE TWO THREE THREE
1993 YEAR YEARS YEARS YEARS
------------ ------- -------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificate Accounts:
Under 3%....................... $ 7,573 $ 7,422 $ 151 $ -- $ --
3.00% to 3.99%................. 52,108 49,197 2,911 -- --
4.00% to 4.99%................. 18,727 5,233 6,961 5,789 743
5.00% to 5.99%................. 7,331 754 1,387 461 4,729
6.00% to 6.99%................. 5,742 3,857 193 309 1,383
7.00% to 7.99%................. 5,891 2,599 1,138 1,570 584
8% and over.................... 10,356 4,488 1,676 1,322 2,871
-------- ------- ------- ------ -------
Total Certificate Accounts..... $107,728 $73,550 $14,417 $9,451 $10,310
======== ======= ======= ====== =======
</TABLE>
Borrowings. JSB is eligible to obtain advances from the FHLB of Pittsburgh
upon the security of the common stock it owns in that bank and certain of its
residential mortgages and MBS, provided certain standards related to credit
worthiness have been met. See "Regulation--Federal Home Loan Bank System"
below. Such advances are made pursuant to several different credit programs,
each of which has its own interest rate and range of maturities. FHLB advances
are generally available to meet seasonal and other withdrawals of deposit
accounts and to expand lending, as well as to aid the efforts of members to
establish better asset and liability management through the extension of
maturities of liabilities. See Notes 10 and 11 to the "JSB CONSOLIDATED
FINANCIAL STATEMENTS."
Trust Services
In an effort to increase its non-interest related sources of income, JSB
established a Trust Department in October 1982. JSB's Trust Department provides
a broad range of trust, estate and custodial services to businesses and
individuals by assisting in estate and personal planning, acting as trustee of
both living and
100
<PAGE>
testamentary trusts and administering trusts for pension and profit sharing
plans, IRA's and Keogh plans. Agency services include safekeeping of
securities, periodic investment analysis, collection of rents, interest and
dividends and disbursement of net income. On December 1, 1988, the Trust
Department became the Transfer Agent for JSB's outstanding capital stock. At
December 31, 1993, $27.9 million of assets were under the management of JSB's
Trust Department.
Mortgage Banking Activities
The FDIC has issued a ruling that prohibits an insured institution, or its
subsidiaries, from capitalizing the acquisition costs of mortgage servicing
rights derived from "table funding" arrangements. In a table-funding
arrangement, a financial institution (such as mortgage banking enterprises)
provides the original funding for a mortgage loan "at the table" when an
unaffiliated correspondent (broker) and borrower close the loan. Concurrent
with the loan closing, the financial institution acquires the loan and the
related loan servicing right from the correspondent.
Under the FDIC ruling, the acquisition costs of mortgage servicing rights
acquired through table-funding arrangements must be expensed in the period
incurred. Mortgage-servicing rights are an intangible asset that represent the
right to service loans for others and to collect a fee for such services.
Mortgage servicing rights are a principal asset of SMC. The intent of the FDIC
ruling is to limit the growth of this intangible asset on the balance sheets of
insured institutions. The acquisition costs of purchased mortgage servicing
rights (the price paid to acquire existing rights from an unaffiliated seller)
are not affected by this ruling and, accordingly, may be capitalized under
current FDIC rules.
In compliance with FDIC regulations, SMC has not capitalized the costs
associated with the acquisition of mortgage servicing rights obtained through
table-funding arrangements. This rule effectively requires SMC to have a
program in place to sell a portion of its originated mortgage servicing rights
to offset the current costs of originating loans and servicing rights through
correspondents. During 1993, SMC sold the mortgage servicing rights on
approximately $69.6 million in newly originated residential mortgage loans,
which represented approximately 40.0% of its total originations during the
year.
Subsidiaries
JSB's first-tier subsidiary is SB Realty, Inc., which JSB formed in January
1984 under the laws of the Commonwealth of Pennsylvania and in which JSB had
invested $50,000 of equity and $1.3 million of loans at December 31, 1993. SB
Realty, Inc. used the funds contributed to it by JSB to acquire SMC in December
1987. In addition, JSB formed Standard Mortgage Corporation of Pennsylvania
("SMC-PA") in December 1993 to engage in mortgage banking activities in western
Pennsylvania and surrounding regions in a manner substantially consistent with
the activities of SMC. SMC and SMC-PA are wholly-owned subsidiaries of SB
Realty, Inc. At December 31, 1993, SMC-PA had not begun operations.
JSB's combined investment in and advances to SMC was $7.5 million at December
31, 1993, which is in compliance with applicable regulatory limitations.
The cost in excess of fair market value resulting from the aforementioned
purchase and assumption amounted to $416,000. For further information on SMC,
see "JSB MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Mortgage Banking Activities" and Notes 13 and 16 to the
"JSB CONSOLIDATED FINANCIAL STATEMENTS."
Competition
JSB encounters strong competition both in the attraction of deposits and in
the making of real estate and other loans. Its most direct competition for
deposits has historically come from savings institutions, commercial banks, and
credit unions with offices in Johnstown, Pennsylvania. JSB also encounters
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competition for deposits from money market funds, as well as corporate and
government securities. The principal methods used by JSB to attract deposit
accounts include the variety of services offered, the competitive interest
rates offered, quality of service provided to depositors and the convenience of
office locations, ATM's and expanded banking hours.
JSB's competition for real estate and other loans comes principally from
savings institutions, credit unions, commercial banks, mortgage banking
companies, insurance companies and other institutional lenders. JSB competes
for loans through interest rates, loan maturities, loan fees and the quality of
service extended to borrowers and brokers.
Employees
JSB had 150 full-time employees and 20 part-time employees as of December 31,
1993. None of the employees are represented by a collective bargaining agent,
and JSB believes that it enjoys good relations with its personnel.
REGULATION
General
FDIC Insurance Premiums. During 1993, JSB paid deposit insurance premiums to
the FDIC based on a risk-based assessment schedule established in 1992 by the
FDIC, as required by FDICIA, for all BIF-member institutions. This risk-based
assessment system required JSB to pay .26% of its deposit balances during 1993
for deposit insurance premiums.
The FDIC has determined that JSB will pay an annualized rate of .23% in the
first six-month period in 1994. Based on JSB's average deposits in 1993, the
decreased rate of .23% (as compared with the rate of .26% charged JSB in 1993)
will decrease the premiums paid by JSB in 1994 and in subsequent years
approximately $66,000 per year. Management of JSB cannot predict with certainty
if JSB's assessment will be changed at some future date according to the
existing risk-based schedule as presented above. Neither can JSB management
predict if changes to the FDIC risk-based insurance premium system will be
promulgated in the future or in what form the changes might take.
Capital Requirements. See "JSB MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital
Resources."
The FDICIA requires each federal banking agency to revise its risk-based
capital standards for insured institutions to ensure that those standards take
adequate account of interest-rate risk, concentration of credit risk and the
risks of non-traditional activities. Each federal agency is required to
promulgate final regulations in this regard. Such regulations could increase
the regulatory capital requirements that are applicable to JSB.
On September 14, 1993, the FDIC published its final proposal regarding the
incorporation of an interest-rate risk component in its risk-based capital
calculation. This proposal was subject to a 45-day comment period. The final
regulations are expected to be issued in June of 1994. All FDIC supervised
savings banks, such as JSB, will be required to complete new regulatory
calculations in order to determine if their interest-rate risk, as defined in
the new regulations, exceeds specified threshold levels. Under the regulation,
banks with interest-rate risk exposures in excess of a specified "threshold"
level of interest-rate risk would be required to hold capital proportional to
that excess risk. A supervisory decision regarding what constitutes an
acceptable absolute level of measured exposure would be used in conjunction
with an industry distribution of measured exposures to specify the threshold
level.
An objective of the interest rate risk framework proposed by the agencies is
to ensure that banks with high levels of interest-rate risk have sufficient
capital to cover their exposure. Interest-rate risk exposures
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would be quantified using a measurement system that weights an institution's
assets, liabilities and off-balance-sheet positions by risk factors that
approximate each instrument's price sensitivity to changes in interest rates.
The net amount of these weighted values, the "Net Risk-Weighted Position,"
would serve as the basis for measuring an institution's exposure for capital
adequacy purposes.
JSB management believes that it has policies in place that reduce, in as far
as practicable, the risk of a negative effect on JSB's future net interest
margins or a negative effect on the market value of JSB's portfolio equity from
material and sustained changes in general interest rates. Risk-based capital
rules, which incorporate an interest-rate risk component, will be subject to
significant revisions prior to their issuance. In addition, any such rules will
contain complex language that will require extensive analysis following their
promulgation in final form. Although JSB management does not believe that such
a rule will have a material effect on JSB's operations, management cannot
determine with certainty how such rules will affect the strategies of JSB or
the results of operations in future periods.
Although JSB holds capital in excess of all current requirements, JSB
management cannot predict with certainty if, or to what extent, JSB's capital
requirements will be changed at some future date, or in what form the changes
might take, should additional regulatory changes be promulgated in the future.
Federal Home Loan Bank System. JSB is a member of the FHLB System which
consists of 12 regional FHLBs, with each subject to supervision and regulation
by the Federal Housing Finance Board. The FHLBs provide a central credit
facility primarily for member institutions. JSB, as a member of the FHLB of
Pittsburgh, is required to acquire and hold shares of capital stock in that
FHLB in an amount equal to at least 1% of the aggregate principal amount of its
unpaid residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or 5% of its advances (borrowings)
from the FHLB of Pittsburgh whichever is greater. JSB had a $5.1 million
investment in stock of the FHLB of Pittsburgh at December 31, 1993, which
complied with this requirement.
Advances from the FHLB are secured by a member's shares of stock in the FHLB,
certain types of mortgages and other assets. Interest rates charged for
advances vary depending upon maturity, the cost of funds to the FHLB and the
purpose of the borrowing.
Classification of Assets. Under current federal regulations, an institution's
problem assets are subject to classification according to one of three
categories: "substandard," "doubtful," and "loss." For assets classified
"substandard" and "doubtful," the institution is required to establish prudent
general loan loss reserves in accordance with generally accepted accounting
principles. Assets classified "loss" must be either completely written off or
supported by a 100% specific reserve. A classification category designated
"special mention" also must be established and maintained for assets not
currently requiring classification but having potential weakness or risk
characteristics that could result in future problems. An institution is
required to develop an in-house program to classify its assets, including
investments in subsidiaries, on a regular basis and set aside appropriate loss
reserves on the basis of such classification. At December 31, 1993, JSB had
$7.1 million of assets classified as substandard.
Federal Reserve System. Thrift institutions, such as JSB, are authorized to
borrow from the Federal Reserve Bank "discount window," but Federal Reserve
Board regulations require institutions to exhaust other reasonable alternative
sources of funds, including FHLB borrowings, before borrowing from the Federal
Reserve Bank.
Pennsylvania Savings Bank Law. Following its conversion to a savings bank
charter as of March 9, 1993, JSB is now incorporated under the Pennsylvania
Banking Code of 1965 (the "PBC"), which contains detailed provisions governing
the organization, location of offices, rights and responsibilities of
directors, officers, employees and members, as well as corporate powers,
savings and investment operations and other aspects of JSB and its affairs. The
PBC delegates extensive rulemaking power and administrative discretion
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to the Department so that the supervision and regulation of state-chartered
savings banks may be flexible and readily responsive to changes in economic
conditions and in savings and lending practices.
One of the purposes of the PBC is to provide savings banks with the
opportunity to be competitive with each other and with other financial
institutions existing under other Pennsylvania laws and other state, federal
and foreign laws. A Pennsylvania savings bank may locate or change the location
of its principal place of business and establish an office anywhere in the
Commonwealth with the prior approval of the Department.
The Department generally examines each savings bank not less frequently than
once every two years. Although the Department may accept the examinations and
reports of the FDIC in lieu of the Department's examination, the present
practice is for the Department to conduct a joint examination with the FDIC.
The Department may order any savings bank to discontinue any violation of law
or unsafe or unsound business practice and may direct any director, officer,
attorney or employee of a savings bank engaged in an objectionable activity,
after the Department has ordered the activity to be terminated, to show cause
at a hearing before the Department why such person should not be removed.
The foregoing references to laws and regulations which are applicable to JSB
are brief summaries thereof which do not purport to be complete and which are
qualified in their entirety by reference to such laws and regulations.
Capital Distributions. The ability of JSB to pay dividends may be subject to
certain restrictions and regulations of the Department and the FDIC at a future
date. In addition, JSB may not declare or pay a cash dividend if such dividend
would cause its net capital to be reduced below either the amount required for
the liquidation account established for the benefit of certain depositors of
JSB in connection with the 1986 conversion of JSB to the stock form or the
minimum regulatory capital requirements imposed by current regulations. Capital
distributions are currently restricted by the Merger Agreement. See "THE
MERGER--Conduct of Business Pending the Merger."
TAXATION
Federal Taxation
General. For federal income tax purposes, JSB files consolidated income tax
returns with its subsidiaries on a calendar year basis and uses the accrual
method of accounting. The maximum corporate income tax rate applicable to JSB
and its subsidiaries is 35% for 1993 and tax years thereafter. In addition, JSB
is subject to the 20% alternative minimum tax applicable to corporations
generally.
Bad Debt Deductions. JSB claims a deduction each year pursuant to the direct
write-off method under which debts may be deducted to the extent that they have
become worthless in whole or in part. JSB currently does not claim a bad debt
reserve deduction and has not maintained a bad debt reserve for federal tax
purposes since 1975.
Tax Returns. JSB's federal income tax returns, open under the statute of
limitations, are subject to review by the Internal Revenue Service ("IRS").
JSB's federal income tax returns for its tax years beginning in 1990 are
subject to review by the IRS.
Recent Developments. In 1993, Congress passed and the President signed the
Revenue Reconciliation Act ("RRA") of 1993. Major provisions of the RRA that
generally affect corporations, such as JSB, are highlighted below.
Tax rates--For tax years beginning after 1992, the corporate tax rate has
been increased to 35% for taxable income in excess of $10 million.
Intangible property--Goodwill, going concern value, and certain other
intangibles subject to the provision of Section 179 of the Code (such as
amounts paid for the transfer of a franchise, trademark, or trade name),
acquired after May 10, 1993, are fully amortized ratably over 15 years
regardless of their actual useful life.
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Securities transactions--For tax years ending after 1993, securities
dealers are required to recognize for purposes of determining the
taxpayer's gross income gain or loss based on the fair market value of
noninventory securities at the close of each tax year as though the
security were actually sold. Under the Code, JSB is considered to be a
dealer subject to these rules for certain designated loans.
JSB management does not anticipate that the effects of this change in the
tax law will materially impact either the amount or the timing of income
taxes payable in future periods.
State Taxation
JSB is subject to tax under the Pennsylvania Mutual Thrift Institutions Tax
Act (the "Act"), which imposes a tax at the rate of 11.5% on JSB's net
earnings, determined in accordance with GAAP, as shown on its books. The Act
exempts the bank from all other corporate taxes imposed by Pennsylvania for
state tax purposes, and from all local taxes imposed by political subdivisions
thereof, except taxes on real estate and real estate transfers.
PROPERTIES
At December 31, 1993, JSB conducted its business from its headquarters and
main office at Market at Main Street, Johnstown, Pennsylvania, five branch
offices in the greater Johnstown metropolitan area and an administrative
facility used by SMC in Atlanta, Georgia. The following table sets forth
certain information with respect to the offices and other material properties
of JSB as of December 31, 1993.
<TABLE>
<CAPTION>
NET BOOK VALUE OF
PROPERTY OWNED
OWNED LEASE OR LEASEHOLD
OR EXPIRATION IMPROVEMENTS AT
OFFICE LOCATIONS LEASED DATE DECEMBER 31, 1993
- ---------------- ------- ---------- -----------------
<S> <C> <C> <C>
Main office Owned -- $371,056
Savings Bank Plaza
Market at Main Street
Johnstown, Pennsylvania 15901
Branch office Owned -- 531,068
Westmont Shopping Center
Johnstown, Pennsylvania 15905
Branch office Leased 1995 21,484
Richland Mall
Johnstown, Pennsylvania 15904
Branch office Leased 1999 8,045
Richland Bilo Plaza
Johnstown, Pennsylvania 15904
Branch office Owned -- 339,245
Eighth Ward
Johnstown, Pennsylvania 15905
Branch office Leased 2002 121,649
Johnstown Galleria Mall
Johnstown, Pennsylvania 15904
Other offices Leased 1995 2,621
Standard Mortgage Corporation of Georgia
Atlanta, Georgia 30342
</TABLE>
LEGAL PROCEEDINGS
JSB is involved in routine legal proceedings occurring in the ordinary course
of business which in the aggregate are believed by JSB management to be
immaterial to the financial condition of JSB.
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COMMON STOCK PRICES AND DIVIDEND INFORMATION
JSB Common Stock is traded over-the-counter on the NASDAQ/NMS under the
symbol "JSBK." JSB presently has 1,943,790 shares of common stock outstanding.
At December 31, 1993, there were approximately 2,076 record holders of JSB
Common Stock. This does not reflect the number of persons or entities who hold
stock in nominee or "street" name through various brokerage firms.
The following table shows the high and low closing sales prices of JSB's
common stock as reported on the NASDAQ/NMS and cash dividends declared for 1993
and 1992:
<TABLE>
<CAPTION>
1993 1992
---------------------------- --------------------------
CASH DIVIDENDS CASH DIVIDENDS
HIGH LOW DECLARED HIGH LOW DECLARED
------ ------ -------------- ----- ----- --------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter........... $12.25 $ 7.75 $0.00 $6.25 $5.50 $0.00
Second Quarter.......... 11.25 8.50 0.05 7.00 6.25 0.00
Third Quarter........... 15.50 9.25 0.05 8.75 7.75 0.00
Fourth Quarter.......... 23.25 13.50 0.05 8.75 7.75 0.00
</TABLE>
JSB may not declare or pay a cash dividend if such dividend would cause its
net capital to be reduced below either the amount required for a liquidation
account established for the benefit of certain depositors of JSB in connection
with the conversion of JSB to the stock form or the minimum regulatory capital
requirements imposed by federal regulations. Dividends must also be in
compliance with Department and FDIC capital distribution regulations.
EXPERTS
USBANCORP
The consolidated financial statements of USBANCORP and its subsidiaries as of
December 31, 1993, and 1992, incorporated by reference in this Proxy
Statement/Prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen & Co., independent public accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
The consolidated statements of income, of cash flows and of changes in
stockholders' equity incorporated in this Proxy Statement/Prospectus by
reference to the Annual Report and Form 10-K of USBANCORP and its subsidiaries
for the year ended December 31, 1991, have been so incorporated in reliance on
the report of Price Waterhouse, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
JSB
The consolidated financial statements of JSB and its subsidiaries as of
December 31, 1993, and 1992, included herein and in the registration statement
have been included herein and in the registration statement in reliance upon
the report of KPMG Peat Marwick, independent certified public accountants, and
upon the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of JSB and its subsidiaries as of
December 31, 1991, and for the one year period then ended, included herein and
in the registration statement have been included herein and in the registration
statement in reliance upon the report of Ernst & Young, independent public
accountants, incorporated by reference herein, and upon the authority of that
firm as experts in accounting and auditing.
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LEGAL MATTERS
The validity of the USBANCORP Common Stock to be issued in connection with
the Merger will be passed upon by Stevens & Lee, P.C., Wayne, Pennsylvania
19087, special counsel to USBANCORP. Certain legal matters will be passed upon
for JSB by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C., special
counsel to JSB.
ADJOURNMENT OF MEETINGS
USBANCORP ANNUAL MEETING
In the event that there are not sufficient votes to constitute a quorum or
approve the Merger Proposal at the time of the USBANCORP Annual Meeting, such
proposal could not be approved unless the USBANCORP Annual Meeting were
adjourned in order to permit further solicitation of proxies. In order to allow
proxies that have been received by USBANCORP at the time of the USBANCORP
Annual Meeting to be voted for such adjournment, if necessary, USBANCORP has
submitted the question of adjournment under such circumstances to its
shareholders as a separate matter for their consideration. A majority of the
shares represented and voting at the USBANCORP Annual Meeting is required to
approve any such adjournment. Properly executed proxies will be voted in favor
of any such adjournment unless otherwise indicated thereon. If it is necessary
to adjourn the USBANCORP Annual Meeting, no notice of the time and place of the
adjourned meeting is required to be given to shareholders other than an
announcement of such time and place at the USBANCORP Annual Meeting.
THE BOARD OF DIRECTORS OF USBANCORP RECOMMENDS THAT SHAREHOLDERS VOTE THEIR
PROXIES IN FAVOR OF SUCH ADJOURNMENT SO THAT THEIR PROXIES MAY BE USED FOR SUCH
PURPOSE IN THE EVENT IT SHOULD BECOME NECESSARY.
JSB ANNUAL MEETING
In the event that there are not sufficient votes to constitute a quorum or
approve the Merger Agreement at the time of the JSB Annual Meeting, such
proposal could not be approved unless the JSB Annual Meeting were adjourned in
order to permit further solicitation of proxies. In order to allow proxies that
have been received by JSB at the time of the JSB Annual Meeting to be voted for
adjournment, if necessary, JSB has submitted the question of adjournment under
such circumstances to its shareholders as a separate matter for their
consideration. A majority of the shares represented and voting at the JSB
Annual Meeting is required to approve any such adjournment. Properly executed
proxies will be voted in favor of any such adjournment unless otherwise
indicated thereon. If it is necessary to adjourn the JSB Annual Meeting, no
notice of the time and place of the adjourned meeting is required to be given
to shareholders other than an announcement of such time and place at the JSB
Annual Meeting.
THE BOARD OF DIRECTORS OF JSB RECOMMENDS THAT SHAREHOLDERS VOTE THEIR PROXIES
IN FAVOR OF SUCH ADJOURNMENT SO THAT THEIR PROXIES MAY BE USED FOR SUCH
PURPOSES IN THE EVENT IT SHOULD BECOME NECESSARY.
ELECTION OF USBANCORP DIRECTORS
GENERAL
USBANCORP's articles of incorporation provide that there shall be three
classes of directors as nearly equal in number as possible, each class being
elected for a three-year term and only one class being elected each year
beginning in 1987. The total number of directors shall be that number from time
to time determined by a resolution adopted by a majority vote of the directors
then in office or by resolution of the shareholders at a meeting thereof. There
shall be not less than five directors nor more than 25. The number of directors
for 1994 has been set at 16.
The USBANCORP Board of Directors has nominated Messrs. Clifford A. Barton,
James F. O'Malley, Frank J. Pasquerilla, Thomas C. Slater and W. Harrison Vail
for election as Class II directors for three-year terms to expire at the 1997
Annual Meeting of Shareholders, or until their successors are duly elected and
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qualified. All Class II directors were elected by the shareholders at the 1991
Annual Meeting. The remaining directors will continue to serve in accordance
with their previous election with the terms of the Class III and Class I
directors expiring in 1995 and 1996, respectively.
With respect to the election of directors, each shareholder has the right to
vote for each share of USBANCORP Common Stock held by the shareholder as many
votes as shall equal the number of directors to be elected, and the
shareholder, or the shareholder's proxy, may cast the whole number of votes for
one nominee or distribute them among two or more nominees. Unless authority is
withheld as to a particular nominee or as to all nominees, all proxies will be
voted for the five nominees listed below. The proxies will have discretionary
authority to cumulate votes except to the extent a shareholder withholds such
authority on the form of proxy. The five persons receiving the highest number
of votes will be elected.
Abstentions and broker nonvotes are disregarded because they are
inconsequential and would have no effect on the results of the election. At the
1993 Annual Meeting, 3,220,879.2240 voting shares were returned, with each
nominee receiving in excess of 97.5% of shares returned and 70.75% of total
shares outstanding.
Except as noted above, it is intended that shares represented by proxies will
be voted for the nominees listed below, each of whom is now a director of
USBANCORP and each of whom has expressed his willingness to serve, or for any
substitute nominee or nominees designated by the USBANCORP Board of Directors
in the event any nominee or nominees become unavailable for election. The
USBANCORP Board of Directors has no reason to believe that any of the nominees
will not serve if elected.
In the following tables are set forth as to each of the nominees for election
as Class II directors and as to each of the continuing Class III and Class I
directors his age, principal occupation and business experience, the period
during which he has served as a director of USBANCORP or an affiliate and other
business relationships. There are no family relationships between any of the
listed persons.
NOMINEES FOR ELECTION AS CLASS II DIRECTORS TERMS EXPIRE IN 1997
<TABLE>
<CAPTION>
DIRECTORSHIP IN OTHER
NAME AND PRINCIPAL OCCUPATION(1) AGE DIRECTOR SINCE(2)(3) REPORTING COMPANIES
- -------------------------------- --- -------------------- ---------------------
<S> <C> <C> <C>
Clifford A. Barton 65 1966 Crown American
Retired; Former Chairman, Realty Trust
President and Chief Executive
Officer of USBANCORP and
Chairman of the Board of
U.S Bank, Three Rivers,
Community and USBANCORP
Trust Company
James F. O'Malley 68 1983 None
Senior Lawyer, Yost &
O'Malley, Attorneys-at-Law
Frank J. Pasquerilla 67 1969 Crown American
Chairman of the Board and Realty Trust
Chief Executive Officer,
Crown American Realty Trust
Thomas C. Slater 51 1980 None
Owner, President and Director,
Slater Laboratories, Inc.,
Clinical Laboratory
W. Harrison Vail 53 1984 None
President and Chief Executive
Officer, Three Rivers
</TABLE>
(continued on next page)
108
<PAGE>
<TABLE>
<CAPTION>
CLASS III DIRECTORS
TERMS EXPIRE IN 1995
DIRECTORSHIP IN OTHER
NAME AND PRINCIPAL OCCUPATION(1) AGE DIRECTOR SINCE(2)(3) REPORTING COMPANIES
- -------------------------------- --- -------------------- ---------------------
<S> <C> <C> <C>
Michael F. Butler 58 1993 None
Business Consultant and
Attorney-at-Law
Terry K. Dunkle 52 1988 None
Chairman, President and
Chief Executive Officer
of USBANCORP and Chairman
of
the Board of U.S. Bank,
Three Rivers,
Community and USBANCORP
Trust Company
John H. Kunkle, Jr. 66 1989 None
Retired; Former Vice
Chairman and Director,
Commonwealth Land Title
Insurance Company
Jack Sevy 63 1984 None
Retired; Former Owner and
Operator, New Stanton West
Auto/Truck Plaza
Dennis J. Fantaski 49 1994 None
President and Chief
Executive Officer
of Community and Community
Savings
<CAPTION>
CLASS I DIRECTORS
TERMS EXPIRE IN 1996
DIRECTORSHIP IN OTHER
NAME AND PRINCIPAL OCCUPATION(1) AGE DIRECTOR SINCE(2)(3) REPORTING COMPANIES
- -------------------------------- --- -------------------- ---------------------
<S> <C> <C> <C>
Jerome M. Adams 62 1973 None
Senior Partner, Adams,
Myers and Baczkowski,
Attorneys-at-Law
Robert A. Allen 68 1987 None
Retired; Former President,
Johnstown Sani-Dairy
Louis Cynkar 49 1994 None
President and Chief
Executive
Officer, U.S. Bank
Richard W. Kappel 66 1967 None
Secretary and Treasurer,
William J. Kappel Co.
(Retail
Jewelry Store Chain)
James C. Spangler 66 1980 None
Retired; Former Owner,
Somerset Auction and
Transfer,
Inc.
Robert L. Wise 50 1987 Pennsylvania Electric
President, Pennsylvania Company, General
Electric Public Utilities Nuclear
Company, Public Utility Corp. and General Public
Utilities Service Corp.
</TABLE>
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<PAGE>
- --------
(1) All directors and nominees have held the positions indicated or another
senior executive position with the same entity or one of its affiliates or
predecessors for the past five years except Mr. Butler who was a partner in
Andrews & Kurth, Attorneys-at-Law, prior to June 1, 1991.
(2) Reflects the earlier of the first year as a director of USBANCORP or of
U.S. Bank, Three Rivers or Community.
(3) All incumbent directors were elected by the shareholders except Mr. Butler,
who was appointed by the Board of Directors in 1993, and Mr. Cynkar and Mr.
Fantaski who were appointed to the Board of Directors in 1994.
BOARD AND COMMITTEES
USBANCORP's Board of Directors has various standing committees including an
Audit Committee, a Nominating Committee and a Management Compensation
Committee. During the year 1993, the USBANCORP Board of Directors held six
meetings, the Audit Committee held five meetings, the Nominating Committee held
five meetings, and the Management Compensation Committee held six meetings.
Each director attended at least 75% of the combined total of meetings of
USBANCORP's Board of Directors and of each committee of which he was a member
except Messrs. Allen, Kunkle and Tyson (excused), who attended 60%, 62%, and
66%, respectively.
The Audit Committee is responsible for recommending to the USBANCORP Board of
Directors the appointment of an independent public accountant to audit the
books and accounts of USBANCORP and its subsidiaries; reviewing the reports of
the Audit Department and the reports of examination conducted by the bank and
bank holding company regulators and of independent public accountants;
reviewing the adequacy of internal audit and control procedures; and reporting
to the USBANCORP Board of Directors through the Audit Committee. The Audit
Committee is presently comprised of Messrs. Kappel, Kunkle, O'Malley and
Spangler. USBANCORP's auditor is designated to conduct the internal audits for
all subsidiaries.
The Nominating Committee presently consists of Messrs. Barton, Dunkle,
O'Malley and Pasquerilla. The Nominating Committee is responsible for
nominating directors for consideration at the Annual Meeting of Shareholders.
The Nominating Committee will consider nominees recommended by shareholders.
Shareholders desiring to make such a recommendation should submit the
candidate's name, together with biographical information and the shareholder's
written consent to nomination to: Chairman, President and CEO, USBANCORP, Inc.,
Executive Offices, Main and Franklin Streets, Johnstown, Pennsylvania 15901.
Shareholders may also nominate persons for election as directors in accordance
with the procedures set forth in Section 1.3 of USBANCORP's Bylaws.
Notification of such nomination, containing the required information, must be
mailed or delivered to the President of USBANCORP not less than 60 days or more
than 90 days prior to the USBANCORP Annual Meeting.
The Management Compensation Committee is responsible for reviewing and making
recommendations regarding the compensation of corporate officers. The Committee
also makes recommendations to the USBANCORP Board of Directors regarding the
adoption of employee benefit, bonus, incentive compensation or similar plans
and is responsible for the administration of such plans. No director who is
eligible to receive any benefit under plans administered by the Committee may
serve on the Management Compensation Committee. The Committee is presently
comprised of Messrs. O'Malley, Pasquerilla and Wise.
EXECUTIVE COMPENSATION
Compensation of Directors
Executive officers of USBANCORP who were directors or members of committees
of the USBANCORP Board of Directors or its subsidiaries received no
compensation for such positions. In 1993, non-officer directors of USBANCORP
received compensation for attendance at USBANCORP Board of Directors
110
<PAGE>
meetings of $450 per meeting. A fee of $200 was paid for attendance at
committee meetings of the USBANCORP Board of Directors. Certain non-officer
directors of USBANCORP are also directors of either U.S. Bank, Three Rivers,
Community Savings, and the Trust Company. Such directors serving on either the
Board of Directors of U.S. Bank, Three Rivers and the Trust Company are
compensated for their services by a payment of $350 for attendance at each
Board of Directors meeting and $200 for attendance at each committee meeting of
those Boards. Such directors serving on the Board of Directors of Community
Savings are compensated for their services by a payment of $600 for attendance
at each Board of Directors and committee meeting.
Beginning in 1994, Directors of USBANCORP will also receive an annual
retainer of $6,000, payable in USBANCORP Common Stock.
Compensation of Executive Officers
The following table sets forth the amounts of compensation paid in 1993 to
the Chief Executive Officer and the Officers of USBANCORP whose direct
aggregate annual salary and bonus exceeded $100,000 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION(5)
--------------------- ----------------------- ---------------
OTHER AWARDS
ANNUAL STOCK
COMPEN- OPTION
YEAR SALARY BONUS SATION(1) (SHARES)(2) PAYOUTS(3)
---- -------- ------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Clifford A. Barton...... 1993 $180,540 $27,944 $11,452 4,000 $25,365
1992 171,960 23,041 11,393 -- 22,765
1991 164,580 39,375 11,642 5,000 --
Terry K. Dunkle......... 1993 156,480 37,260 9,926 4,000 16,829(6)
1992 149,404 35,655 9,875 -- 5,964
1991 142,620 34,125 9,470 5,000 --
W. Harrison Vail........ 1993 113,828 27,102 -- 4,000 --
1992 108,408 25,935 -- -- --
1991 103,764 24,938 -- 5,000 --
Kenneth J. Tyson........ 1993 127,800 -- -- -- --
1992 125,000 -- 165,117(4) -- --
1991 117,600 -- -- -- --
Louis Cynkar............ 1993 103,980 10,044 6,596 2,000 991
1992 100,440 7,027 6,655 -- 895
1991 92,460 16,438 6,140 2,500 --
</TABLE>
- --------
(1) Amounts awarded under the Profit Sharing Plan of USBANCORP or U.S. Bank.
(2) Stock options awarded pursuant to USBANCORP's 1991 Stock Option Plan on
January 19, 1993 and December 17, 1991.
(3) USBANCORP has no long-term compensation plan other than the 1991 Stock
Option Plan.
(4) Market value of USBANCORP Common Stock received on cancellation of stock
options to purchase Community shares.
(5) Amount accrued by U.S. Bank to provide additional retirement benefits over
ERISA limitations.
(6) Includes cost of "split-dollar" life insurance policy for Mr. Dunkle. See
"Retirement Plans-- Supplemental Pension Plan--U.S. Bank."
111
<PAGE>
OPTION EXERCISES AND YEAR END VALUES
Set forth below is information with respect to exercised and unexercised
options to purchase USBANCORP Common Stock granted under USBANCORP's 1991 Stock
Option Plan held by the Named Officers as of December 31, 1993. Options were
granted on December 17, 1991 and January 19, 1993. All options become
exercisable as follows: one-third one year from date of grant, two-thirds less
the aggregate number exercised two years from date of grant and the remainder
three years from date of grant.
<TABLE>
<CAPTION>
SHARES NUMBER OF UNEXERCISED VALUE OF IN-THE-MONEY
ACQUIRED OPTIONS AT DECEMBER 31, 1993 OPTIONS AT DECEMBER 31, 1993(1)
ON VALUE --------------------------------- -----------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- -------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Clifford A. Barton...... 1,667 $11,669 -- 5,667 -- $39,669
Terry K. Dunkle......... 3,333 23,331 -- 5,667 -- 39,669
W. Harrison Vail........ -- -- 3,333 5,667 23,331 39,669
Louis Cynkar............ -- -- 1,667 2,833 11,669 19,831
</TABLE>
- --------
(1) Based on the average of the high and low prices on the NASDAQ/NMS on
December 31, 1993.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------
PERCENT
OF TOTAL POTENTIAL REALIZED
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED ANNUAL RATES OF STOCK
SECURITIES TO PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM
OPTIONS IN FISCAL EXERCISE EXPIRATION ----------------------
NAME GRANTED(1) YEAR PRICE DATE 5% 10%
- ---- ---------- --------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Clifford A. Barton...... 4,000 14.5 $22.34 1/19/03 $38.69 $61.60
Terry K. Dunkle......... 4,000 14.5 22.34 1/19/03 38.69 61.60
W. Harrison Vail........ 4,000 14.5 22.34 1/19/03 38.69 61.60
Louis Cynkar............ 2,000 7.3 22.34 1/19/03 38.69 61.60
</TABLE>
The following table sets forth information with respect to grants of stock
options made during 1993 to each of the Named Officers.
- --------
(1) All options were granted on January 19, 1993. One-third will become
exercisable on January 19, 1994, two-thirds less the aggregate number
exercised will become exercisable on January 19, 1995, and the remainder
will become exercisable on January 19, 1996.
Compensation Committee Report on Executive Compensation
It is the responsibility of the Management Compensation Committee to (i)
recommend to the USBANCORP Board of Directors the compensation of executive
officers of USBANCORP and (ii) administer and recommend adoption of employee
benefit and incentive compensation plans for senior officers of USBANCORP. The
Committee also evaluates performance of management and considers management
succession planning and related matters. The Committee reviews with the
USBANCORP Board of Directors all aspects of the compensation of the highest
paid officers.
Compensation policies have been designed to enhance the profitability and
value of USBANCORP by relating and aligning the performance and financial
interests of senior officers with those of USBANCORP and its shareholders. Base
salaries for senior officers (other than the Chief Executive Officer) are
reviewed by the Committee with the Chief Executive Officer and USBANCORP's
senior human resources officer. The salary plan is reviewed for consistency
with industry peer group surveys. The peer group consists of five other
112
<PAGE>
banks in the Greater Johnstown Area of similar asset size and additional banks
in Pennsylvania and nationally within the same asset range. The indices used in
the Shareholders Return Performance Chart are Nasdaq/NMS (U.S. Companies) and
NASDAQ Bank Stocks. While USBANCORP management believes many of these peer
group banks are included in the peer group surveys used by the Management
Compensation Committee, it cannot positively state which ones are included.
Judgments are made with respect to the value contributed to USBANCORP by the
various officer positions and individual salary levels are based on the
relative importance of the job and the performance of the officer in the
position. The salary of the Chief Executive Officer is fixed by the Management
Compensation Committee based on information provided by the senior human
resources officer and the overall performance of USBANCORP. The Committee
evaluates the performance of the Chief Executive Officer in relationship to the
objectives of the strategic plans of USBANCORP and its subsidiaries,
USBANCORP's profitability, total shareholders' return and relative strength of
the key financial performance indicators of USBANCORP and its subsidiaries.
Performance goals for determining annual incentive compensation are set for
each of USBANCORP's functional groups. While the determining factor is return
on assets (return on equity for two of the affiliate bank CEOs), various other
factors are taken into consideration, which help to determine the return on
assets and return on equity. Each factor is considered corporate-wide for the
Chief Executive Officer, and by functional area of responsibility for each
other Named Officer. Salary levels reflected increases or decreases in these
areas and were, on an average percentage basis, equal to or less than average
salary increases for all other employees. Total compensation, including
salaries and incentive payments for these officers, are consistent with those
of persons holding comparable positions in financial institutions of similar
size.
The Chief Executive Officer nominates officers for participation in incentive
programs, and the level of participation is based upon the officer's salary
grade, job performance and attainment of established goals. In addition, with
respect to the Chief Executive Officer's award, the Committee considers
USBANCORP's performance in relationship to peer results and internal
improvements. Bonuses and stock options in 1991, 1992 and 1993 are considered
to be appropriate as pre-tax return on assets exceeded budgeted goals by 3.4%,
5.4% and 9.7%, respectively.
While the Management Compensation Committee has general supervision of other
plans, i.e., Profit Sharing, Pension and Retirement and Long Term Disability,
no specific determinations are made by the Committee as the benefits are
available to all participants in accordance with the express provisions of
those plans. The Committee considers changes to meet future needs, to remain
competitive and to meet regulatory compliance requirements.
This report is furnished by Messrs. O'Malley, Pasquerilla and Wise
(Chairman).
113
<PAGE>
SHAREHOLDERS RETURN PERFORMANCE PRESENTATION
Set forth below is a graph comparing the yearly percentage change in the
cumulative total shareholder return on USBANCORP's Common Stock against the
NASDAQ Stock Market (U.S. Companies) and the NASDAQ Bank Stocks for the five
years beginning January 1, 1989 and ended December 31, 1993.
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG USBANCORP, NASDAQ INDEX AND NASDAQ BANK INDEX
<CAPTION>
NASDAQ
Measurement period NASDAQ BANK
(Fiscal Year Covered) USBANCORP INDEX INDEX
- --------------------- -------- -------- --------
<S> <C> <C> <C>
Measurement PT -
12/30/88 $ 100.00 $ 100.0 $ 100.0
FYE 12/29/89 $ 135.9 $ 121.2 $ 111.2
FYE 12/31/90 $ 136.3 $ 103.0 $ 81.4
FYE 12/31/91 $ 193.6 $ 165.2 $ 133.6
FYE 12/31/92 $ 245.5 $ 192.2 $ 194.2
FYE 12/31/93 $ 274.6 $ 219.4 $ 221.5
</TABLE>
RETIREMENT PLANS
Pension Plan--U.S. Bank
U.S. Bank maintains a qualified defined benefit retirement plan for its
employees (the "U.S. Bank Plan"). Remuneration for pension benefit purposes is
base pay excluding overtime, bonus or reimbursement of business expense. An
employee's benefit under the U.S. Bank Plan is determined on the basis of Final
Average Pay which means the average annual base pay received by an employee in
the five consecutive years out of the ten ending before his normal retirement
date for which the average is highest.
There was no contribution made to the U.S. Bank Plan in 1993 due to its
overfunded status.
Estimated annual benefits payable upon retirement at age 65 considering 15
years of service (25 years of service for highly compensated employees as such
term is defined in Code Section 414(q) of the Code) with respect to the
specified remuneration are as follows:
114
<PAGE>
PENSION TABLE U.S. BANK
<TABLE>
<CAPTION>
FIVE CALENDAR YEAR
AVERAGE SALARY ANNUAL BENEFIT AT
PRECEDING RETIREMENT NORMAL RETIREMENT DATE
-------------------- ----------------------
<S> <C>
$ 15,000 $ 5,550
25,000 9,250
40,000 14,800
60,000 22,200
90,000 33,300
100,000 37,000
120,000 44,400
140,000 51,800
160,000 59,200
180,000 66,600
200,000 44,000
201,840 74,681
206,284 76,325
212,056 78,461
</TABLE>
The above benefits are paid for the life of the employee with ten years of
payments guaranteed. The amounts shown do not reflect the various survivorship
options which an employee may elect. Depending upon the survivorship
arrangement chosen, the amounts shown could be substantially further reduced.
Had a contribution been made in 1993, it would have been based on the 1992
salaries for Messrs. Barton, Dunkle, and Cynkar which were $171,960, $149,404,
and $100,440, respectively. Current remuneration covered by the U.S. Bank Plan
(base salary) in 1993 for Messrs. Barton, Dunkle and Cynkar was $180,540,
$156,480 and $103,980, respectively. As of December 31, 1993, Mr. Barton was
credited with six years of service, Mr. Dunkle with six years of service and
Mr. Cynkar with eight years of service. Mr. Barton retired as of January 31,
1994.
Effective January 1, 1986, the USBANCORP Board of Directors adopted the U.S.
Bank Plan for the benefit of employees of USBANCORP on the same terms and
conditions as for employees of U.S. Bank. Contributions made by USBANCORP are
limited to those employees whose base salaries are paid by USBANCORP. An
employee on whose behalf a contribution is made by USBANCORP is no longer
eligible to receive a contribution from U.S. Bank.
Supplemental Pension Plan--U.S. Bank
The Board of Directors of U.S. Bank on February 20, 1981, adopted a
Supplemental Pension Plan under which the Executive Committee of the Board of
Directors may from time to time designate executive officers of the U.S. Bank
as participants and specify the amount of supplemental pension payment the
participant shall receive.
A participating officer agrees to render after retirement such advisory
services as the Executive Committee may reasonably request and enters into a
noncompetition agreement with U.S. Bank. Upon his retirement from U.S. Bank, a
participant will be entitled to receive supplemental monthly pension payments
in the specified amount for a period of fifteen years. If he should die before
retirement while in the service of U.S. Bank or if he should die after payment
of benefits has commenced, the participant's spouse, if any, will be entitled
to receive one-half of the specified amount for the remainder of the fifteen
year period.
No payments are currently being made under this plan. U.S. Bank purchased an
annuity in 1988 for one retired officer who is the only present participant.
115
<PAGE>
USBANCORP has provided for an additional pension for Mr. Barton. The
additional pension benefit will be paid in monthly installments over Mr.
Barton's lifetime with 180 monthly payments guaranteed. If death occurs after
retirement, but before Mr. Barton receives 180 payments, the remaining payments
will be made to his designated beneficiary.
USBANCORP has purchased a life insurance policy which will reimburse
USBANCORP, after Mr. Barton's death, for the after-tax cost of all supplemental
pension benefits, the insurance premiums, and a factor for the use of money.
Mr. Barton's supplemental pension benefit is designed to provide him with a
total retirement income equal to the income benefit he would have received if
he had been a participant in the U.S. Bank Plan for all his years of eligible
service beginning with his initial date of employment with Three Rivers,
through his retirement at USBANCORP.
USBANCORP has provided for an additional retirement benefit for Mr. Dunkle
funded through a split-dollar life insurance policy. USBANCORP pays a portion
of the premiums until Mr. Dunkle's normal retirement. At such time, the
cumulative premiums paid by USBANCORP or the policy cash value, if less, will
be refunded to USBANCORP via a withdrawal from the policy cash value; and Mr.
Dunkle will receive a paid-up life insurance policy which will include any
remaining cash value. In the event of death prior to retirement, premiums paid
by USBANCORP will be refunded. The annual premium paid by USBANCORP is $10,000
per year, and the bank has an interest in the policy cash value equal to the
lesser of its cumulative premiums or the policy cash value.
Retirement Plan--Three Rivers
Three Rivers maintained a combination defined benefit pension plan which was
established during 1970 and amended as of January 1, 1989 (the "Three Rivers
Plan"). The Three Rivers Plan covered all eligible employees, including
officers. The annual contribution to the Three Rivers Plan amounted to 6.14% of
the 1992 total remuneration paid to all participants. The Three Rivers Plan is
set up on an actuarial basis and provides for fixed benefits upon retirement at
a specified age or retirement under certain conditions.
The Three Rivers Plan was integrated with social security, and, under the
formula applicable to all participants, the benefit of a particular participant
was a function of that participant's highest five years compensation and years
of service. Vesting occurred over five years and normal retirement age is
considered to be 65. Actuarially reduced benefits may commence after full
vesting and following separation from service. The following table illustrates
benefits payable under the benefit formula in effect through June 30, 1993, and
is based on an unmarried participant, fully vested and 65 years of age.
116
<PAGE>
ANNUAL BENEFITS BASED ON YEARS OF SERVICE
<TABLE>
<CAPTION>
HIGHEST 5 YEARS
OF
ANNUAL
COMPENSATION 15 YEARS 25 YEARS 35 YEARS
--------------- -------- -------- --------
<S> <C> <C> <C>
$ 15,000 $ 1,929 $ 3,214 $ 4,500
20,000 2,571 4,268 6,000
25,000 3,427 5,712 7,997
35,000 5,680 9,467 13,254
50,000 9,060 15,100 21,140
60,000 11,313 18,856 26,398
70,000 13,567 22,611 32,655
80,000 15,820 26,366 36,913
90,000 18,073 30,122 42,170
100,000 20,326 33,877 47,428
110,000 22,579 37,632 52,685
120,000 24,833 41,388 57,943
130,000 17,086 45,143 63,200
140,000 29,339 48,899 68,458
150,000 31,592 52,654 73,715
</TABLE>
Effective July 1, 1993, the benefit formula of the Three Rivers Plan was
revised to duplicate the benefit formula of the U.S. Bank Plan. Employees
retiring on or after July 1, 1993, will receive a benefit based upon the U.S.
Bank Plan formula but not less than the benefit earned through June 30, 1993,
under the former Three Rivers Plan formula.
Current remuneration covered by the Retirement Plan (base salary) in 1992 for
Mr. Vail was $108,408. As of December 31, 1993, Mr. Vail was credited with nine
years of service.
