As filed with the Securities and Exchange Commission on November __, 1996.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
JEFFBANKS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 6060 23-2189480
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1609 Walnut Street, Philadelphia, PA 19103 (215) 564-5040
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
Betsy Z. Cohen, Esquire
Chairman and Chief Executive Officer
JeffBanks, Inc.
1609 Walnut Street
Philadelphia, PA 19103
(215) 564-5040
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
With copies to:
J. Baur Whittlesey, Esquire Lawrence Wiseman, Esquire
Ledgewood Law Firm, P.C. Blank, Rome, Comisky & McCauley
1521 Locust Street, Suite 800 Four Penn Center Plaza
Philadelphia, PA 19102 Philadelphia, PA 19103
(215) 735-0663 (215) 569-5549
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being registered 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
- --------------------------------------------------------------------------------
Proposed maximum Proposed maximum
Title of each class offering aggregate Amount of
of securities to be Amount to be price per offering registration
registered registered unit(2) price fee
- --------------------------------------------------------------------------------
Common Stock (par
value $1.00 per
share)(1).......... 755,720 $17.17 $12,975,712 $ 3,932
Warrants........... 16,046 $17.17 $ 275,510 $ 84
Total.............. $13,251,222 $ 4,016
- --------------------------------------------------------------------------------
(1) Includes 16,046 shares of Common Stock issuable in connection with the
exercise of the warrants.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933 based upon
the book value , as of September 30, 1996 (the most recent practicable
date), of the securities to be cancelled in connection with the merger
which is the subject of this Registration Statement, expressed per share of
registrant's common stock ($17.17).
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 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
JEFFBANKS, INC.
1609 Walnut Street
Philadelphia, Pennsylvania 19103
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of JeffBanks, Inc. ("JBI"), which will be held at 1609 Walnut Street,
Philadelphia, Pennsylvania, at ____ a.m., local time, on December ___, 1996.
At the Special Meeting, shareholders will be asked to approve and adopt
an Agreement and Plan of Merger pursuant to which a subsidiary of JBI, formed
for that purpose, will merge with and into United Valley Bancorp, Inc. ("UVB"),
with the result that UVB will become a wholly-owned subsidiary of JBI.
Immediately following the merger, United Valley Bank (the wholly-owned banking
subsidiary of UVB) will be merged with and into Jefferson Bank, JBI's
Pennsylvania banking subsidiary. This combination will create a financial
services institution with over $1 billion in total assets with 27 branch banking
offices in the Philadelphia metropolitan area.
The proposed merger is described in the accompanying Joint Proxy
Statement/Prospectus. I urge you to carefully review this information.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF JBI AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD HAS, BY THE
UNANIMOUS VOTE OF ALL DIRECTORS PRESENT, APPROVED THE MERGER AGREEMENT. THE
BOARD RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT.
Whether or not you plan to attend the Special Meeting in person, I urge
you to complete the enclosed proxy and mail it promptly in the enclosed
postage-paid, return-addressed envelope to ensure that your shares will be
represented at the Special Meeting. If you do attend the Special Meeting, you
will, of course, be entitled to vote in person.
Sincerely,
Betsy Z. Cohen
November _____, 1996 Chairman and Chief Executive Officer
<PAGE>
UNITED VALLEY BANCORP, INC.
1601 Market Street
Philadelphia, Pennsylvania 19103
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of United Valley Bancorp, Inc. ("UVB"), which will be held at 1601 Market
Street, Philadelphia, Pennsylvania, at ____ a.m., local time, on December ___,
1996.
At the Special Meeting, shareholders will be asked to approve and adopt
an Agreement and Plan of Merger pursuant to which UVB will merge with a
wholly-owned subsidiary of JeffBanks, Inc. ("JBI") formed for that purpose, with
the result that UVB will become a wholly-owned subsidiary of JBI. Immediately
following the merger, United Valley Bank (the wholly-owned banking subsidiary of
UVB) will be merged with and into Jefferson Bank, JBI's wholly-owned
Pennsylvania banking subsidiary. This combination will create a financial
services institution with over $1 billion in total assets with 27 branch banking
offices in the Philadelphia metropolitan area.
The proposed merger is described in the accompanying Joint Proxy
Statement/Prospectus. I urge you to carefully review this information.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF UVB AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT. THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE MERGER
AGREEMENT.
Whether or not you plan to attend the Special Meeting in person, I urge
you to complete the enclosed proxy and mail it promptly in the enclosed
postage-paid, return-addressed envelope to ensure that your shares will be
represented at the Special Meeting. If you do attend the Special Meeting, you
will, of course, be entitled to vote in person.
Sincerely,
John G. Hoopes
November _____, 1996 Chairman
<PAGE>
JEFFBANKS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER ____, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
JEFFBANKS, INC. ("JBI") will be held at its principal executive office located
at 1609 Walnut Street, Philadelphia, Pennsylvania, on __________, December
_____, 1996, at _______ a.m. local time (the "Meeting") to consider the
following matters:
1. The approval and adoption of the Agreement and Plan of Merger
(the "Merger Agreement") dated as of September 5, 1996 by and
among JBI, JeffBanks Acquisitioncorp, Inc. ("JBI Merger Sub"),
United Valley Bancorp, Inc. ("UVB") and United Valley Bank,
pursuant to which JBI Merger Sub will merge with and into UVB
(resulting in UVB becoming a wholly-owned subsidiary of JBI),
upon the terms and subject to the conditions set forth in the
Merger Agreement, as more fully described in the enclosed
Joint Proxy Statement/Prospectus; and
2. The transaction of such other business as may properly come
before the Meeting or any adjournment thereof.
Only those shareholders who hold Common Stock of record at the close of
business on December ____, 1996 are entitled to notice of and to vote at the
Meeting or any adjournment thereof.
By Order of the Board of Directors,
WILLIAM H. LAMB, Secretary
November ___, 1996
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN
PERSON EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
UNITED VALLEY BANCORP, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER ____, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of UNITED
VALLEY BANCORP, INC. ("UVB") will be held at its principal executive office
located at 1601 Market Street, Philadelphia, Pennsylvania, on __________,
December _____, 1996, at _______ a.m. local time (the "Meeting") to consider the
following matters:
1. The approval and adoption of the Agreement and Plan of Merger
(the "Merger Agreement") dated as of September 5, 1996 by and
among UVB, United Valley Bank, JeffBanks, Inc. ("JBI") and
JeffBanks Acquisitioncorp, Inc. ("JBI Merger Sub"), pursuant
to which JBI Merger Sub will merge with and into UVB
(resulting in UVB becoming a wholly-owned subsidiary of JBI),
upon the terms and subject to the conditions set forth in the
Merger Agreement, as more fully described in the enclosed
Joint Proxy Statement/Prospectus; and
2. The transaction of such other business as may properly come
before the Meeting or any adjournment thereof.
Only those shareholders who hold Common Stock of record at the close of
business on December ____, 1996 are entitled to notice of and to vote at the
Meeting or any adjournment thereof.
By Order of the Board of Directors,
JOHN G. HOOPES, Chairman of the Board
November ___, 1996
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN
PERSON EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
JEFFBANKS, INC.
AND
UNITED VALLEY BANCORP, INC.
JOINT PROXY STATEMENT
JEFFBANKS, INC.
PROSPECTUS
This Joint Proxy Statement/Prospectus ("Joint Proxy
Statement/Prospectus") is being furnished to shareholders of JeffBanks, Inc., a
Pennsylvania corporation ("JBI"), and shareholders of United Valley Bancorp,
Inc., a Pennsylvania corporation ("UVB"), as a proxy statement in connection
with the solicitation of proxies by the respective Boards of Directors of such
corporations for use at the Special Meeting of Shareholders of JBI (including
any adjournments or postponements thereof, the "JBI Special Meeting") and the
Special Meeting of Shareholders of UVB (including any adjournments or
postponements thereof, the "UVB Special Meeting" and, together with the JBI
Special Meeting, the "Special Meetings") to be held on December ___, 1996.
This Joint Proxy Statement/Prospectus relates to the proposed merger of
a subsidiary of JBI with and into UVB, with UVB thereby becoming a wholly-owned
subsidiary of JBI (the "Merger"), pursuant to an Agreement and Plan of Merger,
dated September 5, 1996 and amended September 30, 1996 (the "Merger Agreement").
Immediately following the Merger, United Valley Bank ("United Valley") (the
wholly-owned banking subsidiary of UVB) will be merged with and into Jefferson
Bank ("Jefferson") (the wholly-owned Pennsylvania banking subsidiary of JBI). At
each of the Special Meetings, shareholders will consider and vote on a proposal
to approve and adopt the Merger Agreement. Under the terms of the Merger
Agreement, at the effective date of the Merger (the "Merger Effective Date"),
each outstanding share of the common stock of UVB ("UVB Common Stock") will be
converted into the right to receive 0.339 of a share (the "Exchange Ratio") of
the common stock of JBI ("JBI Common Stock"), except that cash will be paid in
lieu of fractional shares of JBI Common Stock in an amount per fractional share
equal to the relevant fraction multiplied by the average of the closing prices
for JBI Common Stock on the Nasdaq National Market ("Nasdaq") for the twenty
trading days immediately preceding the Merger Effective Date. Each warrant to
purchase UVB Common Stock (a "UVB Warrant") will be converted into a warrant (a
"JBI Warrant") to purchase 0.339 of a share of JBI Common Stock for each share
of UVB Common Stock purchasable under the UVB Warrant, at an exercise price
equal to the exercise price of the UVB Warrant divided by the Exchange Ratio.
See "The Merger - Merger Consideration" and "- Conversion of Shares; Procedures
for Exchange of Certificates; Fractional Shares." Based on (i) the 2,210,261
shares of UVB Common Stock outstanding on the UVB Record Date (as hereinafter
defined), (ii) the 753,337 shares of UVB Common Stock issuable upon the exercise
of UVB Warrants and (iii) the Exchange Ratio, a maximum of 998,557 shares of JBI
Common Stock are issuable as a result of the Merger.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
JBI with respect to the shares of JBI Common Stock issuable to holders of UVB
Common Stock pursuant to the Merger.
<PAGE>
JBI Common Stock is listed for trading on Nasdaq under the symbol
"JEFF." On September 3, the last business day on which JBI Common Stock was
traded prior to the public announcement of the Merger, the last reported sale
price for JBI Common Stock was $24.75 per share. On _____________, 1996, the
last reported sale price for JBI Common Stock was $______ per share. To the
knowledge of UVB, no public market exists for UVB Common Stock.
See "UVB - Market Prices and Dividends."
This Joint Proxy Statement/Prospectus, the accompanying Notice of
Special Meeting and the proxy card enclosed herewith are first being mailed to
shareholders of JBI and UVB on or about November _____, 1996. Only holders of
record of UVB Common Stock have dissenters' rights in connection with the
Merger. See "The Merger - Dissenter's Rights."
THE SHARES OF JBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF JBI
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER FEDERAL OR STATE GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is November ____, 1996.
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<PAGE>
TABLE OF CONTENTS
PAGE
Available Information..........................
Incorporation of Documents by Reference........
Summary........................................
Selected Financial Information.................
Selected Historical Financial Information
Information of JBI.........................
Information of UVB.........................
Selected Pro Forma Combined Financial
Information of JBI and UVB ................
Certain Unaudited Pro Forma Per Share Data...
The Special Meetings
Date, Time and Place.........................
Record Date for, and Voting at, the Special
Meetings ..................................
Proxies for the Special Meetings.............
The Merger ....................................
General .....................................
Background of the Merger.....................
Reasons for the Merger; Recommendations
of the Board of Directors..................
Terms of the Merger..........................
Conduct of Business Pending the Merger ......
Opinion of Financial Advisor ................
Regulatory Approvals ........................
Dissenters' Rights ..........................
Expenses ....................................
Interests of Certain Persons ................
Federal Income Tax Aspects ..................
Accounting Treatment ........................
Exchange of Certificates and Warrants .......
JBI ...........................................
General......................................
UVB............................................
Business.....................................
Supervision and Regulation...................
Effects of Governmental Policy...............
Legal Proceedings............................
Market Prices and Dividends..................
Management's Discussion and Analysis of
the Financial Condition and Results
of Operations of UVB..........................
Results of Operations..........................
Overview.....................................
Liquidity and Capital Resources..............
Asset and Liability Management...............
Financial Condition..........................
Management of UVB..............................
Directors and Executive Officers.............
Directors' Fees..............................
Executive Compensation of UVB..................
Summary Compensation of Named
Executives.................................
Warrant Grants in Last Fiscal Year...........
Employment Contracts.........................
Certain Transactions.........................
Directors' Fees..............................
Security Ownership of Certain Beneficial
Owners and Management of UVB.................
Description of JBI Capital Stock...............
General......................................
Description of JBI Common Stock..............
Description of JBI Preferred Stock...........
Certain Anti-takeover Provisions.............
Transfer Agent and Registrar.................
Comparison of Rights of JBI and
UVB Shareholders.............................
Shareholder Action: Amendments of Articles
of Incorporation and Bylaws................
Shareholder Action: Special Meetings.........
Shareholder Action: Provisions in the
BCL Regarding Certain Fundamental
Transactions...............................
Shareholder Action: Provisions in
Articles Regarding Certain Fundamental
Transactions...............................
Certain Anti-takeover Provisions in
Articles of Incorporation and Bylaws.......
Removal of Directors.........................
Shareholder Action: Nomination of
Directors and Other Matters to be
Placed on Annual Meeting Agenda............
Indemnification..............................
Resale of JBI Common Stock.....................
Experts........................................
Legal Opinions.................................
Other Business.................................
Index to Financial Statements of UVB........... F-1
Annex A - Merger Agreement..................... A-1
Annex B - Opinion of Financial Adviser......... B-1
Annex C - Provisions of Pennsylvania
Banking Code of 1965 and Pennsylvania
Business Corporation Law Relating to
Dissenters' Rights........................... C-1
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<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Joint Proxy
Statement/Prospectus or incorporated by reference herein and, if given or made,
such information or representations must not be relied upon as having been
authorized by JBI or UVB. Neither the delivery of this Joint Proxy
Statement/Prospectus nor any distribution of the securities to which this Joint
Proxy Statement/Prospectus relates shall, under any circumstances, create any
implication that there has been no change in the affairs of JBI or UVB since the
date hereof or that the information contained or incorporated by reference
herein is correct as of any time subsequent to its date. This Joint Proxy
Statement/Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities other than the securities to which it relates or
an offer to sell or a solicitation of an offer to buy such securities in any
circumstances in which such an offer or a solicitation is not lawful nor does it
constitute the solicitation of a proxy in any jurisdiction to or from any person
to or from whom it is unlawful to make such solicitation within such
jurisdiction.
AVAILABLE INFORMATION
JBI is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed with the Commission are available for inspection and copying
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade Center, New
York, New York 10048. Copies of such documents may also be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. JBI Common Stock is
authorized for quotation on Nasdaq and, accordingly, such materials and other
information can also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
This Joint Proxy Statement/Prospectus incorporates certain documents by
reference which are not presented herein or delivered herewith. Copies of such
documents are available without charge (other than exhibits to such documents
that are not specifically incorporated by reference therein) to any person,
including any beneficial owner, to whom this Joint Proxy Statement/Prospectus is
delivered, upon written or oral request to JeffBanks, Inc., Investor
Relationships, 1609 Walnut Street, Philadelphia, Pennsylvania 19103 (telephone
number (215) 564-5040). In order to ensure timely delivery of such documents,
any such request should be made by ______________, 1996.
All information contained or incorporated by reference in this Joint
Proxy Statement/Prospectus with respect to JBI has been supplied by JBI, and all
information contained in this Joint Proxy Statement/Prospectus with respect to
UVB has been supplied by UVB.
-4-
<PAGE>
JBI has filed with the Commission under the Securities Act of 1933, as
amended (including the rules and regulations thereunder, the "Securities Act"),
a Registration Statement on Form S-4 (No. 333-_______________) (including all
amendments and exhibits thereto, the "Registration Statement") with respect to
the securities offered hereby. This Joint Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement, including any amendments and exhibits
thereto, is available for inspection and copying as set forth above. Statements
contained in this Joint Proxy Statement/Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
INCORPORATION OF DOCUMENTS BY REFERENCE
Certain documents previously filed by JBI with the Commission pursuant
to the Exchange Act are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus as follows:
1. JBI's Annual Report on Form 10-K for the year ended December
31, 1995;
2. JBI's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996; and
3. The description of JBI's capital stock contained in JBI's
Registration Statement on Form 8-A and any amendment or report
filed for the purpose of updating such description.
All documents filed by JBI pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the date of
the JBI Special Meeting are hereby incorporated by reference into this Joint
Proxy Statement/Prospectus and shall be deemed to be a part hereof from the date
of filing of such documents.
Any statement contained herein, in any supplement hereto, or in a
document incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Joint Proxy Statement/Prospectus to the extent that a statement
contained herein, in any supplement hereto, or in any 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 the Registration Statement, this Joint Proxy
Statement/Prospectus or any supplement hereto.
-5-
<PAGE>
SUMMARY
The following summary is not intended to be a summary of all material
information relating to the Merger and is qualified in its entirety by reference
to the more detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus, including the Annexes hereto and the documents
incorporated herein by reference. A copy of the Merger Agreement is set forth in
Annex A to this Joint Proxy Statement/Prospectus and reference is made thereto
for a complete description of the terms of the Merger. Shareholders are urged to
read carefully this entire Joint Proxy Statement/Prospectus, including the
Annexes hereto.
The Merger
Parties to the Merger
UVB. UVB is a bank holding company registered under the Bank Holding
Company Act of 1956 (the "Holding Company Act") owning as its principal asset
United Valley (in which it owns 100% of the outstanding capital stock), through
which it offers retail and commercial banking services at three branches in
Philadelphia and its immediate Pennsylvania suburbs. As of September 30, 1996,
UVB had, on a consolidated basis, total assets of $122.4 million, total deposits
of $104 million and shareholders' equity of $12.8 million. The principal
executive offices of UVB are located at 1601 Market Street, Philadelphia,
Pennsylvania 19103, and its telephone number is (215) 496-9400.
JBI. JBI is a bank holding company registered under the Holding Company
Act, owning as its principal assets Jefferson and Jefferson Bank of New Jersey
("Jefferson NJ") (in each of which it owns 100% of the outstanding capital
stock). Through its subsidiary banks, JBI provides a wide range of commercial
and retail banking services through 27 branches in Philadelphia, Pennsylvania
and its immediate Pennsylvania and New Jersey suburbs. As of September 30, 1996,
JBI had, on a consolidated basis, total assets of $967.6 million, deposits of
$694.3 million and shareholders' equity of $78.0 million. The principal
executive offices of JBI are located at 1609 Walnut Street, Philadelphia,
Pennsylvania 19103, and its telephone number is (215) 564- 5040.
JBI Merger Sub. JBI Merger sub is a wholly-owned subsidiary of JBI,
newly-formed for the purposes of effectuating the Merger.
The Merger; Exchange Ratio
Under the terms of the Merger Agreement, JBI Merger Sub will merge with
and into UVB, resulting in UVB becoming a wholly-owned subsidiary of JBI.
Immediately following the Merger, JBI will cause the merger of United Valley
with and into Jefferson. At the Merger Effective Date, each outstanding share of
UVB Common Stock will be converted into the right
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<PAGE>
to receive 0.339 of a share of JBI Common Stock. Outstanding UVB Warrants to
purchase UVB Common Stock will be converted into JBI Warrants to purchase 0.339
of a share of JBI Common Stock for each share of UVB Common Stock purchasable
under the UVB Warrant at an exercise price equal to the exercise price of the
UVB Warrant divided by the Exchange Ratio. See "Comparison of Shareholders'
Rights."
Recommendation of the Boards of Directors of JBI and UVB
The Board of Directors of each of JBI and UVB approved the Merger
Agreement by a unanimous vote of those present. The Board of Directors of each
of JBI and UVB believes that the Merger Agreement is in the best interests of
its respective shareholders, and recommends that its shareholders vote FOR the
approval of the Merger Agreement.
Opinion of Financial Advisor
The Board of Directors of UVB has retained Danielson Associates, Inc.
("Danielson") as its financial advisor to review the fairness of the Exchange
Ratio from a financial point of view to the holders of UVB Common Stock. In its
letter dated as of September 4, 1996, Danielson has advised the UVB Board of
Directors that, in its opinion, the Exchange Ratio is fair to holders of UVB
Common Stock from a financial point of view. The full text of Danielson's
opinion describing the procedures followed, assumptions made and limitations on
the review undertaken is set forth in Annex B to this Joint Proxy
Statement/Prospectus and should be read in its entirety. For further information
regarding Danielson's opinion and a discussion of its qualifications and the
method of its selection, see "The Merger - Opinion of Financial Advisor."
Federal Income Tax Aspects of the Merger
Consummation of the Merger is conditioned upon the receipt by JBI and
UVB of an opinion of counsel to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). If the Merger constitutes such a
reorganization, no gain or loss will be recognized by UVB or JBI in the Merger
and no gain or loss will be recognized by the shareholders of UVB upon the
receipt of JBI Common Stock in exchange for UVB Common Stock, or upon the
receipt of JBI Warrants in exchange for UVB Warrants, except with respect to any
cash received in lieu of fractional shares. UVB shareholders electing to
exercise dissenters' rights will recognize gain or loss for federal income tax
purposes. For a more complete discussion, see "The Merger - Federal Income Tax
Aspects."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, IT IS RECOMMENDED THAT UVB
SHAREHOLDERS CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL (AND ANY
STATE, LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
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<PAGE>
Effective Date of the Merger
Subject to the terms and conditions set forth in the Merger Agreement,
the Merger Effective Date will occur upon the filing of articles of merger with
the Pennsylvania Department of State. The presentation of the articles of merger
for acceptance and filing is subject to the rights of the Boards of Directors of
UVB and JBI to terminate the Merger.
The consummation of the Merger is subject, among other things, to
receipt of required regulatory approvals and the expiration of any statutory
waiting periods (see "The Merger Terms of the Merger: Effective Date; Conditions
to Consummation; Termination" and "- Regulatory Approvals"). Application has
been made to obtain required regulatory approvals. No assurance can be given
that all required approvals will be received or as to the timing or conditions
thereof. Subject to the foregoing, it is currently anticipated that the Merger
Effective Date will occur on or before December 31, 1996.
The Merger Agreement may be terminated by mutual agreement of the
Boards of Directors of UVB and JBI. The Merger Agreement may also be terminated
by the Board of Directors of either JBI or UVB if, among other things, the
Merger does not occur on or before June 30, 1997.
Accounting Treatment
The Merger is expected to be accounted for as a pooling of interests.
See "The Merger - Accounting Treatment." It is a condition to the consummation
of the Merger that JBI shall have received a letter, dated the closing date of
the Merger, from Grant Thornton LLP, confirming such firm's concurrence with the
conclusion of the managements of JBI and UVB as to the appropriateness of
pooling of interests accounting for the Merger under Accounting Principles Board
Opinion No. 16 if the Merger is consummated in accordance with the Merger
Agreement.
Comparison of Shareholders' Rights
Holders of UVB Common Stock will become holders of JBI Common Stock as
a result of the Merger. There are certain significant differences in the rights
of the holders of UVB Common Stock and JBI Common Stock, primarily with respect
to actions which may be taken by shareholders and with respect to certain
anti-takeover provisions. For a more detailed discussion of relative rights and
preferences, see "Comparison of Rights of JBI and UVB Shareholders."
Exchange of Share Certificates and Warrants
After the Merger Effective Date, JBI will send to UVB shareholders
transmittal materials for use in exchanging their UVB Common Stock certificates
for JBI Common Stock certificates and for effecting the exchange of their UVB
Warrants for JBI Warrants. See "The Merger Exchange of Certificates and
Warrants."
-8-
<PAGE>
Resale of JBI Common Stock; Nasdaq Trading Market
The shares of JBI Common Stock issuable in connection with the Merger
will be freely transferable, except for shares held by persons who may be deemed
to be "affiliates" (generally including directors, certain executive officers
and certain major shareholders) of UVB under applicable federal securities laws.