Retirement Plan--Community Savings
Prior to June 30, 1993, Community Savings maintained a retirement plan (the
"Community Plan") for all eligible employees. Employees who were 21 years of
age and who had completed one year of service were eligible to participate. The
Community Plan was a qualified, non-contributory defined benefit plan funded by
contributions from Community Savings. Effective September 1, 1991, the
Community Plan was amended to provide for annual benefits payable monthly at
retirement on normal retirement age (age 65) in an amount equal to (i) 1.5%
times the total years of Benefit Service times the amount of an employee's
Average Salary up to the Covered Compensation Level, plus (ii) 2.0% times the
total years of Benefit Service times the amount of an employee's Average Annual
Salary which exceeded the Covered Compensation Level, except that an employee
who retired with at least 40 years of Benefit Service shall receive annual
benefits equal to 2.0% times the total years of Benefit Service times the
amount of the employee's Average Annual Salary. Benefit Service is defined in
the Community Plan to mean an employee's years of service with Community
Savings since the effective date of the Community Plan plus years of service
with Community Savings prior to the effective date of the Community Plan, if
any, for which Community has purchased credit. Average Annual Salary is defined
under the Community Plan as an average of the highest five consecutive years of
compensation during participation in the Community Plan. The Covered
Compensation Level was $10,000 as of January 1, 1991. An employee who retired
after reaching age 45 but prior to attaining age 65 is entitled to receive
benefits equal to the amount of the benefits he or she would have received upon
retirement at age 65 multiplied by a percentage equal to 100% minus a
percentage equal to 3% times the difference between 65 and the actual
retirement age. The Community Plan also provides for benefits in the event of
disability or death.
The vesting schedule in effect during fiscal 1993 for determining the
percentage of the retirement benefits, as calculated above, that the employee
may receive is as follows: (i) for employees under age 65, employees
117
<PAGE>
are 0% vested for less than five completed years in the Community Plan and 100%
vested for five or more completed years in the Community Plan, and (ii) all
employees age 65 and above are fully vested.
The Community Plan has been approved by the IRS, and is intended to meet the
requirements of ERISA. During the six months ended June 30, 1993, Community
Savings' expense for the Community Plan was approximately $80,000. The
Community Plan was in an overfunded status during fiscal 1993 and contributions
could not be made to the accounts of any individual.
The following table illustrates annual pension benefits for retirement at age
65 under various levels of compensation and years of service. The figures in
the table assume the Community Plan continues in its present form. The benefits
shown below are not subject to any deduction for Social Security or other
offset amounts.
<TABLE>
<CAPTION>
YEARS OF SERVICE (1)
AVERAGE ANNUAL -------------------------------------------------
SALARY 10 15 20 25 30 40
-------------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 10,000 $ 1,500 $ 2,250 $ 3,000 $ 3,750 $ 4,500 $ 8,000
20,000 3,500 5,250 7,000 8,750 10,500 16,000
30,000 5,500 8,250 11,000 13,750 16,500 24,000
50,000 9,500 14,250 19,000 23,750 28,500 40,000
70,000 13,500 20,250 27,000 33,750 40,500 56,000
90,000 17,500 26,250 35,000 43,750 52,500 72,000
110,000 21,500 32,250 43,000 53,750 64,500 88,000
140,000 27,500 41,250 55,000 68,750 82,500 112,000
160,000 31,500 47,250 63,000 78,750 94,500 115,641(2)
</TABLE>
- --------
(1) At December 31, 1993, Mr. Tyson had 40 years of credited service under the
Community Plan. Current remuneration covered by the Community Plan in 1993
was $127,800.
(2) Maximum annual benefit payable under a defined benefit plan during 1993.
This figure is subject to annual cost of living adjustment.
Effective July 1, 1993, the Community Plan was merged into the Three Rivers
Plan. Assets and liabilities of the Community Plan are to be transferred to the
Three Rivers Plan. Employees retiring on or after July 1, 1993, will receive a
benefit based upon the Three Rivers Plan benefit formula but not less than the
benefit earned through June 30, 1993, under the former Community Plan formula.
Executive Long Term Disability Plan
In 1986, the USBANCORP Board of Directors adopted a Long Term Disability Plan
for senior officers who are deemed to be policy-making executives of USBANCORP
and its subsidiaries. The plan provides for a monthly benefit equal to 50% of
base monthly salary up to a maximum of $10,000 per month. Benefits are paid
through age 65 with reducing benefits paid to age 70. There is a 90 day
elimination period, and benefits are integrated with Social Security payments
when income from all sources exceeds 70% of an individual's predisability
earnings. No payments were made under the plan in 1993.
EMPLOYMENT CONTRACTS
On April 22, 1988, Mr. Dunkle entered into an Agreement with U.S. Bank
providing that in the event of a change in control which resulted in his
termination or diminution of his duties, responsibilities or titles, U.S. Bank
would pay him monthly for a period of twelve (12) months a sum equal to the
highest rates of monthly base salary paid to him at any time during the course
of his employment. Base salary is defined as the monthly rate of compensation,
exclusive of bonuses, options or other benefits. In the case of Mr. Dunkle's
death during such a twelve-month period, the remaining payments are to be made
to his designated
118
<PAGE>
beneficiary or to his estate. On June 23, 1988, Mr. Vail entered into an
identical agreement with Three Rivers Bank.
On November 19, 1991, Mr. Tyson entered into an agreement with Community
which provided (1) employment for a period of two (2) years from the effective
date of the merger of Community into a subsidiary of USBANCORP or until March
1, 1994, whichever is longer, (2) service in an executive capacity as President
of Community and Community Savings, (3) payments of a base salary of not less
than $125,000 per year together with related fringe benefits, (4) reimbursement
for reasonable business expenses, (5) participation in all employee benefit or
welfare plans in which he is or would be eligible to participate and (6)
application to any successor of Community by reason of merger or consolidation
or transfer of substantially all of Community's assets.
Mr. Dunkle's and Mr. Vail's agreements remain in effect. Mr. Tyson's
agreement expired on March 23, 1994 and he retired as an officer of Community
on March 31, 1994. See "Executive Compensation--Summary Compensation Table" and
"Compensation Committee Report on Executive Compensation."
VOTING SECURITIES
General
As of the close of business on April 29, 1994, there were outstanding
4,743,037 shares of the USBANCORP Common Stock. Only shareholders of record as
of the close of business on April 29, 1994, are entitled to notice of and to
vote at the USBANCORP Annual Meeting. Except with respect to the election of
directors, each such shareholder is entitled to one vote for each such share
held.
Set forth below is information with respect to the beneficial ownership, as
of April 29, 1994, of certain persons, including directors and nominees for
director, the Chief Executive Officer and the Named Officers of shares of
USBANCORP Common Stock.
COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
NAME OF BENEFICIAL OWNER (1) OWNERSHIP (2) OF CLASS
- ---------------------------- ------------- --------
<S> <C> <C>
Jerome M. Adams.......................................... 3,983.7580 *
Robert A. Allen.......................................... 6,495.8709 *
Clifford A. Barton(3).................................... 70,894.0396 1.5%
Michael F. Butler........................................ 3,000.0000 *
Louis Cynkar............................................. 3,221.0845 *
Terry K. Dunkle.......................................... 11,296.8752 *
Dennis J. Fantaski....................................... 5,134.3027 *
Richard W. Kappel........................................ 9,515.0000 *
John H. Kunkle, Jr....................................... 5,302.0000 *
James F. O'Malley(4)..................................... 33,086.9456 *
Frank J. Pasquerilla(5).................................. 46,385.0656 *
Jack Sevy................................................ 1,074.1900 *
Thomas C. Slater......................................... 7,338.6754 *
James C. Spangler........................................ 5,141.0000 *
Kenneth J. Tyson......................................... 15,536.5273 *
W. Harrison Vail......................................... 10,943.2097 *
Robert L. Wise........................................... 1,505.3490 *
Officers, directors
and nominees for
directors as a
group (6)............................................... 242,893.5430 5.1%
</TABLE>
119
<PAGE>
- --------
*Less than 1%
(1) Except as noted below, each of the identified beneficial owners, including
the officers, directors and nominees for director as a group, has sole
investment and voting power as to all the shares shown as beneficially
owned with the exception of those held by certain officers, directors and
nominees for director jointly with their spouses or directly by their
spouses or other relative.
(2) Includes shares which may be acquired within sixty (60) days upon the
exercise of presently exercisable stock options as follows: 1,333, 4,666,
1,834, 2,334 and 12,506 shares of USBANCORP Common Stock held by Messrs.
Dunkle, Vail, Cynkar and Fantaski and the group, respectively. In addition,
Messrs. Dunkle, Vail, Cynkar, Fantaski and the group hold outstanding
options to acquire 4,334, 4,334, 2,166, 2,166, and 15,166 shares of
USBANCORP Common Stock, respectively, which first become exercisable on
December 17, 1994 and therefore are excluded.
(3) Includes 35,510 shares of USBANCORP Common Stock held by Mr. Barton's wife,
as to which shares Mr. Barton disclaims beneficial ownership.
(4) Includes 1,599.2452 and 58.3433 shares of USBANCORP Common Stock held by
Mr. O'Malley's daughter and wife, respectively, as to which Mr. O'Malley
disclaims beneficial ownership.
(5) Includes 1,014 shares of USBANCORP Common Stock held by Crown American
Associates of which Mr. Pasquerilla is an officer and controlling
shareholder.
(6) The group consists of 18 persons, being the Chief Executive Officer, the
Named Officers and one additional executive officer of USBANCORP as of
April 29, 1994.
Principal Holders of Stock
Except as set forth in the following table, no person is known to USBANCORP
management to own of record or beneficially 5% or more of the outstanding
USBANCORP Common Stock as of April 29, 1994:
COMMON STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT PERCENT
- ------------------------------------ ------- -------
<S> <C> <C>
First Carolina Investors Group(l)
5224 Providence County Club Drive
Charlotte, NC 28277-2501(2)(3).................................. 274,755 5.8%
</TABLE>
- --------
(1) Comprises a total of six individuals and entities who have filed reports
jointly on Schedule 13D pursuant to the Exchange Act (the "Group").
(2) All information in the table is based upon the Schedule 13D reports, as
amended, previously filed by the Group. Except as indicated below, each
member of the Group is believed to possess sole voting and investment power
over its shares.
(3) As previously reported, USBANCORP and the respective members of the Group
namely, First Carolina Investors, Inc.; Foundation Lyric; Hofin Anstalt;
John G. Ogilvie; Trust Alvant; and Robert G. Wilmers, have entered into a
"Standstill Agreement", dated as of January 8, 1990, under which USBANCORP
has agreed (among other things) not to oppose increases in the Group's
holdings to as much as 15%. The agreement also provides that, unless the
group's beneficial ownership is reduced below 5%, the members will instruct
their proxies to vote their shares in exact proportion to the votes cast by
USBANCORP's other shareholders, and that they will not solicit the proxies
of any other shareholders. The agreement will expire upon the earlier of
January 1, 1995, or the consummation of any "change of control"
transaction, as therein defined.
120
<PAGE>
FINANCIAL INFORMATION
Requests for printed financial material for USBANCORP or any of its
subsidiaries annual or quarterly reports, Forms 10-K and 10-Q and Call
Reports--should be directed to Orlando B. Hanselman, Executive Vice President
and Chief Financial Officer, USBANCORP, Inc., Main & Franklin Streets, P.O. Box
670, Johnstown, PA 15907-0670, telephone (814) 533-5319.
TRANSACTIONS WITH MANAGEMENT
Certain directors, nominees and executive officers and/or their associates
were customers of and had transactions with USBANCORP or its subsidiaries
during 1993. Transactions which involved loans or commitments by subsidiary
banks were made in the ordinary course of business and on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and did not involve more
than normal risk of collectability or present other unfavorable features. These
loans represented in the aggregate less than 10% of shareholders' equity as of
December 31, 1993 and are not considered material by USBANCORP.
Mr. Adams is a partner in a law firm which rendered services to Three Rivers
during 1993 and will render such services in 1994.
AUDITORS
Arthur Andersen & Co. has audited USBANCORP's financial statements for the
fiscal year ended December 31, 1993, and the report on such financial
statements appears in the Annual Report to Shareholders. Arthur Andersen & Co.
has been selected by the USBANCORP Board of Directors to perform an examination
of the consolidated financial statements of USBANCORP for the year ending
December 31, 1994.
Representatives of Arthur Andersen & Co. are expected to be present at the
USBANCORP Annual Meeting with the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
AMENDMENT OF USBANCORP'S ARTICLES OF INCORPORATION
Article FIFTH of USBANCORP's articles of incorporation presently authorizes
the issuance of up to 2,000,000 shares of Preferred Stock, without par value
and 6,000,000 shares of USBANCORP Common Stock, par value $2.50. At April 29,
1994, no shares of Preferred Stock were outstanding and 4,743,037 shares of
USBANCORP Common Stock were outstanding. It is the opinion of USBANCORP's Board
of Directors that the remaining number of authorized but unissued shares of
USBANCORP Common Stock is not sufficient to provide enough flexibility to
management to take advantage of possible acquisitions and other corporate
opportunities and to provide enough shares of USBANCORP Common Stock for the
Dividend Reinvestment Plan and stock options or other forms of compensation. It
is the opinion of the USBANCORP Board of Directors that it is in USBANCORP's
best interests to increase the number of authorized shares of USBANCORP Common
Stock. To that end, the USBANCORP Board of Directors has approved amending
Article FIFTH to increase the number of authorized shares of USBANCORP Common
Stock to 12,000,000. THE USBANCORP BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE TO APPROVE AND ADOPT THE FOLLOWING RESOLUTION:
BE IT RESOLVED, that the first paragraph of Article FIFTH of the articles of
incorporation, as amended, be further amended to read in its entirety as
follows:
"The aggregate number of shares which USBANCORP shall have the authority to
issue is 2,000,000 shares of Preferred Stock, without par value and
12,000,000 shares of Common Stock with the par value of $2.50."
121
<PAGE>
A majority of shares present and voting at the USBANCORP Annual Meeting is
required to approve and adopt this resolution. There will be no change in the
number or par value of authorized shares of USBANCORP Preferred Stock or in the
par value of shares of USBANCORP Common Stock.
ELECTION OF JSB DIRECTORS
GENERAL
The bylaws of JSB provide that the JSB Board of Directors shall be divided
into three classes as nearly equal in number as possible, and a resolution of
the JSB Board of Directors adopted pursuant to such bylaws provides that the
JSB Board of Directors shall consist of eleven members. The members of each
class are to be elected for a term of three years or until their successors are
elected and have qualified. The terms of the three classes are staggered so
that one class of directors is to be elected annually. Pursuant to JSB's
Charter, the cumulation of votes for the election of directors is not
permitted.
Nominations have been made for four directors with terms expiring in 1997.
Unless otherwise directed in the proxy, each proxy executed and returned by a
JSB shareholder and not revoked will be voted for the election of the four
nominees listed below. The accompanying proxy cannot be voted for any person
who is not a nominee of the JSB Board of Directors. The Board of Directors
believes that all nominees listed below will stand for election; however, if
any person nominated fails to stand for election, the proxies will vote for a
substitute nominee selected by the JSB Board of Directors. The JSB Board of
Directors believes that each nominee named herein will serve if elected to the
JSB Board of Directors.
The following table sets forth the age and background of each nominee for
director and each director whose term continues, his tenure as a director of
JSB and the number and percentage (if greater than 1%) of shares of JSB Common
Stock beneficially owned by each such person as of February 28, 1994. There are
no arrangements or understandings between JSB and any person pursuant to which
such person has been elected a director, and no director is related to any
other director or executive officer of JSB by blood, marriage or adoption.
NOMINEES FOR THREE-YEAR TERM EXPIRING IN 1997
<TABLE>
<CAPTION>
POSITION WITH JSB AND COMMON STOCK
PRINCIPAL OCCUPATION DIRECTOR BENEFICIALLY OWNED AS
NAME AGE DURING THE PAST FIVE YEARS SINCE OF FEBRUARY 28, 1994(1)
---- --- -------------------------- -------- -------------------------
NO. %
-------------- ----------
<C> <C> <S> <C> <C> <C>
James C. Dewar 56 President and General 1974 34,586(2) 1.78
Manager of Jim Dewar
Oldsmobile, Inc.,
Johnstown, Pennsylvania,
since 1969
James M. Edwards, Sr. 54 President and Chief 1984 11,537(3) *
Executive Officer of
WJAC, Inc., Johnstown,
Pennsylvania, a
television broadcasting
station, since 1980
Kim W. Kunkle 40 President and Chief 1984 6,606(4) *
Executive Officer of
Laurel Management
Company, Johnstown,
Pennsylvania, a holding
company with
subsidiaries involved in
water utility
management, water line
construction, machining,
contract cleaning,
repair of mine
batteries, and travel
services, since 1984
Howard M. Picking, III 56 President of the Miller- 1970 16,600(5) *
Picking Corporation,
Johnstown, Pennsylvania,
an air conditioning
machinery manufacturer,
since 1978
</TABLE>
(continued on next page)
122
<PAGE>
DIRECTORS WITH TERM EXPIRING IN 1995
<TABLE>
<CAPTION>
POSITION WITH JSB AND COMMON STOCK
PRINCIPAL OCCUPATION DIRECTOR BENEFICIALLY OWNED AS
NAME AGE DURING THE PAST FIVE YEARS SINCE OF FEBRUARY 28, 1994(1)
---- --- -------------------------- -------- -------------------------
NO. %
-------------- ----------
<C> <C> <S> <C> <C> <C>
Dr. Frank H. 66 President Emeritus of 1974 1,001(6) *
Blackington, III the University of
Pittsburgh at Johnstown,
Johnstown, Pennsylvania,
since December 1993;
President of the
University of Pittsburgh
at Johnstown, 1974-1993
John B. Gunter 75 Chairman of the Board of 1977 2,000(6) *
JSB since March 2, 1990;
Retired; President and
Director of Winston
Corporation from 1978 to
1984; Director of
Marketing and the
Corporate Vice President
and Secretary of
Johnstown Tribune
Publishing Company from
1979 to 1984
Carl R. Sax 58 A Director of and Vice 1980 3,970(7) *
President-General
Manager, General
Kinetics, Inc.,
Johnstown, Pennsylvania
and Orlando, Florida, a
manufacturer of high-
tech electronic
enclosures for the
United States
Government, since
January 1993; Vice
President- Operations,
General Kinetics, Inc.
from November 1990
through December 1992;
Vice President Branch
Operations, Sani-Dairy,
Johnstown, Pennsylvania,
from 1986 to 1990
John B. Stockton 71 Retired; Owner and 1957 6,211(8) *
operator of the Stockton
Insurance Agency,
Johnstown, Pennsylvania,
from 1947 to 1990; Mr.
Stockton is also a
director of Paramount
Consumer Discount Co.,
Johnstown, Pennsylvania
</TABLE>
(continued on next page)
123
<PAGE>
DIRECTORS WITH TERM EXPIRING IN 1996
<TABLE>
<CAPTION>
POSITION WITH JSB AND COMMON STOCK
PRINCIPAL OCCUPATION DIRECTOR BENEFICIALLY OWNED AS
NAME AGE DURING THE PAST FIVE YEARS SINCE OF FEBRUARY 28, 1994(1)
---- --- -------------------------- -------- -------------------------
NO. %
-------------- ----------
<C> <C> <S> <C> <C> <C>
Paul A. Cooney 68 Managing Partner, Cooney 1988 166,650(9) 8.57
Bros. Coal Co., Cresson,
Pennsylvania, since 1954
Patrick J. Coyne 51 President and Chief 1989 32,442(10) 1.67
Executive Officer of JSB
since March 2, 1990;
Executive Vice President
and Chief Lending
Officer of JSB from June
1989 to March 1990; Vice
President and Senior
Supervisory Agent with
the Federal Home Loan
Bank of Pittsburgh, a
federally chartered
wholesale bank, and, at
that time, a regulator
of financial
institutions, from March
1980 to June 1989
John M. Kriak 46 Director and Executive 1983 7,693(11) *
Vice President and Chief
Operating Officer, Crown
Holding Company,
Johnstown, Pennsylvania,
a developer and operator
of commercial real
estate properties and
retail department
stores; Vice President,
Secretary and Treasurer
of The Penn Traffic
Company, Johnstown,
Pennsylvania, a
supermarket company,
from 1981 to May 1993
</TABLE>
THE JSB BOARD OF DIRECTORS RECOMMENDS THAT THE NOMINEES BE ELECTED AS
DIRECTORS.
- --------
*Represents less than 1% of the outstanding JSB Common Stock.
(1) Based on information furnished by the respective individuals. Under
applicable regulations, shares are deemed to be beneficially owned by a
person if the person directly or indirectly has or shares the power to vote
or dispose of the shares, whether or not the person has any economic
interest in the shares. Unless otherwise indicated, a director has sole
voting and dispositive power with respect to the indicated shares and
indicated holdings amount to less than 1.0% of the issued and outstanding
JSB Common Stock.
(2) Includes 11,966 shares of JSB Common Stock held in the George C. Dewar
trust as to which Mr. James C. Dewar is the trustee, 5,263 shares of JSB
Common Stock held in the Jim Dewar Oldsmobile Pension Plan for the benefit
of Mr. James C. Dewar and the employees of James C. Dewar Oldsmobile, Inc.
and 845 shares of JSB Common Stock held by Mr. Dewar's wife. Mr. Dewar
disclaims beneficial ownership of the shares held by his wife.
(3) Includes 7,537 shares of JSB Common Stock held jointly with Mr. Edwards'
wife with whom voting and dispositive power is shared and 4,000 shares
owned by a pension plan trust in which Mr. Edwards is one of three
trustees. Mr. Edwards disclaims beneficial ownership of the shares held by
the trust.
(4) Includes 2,500 shares of JSB Common Stock owned by the Laurel Management
Company Defined Benefit Pension Plan, the voting and disposition of which
is determined by the Laurel Management Company Pension Committee of which
Mr. Kunkle is a member. Mr. Kunkle disclaims beneficial ownership of the
shares owned by the plan.
124
<PAGE>
(5) Includes 136 shares of JSB Common Stock held in Mr. Picking's wife's
individual retirement account and 138 shares of JSB Common Stock held
jointly by Mrs. Picking and Mr. Picking's children. Mr. Picking disclaims
beneficial ownership of the shares held in Mrs. Picking's individual
retirement account and the shares held jointly by Mrs. Picking and their
children.
(6) The indicated shares of JSB Common Stock are held jointly with the spouse
of the respective director with whom voting and dispositive power is
shared.
(7) Includes 1,052 shares of JSB Common Stock held by Mr. Sax's mother-in-law
and 950 shares of JSB Common Stock held by Mr. Sax's wife. Mr. Sax
disclaims beneficial ownership of such shares.
(8) Includes 2,000 shares of JSB Common Stock held in the Mary L. Stockton
trust as to which Mr. John B. Stockton is co-trustee.
(9) Includes 165,650 shares of JSB Common Stock owned by Cooney Bros. Coal Co.,
of which Mr. Cooney and his two brothers are the general partners and, as
such, direct the voting and disposition of such shares.
(10) Includes 1,702 shares of JSB Common Stock held jointly with Mr. Coyne's
wife, with whom voting and dispositive power is shared and 115 shares
owned by Mr. Coyne's son. Mr. Coyne disclaims beneficial ownership of the
shares owned by his son. Also includes 26,360 options to acquire JSB
Common Stock which are exercisable within 60 days of the JSB Record Date.
(11) Includes 5,741 shares of JSB Common Stock held jointly with Mr. Kriak's
wife, 151 shares held in Mrs. Kriak's individual retirement account, 52
shares of JSB Common Stock held jointly with Mr. Kriak's mother, and 400
shares of JSB Common Stock held jointly with Mr. Kriak's sons who reside
with him, as to all of which shares voting and dispositive power is shared
with the exception of the shares held in Mrs. Kriak's individual
retirement account. Mr. Kriak disclaims beneficial ownership of the shares
held in his wife's individual retirement account.
SHAREHOLDER NOMINATIONS TO THE JSB BOARD OF DIRECTORS
Article II, Section 14 of JSB's bylaws provides that shareholders entitled to
vote for the election of directors may name nominees for election to the JSB
Board of Directors. Any such nominations must be submitted to the Secretary of
JSB in writing, not less than five days prior to the JSB Annual Meeting. JSB is
not required to include such nominations in the Proxy Statement/Prospectus.
However, if such a nomination is properly made, ballots will be provided for
use by shareholders at the JSB Annual Meeting bearing the name of such nominee
or nominees.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to ownership of JSB
Common Stock by the only entity known to JSB to be the beneficial owner of 5%
or more of the outstanding JSB Common Stock and by all directors and executive
officers as a group.
<TABLE>
<CAPTION>
AMOUNT OF SHARES OF JSB
COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED AS OF PERCENT OF JSB
OF BENEFICIAL OWNER FEBRUARY 28, 1994 COMMON STOCK
------------------- ------------------------ --------------
<S> <C> <C>
Cooney Bros. Coal Co. 165,650(1) 8.52%
P.O. Box 246
Cresson, Pennsylvania 16630
Directors and executive 299,172 15.38%
officers as a group (14 persons)
</TABLE>
- --------
(1) Based on filings made pursuant to the Exchange Act and information provided
by the company, Cooney Bros. Coal Co. has the sole power to vote and
dispose of the indicated shares of JSB Common Stock. Mr. Paul A. Cooney, a
member of the JSB Board of Directors, is a general partner of Cooney Bros.
Coal Co.
125
<PAGE>
BOARD AND COMMITTEES
Regular meetings of the JSB Board of Directors are held monthly and special
meetings are called and held as needed. The JSB Board of Directors held a total
of 22 meetings during 1993. No director, except for Mr. Cooney, whose absence
was excused by resolution of the JSB Board of Directors, attended fewer than
75% of the aggregate of the total number of meetings of the JSB Board of
Directors held during the last year and the total number of meetings held by
all committees of the JSB Board of Directors on which he served during the last
year. The JSB Board of Directors has established various committees, including
an Executive, Audit, Nominating and Compensation Committee.
The Executive Committee is authorized to exercise all the powers of the JSB
Board of Directors in the management of JSB between Board of Directors
meetings, unless otherwise provided in JSB's Bylaws. The members of the
Executive Committee, which met 14 times during the year ended December 31,
1993, are Messrs. Coyne, Sax, Blackington, Edwards and Gunter.
The Audit Committee recommends to the JSB Board of Directors independent
auditors to perform audit and nonaudit services, reviews the scope and results
of such services, reviews with JSB management and the independent auditors the
systems of internal controls, assures adherence in accounting and financial
reporting to GAAP and performs such other duties deemed appropriate by the JSB
Board of Directors. JSB's internal auditor reports to the Audit Committee. The
members of the Audit Committee, which met four times during the year ended
December 31, 1993, are Messrs. Kriak, Sax, Stockton and Picking.
The duties of the Nominating Committee are to advise the JSB Board of
Directors with respect to nomination of directors. The Nominating Committee
recommends candidates to the JSB Board of Directors as nominees for election at
the JSB Annual Meeting. Directors are selected on the basis of recognized
achievement and their ability to bring skills and experience to the
deliberations of the JSB Board of Directors. The members of the Nominating
Committee, which met once during the year ended December 31, 1993, are Messrs.
Blackington, Gunter, Sax and Stockton.
The Compensation Committee reviews the compensation of senior executive
officers and recommends to the JSB Board of Directors adjustments in such
compensation based upon a number of factors. The members of the Compensation
Committee, which met two times during the year ended December 31, 1993, are
Messrs. Blackington, Gunter, Sax and Edwards. Mr. Coyne attends the meetings of
the Compensation Committee in a non-voting, ex-officio capacity.
During 1993, each director who was not a full-time employee of JSB received a
monthly fee of $1,000. Directors who are also full-time employees of the Bank
did not receive additional compensation for any Board or committee meetings
attended. John B. Gunter, Chairman of the JSB Board of Directors, receives an
annual fee of $24,000 for attending JSB Board of Directors and committee
meetings. As Chairman of the JSB Board of Directors, Mr. Gunter attended 56
committee meetings either as a member or an ex-officio member. Mr. Gunter also
meets on a regular basis with the President of JSB, meets periodically with
other directors, communicates frequently with the Executive Committee of the
JSB Board of Directors and performs such other duties as requested from time to
time by the Chief Executive Officer of JSB.
EXECUTIVE COMPENSATION
Report of the JSB Board of Directors on Compensation During Fiscal 1993
The Compensation Committee of the JSB Board of Directors is composed entirely
of independent outside directors. See "Board and Committees." The Compensation
Committee is responsible for reviewing the compensation of executive officers
and recommending executive compensation proposals to the JSB Board of Directors
for approval.
126
<PAGE>
The Committee evaluates the base salaries of JSB's executive officers
annually. An executive officer's base salary is determined based upon longevity
with JSB, the effectiveness of such individual in performing his or her duties,
peer averages at the position in question and JSB's overall performance. No
particular weight is assigned to these variables. The base salary component
alone, while designed to be competitive with peer group averages, is not
designed to produce top levels of compensation for JSB's executive officers
when compared to its peer group. Based upon the foregoing, Mr. Coyne, the
President, and Chief Executive Officer, earned $120,000 in base salary during
1993.
JSB has established an Executive Annual Incentive Plan (the "Incentive Plan")
which provides for the payment of cash performance incentives to certain
officers and employees of JSB. The Incentive Plan is administered by the
Compensation Committee of the JSB Board of Directors, excluding participants in
the Incentive Plan. Officers and key employees of JSB are eligible to
participate in the Incentive Plan. The Compensation Committee, based on
recommendations of the Chief Executive Officer, has the discretion to select
Incentive Plan participants, establish financial performance targets, determine
the times of making awards and to establish such other measures as may be
necessary to administer the Incentive Plan. The Incentive Plan provides for
annual cash awards to be made to Incentive Plan participants, based on target
performance amounts for JSB and individual performance amounts for each
participant depending on the participation category of the participant. JSB's
performance is based on JSB's return on assets for the fiscal year. A
participant's individual performance awards are measured by JSB's performance
appraisal system. No awards are granted under the Incentive Plan, regardless of
individual performance, unless a threshold level of return on assets is
achieved for the fiscal year. The amounts payable under the Incentive Plan in
1994 to executive officers for performance in fiscal year 1993 are included in
the cash compensation table set forth below.
By the Compensation Committee:
James M. Edwards, Sr. (Chairman)
Carl R. Sax
John B. Gunter
Frank H. Blackington, III
127
<PAGE>
Summary Compensation Table
To meet the goal of providing shareholders a concise, comprehensive overview
of compensation awarded, earned or paid in the reporting period, the Summary
Compensation Table has been formulated to replace the former Cash Compensation
Table. The Summary Compensation Table includes individual compensation
information on the President and Chief Executive Officer and the four other
executive officers of JSB and its subsidiaries whose total compensation
exceeded $100,000 for services rendered in all capacities, or who were the most
highly compensated employees, during the fiscal years ended December 31, 1993,
1992 and 1991.
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR ANNUAL COMPENSATION LONG TERM COMPENSATION COMPENSATION(5)
- ------------------------------ ---- --------------------- ---------------------- ---------------
SALARY BONUS(3) OPTIONS(4)
---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Patrick J. Coyne 1993 $ 120,000 $ 60,658 10,000 $29,876
President and Chief 1992 97,811 17,533 20,000 25,624
Executive Officer 1991 94,990 20,000 -- 17,446
Kevin J. O'Neil(2) 1993 60,644 -- 10,000 49,112
Executive Vice
President-- 1992 -- -- -- --
Standard Mortgage 1991 -- -- -- --
Corporation(SMC)
Walter F. Rusnak 1993 79,200 33,884 5,000 7,475
Senior Vice President 1992 72,114 9,347 10,000 5,458
and Chief Financial
Officer 1991 70,494 -- -- 1,209
Kenneth W. Andres 1993 69,960 25,514 5,000 5,869
Senior Vice President-- 1992 63,649 8,257 10,000 5,166
Chief Lending Officer 1991 62,395 -- -- 1,276
R. Craig Pugh 1993 63,250 22,614 5,000 5,765
Senior Vice President-- 1992 53,271 6,491 10,000 4,148
Operations 1991 47,446 -- -- 984
</TABLE>
- --------
(1) SMC is JSB's wholly-owned mortgage banking subsidiary located in Atlanta,
Georgia. Kevin E. Kingsman, who resigned as Executive Vice-President and
Chief Operating Officer of Standard Mortgage Corporation in May 1993,
received $42,506, $71,500 and $69,333 in salary; $0, $9,282 and $0 in
bonuses; and $2,550, $4,847 and $715 in all other compensation in 1993,
1992 and 1991, respectively.
(2) Mr. O'Neil joined SMC on June 1, 1993.
(3) Includes performance incentives under JSB's Executive Annual Incentive
Plan, described above. Performance incentives earned in 1993 were paid in
December 1993. The performance incentives earned in 1992 and 1993 are
included in the totals for the year in which they were paid, 1993.
(4) Free standing stock options; see "Option Grants in Last Fiscal Year."
(5) Includes for the named individuals contributions to the 401(k) Thrift Plan,
deferred cash compensation, the use of automobiles owned or leased by JSB,
supplemental life insurance benefits, club dues and other miscellaneous
benefits for certain executive officers.
Option Grants in Last Fiscal Year
The Board of Directors and shareholders adopted the employee stock
compensation program (the "Program") for the benefit of full-time employees of
JSB. See "Employee Stock Compensation Program," below.
The following table sets forth individual grants of options that were made
during the last fiscal year to the executive officers named in the Summary
Compensation Table. This table is intended to allow
128
<PAGE>
shareholders to ascertain the number and size of option grants made during the
fiscal year, the expiration date of the grants and the potential realizable
value of such options under specified assumptions.
<TABLE>
<CAPTION>
OPTIONS
------------------------------------------------------------------------------
PERCENT OF
NUMBER GRANTED OPTIONS GRANTED PRESENT VALUE
NAME IN 1993(1) IN 1993 EXERCISE PRICE EXPIRATION DATE ON GRANT DATE(2)
- ---- -------------- --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Patrick J. Coyne........ 10,000 28.56% $11.15 Feb. 16, 2003 $25,160
Kenneth W. Andres....... 5,000 14.29% 11.15 Feb. 16, 2003 12,580
Kevin J. O'Neil......... 10,000 28.57% 11.15 July 20, 2003 24,800
R. Craig Pugh........... 5,000 14.29% 11.15 Feb. 16, 2003 12,580
Walter F. Rusnak........ 5,000 14.29% 11.15 Feb. 16, 2003 12,580
------ ------
35,000 100.00%
------ ------
</TABLE>
- --------
(1) The options vest 100% at the end of three years. The options became
immediately exercisable upon the signing of the Merger Agreement.
(2) The potential realizable value of the grant of options is the present value
of the grant using a variation of the Black/Scholes option pricing model.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth, with respect to the executive officers named
in the Summary Compensation Table, information with respect to the aggregate
amount of options exercised during the last fiscal year, any value realized
thereon, the number of unexercised options at the end of the fiscal year
(exercisable and unexercisable) and the value with respect thereto.
<TABLE>
<CAPTION>
OPTIONS EXERCISED
-----------------------------------------------------------------
NUMBER OF VALUE OF
NUMBER UNEXERCISED UNEXERCISED IN
EXERCISED OPTIONS AT THE MONEY OPTIONS
NAME IN 1993 VALUE REALIZED(1) FISCAL YEAR END AT FISCAL YEAR END(2)
- ---- --------- ----------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Patrick J. Coyne........ 3,640 $39,023 26,360 $287,657
Kenneth W. Andres....... -- -- 15,000 164,250
Kevin J. O'Neil......... -- -- 10,000 71,750
R. Craig Pugh........... -- -- 15,000 164,250
Walter F. Rusnak........ -- -- 15,000 164,250
----- ------- ------ --------
3,640 $39,023 81,360 $852,157
===== ======= ====== ========
</TABLE>
- --------
(1) Based upon the $18.00 closing market price of JSB Common Stock on the
exercise date, December 15, 1993.
(2) Based upon a closing market price for JSB Common Stock as of December 31,
1993 of $18.50. The options became immediately exercisable upon the signing
of the Merger Agreement.
Comparative Stock Performance Graph
The stock performance graph below compares the cumulative total shareholder
return of JSB Common Stock from December 31, 1988 to December 31, 1993, with
the cumulative total return of the Nasdaq
129
<PAGE>
Market Index and all banks traded on the NASDAQ ("Peer Group Index"), assuming
an investment of $100 on December 30, 1988, and the reinvestment of all
dividends. JSB paid a dividend of $0.15 on JSB Common Stock in 1993.
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG JOHNSTOWN SAVINGS BANK, NASDAQ INDEX AND NASDAQ BANK INDEX
<CAPTION>
JOHNSTOWN NASDAQ
Measurement period SAVINGS NASDAQ BANK
(Fiscal Year Covered) BANK INDEX INDEX
- --------------------- -------- -------- --------
<S> <C> <C> <C>
Measurement PT -
12/30/88 $ 100.0 $ 100.0 $ 100.0
FYE 12/29/89 $ 86.4 $ 121.2 $ 111.2
FYE 12/31/90 $ 50.0 $ 103.0 $ 81.4
FYE 12/31/91 $ 90.9 $ 165.2 $ 133.6
FYE 12/31/92 $ 159.1 $ 192.1 $ 194.2
FYE 12/31/93 $ 310.5 $ 219.1 $ 221.4
</TABLE>
Certain Transactions
JSB has contracted with Safari Contract Cleaners to provide janitorial
services to JSB on a month-to-month basis. In 1993, JSB paid $60,000 for such
services. Kim Kunkle, a director of JSB is the President, Chief Executive
Officer and controlling shareholder of Safari Contract Cleaners.
Employment Agreements
JSB entered into an employment agreement with Mr. Coyne, effective June 5,
1989, and an employment agreement with Walter F. Rusnak, effective May 29,
1990. The agreement with Mr. Coyne provides for an employment term of three
years and provides that it will be extended automatically for an additional one
year on the first anniversary of the agreement and each annual anniversary
thereafter, unless it is terminated in accordance with its terms. The agreement
with Mr. Rusnak provides that he shall serve JSB as an employee for a three-
year term. Each agreement provides for compensation at the employee's then base
salary with annual increases determined by the JSB Board of Directors. During
the term of his agreement, if Mr. Coyne terminates his employment for good
reason, as defined, and such termination is subsequent to a change in control
of JSB, then in lieu of any further salary payments, JSB will be required to
pay Mr. Coyne a lump sum equal to 2.99 times his average annual compensation
for the preceding five years (or such shorter period if Mr. Coyne has been
employed by JSB less than five years at the time of termination). The agreement
with Mr. Rusnak provided that if he terminated his employment with JSB for good
reason, as defined, and such termination is subsequent to a change in control
of JSB, Mr. Rusnak would have been entitled to receive a lump sum payment equal
to 2.99 times his average annual compensation for the preceding five years (or
such shorter period if Mr. Rusnak had been employed by JSB less than five
years) if such termination occurred
130
<PAGE>
within one year of the date of the agreement, 2.0 times his average
compensation for the preceding five years if termination occurred within one to
two years from the date of the agreement, and 1.0 times his average
compensation for the preceding five years if termination occurred within two to
three years from the date of the agreement. The agreement with Mr. Rusnak
expired May 29, 1993. As defined in the agreements, good reason means a failure
by JSB to comply with the provisions of the agreement, a change in the
executive's positions, duties, responsibilities and status, a reduction in the
executive's annual salary or benefits, or any termination of employment not in
compliance with the agreement. A change in control is defined in the agreements
as that which would be required to be reported under the proxy rules
promulgated by the Commission under the Exchange Act, provided that such a
change would be deemed to have occurred if any person not currently a director
or officer of JSB becomes the beneficial owner of 25% or more of the voting
stock of JSB, or without the approval of two-thirds of the directors then in
office, there is a change during any consecutive two-year period of a majority
of the members of the JSB Board of Directors. The Merger will be deemed to be a
change in control pursuant to the terms of the agreement with Mr. Coyne. In
1993, the agreement with Mr. Coyne was amended to provide that the amount to be
received by him as a result of a termination subsequent to a change in control
will not be limited to the maximum permitted without triggering the penalties
to JSB and the executive officer specified in Sections 280G and 4999 of the
Code. As of the date of this Proxy Statement/Prospectus, the cash amount which
Mr. Coyne will be entitled to in lieu of further salary payments upon his
termination at the closing of the Merger will be $735,823.
During the term of his agreement, if Mr. Coyne terminates his employment for
good reason, as defined, and such termination is not subsequent to a change in
control of JSB or JSB terminates Mr. Coyne's employment for other than just
cause, as defined, then in lieu of any further salary payments, JSB will be
required to pay Mr. Coyne the product of Mr. Coyne's current annual base salary
in effect on the date of termination multiplied by the greater of the number of
years remaining in the term of Mr. Coyne's employment agreement or three.
Termination for just cause is defined in the agreement to include termination
for personal dishonesty, incompetence, willful misconduct, breach of fiduciary
duty involving personal profit, conviction of a felony, willful violation of
any law or regulation enforced by applicable federal banking agencies, willful
or intentional breach or neglect of the executive's duties, persistent
negligence, misconduct in the performance of such duties, or a material breach
of any provision of the agreement, as determined by a court or federal or state
regulatory agency having jurisdiction over JSB. Such payment is to be made in
substantially equal semi-monthly installments commencing with the month in
which the date of termination occurs and continuing for the number of
consecutive semi-monthly payments equal to the product obtained by multiplying
the number of years (including partial years) applicable above by 24. As of the
date of this Proxy Statement/Prospectus, the cash amount which Mr. Coyne would
be entitled to in lieu of further salary payments upon termination by Mr. Coyne
for good reason not subsequent to a change in control of JSB or termination by
JSB of Mr. Coyne's employment for other than just cause would be $372,600.
Deferred Compensation Plan
JSB has entered into a deferred compensation agreement with Mr. Coyne whereby
if he is still employed by JSB on the date he becomes 65, he may retire, and
commencing on the date of such retirement, JSB will pay deferred compensation
for services rendered prior to retirement. Such deferred compensation will be
in the amount of $34,248 per year, payable in equal monthly installments over
the remaining life of Mr. Coyne. If, following retirement, Mr. Coyne does not
live to receive deferred compensation amounting to 120 monthly installments,
the difference between the amount received prior to death and $342,480, shall
be paid in equal consecutive monthly payments to a designated beneficiary. If
Mr. Coyne is discharged for proper cause, no deferred compensation shall be
paid under the terms of the agreement and the agreement shall be considered
terminated. The amount deferred on behalf of Mr. Coyne for 1993 was $13,046.
Under the terms of the Merger Agreement, Mr. Coyne will receive $342,280 in a
lump sum at the closing of the Merger in lieu of payments due pursuant to the
Deferred Compensation Plan.
131
<PAGE>
401(k) Thrift Plan
Effective November 1, 1991, JSB established the 401(k) Plan for its salaried
employees by participation in the Financial Institutions Thrift Plan. The
401(k) Plan is a defined contribution plan which is subject to the provisions
of ERISA and is intended to qualify under Sections 401(a) and 401(k) of the
Code. Assets of the 401(k) Plan are held in trust by a trustee which is not
affiliated with JSB. In general, all employees of JSB are eligible to
participate in the 401(k) Plan upon completion of one year of service and
attainment of the age of 21 years. Each participant may elect to contribute to
the 401(k) Plan between 2% and 15% of the participant's compensation as defined
in the plan, on a pre-tax basis (subject to an annual maximum of $8,994, in
1993, and as adjusted from time to time by the Secretary of the Treasury), and
may direct that the contribution be invested in any of four available
investment options: (i) a conservative equity fund, (ii) an equity growth fund,
(iii) a fixed income fund, and (iv) an income fund primarily investing in
obligations issued or guaranteed by the U.S. government or agencies thereof.
JSB will make a matching contribution equal to 100% of all amounts contributed
by each participant up to 6% of compensation. JSB may also make additional
contributions in its discretion under certain circumstances.
Participants in the 401(k) Plan are always 100% vested in amounts allocated
to their accounts. Upon termination of employment, a participant's vested
benefit under the 401(k) Plan generally will be distributed immediately in a
lump sum, except that if a participant's benefits exceed $3,500 the participant
may elect to be paid in annual installments over a period not to exceed ten
years. The 401(k) Plan provides that participants may borrow up to 50% of their
account balance from the plan. The amounts contributed in 1993 by JSB pursuant
to the 401(k) Plan to the account of Messrs. Coyne, Rusnak, Kingsman, O'Neil,
Andres and Pugh were $8,994, $6,785, $2,550, $0, $4,809 and $5,152,
respectively. The amount of employee deferrals during 1993 are included in the
Summary Compensation Table set forth above.
Employee Stock Compensation Program
The shareholders of JSB have adopted an employee stock compensation program
(the "Program") for the benefit of full-time employees of JSB. Directors who
are not full-time employees of JSB are not eligible to receive stock options
under the Program. An aggregate of 194,015 shares of authorized but unissued
JSB Common Stock have been reserved for future issuance under the Program
pursuant to the exercise of stock options and stock appreciation rights and the
vesting of performance shares. The Program provides for the award of options
which are intended to qualify as incentive stock options under Section 422 of
the Code, options which are not intended to so qualify, stock appreciation
rights and performance shares. The Program is administered by a committee of
not less than three non-officer directors of JSB, who are given sole authority
and absolute discretion under the Program to determine the employees to whom
options, stock appreciation rights and performance shares shall be granted, the
number of shares subject to each award and the exercise price of options.
Currently, this committee is comprised of Messrs. Gunter, Blackington, Edwards
and Sax. The exercise price of an incentive stock option is required to be no
less than the fair market value of the stock at the time of the grant of the
option. For information regarding stock option grants and exercises in the last
fiscal year, see "Option Grants in Last Fiscal Year" and "Aggregate Option
Exercises in Last Fiscal Year and Fiscal Year-End Option Values" above.
Stock Purchase Plan
JSB assists directors, officers and employees who desire to purchase JSB
Common Stock by withholding amounts designated by the participant from the
participant's salary or fees for purposes of purchasing JSB Common Stock in the
open market through an independent registered stock broker. Although JSB pays
the brokerage fees in connection with the purchase of JSB Common Stock by
participants, JSB does not make any cash contribution toward the purchase of
shares of JSB Common Stock. This plan is not qualified for federal income tax
purposes. Shares purchased pursuant to this plan are held by the plan
administrator in safekeeping for the participants, with the individual
participants listed separately, or distributed to such participants if they so
request. During 1993, one director of JSB purchased JSB Common Stock in this
manner.
132
<PAGE>
Indebtedness of Management
JSB makes mortgage and other types of loans to its directors, officers and
employees and certain of their affiliates. Such loans are made in the ordinary
course of business and on substantially the same terms, including interest
rates, loan fees and collateral, as those prevailing at the time for comparable
transactions with other persons. JSB believes that loans to its directors,
officers and employees do not involve more than the normal risk of
collectibility or present other unfavorable features.
RATIFICATION OF APPOINTMENT OF JSB INDEPENDENT AUDITORS FOR 1994
The JSB Board of Directors has appointed KPMG Peat Marwick as independent
auditors of JSB for the year ending December 31, 1994, and has further directed
that the selection of such auditors be submitted for ratification by the
shareholders at the JSB Annual Meeting. JSB has been advised by KPMG Peat
Marwick that neither that firm nor any of its associates has any relationship
with JSB or its subsidiary other than the usual relationship that exists
between independent certified public accountants and clients. KPMG Peat Marwick
will have a representative at the JSB Annual Meeting who will have an
opportunity to make a statement, if the representative so desires, and who will
be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK AS JSB'S INDEPENDENT AUDITORS FOR THE YEAR
ENDING DECEMBER 31, 1994.
SHAREHOLDER PROPOSALS
USBANCORP
Any USBANCORP shareholder who desires to submit a proposal to be considered
for inclusion in USBANCORP's proxy materials relating to its 1995 annual
meeting of shareholders (presently scheduled to be held on April 25, 1995) must
submit such proposal in writing, addressed to USBANCORP at Main and Franklin
Streets, Johnstown, Pennsylvania 15901 (Attention: Secretary) no later than
January 6, 1995.
JSB
If the Merger is not consummated prior thereto, any proposal which a
shareholder wishes to have presented at the next annual meeting of shareholders
of JSB to be held in 1995, must be received at the main office of JSB, Market
at Main Street, Johnstown, Pennsylvania 15901 no later than January 6, 1995.
OTHER MATTERS
USBANCORP
USBANCORP management is not aware of any business to come before the
USBANCORP Annual Meeting other than those matters described above in this Proxy
Statement/Prospectus and procedural matters incident to the conduct of the
USBANCORP Annual Meeting. However, if any other matters should properly come
before the USBANCORP Annual Meeting, it is intended that proxies solicited
hereby will be voted with respect to those other matters in accordance with the
judgment of the persons voting the proxies.
JSB
JSB management is not aware of any business to come before the JSB Annual
Meeting other than those matters described above in this Proxy
Statement/Prospectus and procedural matters incident to the conduct of the JSB
Annual Meeting. However, if any other matters should properly come before the
JSB Annual Meeting, it is intended that proxies solicited hereby will be voted
with respect to those other matters in accordance with the judgment of the
persons voting the proxies.
133
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK]
JSB CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders Johnstown Savings Bank:
We have audited the accompanying consolidated statements of financial
condition of Johnstown Savings Bank and subsidiaries as of December 31, 1993
and 1992 and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of Johnstown Savings Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The consolidated financial statements of
Johnstown Savings Bank and subsidiaries for the year ended December 31, 1991
were audited by other auditors whose report thereon, dated January 30, 1992,
expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Johnstown
Savings Bank and subsidiaries as of December 31, 1993 and 1992 and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, Johnstown
Savings Bank changed its method of accounting for investment and mortgage-
backed securities in 1993 to adopt the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." As
discussed in notes 1 and 7 to the consolidated financial statements, Johnstown
Savings Bank changed its method of accounting for income taxes in 1992 to adopt
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG PEAT MARWICK
January 28, 1994
F-1
<PAGE>
[LETTERHEAD OF ERNST & YOUNG]
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Johnstown Savings Bank, FSB
We have audited the accompanying consolidated statements of financial
condition of Johnstown Savings, FSB at December 31, 1991 and 1990, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1991. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial condition of Johnstown
Savings Bank, FSB at December 31, 1991 and 1990, and the consolidated results
of its operation and its cash flows for each of the three years in the period
ended December 31, 1991 in conformity with generally accepted accounting
principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
January 30, 1992
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS, EXCEPT PER SHARE
DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks...................................... $ 3,100 $ 3,932
Interest-bearing deposits in other banks..................... 5,349 7,629
-------- --------
8,449 11,561
Investment securities (Note 2):
Available for sale (market value of $21,757 and $5,082)..... 21,757 4,977
Held to maturity (market value of $151 and $5,559).......... 151 5,521
Mortgage-backed securities (Note 2):
Available for sale (market value of $115,821 and $14,171)... 115,821 13,387
Held to maturity (market value of $28,355 and $107,672)..... 28,345 107,550
Held in trading account..................................... 3,551 --
Loans receivable--net (includes loans available for sale of
$32,759 and $20,738, respectively) (Notes 3 and 4).......... 155,444 151,786
Real estate acquired by foreclosure--net (Note 4)............ 1,490 4,569
Federal Home Loan Bank (FHLB) stock.......................... 5,056 2,775
Accrued interest receivable.................................. 2,147 2,079
Office properties and equipment--net (Note 5)................ 2,655 2,819
Mortgage servicing purchased--net of accumulated amortization
of $9,503
and $7,228, respectively (Note 16).......................... 7,342 7,838
Prepaid expenses and other assets............................ 3,590 5,582
-------- --------
Total Assets............................................. $355,798 $320,444
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits (Note 9):
Savings accounts............................................ $ 55,290 $ 52,472
Savings certificates........................................ 107,728 120,128
NOW deposits and money market demand accounts............... 53,188 49,562
-------- --------
216,206 222,162
Advances by borrowers for taxes and insurance................ 1,204 781
Other borrowed funds (Note 10)............................... 19,378 18,090
Accrued expenses and other liabilities 2,430 2,550
FHLB advances (Note 11)...................................... 89,000 52,500
-------- --------
Total Liabilities........................................ 328,218 296,083
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock 5,000,000 shares authorized.................. -- --
Common stock, $1 par value; 15,000,000 shares authorized
1,943,790 and
1,940,150 issued & outstanding.............................. 1,944 1,940
Additional paid-in capital................................... 15,065 15,042
Unrealized gains on Investment and Mortgage-backed securities
available for
sale--net of applicable income taxes........................ 122 --
Retained earnings--substantially restricted (Note 8)......... 10,449 7,379
-------- --------
Total Stockholders' Equity............................... 27,580 24,361
-------- --------
Total Liabilities and Stockholders' Equity............... $355,798 $320,444
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME:
Mortgage loans...................................... $10,045 $10,741 $12,440
Other loans......................................... 3,319 4,141 4,469
Mortgage-backed securities.......................... 7,682 7,310 5,731
Interest and dividends on investment securities..... 1,456 920 1,437
Other interest income............................... 101 170 210
------- ------- -------
Total Interest Income............................ 22,603 23,282 24,287
------- ------- -------
INTEREST EXPENSE:
Deposits (Note 9)................................... 8,111 10,216 13,582
FHLB advances....................................... 3,522 2,060 1,871
Other borrowings.................................... 529 502 471
------- ------- -------
Total Interest Expense........................... 12,162 12,778 15,924
------- ------- -------
Net Interest Income.............................. 10,441 10,504 8,363
PROVISION FOR LOAN LOSSES (NOTE 3)................... 1,102 2,505 867
------- ------- -------
Net Interest Income After Provision for Loan
losses............................................... 9,339 7,999 7,496
------- ------- -------
OTHER OPERATING INCOME:
Mortgage servicing income and other loan service
fees (net of
amortization of cost of purchased mortgage
servicing rights
of $2,275, $2,383, and $1,425)..................... 2,390 2,288 2,414
Gains and other income--real estate owned........... 1,143 166 90
Net gains on sale of loans.......................... 1,370 1,311 1,281
Gain (loss) on sale of securities (Note 2).......... 811 742 (107)
Other............................................... 868 739 726
------- ------- -------
Total Other Operating Income..................... 6,582 5,246 4,404
------- ------- -------
OTHER OPERATING EXPENSES:
Salaries and employee benefits...................... 5,387 5,083 4,899
Occupancy and equipment............................. 1,150 1,186 1,186
Provision for losses and other related charges--real
estate owned......................................... 22 3,305 1,497
FDIC insurance premium.............................. 571 513 470
Merger costs........................................ 413 -- --
Gain on termination of pension plan................. -- (122) (642)
Other............................................... 3,457 3,048 2,768
------- ------- -------
Total Other Operating Expenses................... 11,000 13,013 10,178
------- ------- -------
Income Before Provision for (Benefit From) Income
Taxes and
Cumulative Effect of Change in Accounting Principle. 4,921 232 1,722
Provision for (Benefit From) Income Taxes (Note 7)... 1,560 (677) 110
------- ------- -------
Income Before Cumulative Effect of Change in
Accounting Principle................................. 3,361 909 1,612
Cumulative Effect at January 1, 1992, of Change in
Accounting for
Income Taxes (Note 7)............................... -- 1,673 --
------- ------- -------
Net Income....................................... $ 3,361 $ 2,582 $ 1,612
======= ======= =======
NET INCOME PER SHARE:
Income before cumulative effect of change in
accounting principle................................. $ 1.73 $ 0.47 $ 0.83
Cumulative effect of change in accounting for income
taxes................................................ -- 0.86 --
------- ------- -------
NET INCOME........................................... $ 1.73 $ 1.33 $ 0.83
======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 3,361 $ 2,582 $ 1,612
-------- -------- --------
Adjustments to reconcile net income to net cash
provided by
operating activities
Depreciation and amortization................... 2,681 2,803 1,903
Amortization of investment premiums and
discounts........................................ 1,296 583 275
Provision for loan losses....................... 1,102 2,505 867
Provision for losses--real estate owned......... -- 2,375 1,414
Direct write down of investment securities...... 17 194 107
Net (gains) losses on sale of investment and
mortgage-backed securities..................... (811) (742) 107
Net gains on sale of loans available for sale... (1,370) (1,311) (1,281)
Changes in interest payable..................... (167) (601) (82)
Changes in interest receivable.................. (68) 293 113
Changes in prepaid and other assets............. 1,973 (2,890) 478
Changes in accrued liabilities.................. 47 323 41
Net change in loans available for sale.......... (10,651) ( 9,796) (1,781)
Net change in investments held in trading
account.......................................... (3,787) -- --
-------- -------- --------
Total Adjustments............................ (9,738) (6,264) 2,161
-------- -------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES. (6,377) (3,682) 3,773
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment and mortgage-
backed securities
held to maturity............................... 11,821 32,220 9,916
Proceeds from principal reductions of investment
and
mortgage-backed securities held to maturity.... 37,459 21,854 3,063
Purchase of investment and mortgage-backed
securities held
to maturity.................................... (74,990) (92,503) (39,479)
Proceeds from sales of investment and mortgage-
backed securities available for sale........... 50,959 25,416 16,298
Proceeds from principal reductions of investment
and
mortgage-backed securities available for sale.. 11,837 2,981 38
Purchase of investment and mortgage-backed
securities available
for sale....................................... (71,991) (22,816) (16,336)
Net principal collected on loans................ 5,931 16,025 10,944
Purchase of properties and equipment............ (241) (572) (151)
Proceeds from sale of fixed assets and real
estate acquired
through foreclosure............................ 4,427 3,322 1,269
Net change in FHLB stock........................ (2,281) (997) --
Net acquisition of mortgage servicing rights.... (1,779) (595) (2,087)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES............ (28,848) (15,665) (16,525)
-------- -------- --------
</TABLE>
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW--CONTINUED (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits.......................... $ (5,956) $ (1,424) $ 8,292
Net change in borrowers' advances............... 423 (1) (13)
Proceeds from FHLB advances..................... 225,118 94,105 73,900
Repayment of FHLB advances...................... (188,618) (70,605) (71,447)
Net change in other borrowed funds.............. 1,288 2,442 2,749
Proceeds from issuance of Common Stock.......... 27 -- --
Dividends paid on Common Stock.................. (291) -- --
Unrealized appreciation of investments available
for sale......................................... 122 -- --
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES........ 32,113 24,517 13,481
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......... (3,112) 5,170 729
Cash and Cash Equivalents--Beginning of Year..... 11,561 6,391 5,662
-------- -------- --------
CASH AND CASH EQUIVALENTS--END OF YEAR........... $ 8,449 $ 11,561 $ 6,391
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
Loans transferred to real estate owned and in-
substance foreclosures........................... $ 1,840 $ 4,079 $ 3,526
Loans charged-off............................... 2,450 1,828 2,353
Interest paid................................... 12,329 13,378 16,006
Income taxes paid............................... 265 113 116
Investment and mortgage-backed securities
transferred to
available for sale............................. 109,401 24,034 --
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON TOTAL
ADDITIONAL SECURITIES STOCK-
COMMON PAID-IN AVAILABLE RETAINED HOLDERS'
STOCK CAPITAL FOR SALE EARNINGS EQUITY
------ ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1990...... $1,940 $15,042 $ -- $ 3,185 $20,167
Net Income...................... -- -- -- 1,612 1,612
------ ------- ---- ------- -------
BALANCE, DECEMBER 31, 1991...... 1,940 15,042 -- 4,797 21,779
Net Income...................... -- -- -- 2,582 2,582
------ ------- ---- ------- -------
BALANCE, DECEMBER 31, 1992...... 1,940 15,042 -- 7,379 24,361
Net Income...................... -- -- -- 3,361 3,361
Common Stock Cash Dividends..... -- -- -- (291) (291)
Stock Options Exercised......... 4 23 -- -- 27
Unrealized gains on investment
and mortgaged-backed
securities, net of income tax
effect......................... -- -- 122 -- 122
------ ------- ---- ------- -------
BALANCE, DECEMBER 31, 1993...... $1,944 $15,065 $122 $10,449 $27,580
====== ======= ==== ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992, AND 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies followed by Johnstown Savings Bank
(JSB) conform with generally accepted accounting principles. The following is a
description of significant policies:
A. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of JSB and its
wholly-owned subsidiaries, SB Realty, Inc., and Standard Mortgage
Corporation of Georgia, Inc. (SMC), a wholly-owned subsidiary of SB Realty,
Inc. All significant intercompany transactions and accounts are eliminated
in consolidation.
B. INVESTMENT AND MORTGAGE-BACKED SECURITIES:
Investment securities and mortgage-backed securities (MBS) categorized as
held-to-maturity are carried at historical cost adjusted for amortization of
purchase premiums and accretion of purchase discounts computed by the
interest method. Prior to December 31, 1993, investment securities and MBS
categorized as available-for-sale were carried at the lower of amortized
historical cost or market values, with unrealized aggregate holding period
losses charged to current operations.
In May 1993, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"),
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No.
115 requires that investments be classified into three categories: (1)
Securities held-to-maturity, reported at amortized historical cost; (2)
securities available-for-sale, reported at fair value; and (3) trading
securities, reported at fair value. Unrealized holding gains and losses for
trading securities are included in earnings while unrealized holding gains
and losses for securities available-for-sale are reported, net of taxes, as
a separate component of equity.
Effective December 31, 1993, JSB adopted SFAS No. 115. JSB reclassified
$109.4 million of investment securities and MBS to the available-for-sale
category during 1993.
Market values are determined on an aggregate basis using quoted market
prices at the financial statement date. Realized gains or losses on
securities sold are calculated on the adjusted cost of the securities sold.
Management determines the appropriate classification of securities at the
time of purchase. If management has the intent and JSB has the ability at
the time of purchase to hold securities until maturity or on a long-term
basis, they are classified as held-to-maturity. Securities to be held for
indefinite periods of time are classified as available-for-sale. Securities
categorized as available-for-sale include securities that management intends
to use as part of its asset/liability management strategy and may be sold to
effectively manage interest-rate risk exposure, prepayment risk, and other
factors (such as liquidity requirements).
The amortization rate for purchase premiums and the accretion rate for
purchase discounts on investments and MBS can be materially affected by
changes in (1) general interest rates; (2) prepayment characteristics for
certain types of securities; and (3) changes in specific prepayment rates
for securities within JSB's portfolio. While management believes it uses the
best available information to make estimations of these factors in income
calculations, future adjustments to interest income may be necessary if
circumstances differ substantially from the assumptions used in making the
estimation.
C. PROVISION FOR LOSSES:
Provisions for estimated losses on loans and real estate owned are charged
to earnings in an amount that results in an allowance sufficient, in
management's judgment, to cover anticipated losses based on management's
evaluation of portfolio risk, past and expected future loss experience and
economic conditions.
F-8
<PAGE>
Real estate acquired by foreclosure (including loans classified as in-
substance foreclosed) in connection with loan settlements is stated at the
lower of estimated fair value less estimated disposition costs, or the
carrying amount of the loan. A reserve for real estate acquired is
maintained on a property by property basis to recognize estimated potential
declines in value that might occur between appraisal dates. Provisions for
potential decrease in fair value, and net direct operating expense
attributable to these assets are included in operating expenses.
In-substance foreclosures are reflected in real estate acquired by
foreclosure when the borrower has minimal equity in the property; JSB
expects repayment of the loan to come only from the operation or sale of the
property; and the borrower either has abandoned control of the property or
is unlikely to rebuild equity or otherwise meet the terms of the loan
obligation in the foreseeable future.
While management believes it uses the best information available to make
evaluations of allowances, future adjustments of the allowances for loans
and real estate acquired through foreclosure may be necessary if
circumstances differ substantially from the assumptions used in making the
evaluations. In addition, loan classifications and loss reserves, as
determined by management, are subject to periodic examination by regulatory
agencies. Management cannot predict with certainty whether future regulatory
examinations will require any changes in JSB's loan classifications or loan
loss reserves.
In May 1993, the FASB released SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". SFAS No. 114 defines the term "impaired loan" and
indicates the method used to measure the impairment. The measurement of
impairment may be based on (1) the present value of the expected future cash
flows of the impaired loan discounted at the loan's original effective
interest rate; (2) the observable market price of the impaired loan; or (3)
the fair value of the collateral of a collateral dependent loan. SFAS No.
114 is effective for fiscal years beginning after December 15, 1994 and is
not expected to be material to JSB.
D. INCOME TAXES:
In 1992, the FASB issued SFAS No. 109, "Accounting for Income Taxes". SFAS
No. 109 requires a change from the deferred method of accounting for income
taxes of Accounting Principles Board (APB) Opinion 11 to the asset and
liability method of accounting for income taxes. Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
Effective January 1, 1992, JSB elected to adopt SFAS No. 109, "Accounting
for Income Taxes." The cumulative effect of this change in accounting
principle at January 1, 1992, was $1.7 million, or $0.86 per share, and is
reported in the 1992 Consolidated Statements of Operations. Prior years'
financial statements have not been restated to apply the provisions of SFAS
No. 109.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1991 and prior years, deferred income taxes were recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable in the year
of the calculation. Under the deferred method, deferred taxes were not
adjusted for subsequent changes in tax rates.
E. DEPRECIATION AND AMORTIZATION:
Depreciation on all buildings and equipment is computed primarily by the
straight-line method. Depreciable lives are based on estimated economic
useful lives of the office properties and equipment.
F-9
<PAGE>
Improvements to leased banking premises are being amortized over the period
including the original lease term plus the first option term, where
applicable.
Cost in excess of fair market value of assets acquired with the acquisition
of SMC is being amortized over 25 years by the straight-line method. The net
unamortized amount at December 31, 1993, is $416,000.
Purchased mortgage servicing rights associated with loan servicing acquired
in the secondary mortgage market are capitalized. The purchased mortgage
servicing rights are amortized as an adjustment of future servicing income
using a method that approximates the interest method over the life of the
related loans, adjusted for estimated prepayments.
The amount capitalized upon the purchase of mortgage servicing rights is
equal to the price paid to unaffiliated sellers.
F. LOAN ORIGINATION AND MORTGAGE SERVICING:
For loans retained in JSB's portfolio, loan origination and commitment fees,
as well as certain direct loan origination and commitment costs, are
deferred and recognized as an adjustment to yield over the lives of the
related loans. Deferred fees and costs are netted against outstanding loan
balances. Accretion is suspended for loans classified as non-accrual.
Service fees are recognized as income when the related mortgage loan
payments are collected. Origination fees in excess of direct origination
cost are initially deferred and are recognized as income at the time of the
sale of loans to permanent investors.
The amortization rate for origination fees in excess of cost can be
materially affected by changes in: (1) general interest rates; (2)
prepayment characteristics for certain types of loans; or (3) specific
prepayment rates for loans within JSB's portfolio. While management believes
it uses the best information available to make estimations of these factors
in income calculations, future adjustments to income may be necessary if
circumstances differ substantially from the assumptions used in making the
estimation.
G. MORTGAGE LOANS AVAILABLE FOR SALE:
Mortgage loans available for sale to investors are carried at the lower of
cost or estimated market value determined on an aggregate basis. Market
values are determined using sales commitments to permanent investors or
current market rates for loans of similar quality and type. Net unrealized
losses are recognized in a valuation allowance by charges to income.
H. NET INCOME PER SHARE:
Income per share for the year ended December 31, 1993, was computed using
the weighted number of common shares outstanding of 1,940,160. For the years
ended December 31, 1992 and 1991, the weighted number of common shares was
1,940,150. The common equivalent shares discussed in Note 6 have not been
included in the computations since their inclusion currently does not result
in an earnings per share dilution of more than 3%.
I. PRESENTATION OF CASH FLOWS:
For purposes of reporting cash flows, JSB considers cash and due from banks
and interest-bearing deposits in other banks to be cash and cash
equivalents.
J. RECLASSIFICATIONS:
Items previously reported have been reclassified to conform with the current
year classifications.
F-10
<PAGE>
NOTE 2: INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-
backed securities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------------------------------- -----------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES:
AVAILABLE FOR SALE:
Corporate bonds....... $ 1,415 $ 29 $ -- $ 1,444 $ 2,992 $105 $ -- $ 3,097
U.S. government
obligations.......... -- -- -- -- 1,985 -- -- 1,985
U.S. government
agencies............. 7,000 -- 120 6,880 -- -- -- --
Municipal bonds....... 13,364 128 59 13,433 -- -- -- --
-------- ---- ---- -------- -------- ---- ---- --------
$ 21,779 $157 $179 $ 21,757 $ 4,977 $105 $ -- $ 5,082
======== ==== ==== ======== ======== ==== ==== ========
HELD TO MATURITY:
Corporate bonds....... $ 22 $ -- $ -- $ 22 $ 891 $ 4 $ 3 $ 892
Other bonds and
investments.......... 30 -- -- 30 30 -- 1 29
Marketable equity
securities........... 99 -- -- 99 100 -- -- 100
U.S. government
agencies............. -- -- -- -- 4,500 38 -- 4,538
-------- ---- ---- -------- -------- ---- ---- --------
$ 151 $ -- $ -- $ 151 $ 5,521 $ 42 $ 4 $ 5,559
======== ==== ==== ======== ======== ==== ==== ========
MORTGAGE-BACKED
SECURITIES:
AVAILABLE FOR SALE:
Mortgage-backed
securities........... $ 34,600 $474 $ 35 $ 35,039 $ 9,970 $784 $ -- $ 10,754
Collateralized
mortgage obligations. 81,015 339 572 80,782 3,417 -- -- 3,417
-------- ---- ---- -------- -------- ---- ---- --------
$115,615 $813 $607 $115,821 $ 13,387 $784 $ -- $ 14,171
======== ==== ==== ======== ======== ==== ==== ========
HELD TO MATURITY:
Mortgage-backed
securities........... $ -- $ -- $ -- $ -- $ 24,895 $231 $ -- $ 25,126
Collateralized
mortgage obligations. 16,646 76 94 16,628 69,187 333 469 69,051
Other mortgage-backed. 11,699 37 9 11,727 13,468 40 13 13,495
-------- ---- ---- -------- -------- ---- ---- --------
$ 28,345 $113 $103 $ 28,355 $107,550 $604 $482 $107,672
======== ==== ==== ======== ======== ==== ==== ========
HELD IN TRADING
ACCOUNT:
Mortgage-backed
securities........... $ 3,787 $ -- $236 $ 3,551 $ -- $ -- $ -- $ --
======== ==== ==== ======== ======== ==== ==== ========
</TABLE>
F-11
<PAGE>
The amortized cost and estimated market value of investment and mortgage-
backed securities at December 31, 1993, by contractual maturity, are shown
below. Expected and actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
At December 31, 1993, investment and mortgage-backed securities mature as
follows (in thousands):
<TABLE>
<CAPTION>
INVESTMENT MORTGAGE-BACKED
SECURITIES SECURITIES
------------------- -------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Due in one year or less............... $ 250 $ 251 $ 3,559 $ 3,561
Due after one year through five years. 764 786 16,546 16,552
Due after five years through ten
years.................................. 11,158 11,082 27,037 27,047
Due after ten years................... 9,607 9,638 68,473 68,661
------- ------- -------- --------
$21,779 $21,757 $115,615 $115,821
======= ======= ======== ========
HELD TO MATURITY:
Due in one year or less............... $ -- $ -- $ 450 $ 450
Due after one year through five years. 5 5 2,099 2,099
Due after five years through ten
years.................................. 25 25 3,454 3,455
Due after ten years................... 121 121 22,342 22,351
------- ------- -------- --------
$ 151 $ 151 $ 28,345 $ 28,355
======= ======= ======== ========
HELD IN TRADING ACCOUNT:
Due in one year or less............... $ 45 $ 42
Due after one year through five years. 238 223
Due after five years through ten
years.................................. 483 453
Due after ten years................... 3,021 2,833
-------- --------
$ 3,787 $ 3,551
======== ========
</TABLE>
Cash proceeds, gross gains and gross losses on the sale of investment and
mortgage- backed securities consist of the following for the years ended (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1991
---------------------- ---------------------- ---------------------
CASH GROSS GROSS CASH GROSS GROSS CASH GROSS GROSS
PROCEEDS GAINS LOSSES PROCEEDS GAINS LOSSES PROCEEDS GAINS LOSSES
-------- ------ ------ -------- ------ ------ -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marketable equity
security funds.......... $ -- $ -- $ -- $ -- $ -- $ -- $ 178 $ 4 $ 15
INVESTMENT SECURITIES:
Available for sale..... 24,724 134 3 6,107 24 22 6,402 21 --
Held to maturity....... 828 4 2 8,275 229 8 5,936 11 169
MORTGAGE-BACKED
SECURITIES:
Available for sale..... 26,235 785 25 19,309 258 123 9,896 104 --
Held to maturity....... 10,993 142 39 23,945 777 200 3,980 44 --
Held in trading
account................. 987 17 -- -- -- -- -- -- --
------- ------ ---- ------- ------ ---- ------- ---- ----
$63,767 $1,082 $ 69 $57,636 $1,288 $353 $26,392 $184 $184
======= ====== ==== ======= ====== ==== ======= ==== ====
</TABLE>
During 1992, loss on investments includes $159,000 on securities deemed to be
other than temporarily impaired. This write-down resulted in a charge to
operations for the difference between the current market value of specific
investments and their historical cost. A valuation allowance to carry
securities available for sale at lower of cost or market value at December 31,
1992, also resulted in a $35,000 unrealized loss charged to operations.
F-12
<PAGE>
NOTE 3: LOANS RECEIVABLE
Loans receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1992
-------- --------
<S> <C> <C>
MORTGAGE LOANS:
1-4 family.................................................. $ 47,387 $ 50,719
Multi-family................................................ 8,535 8,677
Commercial.................................................. 34,259 37,002
Real estate construction.................................... 3,099 --
Residential mortgage loans available for sale............... 32,759 20,738
-------- --------
126,039 117,136
Consumer loans............................................... 27,473 32,004
Commercial business loans.................................... 5,494 6,860
Indirect financing leases.................................... 6 99
-------- --------
159,012 156,099
LESS:
Allowance for loan losses................................... 3,083 4,056
Deferred loan fees.......................................... 448 281
Loans in process and other deductions....................... 37 (24)
-------- --------
$155,444 $151,786
======== ========
</TABLE>
JSB was servicing loans for others with balances of $926.9 million, and
$603.7 million at December 31, 1993 and 1992, respectively. Changes in the
allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period.......................... $4,056 $2,987 $3,889
------- ------- -------
CHARGE-OFFS:
Residential real estate loans.......................... 1 -- 10
Commercial real estate loans........................... 2,194 1,709 1,791
Consumer loans......................................... 193 111 169
Commercial business loans.............................. 62 8 383
------- ------- -------
Total loans charged off............................... 2,450 1,828 2,353
Less: Recoveries...................................... 375 392 584
------- ------- -------
Net charge-offs..................................... 2,075 1,436 1,769
------- ------- -------
PROVISION FOR LOAN LOSSES:
Residential real estate loans.......................... 9 40 30
Commercial real estate loans........................... 950 2,430 811
Consumer loans......................................... 117 20 15
Commercial business loans.............................. 26 15 11
------- ------- -------
Total provisions for losses charged to operations....... 1,102 2,505 867
------- ------- -------
Balance at end of period................................ $3,083 $4,056 $2,987
======= ======= =======
</TABLE>
F-13
<PAGE>
NOTE 4: NON-PERFORMING ASSETS
Non-performing assets are comprised of (1) loans which are contractually past
due 90 days or more as to interest or principal payments and loans which have
been placed on non-accrual status; (2) troubled debt restructurings; and (3)
real estate acquired through foreclosure and in-substance foreclosed loans. It
is JSB's policy not to accrue interest on loans which are 90 days or more past
due.
The following table presents information concerning non-performing assets (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992 1991
------ ------- -------
<S> <C> <C> <C>
Non-accrual loans....................................... $ 588 $ 3,094 $ 5,869
Troubled debt restructurings............................ 2,315 3,080 3,389
Real estate acquired through foreclosure and in-
substance foreclosures (net)............................ 1,490 4,569 6,177
------ ------- -------
Total non-performing assets............................. $4,393 $10,743 $15,435
====== ======= =======
</TABLE>
The gross interest that would have been recorded if non-accrual loans had
been current in accordance with their terms would have been approximately
$145,000, $405,000, and $397,000 for the years ended December 31, 1993, 1992,
and 1991, respectively. Interest income on restructured loans under their
original terms would have been approximately $324,000, $387,000, and $409,000,
for the years ended December 31, 1993, 1992, and 1991, respectively. Interest
income actually recorded on restructured loans under their modified terms was
approximately $126,000, $270,000, and $335,000, for the years ended December
31, 1993,1992, and 1991. The Bank is not committed to lend additional funds to
borrowers whose loans are classified as non-performing.
Real estate acquired through foreclosure and in-substance foreclosures are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Carrying Value............................................. $1,730 $6,628 $7,400
Less: Reserve for losses................................... 240 2,059 1,223
------ ------ ------
Net real estate acquired through foreclosure............... $1,490 $4,569 $6,177
====== ====== ======
</TABLE>
Changes in the reserve for losses on real estate acquired through foreclosure
are as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1992 1991
------- ------- -------
Balance, beginning of year........................... $ 2,059 $ 1,223 $ 1,293
Provision charged to operations...................... -- 2,375 1,414
Losses recognized.................................... (2,457) (1,784) (2,069)
Recovery............................................. 638 245 585
------- ------- -------
Balance, end of year................................. $ 240 $ 2,059 $ 1,223
======= ======= =======
</TABLE>
Operating expenses, net of revenue collected, relating to real estate owned
was $22,000 and $764,000 for 1993 and 1992, respectively, and is included in
the Consolidated Statements of Operations. During 1991, these revenues and
expenses were reserved for and accordingly, are included in the changes in the
reserve for losses on real estate acquired through foreclosure.
F-14
<PAGE>
NOTE 5: OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment valued at cost are summarized by major
classifications as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1993 1992
------- -------
<S> <C> <C>
Land.......................................................... $ 432 $ 432
Buildings..................................................... 2,496 2,496
Leasehold improvements........................................ 476 432
Furniture and equipment....................................... 2,790 2,731
------- -------
6,194 6,091
Accumulated depreciation and amortization..................... (3,539) (3,272)
------- -------
$ 2,655 $ 2,819
======= =======
</TABLE>
Depreciation and amortization included in occupancy and equipment expense for
the years ended December 31, 1993, 1992 and 1991 amounted to $402,000,
$355,000, and $407,000, respectively.
NOTE 6: EMPLOYEE BENEFITS
PENSION PLANS
On November 1, 1991, JSB adopted a defined contribution employee retirement
plan that covers substantially all employees of JSB and its subsidiaries. The
defined contribution plan was adopted in accordance with the provisions of
section 401(k) of the Internal Revenue Code (IRC). The defined contribution
plan provides for monthly employer payments that match each participating
employee's voluntary contribution to the employee's individual tax-deferred
retirement account. The employer matching rate is 100% of the employee's
contribution up to 6% of the employee's compensation, subject to certain
individual and aggregate limits as specified in the IRC.
On December 1, 1991, JSB terminated its qualified non-contributory defined
benefit employee retirement plan which previously covered all full-time
employees who had attained a minimum age requirement and met a required period
of service. The reversal of current and prior period pension accruals resulted
in the recognition of a plan curtailment gain of $642,000 reflected in the 1991
Statement of Operations.
During 1992, JSB received permission from the Pension Benefit Guarantee
Corporation and the Internal Revenue Service to satisfy the terminated plan's
liabilities through qualified distributions of the plan's assets. Plan assets,
net of required supplementary employee distributions and federal excise taxes,
exceeded plan liabilities on the final distribution date. Accordingly, JSB
recognized a termination gain of $122,000, reflected in the 1992 Statement of
Operations.
Pension expense charged to operations and included in Salary and Employee
Benefits expense for the years ended December 31, 1993, 1992, and 1991, was
$177,000, $169,000, and $255,000, respectively.
DEFERRED COMPENSATION AGREEMENTS
JSB has entered into deferred compensation agreements with certain officers
whereby if the respective officer is still employed by JSB on the date he
becomes 65, he may retire and, commencing on the date of such retirement, JSB
will pay deferred compensation for services rendered prior to retirement. Such
deferred compensation will be in predetermined amounts, payable in equal
monthly installments over the remaining life of the respective executive
officer. The accrued liability for the deferred compensation agreements at
December 31, 1993, is approximately $194,000.
F-15
<PAGE>
STOCK OPTION PLAN
The Board of Directors and stockholders approved a qualified employee stock
option plan under which JSB has reserved a total of 194,015 shares of its
common stock for the granting of options to key employees. The ability of the
employee to exercise such options is conditioned upon the employee's continued
employment on the exercise date.
Currently, 26,000 stock options issued at the time JSB converted to stock
form on October 29, 1986 remain outstanding. These options are currently
exercisable at the initial public offering price of $9.50 per share and expire
on April 23, 1997.
On February 18, 1992, the Board of Directors granted 60,000 options to
purchase stock, of which 47,391 remain outstanding at December 31, 1993. These
options are exercisable on or after February 18, 1995, at $5.75 per share and
expire February 18, 2002.
On February 16, 1993, the Board of Directors granted 30,000 options to
purchase stock, of which 23,969 remain outstanding at December 31, 1993, These
options are exercisable on or after February 16, 1996, at $11.15 per share and
expire on February 16, 2003.
An additional 10,000 stock options were granted on July 20, 1993, all of
which remain outstanding at December 31, 1993. These options are exercisable on
or after July 20, 1996, at $11.15 per share and expire on July 20, 2003.
NOTE 7: INCOME TAXES
As discussed in Note 1, the Bank adopted SFAS No. 109 as of January 1, 1992;
and the cumulative effect of this change is reported in the 1992 Consolidated
Statements of Operations. Prior years financial statements have not been
restated to apply the provisions of SFAS No. 109.
The provision for (benefit from) income taxes in the consolidated income
statement consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1992 1991
-------- ------- -------
<S> <C> <C> <C>
Federal current....................................... $ 256 $ 57 $ 10
State current......................................... 326 53 83
Federal deferred...................................... 978 (787) (16)
State deferred........................................ -- -- 33
-------- ------- ------
Total............................................... $ 1,560 $ (677) $ 110
======== ======= ======
</TABLE>
The following is a reconciliation between the federal statutory tax to JSB's
provision for (benefit from) income taxes (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
-------- ------- -------
<S> <C> <C> <C>
Statutory tax rate................................. 34% 34% 34%
======== ======= =======
Expense at statutory rate.......................... $ 1,673 $ 79 $ 585
Tax-exempt interest................................ (128) (62) (84)
Dividends received deduction....................... -- -- (1)
State income tax (net of federal income tax
benefit)........................................... 215 35 76
Net operating loss carryforward.................... (425) (796) (469)
Capital loss carryforward.......................... (82) -- --
Other.............................................. 307 67 3
-------- ------- -------
Total.............................................. $ 1,560 $ (677) $ 110
======== ======= =======
</TABLE>
F-16
<PAGE>
The significant components of deferred income tax expense for the years ended
December 31, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
1993 1992
---- -------
<S> <C> <C>
Deferred income tax expense exclusive of the effect of NOL
carryforwards.................................................... $553 $(1,583)
NOL carryforward................................................. 425 796
---- -------
$978 $ (787)
==== =======
</TABLE>
In addition to the items included in the above table, an adjustment to equity
in the amount of $62,000 was recorded to reflect a deferred income tax
liability related to the recognition of unrealized gains on JSB's investment
and MBS available for sale.
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at December 31, are as follows
(in thousands):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
TAX EFFECT OF TEMPORARY
DIFFERENCES:
Deferred income and
expenses (net).......... $ 198 $ 158
Reserve for loan
losses.................. 1,048 1,379
Reserve for losses--
real estate acquired by
foreclosure............. 82 700
Depreciation.......... (69) (76)
Other................. 212 385
------- -------
Total tax effect of
temporary differences... 1,471 2,546
TAX EFFECT OF
CARRYFORWARDS:
Net operating loss
carryforwards........... -- 425
Capital loss
carryforwards........... 2,160 2,242
Tax credits and other
carryforwards........... 132 69
------- -------
Total tax effect of
temporary differences
and carryfowards........ 3,763 5,282
Valuation allowance... (2,344) (2,822)
------- -------
Total tax effect of
deferred tax assets..... $ 1,419 $ 2,460
======= =======
</TABLE>
Under provisions of the Internal Revenue Code, JSB currently has available
approximately $6.4 million of capital loss carryforwards which expire December
31, 1995. JSB's utilization of capital loss carryfowards will be limited to
capital gains generated, if any, in future periods. As of December 31, 1993,
JSB had general business tax credit and minimum tax credit carryforwards of
approximately $132,000 for federal income tax purposes. The general business
tax credit carryforwards expire in 1994 through 2000.
JSB is subject to the Pennsylvania Mutual Thrift Tax which imposes a tax on
Pennsylvania-sourced earnings substantially in accordance with generally
accepted accounting principles. Such taxes were substantially eliminated in
1992 and 1991 by the use of available Pennsylvania net operating loss
carryforwards. All unused Pennsylvania loss carryforwards expired on December
31, 1992.
SMC is subject to the Georgia corporate net income tax. Georgia taxable
income is determined on a separate company basis. The consolidated income
statements reflect a provision of $44,000, $53,000 and $116,000 in 1993, 1992,
and 1991, respectively, for Georgia income tax.
F-17
<PAGE>
NOTE 8: STOCKHOLDER'S EQUITY
In connection with JSB's conversion from a mutual to stock form of
organization in 1986, JSB established a liquidation account in an amount equal
to its net worth as of June 30, 1986. The liquidation account will be
maintained for the benefit of depositors as of the December 31, 1985,
eligibility record date who continue to maintain their deposit accounts in JSB
after conversion. In the event of a complete liquidation (and only in such an
event) each eligible depositor will be entitled to receive a liquidation
distribution from the liquidation account in the proportionate amount of the
then current adjusted balance for deposits then held, before any liquidation
distribution may be made with respect to the stockholders. Except for the
repurchase of stock and payment of dividends by JSB, the existence of the
liquidation account will not restrict the use or application of such capital.
At December 31, 1993, the amount remaining in this liquidation account was $1.4
million. JSB may not declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause JSB's capital to be reduced
below either the amount required for the liquidation account or the capital
requirements imposed by the Department and the FDIC.
NOTE 9: DEPOSITS
Savings certificate accounts mature as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
1-12 months........................... $ 73,550 68.3% $ 84,157 70.1%
13-24 months.......................... 14,417 13.4 18,192 15.1
25-36 months.......................... 9,451 8.8 8,559 7.1
37-48 months.......................... 3,066 2.8 3,555 3.0
Thereafter............................ 7,244 6.7 5,665 4.7
---------- ------- ---------- -------
Total............................... $ 107,728 100.0% $ 120,128 100.0%
========== ======= ========== =======
</TABLE>
At December 31, 1993 and 1992, savings certificate accounts with balances of
$100,000 or more aggregated to $4.7 million and $2.8 million, respectively.
Accrued interest payable by category on deposits is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1992 1991
---- ------ ------
<S> <C> <C> <C>
Savings accounts............................................ $103 $ 123 $ 171
Savings certificates........................................ 819 966 1,445
NOW deposits and Money Market Demand accounts............... -- -- 73
---- ------ ------
Total..................................................... $922 $1,089 $1,689
==== ====== ======
</TABLE>
F-18
<PAGE>
Interest expense by category of deposits is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992 1991
------ ------- -------
<S> <C> <C> <C>
Savings accounts........................................ $1,519 $ 1,706 $ 2,334
Savings certificates.................................... 5,275 7,172 9,573
NOW deposits and Money Market Demand accounts........... 1,317 1,338 1,675
------ ------- -------
Total................................................. $8,111 $10,216 $13,582
====== ======= =======
</TABLE>
Deposits consist of the following major classifications (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Club accounts:
1993--2.40%........................ $ 326 0.1% $ -- --%
1992--3.00%........................ -- -- 331 0.1%
Passbook accounts:
1993--2.40%........................ 54,964 25.4 -- --
1992--3.00%........................ -- -- 52,141 23.5
---------- ------- ---------- -------
Savings Accounts.................. 55,290 25.5 52,472 23.6
---------- ------- ---------- -------
IRA and Keogh Certificates:
1993--3.00% to 5.50%............... 18,237 8.4 -- --
1992--3.00% to 6.10%............... -- -- 18,522 8.3
Certificate accounts:
Original maturity of six months or
less:
1993--2.65% to 3.00%.............. 24,791 11.5 -- --
1992--2.80% to 4.10%.............. -- -- 33,074 14.9
Original maturity of more than six
months:
1993--3.00% to 5.50%.............. 64,700 29.9 -- --
1992--3.10% to 6.10%.............. -- -- 68,532 30.9
---------- ------- ---------- -------
Savings Certificates............. 107,728 49.8 120,128 54.1
---------- ------- ---------- -------
NOW accounts:
1993--2.15%........................ 20,496 9.5 -- --
1992--3.11%........................ -- -- 24,107 10.9
Money market accounts:
(weekly adjustments)
1993--2.40% to 2.60%.............. 27,227 12.6 -- --
1992--3.00% to 3.30%.............. -- -- 20,692 9.3
Business checking:
Interest bearing
1993--2.15%....................... 1,508 0.7 -- --
1992--3.11%....................... -- -- 1,148 0.5
Non-interest bearing............... 3,957 1.9 3,615 1.6
---------- ------- ---------- -------
NOW and Money Market Demand
Accounts............................ 53,188 24.7 49,562 22.3
---------- ------- ---------- -------
Total Deposits................... $ 216,206 100.0% $ 222,162 100.0%
========== ======= ========== =======
Weighted average interest rates paid
for:
Savings............................ 2.74% 3.41%
======= =======
Savings certificates............... 4.66% 5.75%
======= =======
NOW and money market............... 2.57% 3.04%
======= =======
Total Deposits................... 3.69% 4.67%
======= =======
</TABLE>
F-19
<PAGE>
NOTE 10: OTHER BORROWED FUNDS
Other borrowed funds consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
$8.0 million nonrevolving commercial loan commitment of which
the outstanding balance is payable in fixed monthly principal
installments of $111,000 through January 15, 1997. The
commercial loan bears interest at 3% on the used portion for
which a compensating balance is maintained and the prime rate
plus 1% for which no compensating balance is maintained. The
prime rate plus 1% was 7.0% at December 31, 1993 and 1992.... $ 4,111 $ 5,445
$25.0 million and $20.0 million mortgage warehouse line of
credit as of December 31, 1993 and 1992, respectively,
bearing interest at 1.625% on used portion for which a
compensating balance is maintained, and prime on used portion
for which no compensating balance is maintained. The prime
rate was 6.0% at December 31, 1993 and 1992. The line expires
July 1, 1994................................................. 15,161 12,464
Other......................................................... 106 181
------- -------
Total....................................................... $19,378 $18,090
======= =======
</TABLE>
The two credit arrangements described above are cross-collateralized, secured
by SMC's mortgage inventory, servicing rights and commitments.
Compensating balances held by the lender are used in determining the interest
rates charged on the mortgage warehouse lines of credit and the commercial
loan. These balances, which are derived from customer escrow balances, amounts
of collections in transit on loans serviced and corporate cash balances, can
further decrease the interest rate charged on the lines of credit if the
compensating balance is maintained at a level greater than the used portion of
the line. Under the loan agreements, the effective rate of the nonrevolving
commercial loan and the mortgage warehouse line of credit can be decreased to a
minimum rate of 1.0%. These compensating balances averaged approximately $22.8
million and $21.6 million during 1993 and 1992, respectively. The use of these
balances resulted in an effective interest rate of 1.87% and 1.59% in 1993 and
1992, respectively.
F-20
<PAGE>
NOTE 11: FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
$11.0 million and $3.0 million variable rate advances, maturing
December 16, 1994, and January 2, 1995, respectively, secured
by 100% of FHLB stock owned by JSB, funds on deposit at the
FHLB and up to 90% of the fair market value of JSB's mortgage-
backed securities portfolio. The advances can be repaid
without penalty. The average rate of these advances was 3.83%
in 1993....................................................... $14,000 $14,000
$34.1 million line of credit commitment maturing August 5,
1994, bearing interest at the variable rate posted by FHLB at
the date of the drawdown. The commitment is secured by 100% of
FHLB stock owned by JSB, funds on deposit at the FHLB and up
to 90% of the fair market value of the Bank's mortgage-backed
securities portfolio. The average rate of this commitment was
3.30% in 1993................................................. 24,500 21,000
Fixed-term advances bearing interest from 4.12% to 5.71% and
maturing at periods from one to four years, secured by 100% of
FHLB stock owned by the Bank, funds on deposit at the FHLB and
up to 90% of the fair market value of JSB's mortgage-backed
securities portfolio.......................................... 6,500 6,500
Fixed-term advances bearing interest from 3.77% to 8.05% and
maturing at periods from one to ten years, secured by various
investment securities and unencumbered first mortgage loans
equal to 120% of JSB's advances, subject to prepayment
penalties..................................................... 34,000 11,000
Repurchase agreements, bearing interest at 3.49%, maturing
January 28, 1994, secured by government agency and mortgage-
backed securities with a book value of $11.6 million, and an
approximate market value of $11.5 million..................... 10,000 --
------- -------
$89,000 $52,500
======= =======
</TABLE>
Federal Home Loan Bank advances mature as follows (in thousands):
<TABLE>
<CAPTION>
YEAR RATE AMOUNT DUE
---- ----- ----------
<S> <C> <C>
1994 3.83% $54,000
1995 5.04% 9,000
1996 6.31% 7,000
1997 5.61% 2,750
1998 5.69% 3,750
1999 6.09% 1,250
2000 6.15% 3,750
2001 6.49% 1,250
2002 6.59% 2,500
2003 6.61% 3,750
-------
$89,000
=======
</TABLE>
NOTE 12: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CREDIT RISK
JSB is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financial needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These
F-21
<PAGE>
financial instruments include commitments to extend credit, letters of credit,
consumer and commercial lines of credit, fixed and variable rate mortgage loan
commitments and commitments to purchase securities. Those instruments involve,
to varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the statement of financial position. The contract or
notional amounts of those instruments reflect the extent of JSB's involvement
in particular classes of financial instruments.
JSB has exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit. JSB uses
the same credit policies in making commitments and conditional obligations as
it does for on-balance-sheet instruments. Accordingly, the amount and type of
collateral obtained by JSB is based upon industry practice and JSB's credit
assessment of the customer.