See "Resale of JBI Common Stock."
The JBI Common Stock issuable in connection with the Merger has been
approved for quotation on Nasdaq. JBI Common Stock is currently traded on Nasdaq
under the symbol "JEFF."
Dissenters' Rights
Holders of UVB Common Stock have the right to dissent from the Merger
under the Pennsylvania Business Corporation Law ("BCL") and, subject to the
completion of specified procedures, to receive in cash an amount equal to the
"fair value" of their shares as defined in those laws. The procedures to be
followed by persons desiring to exercise dissenter's rights are summarized at
"The Merger - Dissenters' Rights" elsewhere in this Joint Proxy Statement/
Prospectus, and a copy of the provisions of the applicable statutes are set
forth in Annex C hereto. Failure of a dissenting shareholder to follow the
applicable procedures precisely may result in a loss of dissenters' rights for
that shareholder.
Shareholders who receive cash for their shares as a result of
exercising dissenters' rights will, in general, recognize gain or loss for
federal income tax purposes. See "The Merger - Federal Income Tax Aspects."
The Special Meeting of UVB Shareholders
General
The Special Meeting of the holders of UVB Common Stock to consider and
vote on the Merger will be held December _____, 1996, at 10:00 a.m. local time,
at 1601 Market Street, Philadelphia, Pennsylvania. The Board of Directors of UVB
has fixed November ___, 1996 as the record date (the "UVB Record Date") for
shareholders entitled to receive notice of, and to vote at, the Special Meeting.
Required Vote
Approval of the Merger Agreement requires the affirmative vote of not
less than 66 2/3% of all holders of UVB Common Stock entitled to vote. As of the
UVB Record Date, there were 2,210,261 shares of UVB Common Stock outstanding and
entitled to vote on the matters to be considered at the Special Meeting. Each
share of UVB Common Stock is entitled to one vote at the Special Meeting.
Directors and executive officers of UVB, and their affiliates, hold 915,538
shares of UVB Common Stock (excluding 720,334 shares issuable upon exercise of
-9-
<PAGE>
outstanding UVB Warrants), constituting 41.42% of the outstanding shares of UVB
Common Stock as of the UVB Record Date.
A failure by a UVB shareholder to vote, either by not returning the
enclosed proxy or by returning the enclosed proxy and checking the ABSTAIN box,
will have the same effect as a vote against approval of the Merger Agreement.
The Special Meeting of JBI Shareholders
General
The Special Meeting of the holders of JBI Common Stock to consider and
vote on the Merger will be held December ____, 1996, at 10:00 a.m. local time,
at 1609 Walnut Street, Philadelphia, Pennsylvania. The Board of Directors of JBI
has fixed November ____, 1996 as the record date (the "JBI Record Date") for
shareholders entitled to receive notice of, and to vote at, the Special Meeting.
Required Vote
Approval of the Merger Agreement requires the affirmative vote of the
majority of the total votes cast either in person or by proxy, provided a quorum
(a majority of outstanding shares) is present. Each share of JBI Common Stock is
entitled to one vote at the Special Meeting. Directors and executive officers of
JBI, and their affiliates, hold _________ shares of JBI Common Stock (excluding
_______ shares issuable upon exercise of outstanding stock options),
constituting ______% of outstanding shares of JBI Common Stock as of the JBI
Record Date.
-10-
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth selected unaudited historical financial
information for JBI and UVB for each of the five years in the period ended
December 31, 1995 and for the nine-month periods ended September 30, 1996 and
1995. Such information has been derived from and should be read in conjunction
with the audited consolidated financial statements of JBI and UVB, and the
respective notes thereto, and the management's discussion and analysis of
financial condition and results of operations of each of JBI and UVB, which is,
with respect to JBI, incorporated by reference in this Joint Proxy
Statement/Prospectus (see "Incorporation of Documents by Reference") and, with
respect to UVB, appears elsewhere in this Joint Proxy Statement/Prospectus. The
information presented for the nine-month periods ended September 30, 1996 and
1995 for each of JBI and UVB includes, in the opinion of the managements of JBI
and UVB, respectively, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information for such
periods.
Results for the interim periods are not necessarily indicative of
results for the full year or for any other period.
-11-
<PAGE>
<TABLE>
<CAPTION>
Selected Historical Financial Information of JBI
As of and for the
Nine Months Ended
As of and for the Years Ended December 31, September 30,
1991 1992 1993 1994 1995 1995 1996
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income........................ $46,124 $41,491 $40,475 $46,943 $64,317 $46,221 $55,380
Interest expense....................... 27,731 19,422 16,591 17,412 28,229 19,981 25,217
------- ------- ------- ------- ------- ------- -------
Net interest income.................... 18,393 22,069 23,884 29,531 36,088 26,240 30,163
Provision for credit losses............ 2,864 3,153 1,829 1,857 3,135 2,370 2,115
------- ------- ------- ------- ------- ------- -------
Net interest income after provision
for credit losses..................... 15,529 18,916 22,055 27,674 32,953 23,870 28,048
Non-interest income(1)(2).............. 3,135 4,907 5,495 5,343 6,508 4,608 5,185
Non-interest expense................... 16,536 18,609 20,741 23,755 27,647 20,192 22,711
------- ------- ------- ------- ------- ------- -------
Income before income taxes,
dividends on preferred stock and
minority interest..................... 2,128 5,214 6,809 9,262 11,814 8,286 10,522
Income taxes(3)........................ 742 1,714 2,062 3,081 4,153 2,861 3,779
------- ------- ------- ------- ------- ------- -------
Income before dividends on preferred
stock and minority interest........... 1,386 3,500 4,747 6,181 7,661 5,425 6,743
Dividends on preferred stock of
subsidiary............................ 478 646 789 -- -- -- --
Minority interest in net income of
subsidiaries.......................... 316 877 1,191 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income......................... $ 592 $ 1,977 $ 2,767 $ 6,181 $ 7,661 $ 5,425 $ 6,743
======== ======== ======== ======== ======== ======== ========
Per Common Share Data:
Net income(4).......................... $ .05 $ 1.16 $ 1.64 $ 1.86 $ 2.10 $ 1.51 $ 1.65
Fully diluted net income(4)............ .05 1.16 1.49 1.71 1.94 1.39 1.65
Book value............................. 14.68 15.84 17.04 17.51 18.20 18.77 19.10
Fully diluted book value(5)............ 14.21 15.07 16.21 16.70 18.20 17.70 19.10
Balance Sheet Data:
Total assets........................... $543,110 $558,211 $633,936 $751,525 $939,006 $877,859 $967,622
Total loans(6)......................... 421,033 438,929 459,281 551,865 673,788 664,430 705,442
Allowance for credit losses............ (4,233) (5,094) (5,283) (7,728) (14,032) (13,004) (10,793)
Investment securities(7)............... 31,874 46,431 96,550 80,628 145,762 98,736 155,977
Goodwill............................... 175 156 135 809 8,978 9,594 9,085
Deposits............................... 490,373 503,660 535,509 619,131 724,967 691,442 694,345
Securities sold under repurchase
agreements............................ 8,501 7,893 16,211 16,229 46,549 34,653 74,587
Minority interest...................... 11,543 15,690 437 -- -- -- --
Convertible preferred stock and
related surplus....................... 5,346 5,346 12,845 12,835 -- -- --
Common shareholders' equity............ 18,467 19,916 43,350 51,541 73,311 71,228 78,026
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
As of and for the
Nine Months Ended
As of and for the Years Ended December 31, September 30,
1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Ratios:
Return on average assets............... .28% .66% .83% .95% .96% .95% .96%
Return on average common equity........ .35% 7.63% 10.72% 10.75% 11.30% 10.93% 11.91%
Net interest margin.................... 3.91% 4.46% 4.47% 4.89% 4.87% 4.90% 4.56%
Ratio of earnings to fixed charges..... 102% 116% 125% 136% 133% 134% 141%
Dividend payout ratio.................. -- -- -- 20.34% 24.82% 23.47% 26.15%
Selected Capital and Asset
Quality Ratios:
Equity/Assets.......................... 4.38% 4.52% 8.86% 8.57% 7.80% 8.11% 8.06%
Non-performing loans/total loans(8).... 1.47% 1.31% 1.14% 1.60% 1.80% 1.91% 1.37%
Non-performing assets/total loans
and non-performing assets(9).......... 1.96% 2.32% 2.18% 2.40% 2.34% 2.63% 1.95%
Allowance for credit losses/total
loans................................. 1.01% 1.16% 1.15% 1.40% 2.08% 1.96% 1.53%
Allowance for credit losses/
non-performing assets(9).............. 51.00% 49.54% 52.13% 57.97% 88.42% 73.82% 78.16%
Net charge-offs/average loans.......... .49% .54% .38% .51% .48% .73% 1.04%
<FN>
(1) Includes net gain on securities of $34,000 in 1991, $605,000 in 1992,
$376,000 in 1993, $128,000 in 1994 and $333,000 in 1995. Respective
amounts for the nine months ended September 30, 1995 and 1996 were
$277,000 and $149,000.
(2) Effective October 1, 1995, JBI adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights." The effect of adoption was not material to
the Company's financial position or results of operations.
(3) Effective January 1, 1993, JBI adopted SFAS No. 109, "Accounting for
Income Taxes." The effect of adoption was not material to JBI's
financial position or results of operations.
(4) Net income per share is based upon the respective weighted average
number of common shares (including weighted average common share
equivalents) outstanding, as follows (after giving retroactive effect
to a 5% stock dividend in January 1996): 1.24 million (1991), 1.24
million (1992), 1.37 million (1993), 2.62 million (1994), and 3.12
million (1995). Respective amounts for the nine months ended September
30, 1995 and 1996 were 2.96 million and 4.08 million. Fully diluted net
income per share in 1993, 1994 and 1995 gives effect to the increase in
average shares that would be outstanding, and the increase in net
income applicable to common stock that would result from, the assumed
conversion of JBI's dilutive convertible preferred stock then
outstanding.
(5) Fully diluted book values in 1991 through 1995 give effect to the
increase in average shares that would be outstanding, and the increase
in common equity that would result from, the assumed conversion of
JBI's dilutive convertible preferred stock then outstanding.
(6) Includes mortgage loans held for sale of $11.9 million (1991), $7.0
million (1992), $19.0 million (1993), $380,000 (1994) and $484,000
(1995). Respective amounts for September 30, 1995 and 1996 were $2.0
million and $170,000.
-13-
<PAGE>
(7) Effective January 1, 1994, JBI adopted SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." The adoption had no
effect on JBI's financial position or results of operations.
(8) Non-performing loans consist of non-accrual loans and renegotiated
loans and exclude loans past due 90 days or more still accruing
interest. Effective January 1, 1995, JBI adopted SFAS No. 114
"Accounting for Impairment of a Loan," as amended by SFAS No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures." The effect of adoption was not material to JBI's
financial position or results of operations.
(9) Non-performing assets consist of non-accrual loans, renegotiated loans
and other real estate owned and exclude loans past due 90 days or more
still accruing interest.
(10) All acquisitions reflected in these periods have been accounted for
under the purchase method of accounting and accordingly, the results of
these entities' operations are included from their respective dates of
acquisition.
</FN>
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Selected Historical Financial Information of UVB
As of and for the
Nine Months Ended
As of and for the Year Ended December 31, September 30,
1991 1992 1993 1994 1995 1995 1996
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income........................ $7,626 $6,138 $6,357 $7,519 $9,959 $7,436 $7,970
Interest expense....................... 4,577 2,786 2,661 3,171 4,820 3,495 3,803
Net interest income.................... 3,049 3,352 3,696 4,348 5,139 3,941 4,167
Provision for credit losses............ 1,287 533 690 851 644 405
Net interest income after provision
for credit losses..................... 1,762 2,819 3,006 4,348 4,288 3,297 3,762
Non-interest income(1)................. 248 341 384 471 461 385 193
Non-interest expense................... 2,402 2,532 2,624 3,223 3,513 2,738 3,021
Income before income taxes and
cumulative effect of accounting
change (2)............................ (392) 628 766 1,596 1,236 944 934
Income taxes(2)........................ 0 13 245 512 418 322 301
Net income (loss)(2)................. (392) 615 1,006(2) 1,084 818 622 633
Per Common Share Data:
Net income (loss)(3)................... (0.19) 0.27 0.45 0.48 0.36 0.28 0.27
Fully diluted net income(3)............ (0.19) 0.27 0.45 0.48 0.36 0.28 0.27
Book value............................. 3.95 4.85 4.28 4.83 5.22 5.13 5.45
Fully diluted book value............... 3.95 4.85 4.28 4.83 5.22 5.13 5.45
Balance Sheet Data:
Total assets........................... 76,708 81,100 106,770 111,705 130,686 122,002 122,425
Total loans............................ 66,005 63,379 74,706 82,608 100,703 97,749 93,956
Allowance for credit losses............ 995 1,376 1,586 1,259 959 1,617 1,239
Investment securities.................. 4,755 10,163 13,865 16,480 17,832 18,699 18,013
Deposits............................... 67,730 71,261 95,582 91,538 115,549 107,143 104,113
Common shareholders' equity............ 8,083 8,697 9,704 10,789 11,727 11,512 12,863
Selected Operating Ratios:(4)
Return on average assets............... N/A 0.81% 1.12% 1.06% 0.69% 0.72% 0.66%
Return on average common equity........ N/A 7.25% 10.95% 10.60% 7.32% 7.50% 6.86%
Net interest margin.................... 4.02% 4.59% 4.33% 4.48% 4.55% 4.79% 4.54%
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
As of and for the
Nine Months Ended
As of and for the Year Ended December 31, September 30,
1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Capital and Asset
Quality Ratios:
Equity/Assets.......................... 10.54% 10.72% 9.09% 9.66% 8.97% 9.44% 10.51%
Non-performing loans/total loans(5).... 3.08% 5.28% 4.16% 3.35% 1.00% 2.00% 1.69%
Non-performing assets/total loans
and non-performing assets(6).......... 4.86% 7.00% 5.45% 5.19% 1.50% 2.97% 2.16%
Allowance for credit losses/total
loans................................. 1.51% 2.18% 2.12% 1.52% 0.95% 1.65% 1.32%
Allowance for credit losses/
non-performing assets................. 30.43% 30.41% 38.37% 28.80% 63.18% 56.28% 60.88%
Net charge-offs/average loans.......... (2.05%) (0.25%) (0.68%) (0.44%) (1.24%) (0.42%) (0.17%)
<FN>
(1) Includes net gain on securities sales of $118,000 and $173,000 in 1991
and 1992, and $0 for all other periods presented.
(2) Net income for 1993 includes the $485,000 cumulative effect of a change
in accounting for income taxes. Income taxes for 1992 include a
provision of $226,000 net of the utilization of net operating loss
carryforwards of $213,000.
(3) Based upon respective weighted average number of common shares
outstanding (including weighted average common share equivalents) in
years 1991 through December 31, 1995 as follows in millions: 2.05,
2.23, 2.27, 2.23 and 2.25. For September 30, 1995 and 1996,
respectively, the totals were 2.24 and 2.31 million.
(4) Ratios for the nine months ended September 30, 1995 and 1996 are
annualized.
(5) Non-performing loans consist of loans on a non-accrual basis or where
terms have been renegotiated to provide a reduction or deferral of
interest or principal because of a weakening in the financial positions
of the borrowers, and exclude loans past due 90 days or more still
accruing interest.
(6) Non-performing assets consist of non-accrual loans, renegotiated loans
and other real estate owned and exclude loans past due 90 days or more
still accruing interest.
</FN>
</TABLE>
-16-
<PAGE>
Selected Pro Forma Combined Financial Information of JBI and UVB
The following table sets forth selected unaudited pro forma combined
financial information giving effect to the Merger under the pooling of interests
method of accounting as if it had occurred on December 31, 1995 and also on
September 30, 1996 (with respect to balance sheet data) and as of the beginning
of each period (with respect to operating data). For a description of the
pooling of interests accounting method with respect to the Merger, see "The
Merger - Accounting Treatment." The unaudited pro forma condensed combined
financial statements do not give effect to anticipated cost savings in
connection with the Merger (see "Management and Operations After the Merger -
Consolidation of Operations; Anticipated Cost Savings"), and do not purport to
be indicative of the combined financial position or results of operations of
future periods or indicative of the results that actually would have been
realized had the entities been a single entity during these periods.
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Balance Sheet Data
December 31, 1994
UNAUDITED
JBI UVB
(Historical) (Historical) Adjustments Pro Forma
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks........................ $ 62,462 $ 10,961 -- $ 73,423
Federal funds sold............................. 35,575 -- -- 35,575
Investment securities available for sale....... 67,649 2,232 -- 69,881
Investment securities held to maturity......... 12,979 14,248 -- 27,227
Mortgage loans held for sale................... 380 -- -- 380
Loans, net..................................... 543,757 81,348 -- 625,105
Premises and equipment......................... 12,412 92 -- 12,504
Accrued interest receivable.................... 4,528 756 -- 5,284
Other real estate owned........................ 4,491 1,602 -- 6,093
Goodwill....................................... 809 -- -- 809
Other assets................................... 6,483 466 -- 6,949
-------- -------- -- --------
Total assets................................ $751,525 $111,705 -- $863,230
======== ======== == ========
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
JBI UVB
(Historical) (Historical) Adjustments Pro Forma
<S> <C> <C> <C> <C>
Liabilities:
Deposits
Demand (non-interest bearing)................. $110,861 $ 14,382 -- $125,243
Savings, money market, and NOW................ 242,063 37,391 -- 279,454
Time deposits................................. 207,595 29,818 -- 237,413
Time deposits, $100,000 and over.............. 58,612 9,947 -- 68,559
Securities sold under repurchase
agreements................................... 16,229 -- -- 16,229
FHLB advances.................................. 35,274 8,471 -- 43,745
Subordinated debentures........................ 9,000 -- -- 9,000
Accrued interest payable....................... 5,582 801 -- 6,383
Other liabilities.............................. 1,933 106 -- 2,039
-------- -------- -- --------
Total liabilities........................... 687,149 100,916 -- 788,065
-------- -------- -- --------
Shareholders' Equity:
Preferred stock................................ 186 -- -- 186
Common stock................................... 2,734 5,116 (5,116) 3,428
694(1)
Additional paid-in capital..................... 47,714 5,116 4,422 57,252
Retained earnings.............................. 15,001 557 -- 15,558
Net unrealized loss on securities
available for sale............................ (1,259) -- -- (1,259)
-------- -------- -- --------
Total shareholders' equity.................. 64,376 10,789 -- 75,165
-------- -------- -- --------
Total liabilities and shareholders' equity.. $751,525 $111,705 -- $863,230
======== ======== == ========
<FN>
(1) Historical and pro forma common stock outstanding as of December 31, 1994
were as follows:
JBI UVB
(Historical) (Historical) Adjustments Pro Forma
Common stock JBI................... 2,734,369 2,734,369
Common stock UVB................... 5,115,650 (5,115,650) --
Common shares outstanding........ 2,046,260
Times exchange ratio............. 0.339 693,682 693,682
--------- ------------- ------------- ------- ---------
Total.............................. 3,428,051
=========
</FN>
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Balance Sheet Data
December 31, 1995
UNAUDITED
JBI UVB
(Historical) (Historical) Adjustments Pro Forma
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks........................ $ 53,309 $ 5,457 -- $ 58,766
Federal funds sold............................. 37,575 5,400 -- 42,975
Investment securities available for sale....... 141,873 7,794 -- 149,667
Investment securities held to maturity......... 3,889 10,038 -- 13,927
Mortgage loans held for sale................... 484 -- -- 484
Loans, net..................................... 659,272 99,744 -- 759,016
Premises and equipment......................... 12,880 285 -- 13,165
Accrued interest receivable.................... 6,004 1,020 -- 7,024
Other real estate owned........................ 3,751 510 -- 4,261
Goodwill....................................... 8,978 -- -- 8,978
Other assets................................... 10,991 438 -- 11,429
-------- -------- -- ----------
Total assets................................ $939,006 $130,686 -- $1,069,692
======== ======== == ==========
Liabilities:
Deposits
Demand (non-interest bearing)................. $145,064 $16,739 -- $ 161,803
Savings, money market and NOW................. 245,234 48,310 -- 293,544
Time deposits................................. 265,866 38,621 -- 304,487
Time deposits, $100,000 and over.............. 68,803 11,879 -- 80,682
Securities sold under repurchase agreements.... 46,549 -- -- 46,549
FHLB advances.................................. 75,000 2,000 -- 77,000
Subordinated debentures........................ 9,000 -- -- 9,000
Accrued interest payable....................... 6,216 1,323 -- 7,539
Other liabilities.............................. 3,963 87 -- 4,050
----- ----- -- -----
Total liabilities.......................... 865,695 118,959 -- 984,654
------- ------- -- -------
Shareholders' Equity:
Common stock................................... 3,947 5,180 (5,180) 4,649
702(1)
Additional paid-in capital..................... 53,470 5,154 4,478 63,102
Retained earnings.............................. 15,427 1,375 -- 16,802
Net unrealized gain on securities
available for sale........................... 467 18 -- 485
--- -- -- ---
Total shareholders' equity.................. 73,311 11,727 -- 85,038
------ ------ -- ------
Total liabilities and shareholders' equity.. $939,006 $130,686 -- $1,069,692
======== ======== == ==========
-19-
<PAGE>
<FN>
(1) Historical and pro forma common stock outstanding as of December 31, 1995
were as follows:
JBI UVB
(Historical) (Historical) Adjustments Pro Forma
Common stock JBI .................. 3,946,776 3,946,776
Common stock UVB................... 5,179,818 (5,179,818) --
Common shares outstanding........ 2,071,927
Times exchange ratio............. 0.339 702,383 702,383
---------- -------------- -------------- ----------- ---------
Total.............................. 4,649,159
=========
</FN>
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Balance Sheet Data
September 30, 1996
UNAUDITED
JBI UVB
(Historical) (Historical) Adjustments Pro Forma
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks........................ $ 38,925 $ 6,583 -- $ 45,508
Federal funds sold............................. 32,125 3,000 -- 35,125
Investment securities available for sale....... 154,931 8,305 -- 163,236
Investment securities held to maturity......... 1,046 9,708 -- 10,754
Mortgage loans held for sale................... 170 -- -- 170
Loans, net..................................... 694,479 92,717 -- 787,196
Premises and equipment......................... 13,209 281 -- 13,490
Accrued interest receivable.................... 6,309 933 -- 7,242
Other real estate owned........................ 4,131 445 -- 4,576
Goodwill....................................... 9,085 -- -- 9,085
Other assets................................... 13,212 453 -- 13,665
-------- --------- ------ ----------
Total assets................................ $967,622 $122,425 -- $1,090,047
======== ======== ====== ==========
Liabilities:
Deposits
Demand (non-interest bearing)................. $112,374 $ 9,306 -- $ 121,680
Savings, money market and NOW................. 272,066 47,379 -- 319,445
Time deposits................................. 227,982 37,033 -- 265,015
Time deposits, $100,000 and over.............. 81,923 10,395 -- 92,318
Securities sold under repurchase agreements.... 74,587 3,750 -- 78,337
FHLB advances.................................. 75,000 -- -- 75,000
Subordinated notes and debentures.............. 32,000 -- -- 32,000
Accrued interest payable....................... 7,839 1,582 -- 9,421
Other liabilities.............................. 5,825 117 -- 5,942
-------- -------- ------ --------
Total liabilities..................... 889,596 109,562 -- 999,158
-------- -------- ------ --------
Shareholders' Equity:
Common stock................................... 3,962 5,526 (5,526) 4,711
749(2)
Additional paid in capital..................... 53,806 5,362 4,777 63,945
Retained earnings.............................. 20,407 2,008 -- 22,415
Net unrealized loss on securities
available for sale........................... (149) (33) -- (182)
-------- -------- ------ ----------
Total shareholders' equity.................. 78,026 12,863 -- 90,889
-------- -------- ------ ----------
Total liabilities and shareholders' equity.. $967,622 $122,425 -- $1,090,047
======== ======== ====== ==========
-21-
<PAGE>
<FN>
(1) On a pro forma basis, after the Merger, asset quality ratios as of September
30, 1996 would have been as follows: non-performing assets/total loans and
non-performing assets: 1.97%; allowance for credit losses/total loans: 1.51%;
allowance for credit losses/non-performing assets: 75.94%. Non-performing loans
and non-performing assets exclude loans past due 90 days or more still accruing
interest.