The following table sets forth the dollar amount of financial instruments
whose contract amounts represent credit-risk and commitments outstanding, not
otherwise reflected on the balance sheet, as of December 31 (in thousands):
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNT
---------------
1993 1992
------- -------
<S> <C> <C>
Financial instruments whose contract amount represents
credit risk:
Unused portion of open-end consumer lines............... $14,248 $13,433
Unused portion of commercial lines...................... 479 533
Letters of credit--commercial........................... 15 --
------- -------
$14,742 $13,966
======= =======
Commitments outstanding to purchase or originate:
Adjustable-rate mortgage loans secured by 1-4 family
dwellings................................................. $ 5,180 $ 1,370
Fixed-rate mortgage loans secured by 1-4 family
dwellings................................................. 31,615 10,045
Fixed-rate mortgage loans secured by commercial real
estate.................................................... 4,944 --
Fixed-rate investment and mortgage-backed securities..... 4,750 3,790
------- -------
$46,489 $15,205
======= =======
Commitments to sell fixed-rate mortgage loans available
for sale.................................................. $31,586 $20,625
======= =======
</TABLE>
Market risk arises if interest rates, at the time a fixed-rate commitment is
funded, have moved adversely subsequent to the extension of the commitment. JSB
believes the market risk associated with consumer loan commitments is minimal.
Commitments to fund residential mortgages and to purchase mortgage-backed
securities carry market risks similar to the risks associated with similar
assets currently reported on JSB's balance-sheet. Since a portion of JSB's
commitments to extend credit are expected to expire without being drawn upon,
the total contractual amounts do not necessarily represent future cash
requirements.
Financial institutions, such as JSB, generate profits primarily through
lending and investing activities. The risk of loss from lending and investing
activities includes the possibility that a loss may occur from the failure of
another party to perform according to the terms of the loan or investment
agreement. This possibility of loss is known as credit risk.
Credit risk is increased by lending and/or investing activities that
concentrate a financial institution's earning assets in such a way as to expose
the institution to a material loss from any single occurrence or group of
related occurrences. Diversifying the institution's assets to prevent
concentrations is one way in which the financial institution can reduce
potential losses due to credit risk.
JSB manages its credit risk by establishing and implementing strategies
appropriate to the characteristics of borrowers, collateral pledged and
geographic locations. Diversification of risk, within each of these areas is a
primary objective of JSB.
F-22
<PAGE>
At December 31, 1993, JSB's assets were deployed primarily in four principal
types of investments: (1) investment securities and MBS; (2) residential real
estate loans; (3) commercial and multi-family residential real estate loans;
and (4) consumer loans.
INVESTMENT SECURITIES AND MBS. Other than investment securities and MBS
issued or backed by the U.S. Government or a U.S. Government-sponsored
enterprise, JSB has no significant concentration of any single issuer in its
MBS and investment portfolios.
RESIDENTIAL REAL ESTATE LOANS. At December 31, 1993, JSB had $80.1 million in
residential mortgages, including loans available for sale. The collateral
properties for approximately $58.6 million of these loans, and a substantial
majority of JSB's mortgage loan commitments at December 31, 1993, were
concentrated primarily in western Pennsylvania. Loans and commitments of this
type are issued to an inherently diverse group of borrowers and JSB has no
significant concentration of loans to one borrower. In addition, JSB's
underwriting standards and internal control procedures are designed to
minimize, as far as possible, credit risk associated with residential mortgage
lending and the possible risks associated with concentrations of such loans in
a geographic area of limited size.
COMMERCIAL AND MULTI-FAMILY RESIDENTIAL LOANS. At December 31, 1993, JSB had
$42.8 million of commercial and multi-family residential loans, the majority of
which are located outside the state of Pennsylvania. At December 31, 1993,
$11.2 million, $4.1 million, and $5.6 million of multi-family residential and
commercial real estate loans were secured by properties located in Texas,
Colorado, and Georgia, respectively. Since 1989, JSB has not actively sought to
originate commercial real estate loans outside of western Pennsylvania. JSB's
underwriting standards and internal control procedures are designed to
minimize, as far as possible, credit risks associated with commercial real
estate lending within western Pennsylvania.
CONSUMER LOANS. At December 31, 1993, JSB had $27.5 million in consumer
loans. Substantially all of JSB's consumer loan portfolio is secured (where
applicable) by assets located in or around JSB's general market area. In
addition, substantially all of JSB's off-balance-sheet commitments to extend
consumer loan credit involve customers within JSB's general market area.
Consumer loans generally have shorter terms and higher interest rates than
other types of retail loans, such as residential mortgages, because of the type
and nature of the collateral and, in certain cases, the absence of collateral.
Such loans are issued to an inherently diverse group of borrowers and JSB has
no significant concentration of loans to one borrower. JSB's underwriting
standards and internal control procedures are designed to minimize, as far as
possible, credit risk associated with concentrations of such loans in a
geographic area of limited size.
NOTE 13: STANDARD MORTGAGE CORPORATION OF GEORGIA
SMC is a mortgage banking company located in Atlanta, Georgia. It originates
and sells loans primarily in the Atlanta metropolitan area. SMC also acquires
rights to service mortgage loans from unaffiliated third parties throughout the
United States. During 1993, 1992, and 1991, SMC acquired the rights to service
approximately $147.0 million, $84.0 million, and $239.3 million of mortgage
loans at a cost of approximately $1.8 million, $595,000, and $2.1 million,
respectively.
SMC was servicing loans for others of $908.9 million, $840.5 million and $829
million at December 31, 1993, 1992, and 1991, respectively.
For the years ended December 31, 1993 and 1992, SMC paid JSB $42,000 and
$180,000, respectively, in management and other fees to compensate JSB for
direct and indirect expenditures JSB incurred on behalf of SMC during the year.
In addition, $238,000 and $302,000 for charges in-lieu of federal income taxes
were assessed by JSB to SMC during 1993 and 1992, respectively. The charge to
SMC represents 34% of SMC's federally taxable net income and was made under the
provisions of a tax-sharing agreement between the two entities.
F-23
<PAGE>
The following are condensed statements of financial condition for 1993 and
1992, and condensed statements of operations for SMC for 1993, 1992, and 1991:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and cash equivalents..................................... $ 840 $ 1,526
Loans available for sale...................................... 16,648 13,830
Mortgage servicing purchased, net............................. 7,342 7,838
Other assets.................................................. 2,796 2,646
------- -------
Total Assets................................................. $27,626 $25,840
======= =======
LIABILITIES:
Accounts payable.............................................. $ 2,159 $ 2,176
Borrowings from unaffiliated lender........................... 19,272 17,909
------- -------
Total Liabilities............................................ 21,431 20,085
Stockholder's Equity........................................... 6,195 5,755
------- -------
Total Liabilities and Stockholder's Equity................... $27,626 $25,840
======= =======
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME:
Servicing fee income................................... $ 4,302 $ 4,360 $ 3,650
Gain on sale of mortgage loans......................... 1,019 1,068 1,110
Interest earned........................................ 1,463 1,301 916
Miscellaneous.......................................... 246 225 157
------- ------- -------
Total Income.......................................... 7,030 6,954 5,833
------- ------- -------
EXPENSES:
Amortization of cost of purchased servicing rights..... 2,275 2,383 1,425
Interest expense:
Paid to affiliate..................................... 135 -- --
Paid to others........................................ 523 491 452
Other operating expenses............................... 3,374 3,162 2,427
------- ------- -------
Total Expenses....................................... 6,307 6,036 4,304
------- ------- -------
Income before taxes..................................... 723 918 1,529
Income tax expense...................................... 283 354 636
------- ------- -------
Net Income.............................................. $ 440 $ 564 $ 893
======= ======= =======
</TABLE>
F-24
<PAGE>
NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1993 1993 1993 1993
--------- -------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.................. $5,699 $5,659 $5,463 $ 5,782
Interest expense................. 2,947 3,120 3,062 3,033
------ ------ ------ -------
Net interest income.............. 2,752 2,539 2,401 2,749
Provision for loan losses........ 760 180 72 90
Other operating income........... 1,578 1,198 1,767 2,039
Other operating expenses......... 2,579 2,590 3,092 2,739
------ ------ ------ -------
Net income before taxes.......... 991 967 1,004 1,959
Provision (benefit) for income
taxes............................ 272 240 202 846
------ ------ ------ -------
Net income....................... $ 719 $ 727 $ 802 $ 1,113
====== ====== ====== =======
Net income per share............. $ 0.37 $ 0.37 $ 0.41 $ 0.58
====== ====== ====== =======
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1992 1992 1992 1992
--------- -------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income.................. $6,076 $5,777 $5,637 $ 5,792
Interest expense................. 3,466 3,208 2,993 3,111
------ ------ ------ -------
Net interest income.............. 2,610 2,569 2,644 2,681
Provision for loan losses........ 365 430 280 1,430
Other operating income........... 806 1,982 1,245 1,047
Other operating expenses......... 2,481 3,465 2,857 4,044
------ ------ ------ -------
Net income (loss) before taxes
and cumulative effect of change
in accounting principle......... 570 656 752 (1,746)
Provision (benefit) for income
taxes (1)........................ 77 (350) 129 (533)
Cumulative effect of change in
accounting for income taxes..... 1,673 -- -- --
------ ------ ------ -------
Net income (loss)................ $2,166 $1,006 $ 623 $(1,213)
====== ====== ====== =======
Net income (loss) per share...... $ 1.12 $ 0.52 $ 0.32 $ (0.63)
====== ====== ====== =======
</TABLE>
- --------
(1) Amounts have been restated to reflect the change in accounting principle
discussed in Notes 1 and 7.
F-25
<PAGE>
NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table represents the carrying amount and the estimated fair
value of JSB's financial instruments at December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
RECORDED WEIGHTED REPRICING ESTIMATED
BOOK AVERAGE OR MATURITY DISCOUNT FAIR
NOTES BALANCE YIELD RANGE IN YEARS RATES USED VALUE
----- -------- -------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and Due from Banks. $ 8,449 -- -- -- $ 8,449
Investment and mortgage-
backed securities:
Available for sale.... 137,578 -- -- -- 137,586
Held to maturity...... 28,496 -- -- -- 28,506
Held in trading
accounts................ 3,551 -- -- -- 3,551
Loans receivable:
Residential mortgage
loans,
1-4 family......... -A- 47,136 7.22% 0 to 20+ 3.97 to 6.72% 48,463
Residential mortgage
loans available for
sale............... 32,759 7.24 15 to 20+ -- 32,991
Commercial & multi-
family loans....... 42,660 9.41 0 to 10 8.82 42,877
Commercial business
loans and leases... 5,426 7.38 0 to 20 7.06 5,459
Consumer loans........ -B- 26,874 9.77 0 to 10 7.83 to 8.35 28,055
Non-accrual loans
(net)................... 589 -- ** -- 589
FHLB stock.............. 5,056 ** ** ** 5,056
Accrued interest
receivable.............. 2,147 ** ** ** 2,147
FINANCIAL LIABILITIES:
Certificates of deposit. 73,554 3.89 0 to 1 -- 73,554
Certificates of deposit. 34,173 5.58 1 to 15 4.89 35,103
Checking, MMDA & savings
accounts............... -C- 108,478 2.29 ** -- 108,478
Accrued interest
payable................. 922 ** ** ** 922
FHLB advances........... 89,000 4.59 0 to 10 3.19 to 8.34 89,352
Other borrowed funds.... -D- 19,378 1.87 0 to 5 3.19 19,230
</TABLE>
- --------
**--Not meaningful.
A The carrying amount consists of approximately $34.8 million in adjustable-
rate and $12.3 million in fixed-rate residential mortgage loans. The
discount rate used to determine fair value was selected based on loans of
similar type, repricing schedule (where applicable) and remaining maturity.
B The carrying amount includes approximately $5.6 million in credit card
receivables. The fair market value of credit card receivables was determined
using quoted prices offered in an active secondary market.
C SFAS No. 107 defines the estimated fair value of deposits with no stated
maturity, such as demand deposits, savings, NOW and money market demand
accounts, to be equal to the amount payable on demand (i.e., their carrying
amounts).
D Other borrowed funds include $15.2 million of advances subject to daily
repricing. SFAS No. 107 defines the estimated fair value of borrowed funds
repricing within 90 days as equal to the carrying value.
F-26
<PAGE>
The estimation methods, approaches and significant assumptions used in
determining the fair market values of each category of financial instrument are
as follows:
CASH AND DUE FROM BANKS
The recorded book balance approximates fair value due to the due on demand
nature of these financial instruments.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Investment and mortgage-backed securities, of the type held by JSB, are
actively traded in a secondary market and have been valued using quoted market
prices.
LOANS RECEIVABLE
For certain homogeneous categories of loans, such as residential mortgages
and credit card receivables, fair market value is estimated by using quoted
market prices for similar loans or securities backed by similar loans, adjusted
for differences in loan characteristics, if any. The fair value of other types
of loans is estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and maturities.
Fair market values for residential mortgages available for sale are
determined using sales commitments to permanent investors or current market
rate for loans of similar quality.
NON-PERFORMING LOANS
Estimated fair market value represents the net realizable value of the loan
collateral including an allowance for credit risk based upon JSB's historical
credit loss experience and disposition costs for similar assets. Fair market
value is based upon either appraisals obtained from independent sources or upon
JSB's determination of fair market value based upon the capitalization of
current and estimated future cash flows from the collateral property.
FHLB STOCK
FHLB stock is not actively traded on a secondary market. FHLB stock is held
exclusively by financial institutions that are members of the Federal Home Loan
Bank system. The stock is generally redeemable at par. Accordingly, the fair
market value of the FHLB stock approximates the carrying value.
ACCRUED INTEREST RECEIVABLE
The fair market value of accrued interest receivable approximates the
carrying value.
DEPOSIT LIABILITIES
SFAS No. 107 defines the estimated fair value of deposits with no stated
maturity, which includes demand deposits and money market and other savings
accounts, to be equal to the amount payable on demand. Although market premiums
paid for depository institutions reflect an additional value for these low-cost
deposits, SFAS No. 107 prohibits adjusting fair value for any value expected to
be derived from retaining those deposits for a future period of time or from
the benefit that results from ability to fund interest-earning assets with
these deposit liabilities. The fair value of fixed-maturity deposits is
estimated by discounting the future cash flows using the current market rates
offered in active secondary markets for advances with similar terms and
remaining maturities.
F-27
<PAGE>
ACCRUED INTEREST PAYABLE
The fair market value of accrued interest payable approximates the carrying
value.
OTHER BORROWINGS AND FHLB ADVANCES
The fair market value of other borrowed funds and advances is estimated by
discounting the future cash flows using the current market rates offered in
active secondary markets for debt with similar terms and remaining maturities.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
JSB's off-balance-sheet financial instruments are primarily commitments to
extend credit, commitments to fund residential mortgages and commitments to
purchase MBS. The commitments to fund residential mortgages and to purchase MBS
were made proximate to December 31, 1993, at the prevailing market rates and/or
prices. Accordingly, the committed funding amount for residential mortgages and
the committed purchase price for MBS approximates the fair market value of
those financial instruments at December 31, 1993. Commitments to extend credit
generally are not sold or traded, and estimated fair values are not readily
available. For a further discussion of JSB's off-balance-sheet financial
instruments, see Note 12, Financial Instruments with Off-Balance-Sheet and
Credit Risk.
NOTE 16: PURCHASED MORTGAGE SERVICING RIGHTS
At December 31, 1993, SMC serviced $908.9 million in loans for others.
Servicing rights are acquired through both purchases and loan origination
activities. Direct acquisition expenses for purchased servicing rights are
capitalized and amortized over the estimated economic life of the related
servicing asset. The following is an analysis of the changes in purchased
mortgage loan servicing rights asset balances for the years ended 1993, 1992
and 1991 (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Beginning Balance.................................... $ 7,838 $ 9,626 $ 8,964
Purchases............................................ 1,779 595 2,535
Amortization......................................... (2,275) (2,383) (1,425)
Sales................................................ -- -- (448)
------- ------- -------
Ending Balance....................................... $ 7,342 $ 7,838 $ 9,626
======= ======= =======
</TABLE>
NOTE 17: LEASE COMMITMENTS
At December 31, 1993, JSB had entered into four operating lease agreements
for office and branch facility space which will expire at various times from
December 1995 to December 2014. JSB recognized $212,000, $153,000 and $140,000
of rent expense in 1993, 1992 and 1991, respectively. The minimum lease
payments for the years subsequent to 1993 are as follows (in thousands):
<TABLE>
<S> <C>
1994.................... $ 256
1995.................... 287
1996.................... 272
1997.................... 274
1998.................... 254
1999 and thereafter..... 325
------
Total................... $1,668
======
</TABLE>
F-28
<PAGE>
NOTE 18: ACQUISITION BY USBANCORP, INC.
On January 18, 1994, Johnstown Savings Bank and USBANCORP, Inc. (USBANCORP)
jointly announced that they had reached agreement on revised terms to the
definitive agreement pursuant to which JSB would merge with United States
National Bank in Johnstown, one of USBANCORP's banking subsidiaries. The
definitive agreement was signed by the parties on November 10, 1993.
JSB has the right to terminate the amended agreement in the event that the
average closing price of USBANCORP common stock for the ten trading days
immediately preceding the closing is less than $20.50 per share. USBANCORP
common stock is traded on the NASDAQ National Market System.
At the time the amendment was signed by the parties, financial advisors for
each party provided a written opinion to the Boards of Directors of JSB and
USBANCORP that the revised merger consideration set forth in the amendment is
fair from a financial point of view to USBANCORP and the stockholders of JSB.
The transaction is subject to regulatory approvals and to the approvals of
the stockholders of JSB and USBANCORP.
F-29
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
USBANCORP, INC.,
UNITED STATES NATIONAL BANK IN JOHNSTOWN
AND
JOHNSTOWN SAVINGS BANK
A-1
<PAGE>
AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 10, 1993 and amended
as of January 18, 1994, is made by and between USBANCORP, INC. ("USBANCORP"), a
Pennsylvania corporation, having its principal place of business at Main and
Franklin Streets, P.O. Box 430, Johnstown, Pennsylvania 15907, UNITED STATES
NATIONAL BANK IN JOHNSTOWN ("U.S. Bank"), a national association and a wholly-
owned subsidiary of USBANCORP, having its principal place of business at Main
and Franklin Streets, P.O. Box 520, Johnstown, Pennsylvania 15907 and JOHNSTOWN
SAVINGS BANK ("JSB"), a Pennsylvania-chartered savings bank, having its
principal place of business at Market and Main Streets, Johnstown, Pennsylvania
15901.
BACKGROUND
1. USBANCORP and JSB desire to effect a merger of JSB with and into Johnstown
Interim Bank ("JIB") and immediately thereafter the merger of JIB with and into
U.S. Bank, with U.S. Bank surviving such merger, in accordance with applicable
federal and state laws and in accordance with the plan of merger set forth
herein.
2. At or prior to the execution and delivery of this Agreement, and as a
condition and inducement to USBANCORP's and U.S. Bank's execution of this
Agreement (a) certain directors, officers and shareholders of JSB executed, in
favor of USBANCORP, a Letter Agreement dated November 10, 1993, in the form
attached hereto as Exhibit 1, and (b) JSB granted to USBANCORP an option to
acquire JSB's common stock (the "USBANCORP Option") pursuant to a Stock Option
Agreement between USBANCORP and JSB dated November 10, 1993, in the form
attached hereto as Exhibit 2.
3. USBANCORP, U.S. Bank and JSB desire to provide the terms and conditions
governing the transactions contemplated herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual covenants,
agreements, representations and warranties herein contained, the parties
hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE I
Section 1.01 DEFINITIONS. As used in this Agreement, the following terms
shall have the indicated meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
AFFILIATE means, with respect to any Person, any Person that directly, or
indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person and, without limiting the
generality of the foregoing, includes any executive officer, director or
10% equity owner of such Person and any Affiliate of such executive
officer, director or 10% equity owner.
AGREEMENT means this agreement, as amended on January 18, 1994, and any
modification, amendment or supplement hereto or restatement hereof, which
constitutes a plan of merger among USBANCORP, U.S. Bank and JSB.
AMENDMENT means the amendment to the Agreement made by and between the
parties as of January 18, 1994.
A-2
<PAGE>
APPLICATIONS means the applications for regulatory approval which are
required by the transactions contemplated hereby.
ARTICLES OF MERGER means the articles of merger to be executed by JIB and
JSB and to be filed in the Office of the Secretary of State of the
Commonwealth of Pennsylvania in accordance with the applicable laws of the
Commonwealth of Pennsylvania.
AVERAGE CLOSING PRICE means the average of the closing price for
USBANCORP Common Stock as quoted on the NASDAQ National Market System for
the ten trading days immediately preceding the Closing Date.
BCL means the Pennsylvania Business Corporation Law of 1988, as amended.
BHC ACT means the Bank Holding Company Act of 1956, as amended.
CLOSING DATE means the fifth business day after the last condition
precedent pursuant to this Agreement has been fulfilled or waived, or such
other date as USBANCORP and JSB shall agree.
EFFECTIVE DATE means the date specified in the Notice of Consummation to
be filed with the OCC which shall be the Closing Date.
ENVIRONMENTAL LAW means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any Regulatory Authority that administers any environmental law relating to
(i) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the use,
storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of any substance
presently listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a
component.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated from time to time thereunder.
FDIA means the Federal Deposit Insurance Act, as amended, and the rules
and regulations promulgated from time to time thereunder.
FDIC means the Federal Deposit Insurance Corporation.
FRB means the Board of Governors of the Federal Reserve System.
GAAP means generally accepted accounting principles as in effect from
time to time.
IRC means the Internal Revenue Code of 1986, as amended.
IRS means the Internal Revenue Service.
JIB means Johnstown Interim Bank, a Pennsylvania chartered commercial
bank to be formed by USBANCORP solely for the purpose of effecting the
Merger.
JSB COMMON STOCK means the common stock of JSB described in Section
2.02(a).
JSB DISCLOSURE LETTER means a disclosure letter delivered by JSB to
USBANCORP pursuant to Article II of this Agreement.
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<PAGE>
JSB FINANCIALS means (i) the audited consolidated financial statements of
JSB as of December 31, 1992 and 1991 and for the three years ended December
31, 1992, and (ii) the unaudited interim consolidated financial statements
of JSB as of each calendar quarter thereafter included in Securities
Documents filed by JSB.
JSB REGULATORY REPORTS means the call reports, consolidated reports of
condition and income, and accompanying schedules, filed by JSB and other
JSB Subsidiaries with any Regulatory Authority for each calendar quarter,
beginning with the quarter ended December 31, 1990, through the Closing
Date.
JSB SUBSIDIARIES means any corporation, 50% or more of the capital stock
of which is owned, either directly or indirectly, by JSB, except any
corporation the stock of which is held in the ordinary course of the
lending activities of JSB.
MATERIAL ADVERSE CHANGE means, with respect to USBANCORP or JSB, any
material adverse change in its assets, financial condition or results of
operations, taken as a whole, except for any material adverse effect caused
by any change occurring after the date of the Agreement in any federal or
state law, rule or regulation or in GAAP or in the level of general market
interest rates, which changes affect banking institutions generally, or any
changes by USBANCORP or its representatives of accounting adjustments or
entries, or in the calculation thereof, relating to the transactions
contemplated by this Agreement.
MERGER means, as the context may require, (i) the merger of JSB with and
into JIB, with JIB surviving such merger, (ii) the merger of JIB with and
into U.S. Bank with U.S. Bank surviving such merger or (iii) both such
mergers, all as contemplated by this Agreement.
NASDAQ means the National Association of Securities Dealers Automated
Quotation System.
NBA means the National Bank Act, as amended and the rules and
regulations, promulgated from time to time thereunder.
NOTICE OF CONSUMMATION means the Notice of Consummation and the related
articles of association filed with the OCC to effect the Merger.
OCC means the Office of the Comptroller of the Currency.
PBC means the Pennsylvania Banking Code of 1965, as amended.
PDB means the Pennsylvania Department of Banking.
PERSON means any individual, corporation, partnership, joint venture,
association, trust or "group" (as that term is defined under the Exchange
Act).
PROSPECTUS/PROXY STATEMENT means the prospectus/proxy statement, together
with any exhibits, appendices, supplements or amendments thereto, to be
sent to holders of USBANCORP Common Stock and JSB Common Stock in
connection with the transactions contemplated by this Agreement.
REGISTRATION STATEMENT means the registration statement on Form S-4,
including any pre-effective or post-effective amendments or supplements
thereto, as filed with (i) the SEC under the Securities Act with respect to
the USBANCORP Common Stock to be issued in connection with the transactions
contemplated by this Agreement and the solicitation of proxies by USBANCORP
in connection with the transactions contemplated by this Agreement and (ii)
the FDIC with respect to the solicitation of proxies by JSB in connection
with the transactions contemplated by this Agreement.
REGULATORY AGREEMENT has the meaning given to that term in Section 2.11
of this Agreement.
A-4
<PAGE>
REGULATORY AUTHORITY means any agency or department of any federal or
state government, including without limitation the FRB, the FDIC, the OCC,
the PDB or the respective staffs thereof.
RIGHTS means warrants, options, rights, convertible securities and other
capital stock equivalents which obligate an entity to issue its securities.
SBRI means SB Realty, Inc., a Pennsylvania corporation.
SEC means the Securities and Exchange Commission.
SECURITIES ACT means the Securities Act of 1933, as amended, and the
rules and regulations promulgated from time to time thereunder.
SECURITIES DOCUMENTS means all registration statements, schedules,
statements, forms, reports, proxy materials, and other documents required
to be filed under the Securities Laws.
SECURITIES LAWS means the Securities Act and the Exchange Act.
SMC means Standard Mortgage Corporation of Georgia, a Georgia
corporation.
SUBSIDIARY means any corporation, 50% or more of the capital stock of
which is owned, either directly or indirectly, by another entity, except
any corporation the stock of which is held in the ordinary course of the
lending activities of a bank.
USBANCORP COMMON STOCK has the meaning given to that term in Section
3.02(a) of this Agreement.
USBANCORP DISCLOSURE LETTER means a disclosure letter delivered by
USBANCORP to JSB pursuant to Article III of this Agreement.
USBANCORP FINANCIALS means (i) the audited consolidated financial
statements of USBANCORP as of December 31, 1992 and 1991 and for the three
years ended December 31, 1992, and (ii) the unaudited interim consolidated
financial statements of USBANCORP as of each calendar quarter thereafter
included in Securities Documents filed by USBANCORP.
USBANCORP OPTION means the option granted to USBANCORP to acquire shares
of JSB Common Stock referenced in the recitals to this Agreement.
USBANCORP RIGHTS AGREEMENT means the Shareholder Protection Rights
Agreement dated November 10, 1989 between USBANCORP and U.S. Bank, as
rights agent, relating to USBANCORP's Series B Preferred Stock.
USBANCORP STOCK PURCHASE RIGHTS means Rights to purchase one-tenth of a
share of USBANCORP's Series B Preferred Stock in accordance with the terms
of the USBANCORP Rights Agreement.
USBANCORP SUBSIDIARIES means any corporation, 50% or more of the capital
stock of which is owned, either directly or indirectly, by USBANCORP,
except any corporation the stock of which is held in the ordinary course of
the lending activities of a bank.
Section 1.02 THE MERGER.
(a) THE MERGER. Subject to the terms and conditions of this Agreement, on the
Effective Date JSB shall merge with and into JIB with JIB surviving and
immediately thereafter JIB shall merge with and into U.S. Bank with U.S. Bank
surviving; the separate existence of JSB shall cease; U.S. Bank shall be
ultimately the surviving corporation in the Merger; and all of the property
(real, personal and mixed), rights, powers and
A-5
<PAGE>
duties and obligations of JSB shall be taken and deemed to be transferred to
and vested in U.S. Bank, as the ultimately surviving corporation in the Merger,
without further act or deed; all debts, liabilities and duties of each of JSB
and U.S. Bank shall thereafter be the responsibility of U.S. Bank as the
ultimately surviving corporation; all in accordance with the NBA and applicable
laws of the Commonwealth of Pennsylvania.
(b) CLOSING. On the Closing Date, the Closing will take place at 10:00 a.m.
at the offices of USBANCORP, unless another time and place are agreed to by the
parties hereto, provided in any case that all conditions to Closing set forth
in Article V have been satisfied or waived at or prior to Closing. At or before
the Closing, U.S. Bank and JSB shall cause the Articles of Merger to be duly
executed and filed with the Secretary of State of the Commonwealth of
Pennsylvania and the Notice of Consummation to be duly executed and filed with
the OCC.
(c) U.S. BANK'S ARTICLES OF ASSOCIATION AND BYLAWS. On and after the
Effective Date, the articles of association and the bylaws of U.S. Bank, as in
effect immediately prior to the Effective Date, shall automatically be and
remain the articles of association and bylaws of U.S. Bank, as the surviving
corporation in the Merger, until thereafter altered, amended or repealed.
(d) BOARD OF DIRECTORS AND OFFICERS OF USBANCORP AND U.S. BANK.
(i) On the Effective Date, the Board of Directors of USBANCORP shall
consist of (i) those persons holding such office immediately prior to the
Effective Date, and two of the four directors elected to the Board of
Directors of U.S. Bank in accordance with Section 1.02(d)(iii) below who
are designated by USBANCORP, one of whom shall sit as a Class III director
(which serves until the annual meeting of USBANCORP shareholders in 1995)
and one of whom shall sit as a Class I director (which serves until the
1996 annual meeting). USBANCORP shall cause such persons to be elected as
directors of USBANCORP effective as of the Effective Date. Each such
director shall hold office until his successor is elected and qualified or
otherwise in accordance with the articles of incorporation and the bylaws
of USBANCORP. USBANCORP shall use its best efforts to cause such persons to
be renominated for an additional term, subject to USBANCORP's normal
director retirement policy.
(ii) On the Effective Date, the Executive Committee of the Board of
Directors of USBANCORP shall consist of (i) those persons holding such
office immediately prior to the Effective Date, and (ii) one of the two
directors elected to serve on the Board of Directors of USBANCORP in
accordance with Section 1.02(d)(i) above, who will be designated by
USBANCORP. USBANCORP shall cause such person to be appointed as a member of
the Executive Committee as of the Effective Date. Such member shall hold
office until his successor is appointed and qualified.
(iii) On the Effective Date, the Board of Directors of U.S. Bank shall
consist of those persons holding office immediately prior to the Effective
Date and four present JSB directors, who are designated by USBANCORP. U.S.
Bank shall cause such persons to be elected as directors of U.S. Bank
effective as of the Effective Date. Each such director shall hold office
until his or her successor is elected and qualified or otherwise in
accordance with the articles of association and the bylaws of U.S. Bank.
(iv) U.S. Bank will use its best efforts to cause such persons to be re-
elected, and USBANCORP shall vote to re-elect such persons, in each of the
two succeeding years subject to U.S. Bank's normal director retirement
policy. Those directors of JSB who are not elected to serve on U.S. Bank's
Board, shall be appointed by the Board of Directors of U.S. Bank for one
year terms to U.S. Bank's Main Office Advisory Board and shall hold office
until their successors are appointed and qualified. U.S. Bank will use its
best efforts to cause such persons to be re-appointed in each of the two
succeeding years. Such individuals will receive an annual retainer at a
rate not less than their current annual retainer. USBANCORP, in its sole
discretion, may elect to prepay all or any portion of the annual retainer
payable to such persons.
A-6
<PAGE>
(v) On the Effective Date, the officers of USBANCORP duly elected and
holding office immediately prior to the Effective Date shall remain the
officers of USBANCORP. The officers of U.S. Bank duly elected and holding
office immediately prior to such effective date shall remain the officers
of U.S. Bank, as the surviving corporation in the Merger.
(e) CONVERSION OF SHARES.
(i) USBANCORP COMMON STOCK.
(A) Each share of USBANCORP Common Stock issued and outstanding
immediately prior to the Effective Date shall, on and after the
Effective Date, continue to be issued and outstanding as an identical
share of USBANCORP Common Stock.
(B) Each share of USBANCORP Common Stock issued and held in the
treasury of USBANCORP as of the Effective Date, if any, shall, on and
after the Effective Date, continue to be issued and held in the
treasury of USBANCORP.
(C) Each share of JIB Common Stock issued and outstanding immediately
prior to the Effective Date shall be cancelled on the Effective Date.
(ii) JSB COMMON STOCK.
(A) After giving effect to the provisions of Section 1.02(e)(v)
hereof with respect to dissenting shares and subject to the provisions
of subparagraphs (B), (C), and (D) of this Section 1.02(e)(ii) and
Sections 1.02(e)(iii) and (iv), each share of JSB Common Stock issued
and outstanding immediately prior to the Effective Date shall, on the
Effective Date, by reason of the Merger and without any action on the
part of the holder thereof, be converted into and become a right to
receive:
(1) $10.13 in cash, and
(2) a fraction of a share of USBANCORP Common Stock as follows:
(a) if the Average Closing Price on the Closing Date is less than or
equal to $24.50 per share, then .5053 shares of USBANCORP Common
Stock; (b) if the Average Closing Price on the Closing Date is
greater than or equal to $25.50 per share, then .4853 shares of
USBANCORP Common Stock; or (c) if the Average Closing Price on the
Closing Date is greater than $24.50 per share but less than $25.50
per share, then the conversion ratio will be determined by dividing
$22.50 by the Average Closing Price and multiplying the resulting
figure by .55.
(B) Each share of JSB Common Stock owned by USBANCORP on the
Effective Date, if any, shall be cancelled.
(C) Each share of JSB Common Stock issued and held in the treasury of
JSB or owned by any JSB Subsidiary as of the Effective Date, if any,
shall be cancelled, and no cash, stock or other property shall be
delivered in exchange therefor.
(D) No fraction of a whole share of USBANCORP Common Stock and no
scrip or certificates therefor shall be issued in connection with the
Merger. Any former holder of JSB Common Stock who would otherwise be
entitled to receive a fraction of a share of USBANCORP Common Stock
shall receive, in lieu thereof, cash in an amount equal to such
fraction of a share multiplied by $25.50.
(E) On the Effective Date, each option granted pursuant to the JSB
Employee Stock Compensation Program not previously exercised and
exercisable into shares of JSB Common Stock, whether or not such option
is exercisable on the Effective Date, shall, by reason of the Merger,
cease to be outstanding and be converted into the right to receive in
cash an amount equal to (a) the difference between $22.50 and the
exercise price of each option multiplied by (b) the number of shares of
JSB Common Stock covered by such option.
A-7
<PAGE>
(iii) In lieu of Section 1.02(e)(ii)(A), each record holder of shares of
JSB Common Stock will have the right, except as limited by Section
1.02(e)(iv), to elect to have such holder's shares of JSB Common Stock
converted solely into USBANCORP Common Stock or cash in accordance with the
following procedures:
(A) On or before the Effective Date, a form letter of transmittal and
election statement providing for such election and for the tender to an
exchange agent selected by USBANCORP (the "Exchange Agent") of the
related share certificates (an "Election Statement") will be mailed to
each JSB stockholder of record on the Effective Date.
(B) Any record holder of JSB Common Stock may specify, in an Election
Statement meeting the requirements of this Section 1.02(e)(iii) that,
as to all shares of JSB Common Stock covered by such Election
Statement:
(1) all such shares shall be converted into shares of USBANCORP
Common Stock (a "Stock Election") as follows: (a) if the Average
Closing Price on the Closing Date is less than or equal to $24.50
per share, then .9184 shares of USBANCORP Common Stock; (b) if the
Average Closing Price on the Closing Date is greater than or equal
to $25.50 per share, then .8824 shares of USBANCORP Common Stock; or
(c) if the Average Closing Price on the Closing Date is greater than
$24.50 per share but less than $25.50 per share, then the conversion
ratio will be determined by dividing $22.50 by the Average Closing
Price;
(2) all such shares shall be converted to cash at the rate of
$22.50 per share (a "Cash Election"); or
(3) the shareholder has no preference and accordingly makes no
election and will receive the consideration specified in Section
1.02(e)(ii)(A) ("No Election"). Shares of JSB Common Stock as to
which a record holder makes No Election, or as to which no Effective
Election Statement (as defined in subparagraph (D) below) is filed,
are hereinafter referred to as "No Election Shares."
(C) Any record holder of JSB Common Stock who is holding such shares
for a beneficial owner, or as a nominee for one or more beneficial
owners, may submit an Election Statement on behalf of any such
beneficial owners. Any beneficial owner of JSB Common Stock on whose
behalf a record owner of JSB Common Stock has submitted an Election
Statement in accordance with this subparagraph (C) will be considered a
separate holder of JSB Common Stock for purposes of this Agreement.
(D) An Election Statement will be effective only if a properly
completed and signed copy thereof, accompanied by stock certificates
for the shares of JSB Common Stock which such Election Statement covers
shall have been actually received by the Exchange Agent no later than
3:00 p.m. on the 20th day following the Closing Date (such time and day
being herein referred to as the "Election Deadline"). (An Election
Statement which meets the requirements of this subparagraph (D) is
hereinafter referred to as an "Effective Election Statement.")
(E) USBANCORP and JSB will have the right to make rules, not
inconsistent with the terms of this Agreement, governing the form,
terms and conditions of Election Statements, the validity and
effectiveness of Election Statements and the manner and extent to which
they are to be taken into account in making the determinations
prescribed by Section 1.02(e)(iv), the issuance and delivery of
certificates evidencing the USBANCORP Common Stock into which shares of
JSB Common Stock are converted in the Merger and the payment for
fractional interests as prescribed by Section 1.02(e)(ii)(D).
(iv) The allocation of USBANCORP Common Stock and cash among holders of
outstanding shares of JSB Common Stock pursuant to Section 1.02(e)(iii)
shall be effected as hereinafter provided:
(A) In the aggregate, fifty-five percent (55%) of the shares of JSB
Common Stock will be converted into USBANCORP Common Stock (the "Stock
Limitation"); and
A-8
<PAGE>
(B) In the aggregate, forty-five percent (45%) of the shares of JSB
Common Stock will be converted into cash (the "Cash Amount").
(C) The USBANCORP Common Stock will be deemed, for the purposes of
this Agreement, to be oversubscribed if the number of shares of JSB
Common Stock covered by all Effective Election Statements which
designate a Stock Election, plus a fraction of the No Election Shares
determined as follows: (a) .5053 if the Average Closing Price on the
Closing Date is less than or equal to $24.50 per share; (b) .4853 if
the Average Closing Price on the Closing Date is greater than or equal
to $25.50 per share; or (c) if the Average Closing Price on the Closing
Date is greater than $24.50 per share but less than $25.50 per share, a
ratio determined by dividing $22.50 by the Average Closing Price and
multiplying the resulting figure by .55, exceed the Stock Limitation.
(D) (1) If the USBANCORP Common Stock is not oversubscribed, the
USBANCORP Common Stock and the Cash Amount shall be allocated as
follows:
(a) First, all shares of JSB Common Stock covered by an Effective
Election Statement which designates a Stock Election will be
converted into USBANCORP Common Stock;
(b) Second, all No Election Shares shall be converted into $10.13
in cash and shares of USBANCORP Common Stock as follows: (a) if the
Average Closing Price on the Closing Date is less than or equal to
$24.50 per share, then .5053 shares of USBANCORP Common Stock; (b)
if the Average Closing Price on the Closing Date is greater than or
equal to $25.50 per share, then .4853 shares of USBANCORP Common
Stock; or (c) if the Average Closing Price on the Closing Date is
greater than $24.50 per share but less than $25.50 per share, then
the conversion ratio will be determined by dividing $22.50 by the
Average Closing Price and multiplying the resulting figure by .55;
(c) Third, all shares of JSB Common Stock which are Dissenting
Shares (as defined in Section 1.02(e)(v)) shall be allocated a
portion of the Cash Amount equal to an aggregate amount of $22.50
per each such Dissenting Share; and
(d) Fourth, if the number of shares of JSB Common Stock converted
into USBANCORP Common Stock pursuant to (a) and (b) above does not
equal the Stock Limitation, shareholders whose shares of JSB Common
Stock are covered by an Effective Election Statement which
designates a Cash Election shall each have a pro rata portion of
their shares of JSB Common Stock converted, at the rate of $22.50
per share of JSB Common Stock, into a pro rata portion of the Cash
Amount, and their remaining shares of JSB Common Stock shall be
converted into USBANCORP Common Stock.
(2) If the USBANCORP Common Stock is oversubscribed, the USBANCORP
Common Stock and the Cash Amount shall be allocated as follows:
(a) First, all shares of JSB Common Stock which are Dissenting
Shares (as defined in Section 1.02(e)(v)) shall be allocated a
portion of the Cash Amount equal to an aggregate amount of $22.50
per each such Dissenting Share;
(b) Second, all shares of JSB Common Stock covered by an Effective
Election Statement which designates a Cash Election shall be
converted into cash at the rate of $22.50 per share;
(c) Third, all shares of JSB Common Stock which are No Election
Shares shall be converted into $10.13 in cash and shares of
USBANCORP Common Stock as follows: (a) if the Average Closing Price
on the Closing Date is less than or equal to $24.50 per share, then
.5053 shares of USBANCORP Common Stock; (b) if the Average Closing
Price on the
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Closing Date is greater than or equal to $25.50 per share, then
.4853 shares of USBANCORP Common Stock; or (c) if the Average
Closing Price on the Closing Date is greater than $24.50 per share
but less than $25.50 per share, then the conversion ratio will be
determined by dividing $22.50 by the Average Closing Price and
multiplying the resulting figure by .55; and
(d) Fourth, shareholders whose shares of JSB Common Stock are
covered by an Effective Election Statement which designates a Stock
Election shall each have a pro rata portion of their shares of JSB
Common Stock converted into a pro rata portion of the number of
shares of USBANCORP Common Stock available for conversion by reason
of the Stock Limitation, and their remaining shares of JSB Common
Stock shall be converted into cash at the rate of $22.50 per share.
(v) DISSENTING SHAREHOLDERS OF JSB. If there are holders of JSB Common
Stock who dissent from the Merger and exercise and perfect the right to
obtain valuation of and payment for their shares ("Dissenting Shares")
pursuant to the PBC and the BCL, the following provisions will govern
payments to be made in respect of dissenting holders of JSB Common Stock:
(A) All payments in respect of Dissenting Shares, if any, will be
made directly by USBANCORP, on behalf of JIB as the surviving
corporation in the Merger.
(B) Dissenting Shares, if any, will be deemed to have been retired
and canceled immediately prior to the Merger, with the effect that no
conversion thereof will occur pursuant to Sections 1.02(e)(ii) and
1.02(e)(iii) hereof.
(vi) ANTI-DILUTION PROVISIONS. If, on the Effective Date, USBANCORP has,
at any time before the Effective Date, (A) issued a dividend in shares of
USBANCORP Common Stock, (B) combined the outstanding shares of USBANCORP
Common Stock into a smaller number of shares, (C) subdivided the
outstanding shares of USBANCORP Common Stock, or (D) reclassified the
shares of USBANCORP Common Stock, then, in any such or similar event, the
number of shares of USBANCORP Common Stock to be delivered to JSB
shareholders who are entitled to receive shares of USBANCORP Common Stock
in exchange for shares of JSB Common Stock shall be adjusted so that each
JSB shareholder shall be entitled to receive such number of shares of
USBANCORP Common Stock as such shareholder would have been entitled to
receive if the Effective Date had occurred prior to the happening of such
event.
(f) SURRENDER AND EXCHANGE OF JSB STOCK CERTIFICATES.
(i) EXCHANGE OF CERTIFICATES. Each holder of shares of JSB Common Stock
who surrenders to USBANCORP the certificate or certificates representing
such shares will be entitled to receive, as soon as practicable after the
Effective Date, in exchange therefor a certificate or certificates for the
number of whole shares of USBANCORP Common Stock into which such holder's
shares of JSB Common Stock have been converted by the Merger, if any,
together with the related USBANCORP Stock Purchase Rights and a check
representing the cash payment for such shares as described in Sections
1.02(e)(ii)(A) or 1.02(e)(iii) and cash in lieu of any fractional share in
accordance with Section 1.02(e)(ii)(D) hereof.
(ii) RIGHTS EVIDENCED BY CERTIFICATES. Each certificate for shares of
USBANCORP Common Stock issued in exchange for certificates for JSB Common
Stock pursuant to Section 1.02(f)(i) hereof will be dated the Effective
Date and be entitled to dividends and all other rights and privileges
pertaining to such shares of stock from the Effective Date. Until
surrendered, each certificate theretofore evidencing shares of JSB Common
Stock will, from and after the Effective Date, evidence solely the right to
receive certificates for shares of USBANCORP Common Stock pursuant to
Section 1.02(f)(i) hereof, the related USBANCORP Stock Purchase Rights and
a check representing the cash payment for such shares as described in
Sections 1.02(e)(ii)(A) or 1.02(e)(iii) and cash in lieu of any fractional
share in accordance with Section 1.02(e)(ii)(D) hereof. If certificates for
shares of JSB Common Stock are exchanged for
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USBANCORP Common Stock at a date following one or more record dates for the
payment of dividends or of any other distribution on the shares of
USBANCORP Common Stock, USBANCORP will pay cash in an amount equal to
dividends theretofore payable on such USBANCORP Common Stock and pay or
deliver any other distribution to which holders of shares of USBANCORP
Common Stock have theretofore become entitled. No interest will accrue or
be payable in respect of dividends or cash otherwise payable under this
Section 1.02(f) upon surrender of certificates for shares of JSB Common
Stock. Notwithstanding the foregoing, no party hereto will be liable to any
holder of JSB Common Stock for any amount paid in good faith to a public
official or agency pursuant to any applicable abandoned property, escheat
or similar law. Until such time as certificates for shares of JSB Common
Stock are surrendered by a JSB shareholder to USBANCORP for exchange,
USBANCORP shall have the right to withhold dividends or any other
distributions on the shares of USBANCORP Common Stock issuable to such
shareholder.
(iii) EXCHANGE PROCEDURES. Each certificate for shares of JSB Common
Stock delivered for exchange under this Section 1.02(f) must be endorsed in
blank by the registered holder thereof or be accompanied by a power of
attorney to transfer such shares endorsed in blank by such holder. If more
than one certificate is surrendered at one time and in one transmittal
package for the same shareholder account, the number of whole shares of
USBANCORP Common Stock for which certificates will be issued pursuant to
this Section 1.02(f) will be computed on the basis of the aggregate number
of shares represented by the certificates so surrendered. If shares of
USBANCORP Common Stock or payments of cash are to be issued or made to a
person other than the one in whose name the surrendered certificate is
registered, the certificate so surrendered must be properly endorsed in
blank, with signature(s) guaranteed, or otherwise in proper form for
transfer, and the person to whom certificates for shares of USBANCORP
Common Stock are to be issued or to whom cash is to be paid shall pay any
transfer or other taxes required by reason of such issuance or payment to a
person other than the registered holder of the certificate for shares of
JSB Common Stock which are surrendered.
(iv) CLOSING OF STOCK TRANSFER BOOKS; CANCELLATION OF JSB
CERTIFICATES. Upon the Effective Date, the stock transfer books for JSB
Common Stock will be closed and no further transfers of shares of JSB
Common Stock will thereafter be made or recognized. All certificates for
shares of JSB Common Stock surrendered pursuant to this Section 1.02(f)
will be cancelled by USBANCORP.
(g) PAYMENT PROCEDURES. As soon as practicable after the Effective Date,
USBANCORP shall make payment of the cash consideration provided for in Sections
1.02(e)(ii) and 1.02(e)(iii) to each person entitled thereto.