(2) At September 30, 1996 pro forma capital ratios (which exceeded "well
capitalized" ratios as determined by the appropriate regulatory authorities) are
as follows:
Tier 1 Capital Total Capital
to Risk Weighted to Risk Weighted
Entity Leverage Ratio Assets Ratio Assets Ratio
JBI (pro forma).................... 7.37% 10.24% 15.64%
"Well capitalized" institution
(under FDIC Regulations)......... 5.00% 6.00% 10.00%
(3) Historical and pro forma common stock outstanding as of September 30, 1996
were as follows:
JBI UVB
(Historical) (Historical) Adjustments Pro Forma
Common stock JBI................... 3,962,267 3,962,267
Common stock UVB................... 5,525,653 (5,525,653) --
Common shares outstanding........ 2,210,261
Times exchange ratio............. 0.339 749,278 749,278
--------- ------------ ------------ ---------- ---------
Total.............................. 4,711,545
=========
</FN>
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Income Statement Data
Year Ended December 31, 1993
UNAUDITED
JBI UVB
(Historical) (Historical) Adjustments Pro Forma
(In thousands)
<S> <C> <C> <C> <C>
Interest income ........................ $ 40,475 $ 6,357 -- $ 46,832
Interest expense ....................... 16,591 2,661 -- 19,252
---------- ---------- ---------- ----------
Net interest income ................... 23,884 3,696 -- 27,580
Provision for credit losses ............ 1,829 690 -- 2,519
---------- ---------- ---------- ----------
Net interest income after provision
for credit losses .................... 22,055 3,006 -- 25,061
Non-interest income .................... 5,495 384 -- 5,879
Non-interest expense ................... 20,741 2,624 -- 23,365
---------- ---------- ---------- ----------
Income before income taxes,
dividends on preferred stock,
minority interest and change in
accounting for income taxes .......... 6,809 766 -- 7,575
Income taxes ........................... 2,062 245 -- 2,307
---------- ---------- ---------- ----------
Income before dividends on preferred
stock, minority interest and change
in accounting for income taxes ...... 4,747 521 -- 5,268
Dividends on preferred stock ........... 789 -- -- 789
Minority interest ...................... 1,191 -- -- 1,191
Change in accounting for income taxes .. -- 485 -- 485
---------- ---------- ---------- ----------
Net Income ........................... $ 2,767 $ 1,006 -- $ 3,773
========== ========== ========== ==========
Per share data
Net income applicable to common stock... $ 2,240 $ 1,006 $ 3,246
Net income per common share - primary
Income before change in income taxes.. $ 1.64 $ .23 $ 1.25
Change in income taxes................ -- $ .22 $ .22
Net income............................ $ 1.64 $ .45 $ 1.47
Net income per common share - fully
diluted
Income before change in income taxes.. $ 1.49 $ .23 $ 1.24
Change in income taxes................ -- $ .22 $ .17
Net income............................ $ 1.49 $ .45 $ 1.41
Average number of common shares and
equivalents........................... 1,369 2,266 2,201
Cash dividends.......................... -- -- --
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Income Statement Data
Year Ended December 31, 1994
UNAUDITED
JBI UVB
(Historical) (Historical) Adjustments Pro Forma
(In thousands)
<S> <C> <C> <C> <C>
Interest income ........................ $ 46,943 $ 7,519 -- $ 54,462
Interest expense ....................... 17,412 3,171 -- 20,583
---------- ---------- ---------- ----------
Net interest income .................. 29,531 4,348 -- 33,879
Provision for credit losses ............ 1,857 -- -- 1,857
---------- ---------- ---------- ----------
Net interest income after provision
for credit losses ................... 27,674 4,348 -- 32,022
Non-interest income .................... 5,343 471 -- 5,814
Non-interest expense ................... 23,755 3,223 -- 26,978
---------- ---------- ---------- ----------
Income before income taxes ........... 9,262 1,596 -- 10,858
Income taxes ........................... 3,081 512 -- 3,593
Net income ........................... $ 6,181 $ 1,084 -- $ 7,265
========== ========== ========== ==========
Per share data
Net income applicable to common stock... $ 4,868 $ 1,084 $ 5,952
Net income per common share - primary... $ 1.86 $ .48 $ 1.74
Net income per common share - fully
diluted............................... $ 1.71 $ .48 $ 1.65
Average number of common shares and
equivalents........................... 2,618 2,235 3,425
Cash dividends.......................... $ .40 -- $ .40
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Income Statement Data
Year Ended December 31, 1995
UNAUDITED
JBI UVB
(Historical) (Historical) Adjustments Pro Forma
(In thousands)
<S> <C> <C> <C> <C>
Interest income ........................ $ 64,317 $ 9,959 -- $ 74,276
Interest expense ....................... 28,229 4,820 -- 33,049
---------- ---------- ---------- ----------
Net interest income .................. 36,088 5,139 -- 41,227
Provision for credit losses ............ 3,135 851 -- 3,986
---------- ---------- ---------- ----------
Net interest income after provision
for credit losses ................... 32,953 4,288 -- 37,241
Non-interest income .................... 6,508 461 -- 6,969
Non-interest expense ................... 27,647 3,513 -- 31,160
---------- ---------- ---------- ----------
Income before income taxes ........... 11,814 1,236 -- 13,050
Income taxes ........................... 4,153 418 -- 4,571
---------- ---------- ---------- ----------
Net income ........................... $ 7,661 $ 818 -- $ 8,479
========== ========== ========== ==========
Per share data
Net income applicable to common stock... $ 6,534 $ 818 $ 7,352
Net income per common share - primary... $ 2.10 $ .36 $ 1.86
Net income per common share - fully
diluted............................... $ 1.94 $ .36 $ 1.74
Average number of common shares and
equivalents........................... 3,117 2,245 3,958
Cash dividends.......................... $ .525 -- $ .525
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Income Statement Data
Nine Months Ended September 30, 1995
UNAUDITED
JBI UVB
(Historical) (Historical) Adjustments Pro Forma
(In thousands)
<S> <C> <C> <C> <C>
Interest income ........................ $ 46,221 $ 7,436 -- $ 53,657
Interest expense ....................... 19,982 3,495 -- 23,477
---------- ---------- ---------- ----------
Net interest income .................. 26,239 3,941 -- 30,180
Provision for credit losses ............ 2,370 644 -- 3,014
---------- ---------- ---------- ----------
Net interest income after provision
for credit losses .................. 23,869 3,297 -- 27,166
Non-interest income .................... 4,609 385 -- 4,994
Non-interest expense ................... 20,191 2,738 -- 22,929
---------- ---------- ---------- ----------
Income before income taxes .......... 8,287 944 -- 9,231
Income taxes ........................... 2,861 322 -- 3,183
---------- ---------- ---------- ----------
Net income .......................... $ 5,426 $ 622 -- $ 6,048
========== ========== ========== ==========
Per share data
Net income applicable to common stock... $ 4,452 $ 622 $ 5,074
Net income per common share - primary... $ 1.51 $ .28 $ 1.32
Net income per common share - fully
diluted............................... $ 1.39 $ .28 $ 1.25
Average number of common shares and
equivalents........................... 2,957 2,244 3,844
Cash dividends.......................... $ .375 -- $ .375
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Income Statement Data
Nine Months Ended September 30, 1996
UNAUDITED
JBI UVB
(Historical) (Historical) Adjustments Pro Forma(1)
(In thousands)
<S> <C> <C> <C> <C>
Interest income ........................ $ 55,380 $ 7,970 -- $ 63,350
Interest expense ....................... 25,217 3,803 -- 29,020
---------- ---------- ---------- ----------
Net interest income ................. 30,163 4,167 -- 34,330
Provision for credit losses ............ 2,115 405 -- 2,520
Net interest income after provision
for credit losses .................. 28,048 3,762 -- 31,810
Non-interest income .................... 5,185 193 -- 5,378
Non-interest expense ................... 22,711 3,021 -- 25,732
---------- ---------- ---------- ----------
Income before income taxes ........ 10,522 934 -- 11,456
Income taxes ........................... 3,779 301 -- 4,080
---------- ---------- ---------- ----------
Net income ........................ $ 6,743 $ 633 -- $ 7,376
========== ========== ========== ==========
Per share data
Net income applicable to common stock... $ 6,743 $ 633 $ 7,376
Net income per common share - primary... $ 1.65 $ .27 $ 1.49
Net income per common share - fully
diluted............................... $ 1.65 $ .27 $ 1.49
Average number of common shares and
equivalents........................... 4,076 2,313 4,950
Cash dividends.......................... $ .45 -- $ .45
<FN>
(1) Does not reflect an estimated $200,000 in merger related legal, audit,
printing and other expenses.
</FN>
</TABLE>
-27-
<PAGE>
Certain Unaudited Pro Forma Per Share Data
The following unaudited information sets forth historical and pro forma
per common share data for JBI and historical and equivalent pro forma per common
share data for UVB. The information set forth below should be read in
conjunction with the historical financial statements of JBI and UVB, and the
notes thereto, and the pro forma financial data appearing elsewhere in this
Joint Proxy Statement/Prospectus or incorporated herein by reference.
Nine Months
Year Ended Ended
December 31, September 30,
Per Common Share 1995 1996
Book Value:
JBI:
Historical book value per share ................ $ 18.20 $ 19.10
Pro forma combined per share of JBI after merger 17.45(1) 18.26(1)
UVB:
Historical book value per share ................ 5.22(2) 5.45(2)
Equivalent pro forma combined per share of UVB
after merger ................................. 5.92(3) 6.19(3)
Fully Diluted Book Value:
JBI:
Historical fully diluted book value per share .. 18.20 19.10
Pro forma combined per share of JBI after merger 17.45(1) 18.26(1)
UVB:
Historical fully diluted book value
per share .................................... 5.22(2) 5.45(2)
Equivalent pro forma combined per share of UVB
after merger ................................. 5.92(4) 6.19(4)
-28-
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
--------------------------------- --------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Cash Dividends
JBI:
Historical cash dividends
declared .................... $ -- $.40 $.525 $.375 $.45
Pro forma combined per share
of JBI after merger ......... -- .40 .525 .375 .45
UVB:
Historical cash dividends
declared .................... -- -- -- -- --
Equivalent pro forma combined
per share of UVB after
merger ...................... -- (5) .14(5) .18(5) .13(5) .15(5)
Net Income:
JBI:
Historical net income per
share ....................... 1.64 1.86 2.10 1.51 1.65
Pro forma combined per share
of JBI after merger before
cumulative effect of
accounting change for
income taxes ................ 1.25(1)(6) 1.74(1)(6) 1.86(1)(6) 1.32(1)(6) 1.49(1)
Cumulative effect of accounting
change for income taxes ..... .22(1)(6) -- -- -- --
Pro forma combined per share
of JBI after merger ......... 1.47(1)(6) 1.74(1)(6) 1.86(1)(6) 1.32(1)(6) 1.49(1)
UVB:
Historical net income per
share before cumulative
effect of accounting change
for income taxes ............ .23(2) .48(2) .36(2) .28(2) .27(2)
Cumulative effect of accounting
change for income taxes ..... .22(2) -- -- -- --
Historical net income per
share ....................... .45(2) .48(2) .36(2) .28(2) .27(2)
Equivalent pro forma combined
per share of UVB after
merger ...................... .50(7) .59(7) .63(7) .45(7) .51(7)
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
-------------------------------- --------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Fully Diluted Net Income:
JBI:
Historical fully diluted net income
per share ....................... 1.49 1.71 1.94 1.39 1.65
Pro forma combined per share
of JBI after merger before
cumulative effect of accounting
change for income taxes ......... 1.24(1)(8) 1.65(1)(8) 1.77(1)(8) 1.25(1)(8) 1.49(1)
Cumulative effect of accounting
change for income taxes ......... .17(1)(8) -- -- -- --
Pro forma combined per share
of JBI after merger ............. 1.41(1)(8) 1.65(1)(8) 1.77(1)(8) 1.25(1)(8) 1.49(1)
UVB:
Historical fully diluted net
income per share before
cumulative effect of accounting
change for income taxes ......... .23(2) .48(2) .36(2) .28(2) .27(2)
Cumulative effect of accounting
change for income taxes ......... .22(2) -- -- -- --
Historical fully diluted net income
per share ...................... .45(2) .48(2) .36(2) .28(2) .27(2)
Equivalent pro forma combined
per share of UVB after
merger .......................... .48(9) .56(9) .60(9) .42(9) .51(9)
</TABLE>
(1) Pro forma combined book value, fully diluted book value, net income and
fully diluted net income were adjusted for the dilutive effect of the
UVB Warrants as described in footnote (2). However, the JBI Common
Stock market price, adjusted for the conversion ratio, was utilized.