(h) FAIRNESS OPINIONS. On or before the execution of the Amendment, the
respective financial advisors of USBANCORP and JSB shall have delivered an
opinion to USBANCORP and JSB, respectively, that the Merger is fair from a
financial point of view to JSB stockholders and USBANCORP. Copies of such
opinions are attached as Annexes 1 and 2, respectively.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF JSB
JSB hereby represents and warrants to USBANCORP and U.S. Bank that, except as
specifically set forth in the JSB Disclosure Letter delivered to USBANCORP by
JSB on or before November 17, 1993 and as may be subsequently updated pursuant
to the terms of this Agreement:
Section 2.01 ORGANIZATION.
(a) JSB is a Pennsylvania-chartered savings bank duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania. JSB is a member of the Federal Home Loan Bank of Pittsburgh. JSB
has the corporate power and authority to carry on its business and operations
as now being conducted and to own and operate the properties and assets now
owned and being operated by it. JSB is not qualified or licensed to do business
as a foreign corporation in any other jurisdiction and is not required to be
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so qualified or licensed as the result of the ownership or leasing of property
or the conduct of its business or, if required to be so qualified, the failure
to qualify would not have a material adverse effect on JSB.
(b) SBRI is a Pennsylvania corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania. SBRI has
the corporate power and authority to carry on its business and operations as
now being conducted and to own and operate the properties and assets now owned
and being operated by it. SBRI is not qualified or licensed to do business as a
foreign corporation in any other jurisdiction and is not required to be so
qualified or licensed as the result of the ownership or leasing of property or
the conduct of its business.
(c) SMC is a Georgia corporation duly organized, validly existing and in good
standing under the laws of the State of Georgia and is duly qualified as a
foreign corporation and in good standing under the laws of each jurisdiction in
which the conduct of its business or the ownership of its assets requires such
qualification. SMC has the corporate power and authority to carry on its
business and operations as now being conducted and to own and operate the
properties and assets now owned and being operated by it. SMC is licensed as a
mortgage lender under the Georgia Residential Mortgage Act and is licensed as a
mortgage servicer in each jurisdiction that requires servicers of mortgage
loans to be licensed.
(d) There are no JSB Subsidiaries other than those identified in the JSB
Disclosure Letter.
(e) JSB is a Pennsylvania-chartered savings bank the deposits of which are
insured by the Bank Insurance Fund of the FDIC to the full extent provided in
the FDIA.
(f) The respective minute books of JSB, SBRI and SMC and each other JSB
Subsidiary accurately record, in all material respects, all material corporate
actions of their respective shareholders and boards of directors (including
committees) through the date of this Agreement.
(g) JSB has delivered to USBANCORP true and correct copies of the articles of
incorporation and bylaws of JSB, SBRI and of SMC, respectively, as in effect on
the date hereof.
Section 2.02 CAPITALIZATION.
(a) The authorized capital stock of JSB consists of (a) 15,000,000 shares of
common stock, with a par value of $1.00 ("JSB Common Stock"), of which
1,940,150 shares were outstanding, validly issued, fully paid and nonassessable
and free of preemptive rights as of the date of the execution of the Agreement
and of which 1,944,790 shares were outstanding, validly issued, fully paid and
nonassessable and free of preemptive rights as of the date of the Amendment and
(b) 5,000,000 shares of preferred stock with a par value of $1.00 per share,
none of which are issued or outstanding. Neither JSB, SBRI, SMC nor any other
JSB Subsidiary has or is bound by any subscription, option, warrant, call,
commitment, agreement, plan or other Right of any character relating to the
purchase, sale or issuance or voting of, or right to receive dividends or other
distributions on any shares of JSB Common Stock or any other security of JSB or
any securities representing the right to vote, purchase or otherwise receive
any shares of JSB Common Stock or any other security of JSB, other than for
shares issuable under the USBANCORP Option, and as of the date of the execution
of the Agreement, 111,000 shares which JSB was obligated to issue under its
Employee Stock Compensation Program, as follows: (A) 26,000 shares at an
exercise price of $9.50, (B) 50,000 shares at an exercise price of $5.75 and
(C) 35,000 shares at an exercise price of $11.15; and subsequently, as of the
date of the execution of the Amendment, 106,360 shares which JSB is obligated
to issue under its Employee Stock Compensation Program as follows: (A) 25,000
shares at an exercise price of $9.50, (B) 47,391 shares at an exercise price of
$5.75 and (C) 33,969 shares at an exercise price of $11.15.
(b) The authorized capital stock of SBRI consists of 1,250 shares of common
stock, par value $1,000.00 per share ("SBRI Common Stock"), of which 50 shares
are outstanding, validly issued, fully paid and nonassessable and free of
preemptive rights. Neither JSB nor SBRI has or is bound by any subscription,
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option, warrant, call, commitment, agreement or other Right of any character
relating to the purchase, sale or issuance or voting of, or right to receive
dividends or other distributions on any shares of SBRI Common Stock or any
other security of SBRI or any securities representing the right to vote,
purchase or otherwise receive any shares of SBRI Common Stock or any other
security of SBRI. JSB owns all of the outstanding shares of capital stock of
SBRI free and clear of all liens, security interests, pledges, charges,
encumbrances, agreements and restrictions of any kind or nature.
(c) The authorized capital stock of SMC consists of 1,000 shares of common
stock, par value $1.00 per share ("SMC Common Stock"), of which 600 shares are
outstanding, validly issued, fully paid and nonassessable and free of
preemptive rights. Neither JSB, SBRI nor SMC has or is bound by any
subscription, option, warrant, call, commitment, agreement or other Right of
any character relating to the purchase, sale or issuance or voting of, or right
to receive dividends or other distributions on any shares of SMC Common Stock
or any other security of SMC or any securities representing the right to vote,
purchase or otherwise receive any shares of SMC Common Stock or any other
security of SMC. SBRI owns all of the outstanding shares of capital stock of
SMC free and clear of all liens, security interests, pledges, charges,
encumbrances, agreements and restrictions of any kind or nature.
(d) Neither JSB, SBRI, SMC or any other JSB Subsidiary, owns any equity
interest, directly or indirectly, in any other company or controls any other
company, except for equity interests held in the investment portfolios of JSB
and JSB Subsidiaries, equity interests held by JSB Subsidiaries in a fiduciary
capacity, and equity interests held in connection with the commercial loan
activities of JSB and JSB Subsidiaries. Except for investments that do not
exceed 5% of the subject company, there are no subscriptions, options,
warrants, calls, commitments, agreements or other Rights outstanding and held
by JSB, or JSB Subsidiaries with respect to any other company's capital stock
or the equity of any other Person.
(e) Except as set forth in the JSB Disclosure Letter, to the best knowledge
of JSB, no person or "group" (as that term is used in Section 13(d)(3) of the
Exchange Act) is the beneficial owner (as defined in Section 13(d) of the
Exchange Act) of 5% or more of the outstanding shares of JSB Common Stock.
Section 2.03 AUTHORITY; NO VIOLATION.
(a) JSB has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by JSB and the consummation by JSB of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of JSB and, except for approval by the shareholders of JSB
as required under the PBC, JSB's articles of incorporation and bylaws and
NASDAQ requirements applicable to it, no other corporate proceedings on the
part of JSB are necessary to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by JSB, subject
to approval of the shareholders of JSB as required under the PBC, JSB's
articles of incorporation and bylaws and NASDAQ requirements applicable to it
and receipt of the required approvals of Regulatory Authorities described in
Section 3.04 hereof, and constitutes the valid and binding obligation of JSB,
enforceable against JSB in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting depository institutions and
creditors' rights generally and subject, as to enforceability, to general
principles of equity.
(b) (A) The execution and delivery of this Agreement by JSB, (B) subject to
receipt of approvals from the Regulatory Authorities referred to in Section
3.04 hereof and compliance with any conditions contained therein, the
consummation of the transactions contemplated hereby, and (C) compliance by JSB
with any of the terms or provisions hereof, will not (i) conflict with or
result in a breach of any provision of the articles of incorporation or bylaws
of JSB or any JSB Subsidiary; (ii) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to JSB or
any JSB Subsidiary or any of their respective properties or assets; or (iii)
violate, conflict with, result in a breach of any provisions of, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, or result in a right of termination
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or acceleration or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of JSB or any JSB Subsidiary
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement, commitment or other
instrument or obligation to which JSB or any JSB Subsidiary is a party, or by
which they or any of their respective properties or assets may be bound or
affected, except for such violations, conflicts, breaches or defaults under
clause (ii) or (iii) hereof which, either individually or in the aggregate,
will not have a material adverse effect on the assets, business, financial
condition or results of operations of JSB or the JSB Subsidiaries taken as a
whole or the ability of JSB to perform any of its material obligations under
this Agreement.
Section 2.04 CONSENTS. Except for the consents, approvals, filings and
registrations from or with the Regulatory Authorities referred to in Section
3.04 hereof and compliance with any conditions contained therein, and the
approval of this Agreement by the shareholders of JSB under the PBC, no
consents or approvals of, or filings or registrations with, any Regulatory
Authority are necessary, and no consents or approvals of any third parties are
necessary, or will be, in connection with (a) the execution and delivery of
this Agreement by JSB, and (b) the consummation by JSB of the transactions
contemplated hereby. JSB has no reason to believe that any required consents or
approvals will not be received or will be received with conditions, limitations
or restrictions unacceptable to the parties hereto or which would adversely
impact JSB's ability to consummate the transactions contemplated by this
Agreement.
Section 2.05 FINANCIAL STATEMENTS.
(a) JSB has previously delivered, or will deliver, to USBANCORP the JSB
Regulatory Reports. The JSB Regulatory Reports have been, or will be, prepared
in accordance with applicable regulatory accounting principles and practices
applied on a consistent basis throughout the periods covered by such
statements, and fairly present, or will fairly present, the financial position,
results of operations and changes in shareholders' equity of JSB as of and for
the periods ended on the dates thereof, in accordance with applicable
regulatory accounting principles applied on a consistent basis.
(b) JSB has previously delivered, or will deliver, its audited consolidated
financial statements as of December 31, 1992 and 1991 and for the three years
ended December 31, 1992. The JSB Financials have been, or will be, prepared in
accordance with GAAP and practices applied on a consistent basis throughout the
periods covered by such statements, and fairly present, or will fairly present,
the consolidated financial position, results of operations and cash flows of
JSB as of and for the periods ending on the dates thereof, in accordance with
generally accepted accounting principles applied on a consistent basis.
(c) At the date of each balance sheet included in the JSB Financials, neither
JSB, SBRI, SMC nor any other JSB Subsidiary (as the case may be) had, or will
have any liabilities, obligations or loss contingencies of any nature (whether
absolute, accrued, contingent or otherwise) of a type required to be reflected
in such JSB Financials or in the footnotes thereto which are not fully
reflected or reserved against therein or fully disclosed in a footnote thereto,
except for liabilities, obligations and loss contingencies which may result
from the execution of the Amendment or which are not material in the aggregate
and which are incurred in the ordinary course of business, consistent with past
practice and except for liabilities, obligations and loss contingencies which
are within the subject matter of a specific representation and warranty herein
and subject, in the case of any unaudited statements, to normal, recurring
audit adjustments and the absence of footnotes.
Section 2.06 TAXES.
(a) JSB and JSB Subsidiaries are members of the same affiliated group within
the meaning of IRC Section 1504(a). JSB has duly filed, and will file, in
correct form all federal, state and local tax returns required to be filed by
or with respect to JSB and all JSB Subsidiaries on or prior to the Closing Date
(all such returns being accurate and correct in all material respects) and has
duly paid or will pay, or made or will make, provisions for the payment of all
federal, state and local taxes which have been incurred by or are due or
claimed to be due from JSB and any JSB Subsidiary by any taxing authority or
pursuant to any tax sharing agreement or
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arrangement (written or oral) on or prior to the Closing Date other than taxes
which (x) (i) are not delinquent or (ii) are being contested in good faith and
(y) have not been finally determined.
(b) No consent pursuant to IRC Section 341(f) has been filed (or will be
filed prior to the Closing Date) by or with respect to JSB or any JSB
Subsidiary.
Section 2.07 NO MATERIAL ADVERSE CHANGE.
JSB has not suffered any Material Adverse Change since September 30, 1993.
Section 2.08 CONTRACTS.
(a) Except as described in JSB's proxy statement for its 1993 annual meeting
of shareholders previously delivered to USBANCORP, or in the footnotes to the
JSB Financials, neither JSB nor any JSB Subsidiary is a party to or subject to:
(i) any employment, consulting or severance contract or arrangement with any
past or present officer, director or employee of JSB or any JSB Subsidiary,
except for "at will" arrangements; (ii) any plan, arrangement or contract
providing for bonuses, pensions, options, deferred compensation, retirement
payments, profit sharing or similar arrangements for or with any past or
present officers, directors or employees of JSB or any JSB Subsidiary except
severance arrangements set forth in Exhibits 3 and 6A through 6D hereof; (iii)
any collective bargaining agreement with any labor union relating to employees
of JSB or any JSB Subsidiary; (iv) any agreement which by its terms limits the
payment of dividends by any JSB Subsidiary; (v) any instrument evidencing or
related to indebtedness for borrowed money in excess of $1 million, whether
directly or indirectly, by way of purchase money obligation, conditional sale,
lease purchase, guaranty or otherwise, in respect of which JSB or any JSB
Subsidiary is an obligor to any person, which instrument evidences or relates
to indebtedness other than deposits, repurchase agreements, bankers acceptances
and "treasury tax and loan" accounts established in the ordinary course of
business and transactions in "federal funds" or FHLB advances, or which
contains financial covenants or other restrictions (other than those relating
to the payment of principal and interest when due) which would be applicable on
or after the Closing Date to USBANCORP or any USBANCORP Subsidiary; (vi) any
contract (other than this Agreement) limiting the freedom of JSB to engage in
any type of banking or bank-related business permissible under law; or (vii)
any contract, plan or arrangement which provides for payments or benefits in
certain circumstances which, together with other payments or benefits payable
to any participant therein or party thereto, might render any portion of any
such payments or benefits subject to disallowance of deduction therefor as a
result of the application of Section 280G of the Code.
(b) True and correct copies of agreements, plans, arrangements and
instruments referred to in Section 2.08(a) or described in the JSB proxy
statement for its 1993 annual meeting of shareholders or in a footnote to the
JSB Financials have been or will be provided to USBANCORP on or before the date
specified in the preamble to this Article II and are in full force and effect
on the date hereof and neither JSB nor any JSB Subsidiary (nor, to the
knowledge of JSB, any other party to any such contract, plan, arrangement or
instrument) has breached any provision of, or is in default in any material
respect under any term of, any such contract, plan, arrangement or instrument.
(c) With the exception of the Employment Agreement between Mr. Coyne and JSB,
no party to any material contract, plan, arrangement or instrument that
requires annual payments in excess of $100,000 will have the right to terminate
any or all of the provisions of any such contract, plan, arrangement or
instrument as a result of the transactions contemplated by this Agreement;
(d) No plan, employment agreement, termination agreement, or similar
agreement or arrangement to which JSB or any JSB Subsidiary is a party or under
which JSB or any JSB Subsidiary may be liable contains provisions which permit
an employee or independent contractor to terminate it without cause and
continue to accrue future benefits from JSB or any JSB Subsidiary thereunder;
and
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(e) No such agreement, plan or arrangement provides for acceleration in the
vesting of benefits or payments due thereunder upon the occurrence of a change
in ownership or control of JSB or any JSB Subsidiary absent the occurrence of a
subsequent event. No such agreement, plan or arrangement requires JSB or any
JSB Subsidiary to provide a benefit in the form of JSB Common Stock or
determined by reference to the value of JSB Common Stock.
Section 2.09 OWNERSHIP OF PROPERTY; INSURANCE COVERAGE.
(a) JSB and the JSB Subsidiaries have, or will have as to property acquired
after the date hereof, good and, as to real property, marketable title to all
assets and properties owned by JSB or any JSB Subsidiary in the conduct of
their businesses, whether such assets and properties are real or personal,
tangible or intangible, including assets and property reflected in the balance
sheets contained in the JSB Regulatory Reports and in the JSB Financials or
acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value, in the ordinary course of
business, since the date of such balance sheets), subject to no encumbrances,
liens, mortgages, security interests or pledges, except (i) those items which
secure liabilities for borrowed money from the Federal Home Loan Bank of
Pittsburgh, (ii) the mortgage loans and servicing rights which secure
liabilities for borrowed money under a revolving warehouse line of credit and a
servicing loan in the aggregate principal amount of $29.4 million, available to
SMC, (iii) statutory liens for amounts not yet delinquent or which are being
contested in good faith, (iv) purchase money mortgages and (v) items permitted
under Article IV. JSB and the JSB Subsidiaries, as lessees, have the right
under valid and subsisting leases of real and personal properties used by JSB
and JSB Subsidiaries in the conduct of their businesses to occupy or use all
such properties as presently occupied and used by each of them. Such existing
leases and commitments to lease constitute or will constitute operating leases
for both tax and financial accounting purposes and the lease expense and
minimum rental commitments with respect to such leases and lease commitments
are as disclosed in Note 17 of the Notes to the JSB Financials subject only to
normal interim period amortization.
(b) With respect to all agreements pursuant to which JSB or any JSB
Subsidiary has purchased securities subject to an agreement to resell, if any,
JSB or any such JSB Subsidiary, as the case may be, has a valid, perfected
first lien or security interest in the government securities or other
collateral securing the repurchase agreement, and the value of such collateral
equals or exceeds the amount of the debt secured thereby.
(c) JSB and the JSB Subsidiaries currently maintain insurance in amounts
considered by JSB to be reasonable for its operations. Neither JSB nor any JSB
Subsidiary has received notice from any insurance carrier that (i) such
insurance will be canceled or that coverage thereunder will be reduced or
eliminated, or (ii) premium costs with respect to such policies of insurance
will be substantially increased. There are presently no claims pending under
such policies of insurance and no notices have been given by JSB or any JSB
Subsidiaries under such policies.
Section 2.10 LEGAL PROCEEDINGS. Neither JSB nor any JSB Subsidiary is a party
to any, and there are no pending or, to the best of JSB's knowledge, threatened
legal, administrative, arbitration or other proceedings, claims (whether
asserted or unasserted), actions or governmental investigations or inquiries of
any nature (limited as set forth below) (i) against JSB or any JSB Subsidiary,
(ii) to which JSB or any JSB Subsidiary's assets are or may be subject, or
(iii) which could adversely affect the ability of JSB to perform under this
Agreement, except for any proceedings, claims, actions, investigations or
inquiries referred to in clauses (i) or (ii) which, if adversely determined,
individually or in the aggregate, could not be reasonably expected to
materially and adversely affect the assets, financial condition or results of
operations of JSB or any JSB Subsidiaries, taken as a whole. However, JSB
specifically does not make any representation or warranty concerning any legal,
administrative, arbitration, or other proceeding, claims (whether asserted or
unasserted), actions, or governmental investigations or inquiries of any nature
with respect to any matters resulting from, arising out of or relating to, or
in connection with JSB's execution of the Amendment or the transactions
contemplated thereby.
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Section 2.11 COMPLIANCE WITH APPLICABLE LAW.
(a) JSB and the JSB Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their businesses under, and
have complied in all material respects with, applicable laws, statutes, orders,
rules or regulations of any federal, state or local governmental authority
relating to them, other than where such failure to hold or such noncompliance
will neither result in a limitation in any material respect on the conduct of
their businesses nor otherwise have a material adverse effect on the assets,
business, financial condition or the results of operations of JSB or any JSB
Subsidiaries taken as a whole.
(b) Neither JSB nor any JSB Subsidiary has received any notification or
communication from any Regulatory Authority (i) asserting that JSB or any JSB
Subsidiary is not in substantial compliance with any of the statutes,
regulations or ordinances which such Regulatory Authority enforces; (ii)
threatening to revoke any license, franchise, permit or governmental
authorization which is material to JSB or any JSB Subsidiary; (iii) requiring
or threatening to require JSB or any JSB Subsidiary, or indicating that JSB or
any JSB Subsidiary may be required, to enter into a cease and desist order,
agreement or memorandum of understanding or any other agreement restricting or
limiting, or purporting to restrict or limit, in any material manner the
operations of JSB or any JSB Subsidiary, including without limitation any
restriction on the payment of dividends; or (iv) directing, restricting or
limiting, or purporting to direct, restrict or limit, in any material manner
the operations of JSB or any JSB Subsidiary, including without limitation any
restriction on the payment of dividends (any such notice, communication,
memorandum, agreement or order described in this sentence herein referred to as
a "Regulatory Agreement"). Neither JSB nor any JSB Subsidiary has consented to
or entered into any Regulatory Agreement that has not been terminated as of the
date hereof.
Section 2.12 ERISA. Neither JSB nor any JSB Subsidiary, and no pension plan
maintained by JSB or any JSB Subsidiary, has incurred any liability to the
Pension Benefit Guaranty Corporation or to the IRS with respect to any pension
plan qualified under IRC Section 401(a), except liabilities to the Pension
Benefit Guaranty Corporation pursuant to ERISA Section 4007, all of which have
been fully paid, nor has any reportable event under ERISA Section 4043(b)
occurred with respect to any such pension plan. Neither JSB nor any JSB
Subsidiary has incurred any liability under ERISA Section 4201 for a complete
or partial withdrawal from a multi-employer plan. All "employee benefit plans,"
as defined in ERISA Section 3(3), comply in all material respects with ERISA.
As of September 30, 1993, neither JSB nor any JSB Subsidiary had a material
liability under any such plan which is not reflected, reserved against or
accrued on the JSB Financials as of such date or disclosed in the notes
thereto, including any liability under SFAS No. 106 or SFAS 112. No prohibited
transaction (which shall mean any transaction prohibited by ERISA Section 406
and not exempt under ERISA Section 408) has occurred with respect to any
employee benefit plan maintained by JSB or any JSB Subsidiary which would
result in the imposition, directly or indirectly, of a material excise tax
under IRC Section 4975. JSB and the JSB Subsidiaries provide continuation
coverage under group health plans for separating employees in accordance with
the provisions of IRC Section 4980B(f). Such group health plans are in
compliance with Section 1862(b)(1) of the Social Security Act.
Section 2.13 BROKERS AND FINDERS. Neither JSB nor any JSB Subsidiary, nor any
of their respective officers, directors, employees or agents, has employed any
broker, finder or financial advisor or incurred any liability or commitment for
any fees or commissions to any such person in connection with the transactions
contemplated by this Agreement, except for RP Financial, Inc. and Alex. Brown &
Sons Incorporated, which liability shall be the sole obligation of JSB.
Section 2.14 ENVIRONMENTAL MATTERS. To the knowledge of JSB, neither JSB nor
any JSB Subsidiary, nor any properties owned or operated by JSB or any JSB
Subsidiary as of the date of this Agreement (not including any in-substance
foreclosure) has been or is in violation of or liable under any Environmental
Law, except for such violations or liabilities that, individually or in the
aggregate, would not have a material adverse effect on the assets, financial
condition or results of operation of JSB and its Subsidiaries taken as a whole.
There are no actions, suits or proceedings, or demands, claims, notices or, to
the knowledge of JSB, investigations (including without limitation notices,
demand letters or requests for information from any
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environmental agency) instituted or pending, or to the knowledge of JSB,
threatened relating to the liability of any property (not including any in-
substance foreclosures) now owned or operated by JSB or any JSB Subsidiary
under any Environmental Law.
Section 2.15 LOAN PORTFOLIO. The allowance for loan losses reflected, or to
be reflected, in the JSB Regulatory Reports, and shown, or to be shown, on the
balance sheets contained in the JSB Financials are, or will be, adequate, in
accordance with the requirements of GAAP and all applicable regulatory
criteria. No Regulatory Authority has requested, in writing, JSB to increase
the allowance for loan losses during 1991, 1992 or 1993 that has not been
responded to in a manner satisfactory to such Regulatory Authority.
Section 2.16 INFORMATION TO BE SUPPLIED. The information to be supplied by
JSB for inclusion in the Registration Statement will not, at the time the
Registration Statement is declared effective pursuant to the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein not misleading. The
information supplied, or to be supplied, by JSB for inclusion in the
Applications will, at the time such documents are filed with any Regulatory
Authority, be accurate in all material aspects.
Section 2.17 SECURITIES DOCUMENTS. JSB has delivered, or will deliver, to
USBANCORP copies of its (i) annual reports on FDIC Form F-2 or SEC Form 10-K
for the years ended December 31, 1992, 1991 and 1990, (ii) quarterly reports on
FDIC Form F-4 for the quarters ended March 31, June 30, and September 30, 1993,
and (iii) proxy materials used or for use in connection with its meetings of
shareholders held in 1993, 1992 and 1991. Such reports and such proxy materials
complied, in all material respects, with the applicable provisions of the
Exchange Act and all applicable rules and regulations of the FDIC or the Office
of Thrift Supervision.
Section 2.18 RELATED PARTY TRANSACTIONS. Except as disclosed in JSB's 1993
proxy statement or in the footnotes to the JSB Financials, JSB is not a party
to any transaction (including any loan or other credit accommodation) with any
Affiliate of JSB (except a JSB Subsidiary). All such transactions (a) were made
in the ordinary course of business, (b) were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other Persons, and (c) did not involve more
than the normal risk of collectability or present other unfavorable features.
No loan or credit accommodation to any Affiliate of JSB is presently in default
or, during the three year period prior to the date of this Agreement, has been
in default or has been restructured, modified or extended. JSB has no reason to
believe that principal and interest with respect to any such loan or other
credit accommodation will not be paid when due or that the loan grade
classification accorded such loan or credit accommodation by JSB is
inappropriate.
Section 2.19 QUALITY OF REPRESENTATIONS. No representations made by JSB in
this Agreement contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF USBANCORP
USBANCORP hereby represents and warrants to JSB that, except as set forth in
the USBANCORP Disclosure Letter delivered to JSB on or before November 17,
1993:
Section 3.01 ORGANIZATION.
(a) USBANCORP is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. Each USBANCORP
Subsidiary is duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation and each possesses full corporate
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power and authority to carry on its respective business and to own, lease and
operate its properties as presently conducted. Neither USBANCORP nor any
USBANCORP Subsidiary is required by the conduct of its business or the
ownership or leasing of its assets to qualify to do business as a foreign
corporation in any jurisdiction, where the failure to be so qualified would be
material to the assets, business, financial condition or results of operations
of USBANCORP and its Subsidiaries taken as a whole. USBANCORP is a multi-bank
holding company duly registered under the BHC Act.
(b) U.S. Bank is a national bank, duly organized and validly existing and in
good standing under the laws of the United States. U.S. Bank has the corporate
power and authority to carry on its business and operations as now being
conducted and to own and operate the properties and assets now owned and being
operated by it.
(c) U.S. Bank is a national bank the deposits of which are insured by the
Bank Insurance Fund of the FDIC to the full extent provided in the FDIA.
(d) Prior to the execution of this Agreement, USBANCORP has delivered to JSB
true and correct copies of the articles of incorporation and bylaws of
USBANCORP and U.S. Bank as in effect on the date hereof.
(e) The respective minute books of USBANCORP and the USBANCORP Subsidiaries
accurately record, in all material respects, all material corporate actions of
their respective shareholders and boards of directors (including committees).
Section 3.02 CAPITAL STRUCTURE.
(a) USBANCORP is authorized, by its articles of incorporation, to issue (i)
6,000,000 shares of common stock, par value $2.50 per share ("USBANCORP Common
Stock"), of which, at the date of this Agreement, as amended, no shares were
issued and held by USBANCORP as treasury stock and 4,726,181 shares are issued
and outstanding, and (ii) 2,000,000 shares of no par preferred stock, none of
which are issued and outstanding. All shares of USBANCORP Common Stock issued
and outstanding are validly issued, fully paid and nonassessable and free of
any preemptive rights and all shares of USBANCORP Common Stock to be issued in
connection with the Merger will be validly issued, fully paid and nonassessable
and free of any preemptive rights. Neither USBANCORP nor U.S. Bank has or is
bound by any subscription, option, warrant, call, commitment, agreement or
other Right of any character relating to the purchase or issuance or voting of
or right to receive dividends or other distributions or any shares of USBANCORP
Common Stock or any other security of USBANCORP or any securities representing
the right to vote, purchase or otherwise receive any shares of USBANCORP Common
Stock or any other security of USBANCORP other than (i) the USBANCORP Stock
Purchase Rights and (ii) as authorized under USBANCORP's employee benefit
plans, stock option plans, and dividend reinvestment plan.
(b) Except as disclosed in USBANCORP's definitive proxy statement dated March
29, 1993, no person or "group" (as that term is used in Section 13(d)(3) of the
Exchange Act) is the beneficial owner of 5% or more of the outstanding shares
of USBANCORP Common Stock.
(c) USBANCORP owns all of the capital stock of U.S. Bank, Three Rivers Bank
and Trust Company, Community Bancorp, Inc., USBANCORP Trust Company and United
Bancorp Life Insurance Company free and clear of all liens, security interests,
pledges, charges, or encumbrances, agreements and restrictions of any kind or
nature. No USBANCORP Subsidiary has or is bound by any subscription, option,
warrant, call, commitment, agreement or other Right of any character relating
to the purchase or issuance or voting of or right to receive dividends or other
distributions or any shares of USBANCORP Subsidiary common stock or any other
security of any USBANCORP Subsidiary or any securities representing the right
to vote, purchase or otherwise receive any shares of any USBANCORP Subsidiary
Common Stock or any other security of any USBANCORP Subsidiary. Except for the
USBANCORP Subsidiaries, USBANCORP does not possess, directly or indirectly, any
material equity interest in any corporation, except for equity interests
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held in the investment portfolios of USBANCORP Subsidiaries, equity interests
held by USBANCORP Subsidiaries in a fiduciary capacity, and equity interests
held in connection with the commercial loan activities of USBANCORP
Subsidiaries.
Section 3.03 AUTHORITY; NO VIOLATION.
(a) USBANCORP and U.S. Bank have full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by USBANCORP
and U.S. Bank and the consummation by USBANCORP and U.S. Bank of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of USBANCORP and U.S. Bank, respectively, and by USBANCORP
as the sole shareholder of U.S. Bank, and, except for approval by the
shareholders of USBANCORP as required under NASDAQ requirements applicable to
it, no other corporate proceedings on the part of USBANCORP or U.S. Bank are
necessary to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by USBANCORP and U.S. Bank
and, subject to approval by the shareholders of USBANCORP as required under
NASDAQ requirements applicable to it, and receipt of the required approvals of
Regulatory Authorities described in Section 3.04 hereof, constitutes the valid
and binding obligation of USBANCORP and U.S. Bank, enforceable against
USBANCORP and U.S. Bank in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting depository institutions and
creditors' rights generally and subject, as to enforceability, to general
principles of equity.
(b) (A) The execution and delivery of this Agreement by USBANCORP and U.S.
Bank, (B) subject to receipt of approvals from the Regulatory Authorities
referred to in Section 3.04 hereof and compliance with any conditions contained
therein, the consummation of the transactions contemplated hereby, and (C)
compliance by USBANCORP and U.S. Bank with any of the terms or provisions
hereof will not (i) conflict with or result in a breach of any provision of the
articles of incorporation or bylaws of USBANCORP and/or the articles of
association and bylaws of U.S. Bank; (ii) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
USBANCORP or U.S. Bank or any of their respective properties or assets; or
(iii) violate, conflict with, result in a breach of any provisions of,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default), under, result in the termination of, accelerate
the performance required by, or result in a right of termination or
acceleration or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of USBANCORP or U.S. Bank
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement, commitment or other
investment or obligation to which USBANCORP or U.S. Bank is a party, or by
which they or any of their respective properties or assets may be bound or
affected, except for such violations, conflicts, breaches or defaults under
clause (ii) or (iii) hereof which, either individually or in the aggregate,
will not have a material adverse effect on the assets, business, financial
condition or results of operations of USBANCORP and USBANCORP Subsidiaries
taken as a whole or the ability of USBANCORP or U.S. Bank to perform any of
their material obligations under this Agreement.
Section 3.04 CONSENTS. Except for consents and approvals of or filings with
the OCC, FRB, FDIC and PDB, and the SEC and state "blue sky" authorities, no
consents or approvals of, or filings or registrations with, any Regulatory
Authority are necessary and no consents of any third party are necessary or
will be necessary in connection with the execution and delivery of this
Agreement by each of USBANCORP and U.S. Bank, or the consummation by USBANCORP
and U.S. Bank of the transactions contemplated hereby. Neither USBANCORP nor
U.S. Bank has any reason to believe that any required consents or approvals
will not be received or will be received with conditions, limitations or
restrictions reasonably unacceptable to it or which would materially adversely
impact USBANCORP's or U.S. Bank's ability to consummate the transactions
contemplated by this Agreement.
Section 3.05 FINANCIAL STATEMENTS.
(a) USBANCORP has previously delivered, or will deliver, to JSB the USBANCORP
Financials. The USBANCORP Financials are, or will be, prepared in accordance
with GAAP and practices applied on a
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consistent basis throughout the periods covered by such statements, and fairly
present, or will fairly present, the consolidated financial position, results
of operations and cash flows of USBANCORP as of and for the periods ending on
the dates thereof, in accordance with GAAP applied on a consistent basis.
USBANCORP will make its regulatory reports available to JSB for inspection. The
USBANCORP Regulatory Reports have been, or will be, prepared in accordance with
regulatory accounting principles and practices applied on a consistent basis
throughout the periods covered by such statements and fairly present, or will
fairly present, the financial position, results of operations and changes in
shareholders' equity of USBANCORP and U.S. Bank as and for the periods ended on
the dates thereof, in accordance with applicable regulatory accounting
principles applied on a consistent basis.
(b) At the date of any balance sheet included in the USBANCORP Financials,
USBANCORP and any USBANCORP Subsidiary did not have any liabilities,
obligations or loss contingencies of any nature (whether absolute, accrued,
contingent or otherwise) of a type required to be reflected in such USBANCORP
Financials or in the footnotes thereto which are not fully reflected or
reserved against therein or disclosed in a footnote thereto, except for
liabilities, obligations and loss contingencies which are not material in the
aggregate and which are incurred in the ordinary course of business, consistent
with past practice, and except for liabilities, obligations and loss
contingencies which are within the subject matter of a specific representation
and warranty herein.
Section 3.06 TAXES. USBANCORP and USBANCORP Subsidiaries are members of the
same affiliated group within the meaning of IRC Section 1504(a). USBANCORP has
duly filed, and will file, in correct form all federal, state and local tax
returns required to be filed by or with respect to USBANCORP and all USBANCORP
Subsidiaries on or prior to the Closing Date (all such returns being accurate
and correct in all material respects) and has duly paid or will pay, or made or
will make, provisions for the payment of all federal, state and local taxes
which have been incurred by or are due or claimed to be due from USBANCORP and
any USBANCORP Subsidiary by any taxing authority or pursuant to any tax sharing
agreement or arrangement (written or oral) on or prior to the Closing Date
other than taxes which (x) (i) are not delinquent or (ii) are being contested
in good faith and (y) have not been finally determined.
Section 3.07 NO MATERIAL ADVERSE CHANGE. USBANCORP has not suffered any
Material Adverse Change since September 30, 1993.
Section 3.08 LEGAL PROCEEDINGS. Neither USBANCORP nor any USBANCORP
Subsidiary is a party to any, and there are no pending or, to the best of
USBANCORP's knowledge, threatened legal, administrative, arbitration or other
proceedings, claims, actions or governmental investigations or inquiries of any
nature (i) against USBANCORP or any USBANCORP Subsidiary, (ii) to which
USBANCORP's or any USBANCORP Subsidiary's assets are subject, (iii) challenging
the validity or propriety of any of the transactions contemplated by this
Agreement, or (iv) which could adversely affect the ability of USBANCORP or
U.S. Bank to perform under this Agreement, except for any proceedings, claims,
actions, investigations or inquiries referred to in clauses (i) or (ii) which,
if adversely determined, individually or in the aggregate, could not be
reasonably expected to materially and adversely affect the assets, financial
condition or results of operations of USBANCORP and USBANCORP Subsidiaries
taken as a whole.
Section 3.09 COMPLIANCE WITH APPLICABLE LAW.
(a) USBANCORP and the USBANCORP Subsidiaries hold all licenses, franchises,
permits and authorizations necessary for the lawful conduct of their businesses
under, and have complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any federal, state or local
governmental authority relating to them, other than where such failure to hold
or such noncompliance will neither result in a limitation in any material
respect on the conduct of their businesses nor otherwise have a material
adverse effect on the assets, business, financial condition or results of
operations of USBANCORP and USBANCORP Subsidiaries taken as a whole.
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(b) Neither USBANCORP nor any USBANCORP Subsidiary has received any
notification or communication from any Regulatory Authority (i) asserting that
USBANCORP or any USBANCORP Subsidiary is not in substantial compliance with any
of the statutes, regulations or ordinances which such Regulatory Authority
enforces; (ii) threatening to revoke any license, franchise, permit or
governmental authorization which is material to USBANCORP or any USBANCORP
Subsidiary; (iii) requiring or threatening to require USBANCORP or any
USBANCORP Subsidiary, or indicating that USBANCORP or any USBANCORP Subsidiary
may be required, to enter into a cease and desist order, agreement or
memorandum of understanding or any other agreement restricting or limiting, or
purporting to restrict or limit, in any material manner the operations of
USBANCORP or any USBANCORP Subsidiary, including without limitation any
restriction on the payment of dividends; or (iv) directing, restricting or
limiting, or purporting to direct, restrict or limit, in any material manner
the operations of USBANCORP or any USBANCORP Subsidiary, including without
limitation any restriction on the payment of dividends (any such notice,
communication, memorandum, agreement or order described in this sentence herein
referred to as a "Regulatory Agreement"). Neither USBANCORP nor any USBANCORP
Subsidiary has consented to or entered into any Regulatory Agreement that has
not been terminated as of the date hereof.
Section 3.10 ERISA. Neither USBANCORP nor any USBANCORP Subsidiary, and no
pension plan maintained by USBANCORP or any USBANCORP Subsidiary, has incurred
any liability to the Pension Benefit Guaranty Corporation or to the IRS with
respect to any pension plan qualified under IRC Section 401(a), except
liabilities to the Pension Benefit Guaranty Corporation pursuant to ERISA
Section 4007, all of which have been fully paid, nor has any reportable event
under ERISA Section 4043(b) occurred with respect to any such pension plan.
Neither USBANCORP nor any USBANCORP Subsidiary has incurred any liability under
ERISA Section 4201 for a complete or partial withdrawal from a multi-employer
plan. All "employee benefit plans," as defined in ERISA Section 3(3), comply in
all material respects with ERISA. As of September 30, 1993, neither USBANCORP
nor any USBANCORP Subsidiary had a material liability under any such plan which
is not reflected, reserved against or accrued on the USBANCORP Financials as of
such date or disclosed in the notes thereto, including any liability under SFAS
No. 106 or SFAS No. 112. No prohibited transaction (which shall mean any
transaction prohibited by ERISA Section 406 and not exempt under ERISA Section
408) has occurred with respect to any employee benefit plan maintained by
USBANCORP or any USBANCORP Subsidiary which would result in the imposition,
directly or indirectly, of a material excise tax under IRC Section 4975.
USBANCORP and the USBANCORP Subsidiaries provide continuation coverage under
group health plans for separating employees in accordance with the provisions
of IRC Section 4980B(f). Such group health plans are in compliance with Section
1862(b)(1) of the Social Security Act.
Section 3.11 BROKERS AND FINDERS. Neither USBANCORP nor any USBANCORP
Subsidiary, nor any of their respective officers, directors, employees or
agents, has employed any broker, finder, or financial advisor or incurred any
liability or commitment for any fees or commissions to any such person in
connection with the transactions contemplated by this Agreement except to
Evergreen Asset Management and Legg Mason Wood Walker, Incorporated, which
liability shall be the sole obligation of USBANCORP.
Section 3.12 ENVIRONMENTAL MATTERS. To the knowledge of USBANCORP, neither
USBANCORP nor any USBANCORP Subsidiary, nor any properties owned or operated by
USBANCORP or any USBANCORP Subsidiary (not including any in-substance
foreclosure) has been or is in violation of or liable under any Environmental
Law, except for such violations or liabilities that, individually or in the
aggregate, would not have a material adverse effect on the assets, financial
condition or results of operation of USBANCORP and its Subsidiaries taken as a
whole. There are no actions, suits or proceedings, or demands, claims, notices
or, to the knowledge of USBANCORP, investigations (including without limitation
notices, demand letters or requests for information from any environmental
agency) instituted or pending, or to the knowledge of USBANCORP, threatened
relating to the liability of any property (not including any in-substance
foreclosures) now owned or operated by USBANCORP or any USBANCORP Subsidiary
under any Environmental Law.
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Section 3.13 LOAN PORTFOLIO. The allowance for loan losses reflected, or to
be reflected, in the USBANCORP Regulatory Reports, and shown, or to be shown,
on the balance sheets contained in the USBANCORP Financials are, or will be,
adequate, in accordance with the requirements of generally accepted accounting
principles and all applicable regulatory criteria. No Regulatory Authority has
requested, in writing, USBANCORP to increase the allowance for loan losses
during 1991, 1992 or 1993 that has not been responded to in a manner
satisfactory to such Regulatory Authority.
Section 3.14 INFORMATION TO BE SUPPLIED. The information to be supplied by
USBANCORP for inclusion in the Registration Statement will not, at the time the
Registration Statement is declared effective pursuant to the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein not misleading. The
Registration Statement will comply, in all material respects, as to form with
the requirements of the Securities Act. The information supplied, or to be
supplied, by USBANCORP for inclusion in the Applications will, at the time such
documents are filed with any Regulatory Authority, be accurate in all material
aspects.
Section 3.15 SECURITIES DOCUMENTS. USBANCORP has delivered, or will deliver,
to JSB copies of its (i) annual reports on SEC Form 10-K for the years ended
December 31, 1992, 1991, and 1990, (ii) quarterly reports on SEC Form 10-Q for
the quarters ended March 31, June 30, and September 30, 1993, and (iii) proxy
materials used in connection with its annual meeting of shareholders held in
1993. Such reports and such proxy materials complied, in all material respects,
with the Exchange Act and the applicable rules and regulations of the SEC.
Section 3.16 QUALITY OF REPRESENTATIONS. No representation made by USBANCORP
in this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements made not misleading.
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.01 CONDUCT OF JSB'S BUSINESS.
(a) From the date of this Agreement to the Closing Date, JSB and each JSB
Subsidiary will conduct its business and engage in transactions, including
extensions of credit, only in the ordinary course and consistent with past
practice and policies, except as otherwise required by this Agreement or with
the written consent of USBANCORP. Notwithstanding the foregoing, USBANCORP
hereby consents to the formation by SBRI of a new wholly-owned subsidiary to be
known as Standard Mortgage Corporation of Pennsylvania provided it does not
commence operations as a mortgage banker or servicer until it has obtained all
necessary licenses. JSB will use its best efforts to (i) preserve its business
organization intact, (ii) maintain good relationships with employees, and (iii)
preserve for itself the good will of customers of JSB and JSB Subsidiaries and
others with whom business relationships exist. From the date hereof to the
Closing Date, except as otherwise consented to or approved byUSBANCORP in
writing or as permitted or required by this Agreement or the USBANCORP Option,
JSB will not, and JSB will not permit any JSB Subsidiary to:
(i) change any provision of its articles of incorporation or bylaws;
(ii) change the number of authorized or issued shares of its capital
stock or issue or grant any option, warrant, call, commitment,
subscription, Right or agreement of any character relating to its
authorized or issued capital stock or any securities convertible into
shares of such stock, or split, combine or reclassify any shares of capital
stock, or declare, set aside or pay any dividend or other distribution in
respect of capital stock, or redeem or otherwise acquire any shares of
capital stock, except that: (A) JSB,
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consistent with past practice as to timing of record and payment dates
during 1993, may pay (to the extent otherwise legally permitted) a regular
cash dividend, not to exceed $.05 per share of JSB Common Stock
outstanding, for the fourth quarter of 1993; (B) if the Closing Date is not
on or before the record date for payment by USBANCORP of a regular cash
dividend of at least $0.22 per share in the first calendar quarter of 1993
or in any calendar quarter thereafter, JSB, consistent with past practice
as to timing of record and payment dates during 1993, may pay (to the
extent otherwise legally permitted), a regular cash dividend, not to exceed
$.05 per share, for such calendar quarter, provided, in each case, that
such dividend shall not exceed 30% of JSB's consolidated net income for
such quarter without reference to securities gains or losses and without
reference to gains or losses resulting from changes in accounting
principles or other extraordinary items of income; and (C) the holders of
stock options as of the date hereof exercisable into shares of JSB Common
Stock shall not be prohibited from exercising such options and JSB is
expressly authorized to issue shares of JSB Common Stock in exchange for
payment of the appropriate exercise price;
(iii) grant any severance or termination pay to any employee, officer or
director of JSB or any JSB Subsidiary other than in accordance with the
terms set forth on Exhibit 3 and Exhibits 6A through 6D hereto, or enter
into or amend any employment agreement with, or increase the compensation
of, any employee, officer or director of JSB or any JSB Subsidiary, except
for routine periodic increases, individually and in the aggregate, in
accordance with past practice except that payments due for 1993 under the
JSB Executive Annual Incentive Plan which otherwise would be paid in
February 1994 shall be paid in December 1993;
(iv) merge or consolidate JSB with any other corporation; sell or lease
all or any substantial portion of the assets or business of JSB; make any
acquisition of all or any substantial portion of the business or assets of
any other person, firm, association, corporation or business organization
other than in connection with the collection of any loan or credit
arrangement between JSB or any JSB Subsidiary and any other person; enter
into a purchase and assumption transaction with respect to deposits and
liabilities; permit the revocation or surrender by JSB or any JSB
Subsidiary of its certificate of authority to maintain, or file an
application for the relocation of, any existing branch office, or file an
application for a certificate of authority to establish a new branch
office;
(v) sell or otherwise dispose of the capital stock of any JSB Subsidiary
or sell or otherwise dispose of any asset of JSB or of any JSB Subsidiary
other than in the ordinary course of business consistent with past
practice; subject any asset of JSB or of any JSB Subsidiary to a lien,
pledge, security interest or other encumbrance (other than in connection
with deposits, repurchase agreements, bankers acceptances, "treasury tax
and loan" accounts established in the ordinary course of business and
transactions in "federal funds," FHLB Advances and the satisfaction of
legal requirements in the exercise of trust powers) other than in the
ordinary course of business consistent with past practice; modify in any
material manner the manner in which JSB or any JSB Subsidiary has
heretofore conducted its business or enter into any new line of business
except with respect to the formation of Standard Mortgage Corporation of
Pennsylvania; incur any indebtedness for borrowed money (or guarantee any
indebtedness for borrowed money), except in the ordinary course of business
consistent with past practice;
(vi) take any action which would result in any of the representations and
warranties of JSB set forth in this Agreement becoming materially untrue as
of any date after the date hereof or in any of the conditions set forth in
Article V hereof not being materially satisfied;
(vii) change any method, practice or principle of accounting except for
implementation of SFAS No. 106, SFAS No. 109, SFAS No. 112, SFAS 115 or
other changes required as a result of a change in generally accepted
accounting principles;
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(viii) waive, release, grant or transfer any rights of value or modify or
change in any material respect any existing agreement to which JSB or any
JSB Subsidiary is a party, other than in the ordinary course of business,
consistent with past practice;
(ix) implement any pension, retirement, profit sharing, bonus, welfare
benefit or similar plan or arrangement that was not in effect on the date
of this Agreement, or amend any existing plan or arrangement except as
required by applicable law or regulation;
(x) compromise, extend or restructure any loan with an unpaid principal
balance exceeding $250,000;
(xi) sell, exchange or otherwise dispose of any investment securities
held for investment or sell, exchange or otherwise dispose of any
securities or loans that are held for sale, other than pursuant to past
practices or policies;
(xii) purchase any security for its investment portfolio not rated "A" or
higher by either Standard & Poor's Corporation or Moody's Investor
Services, Inc. except as provided in, and in conformity with JSB's
investment policy which has previously been delivered to USBANCORP;
(xiii) except consistent with past practice, make any loan or other
credit facility commitment (including without limitation, lines of credit
and letters of credit) to any Affiliate or compromise, extend, renew or
modify any such commitment outstanding;
(xiv) except consistent with past practice, enter into, renew, extend or
modify any other transaction with any Affiliate;
(xv) enter into any swap or similar commitment, agreement or arrangement
which is not consistent with past practice and which increases the credit
or interest rate risk over the levels existing at September 30, 1993; or
(xvi) agree to do any of the foregoing.
For purposes of this Section 4.01, it shall not be considered in the ordinary
course of business for JSB or any JSB Subsidiary to do any of the following:
(i) make any capital expenditure of $50,000, or more, without the prior written
consent of USBANCORP; (ii) make any sale, assignment, transfer, pledge,
hypothecation or other disposition of any assets (other than investment
securities and residential mortgage loans sold in the ordinary course of
business) having a book or market value, whichever is less, in the aggregate,
of more than $50,000, other than a pledge of assets to secure government
deposits, the exercise of trust powers, sale of assets received in satisfaction
of debts previously contracted in the normal course of business, or
transactions in investment securities by a JSB Subsidiary or repurchase
agreements made, in each case, in the ordinary course of business; or (iii)
undertake or enter any lease, contract or other commitment for its account,
other than in the normal course of providing credit to customers as part of its
banking business, involving an unbudgeted payment by JSB or any JSB Subsidiary
of more than $50,000 in the aggregate, or containing a material financial
commitment and extending beyond 12 months from the date hereof.
Section 4.02 ACCESS; CONFIDENTIALITY.
(a) From the date of this Agreement through the Closing Date, each party
shall afford to, and shall cause each Subsidiary to afford to, the other party
and its authorized agents and representatives, complete access to their
respective properties, assets, books and records and personnel, at reasonable
hours and after reasonable notice; and the officers of each party will furnish
any party making such investigation with such financial and operating data and
other information with respect to the businesses, properties, assets, books and
records and personnel as the party making such investigation shall from time to
time reasonably request.
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(b) Each party agrees to conduct such investigation and discussions hereunder
in a manner so as not to interfere unreasonably with normal operations and
customer and employee relationships.
(c) If the transactions contemplated by this Agreement shall not be
consummated, each party will destroy or return all documents and records
obtained from the other party or its representatives, during the course of its
investigation and will cause all information with respect to the other party
obtained pursuant to this Agreement or preliminarily thereto to be kept
confidential, except to the extent such information becomes public through no
fault of such party or any of its representatives or agents and except to the
extent disclosure of any such information is legally required. Each party shall
give prompt notice to the other party of any contemplated disclosure where such
disclosure is so legally required.
Section 4.03 REGULATORY MATTERS AND CONSENTS.
(a) USBANCORP and JSB will prepare all Applications and make all filings for,
and use their best efforts to obtain as promptly as practicable after the date
hereof, all necessary permits, consents, approvals, waivers and authorizations
of all Regulatory Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement. This Agreement contemplates the
merger of JSB and JIB and the subsequent merger of JIB and U.S. Bank.
(b) JSB will furnish USBANCORP with all information concerning JSB and JSB
Subsidiaries as may be necessary or advisable in connection with any
Application or filing made by or on behalf of USBANCORP to any Regulatory
Authority in connection with the transactions contemplated by this Agreement.
(c) USBANCORP will promptly furnish JSB with copies of written communications
to, or received by USBANCORP or any USBANCORP Subsidiary from, any Regulatory
Authority in respect of the transactions contemplated hereby.
(d) JSB will cooperate with USBANCORP in the foregoing matters and will
furnish USBANCORP with all information concerning JSB and JSB Subsidiaries as
may be necessary or advisable in connection with any Application or filing
(including the Registration Statement and any report filed with the SEC) made
by or on behalf of USBANCORP to any Regulatory Authority in connection with the
transactions contemplated by this Agreement, and such information will be
accurate and complete in all material respects. In connection therewith, JSB
will provide certificates and other documents reasonably requested by
USBANCORP.
Section 4.04 TAKING OF NECESSARY ACTION.
(a) USBANCORP and JSB shall each use its best efforts in good faith, and each
of them shall cause its Subsidiaries to use their best efforts in good faith,
to (i) furnish such information as may be required in connection with the
preparation of the documents referred to in Section 4.03 of this Agreement, and
(ii) take or cause to be taken all action necessary or desirable on its part so
as to permit consummation of the Merger at the earliest possible date,
including, without limitation, obtaining the consent or approval of each
individual, partnership, corporation, association or other business or
professional entity whose consent or approval is required for consummation of
the transactions contemplated hereby, provided that neither JSB nor any JSB
Subsidiary shall agree to make any payments or modifications to agreements in
connection therewith without the prior written consent of USBANCORP. No party
hereto shall take, or cause, or to the best of its ability permit to be taken,
any action that would substantially impair the prospects of completing the
Merger pursuant to this Agreement; provided that nothing herein contained shall
preclude USBANCORP or JSB from exercising its rights under this Agreement or
the USBANCORP Option.
(b) JSB and USBANCORP shall promptly prepare a Prospectus/Proxy Statement to
be mailed to their respective shareholders in connection with the meetings and
transactions contemplated hereby and to be filed by USBANCORP with the SEC (and
by JSB with the FDIC) in the Registration Statement, which Prospectus/Proxy
Statement shall conform to all applicable legal requirements. USBANCORP shall,
as
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promptly as practicable following the preparation thereof, file the
Registration Statement with the SEC and JSB shall file the Registration
Statement with the FDIC. USBANCORP shall use all reasonable efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing. USBANCORP will advise JSB, promptly after
USBANCORP receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the qualification of the shares
of capital stock issuable pursuant to the Registration Statement, or the
initiation or threat of any proceeding for any such purpose, or of any request
by the SEC for the amendment or supplement of the Registration Statement or for
additional information. USBANCORP shall use its best efforts to obtain, prior
to the effective date of the Registration Statement, all necessary state
securities laws or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement.
(c) JSB shall use its best efforts to cause each individual who has an option
to acquire JSB Common Stock to execute the Option Waiver Letter attached hereto
as Annex 3.
Section 4.05 CERTAIN AGREEMENTS.
(a) As soon as practicable after the Effective Date, all employees of JSB and
JSB Subsidiaries whose employment is continued shall be employed upon their
existing terms and conditions, provided that this Section 4.05(a) shall not be
construed (i) to limit the ability of USBANCORP and USBANCORP Subsidiaries to
terminate the employment of any employee or to review and adjust employee
salary levels from time to time and to make such changes as they deem
appropriate or (ii) to require USBANCORP or any USBANCORP Subsidiaries to
provide employees or former employees with post-retirement medical benefits.
(b) For a period of six years from and after the Effective Date, USBANCORP
and U.S. Bank shall indemnify, defend and hold harmless and advance expenses in
matters that may be subject to indemnification to, persons who served as
directors and officers of JSB or any JSB Subsidiary on or before the Effective
Date with respect to all liabilities and claims (and related expenses) made
against them resulting from their service as such prior to the Effective Date,
including, but not by way of limitation, any and all litigation, suits,
actions, claims or liabilities resulting from, arising out of, relating to, or
in connection with the Merger or any of the other transactions contemplated by
this Agreement, in accordance with and subject to the requirements and other
provisions of USBANCORP's and U.S. Bank's articles of incorporation and bylaws
in effect on the date of this Agreement and applicable provisions of law to the
same extent as USBANCORP and U.S. Bank are obliged thereunder to indemnify and
advance expenses to their own directors and officers with respect to
liabilities and claims made against them resulting from their service for
USBANCORP or U.S. Bank.
(c) USBANCORP hereby agrees to assume, on and after the Closing Date, any and
all liability and obligation with respect to the severance agreement relating
to the employees of JSB as set forth in Exhibit 3 hereto. USBANCORP further
agrees to execute at Closing the severance agreement relating to certain
officers of JSB as set forth in Exhibits 6A-6D hereto.
(d) USBANCORP and U.S. Bank hereby covenant and agree not to bring any
action, claim or proceeding against JSB or any present or former director,
officer or employee of JSB to enforce any rights to which USBANCORP or U.S.
Bank may succeed or acquire by virtue of the consummation of the Merger with
respect to any claim or action resulting from, arising out of, relating to or
in connection with JSB's execution of the Amendment and the transactions
contemplated by the Agreement and USBANCORP and U.S. Bank, as the corporate
successor to JSB, hereby covenant and agree to defend and contest any such
action brought by any third party. This covenant shall survive for six (6)
years after the consummation of the transactions contemplated by this
Agreement.
Section 4.06 NO OTHER BIDS.
(a) USBANCORP and U.S. Bank hereby agree and authorize JSB, its directors,
officers, employees and representatives, for a period of thirty (30) calendar
days from the date of the Amendment (the "Marketing
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Period"), to take any and all actions deemed necessary and proper by JSB to
solicit, market, initiate or engage in discussions regarding the sale or
acquisition of JSB by or "by and to" any third party (the "Sale") and to
execute a definitive agreement for the Sale (the "Sale Agreement") with any
third party for consideration which exceeds $22.50 per share for all of the
issued and outstanding shares of the JSB Common Stock. If such consideration,
or any portion thereof, is to be paid in other than cash, the Board of
Directors of JSB shall, in its good faith and sole discretion, determine the
value of the non-cash consideration and, absent manifest bad faith on the part
of JSB, such determination shall be final and non-reviewable by USBANCORP. If
JSB enters into a Sale Agreement within the Marketing Period, this Agreement
shall automatically terminate as of the date of the execution by JSB of the
Sale Agreement, and the Stock Option Agreement, Option Waiver Letter and the
Letter Agreements all shall be deemed to be terminated, cancelled, made null
and void and of no effect as of such date and neither party shall have any
liability to the other party hereunder except for those sections specified in
Section 6.02.
(b) On and as of the date immediately following the expiration of the
Marketing Period without the execution of a Sale Agreement, JSB shall not, nor
shall it permit any Affiliate of JSB or any officer, director or employee of
any of them, or any investment banker, attorney, accountant or other
representative retained by JSB or any JSB Affiliate to, directly or indirectly,
solicit, encourage, initiate or engage in discussions or negotiations with, or
respond to requests for information, inquiries, or other communications from,
any person other than USBANCORP concerning the fact of, or the terms and
conditions of, this Agreement, or concerning any acquisition of JSB, any JSB
Subsidiary, or any assets or business thereof (except that JSB's officers may
respond to inquiries from analysts, Regulatory Authorities and holders of JSB
Common Stock in the ordinary course of business); and JSB shall notify
USBANCORP immediately if any such discussions or negotiations are sought to be
initiated with JSB by any person other than USBANCORP or if any such requests
for information, inquiries, proposals or communications are received from any
person other than USBANCORP; provided, however, that notwithstanding the
foregoing, JSB may afford such access, enter into any such discussions,
negotiations or agreements or understandings, or authorize or permit any of its
directors, officers, employees or agents to do so if the Board of Directors of
JSB, after receipt of a written opinion of counsel, determines that such
actions are required in the exercise of its fiduciary duties.
Section 4.07 CORE DEPOSITS. JSB shall use commercially reasonable efforts to
maintain deposits (other than certificates of deposit of $100,000 and over).
Section 4.08 UPDATE OF JSB'S DISCLOSURE LETTER. JSB shall update the JSB
Disclosure Letter provided pursuant to this Agreement as promptly as
practicable after the occurrence of an event or fact which, if such event or
fact had occurred prior to the date of this Agreement, would have been
disclosed in such letter. The delivery of such additional schedules by JSB
shall not relieve JSB from any breach or violation of this Agreement.
Section 4.09 CONDUCT OF USBANCORP'S BUSINESS. From the date of this Agreement
to the Closing Date, USBANCORP will use its best efforts to (x) preserve its
business organizations intact, (y) maintain good relationships with employees,
and (z) preserve for itself the goodwill of customers of USBANCORP and
USBANCORP Subsidiaries and others with whom business relationships exist.
Section 4.10 BOARD AND COMMITTEE MINUTES. Each party shall provide to the
other, within 20 days after any meeting of its Board of Directors, or any
committee thereof, or any senior management committee, a copy of the minutes of
such meeting.
Section 4.11 UNDERTAKINGS BY USBANCORP AND JSB.
(a) JSB shall:
(i) Voting by Directors. Use its best efforts to obtain the agreement of
all members of JSB's Board of Directors to vote all shares of JSB's Common
Stock over which they hold sole voting power, and use
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their best efforts to cause all shares over which they hold shared voting
power to be voted, in favor of this Agreement;
(ii) Proxy Solicitor. If USBANCORP requests, retain a professional proxy
solicitor at USBANCORP's expense in connection with the solicitation of JSB
shareholder approval of this Agreement;
(iii) Reserves and Merger-related Costs. On or immediately before the
Effective Date, establish such additional accruals and reserves as may be
necessary to conform JSB's accounting reserve practices and methods
(including credit loss practices and methods) to those of USBANCORP (as
such practices and methods are to be applied to JSB from and after the
Closing Date) and USBANCORP's plans with respect to the conduct of JSB's
business following the Merger and otherwise to reflect Merger-related
expenses and costs incurred by JSB, provided, however, that JSB shall not
be required to take such action (A) more than five days prior to the
Effective Date; (B) unless USBANCORP agrees in writing that all conditions
to closing set forth in Section 5.02 have been satisfied or waived; (C)
unless JSB shall have received a written waiver by USBANCORP of its right
to terminate this Agreement based on the failure of the representation
contained in Section 2.15 hereof to be true, which failure is a result of
circumstances existing on or prior to the date of such waiver, and (D)
unless the shareholders of JSB and USBANCORP shall have previously approved
the Merger; prior to the delivery by USBANCORP of the waiver referred to in
the preceding clause, JSB shall provide to USBANCORP a written statement,
certified without personal liability by the chief executive officer of JSB
and dated the date of such waiver, that the representation made in Section
2.15 hereof is true as of such date or, alternatively, setting forth in
detail the circumstances that prevent such representation from being true
as of such date; and no accrual or reserve made by JSB pursuant to this
Section 4.11(a)(iii), or any litigation or regulatory proceeding arising
out of any such accrual or reserve, shall constitute or be deemed to be a
breach or violation of any representation, warranty, covenant, condition or
other provision of this Agreement.
(b) USBANCORP and JSB shall each:
(i) Shareholders' Meeting. Submit this Agreement to its shareholders for
approval at a special meeting to be held as soon as practicable;
(ii) Filings and Approvals. Cooperate with the other in the preparation
and filing, as soon as practicable, of (A) the Applications, (B) the
Registration Statement and related filings under state securities laws
covering the USBANCORP Common Stock to be issued pursuant to the Merger,
(C) all other documents necessary to obtain any other approvals and
consents required to effect consummation of the Merger and the Bank Merger,
and (D) all other documents contemplated by this Agreement. USBANCORP shall
file the Applications and the Registration Statement within twenty (20)
calendar days following the expiration of the Marketing Period authorized
in Section 4.06(a) hereof;
(iii) Identification of JSB's Affiliates. Cooperate with the other and
use its best efforts to identify those persons who may be deemed to be
Affiliates of JSB;
(iv) Public Announcements. Agree upon the form and substance of any press
release related to this Agreement and the transactions contemplated hereby,
and upon the form and substance of other public disclosures related
thereto, including without limitation communications to shareholders,
internal announcements and customer disclosures, but nothing contained
herein shall prohibit either party from making any disclosure which its
counsel deems necessary;
(v) Maintenance of Insurance. Maintain, and cause their respective
Subsidiaries to maintain, insurance in such amounts as are reasonable to
cover such risks as are customary in relation to the character and location
of its properties and the nature of its business;
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(vi) Maintenance of Books and Records. Maintain, and cause their
respective Subsidiaries to maintain, books of account and records in
accordance with generally accepted accounting principles applied on a basis
consistent with those principles used in preparing the financial statements
heretofore delivered;
(vii) Delivery of Securities Documents. Deliver to the other, copies of
all Securities Documents simultaneously with the filing thereof;
(viii) Taxes. File all federal, state, and local tax returns required to
be filed by them or their respective Subsidiaries on or before the date
such returns are due (including any extensions) and pay all taxes shown to
be due on such returns on or before the date such payment is due;
(ix) Timely Review. If requested by the other party, cause its
independent certified public accountants to perform a review of its
unaudited consolidated financial statements as of the end of any calendar
quarter, in accordance with Statement of Auditing Standards No. 36, and to
issue their report on such financial statements as soon as is practicable
thereafter; and
(x) Delivery of Interim Financial Statements. Deliver as soon as
practicable after the end of each month and each fiscal quarter prior to
the Effective Date, commencing with the month ended October 31, 1993, an
unaudited consolidated balance sheet as of such date and related unaudited
consolidated statements of income and cash flows for the period then ended,
which financial statements shall be prepared in accordance with generally
accepted accounting principles consistently applied and shall fairly
reflect its consolidated financial condition and consolidated results of
operations and cash flows for the periods then ended. Monthly financial
statements shall be kept confidential in accordance with Section 4.02.
Section 4.12 EMPLOYEE BENEFITS. On and after the Effective Date, the life
insurance, vacation pay, sick leave, short-term disability, long-term
disability, medical, pension, stock purchase, profit sharing, deferred
compensation, supplemental executive retirement, and other employee benefit
plans of USBANCORP and JSB, shall be initially unaffected by the Merger and the
other transactions contemplated by this Agreement provided that, contingent
upon IRS approval: (A) all such plans maintained by USBANCORP shall be amended
to cover those former employees of JSB who become employees of USBANCORP or its
Subsidiaries as if such employees had continued in their present employment,
except that such employees shall receive credit for eligibility, participation
and vesting purposes but not for benefit accrual purposes under such plans; (B)
JSB employees shall receive benefits no less favorable, in the aggregate, than
the benefits to which employees of USBANCORP are entitled. Subject to the
foregoing, USBANCORP's Board of Directors may discontinue or amend any
particular plan of JSB after the Effective Date and reduce the amount of
benefits thereunder.
ARTICLE V
CONDITIONS
Section 5.01 CONDITIONS TO JSB'S OBLIGATIONS UNDER THIS AGREEMENT. The
obligations of JSB hereunder shall be subject to satisfaction at or prior to
the Closing Date of each of the following conditions, unless waived by JSB
pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the part
of, USBANCORP and U.S. Bank to authorize the execution, delivery and
performance of this Agreement, respectively, and the consummation of the
transactions contemplated hereby, shall have been duly and validly taken by
USBANCORP and U.S. Bank; and JSB shall have received certified copies of the
resolutions evidencing such authorizations;
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(b) Covenants; Representations. The obligations of USBANCORP required by this
Agreement to be performed by USBANCORP at or prior to the Closing Date shall
have been duly performed and complied with in all material respects; and the
representations and warranties of USBANCORP set forth in this Agreement shall
be true and correct in all material respects, as of the date of this Agreement,
and as of the Closing Date as though made on and as of the Closing Date, except
as to any representation or warranty which (i) specifically relates to an
earlier date or (ii) where the facts which cause the failure of any
representation or warranty to be so true and correct would not, either
individually or in the aggregate, constitute a material adverse change in the
assets, business, financial condition or results of operation of USBANCORP and
its Subsidiaries taken as a whole;
(c) Approvals of Regulatory Authorities. USBANCORP shall have received all
approvals of Regulatory Authorities of the Merger, and delivered copies thereof
to JSB; and all notice and waiting periods required thereunder shall have
expired or been terminated;
(d) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;
(e) No Material Adverse Change. Since September 30, 1993, there shall not
have occurred any Material Adverse Change with respect to USBANCORP;
(f) Registration Statement. The Registration Statement shall be effective
under the Securities Act and no proceedings shall be pending or threatened by
the SEC to suspend the effectiveness of the Registration Statement; and all
required approvals by the FDIC and by state securities or "blue sky"
authorities with respect to the transactions contemplated by this Agreement,
deemed necessary by USBANCORP's counsel, shall have been obtained;
(g) Officer's Certificate. USBANCORP shall have delivered to JSB a
certificate, dated the Closing Date and signed, without personal liability, by
its chairman or president, to the effect that the conditions set forth in
subsections (a) through (f) of this Section 5.01 have been satisfied, to the
best knowledge of the officer executing the same;
(h) Opinion of USBANCORP's Counsel. JSB shall have received an opinion of
Stevens & Lee, counsel to USBANCORP, dated the Closing Date, as set forth in
Exhibit 4;
(i) Tax Opinion. JSB shall have received an opinion of Stevens & Lee (or in
the event Stevens & Lee is unwilling to deliver such opinion, the opinion of
Elias, Matz, Tiernan & Herrick L.L.P. or other counsel acceptable to the
parties), dated the Closing Date, with respect to certain tax matters and in
form and substance reasonably satisfactory to JSB and its counsel;
(j) Approval of JSB's Shareholders. This Agreement shall have been approved
by the holders of at least 66-2/3% of the outstanding shares of JSB Common
Stock entitled to vote thereon; and
(k) Closing Price of USBANCORP Common Stock. The Average Closing Price shall
not be less than $20.50 per share.
Section 5.02 CONDITIONS TO USBANCORP'S OBLIGATIONS UNDER THIS AGREEMENT. The
obligations of USBANCORP hereunder shall be subject to satisfaction at or prior
to the Closing Date of each of the following conditions, unless waived by
USBANCORP pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the part
of, JSB to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby, shall have been
duly and validly taken by JSB; and USBANCORP shall have received a certified
copy of the resolutions evidencing such authorizations;
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(b) Covenants; Representations. The obligations of JSB, required by this
Agreement to be performed by it at or prior to the Closing Date shall have been
duly performed and complied with in all material respects; and the
representations and warranties of JSB set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement, and as
of the Closing Date as though made on and as of the Closing Date, except as to
any representation or warranty which (i) specifically relates to an earlier
date or (ii) where the facts which cause the failure of any representation or
warranty to be so true and correct would not, either individually or in the
aggregate, constitute a material adverse change in the assets, business,
financial condition or results of operation of JSB and its Subsidiaries taken
as a whole;
(c) Approvals of Regulatory Authorities. USBANCORP shall have received all
approvals of Regulatory Authorities for the Merger, without the imposition of
any non-standard term or condition that would have a material adverse effect on
USBANCORP and its Subsidiaries, taken as a whole, upon completion of the
Merger; and all notice and waiting periods required thereunder shall have
expired or been terminated;
(d) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby;
(e) No Material Adverse Change. Since September 30, 1993, there shall not
have occurred any Material Adverse Change with respect to JSB;
(f) Officer's Certificate. JSB shall have delivered to USBANCORP a
certificate, dated the Closing Date and signed, without personal liability, by
its chairman of the board or president, to the effect that the conditions set
forth in subsections (a) through (e) of this Section 5.02 have been satisfied,
to the best knowledge of the officer executing the same;
(g) Opinions of JSB's Counsel. USBANCORP shall have received an opinion of
Elias, Matz, Tiernan & Herrick L.L.P., counsel to JSB dated the Closing Date,
as set forth in Exhibit 5;
(h) Registration Statement. The Registration Statement shall be effective
under the Securities Act and no proceedings shall be pending or threatened by
the SEC to suspend the effectiveness of the Registration Statement; and all
required approvals by state securities or "blue sky" authorities with respect
to the transactions contemplated by this Agreement, deemed necessary by
USBANCORP's counsel, shall have been obtained;
(i) Tax Opinion. USBANCORP shall have received an opinion of Stevens & Lee
(or in the event Stevens & Lee is unwilling to deliver such opinion, the
opinion of Elias, Matz, Tiernan & Herrick L.L.P., or other counsel acceptable
to the parties), dated the Closing Date, with respect to certain tax matters;
and
(j) Approval of USBANCORP's Shareholders. This Agreement shall have been
approved by the shareholders of USBANCORP by such vote as is required under
USBANCORP's articles of incorporation and bylaws and the listing requirements
of the National Association of Securities Dealers.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
Section 6.01 TERMINATION. This Agreement may be terminated on or at any time
prior to the Closing Date:
(a) By the mutual written consent of the parties hereto;
(b) By USBANCORP or JSB:
(i) if there shall have been any material breach of any
representation, warranty or covenant of USBANCORP, on the one hand, or
JSB, on the other hand, and such breach cannot be, or shall
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<PAGE>
not have been, remedied within 30 days after receipt by such other
party of notice in writing specifying the nature of such breach and
requesting that it be remedied; or
(ii) if the Closing Date shall not have occurred prior to September
30, 1994, unless the failure of such occurrence shall be due to the
failure of the party seeking to terminate this Agreement to perform or
observe its agreements set forth in this Agreement required to be
performed or observed by such party on or before the Closing Date; or
(iii) if either party has been informed in writing by a Regulatory
Authority whose approval or consent has been requested that such
approval or consent is unlikely to be granted, unless the failure of
such occurrence shall be due to the failure of the party (the
"Breaching Party") seeking to terminate this Agreement to perform or
observe its agreements set forth herein required to be performed or
observed by such party on or before the Closing Date in which case the
Breaching Party may not terminate this Agreement; or
(iv) if there shall have been a Material Adverse Change since
September 30, 1993 in USBANCORP or JSB.
(c) By USBANCORP or JSB, if the other party shall communicate to the
other its unwillingness to consummate this Agreement in accordance with the
terms and conditions hereof (the "Non-Performing Party"), but then the Non-
Performing Party may not terminate this Agreement.
Section 6.02 EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Section 6.01 hereof, this Agreement shall forthwith become void (other than
Section 4.02(c), Section 4.11(b)(iv) and Section 7.01 hereof, which shall
remain in full force and effect), and there shall be no further liability on
the part of USBANCORP or JSB to the other, except for any liability of
USBANCORP or JSB under such sections of this Agreement and except for any
liability arising out of any uncured willful breach or asserted non-performance
of any covenant or other agreement contained in this Agreement or any
fraudulent breach of a representation or warranty.
ARTICLE VII
MISCELLANEOUS
Section 7.01 EXPENSES. Except for the cost of printing and mailing the
Prospectus/Proxy Statement which shall be shared equally, each party hereto
shall bear and pay all costs and expenses incurred by it in connection with the
transactions contemplated hereby, including fees and expenses of its own
financial consultants, accountants and counsel.
Section 7.02 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties and, except to the extent specifically provided
otherwise herein, including without limitation Sections 1.02(d) and 4.05(b),
(c) and (d) herein, agreements and covenants contained in this Agreement shall
terminate on the Closing Date.
Section 7.03 AMENDMENT, EXTENSION AND WAIVER. Subject to applicable law, at
any time prior to the consummation of the transactions contemplated by this
Agreement, the parties may (a) amend this Agreement, (b) extend the time for
the performance of any of the obligations or other acts of either party hereto,
(c) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, or (d) waive compliance
with any of the agreements or conditions contained in Articles IV and V hereof
or otherwise. This Agreement may not be amended except by an instrument in
writing authorized by the respective Boards of Directors and signed, by duly
authorized officers, on behalf of the parties hereto. Any agreement on the part
of a party hereto to any extension or waiver shall be valid only if set forth
in an instrument in writing signed by a duly authorized officer on behalf of
such party, but such
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<PAGE>
waiver or failure to insist on strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
Section 7.04 ENTIRE AGREEMENT. This Agreement, including the documents and
other writings referred to herein or delivered pursuant hereto, contains the
entire agreement and understanding of the parties with respect to its subject
matter. This Agreement supersedes all prior arrangements and understandings
between the parties, both written or oral with respect to its subject matter.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors; provided, however, that nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto and their respective successors, any rights, remedies,
obligations or liabilities other than pursuant to Sections 4.05(b) and (d) with
respect to indemnification and covenant not to sue.
Section 7.05 NO ASSIGNMENT. Neither party hereto may assign any of its rights
or obligations hereunder to any other person, without the prior written consent
of the other party hereto.
Section 7.06 NOTICES. All notices or other communications hereunder shall be
in writing and shall be deemed given if delivered personally, mailed by prepaid
registered or certified mail (return receipt requested), or sent by telecopy
(with receipt thereof confirmed by telephone) addressed as follows:
(a) If to USBANCORP, to:
USBANCORP, Inc. Main and Franklin Streets Johnstown, Pennsylvania
15907
Attention: Terry K. Dunkle, Executive Vice President and Orlando B.
Hanselman, Chief Financial Officer
Telecopy No.: (814) 533-5427
with a copy to:
Stevens & Lee Four Glenhardie Corporate Center 1255 Drummers Lane
P.O. Box 236 Wayne, Pennsylvania 19087
Attention: Jeffrey P. Waldron, Esquire
Telecopy No.: (215) 687-1384
(b) If to JSB, to:
Johnstown Savings Bank Market at Main Streets Johnstown,
Pennsylvania 15901
Attention: Patrick J. Coyne, President and Chief Executive Officer
Telecopy No.: (814) 535-8970
with copies to:
Elias, Matz, Tiernan & Herrick L.L.P. 734 15th Street, N.W.
Washington, D.C. 20005
Attention: Raymond A. Tiernan, Esquire Daniel P. Weitzel, Esquire
Telecopy No.: (202) 347-2172
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<PAGE>
Section 7.07 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 7.08 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
Section 7.09 SEVERABILITY. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
Section 7.10 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the domestic internal law (including the law of conflicts of
law) of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers as of the day and year first above written and
as amended on the 18th day of January, 1994.
<TABLE>
<C> <S>
USBANCORP, INC.
(CORPORATE SEAL) By: /s/ Terry K. Dunkle
-----------------------------
Terry K. Dunkle,
Executive Vice President
Attest: /s/ Betty L. Jakell
-------------------------
Betty L. Jakell,
Assistant Secretary
U.S. BANK
By: /s/ Terry K. Dunkle
-----------------------------
Terry K. Dunkle,
President and Chief
Executive Officer
JOHNSTOWN SAVINGS BANK
(CORPORATE SEAL) By: /s/ Patrick J. Coyne
-----------------------------
Patrick J. Coyne, President
and Chief Executive Officer
Attest: /s/ Walter F. Rusnak
-------------------------
Walter F. Rusnak,
Assistant Secretary
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
Exhibit 1 -- JSB Affiliate Agreement
Exhibit 2 -- Stock Option Agreement
Exhibit 3 -- Severance Plan
Exhibit 4 -- Form of Opinion--Counsel to USBANCORP
Exhibit 5 -- Form of Opinion--Counsel to JSB
Exhibit 5A -- Form of Tax Opinion--Counsel to USBANCORP
Exhibit 6A-D-- Severance Agreements
<CAPTION>
ANNEXES
-------
<C> <S>
Annex 1 -- Fairness Opinion delivered to USBANCORP
Annex 2A -- Fairness Opinion of Alex. Brown delivered to JSB
Annex 2B -- Fairness Opinion of RP Financial, Inc. delivered to JSB
Annex 3 -- Option Waiver Letter
</TABLE>
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<PAGE>
EXHIBIT 1
JSB AFFILIATE AGREEMENT
January 18, 1994
USBANCORP, Inc. Main and Franklin Streets Johnstown, Pennsylvania 19501
Ladies and Gentlemen:
USBANCORP, Inc. ("USBANCORP") and Johnstown Savings Bank ("JSB") desire to
enter into an Agreement and Plan of Merger dated November 10, 1993, as amended
on January 18, 1994 ("Agreement"), pursuant to which, subject to the terms and
conditions set forth therein, (a) JSB will merge with and into Johnstown
Interim Bank, a Pennsylvania chartered commercial bank and wholly-owned
subsidiary of USBANCORP ("JIB") with JIB surviving the merger and immediately
following such merger JIB will merge with and into U.S. National Bank in
Johnstown ("U.S. Bank") a wholly-owned subsidiary of USBANCORP with U.S. Bank
surviving the merger, and (b) shareholders of JSB will receive cash and common
stock of USBANCORP in exchange for common stock of JSB outstanding on the
closing date (the foregoing, collectively, referred to herein as the "Merger").
USBANCORP has required, as a condition to its execution and delivery to JSB
of the Agreement, that the undersigned, being directors and executive officers
of JSB, execute and deliver to USBANCORP this Letter Agreement. This Letter
Agreement supersedes and replaces in its entirety the Letter Agreement executed
by the undersigned on November 10, 1993.
If JSB does not enter into a Sale Agreement as provided in Section 4.06(a) of
the Agreement (in which case this Letter Agreement shall not be terminated), at
the termination of the Marketing Period, each of the undersigned, in order to
induce USBANCORP to execute and deliver to JSB the Agreement, hereby severally
and irrevocably:
(a) Agrees to be present (in person or by proxy) at all meetings of
shareholders of JSB called to vote for approval of the Merger so that all
shares of common stock of JSB then beneficially owned by him will be
counted for the purpose of determining the presence of a quorum at such
meetings and to vote all such shares over which he has sole voting power
and to use his best efforts to cause all such shares over which he has
shared voting power to be voted (i) in favor of approval and adoption of
the Agreement and the transactions contemplated thereby (including any
amendments or modifications of the terms thereof approved by the Board of
Directors of JSB), and (ii) against approval or adoption of any other
merger, business combination, recapitalization, partial liquidation or
similar transaction involving JSB, provided, however, that this obligation
shall terminate concurrently with any consummation or termination of the
Agreement;
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<PAGE>
(b) Agrees not to vote or execute any written consent to rescind or amend
in any manner any prior vote or written consent, as a shareholder of JSB,
to approve or adopt the Agreement, provided, however, that this obligation
shall terminate concurrently with any consummation or termination of the
Agreement;
(c) Agrees to use his or her best efforts to cause the Merger to be
consummated;
(d) Agrees (i) not to sell, transfer or otherwise dispose of any JSB
Common Stock to which he had sole disposition power prior to the record
date for the special meeting of JSB shareholders to vote upon the Merger
(the "Record Date"), (ii) to use his best efforts to prevent the sale,
transfer or disposition of shares of JSB Common Stock to which he has
shared disposition power prior to the Record Date, (iii) not to sell,
transfer or otherwise dispose of any JSB Common Stock to which he had sole
disposition power after the Record Date without the prior written consent
of USBANCORP which shall not be unreasonably withheld and (iv) to use his
best efforts to prevent the sale, transfer or disposition of shares of JSB
Common Stock as to which he has shared disposition power after the Record
Date without the prior written consent of USBANCORP which shall not be
unreasonably withheld; provided, however, that these obligations shall
terminate concurrently with any termination or consummation of the
Agreement;
(e) Subject to the provisions of Section 4.06(b) of the Agreement, agrees
not to initiate or engage in any negotiations or discussions with any party
other than USBANCORP with respect to any offer, sale, transfer or other
disposition of, any shares of common stock of JSB now or hereafter owned by
him, or to support any such offer, sale, transfer, or other disposition;
(f) Agrees not to offer, sell, transfer or otherwise dispose of any
shares of common stock of USBANCORP received in the Merger, except (i) at
such time as a registration statement under the Securities Act of 1933
("Securities Act") covering sales of such USBANCORP common stock is
effective and a prospectus is made available under the Securities Act, (ii)
within the limits, and in accordance with the applicable provisions of,
Rule 145 under the Securities Act, or (iii) in a transaction which, in the
opinion of counsel satisfactory to USBANCORP or as described in a "no-
action" or interpretive letter from the staff of the Securities and
Exchange Commission ("SEC"), is not required to be registered under the
Securities Act; and acknowledges and agrees that USBANCORP is under no
obligation to register the sale, transfer or other disposition of USBANCORP
common stock by him or on his behalf, or to take any other action necessary
to make an exemption from registration available;
(g) Agrees that USBANCORP shall not be bound by any attempted sale of any
such shares of USBANCORP common stock, and USBANCORP's transfer agent shall
be given an appropriate stop transfer order and shall not be required to
register any such attempted sale, unless the sale has been effected in
compliance with the terms of this Letter Agreement; and further agrees that
the certificate representing his shares of USBANCORP common stock may be
endorsed with a restrictive legend consistent with the terms of this Letter
Agreement;
(h) Acknowledges and agrees that the provisions of subparagraphs (f) and
(g) hereof also apply to shares of USBANCORP common stock received in the
Merger owned by (i) his spouse, (ii) any of his relatives or relatives of
his spouse occupying his home, (iii) any trust or estate in which he, his
spouse, or any such relative owns at least a 10% beneficial interest or of
which any of them serves as trustee, executor or in any similar capacity,
and (iv) any corporation or other organization in which he, his spouse, or
any such relative owns at least 10% of any class of equity securities or of
the equity interest; and
(i) Represents that he has the capacity to enter into this Letter
Agreement and that it is a valid and binding obligation enforceable against
him, subject to bankruptcy, insolvency and other laws affecting creditors'
rights and general equitable principles.
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<PAGE>
----------------
This Letter Agreement may be executed in two or more counterparts, each of
which shall be deemed to constitute an original, but all of which together
shall constitute one and the same Letter Agreement.
----------------
This Letter Agreement shall be effective upon execution by two or more
persons listed below, and its validity and enforceability shall not be affected
by the lack of its execution by any person listed below. Notwithstanding the
foregoing, this Letter Agreement shall only be binding upon those persons that
executed this Letter Agreement.
----------------
Except as otherwise set forth herein, this Letter Agreement shall terminate
concurrently with any termination of the Agreement in accordance with its
terms.
The undersigned intend to be legally bound hereby.
Very truly yours,
/s/ Frank H. Blackington
-------------------------------------
Frank H. Blackington, III, Ph.D
/s/ Paul A. Cooney
-------------------------------------
Paul A. Cooney
/s/ Patrick J. Coyne
-------------------------------------
Patrick J. Coyne
/s/ James C. Dewar
-------------------------------------
James C. Dewar
/s/ James M. Edwards, Sr.
-------------------------------------
James M. Edwards, Sr.
/s/ John B. Gunter
-------------------------------------
John B. Gunter
/s/ John M. Kriak
-------------------------------------
John M. Kriak
/s/ Kim W. Kunkle
-------------------------------------
Kim W. Kunkle
/s/ Howard M. Picking, III
-------------------------------------
Howard M. Picking, III
/s/ Carl R. Sax
-------------------------------------
Carl R. Sax
/s/ John B. Stockton
-------------------------------------
John B. Stockton
/s/ Kenneth W. Andres
-------------------------------------
Kenneth W. Andres
/s/ R. Craig Pugh
-------------------------------------
R. Craig Pugh
/s/ Walter F. Rusnak
-------------------------------------
Walter F. Rusnak
/s/ Gerald R. Baxter
-------------------------------------
Gerald R. Baxter
A-39
<PAGE>
EXHIBIT 2
STOCK OPTION AGREEMENT
SEE ANNEX F
TO THE PROXY STATEMENT/PROSPECTUS
A-40
<PAGE>
EXHIBIT 3
SEVERANCE PLAN
After the consummation of the Merger, certain officers and employees of JSB
will be terminated. Any individual that is terminated, for other than cause, on
or before the first anniversary date of the Merger will receive the following
severance benefits:
(1) SENIOR MANAGEMENT (includes all officers of JSB who held positions with
the title of Vice President or Senior Vice President on November 10,
1993 ("Senior Management")) other than the four individuals covered by
the letter agreements set forth as Exhibits 6A to 6D: A member of Senior
Management that continues to remain in the employment of USBANCORP
through the date determined by USBANCORP in its sole discretion shall
receive upon termination of such officer's employment his or her current
weekly salary for the lesser of: (i) number of weeks and any portion
thereof equal to the sum of (A) the number of years such officer was
employed by JSB multiplied by two (2), and (B) the number of full months
such individual has worked since his employment anniversary date divided
by twelve (12) or (ii) twenty-six (26) weeks (the "Senior Management
Severance Period"). In addition, Senior Management shall continue to
receive those benefits currently being offered by JSB to Senior
Management, other than any right to receive shares of JSB Common Stock
under the JSB Employee Stock Compensation Program for a period not to
exceed the greater of: (i) three months or (ii) the Senior Management
Severance Period.
(2) MANAGEMENT (includes all officers or JSB Managers not provided for in
(1) above who held such positions on November 10, 1993 ("Management")):
A member of Management that continues to remain in the employment of
USBANCORP through the date determined by USBANCORP in its sole
discretion shall receive upon termination of such employment, his or her
current weekly salary for the lesser of: (i) that number of weeks and
any portion thereof equal to the sum of: (A) the number of years such
officer was employed by JSB and (B) the number of months such individual
has worked since his employment anniversary date divided by twelve (12)
or (ii) twenty-six (26) weeks ("Management Severance Period"). In
addition, Management shall continue to receive those benefits currently
being offered by JSB to Management, other than any right to receive
shares of JSB Common Stock under the JSB Employee Stock Compensation
Program for a period not to exceed (i) three months or (ii) the
Management Severance Period.
(3) EMPLOYEES (includes all full time employees of JSB not provided for in
(1) or (2) above): An employee that continues to remain in the
employment of USBANCORP through the date determined by USBANCORP in its
sole discretion shall receive upon termination of such person's
employment, his or her current weekly salary or wages, as the case may
be, for the lesser of: (i) that number of weeks and any portion thereof
equal to the sum of: (A) the number of years such person was employed by
JSB and (B) the number of full months such individual has worked since
his employment anniversary date divided by twelve (12) or (ii) twenty-
six (26) weeks (the "Employee Severance Period"). In addition, such
persons shall continue to receive those benefits currently being offered
by JSB to such employees during the Employee Severance Period.
Notwithstanding the foregoing, if any officer or employee terminates his or
her employment prior to the date determined by USBANCORP such officer or
employee shall not be entitled to participate in the above severance package.
To facilitate the consolidation of the operation of JSB with and into U.S.
Bank, U.S. Bank desires to retain certain individuals designated by U.S. Bank
for a period of time after the consummation of the Merger.
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<PAGE>
With respect to those individuals, U.S. Bank will, provided such individuals
agree to remain in the employment of U.S. Bank for the period specified by U.S.
Bank, with additional severance benefits upon their subsequent termination
based upon the following classifications:
(i) with respect to individuals classified by U.S. Bank as holding a "less
critical position," U.S. Bank will provide such individuals with one
month additional salary;
(ii) with respect to individuals classified by U.S. Bank as holding "more
critical positions," U.S. Bank will provide such individuals with two
months additional salary; and
(iii) with respect to individuals classified by U.S. Bank as holding "most
critical positions," U.S. Bank will provide such individuals with three
months additional salary.
A-42
<PAGE>
EXHIBIT 4
FORM OF LEGAL OPINION--COUNSEL TO USBANCORP
, 1994
USBANCORP, INC.
Main and Franklin Streets
Johnstown, PA 15901
Gentlemen:
We have acted as Special Counsel for USBANCORP, INC. ("USBANCORP") in
connection with the proposed acquisition by USBANCORP of Johnstown Savings Bank
("JSB") by means of the merger of JSB with and into a wholly-owned subsidiary
of USBANCORP, Johnstown Interim Bank ("JIB"), and immediately thereafter the
merger of JIB with and into United States National Bank in Johnstown ("U.S.
Bank"), a wholly-owned subsidiary of USBANCORP with U.S. Bank surviving. The
merger will be consummated pursuant to the terms and conditions of an Agreement
and Plan of Merger between USBANCORP, U.S. Bank and JSB dated November 10,
1993, as amended on January 18, 1994 ("Merger Agreement") (all capitalized
terms used herein and not defined shall have the meaning set forth in the
Merger Agreement). Each share of JSB common stock issued and outstanding as of
the effective date (except for shares for which dissenters' rights have been
perfected) will be converted into the right to receive $10.13 in cash and
shares of USBANCORP Common Stock as follows: (a) if the Average Closing Price
on the Closing Date is less than or equal to $24.50 per share, then .5053
shares of USBANCORP Common Stock; (b) if the Average Closing Price on the
Closing Date is greater than or equal to $25.50 per share, then .4853 shares of
USBANCORP Common Stock; or (c) if the Average Closing Price on the Closing Date
is greater than $24.50 per share but less than $25.50 per share, then the
conversion ratio will be determined by dividing $22.50 by the Average Closing
Price and multiplying the resulting figure by .55.
This opinion is being furnished pursuant to Section 5.01(h) of the Merger
Agreement.
In connection therewith, we have reviewed the Articles of Incorporation and
Bylaws of USBANCORP and JIB, the Articles of Association and Bylaws of U.S.
Bank, the relevant corporate proceedings of USBANCORP, U.S. Bank and JIB, the
Merger Agreement, the Joint Proxy Statement/Prospectus, the Registration
Statement and such other documents and records as we deemed necessary.
Based upon the foregoing, it is our opinion that:
1. USBANCORP is a corporation duly incorporated, organized, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania and a
multi-bank holding company duly registered under the Bank Holding Company Act
and the rules and regulations thereunder. USBANCORP has full corporate power
and authority to carry on its business as now being conducted; to own, lease
and operate its properties and assets; and, subject to the approval of the
Merger by all required bank regulatory agencies and the related issuance of
USBANCORP Common Stock by USBANCORP shareholders, to execute, deliver, and
perform the Merger Agreement.
2. U.S. Bank is a corporation duly incorporated, organized, validly existing
and in good standing under the laws of the United States. U.S. Bank has full
corporate power and authority to carry on its business as now being conducted;
to own, lease and operate its properties and assets; and to execute, deliver
and perform the Merger Agreement. The deposits of U.S. Bank are insured by the
Bank Insurance Fund administered by the Federal Deposit Insurance Corporation
to the fullest extent permitted by applicable law.
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<PAGE>
3. JIB is a banking corporation duly incorporated, organized and validly
existing under the laws of the Commonwealth of Pennsylvania. JIB has full
corporate power and authority to own, lease and operate its properties and
assets; to carry on its business as now being conducted; and to merge with JSB
and is authorized to perform the Merger Agreement.
4. The Merger Agreement has been duly authorized by all necessary corporate
action on the part of USBANCORP and U.S. Bank, respectively, and has been duly
executed and delivered by their respective duly authorized officers and has
been approved and ratified by JIB. The Merger Agreement constitutes valid and
binding obligations of USBANCORP and U.S. Bank, respectively, in accordance
with their respective terms and provisions except to the extent enforcement is
limited by bankruptcy, insolvency or similar laws of general application
affecting creditors' rights or the application by a court of equitable
principles.
5. All consents, approvals or authorizations of any federal or state
governmental authority or of any agency, authority, commission or counsel
thereof required in connection with the consummation of the Merger Agreement by
USBANCORP and U.S. Bank have been applied for and received and continue in full
force and effect, and, to the best of our knowledge without independent
verification, no proceeding has been instituted to rescind, modify or otherwise
change any such consent, approval or authorization.