(2) Book value, fully diluted book value, net income and fully diluted net
income of UVB were adjusted for the dilutive effect of warrants
exercisable at $4 per warrant, compared to the higher market price of
UVB Common Stock. The difference between the number of warrants
outstanding multiplied by the UVB Common Stock market price less the
amount required to exercise the warrants, is divided by the UVB Common
Stock market price to arrive at the number of dilutive shares. For
these purposes, the market price of UVB Common Stock was deemed to be
$5 per share, the price at which the last sale of UVB Common Stock (in
May 1996), to the best of the knowledge of UVB's management, took
place.
(3) Equivalent pro forma book value per share of UVB Common Stock
represents the pro forma combined book value per share of JBI Common
Stock multiplied by the Exchange Ratio.
(4) Equivalent pro forma fully diluted book value per share of UVB Common
Stock represents the pro forma combined fully diluted book value per
share of JBI Common Stock multiplied by the Exchange Ratio.
(5) Equivalent pro forma combined cash dividends represent the pro forma
combined cash dividends multiplied by the Exchange Ratio.
(6) Pro forma combined net income per share of JBI Common Stock for periods
prior to the nine months ended September 30, 1996, represents pro forma
net income less dividends on JBI Preferred Stock divided by pro forma
combined average common shares outstanding. All JBI Preferred Stock was
converted into Common Stock in October, 1995.
-30-
<PAGE>
(7) Equivalent pro forma net income per share of UVB Common Stock
represents the pro forma combined net income per share of JBI Common
Stock multiplied by the Exchange Ratio.
(8) Pro forma combined fully diluted net income for periods prior to the
nine months ended September 30, 1996 represents pro forma net income
per share adjusted for the effect of dilutive preferred stock. All JBI
Preferred Stock was converted into Common Stock in October, 1995.
(9) Equivalent pro forma fully diluted net income per share of UVB Common
Stock represents the pro forma combined fully diluted net income per
share of JBI Common Stock multiplied by the Exchange Ratio.
-31-
<PAGE>
THE SPECIAL MEETINGS
Date, Time and Place
JBI. The JBI Special Meeting will be held at 1609 Walnut Street,
Philadelphia, Pennsylvania at 10:00 a.m. local time, on December _____, 1996.
UVB. The UVB Special Meeting will be held at 1601 Market Street,
Philadelphia, Pennsylvania, at 10:00 a.m. local time, on December ___, 1996.
Record Date for, and Voting at, the Special Meetings
JBI. The Record Date for shareholders entitled to notice of, and to
vote at, the JBI Special Meeting is November ____, 1996. At the close of
business on the Record Date there were ___________ shares of JBI Common Stock
outstanding and entitled to vote. At the JBI Special Meeting, holders of record
of JBI Common Stock on the Record Date will be entitled to one vote per share on
each matter of business properly brought before the JBI Special Meeting.
Approval of the Merger Agreement requires the affirmative vote of a majority of
the total votes cast, either in person or by proxy, at the JBI Special Meeting
by the holders of JBI Common Stock, provided a quorum is present. For these
purposes, a quorum consists of a majority of the outstanding JBI Common Stock.
As of the JBI Record Date, directors and executive officers of JBI and
their affiliates beneficially owned and were entitled to vote 959,483 shares of
JBI Common Stock (_______% of shares outstanding on the JBI Record Date). Each
JBI director and executive officer has indicated his present intent to vote his
shares of JBI Common Stock for approval of the Merger Agreement. No directors or
executive officers of UVB own shares of JBI Common Stock.
UVB. The Record Date for shareholders entitled to notice of, and to
vote at, the UVB Special Meeting is November ___, 1996. At the close of business
on the Record Date there were ___________ shares of UVB Common Stock outstanding
and entitled to vote. At the UVB Special Meeting, holders of record of UVB
Common Stock on the UVB Record Date will be entitled to one vote per share on
each matter of business properly brought before the UVB Special Meeting.
Approval of the Merger Agreement requires the affirmative vote of not less than
66 2/3% of all holders of UVB Common Stock entitled to vote.
As of the UVB Record Date, directors and executive officers of UVB and
their affiliates beneficially owned and were entitled to vote 915,538 shares of
UVB Common Stock (______% of shares outstanding on the UVB Record Date). Each
UVB director and executive officer has indicated his present intent to vote his
shares of UVB Common Stock for approval of the Merger Agreement. No directors or
executive officers of JBI own shares of UVB Common Stock.
-32-
<PAGE>
Proxies for the Special Meetings
The proxy enclosed for each of the respective Special Meetings may be
revoked by the person giving it at any time after its submission and before it
is exercised by: (i) submitting written notice of revocation of such proxy to
the Secretary of JBI (in the case of a JBI shareholder) or UVB (in the case of a
UVB shareholder), (ii) submitting a later dated proxy, or (iii) such person
appearing at the respective Special Meeting and requesting a return of the proxy
(appearance alone will not of itself constitute a revocation of the proxy). All
shares represented by valid proxies will be voted in the manner specified in the
proxies. If no specification is made, such shares will be voted in favor of the
Merger Agreement.
The Boards of Directors of each of JBI and UVB know of no business
which will be presented for consideration at either of the Special Meetings
other than the matters described in this Joint Proxy Statement/Prospectus and
those incidental to the conduct of the Special Meetings. It is not anticipated
that other matters will be brought before the Special Meetings. If, however,
other matters are duly brought before either Special Meeting or any adjournments
thereof, the persons appointed as proxies will have the discretion to vote or
act thereon according to their best judgment.
Directors, officers and employees of UVB may solicit proxies from UVB
shareholders and directors, officers and employees of JBI may solicit proxies
from JBI shareholders, in either case by telephone, facsimile transmission,
personal solicitation or otherwise. Each of JBI and UVB will request that the
Notice of Special Meeting, this Joint Proxy Statement/ Prospectus, the proxy and
related materials be forwarded by record owners to beneficial owners and expect
to reimburse banks, brokers and other persons for their reasonable out-of-pocket
expenses in handling such materials. Each of JBI and UVB will bear the cost of
the solicitation of proxies from its own shareholders, except that JBI and UVB
will share equally the cost of printing this Joint Proxy Statement/Prospectus.
Abstentions may be specified on each of the proxy cards. Abstentions
will be considered present for purposes of determining the presence of a quorum
for each Special Meeting, but as unvoted on the matters as to which abstention
has been specified.
Under applicable rules of the New York Stock Exchange and the National
Association of Securities Dealers, Inc., brokers or other members who hold
shares in street name for customers have the discretion to vote those shares
with respect to certain matters if they have not received instructions from the
beneficial owners. Brokers will not have such discretionary authority with
respect to the approval of the Merger Agreement.
The Board of Directors of JBI has (with eight directors present and one
director absent), by unanimous vote of all directors present, approved the
Merger Agreement and recommends a vote FOR approval and adoption of the Merger
Agreement.
-33-
<PAGE>
The Board of Directors of UVB has, by unanimous vote, approved the
Merger Agreement and recommends a vote FOR approval and adoption of the Merger
Agreement.
A failure to vote by a UVB shareholder, either by not returning the
enclosed proxy, or by returning the enclosed proxy and checking the ABSTAIN box,
will have the same effect as a vote against approval of the Merger Agreement. A
failure to vote by a JBI shareholder may affect whether a quorum is present at
the JBI Special Meeting.
THE MERGER
General
The Board of Directors of each of JBI and UVB has approved the Merger
Agreement, which provides for the Merger, at the Effective Date, of JBI Merger
Sub with and into UVB, with UVB thereby becoming a wholly-owned subsidiary of
JBI. This section of the Joint Proxy Statement/Prospectus describes the material
aspects of the proposed Merger, including the principal terms of the Merger
Agreement. However, this information is necessarily general and is qualified by
reference to more detailed information appearing elsewhere in this Joint Proxy
Statement/Prospectus, the documents incorporated herein by reference and the
Annexes hereto. A copy of the Merger Agreement is set forth in Annex A hereto
and reference is made thereto for the complete terms of the Merger. Shareholders
of JBI and UVB are urged to review the Merger Agreement and each of the Annexes
hereto carefully.
Background of the Merger
In the past decade, the banking industry has been subject to
significant change, including an increase in consolidations and a decrease in
the number of small "boutique" banks. Intensified competition from both
traditional financial institutions and non-bank financial service providers has
resulted. To define their market positions more clearly, both JBI and UVB have
sought to identify their operations as "community banks" and "small and
middle-market business banks." Each has sought to enhance its market presence
through expansion into targeted communities within the Philadelphia metropolitan
area. Since January 1, 1995, JBI has acquired three smaller community banks,
four branches of other banks and the deposits of another bank, while UVB has
opened two new branches.
While UVB's Board has recognized the need for further growth of UVB in
order to successfully compete in its market, it also recognized that the cost of
obtaining such growth would be substantial, both with respect to the
establishment of additional branches and the installation of the technology
necessary to compete and manage the growth. UVB's Board has also desired to
increase the liquidity of UVB Common Stock for the benefit of all UVB
shareholders.
In reviewing UVB's strategic options, the Board determined in the
spring of 1995 that UVB could achieve desired growth and market liquidity
through strategic alliances with other
-34-
<PAGE>
small community banks or through a combination with a larger institution. UVB
initially pursued a strategy of seeking alliances with other local community
banks of like size. By the end of 1995, however, UVB had been unsuccessful in
forming such alliances. Thus, its Board concluded that more vigorous activity
was required and must include not only small community banks but also larger
financial institutions.
The UVB Board considered the relative merits of maintaining the
independence of UVB through acquisitions by UVB and of merging UVB with a larger
institution. Both tax-free exchanges for Nasdaq- or exchange-listed securities,
which could provide enhanced liquidity, and taxable sales for cash, were
considered by the Board. After such consideration, the UVB Board determined to
pursue acquisition of UVB by a larger institution and, in early 1996, directed
Thomas J. Lynch, President and Chief Executive Officer of UVB, to seek such a
combination. Approximately twenty financial institutions were contacted to
pursue possible combinations. UVB identified JBI as a potentially interested
institution based upon prior informal conversations between individual officers
and directors of the institutions.
In late July 1996, UVB contacted JBI to determine JBI's interest in
exploring a possible combination. Preliminary financial information was provided
to JBI after a confidentiality agreement was signed. After review of this
information JBI advised UVB that JBI would be interested in pursuing further
discussions.
Several other financial institutions in the immediate Philadelphia
vicinity had also indicated interest in pursuing a combination with UVB. In
early August, the Executive Committee of UVB's Board (the "UVB Executive
Committee") reviewed all of the discussions and contacts made to that time and
decided to advance the discussions with five identified financial institutions,
including JBI. On August 7, 1996, the UVB Executive Committee indicated to those
five financial institutions that all final indications of interest had to be
received by August 21, 1996. During the next two weeks, UVB held numerous
discussions with the institutions.