6. There are no actions, claims, suits or judicial or administrative
proceedings or, to the best of our knowledge, investigations pending, including
proceedings initiated by or before federal or state banking regulatory
authorities, that, either in any case or in the aggregate, might result in any
material impairment of the right or ability of USBANCORP and U.S. Bank to carry
on their respective operations as now conducted, and none that question the
validity of the Merger Agreement or any of the actions provided for or
contemplated thereby or of any action taken or to be taken in connection with
the transactions contemplated thereby.
7. Neither USBANCORP nor U.S. Bank is in violation of any terms of their
respective articles of incorporation or association or other governing
instrument, their respective bylaws, or any mortgage, indenture, contract,
agreement, franchise, license, instrument, judgment, decree, order, statute,
rule or regulation, in any respect that could materially adversely affect their
performance of the Merger Agreement and performance of their obligations under
the Merger Agreement will not result in any such violation of or constitute a
default under or be in conflict with any such terms or result in the creation
of any mortgage, lien, encumbrance or change upon any of the properties or
assets of any such entity pursuant to any such terms.
8. The shares of USBANCORP Common Stock to be issued pursuant to the Merger
Agreement will be, when so issued, validly issued, fully paid and non-
assessable and will be issued in accordance with all requirements of the
Securities Act of 1933 and applicable rules and regulations promulgated
thereunder. Each certificate representing shares of USBANCORP Common Stock will
carry with it a Right to purchase one-tenth shares of USBANCORP Series B
Preferred Stock for each share of USBANCORP Common Stock so issued pursuant to
the USBANCORP Shareholders' Rights Plan.
Because the primary purpose of our professional engagement was not to
establish or confirm factual matters or financial, accounting or statistical
matters and because of the wholly or partially non-legal character of many of
the statements contained in the Joint Proxy Statement/Prospectus, we are not
passing upon and do not assume hereby any responsibility for the accuracy,
completeness or fairness of the statements included or incorporated by
reference in the Joint Proxy Statement/Prospectus and we make no representation
hereby that we have independently verified the accuracy, completeness or
fairness of such statements. Without limiting the foregoing, we assume no
responsibility for, and have not independently verified, the accuracy,
completeness or fairness of the financial statements, notes to financial
statements, tables and other financial and statistical data included or
incorporated by reference in the Joint Proxy Statement/Prospectus, and we have
not examined the accounting, financial or statistical records from which such
financial statements, schedules and data are derived. We note that we are not
experts within the meaning
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<PAGE>
of the Securities Act of 1993 with respect to such financial statements or
schedules or the other financial or statistical data included or incorporated
by reference therein.
However, during the course of the preparation of the Joint Proxy
Statement/Prospectus and the Registration Statement of USBANCORP of which it is
a part, we participated in conferences and telephone conversations with your
representatives, including certain of your officers, your financial advisors
and your independent accountants, at which the contents of the Joint Proxy
Statement/Prospectus and the Registration Statement and related matters were
discussed.
Based on our participation in the above-mentioned conferences and
conversations, our review of the documents described above, and our
understanding of applicable law and the experience we have gained in our
practice thereunder and to the extent of our actual knowledge, we advise you
that no information has come to our attention that causes us to believe that
the information concerning USBANCORP in the Joint Proxy Statement/Prospectus
(except we express no view as to financial statements, notes to financial
statements, tables and other financial and statistical data included or
incorporated by reference therein and information regarding or supplied by
USBANCORP, U.S. Bank or their financial advisors included or incorporated by
reference therein, including, without limitation, information set forth under
the headings "The Merger," "Selected Pro Forma Financial Data," "Pro Forma
Financial Information," "Business of USBANCORP," "Description of USBANCORP
Common Stock," and "Comparison of Rights of Holders of USBANCORP Common Stock
and JSB Common Stock") at the time it was declared effective by the Securities
and Exchange Commission on , 1994 and on , 1994, the date of the Annual
Meeting of shareholders of USBANCORP to consider the Merger, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
In giving this opinion, we have relied upon certificates of public officials
and, as to matters of fact, upon certificates of officers of USBANCORP and its
subsidiaries, and as to matters of law of any state other than the Commonwealth
of Pennsylvania, upon opinions of counsel satisfactory to us.
Very truly yours,
STEVENS & LEE
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EXHIBIT 5
FORM OF LEGAL OPINION--COUNSEL TO JSB
, 1994
USBANCORP, Inc. Main and Franklin Streets Johnstown, Pennsylvania 15907
Re: Agreement and Plan of Merger among USBANCORP, Inc., United States National
Bank in Johnstown and Johnstown Savings Bank
Gentlemen:
We have acted as special counsel to Johnstown Savings Bank, a Pennsylvania-
chartered savings bank ("JSB"), in connection with the proposed merger (the
"Merger") of JSB with and into Johnstown Interim Bank, a Pennsylvania-chartered
commercial bank ("JIB") wholly owned by USBANCORP, Inc., a Pennsylvania
corporation ("USBANCORP"), and created solely for the purpose of effecting the
Merger, pursuant to the terms of an Agreement and Plan of Merger (the "Merger
Agreement") by and among JSB, USBANCORP and United States National Bank in
Johnstown, a national banking association wholly-owned by USBANCORP ("U.S.
Bank") dated as of November 10, 1993 and amended as of January 18, 1994. This
opinion is being furnished to you pursuant to Section 5.02(g) of the Merger
Agreement. Terms defined in the Merger Agreement have the same meaning herein
unless otherwise defined herein or required by the context.
For purposes of rendering this opinion, we have reviewed the following:
1. The Articles of Incorporation and Bylaws of JSB;
2. The Merger Agreement;
3. The Registration Statement on Form S-4 filed by USBANCORP with the
Securities and Exchange Commission ("SEC") on or about March , 1994, as
subsequently amended and as declared effective by the SEC on , 1994 (the
"Registration Statement");
4. The Application FR Y-2 filed by USBANCORP with the Federal Reserve Bank of
Philadelphia on or about , 1994, as subsequently amended and as approved
by the Board of Governors of the Federal Reserve System by letter dated
, 1994;
5. The Application filed by USBANCORP with the Commonwealth of Pennsylvania
Department of Banking ("Department") on or about February , 1994, as
subsequently amended and as approved by the Department by letter dated ,
1994;
6. The Application filed by USBANCORP with the Office of the Comptroller of the
Currency ("OCC") on or about February , 1994, as subsequently amended, and
as approved by the OCC by letter dated , 1994;
7. The Joint Proxy Statement/Prospectus dated , 1994 (the "Proxy
Statement");
8. The provisions of federal and Pennsylvania law which we deemed to be
relevant for this purpose; and
9. Such minutes of the meetings of the Board of Directors of JSB, certificates
of public officials and of officers of JSB, and such other documents,
records and matters as we deemed to be relevant as a basis
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<PAGE>
for the opinion hereinafter expressed. Without limiting the generality of
the foregoing, the opinion as to the due incorporation and subsistence of
JSB in clause (i) of the opinion is based solely upon certificates of
officials of the appropriate government authorities.
In our examination, we have assumed, without independent verification, (i)
the genuineness of all signatures, the authenticity of all documents submitted
to us as original copies, the conformity to original documents of all documents
submitted to us as certified, conformed or reproduction copies, and the
authenticity of such originals of such latter documents; (ii) the execution and
acknowledgment as indicated thereon of all documents listed above or delivered
in connection with the closing by all parties thereto other than JSB; (iii)
that each party to the transactions contemplated by the Merger Agreement, other
than JSB, has the full power, authority and legal right under its articles of
incorporation, charter, bylaws or other governing documents and applicable laws
and regulations to execute and to perform its obligations under all documents
executed by it in connection with the transactions contemplated by the Merger
Agreement; (iv) that the execution, delivery and performance of the Merger
Agreement were duly and validly authorized by all necessary corporate action on
the part of USBANCORP, JIB and U.S. Bank, that the Merger Agreement constitutes
a valid, legally binding and enforceable obligation of USBANCORP and U.S. Bank,
and that the execution and filing of the Articles of Merger by USBANCORP and
JIB was duly and validly authorized by all necessary corporate action on the
part of USBANCORP and JIB; (v) except as expressed below with respect to JSB,
that USBANCORP and U.S. Bank have properly applied for and obtained all
necessary consents, approvals, authorizations and orders of any governmental
agency, court or other person or entity which are required for its execution,
delivery and performance of the Merger Agreement; (vi) the accuracy and
completeness of all corporate records and documents and of all certificates and
statements of fact made available to us; (vii) as to matters of fact, the
accuracy of the representations and warranties of JSB set forth in the
Agreement; and (viii) that the foregoing documents, in the form submitted to us
for our review, have not been altered or amended in any respect material to our
opinion as stated herein.
The opinions which we render herein are limited to those matters governed by
federal laws and the Pennsylvania Banking Code of 1965, as amended. We do not
express any opinions herein as to matters governed by the laws of any other
jurisdiction or choice of law provisions. We are members of the bar of the
District of Columbia and do not hold ourselves out as being experts with
respect to the laws of any jurisdiction other than the laws of the District of
Columbia and of the United States of America.
To the extent not inconsistent with the assumptions, qualifications and
limitations set forth elsewhere herein, this opinion is governed by, and shall
be interpreted in accordance with, the Legal Opinion Accord (the "Accord") of
the American Bar Association Section of Business Law (1991). As a consequence,
it is subject to a number of qualifications, exceptions, definitions,
limitations on coverage and other limitations, all as more particularly
described in the Accord, and this opinion should be read in conjunction
therewith. The term "Actual Knowledge" whenever used herein shall have the
meaning set forth in the Accord.
Based on the foregoing, and subject to the assumptions, qualifications and
limitations set forth herein and in the Accord, as of the date hereof, we are
of the opinion that:
(i) JSB is a savings bank incorporated and subsisting under the laws of the
Commonwealth of Pennsylvania. JSB has the corporate power to own its assets and
to transact the business in which it is engaged as described in JSB's 1992
Annual Report on Form 10-K, incorporated by reference in the Proxy Statement.
JSB is a member of the Federal Home Loan Bank of Pittsburgh. The deposits of
JSB are insured by the Bank Insurance Fund administered by the Federal Deposit
Insurance Corporation to the fullest extent permitted by applicable law.
(ii) The authorized capital stock of JSB consists as of the date hereof of
15,000,000 shares of JSB Common Stock, of which shares are presently
issued and outstanding, and 5,000,000 shares of preferred stock, of which no
shares have been issued. All of such issued and outstanding shares are validly
authorized and issued, fully paid and nonassessable.
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<PAGE>
(iii) JSB had, at the dates of execution, the corporate power to enter into
the Merger Agreement, and the execution, delivery and performance by JSB of the
Merger Agreement has been duly authorized by all necessary corporate
proceedings on its part. The Merger Agreement has been validly executed and
delivered by JSB and constitutes the valid and binding obligations of JSB,
enforceable in accordance with its terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency, laws affecting depository institutions
and other similar laws from time to time in effect affecting the rights and
remedies of creditors generally, and (ii) general equitable principles,
including the effect or availability (or lack thereof) of equitable remedies or
injunctive relief (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(iv) Neither the execution or delivery by JSB of the Merger Agreement, the
consummation of the Merger nor compliance by JSB with any of the provisions of
the Merger Agreement violated, as of the dates of its execution, or will
violate, any provision of the Articles of Incorporation or Bylaws of JSB, any
applicable federal or Pennsylvania banking laws or any applicable rule or
regulation of any federal or Pennsylvania bank regulatory authority thereunder.
All consents, approvals, authorizations and orders of all federal and
Pennsylvania bank regulatory authorities required on the part of JSB in
connection with the consummation of the transactions contemplated by the Merger
Agreement have been obtained.
(v) All corporate acts and proceedings required to be taken by or on the part
of JSB, including without limitation the approval and adoption of the Merger
Agreement by the Board of Directors and shareholders of JSB, to enable JSB to
consummate the Merger with JIB have been properly taken. Articles of Merger for
delivery to the Department of State of the Commonwealth of Pennsylvania have
been validly authorized and executed by JSB and provide that the Merger will
become effective at the close of business on , 1994.
Because the primary purpose of our professional engagement was not to
establish or confirm factual matters or financial, accounting or statistical
matters and because of the wholly or partially non-legal character of many of
the statements contained in the Proxy Statement, we are not passing upon and do
not assume hereby any responsibility for the accuracy, completeness or fairness
of the statements included or incorporated by reference in the Proxy Statement
and we make no representation hereby that we have independently verified the
accuracy, completeness or fairness of such statements. Without limiting the
foregoing, we assume no responsibility for, and have not independently
verified, the accuracy, completeness or fairness of the financial statements,
notes to financial statements, tables and other financial and statistical data
included or incorporated by reference in the Proxy Statement, and we have not
examined the accounting, financial or statistical records from which such
financial statements, schedules and data are derived. We note that we are not
experts within the meaning of the Securities Act of 1933 with respect to such
financial statements or schedules or the other financial or statistical data
included or incorporated by reference therein.
However, during the course of the preparation of the Proxy Statement and the
Registration Statement of USBANCORP of which it is a part, we participated in
conferences and telephone conversations with your representatives, including
certain of your officers, your counsel and your independent accountants, and
with representatives of JSB, including certain of its officers, its financial
advisors and its independent accountants, at which the contents of the Proxy
Statement and the Registration Statement and related matters were discussed.
Based on our participation in the above-mentioned conferences and
conversations, our review of the documents described above, and our
understanding of applicable law and the experience we have gained in our
practice thereunder and to the extent of our Actual Knowledge, we advise you
that no information has come to our attention that causes us to believe that
the information concerning JSB in the Proxy Statement (except we express no
view as to financial statements, notes to financial statements, tables and
other financial and statistical data included or incorporated by reference
therein and information regarding or supplied by USBANCORP or U.S. Bank or
their respective financial advisors included or incorporated by reference
therein, including, without limitation, information set forth under the
headings "The Merger," "Selected Pro Forma Financial Data," "Pro Forma
Financial Information," "Business of USBANCORP," "Description of
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<PAGE>
USBANCORP Common Stock," and "Comparison of Rights of Holders of USBANCORP
Common Stock and JSB Common Stock") at the time it was declared effective by
the SEC on , 1994 and on , 1994, the date of the Annual Meeting of
shareholders of JSB to consider the Merger, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
We assume no obligation to advise you of any events that occur subsequent to
the date of this opinion. This opinion is being furnished to you at the request
of our client solely for the limited purpose of satisfying the provisions of
Section 5.02(g) of the Merger Agreement, and this opinion may only be relied
upon by you. This opinion is not to be used for any other purpose or relied
upon by any other person or entity, and may not be quoted in whole or in part
or otherwise referred to, nor filed with or provided to any governmental agency
or other person or entity, in each case without our express prior written
consent.
Very truly yours,
ELIAS, MATZ, TIERNAN & HERRICK
L.L.P.
By __________________________________
Raymond A. Tiernan, a Partner
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EXHIBIT 5A
FORM OF TAX OPINION--COUNSEL TO USBANCORP
The tax opinion will contain the following individual opinions (or opinions
substantially similar thereto):
1. The merger of JSB with and into JIB (the "Interim Merger") will constitute
a reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D)
of the IRC.
2. USBANCORP, JIB and JSB will each be "a party to a reorganization" within
the meaning of Section 368(b) of the IRC.
3. Except for any loan loss reserve that may be required to be recaptured
with respect to JSB, no gain or loss will be recognized by JSB upon the
transfer of its assets to JIB in exchange for USBANCORP Common Stock (including
fractional share interests), cash, and the assumption by JIB of the liabilities
of JSB.
4. No gain or loss will be recognized by either USBANCORP or JIB upon the
receipt by JIB of the assets of JSB in exchange for USBANCORP Common Stock
(including fractional share interests), cash, and the assumption of JSB's
liabilities by JIB.
5. The basis of the JSB assets in the hands of JIB will be the same as the
basis of such assets in the hands of JSB immediately prior to the Interim
Merger.
6. The holding period of the assets of JSB to be received by JIB will include
the period during which the assets were held by JSB.
7. No gain or loss will be recognized by JSB shareholders who receive solely
USBANCORP Common Stock (including a fractional share interest) in exchange for
their JSB Common Stock.
8. The basis of USBANCORP Common Stock received by JSB shareholders who
receive solely USBANCORP Common Stock (including a fractional share interest)
will be the same as the basis of the JSB Common Stock surrendered in exchange
therefor.
9. Gain, if any, will be recognized by JSB shareholders who receive both
USBANCORP Common Stock (including a fractional share interest) and cash in
exchange for their JSB Common Stock, and such gain will be recognized, but not
in excess of the amount of cash received. If the exchange has the effect of the
distribution of a dividend (determined with the application of Section 318(a)
of the IRC), then the amount of the gain recognized that is not in excess of a
shareholder's ratable share of undistributed earnings and profits will be
treated as a dividend. The determination of whether the exchange has the effect
of a dividend will be made in accordance with the principles set forth in
Commissioner v. Clark, 489 U.S. 726 (1989). No loss will be recognized on the
exchange of JSB Common Stock for USBANCORP Common Stock (including a fractional
share interest) and cash.
10. The basis of the USBANCORP Common Stock received by JSB shareholders who
receive both USBANCORP Common Stock (including a fractional share interest) and
cash will be the same as the basis of the JSB Common Stock exchanged therefor,
decreased by the amount of cash received, and increased by the amount, if any,
that was treated as a dividend and the amount of gain recognized by such
shareholders on the exchange, if any (not including any portion of such gain
that is treated as a dividend).
11. The payment of cash in lieu of fractional share interests of USBANCORP
Common Stock will be treated as if the fractional share interests were
distributed as part of the Interim Merger and then redeemed by USBANCORP,
subject to the provisions and limitations of Section 302 of the IRC.
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12. The holding period of USBANCORP Common Stock to be received by JSB
shareholders will include the holding period of the JSB Common Stock exchanged
therefor, provided that the JSB Common Stock is held as a capital asset on the
date of the exchange.
13. The Rights transferred with the shares of USBANCORP Common Stock will not
constitute "other property" within the meaning of Section 356(a)(1)(B) of the
IRC.
14. JSB shareholders who receive solely cash in exchange for their JSB Common
Stock will be treated as having received such cash as a distribution in
redemption of their stock, subject to the provisions and limitations of Section
302 of the IRC.
15. As provided in Section 381(c)(2) of the IRC and related Treasury
regulations, JIB will succeed to and take into account the earnings and
profits, or deficit in earnings and profits, of JSB as of the date of the
Interim Merger. Any deficit in the earnings and profits of JIB or JSB will be
used only to offset the earnings and profits accumulated after such merger.
16. Pursuant to Section 381(a) of the IRC and related Treasury regulations,
JIB will succeed to and take into account the items of JSB described in Section
381(c) of the IRC. Such items will be taken into account by JIB subject to the
conditions and limitations of Sections 381, 382, 383, and 384 of the IRC and
the Treasury regulations thereunder.
17. The merger of JIB with and into U.S. Bank (the "U.S. Bank Merger") will
constitute a reorganization within the meaning of IRC Section 368(a)(1)(A).
18. JIB and U.S. Bank will each be "a party to a reorganization" within the
meaning of IRC Section 368(b).
19. Neither JIB nor U.S. Bank will recognize any gain or loss upon the
transfer of JIB's assets to U.S. Bank in constructive exchange solely for U.S.
Bank Common Stock and the assumption by U.S. Bank of the liabilities of JIB.
20. The basis of the JIB assets in the hands of U.S. Bank will be the same as
the basis of such assets in the hands of JIB immediately prior to the U.S. Bank
Merger.
21. The holding period of the JIB assets in the hands of U.S. Bank will
include the period during which such assets were held by JIB.
22. No gain or loss will be recognized by USBANCORP, as the shareholder of
JIB, upon the constructive receipt of shares of U.S. Bank Common Stock in
exchange for the JIB Common Stock surrendered in exchange therefor in the U.S.
Bank Merger.
23. The basis of the U.S. Bank Common Stock to be held by USBANCORP after the
U.S. Bank Merger will equal the basis of such stock immediately before the U.S.
Bank Merger, increased by the basis of the JIB Common Stock surrendered in the
constructive exchange.
24. As provided in IRC Section 381(c)(2) and related Treasury regulations,
U.S. Bank will succeed to and take into account the earnings and profits, or
deficit in earnings or profits, of JIB as of the date of the U.S. Bank Merger.
Any deficit in the earnings and profits of JIB or U.S. Bank will be used only
to offset the earnings and profits accumulated after the U.S. Bank Merger.
25. Pursuant to IRC Section 381(a) and related Treasury regulations, U.S.
Bank will succeed to and take into account the items of JIB described in IRC
Section 381(c). Such items will be taken into account by U.S. Bank subject to
the conditions and limitations of IRC Sections 381, 382, 383, and 384 and the
Treasury regulations thereunder.
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The opinion may not be applicable to JSB's shareholders who received their
JSB Common Stock pursuant to the exercise of employee stock options or
otherwise as compensation, or who are not citizens or residents of the United
States.
A-52
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EXHIBIT 6A
SEVERENCE AGREEMENTS
, 1994
Mr. Patrick J. Coyne
President and Chief Executive Officer
Johnstown Savings Bank
Market at Main Streets
Johnstown, Pennsylvania 15901
Dear Mr. Coyne:
The purpose of this letter is to set forth the terms and conditions upon
which you have agreed to resign from your employment at Johnstown Savings Bank
("JSB") in connection with and as a result of the merger of JSB with and into a
wholly-owned subsidiary of USBANCORP, Inc., ("USBANCORP") with JSB thereafter
ceasing to exist as a separate entity. All capitalized terms used herein but
not defined herein shall have the meanings given to them in that certain
Agreement and Plan of Merger dated November 10, 1993 and amended as of January
18, 1994, by and among USBANCORP, United States National Bank in Johnstown, and
JSB (the "Merger Agreement").
1. CESSATION OF EMPLOYMENT.
Except as otherwise provided herein, in connection with your resignation as
an employee of JSB, you, JSB, USBANCORP and U.S. Bank hereby agree that the
Employment Agreement dated June 5, 1989, between JSB and you together with any
other agreements, arrangements or understandings between or among you, JSB,
USBANCORP and/or U.S. Bank or any of their respective subsidiaries or
affiliates, if any, involving any obligation or responsibility on your part to
USBANCORP, U.S. Bank or JSB or any of their respective subsidiaries or
affiliates or on the part of USBANCORP, U.S. Bank or JSB or any of their
respective subsidiaries or affiliates to you are hereby terminated effective as
of the date this letter is signed by you (the "Resignation Date"), with the
sole exception that your right to a pension and other benefits under the 401(k)
plan of JSB or its successors which vested on or prior to the Resignation Date
shall not be terminated, waived or diminished in any way by your resignation of
employment or otherwise under this Agreement.
2. RESIGNATIONS.
Concurrently herewith, you are delivering to USBANCORP, U.S. Bank and JSB a
letter (in the form attached hereto as Exhibit 1) stating that you have elected
to resign as an employee of JSB and that you have resigned as a Director of JSB
and as President and Chief Executive Officer of JSB and from all of your
director and officer positions with any subsidiary of JSB all effective as of
the Resignation Date.
3. SEVERANCE PAYMENT.
In lieu of receiving any severance or related payments or benefits in
connection with your resignation in accordance with the terms and conditions of
the Employment Agreement, JSB's Deferred Compensation Plan, JSB's Employee
Stock Compensation Program, the Executive Annual Incentive Plan or any other
plan or benefit made available to you by JSB or a direct or indirect subsidiary
or affiliate of JSB except for the 401k plan of JSB (collectively the "JSB
Compensation Plans"), except for the right to a pension and other benefits
under the 401k plan of JSB or its successors which vested on or prior to the
Resignation Date, you shall receive simultaneously with the execution hereof
the following payments and such payments shall represent payment in full of any
and all amounts due and owing to you from JSB, USBANCORP, U.S. Bank or any
direct or indirect subsidiary or affiliate of the foregoing under the JSB
Compensation Plans, or otherwise relating to your employment relationship with
JSB. Nothing in or under this Agreement, however,
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shall terminate, waive or in any way diminish any right of yours to accept,
receive and enjoy your full distribution under the 401k plan of JSB or its
successors since those rights and benefits vested on or before the Resignation
Date.
(i) an amount equal to $379,682 pursuant to the terms and conditions of
the Employment Agreement as in effect on November 10, 1993.
(ii) $342,280 in lieu of payments due pursuant to JSB's Deferred
Compensation Plan as in effect on November 10, 1993.
(iii) $393,097 in consideration for the redemption of all JSB's
incentive stock options held by you on November 10, 1993.
(iv) $356,141 to permit you to pay any excise tax required to be paid
by you pursuant to Section 4009 of the Internal Revenue Code, as amended.
(v) USBANCORP, as the successor by merger to JSB, shall make available
to you continuation coverage under the group health plan of USBANCORP for
a period of 18 months subsequent to the Resignation Date provided you
make timely payment of the premiums thereof in accordance with the
Consolidated Omnibus Benefit Reconciliation Act of 1985, Public Law 99-
272.
4. RELEASE OF CLAIMS.
You, for yourself and on behalf of your personal and legal representatives,
executors, administrators, successors, heirs, distributees and legatees,
intending to be legally bound, hereby forever release, waive and discharge JSB
and its direct and indirect subsidiaries and USBANCORP and its direct and
indirect subsidiaries and their respective present and former officers,
directors, stockholders, attorneys, agents and employees, both in their
official and individual capacities, from any right to reinstatement as an
employee of JSB, and any other claims, causes of action, suits, proceedings,
debts, judgments, damages, contracts, agreements, claims for attorneys' fees,
costs and demands whatsoever, in law or in equity, which you now have or may
have, arising from, or connected with, the Employment Agreement or your
employment or any other relationship with JSB, USBANCORP or U.S. Bank, but
excluding claims under this Agreement and claims described in the remainder of
this paragraph. Nothing in this Agreement shall release, waive, discharge or
diminish any of your rights to contest or litigate in any legal or
administrative forum a breach of this Agreement by USBANCORP or U.S. Bank.
Nothing in this Agreement shall release, waive, discharge or diminish any of
your rights to obtain unemployment compensation from JSB or its successors
subsequent to your Resignation Date because it is agreed that your resignation
was required to be tendered on the Resignation Date by USBANCORP, U.S. Bank and
JSB as part of their merger and it further is agreed that all of the payments
set forth in Paragraph 3 above are severance payments due and payable in a lump
sum on the Resignation Date which were earned by your work prior to that date.
Further, nothing in this Agreement shall release, waive, discharge or diminish
your right to receive a pension and other benefits under the 401k plan of JSB
or its successors since those pension and other benefits vested on or prior to
the Resignation Date. Moreover, nothing in this Agreement shall release, waive,
discharge or diminish your right to purchase continuation coverage under the
group health plan of USBANCORP for a period of 18 months subsequent to the
Resignation Date in accordance with the Consolidated Omnibus Budget
Reconciliation Act of 1985, Public Law 99-272.
5. WITHHOLDING.
JSB is authorized to withhold such amounts from payments or benefits to you
under this Agreement or otherwise as is required by law. You agree to sign such
certificates with respect to withholding as may be necessary or required by
law.
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6. MISCELLANEOUS.
(a) PRIOR AGREEMENT AND MODIFICATION. This Agreement and Exhibit 1 hereto
contain the entire understanding between or among you, on the one hand, and
JSB, USBANCORP and U.S. Bank on the other hand, with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings
and practices with respect to such subject matter, including, without
limitation, the Employment Agreement, and no change, alteration or modification
hereof may be made except in writing signed by all parties hereto.
(b) SEVERABILITY. If any one or more of the provisions contained in this
Agreement shall be held illegal or unenforceable by a court, no other
provisions shall be affected by such a holding.
(c) CHOICE OF LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of Pennsylvania,
without regard to its conflicts of law principles.
If the foregoing is acceptable to you, please acknowledge your agreement (and
that your legal representative has previously reviewed this Agreement with you
and advised you regarding its contents) by signing and dating three (3) copies
of this letter and returning two (2) of them to me whereupon this letter will
constitute our agreement with respect to the subject matter hereof.
Very truly yours,
USBANCORP, INC.
By __________________________________
Terry K. Dunkle, Executive Vice
President
UNITED STATES NATIONAL BANK IN
JOHNSTOWN
By __________________________________
Terry K. Dunkle, President and
Chief Executive Officer
JOHNSTOWN SAVINGS BANK
By __________________________________
, Chairman of the Board
AGREED TO AND ACCEPTED, INTENDING TO BE LEGALLY BOUND THIS DAY OF ,
1994:
- -------------------------------------
Patrick J. Coyne
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EXHIBIT 1
, 1994
Board of Directors
Johnstown Savings Bank
Market At Main Streets
Johnstown, Pennsylvania 15901
Board of Directors
USBANCORP, Inc.
United States National Bank in Johnstown
Main And Franklin Streets
Johnstown, Pennsylvania 15907
Ladies and Gentlemen:
Effective today, I have elected to resign as an employee of Johnstown Savings
Bank. In connection with my resignation of employment, I hereby resign as a
Director of Johnstown Savings Bank and as President and Chief Executive Officer
of Johnstown Savings Bank. I also hereby resign from all of my director and
officer positions with any of the subsidiaries of Johnstown Savings Bank.
Very truly yours,
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EXHIBIT 6B
The following severance benefits will be provided to Kenneth Andres pursuant
to a letter agreement to be executed on the closing date in substantially the
form set forth in Exhibit 6A.
<TABLE>
<CAPTION>
TOTAL GROSS PAYMENTS
--------------------
<S> <C>
Severance Agreement................................................. $162,964
Stock Options....................................................... 224,250
Excise Tax Gross-up................................................. 72,654
--------
$459,868
</TABLE>
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<PAGE>
EXHIBIT 6C
The following severance benefits will be provided to R. Craig Pugh pursuant
to a letter agreement to be executed on the closing date in substantially the
form set forth in Exhibit 6A.
<TABLE>
<CAPTION>
TOTAL GROSS PAYMENTS
--------------------
<S> <C>
Severance Agreement................................................. $146,428
Stock Options....................................................... 224,250
Excise Tax Gross-up................................................. 73,592
--------
$444,270
</TABLE>
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<PAGE>
EXHIBIT 6D
The following severance benefits will be provided to Walter F. Rusnak
pursuant to a letter agreement to be executed on the closing date in
substantially the form set forth in Exhibit 6A.
<TABLE>
<CAPTION>
TOTAL GROSS PAYMENTS
--------------------
<S> <C>
Severance Agreement................................................. $179,488
Stock Options....................................................... 224,250
--------
$402,738
</TABLE>
A-59
<PAGE>
ANNEX 1
OPINION OF LEGG MASON WOOD WALKER, INCORPORATED
SEE ANNEX B TO THE PROXY STATEMENT/PROSPECTUS
A-60
<PAGE>
ANNEX 2A
OPINION OF ALEX. BROWN & SONS INCORPORATED
SEE ANNEX C TO THE PROXY STATEMENT/PROSPECTUS
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<PAGE>
ANNEX 2B
OPINION OF RP FINANCIAL, INC.
SEE ANNEX D TO THE PROXY STATEMENT/PROSPECTUS
A-62
<PAGE>
ANNEX 3
FORM OF OPTION WAIVER LETTER
January , 1994
USBANCORP, Inc. Main & Franklin Streets Johnstown, Pennsylvania 15901
Gentlemen:
In connection with the acquisition of Johnstown Savings Bank ("JSB") by
USBANCORP, Inc. pursuant to the Merger Agreement dated November 10, 1993, as
amended January 18, 1994 (the "Merger Agreement"), I hereby agree, during the
term of the Merger Agreement not to exercise any option or options that I have
been granted by JSB to acquire JSB common stock. I understand that as a result
of the Merger, and in consideration for the cancellation of such option or
options, I will receive on the closing date of the Merger, cash in an amount
equal to the difference between $22.50 and the exercise price of the option,
multiplied by the number of JSB shares covered by such option. For example, if
I hold an option to acquire 1,000 shares at an exercise price of $10.00 per
share, I would receive $12,500 on the closing date of the Merger.
This Agreement will terminate if, for any reason, the Merger Agreement is
terminated. Intending to be legally bound, I have executed this letter and
delivered it to you. I understand that you intend to rely upon my commitment
contained in this letter.
Very truly yours,
A-63
<PAGE>
ANNEX B
[LETTERHEAD OF LEGG MASON WOOD WALKER, INCORPORATED]
January 18, 1994
Board of Directors
USBANCORP, Inc.
Main and Franklin Streets
Johnstown, Pennsylvania 15901
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to USBANCORP, Inc. ("USBANCORP") of the consideration to be paid by
USBANCORP to the shareholders of Johnstown Savings Bank ("JSB") in connection
with the merger of JSB into United States National Bank in Johnstown, the
Johnstown-based banking subsidiary of USBANCORP, pursuant to the Agreement and
Plan of Merger dated November 10, 1993, as proposed to be amended by the form
of amendment agreement presented to USBANCORP's board of directors on January
18, 1994, among USBANCORP, United States National Bank in Johnstown and JSB
(the "Agreement"). Under the Agreement, each share of JSB common stock will be
converted into and become a right to receive (1) $10.13 in cash, and (2) a
fraction of a share of USBANCORP common stock which will be not less than .4853
shares and not more than .5053 shares, subject to certain other election rights
and limitations thereon contained in the Agreement.
Legg Mason Wood Walker, Incorporated, as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, and private placements. We are familiar with USBANCORP,
having served as comanaging underwriter in connection with a recent equity
offering by USBANCORP. In the ordinary course of our securities business, we
make a market in the equity securities of USBANCORP and JSB and trade such
securities for the accounts of our customers, and we therefore may from time to
time hold a long or short position in such securities.
In arriving at our opinion, we have, among other things: (i) reviewed the
Agreement and the draft Registration Statement on Form S-4 with respect to the
merger; (ii) reviewed Annual Reports to Stockholders and Annual Reports on Form
10-K or Form F-2 for the three years ended December 31, 1992 for USBANCORP and
JSB; (iii) reviewed certain interim financial information for the three
quarters ended September 30, 1993, including Form 10-Qs and Form F-4s for
USBANCORP and JSB; (iv) analyzed certain other financial statements, data,
reports and analyses for USBANCORP and JSB prepared by their respective
managements, including preliminary financial statements with respect to the
quarter and year ended December 31, 1993 for USBANCORP and JSB and the budget
of JSB for fiscal 1994; (v) analyzed certain financial projections of
USBANCORP, both on a stand-alone and combined basis, prepared by the management
of USBANCORP; (vi) discussed the current operations, financial condition and
prospects of USBANCORP and JSB with the managements of USBANCORP and JSB; (vii)
reviewed with management of USBANCORP the results of their due diligence
examination of JSB and the expected cost savings related to the merger
contemplated by the Agreement; (viii) reviewed the reported market prices and
historical trading activity of USBANCORP and JSB common stock; (ix) compared
certain financial and stock market information for USBANCORP and JSB with
similar information for certain other publicly traded companies; (x) reviewed
the financial terms of certain recent business combinations involving financial
institutions; (xi) considered the views of management of USBANCORP regarding
the strategic importance of the merger; and (xii) analyzed the pro forma
financial impact of the merger on USBANCORP.
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<PAGE>
We have relied without independent verification upon the accuracy and
completeness of all the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed that the financial
forecasts, including without limitation, projected cost savings and earnings
enhancements, have been reasonably prepared on a basis reflecting the best
currently available judgments and estimates of the managements of USBANCORP and
JSB and that such forecasts will be realized in the amounts and at the times
contemplated thereby. We are not experts in the evaluation of loan portfolios
or the allowances for loan losses with respect thereto and have assumed,
without independent verification, that such allowances for JSB are in the
aggregate adequate to cover such losses. In addition, we have not reviewed
individual credit files nor have we made or obtained an independent evaluation
or appraisal of the assets and liabilities of USBANCORP or JSB or any of their
subsidiaries.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof the consideration to be paid by USBANCORP in the merger is fair,
from a financial point of view, to USBANCORP.
Very truly yours,
LEGG MASON WOOD WALKER, INCORPORATED
A-65
<PAGE>
ANNEX C
[LETTERHEAD OF ALEX. BROWN & SONS INCORPORATED]
January 18, 1994
The Board of Directors Johnstown Savings Bank Market at Main Streets Johnstown,
Pennsylvania 15901
Dear Sirs:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be received by the holders of the common stock,
par value $1.00 per share (the "Shares"), of Johnstown Savings Bank (the
"Company") pursuant to an Agreement and Plan of Merger dated as of November 10,
1993, and amended as of January 18, 1994 (the "Agreement"), entered into by and
between the Company and USBANCORP, Inc. ("BANCORP") providing for the merger of
the Company with and into United States National Bank in Johnstown, a wholly-
owned subsidiary of BANCORP (the "Merger"). The Agreement provides, among other
things, for each share of the Company's Shares to be converted in the Merger
into $10.13 in cash and into a fraction of a share of BANCORP common stock, par
value $2.50 per share ("BANCORP Common Stock"), as follows: (a) if the Average
Closing Price (as defined in the Agreement) on the Closing Date (as defined in
the Agreement) is less than or equal to $24.50 per share, then .5053 shares of
BANCORP Common Stock; (b) if the Average Closing Price on the Closing Date is
greater than or equal to $25.50 per share, then .4853 shares of BANCORP Common
Stock; or (c) if the Average Closing Price on the Closing Date is greater than
$24.50 per share but less than $25.50 per share, then the conversion ratio will
be determined by dividing $22.50 by the Average Closing Price and multiplying
the resulting figure by .55. The Agreement also provides the holders of the
Shares the option to convert in the Merger each share of the Company's Shares
solely into cash or BANCORP Common Stock in accordance with the procedures set
forth in the Agreement, subject to certain adjustments and limitations set
forth in the Agreement. The Agreement also authorizes the Company, its
directors, officers, employees and representatives, for a period of thirty
calendar days from the date of the Agreement (the "Marketing Period"), to take
any and all actions deemed necessary and proper by the Company to solicit,
market, initiate or engage in discussions regarding the sale or acquisition of
the Company by any third party and to execute a definitive agreement for the
sale with any third party for consideration which exceeds $22.50 per Share.
Furthermore, the Company and BANCORP have entered into a Stock Option Agreement
dated January 18, 1994 which shall become effective on the date immediately
following the expiration of the Marketing Period without the execution of a
Sale Agreement (as defined in the Agreement).
Alex. Brown & Sons Incorporated, as a customary part of its investment
banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial advisor to the Board of Directors of
the Company in connection with the transactions described above and will
receive a fee for our services which is contingent upon the consummation of the
transaction contemplated by the Agreement. Alex. Brown & Sons Incorporated
regularly publishes research reports regarding the financial services industry
and the businesses and securities of publicly owned companies in that industry.
In connection with this opinion, we have reviewed certain publicly available
financial information concerning the Company and BANCORP and certain internal
financial analyses and other information furnished to us by the Company and
BANCORP. We have also held discussions with members of the senior management of
the Company and BANCORP regarding the business and prospects of their
respective
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<PAGE>
financial institutions. In addition, we have (i) reviewed the reported price
and trading activity for the Shares and BANCORP Common Stock, (ii) compared
certain financial and stock market information for the Company and BANCORP,
respectively, with similar information for certain comparable companies whose
securities are publicly traded, (iii) reviewed the Agreement, (iv) reviewed the
financial terms of certain recent business combinations which we deemed
comparable in whole or in part, (v) reviewed the potential pro forma impact of
the Merger on BANCORP's financial condition, operating results and per share
figures and (vi) performed such other studies and analyses and considered such
other factors as we deemed appropriate.
We have not independently verified the information above and for purposes of
this opinion have assumed the accuracy, completeness and fairness thereof. With
respect to information relating to the prospects of the Company and BANCORP, we
have assumed that such information reflects the best currently available
estimates and judgments of the respective managements of the Company and
BANCORP as to the likely future financial performance of the Company and
BANCORP. In addition, we have not made an independent evaluation or appraisal
of the assets or liabilities of the Company or BANCORP, nor have we been
furnished with any such evaluation or appraisal. Our opinion is based on
market, economic and other conditions as they exist and can be evaluated as of
the date of this letter.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the consideration to be received pursuant to the Agreement
is fair, from a financial point of view, to the holders of Shares.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By:
-----------------------------
Donald W. Delson
Managing Director
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<PAGE>
ANNEX D
[RP FINANCIAL, INC. LETTERHEAD]
January 18, 1994
Board of Directors
Johnstown Savings Bank
Market at Main Street
Johnstown, Pennsylvania 15901
Gentlemen:
You have requested RP Financial, Inc. ("RP Financial") to provide you with
its opinion as to the fairness from a financial point of view to the
shareholders of Johnstown Savings Bank, Johnstown, Pennsylvania ("JSB"), of the
Agreement and Plan of Reorganization (the "Amended Merger Agreement"), dated
January 18, 1994, by and between USBANCORP, Johnstown, Pennsylvania
("USBANCORP") and JSB.
Summary Description of Key Financial Terms
Pursuant to the Merger Agreement as amended (incorporated herein by
reference), in which JSB will merge with and into USBANCORP (the "Merger"), at
the Effective Time of the Merger, each outstanding share of JSB Common Stock
will be converted into and become a right to receive $10.13 in cash and shares
of USBANCORP Common Stock pursuant to the following exchange rate (the
"Exchange Rate"): (a) 0.5053 shares if the Average Closing Price on the Closing
Date is less than or equal to $24.50 per share; (b) 0.4853 shares if the
Average Closing Price on the Closing Date is greater than or equal to $25.50
per share; or (c) if the Average Closing Price on the Closing Date is greater
than $24.50 per share but less than $25.50 per share, a ratio determined by
dividing $22.50 by the Average Closing Price and multiplying the resulting
figure by 0.55 times.
A JSB shareholder may elect to convert each share of JSB Common Stock held by
such person into either all USBANCORP Common Stock (the "Stock Election") or
(ii) an all cash consideration (the "Cash Election"). Pursuant to the Stock
Election, JSB Common Stock will be convertible to USBANCORP Common Stock in
accordance with the following Exchange Rate: (a) if the Average Closing Price
on the Closing Date is less than or equal to $24.50 per share, then 0.9184
shares of USBANCORP Common Stock; (b) if the Average Closing Price on the
Closing Date is greater than or equal to $25.50 per share, then 0.8824 shares
of USBANCORP Common Stock; or (c) if the Average Closing Price on the Closing
Date is greater than $24.50 per share but less than $25.50 per share, then the
conversion ratio will be determined by dividing $22.50 by the Average Closing
Price. Pursuant to the Cash Election, a JSB shareholder will receive $22.50 in
cash. Notwithstanding the foregoing, in the aggregate, fifty-five percent of
the shares of JSB Common Stock will be converted to USBANCORP Common Stock (the
"Common Stock Limitation") and forty-five percent of the shares of JSB Common
Stock will be converted into cash. In lieu of fractional shares, USBANCORP will
pay cash in an amount equal to the fractional part of a share to which a JSB
shareholder is entitled, multiplied by $22.50 (the assumed price of USBANCORP
Common Stock by the parties hereto for purposes of establishing the Exchange
Rate).
In connection with the Merger, (i) options to purchase up to 106,360 shares
of JSB Common Stock granted under JSB's Employee Stock Compensation Program
prior to the date of the Merger Agreement which remain unexercised prior to the
Effective Date will be converted, on the Effective Date, into a right to
receive cash in an amount equal to (a) the difference between $22.50 and the
exercise price of each option multiplied by (b) the number of shares of JSB
Common Stock covered by such option.
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<PAGE>
At the time the Merger Consideration and the Amended Merger Agreement was
negotiated, the parties agreed that USBANCORP would pay JSB shareholders
approximately $22.50 per share or more for each share of JSB Common Stock
surrendered, assuming a USBANCORP Common Stock price of at least $24.50 per
share. The number of shares of USBANCORP Common Stock to be delivered to JSB
shareholders bears the risk of change in the market value of USBANCORP Common
Stock. Therefore, the actual consideration received by JSB shareholders may be
greater or less than $22.50 per share if the Average Closing Price of USBANCORP
Common Stock on the Effective Date is greater than $25.50 per share or less
than $24.50 per share. However, pursuant to a condition of closing contained in
the Merger Agreement, if the average of the closing price of USBANCORP Common
Stock as quoted on the NASDAQ National Market System ("NASDAQ/NMS") for the ten
trading days immediately preceding the Effective Date is below $20.50 per
share, JSB may, in its discretion, terminate the Merger Agreement. As of
January 14, 1994, the value of the Merger Consideration per share of JSB Common
Stock was $22.26.
RP Financial Background and Experience
RP Financial, as part of its financial institution valuation and consulting
practice, is regularly engaged in the valuation of financial institution
securities in connection with mergers and acquisitions of commercial banks,
savings institutions and savings and loan holding companies, initial and
secondary offerings, mutual-to-stock conversions of savings institutions, and
business valuations for other corporate purposes for financial institutions. As
specialists in the securities of financial institutions, RP Financial has
experience in, and knowledge of, the Pennsylvania and surrounding regional
markets for thrift and bank securities and institutions operating in
Pennsylvania and the surrounding regional area.
Materials Reviewed
In rendering this fairness opinion letter, RP Financial reviewed and analyzed
the following material: (1) the Merger Agreement, dated November 10, 1993,
inclusive of exhibits, and the Stock Option Agreement; (2) the following
information for JSB--(a) audited financial statements for the fiscal years
ended December 31, 1988 through 1992, included or incorporated in Annual
Reports to Shareholders, or Annual Reports on Form 10-Ks or Form F-4s, and
unaudited shareholder financial statements for the nine months ended September
30, 1993, and internal reports for the 12 months ended December 31, 1993, (b)
proxy statements for the last two years, (c) the budget plan for calendar year
ended December 31, 1994, and (d) unaudited internal and regulatory financial
reports and analyses prepared by management and other related corporate records
and documents regarding various aspects of JSB's assets and liabilities,
particularly rates, volumes, maturities, market values, trends, credit risk,
interest rate risk and liquidity risk of JSB's assets, liabilities, off-balance
sheet assets, commitments and contingencies; (3) the following information for
USBANCORP--(a) audited financial statements for the calendar years ended
December 31, 1988 through 1992, included or incorporated in Annual Reports to
Shareholders or Annual Reports on Form 10Ks and unaudited shareholder financial
statements for the nine months ended September 30, 1993, and internal reports
for the 12 months ended December 31, 1993, (b) proxy statements for the last
two years, (c) 1994 budget, (d) unaudited internal and regulatory financial
reports prepared by management and other related corporate records and
documents regarding various aspects of USBANCORP's assets and liabilities,
particularly rates, volumes, maturities, market values, trends, credit risk,
interest rate risk and liquidity risk of USBANCORP's assets, liabilities, off-
balance sheet assets, commitments and contingencies; (4) discussions with JSB's
current management and USBANCORP's management regarding past and current
business operations, financial condition, and future prospects of the
respective institutions; (5) USBANCORP's results compared to the latest
publicly-available published financial statements, operating results and market
pricing of publicly-traded banks and bank holding companies, including those
with comparable characteristics and those headquartered in Pennsylvania; (6)
market value information and pricing ratios of USBANCORP Common Stock, such as
market capitalization, volume, price history, price/earnings ratio, price/book
ratio, price/tangible book ratio, price/assets ratio, dividend yield and
dividend payout ratio, compared to other publicly-traded banks and bank holding
companies, including those with comparable characteristics and
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<PAGE>
those headquartered in Pennsylvania; (7) the trading market for the JSB Common
Stock compared to similar information for savings institutions or savings and
loan holding companies with comparable resources, financial condition,
earnings, operations and markets as well as for publicly-traded savings
institutions and savings and loan holding companies with comparable financial
condition, earnings, operations and markets, including those operating in
Pennsylvania; (8) JSB's financial, operational and market area characteristics
compared to similar information for comparable savings institutions or savings
and loan holding companies, including those operating in Pennsylvania; (9)
USBANCORP's financial, operational and market area characteristics compared to
similar information for comparable savings institutions or savings and loan
holding companies, including those operating in Pennsylvania; (10) the
potential for growth and profitability for JSB and USBANCORP in their
respective markets, specifically regarding competition by other banks, savings
institutions, mortgage banking companies and other financial services
companies, economic projections in the local market area, and the impact of the
regulatory, legislative and economic environments on operations of the thrift
and banking industries; (11) the financial terms, financial and operating
conditions and market areas of other recent business combinations of comparable
savings institutions and savings and loan holding companies; and (12) the
potential pro forma impact of the Merger on USBANCORP's financial condition,
operating results and per share figures.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
JSB and USBANCORP as furnished by the respective institutions to RP Financial
for review for purposes of its opinion, as well as publicly-available
information regarding other financial institutions and economic data. With
respect to the financial forecasts RP Financial reviewed for each institution,
RP Financial assumed that they had been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the managements of each
respective institution. JSB and USBANCORP did not restrict RP Financial as to
the material it was permitted to review. RP Financial did not perform or obtain
any independent appraisals or evaluations of the assets and liabilities and
potential and/or contingent liabilities of JSB and USBANCORP. RP Financial
expresses no opinion on matters of a legal, regulatory, tax or accounting
nature or the ability of the Merger as set forth in the Merger Agreement to be
consummated.