On the morning of August 13, Betsy Z. Cohen, Chairman and Chief
Executive Officer of JBI, met with John G. Hoopes, Chairman of the Board of UVB,
and Stanley L. Stein, a director of UVB, to discuss the structure, business and
affairs of UVB, to review the implications of a combination of UVB and JBI for
each of the two companies and to explore whether a combination of the companies
was feasible from financial, business and internal culture points of view. That
afternoon, Mrs. Cohen met with the UVB Executive Committee to continue the
discussion begun with Messrs. Hoopes and Stein. After these meetings, JBI began
an extensive review of UVB's business, operations, liabilities and assets (and,
in particular, UVB's loan portfolio), to determine the value to JBI of UVB and
to estimate the potential cost savings and business enhancements which might
result from a merger. On August 19, Mrs. Cohen met with Mr. Lynch to discuss
aspects of JBI's review and the role Mr. Lynch might assume in the event of a
combination. On August 21, Mrs. Cohen discussed the proposed transaction at
length with the directors of Jefferson PA at a regularly scheduled meeting,
which was followed by a conference call with the directors of JBI, informing
them of the substance of her discussions with
-35-
<PAGE>
UVB, the proposed terms of the transaction, the results of JBI's review of UVB
and the potential benefits which could result from a combination. Mrs. Cohen
then communicated proposed terms of an acceptable transaction to Mr. Hoopes. UVB
also received proposals from the other four institutions.
On August 21, the UVB Executive Committee reviewed all proposals in
detail. After reviewing the potential of the combined institutions, the
performance of JBI Common Stock, the culture of the two institutions and other
factors, the UVB Executive Committee determined that JBI's offer was the most
appropriate and agreed to enter into negotiations with JBI for a definite merger
agreement. The negotiations were conducted by UVB and JBI, and their
representatives, during the next two weeks. During this period, UVB conducted a
due diligence review of JBI and retained Danielson to review the proposed
transaction and issue its opinion as to the fairness of the Exchange Ratio to
the shareholders of UVB from a financial point of view. See "The Merger -
Opinion of Financial Advisor."
On September 4, the Boards of Directors of each of JBI and Jefferson PA
met in joint session to formally consider a proposal by Mrs. Cohen that JBI
acquire UVB through merger. After extensive review of the transaction, and
consideration of the factors referred to in "The Merger - Reasons for the
Merger; Recommendations of the Boards of Directors," Mrs. Cohen recommended that
the directors approve the proposed merger. The Boards, by the unanimous vote of
those present, approved the Merger Agreement and directed that it be submitted
to JBI's shareholders.
At a Special Meeting of the Board of Directors of UVB on September 5,
the Merger Agreement was presented for formal consideration. Danielson also
presented a form of its written fairness opinion. Believing it desirable and in
the best interests of UVB and its shareholders to be acquired by JBI in
accordance with the terms of the Merger Agreement, the Board of Directors
approved the Merger Agreement by unanimous vote and directed that it be
submitted to UVB's shareholders.
The Merger Agreement was executed on September 5. On September 30, the
Merger Agreement was amended to resolve certain technical concerns.
Reasons for the Merger; Recommendations of the Boards of Directors
The Boards of Directors of each of JBI and UVB believe that the Merger
provides shareholders with the opportunity to combine two financially strong
banking operations with a similar focus on community and small- to middle-market
business banking and, because of the geographic overlap of the institutions, to
achieve a number of operating efficiencies and business synergies. Although no
assurances can be given that any specific level of expense savings will be
achieved, or as to the timing thereof, JBI and UVB have identified potential
annualized pre-tax expense savings of $1.7 million (or approximately 40% of the
pro forma 1996 operating expense base) which they anticipate can be effected
within approximately six months following consummation of the Merger by
consolidating certain lending, deposit, loan and administrative
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operations, closing two branch offices, consolidating office space, combining
data processing operations under JBI's data processing contract and eliminating
duplicative audit, insurance and other expenses.
In addition, although neither UVB or JBI has quantified any particular
level of revenue enhancements which may result from the Merger, several
potential business synergies have been noted in both the lending and general
financial services areas. The Boards of each of JBI and UVB noted that, by
becoming a part of JBI, the former offices of UVB would have the support of
JBI's greater resources and products, and broader access to markets and lendable
funds. In particular, they observed that the Merger would increase the limit on
loans that could be made to a UVB customer from approximately $2 million to
approximately $12 million and would present UVB customers with a significantly
larger number of deposit account choices, a larger number of certificate of
deposit options, previously unavailable in-house credit card and merchant plan
services, previously unavailable cash management services (including escrow
management, sweep accounts, zero balance accounting, lock boxes, foreign drafts
and similar items), and previously unavailable home banking and bill-paying
services. Both Boards noted that JBI maintains active installment and
residential mortgage loan departments while UVB has heretofore provided such
services primarily as an accommodation to selected customers and that, in
addition, JBI provides automobile leasing services for individuals and corporate
fleets, neither of which have been previously offered by UVB.
In determining to approve the Merger Agreement, the Boards of Directors
of each of JBI and UVB also considered, among others, the following factors:
(i) The Financial and Other Terms of the Merger Agreement. The Boards
of Directors of each of JBI and UVB considered the terms of the Merger Agreement
and the transactions contemplated thereby. Each Board took into account the
historical trading ranges for JBI Common Stock, the illiquid market for UVB
Common Stock and the Exchange Ratio. The UVB Board considered recent and
historical selling prices for UVB Common Stock, the net book value of UVB Common
Stock and the more liquid market for JBI Common Stock provided by its listing on
Nasdaq. The UVB Board noted in particular that, based on the closing price of
JBI Common Stock on the last trading day prior to its September 5 meeting, the
Exchange Ratio reflected a premium of 178% to UVB's book value and a multiple of
26.7 times earnings for the four trailing calendar quarters. JBI's Board took
into account the potential impact of the Merger on the price of JBI Common Stock
over the short- and medium-term and the resulting relative interests of JBI and
UVB shareholders in the equity of the combined company. The UVB Board considered
the dividends history of JBI and the potential for increased earnings and book
value per share for shareholders of UVB as a result of the Merger. The JBI Board
considered that the Merger was expected to be accretive to JBI's earnings per
share in 1997, that JBI Common Stock will be diluted by only 1.9% on a tangible
basis (and that the ratio of tangible book value to aggregate book value will
increase), and that a discounted cash flow analysis resulted in a value per
share of UVB Common Stock in excess of the consideration being paid by JBI,
based upon the closing price of JBI Common Stock on September 4. Both Boards
were advised, and considered, that under the Merger Agreement, JBI would have
the right to terminate the Merger
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Agreement in the event of a specified significant decline in the net worth of
UVB prior to the completion of the Merger.
(ii) Advice of Financial Advisors and Fairness Opinion. The UVB Board
considered, and placed special importance on, advice received from Danielson and
reviewed the detailed financial analyses, pro forma results and other
information presented by Danielson, including Danielson's favorable opinion as
to the fairness, from a financial point of view, of the consideration to be paid
to UVB shareholders in the Merger. For a discussion of the opinion of UVB's
Financial Advisor, including a summary of the procedures followed, the matters
considered, the scope of the review undertaken and the assumptions made with
respect thereto, see "- Opinion of Financial Advisor" below.
(iii) Certain Financial and Other Information. Each Board analyzed
information with respect to, among other things, the historical financial
results of the other party and pro forma financial results, and reviewed
information with respect to the other party's business, operations, financial
condition and future prospects. Each Board considered, in particular, the other
party's capital position, asset quality, management strength and strategic
direction, as well as relative strengths and weaknesses of the other party's
businesses. The UVB Board also considered the UVB Board's knowledge of the
business, operations, properties, assets and earnings of UVB, as well as its
assessment of the earnings potential and future value of UVB. Each of the Boards
considered the prices and premiums paid in recent acquisitions of other
companies in comparable businesses, the prospects of UVB and JBI, and the values
of JBI and UVB separately and as a combined enterprise.
(iv) Due Diligence Review. Each Board considered the results of the due
diligence review conducted by its management and advisors, including, among
other things, a review of the other party's credit policies, asset quality, the
adequacy of its loan loss reserves and its interest rate risk profile.
(v) The Tax and Accounting Treatment of the Transaction. The UVB Board
considered that the Merger is expected to be tax-free (other than with respect
to cash paid in lieu of fractional shares) to shareholders for federal income
tax purposes. Each Board considered that the Merger was expected to be accounted
for under the pooling of interests method of accounting for business
combinations. See "- Federal Income Tax Consequences" and "- Anticipated
Accounting Treatment."
(vi) Regulatory Approvals. Each Board considered the nature of, and
likelihood of obtaining, the regulatory approvals that would be required with
respect to the Merger. See "- Regulatory Approvals."
(vii) Operating Environment. Each Board took into account the current
and prospective economic and competitive environment facing the financial
services industry generally and each of UVB and JBI in particular, and
considered the ability of larger institutions to provide increased
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products and services and to invest in technology, and the impact of the
proposed Merger on their depositors, employees, customers and the communities
they serve.
The foregoing discussion of the information and factors considered by
each Board of Directors is not intended to be exhaustive but includes all
material factors considered by each such Board. In reaching its determination to
approve the Merger Agreement, neither Board assigned any relative or specific
weights to the various factors considered by it (except as described above), nor
did either Board specifically characterize any factor as positive or negative,
and individual directors may have given differing weights to different factors
and may have viewed certain factors more positively or negatively than others.
Based upon the considerations described above, the Boards of Directors
of each of JBI and UVB, by the unanimous vote of all directors present, approved
the Merger Agreement and the transactions contemplated thereby and recommended
that its shareholders vote "FOR" approval of the Merger Agreement.
Mr. Neff was absent from the meeting of the Board of Directors of JBI
at which such vote was taken, although he participated in the conference call of
August 21 and has subsequently indicated his approval of the Merger Agreement.
Terms of the Merger
Structure. Pursuant to the Merger Agreement, JBI will acquire UVB and
United Valley through merger of JBI Merger Sub with and into UVB (the "Merger"),
with UVB being the surviving entity (the "Continuing Corporation"). As a result
of the Merger, UVB will become a direct wholly-owned subsidiary of JBI and
United Valley will become a second-tier subsidiary of JBI. Immediately following
the Merger, United Valley will merge with and into Jefferson in a separate
merger transaction, with Jefferson being the surviving institution, and the
separate existence of United Valley will cease.
In accordance with Pennsylvania law, following the Merger the
Continuing Corporation will possess all of the property, rights, powers, duties,
obligations and liabilities of UVB and JBI Merger Sub. The Continuing
Corporation will be governed by the Articles of Incorporation and Bylaws of JBI
Merger Sub in effect immediately prior to the consummation of the Merger. The
directors of UVB immediately prior to the consummation of the Merger will
continue as the directors of the Continuing Corporation; the officers of UVB
immediately prior to the consummation of the Merger will continue as the
officers of the Continuing Corporation. Following the merger of United Valley
into Jefferson, the officers and directors of Jefferson will be the officers and
directors of the surviving institution, subject to certain appointments required
by the Merger Agreement. See "- Interests of Certain Persons," below.
Merger Consideration. Upon consummation of the Merger, each outstanding
share of UVB Common Stock will be converted into and become, automatically and
without any action on the part of the holder thereof, the right to receive 0.339
of a share of JBI Common Stock.
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Each holder of UVB Common Stock who would otherwise be entitled to a fractional
share of JBI Common Stock will receive cash in lieu thereof in an amount
determined by multiplying such fractional share by the Index Price. As defined
in the Merger Agreement, the Index Price is that price per share of JBI Common
Stock equal to the average of the daily closing prices for JBI Common Stock on
Nasdaq during the twenty trading days immediately prior to the Merger Effective
Date.
Upon consummation of the Merger, each outstanding UVB Warrant will be
converted into and become, automatically and without any action on the part of
the holder thereof, a JBI Warrant to purchase that number of shares of JBI
Common Stock as shall equal (i) the Exchange Ratio multiplied by (ii) that
number of shares of UVB Common Stock which such UVB Warrant entitled the holder
thereof to purchase, at an exercise price equal to (a) the exercise price per
share of the UVB Warrant divided by (b) the Exchange Ratio. Rights under any JBI
Warrant to purchase a fractional share will be cancelled.
If JBI, at any time before the consummation of the Merger, changes the
number of issued and outstanding shares of JBI Common Stock as a result of a
stock split, stock dividend, recapitalization or similar transaction with
respect to the outstanding JBI Common Stock, the Exchange Ratio will be
proportionately adjusted so that each UVB shareholder (and each holder of a UVB
Warrant) will be entitled to receive such number of shares of JBI Common Stock
(or JBI warrants to purchase JBI Common Stock) as he would have been entitled to
receive in such transaction if the Merger had been consummated prior to the
happening of such event.
Effective Date; Conditions to Consummation; Termination. Subject to the
terms and conditions set forth in the Merger Agreement, the Merger Effective
Date will occur upon the acceptance and filing of articles of merger by the
Pennsylvania Department of State. The presentation of the articles for
acceptance and filing is subject to the rights of the Boards of Directors of JBI
and UVB to terminate the Merger as provided for in the Merger Agreement.
The consummation of the Merger is subject to, among other things, the
approval of the shareholders of JBI and UVB; receipt of required regulatory
approvals; and there being no material adverse change in the financial position,
results of operations or business of United Valley, taken as a whole. As used in
the Merger Agreement, a material adverse change in the financial position of
United Valley means a change which results or is reasonably likely to result in
a decrease in the shareholders' equity account of United Valley (determined in
accordance with generally accepted accounting principals) equal to or greater
than $500,000, as measured from the shareholders' equity account set forth in
United Valley's financial statements as of and for the quarter ended June 30,
1996. As of such date, United Valley's shareholders' equity account was $12.7
million.
The Merger Agreement provides that it may be terminated and the Merger
abandoned at any time prior to the Merger Effective Date: (i) by mutual consent
of JBI and UVB if the Board of Directors of each so determines by majority vote;
(ii) by either the Board of Directors of JBI or the Board of Directors of UVB:
(a) in the event of any breach of a representation or warranty
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by the other party materially adversely affecting the Merger, or any material
breach of a covenant contained in the Merger Agreement, which, in each case, is
not cured within 30 days after notice, (b) if approval of the Merger Agreement
by the shareholders of either JBI or UVB is not obtained, or (c) if the Merger
is not consummated on or before June 30, 1997; or (iii) by JBI: if the sum of
(x) the number of shares of UVB Common Stock as to which dissenters' rights have
been elected, and (y) the number of shares of UVB Common Stock, the conversion
of which to JBI Common Stock subsequent to the Merger would result in fractional
shares which JBI is required to purchase pursuant to the Merger Agreement, shall
equal more than ten percent of the outstanding shares of UVB Common Stock
outstanding immediately prior to the Merger Effective Date.
Waiver; Amendment. Prior to the Merger Effective Date, any provision of
the Merger Agreement may be: (i) waived by the party benefitted by the
provision; or (ii) amended or modified at any time (including the structure of
the transaction) by an agreement in writing among the parties thereto approved
by their respective Boards of Directors and executed in the same manner as the
Merger Agreement provided that, after approval by the shareholders of UVB, the
consideration to be received by the shareholders of UVB may not thereby be
decreased.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, each of UVB and United Valley has
agreed that, without the prior written consent or approval of the Chairman or
President of JBI, neither will, nor will agree to, (i) make, pay or declare any
dividend; (ii) enter into any employment contracts, increase the rate of
compensation (except in accordance with existing policy consistent with past
practice) of any employee or pay or agree to pay any bonus except in accordance
with plans or arrangements existing on September 5, 1996; (iii) enter into or
modify (except as may be required by applicable law) any pension, retirement,
stock option, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance, or other employee benefit, incentive or
welfare contract, or any trust agreement related thereto; (iv) amend its
Articles of Incorporation or Bylaws; (v) dispose of or discontinue any material
portion of its assets, business or properties (except for the sale of foreclosed
properties, or properties received in lieu of foreclosure in the ordinary course
of business, consistent with past practice) or merge or consolidate with, or
acquire any substantial portion of, the business or property of any other entity
(except for properties received through, or in lieu of, foreclosure in the
ordinary course of business, consistent with past practice); and (vi) take any
other action or engage in any loan, deposit, investment or other transaction not
in the usual, regular and ordinary course of business consistent with past
practice.
UVB and United Valley have also agreed not to solicit or encourage
inquiries or proposals with respect to, or (except as required by the fiduciary
duties of the Board of Directors of UVB or the Board of Directors of United
Valley) furnish any nonpublic information relating to, or participate in any
negotiations or discussions concerning any acquisition of UVB or United Valley
(or any substantial interest therein), or any merger or other business
combination with either UVB or United Valley.
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Opinion of Financial Advisor
The Board of Directors of UVB retained Danielson in June 1996 to act as
its financial advisor and as such, among other things, to advise the UVB Board
of Directors as to UVB's "fair" sale value and the fairness to its shareholders
of the financial terms of any offers to acquire UVB. Danielson is regularly
engaged in the valuation of banks, bank holding companies and thrifts in
connection with mergers, acquisitions and other securities transactions and has
knowledge of, and experience with, Pennsylvania banking markets and banking
organizations operating in those markets. Danielson was selected by UVB because
of its knowledge of, experience with, and reputation in the financial services
industry.
In such capacity, Danielson participated in the negotiations with
respect to the pricing and other terms and conditions of the Merger, but the
decision as to accepting the offer was ultimately made by the Board of Directors
of UVB. Danielson advised UVB's Board of Directors that, in its opinion, as of
September 4, 1996, the financial terms of JBI's offer are "fair" to UVB and its
shareholders. No limitations were imposed by the UVB Board of Directors upon
Danielson with respect to the investigations made or procedures followed by it
in arriving at its opinion.
In arriving at its opinion, Danielson reviewed certain publicly
available business and financial information relating to UVB and JBI, including
(a) annual reports for each of the fiscal years ended December 31, 1994 and
1995; (b) call report data from 1989 through 1996, including quarterly reports
for 1996; (c) recently reported prices and trading activities of, and dividends
paid on, the common stock of JBI; and (d) certain other publicly available
information, including data relating to the current economic environment
generally and the banking market in particular. Danielson also met with the
management of UVB to discus UVB's past and current business operations and
financial condition.
As more fully described below, Danielson also considered certain
financial and stock market data of UVB and JBI in comparison with similar data
of other publicly-held banks and thrifts and their holding companies and
considered financial terms of comparable transactions which have recently been
effected.
Danielson did not obtain any independent appraisal of the assets or
liabilities of UVB, JBI or their respective subsidiaries. Further, Danielson did
not independently verify the information provided by UVB or JBI and assumed the
accuracy and completeness of all such information.
In arriving at its opinion, Danielson performed a variety of financial
analyses. Danielson believes that its analyses must be considered as a whole and
that consideration of portions of such analyses and the factors considered
therein, without considering all factors and analyses, could create an
incomplete view of the analyses and the process underlying Danielson's opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis and summary
description.
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In its analyses, Danielson made certain assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond JBI's or UVB's control. Any estimates contained in
Danielson's analyses are not necessarily indicative of future results or value,
which may be significantly more or less favorable than such estimates. Estimates
of values of companies do not purport to be appraisals or necessarily reflect
the prices at which companies or their securities may actually be sold.
Danielson analyzed the changes in the amount of earnings, book value
and indicated dividends represented by the receipt of approximately 749,000
shares of JBI Common Stock and approximately 255,000 Warrants to purchase JBI
Common Stock for all of the shares of UVB Common Stock and Warrants to purchase
UVB Common Stock surrendered. The analysis evaluated, among other things,
possible dilution in earnings and capital per share for JBI Common Stock and
dividends to be received by UVB's shareholders.
Danielson compared UVB's (a) tangible capital of 9.73% of assets as of
June 30, 1996, (b) 1.61% of assets non-performing as of June 30, 1996, and (c)
net operating income of 1.47% of average assets for the three-month period
ending March 31, 1996, with the medians for selected banks that Danielson deemed
comparable. These medians were (a) tangible capital of 7.28% of assets, (b) .72%
of assets non-performing and (c) net operating income of 1.33% of average
assets.
Danielson also compared JBI's (a) stock price, as of September 3, 1996,
of 12.0 times earnings and 137% of shareholders' equity per share; (b) dividend
yield, based on the trailing four quarters as of June 30, 1996, and stock price
as of September 3, 1996, of 2.33%; (c) tangible capital, as of June 30, 1996,
equal to 6.18% of assets; (d) non-performing assets as of June 30, 1996, equal
to 2.24% of total assets; and (e) return on average assets during the trailing
four quarters ended June 30, 1996, equal to .96%, with the medians for selected
bank and bank holding companies that Danielson deemed to be comparable to JBI.
The comparable medians were (a) stock price of 12.0 times earnings and 159% of
shareholders' equity per share; (b) dividend yield of 3.34%; (c) tangible
capital of 8.83% of assets; (d) .52% of assets non-performing; and (e) return on
average assets of 1.25%.
Danielson also compared other income, expense and balance sheet
information of such companies with similar information about JBI. The selected
institutions included Eastern Pennsylvania, New Jersey and Maryland bank and
bank holding companies with assets between $500 million and $2 billion and no
extraordinary characteristics.
Danielson also compared the consideration to be paid in the Merger to
the latest twelve months earnings and equity capital of UVB and with the
earnings and capital multiples paid in recent acquisitions of banks. For this
comparison, Danielson used the median of these multiples for 1995, and
year-to-date announced merger and acquisition transactions as of September 3,
1996 for acquisitions of banks in Pennsylvania and of new banks in the
Northeast. At the time Danielson made its analysis, the consideration to be paid
in the merger equalled 177% of UVB's June 30, 1996 book value and 25.4 times
UVB's earnings for the trailing four quarters as of June 30, 1996. This compares
to median multiples of 207% of book value and 18.0 times
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earnings for comparable Pennsylvania acquisitions, and 207% of book value and
18.3 times earnings for offers made for good performing new banks in 1996, up to
the evaluation date.
No company or transaction used in this composite analysis is identical
to UVB and JBI. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operation characteristics of the companies and
other factors that could affect the public trading values of the company or
companies to which they are being compared.
The summary set forth above does not purport to be a complete
description of the analyses and procedures performed by Danielson in the course
of arriving at its opinions.
The full text of the opinion of Danielson dated as of September 4,
1996, which sets forth assumptions made and matters considered, is attached
hereto as Annex B to this Joint Proxy Statement/Prospectus. UVB shareholders are
urged to read this opinion in its entirety. Danielson's opinion is directed only
to the consideration to be received by UVB shareholders in the Merger and does
not constitute a recommendation to any UVB shareholder as to how such
shareholder should vote at the Special Meeting.
Regulatory Approvals
The Merger is subject to the prior approval of the Federal Reserve
Board ("FRB"), the Federal Deposit Insurance Corporation ("FDIC") and the
Pennsylvania Department of Banking ("PA Department"). There can be no assurance
that all required approvals will be obtained, or as to the timing or conditions
of any such approvals. Applications to obtain such approvals have been filed and
are currently pending.
Dissenters' Rights
The rights of dissenting shareholders of UVB are governed by the BCL.
The BCL provides holders of shares of UVB Common Stock with the right to dissent
from the Merger and obtain payment of the "fair value" (as such term is used in
the BCL) of such shares upon compliance with the relevant provisions of the BCL.
Holders of unexercised UVB Warrants are not entitled to dissenters' rights with
respect to the UVB Warrants. A copy of the provisions of the applicable statute
is set forth in Annex C hereto. The following summary of such provisions is
qualified in its entirety by reference to Annex C.
A shareholder desiring to exercise dissenter's rights must satisfy all
of the following conditions. The shareholder must (i) prior to the vote upon the
Merger at the UVB Special Meeting submit a written notice to UVB of the
shareholder's intention to demand payment of the fair value of the shareholder's
shares if the Merger is effectuated; (ii) effect no change in the beneficial
ownership of the shares from the date of such filing continuously through the
Merger Effective Date; and (iii) refrain from voting the shares for approval of
the Merger Agreement. The written notice referred to in clause (i) must be in
addition to and separate from voting
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against, abstaining from voting, or failing to vote on approval of the