In rendering its opinion, RP Financial assumed that in the course of
obtaining the necessary regulatory and governmental approvals for the proposed
Merger, no restriction will be imposed on USBANCORP that would have a material
adverse effect on the contemplated benefits of the Merger. RP Financial also
assumed that there would not occur any change in applicable law or regulation
that would cause a material adverse change in the prospects or operations of
USBANCORP after the Merger.
Opinion
It should be noted that this opinion is based on market conditions and other
circumstances existing on the date hereof, and this opinion does not represent
RP Financial's opinion as to what the value of the USBANCORP Common Stock
necessarily will be when the USBANCORP Common Stock is issued to the
stockholders of JSB upon consummation of the Merger or thereafter.
It is understood that this opinion may be included in its entirety in any
communication by JSB or its Board of Directors to the stockholders of JSB. This
opinion may not, however, be summarized, excerpted from or otherwise publicly
referred to without our prior written consent.
Based upon and subject to the foregoing, and other such matters as we
consider relevant, it is RP Financial's opinion that, as of the date hereof,
the Merger Consideration to be received by JSB shareholders is fair to such
shareholders from a financial point of view.
Respectfully submitted,
RP FINANCIAL, INC.
/bjd
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<PAGE>
ANNEX E
DISSENTERS' RIGHTS STATUTE
SECTION 1571. APPLICATION AND EFFECT OF SUBCHAPTER
(a) GENERAL RULE.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters' rights upon special treatment).
Section 1930 (relating to dissenters' rights).
Section 1931(d) (relating to dissenters' rights in share exchanges).
Section 1932(c) (relating to dissenters' rights in asset transfers).
Section 1952(d) (relating to dissenters' rights in division).
Section 1962(c) (relating to dissenters' rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation options where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters' rights upon election).
Section 2705(d) (relating to dissenters' rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) EXCEPTIONS.--
(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting
at which a plan specified in any of Section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters' rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares.
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<PAGE>
(ii) Shares of any preferred or special class unless the articles,
the plan or the terms of the transaction entitle all shareholders of
the class to vote thereon and require for the adoption of the plan or
the effectuation of the transaction, the affirmative vote of a majority
of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters' rights under Section 1906(c)
(relating to dissenters' rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares,
property or assets of another corporation by the issuance of shares,
obligations or otherwise, with or without assuming the liabilities of the
other corporation and with or without the intervention of another
corporation or other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this subchapter regardless
of the fact, if it be the case, that the acquisition was accomplished by
the issuance of voting shares of the corporation to be outstanding
immediately after the acquisition sufficient to elect a majority or more of
the directors of the corporation.
(c) GRANT OF OPTIONAL DISSENTERS' RIGHTS.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters' rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters' rights.
(d) NOTICE OF DISSENTERS' RIGHTS.--Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters' rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) OTHER STATUTES.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting dissenters'
rights.
(f) CERTAIN PROVISIONS OF ARTICLES INEFFECTIVE.--This subchapter may not be
relaxed by any provision of the articles.
(g) CROSS REFERENCES.--See Sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters' rights procedure).
1988, Dec. 21, P.L. 1444, No. 177, Section 103, effective Oct. 1, 1989. As
amended 1990, Dec. 19, P.L. 834, No. 198, Section 102, imd. effective.
SECTION 1572. DEFINITIONS
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"CORPORATION." The issuer of the shares held or owned by the dissenter before
the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"DISSENTER." A shareholder or beneficial owner who is entitled to and does
assert dissenters' rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
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"FAIR VALUE." The fair value of shares immediately before the effectuation of
the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"INTEREST." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
1988, Dec. 21, P.L. 1444, No. 177, Section 103, effective Oct. 1, 1989. As
amended 1990, Dec. 19, P.L. 834, No. 198, Section 102, imd. effective.
SECTION 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS
(a) RECORD HOLDERS OF SHARES.--A record holder of shares of a business
corporation may assert dissenters' rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of
the same class or series beneficially owned by any one person and discloses the
name and address of the person or persons on whose behalf he dissents. In that
event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(b) BENEFICIAL OWNERS OF SHARES.--A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters' rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters' rights a written
consent of the record holder. A beneficial owner may not dissent with respect
to some but less than all shares of the same class or series owned by the
owner, whether or not the shares so owned by him are registered in his name.
1988, Dec. 21, P.L. 1444, No. 177, Section 103, effective Oct. 1, 1989. Amended
1992, Dec. 18, P.L. , No. 169, Section 3, effective in 60 days.
SECTION 1574. NOTICE OF INTENTION TO DISSENT
If the proposed corporate action is submitted to vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed
corporate action shall constitute the written notice required by this section.
1988, Dec. 21, P.L. 1444, No. 177, Section 103, effective Oct. 1, 1989.
SECTION 1575. NOTICE TO DEMAND PAYMENT
(a) GENERAL RULE.--If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the corporation
shall send to all shareholders who are entitled to dissent and demand payment
of the fair value of their shares a notice of the adoption of the plan or other
corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
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(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification as of the date on which the shareholder, or the person on
whose behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) TIME FOR RECEIPT OF DEMAND FOR PAYMENT.--The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
1988, Dec. 21, P.L. 1444, No. 177, Section 103, effective Oct. 1, 1989.
SECTION 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) EFFECT OF FAILURE OF SHAREHOLDER TO ACT.--A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to Section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(b) RESTRICTION ON UNCERTIFICATED SHARES.--If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of Section
1577(a) (relating to failure to effectuate corporate action).
(c) RIGHTS RETAINED BY SHAREHOLDER.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
1988, Dec. 21, P.L. 1444, No. 177, Section 103, effective Oct. 1, 1989. As
amended 1990, Dec. 19, P.L. 834, No. 198, Section 102, imd. effective.
SECTION 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES
(a) FAILURE TO EFFECTUATE CORPORATE ACTION.--Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares
from any transfer restrictions imposed by reason of the demand for payment.
(b) RENEWAL OF NOTICE TO DEMAND PAYMENT.--When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirement of Section 1575 (relating to notice to demand payment), with
like effect.
(c) PAYMENT OF FAIR VALUE OF SHARES.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance
under this section will be made. The remittance or notice shall be accompanied
by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
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(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) FAILURE TO MAKE PAYMENT.--If the corporation does not remit the amount of
its estimate of the fair value of the shares as provided by subsection (c), it
shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued thereunder or
the records relating to any transferred uncertificated shares shall bear a
similar notation, together with the name of the original dissenting holder or
owner of such shares. A transferee of such shares shall not acquire by such
transfer any rights in the corporation other than those that the original
dissenter had after making demand for payment of their fair value.
1988 Dec. 21, P.L. 1444, No. 177, Section 103, effective Oct. 1, 1989. As
amended 1990, Dec. 19, P.L. 834, No. 198, Section 102, imd. effective.
SECTION 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES
(a) GENERAL RULE.--If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the
fair value of the shares, which shall be deemed a demand for payment of the
amount or the deficiency.
(b) EFFECT OF FAILURE TO FILE ESTIMATE.--Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the
corporation.
1988, Dec. 21, P.L. 1444, No. 177, Section 103, effective Oct. 1, 1989. As
amended 1990, Dec. 19, P.L. 834, No. 198, Section 102, imd. effective.
SECTION 1579. VALUATION PROCEEDINGS GENERALLY
(a) GENERAL RULE.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(b) MANDATORY JOINDER OF DISSENTERS.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each dissenter. If a dissenter is a nonresident, the copy may be served on him
in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) JURISDICTION OF THE COURT.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The
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appraiser shall have such power and authority as may be specified in the order
of appointment or in any amendment thereof.
(d) MEASURE OF RECOVERY.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(e) EFFECT OF CORPORATION'S FAILURE TO FILE APPLICATION.--If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the corporation
may do so in the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid the corporation's estimate of the fair value of the shares and no more,
and may bring an action to recover any amount not previously remitted.
1988, Dec. 21, P.L. 1444, No. 177, Section 103, effective Oct. 1, 1989.
SECTION 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS
(a) GENERAL RULE.--The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) ASSESSMENT OF COUNSEL FEES AND EXPERT FEES WHERE LACK OF GOOD FAITH
APPEARS.--Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner in
respect to the rights provided by this subchapter.
(c) AWARD OF FEES FOR BENEFITS TO OTHER DISSENTERS.--If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefitted.
1988, Dec. 21, P.L. 1444, No. 177, Section 103, effective Oct. 1, 1989.
SECTION 1930. DISSENTERS' RIGHTS
(a) GENERAL RULE.--If any shareholder of a domestic business corporation that
is to be a party to a merger or consolidation pursuant to a plan of merger or
consolidation objects to the plan of merger or consolidation and complies with
the provisions of Subchapter D of Chapter 15 (relating to dissenters' rights),
the shareholder shall be entitled to the rights and remedies of dissenting
shareholders therein provided, if any. See also section 1906(c) (relating to
dissenters' rights upon special treatment).
(b) PLANS ADOPTED BY DIRECTORS ONLY.--Except as otherwise provided pursuant
to section 1571(c) (relating to grant of optional dissenters' rights),
Subchapter D of Chapter 15 shall not apply to any of the shares of a
corporation that is a party to a merger or consolidation pursuant to section
1924(b)(1)(i) (relating to adoption by board of directors).
(c) CROSS REFERENCES.--See sections 1571(b) (relating to exceptions) and 1904
(relating to de facto transaction doctrine abolished).
1988, Dec. 21, P.L. 1444, No. 177, Section 103, effective Oct. 1, 1989. Amended
1992, Dec. 18, P.L. , No. 169, Section 3, effective in 60 days.
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ANNEX F
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement") dated January 18,
1994, is by and between USBANCORP, INC., a Pennsylvania corporation
("USBANCORP"), and JOHNSTOWN SAVINGS BANK, a Pennsylvania savings bank ("JSB").
BACKGROUND
A. USBANCORP and JSB entered into an agreement dated November 10, 1993 and
amended as of January 18, 1994 (the "Agreement"), providing, among other
things, for: (i) the merger of JSB with and into Johnstown Interim Bank
("JIB"), with JIB surviving the merger, and (ii) immediately thereafter, the
merger by JIB with and into USBANCORP's wholly-owned subsidiary U.S. National
Bank in Johnstown ("U.S. Bank"), with U.S. Bank surviving the merger (the
"Merger").
B. As a condition of USBANCORP entering into the Agreement at the exchange
ratio specified in the Agreement, JSB is granting to USBANCORP an option, which
shall become operative on the date immediately following the expiration of the
Marketing Period without execution of a Sale Agreement as authorized by Section
4.06(a) of the Agreement, to purchase up to that number of shares of common
stock of JSB as shall equal 19.9% of JSB's shares of common stock issued and
outstanding immediately prior to such purchase, on the terms and conditions
hereinafter set forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and agreements set
forth herein, USBANCORP and JSB, intending to be legally bound hereby, agree:
1. TERMINATION OF STOCK OPTION AGREEMENT. The Stock Option Agreement by and
between USBANCORP and JSB dated November 10, 1993 is hereby terminated,
cancelled, made null and void and of no effect.
2. GRANT OF OPTION. Beginning on the date immediately following the
expiration of the Marketing Period without the execution of a Sale Agreement
(as defined in Section 4.06(a) of the Agreement), JSB hereby grants to
USBANCORP, on the terms and conditions set forth herein, the option to purchase
(the "Option") up to that number of shares (the "Option Shares") of common
stock, par value $1.00 per share (the "Common Stock"), of JSB as shall equal
19.9% of the shares of Common Stock issued and outstanding immediately prior to
such purchase, at a price per share (the "Option Price") equal to the lower of
(i) $16.50 or (ii) the lowest price per share that JSB accepts in a transaction
constituting a Triggering Event under Section 2 hereof.
3. EXERCISE OF OPTION. Upon or after the occurrence of a Triggering Event (as
such term is hereinafter defined) and until termination of this Stock Option
Agreement in accordance with the provisions of Section 22, USBANCORP may
exercise the Option, in whole or in part, at any time or one or more times,
from time to time. As used herein, the term "Triggering Event" means the
occurrence of any of the following events:
(a) a person or group (as such terms are defined in the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder), other than USBANCORP or an affiliate of USBANCORP,
acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 15% of the then outstanding shares of Common
Stock;
(b) a person or group, other than USBANCORP or an affiliate of USBANCORP,
enters into an agreement or letter of intent with JSB pursuant to which
such person or group or any affiliate of such person or group would (i)
merge or consolidate, or enter into any similar transaction, with JSB,
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(ii) acquire all or substantially all of the assets or liabilities of JSB,
or (iii) acquire beneficial ownership of securities representing, or the
right to acquire beneficial ownership or to vote securities representing,
more than 15% of the then outstanding shares of Common Stock; or
(c) a person or group, other than USBANCORP or an affiliate of USBANCORP,
publicly announces a bona fide proposal (including a written communication
that is or becomes the subject of public disclosure) for (i) any merger,
consolidation or acquisition of all or substantially all the assets or
liabilities of JSB, or any other business combination involving JSB, or
(ii) a transaction involving the transfer of beneficial ownership of
securities representing, or the right to acquire beneficial ownership or to
vote securities representing, more than 15% of the then outstanding shares
of Common Stock (collectively, a "Proposal"), and thereafter, if such
Proposal has not been Publicly Withdrawn (as such term is hereinafter
defined) at least 30 days prior to the meeting of shareholders of JSB
called to vote on the Merger, JSB's shareholders fail to approve the Merger
by the vote required by applicable law at the meeting of shareholders
called for such purpose or such meeting has been cancelled; or
(d) a person or group, other than USBANCORP or an affiliate of USBANCORP,
makes a bona fide Proposal and thereafter, but before such Proposal has
been Publicly Withdrawn, JSB willfully takes any action in a manner which
would materially interfere with JSB's ability to consummate the Merger or
materially reduce the value of the transaction to USBANCORP;
(e) JSB violates the provisions of Section 4.06(b) of the Agreement; or
(f) JSB breaches, in any material respect, any binding terms of the
Agreement or any provision of this Stock Option Agreement after a Proposal
is made and before it is Publicly Withdrawn or publicly announces an
intention to authorize, recommend or accept any such Proposal.
"Publicly Withdrawn" for purposes of this Section 3 shall mean an
unconditional bona fide withdrawal of the Proposal coupled with a public
announcement of no further interest in pursuing such Proposal or in acquiring
any controlling influence over JSB or in soliciting or inducing any other
person (other than USBANCORP or an affiliate of USBANCORP) to do so.
Notwithstanding the foregoing, the obligation of JSB to issue Option Shares
upon exercise of the Option shall be deferred (but shall not terminate) (i)
until the receipt of all required governmental or regulatory approvals or
consents necessary for JSB to issue the Option Shares, or USBANCORP to exercise
the Option, or until the expiration or termination of any waiting period
required by law, or (ii) so long as any injunction or other order, decree or
ruling issued by any federal or state court of competent jurisdiction is in
effect which prohibits the sale or delivery of the Option Shares, and, in each
case, notwithstanding any provision to the contrary set forth herein, the
Option shall not expire or otherwise terminate.
JSB shall notify USBANCORP promptly in writing of the occurrence of any
Triggering Event known to it, it being understood that the giving of such
notice by JSB shall not be a condition to the right of USBANCORP to exercise
the Option. JSB will not take any action which would have the effect of
preventing or disabling JSB from delivering the Option Shares to USBANCORP upon
exercise of the Option or otherwise performing its obligations under this Stock
Option Agreement. In the event USBANCORP wishes to exercise the Option,
USBANCORP shall send a written notice to JSB (the date of which is hereinafter
referred to as the "Notice Date") specifying the total number of Option Shares
it wishes to purchase and a place and date between two and ten business days
inclusive from the Notice Date for the closing of such a purchase (a
"Closing"); provided, however, that a Closing shall not occur prior to two days
after the later of receipt of any necessary regulatory approvals or the
expiration of any legally required notice or waiting period, if any.
4. PAYMENT AND DELIVERY OF CERTIFICATES. At any Closing hereunder, (a)
USBANCORP will make payment to JSB of the aggregate price for the Option Shares
so purchased by wire transfer of immediately available funds to an account
designated by JSB, (b) JSB will deliver to USBANCORP a stock certificate or
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certificates representing the number of Option Shares so purchased, registered
in the name of USBANCORP or its designee, in such denominations as were
specified by USBANCORP in its notice of exercise, and (c) USBANCORP will pay
any transfer or other taxes required by reason of the issuance of the Option
Shares so purchased.
5. REGISTRATION RIGHTS. Upon or after the occurrence of a Triggering Event
and upon receipt of a written request from USBANCORP, JSB shall promptly
prepare an offering circular in compliance, in all material respects, with the
Federal Deposit Insurance Act, as amended, and the regulations promulgated
thereunder and covering such number of Option Shares as USBANCORP shall specify
in its request, provided that USBANCORP shall in no event have the right to
have more than one offering circular prepared, and provided further that JSB
shall not be required to prepare any offering circular in connection with any
proposed sale with respect to which JSB's counsel delivers to JSB and to
USBANCORP its unqualified opinion to the effect that, assuming the Common Stock
was not an exempt security under Section 3 of the Securities Act of 1933, as
amended, such sale or disposition would nevertheless be an exempt transaction
under Section 4 of the Securities Act of 1933, as amended. In connection with
such offering circular, JSB shall use its best efforts to cause to be delivered
to USBANCORP such certificates, opinions, accountant's letters and other
documents as USBANCORP shall reasonably request and as are customarily provided
in connection with registrations of securities under the Securities Act of
1933, as amended. JSB shall provide to USBANCORP such number of copies of the
preliminary offering circular and final offering circular and any amendments
and supplements thereto as USBANCORP may reasonably request. All reasonable
expenses incurred by JSB in complying with the provisions of this Section 5,
including, without limitation, all registration and filing fees, reasonable
printing expenses, reasonable fees and disbursements of counsel for JSB and
blue sky fees and expenses, shall be paid by JSB. Underwriting discounts and
commissions to brokers and dealers relating to the Option Shares, fees and
disbursements of counsel to USBANCORP and any other expenses incurred by
USBANCORP in connection with such offering circular shall be borne by
USBANCORP. In connection with such offering circular, JSB shall indemnify and
hold harmless USBANCORP against any losses, claims, damages or liabilities,
joint or several, to which USBANCORP may become subject, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in any preliminary or final offering circular or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
JSB will reimburse USBANCORP for any legal or other expense reasonably incurred
by USBANCORP in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that JSB will not be
liable in any case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such preliminary or final offering
circular or such amendment or supplement thereto in reliance upon and in
conformity with written information furnished by or on behalf of USBANCORP
specifically for use in the preparation thereof. USBANCORP will indemnify and
hold harmless JSB to the same extent as set forth in the immediately preceding
sentence but only with reference to written information furnished by or on
behalf of USBANCORP for use in the preparation of such preliminary or final
offering circular or such amendment or supplement thereto; and USBANCORP will
reimburse JSB for any legal or other expense reasonably incurred by JSB in
connection with investigating or defending any such loss, claim, damage,
liability or action.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change in
the Common Stock by reason of stock dividends, split-ups, recapitalizations,
combinations, conversions, divisions, exchanges of shares or the like, then the
number and kind of Option Shares and the Option Price shall be appropriately
adjusted.
7. REPURCHASE OF OPTION.
(a) Upon the occurrence of a Triggering Event, at the request of
USBANCORP, delivered within 60 days of such occurrence, JSB shall
repurchase the Option from USBANCORP at a price (the "Option
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Repurchase Price") equal to (i) the amount by which (A) the market/offer
price (as defined below) exceeds (B) the Option Price, multiplied by the
number of shares for which this Option may then be exercised, plus (ii)
USBANCORP's Out-of-Pocket Expenses (as defined below) (to the extent not
previously reimbursed). The term "Out-of-Pocket Expenses" shall mean
USBANCORP's reasonable out-of-pocket expenses incurred in connection with
the transactions contemplated by the Agreement, including, without
limitation, legal, accounting and investment banking fees. The term
"market/offer price" shall mean the highest of (i) the price per share of
Common Stock at which a tender offer or exchange offer therefor has been
made, (ii) the price per share of Common Stock to be paid by any third
party pursuant to an agreement with JSB, or (iii) in the event of a sale of
all or substantially all of JSB's assets, the sum of the price paid in such
sale for such net assets and the current market value of the remaining
assets of JSB as determined by an investment banking firm selected by
USBANCORP, divided by the number of shares of Common Stock outstanding at
the time of such sale. In determining the market/offer price, the value of
consideration other than cash shall be determined by a nationally
recognized investment banking firm acceptable to both parties.
(b) USBANCORP may exercise its right to require JSB to repurchase the
Option pursuant hereto by surrendering for such purpose to JSB, at its
principal office, a copy of this Option Agreement, accompanied by a written
notice or notices stating that USBANCORP elects to require JSB to
repurchase this Option in accordance with the provisions hereof. Subject to
Paragraph 7(c) below, as promptly as practicable, and in any event within
five business days after the surrender of the Option and the receipt of
such notice or notices relating thereto, JSB shall deliver or cause to be
delivered to USBANCORP the Option Repurchase Price therefor or the portion
thereof that JSB is not then prohibited under applicable law and regulation
from so delivering.
(c) To the extent that JSB is prohibited under applicable law or
regulation, or as a result of administrative or judicial action from
repurchasing the Option in full, JSB shall immediately so notify USBANCORP
and thereafter deliver or cause to be delivered, from time to time, to
USBANCORP, the portion of the Option Repurchase Price that it is no longer
prohibited from delivering, within seven business days after the date on
which JSB is no longer so prohibited; provided, however, that if JSB at any
time after delivery of a notice of repurchase pursuant to paragraph 7(b)
above is prohibited under applicable law or regulation, from delivering the
Option Repurchase Price in full (and JSB hereby undertakes to use its best
efforts to obtain all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish such
repurchase), USBANCORP may revoke its notice of repurchase of the Option
either in whole or to the extent of the prohibition, whereupon, in the
latter case, JSB shall promptly (i) to the extent of USBANCORP's partial
revocation notice, deliver to USBANCORP that portion of the Option Purchase
Price that JSB is not prohibited from delivering; and, (ii) deliver, to
USBANCORP, a new Stock Option Agreement evidencing the right of USBANCORP
to purchase that number of shares of Common Stock obtained by multiplying
the number of shares of Common Stock for which the surrendered Stock Option
Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase
Price less the portion thereof theretofore delivered to USBANCORP and the
denominator of which is the Option Repurchase Price.
8. FILINGS AND CONSENTS. Each of USBANCORP and JSB will use its best efforts
to make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Stock Option Agreement. Within 10 days from the date
hereof, USBANCORP shall file a report of beneficial ownership on Form F-11 with
the Federal Deposit Insurance Corporation under the Exchange Act which
discloses the rights of USBANCORP hereunder.
9. REPRESENTATIONS AND WARRANTIES OF JSB. JSB hereby represents and warrants
to USBANCORP as follows:
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(a) Due Authorization. JSB has full corporate power and authority to
execute, deliver and perform this Stock Option Agreement and all corporate
action necessary for execution, delivery and performance of this Stock
Option Agreement has been duly taken by JSB. This Stock Option Agreement
constitutes a legal, valid and binding obligation of JSB, enforceable
against JSB in accordance with its terms.
(b) Authorized Shares. JSB has taken all necessary corporate action to
authorize and reserve for issuance all shares of Common Stock that may be
issued pursuant to any exercise of the Option.
10. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Stock Option Agreement and that
the obligations of the parties hereto shall be specifically enforceable.
11. ENTIRE AGREEMENT. This Stock Option Agreement and the Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof.
12. ASSIGNMENT OR TRANSFER. USBANCORP may not sell, assign or otherwise
transfer its rights and obligations hereunder, in whole or in part, to any
person or group of persons other than to a subsidiary of USBANCORP. USBANCORP
represents that it is acquiring the Option for USBANCORP's own account and not
with a view to, or for sale in connection with, any distribution of the Option
or the Option Shares. USBANCORP is aware that neither the Option nor the Option
Shares are the subject of a registration statement filed with, and declared
effective by, the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of 1933, as amended, but instead are being offered in
reliance upon the exemption from the registration requirement provided by
Section 3 thereof.
13. AMENDMENT OF STOCK OPTION AGREEMENT. By mutual consent of the parties
hereto, this Stock Option Agreement may be amended in writing at any time, for
the purpose of facilitating performance hereunder or to comply with any
applicable regulation of any governmental authority or any applicable order of
any court or for any other purpose.
14. VALIDITY. The invalidity or unenforceability of any provision of this
Stock Option Agreement shall not affect the validity or enforceability of any
other provisions of this Stock Option Agreement, which shall remain in full
force and effect.
15. NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered personally, by telegram or telecopy, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
(i) If to USBANCORP, to:
USBANCORP, Inc. Main & Franklin Streets Johnstown, Pennsylvania 15907
Attention: Terry K. Dunkle, Executive Vice President and Orlando B. Hanselman
Telecopy No.: (814) 533-5427
A-81
<PAGE>
with a copy to:
Stevens & Lee
Four Glenhardie Corporate Center
1255 Drummers Lane
P.O. Box 236
Wayne, Pennsylvania 19087
Attention: Jeffrey P. Waldron, Esquire
Telecopy No.: (215) 687-1384
(ii) If to JSB, to:
Johnstown Savings Bank
Market & Main Streets
Johnstown, Pennsylvania 15907
Attention: Patrick J. Coyne, President and
Chief Executive Officer
Telecopy No.: (814) 535-8970
with copies to:
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
Attention: Raymond A. Tiernan, Esquire
Telecopy No.: (202) 347-2172
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
16. GOVERNING LAW. This Stock Option Agreement shall be governed by and
construed in accordance with the domestic internal law (but not the law of
conflicts of law) of the Commonwealth of Pennsylvania.
17. CAPTIONS. The captions in this Stock Option Agreement are inserted for
convenience and reference purposes, and shall not limit or otherwise affect any
of the terms or provisions hereof.
18. WAIVERS AND EXTENSIONS. The parties hereto may, by mutual consent, extend
the time for performance of any of the obligations or acts of either party
hereto. Each party may waive (i) compliance with any of the covenants of the
other party contained in this Stock Option Agreement and/or (ii) the other
party's performance of any of its obligations set forth in this Stock Option
Agreement.
19. PARTIES IN INTEREST. This Stock Option Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this Stock
Option Agreement, express or implied, is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Stock Option Agreement.
20. COUNTERPARTS. This Stock Option Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
A-82
<PAGE>
21. EXPENSES. Except as otherwise provided herein, all costs and expenses
incurred by the parties hereto in connection with the transactions contemplated
by this Stock Option Agreement or the Option shall be paid by the party
incurring such cost or expense.
22. TERMINATION. This Stock Option Agreement shall terminate and be of no
further force or effect (i) upon the execution of a Sale Agreement by JSB
pursuant to Section 4.06(a) of the Agreement; (ii) upon consummation of the
transactions contemplated by the Agreement with respect to the Merger; (iii)
except as set forth in subsection (iv) below, upon termination of the Agreement
in accordance with the provisions thereof; or (iv) twelve (12) months after
termination of the Agreement if such termination (whether by JSB or USBANCORP)
resulted, directly or indirectly, in whole or in part, from a willful breach by
JSB of any representation, warranty or covenant set forth in the Agreement;
provided, however, that this subsection (iv) shall not apply to a termination
of the Agreement pursuant to Section 6.01(a) of the Agreement. Notwithstanding
the foregoing, the rights granted to USBANCORP in Section 5 of this Stock
Option Agreement shall survive the termination of this Stock Option Agreement
pursuant to Section 22(iv) of this Stock Option Agreement for a period of
twelve (12) months following such termination.
IN WITNESS WHEREOF, each of the parties hereto, pursuant to resolutions
adopted by its Board of Directors, has caused this Stock Option Agreement to be
executed by its duly authorized officer and has caused its corporate seal to be
affixed hereunto and to be duly attested, all as of the day and year first
above written.
USBANCORP, INC.
By: /s/ TERRY K. DUNKLE
---------------------------------
Terry K. Dunkle, Executive Vice
President
(CORPORATE SEAL)
Attest: /s/ BETTY L. JAKELL
-----------------------------
Betty L. Jakell,
Assistant Secretary
JOHNSTOWN SAVINGS BANK
By: /s/ PATRICK J. COYNE
---------------------------------
Patrick J. Coyne,
President
(CORPORATE SEAL)
Attest: /s/ WALTER F. RUSNAK
-----------------------------
Walter F. Rusnak,
Assistant Secretary
A-83
<PAGE>
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS OF USBANCORP, INC.
The undersigned shareholder(s) of USBANCORP, Inc., Johnstown, Pennsylvania
do(es) hereby appoint Earl F. Glock and James V. Saly, or either one of them my
(our) attorney(s) with full power of substitution, for me (us) and in my (our)
name(s), to vote all the common stock of said Corporation standing in my (our)
name(s) on its books on April 29, 1994, at the Annual Meeting of its
Shareholders to be held at the Radisson Hotel, 101 Mall Boulevard, Monroeville,
Pennsylvania 15146, on Wednesday, June 8, 1994, at 1:30 p.m., or any
adjournment(s) thereof, as follows:
Mark an "X" in the box below to indicate your vote.
1. Merger Proposal
FOR approval of the Merger Proposal [_]
AGAINST approval of the Merger Proposal [_]
ABSTAIN [_]
2. Adjournment of USBANCORP Annual Meeting
FOR approval of Adjournment [_]
AGAINST approval of Adjournment [_]
ABSTAIN [_]
3. Election of Directors
FOR all nominees listed below WITHHOLD AUTHORITY to vote for
(except as marked to the all nominees listed below [_]
contrary below) [_]
SPECIAL INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE(S), DRAW A LINE THROUGH THE NOMINEE'S NAME(S) BELOW.
CLASS II DIRECTORS FOR TERMS EXPIRING 1997
Clifford A. Barton Frank J. Pasquerilla W. Harrison Vail
James F. O'Malley Thomas C. Slater
4. Amendment to Articles of Incorporation
FOR approval of the Amendment [_]
AGAINST approval of the Amendment [_]
ABSTAIN [_]
5. In their discretion, vote upon such other matters as may properly come
before the meeting or any adjournment(s) thereof.
(Proxy continued on reverse side)
<PAGE>
IN ABSENCE OF A CONTRARY DIRECTION, THE SHARES REPRESENTED SHALL BE VOTED IN
FAVOR OF ITEMS 1, 2, 3, AND 4, AND IN THE BEST JUDGMENT OF THE PERSONS NAMED IN
THIS PROXY WITH RESPECT TO ITEM 5.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO EXERCISE.
This will ratify and confirm all that said attorney(s) may do or cause to be
done by virtue hereof. Said attorney(s) is (are) hereby authorized to exercise
all the power that I (we) would possess if present personally at said meeting
or any adjournment(s) thereof. I (we) hereby revoke all proxies by me (us)
heretofore given for any meeting of Shareholders of said Corporation.
Receipt is acknowledged of the Notice and Proxy Statement for said meeting,
each dated May 5, 1994.
If you plan on attending the meeting in person, indicate in the box below.
WILL ATTEND [_]
-------------------------------------------
Signature of Shareholder
-------------------------------------------
Signature of Shareholder
Please date and sign exactly as your name(s)
appear(s) hereon. When signing as attorney,
executor, administrator, trustee or guardian,
etc., you should indicate your full title. If
stock is in joint name(s), each joint owner
should sign.
Date: ________________________________, 1994
PLEASE SIGN AND RETURN PROMPTLY IN ENCLOSED ADDRESSED ENVELOPE
<PAGE>
REVOCABLE PROXY JOHNSTOWN SAVINGS BANK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF JOHNSTOWN
SAVINGS BANK ("JOHNSTOWN" OR THE "BANK") FOR USE ONLY AT THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON THURSDAY, JUNE 9, 1994, AND AT ANY ADJOURNMENT
THEREOF.
The undersigned, being a stockholder of the Bank hereby appoints Messrs.
Coyne, Gunter and Kriak, or any one of them, as proxies, each with power to
appoint his substitute, and hereby authorizes them to represent and vote, as
designated below, all the shares of Common Stock of the Bank held of record by
the undersigned on April 29, 1994, at the Annual Meeting of Stockholders of
the Bank to be held at the Holiday Inn, located at 250 Market Street,
Johnstown, Pennsylvania, on Thursday, June 9, 1994, at 10:00 a.m., and at any
adjournment of said meeting.
1. PROPOSAL TO approve the Agreement and Plan of Merger (the "Merger
Agreement"), dated November 10, 1993, and amended January 18, 1994, among
USBANCORP, Inc., United States National Bank in Johnstown ("U.S. Bank") and
Johnstown, providing for the merger of Johnstown with and into U.S. Bank.
FOR [_] AGAINST [_] ABSTAIN [_]
2. PROPOSAL TO adjourn the Annual Meeting, if necessary, in order to give the
Board of Directors more time to solicit additional proxies in favor of the
Merger Agreement.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Election of Directors:
FOR all nominees listed below WITHHOLD AUTHORITY to vote for
(except as marked to the contrary all nominees listed below [_]
below) [_]
James C. Dewar; James M. Edwards, Sr.; Kim W. Kunkle;
and Howard M. Picking, III.
(Instructions: TO WITHHOLD authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
4. PROPOSAL TO ratify the appointment of KPMG Peat Marwick as the independent
auditors of the Bank for the year ending December 31, 1994.
FOR [_] AGAINST [_] ABSTAIN [_]
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Proxy continued on reverse side)
<PAGE>
This proxy may be revoked at any time before it is exercised.
This proxy is solicited by the Board of Directors. Shares of Common Stock of
the Bank will be voted as specified. If no specification is made above, shares
will be voted FOR approval of the Merger Agreement in Proposal 1, FOR
adjournment of the Annual Meeting if necessary in Proposal 2, FOR the election
of the nominees in Proposal 3 and FOR ratification of the independent auditors
in Proposal 4 and otherwise at the discretion of the proxies. This proxy
cannot be voted for any person who is not a nominee of the Board of Directors
of the Bank.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders of the Bank called for Thursday, June 9, 1994, and a Joint Proxy
Statement for the Annual Meeting prior to the signing of this proxy.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
Dated: _______________________, 1994
------------------------------------
Signature
------------------------------------
Signature
Please sign exactly as your name(s)
appear(s) on this proxy. When signing
a representative capacity, please
give title.
PLEASE SIGN AND RETURN PROMPTLY IN ENCLOSED ADDRESSED ENVELOPE
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 1741, 1742 and 1743 of the Pennsylvania Business Corporation Law of
1988, as amended, set forth circumstances under which directors and officers
may be indemnified against liability. USBANCORP's Bylaws specifically provide
that the directors, officers, agents and employees of USBANCORP may be
indemnified against liability to the fullest extent permitted by law.
USBANCORP has purchased a liability insurance policy which insures USBANCORP,
under certain circumstances, in the event it indemnifies a director or officer
of USBANCORP or a subsidiary pursuant to the provisions of the Bylaws of
USBANCORP or otherwise or advances costs (including the cost of defending any
action) incurred by directors or officers in their capacity as such.
ITEM 21. EXHIBITS.
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger dated as of November 10, 1993 and amended
January 18, 1994, among USBANCORP, Inc., United States National Bank in
Johnstown, and Johnstown Savings Bank (See Annex A to the Proxy
Statement/Prospectus).
3.1 Articles of Incorporation of USBANCORP, Inc. (incorporated herein by
reference to Exhibit 4.1 to Form S-2, 33-56684).
3.2 Bylaws of USBANCORP, Inc. (incorporated herein by reference to Exhibit
4.2 to Form S-2,33-56684).
4.1 Shareholder Protection Rights Agreement, dated as of November 10, 1989,
between USBANCORP, Inc. and United States National Bank in Johnstown, as
Rights Agent (incorporated by reference to Exhibit 4.2 to Form S-2, 33-
56684).
5. Opinion of Stevens & Lee re: legality.*
8. Opinion of Stevens & Lee re: certain federal income tax matters.
10.1 Agreement, dated as of June 23, 1988 between USBANCORP, Inc. and W.
Harrison Vail (incorporated herein by reference to Exhibit 10.3 to Form
S-2, File No. 33-56684).
10.2 Employment Agreement, dated as of November 19, 1991, between Community
Bancorp, Inc. and Kenneth J. Tyson (incorporated herein by reference to
Exhibit 10.4 to Form S-2, File No. 33-56684).
10.4 Loan Agreement, dated March 26, 1992 between USBANCORP, Inc. and
Pittsburgh National Bank (incorporated herein by reference to Exhibit
10.6 to Form S-2, File No. 33-56684).
10.5 Collective Bargaining Agreement, dated October 16, 1991 between United
States National Bank in Johnstown and Steel Workers of America, AFL-CIO-
CLC Local Union 8204 (incorporated herein by reference to Exhibit 10.7 to
Form S-2 File No. 33-56684).
10.6 Agreement, dated January 8, 1990, among USBANCORP, Inc.; Brookside
Associates, Inc.;
First Carolina Investors, Inc.; Foundation Lyric; Hoffin, Anstalt, John
G. Ogilvie; Trust Alvant and Robert G. Wilmers (incorporated herein by
reference to Exhibit 10.8 to Form S-2, File
No. 33-56684).
10.7 1991 Stock Option Plan, dated August 23, 1991 (incorporated herein by
reference to Exhibit 10.9 to Form S-2, File No. 33-56684).
21. Subsidiaries of USBANCORP, Inc.*
23.1 Consent of Stevens & Lee (included in Exhibit 5 herein).*
23.3 Consent of Arthur Andersen & Co.
23.4 Consent of Price Waterhouse.
23.5 Consent of KPMG Peat Marwick.
23.6 Consent of Ernst & Young.
23.7 Consent of James M. Edwards, Sr.
23.8 Consent of James C. Dewar.
24. Power of Attorney (included on signature page hereto).
</TABLE>
- ------
* Previously filed.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS.
1. RULE 415 OFFERING: The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any fact or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. FILING INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE: The
undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. INCORPORATED ANNUAL AND QUARTERLY REPORTS: The undersigned registrant
hereby undertakes to deliver or cause to be delivered with the prospectus, to
each person to whom the prospectus is sent or given, the latest annual report
to security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X is not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
4. REGISTRATION ON FORM S-4 OF SECURITIES OFFERED FOR RESALE:
(a) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(b) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (a) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities Act of 1933, as
amended, and is used in connection with an offering of securities subject
to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-2
<PAGE>
5. INDEMNIFICATION: Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the bylaws of the registrant,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
6. REQUEST FOR INFORMATION: The undersigned registrant hereby undertakes to
respond to requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
7. POST-EFFECTIVE AMENDMENTS: The undersigned registrant hereby undertakes to
supply by means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that was not the
subject of and included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment No. 1 to this Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Johnstown, Commonwealth of Pennsylvania,
April 27, 1994.
USBANCORP, INC.
By: /s/ Terry K. Dunkle
-------------------------------------
Terry K. Dunkle Chairman,
President and Chief Executive
Officer
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
as of March 25, 1994. Each of the persons whose signature appears below hereby
authorizes Terry K. Dunkle or Orlando B. Hanselman to execute in the name of
each person, and to file, any amendment to this Registration Statement as the
Registrant deems appropriate and appoints such persons as his or her attorney-
in-fact to sign on his or her behalf individually and in each capacity stated
below and file all amendments and file post-effective amendments to this
Registration Statement.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Terry K. Dunkle Chairman, President and Chief
- -------------------------------------------- Executive Officer (Principal Executive Officer)
Terry K. Dunkle
Orlando B. Hanselman* Executive Vice President,
- -------------------------------------------- Treasurer and Chief Financial Officer
Orlando B. Hanselman (Principal Financial and Accounting Officer)
Jerome M. Adams* Director
- --------------------------------------------
Jerome M. Adams
Robert A. Allen* Director
- --------------------------------------------
Robert A. Allen
Clifford A. Barton* Director
- --------------------------------------------
Clifford A. Barton
Michael F. Butler* Director
- --------------------------------------------
Michael F. Butler
Louis Cynkar* Director
- --------------------------------------------
Louis Cynkar
Richard W. Kappel* Director
- --------------------------------------------
Richard W. Kappel
John H. Kunkle, Jr.* Director
- --------------------------------------------
John H. Kunkle, Jr.
James F. O'Malley* Director
- --------------------------------------------
James F. O'Malley
Frank J. Pasquerilla* Director
- --------------------------------------------
Frank J. Pasquerilla
Jack Sevy* Director
- --------------------------------------------
Jack Sevy
Thomas C. Slater* Director
- --------------------------------------------
Thomas C. Slater
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
James C. Spangler* Director
- --------------------------------------------
James C. Spangler
Kenneth J. Tyson* Director
- --------------------------------------------
Kenneth J. Tyson
W. Harrison Vail* Director
- --------------------------------------------
W. Harrison Vail
Robert L. Wise* Director
- --------------------------------------------
Robert L. Wise
</TABLE>
*By: /s/ Terry K. Dunkle
-----------------------------------
Terry K. Dunkle, Attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- ----------
<C> <S> <C>
8. Opinion of Steven & Lee re: Federal income tax
matters.
23.3 Consent of Arthur Andersen & Co.
23.4 Consent of Price Waterhouse.
23.5 Consent of KPMG Peat Marwick.
23.6 Consent of Ernst & Young.
23.7 Consent of James M. Edwards, Sr.
23.8 Consent of James C. Dewar
</TABLE>
II-7
<PAGE>
GRAPHIC APPENDIX LIST
1. USBANCORP, Inc. and Johnstown Savings Bank Branch Network Maps
a. The USBANCORP, Inc. Service Area Map shows the location, within
Pennsylvania, of the counties in which branches of USBANCORP's subsidiaries
are located. These counties are Clearfield, Cambria, Allegheny, Washington,
Westmoreland and Somerset. Below the Pennsylvania map, the six counties
served by USBANCORP's subsidiaries are enlarged to show the location within
these counties of the bank branches.
b. The U.S. Bank and Johnstown Savings Bank Cambria County Offices Map
shows the location, within Cambria County, of the Johnstown Savings Bank
branches and the U.S. Bank branches. For the Johnstown metropolitan area,
the map includes a close-up view of the streets on which the bank branches
are located.
2. USBANCORP, Inc.--Shareholders Return Performance Graph
See the Performance Table set forth under the heading "ELECTION OF USBANCORP
DIRECTORS--Executive Compensation" in the Proxy Statement/Prospectus.
3. Johnstown Savings Bank--Stock Performance Graph.
See the Performance Table set forth under the heading "ELECTION OF JSB
DIRECTORS--Executive Compensation." in the Proxy Statement/Prospectus.
<PAGE>
EXHIBIT 8
April 28, 1994
Dear Sirs:
We are acting as counsel to USBANCORP, Inc. in connection with (i) the
proposed merger of Johnstown Savings Bank with and into Johnstown Interim Bank
("JIB"), and (ii) the subsequent merger of JIB with and into United States
National Bank in Johnstown. In that connection, our opinions as to the material
consequences of such mergers being treated as reorganizations for federal
income tax purposes are as set forth under the section entitled "The Merger--
Tax Consequences" in the Proxy Statement/Prospectus relating to the above-
described transactions (the "Proxy Statement/Prospectus").
We hereby consent to the filing of this opinion as Exhibit 8 to the USBANCORP
Registration Statement on Form S-4 of which the Proxy Statement/Prospectus is a
part and to the use of our name under the above-referenced section of the Proxy
Statement/Prospectus.
Very truly yours,
STEVENS & LEE
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 28, 1994
included in USBANCORP, Inc.'s Form 10K for the year ended December 31, 1993 and
to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania,
April 26, 1994
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of USBANCORP, Inc. of our report dated February 12, 1992 appearing on page
34 of the USBANCORP, Inc's Annual Report and Form 10-K for the year ended
December 31, 1993. We also consent to the references to us under the headings
"Experts" and "Selected Historical Financial Data" in such Proxy
Statement/Prospectus. However, it should be noted that Price Waterhouse has not
prepared or certified such "Selected Historical Financial Data."
Price Waterhouse
Price Waterhouse
600 Grant Street
Pittsburgh, PA 15219-9954
April 26, 1994
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors Johnstown Savings Bank
We consent to the use of our report dated January 28, 1994 included herein
and to the reference to our firm under the heading "Experts" in the
registration statement on Form S-4.
Our report refers to the adoption of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," and No.
109, "Accounting for Income Taxes."
KPMG PEAT MARWICK
Pittsburgh, Pennsylvania
April 26, 1994
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 30, 1992, with respect to the financial
statements of Johnstown Savings Bank included in the Registration Statement
(Form S-4 No. 33-52837) and related Prospectus of USBANCORP, Inc. for the
registration of 988,260 shares of its common stock.
ERNST & YOUNG
April 27, 1994
Pittsburgh, Pennsylvania
<PAGE>
EXHIBIT 23.7
CONSENT OF PERSON TO BECOME A DIRECTOR
I, James M. Edwards, Jr., hereby consent to being named in the Form S-4
Registration Statement of USBANCORP, Inc. ("USBANCORP") and in the Joint Proxy
Statement/Prospectus of USBANCORP and Johnstown Savings Bank contained therein
as a person who may become a director of USBANCORP.
/s/ James M. Edwards, Jr.
-------------------------------------
James M. Edwards, Jr.
Dated: April 26, 1994
<PAGE>
EXHIBIT 23.8
CONSENT OF PERSON TO BECOME A DIRECTOR
I, James C. Dewar, hereby consent to being named in the Form S-4 Registration
Statement of USBANCORP, Inc. ("USBANCORP") and in the Joint Proxy
Statement/Prospectus of USBANCORP and Johnstown Savings Bank contained therein
as a person who may become a director of USBANCORP.
/s/ James C. Dewar
-------------------------------------
James C. Dewar
Dated: April 26, 1994
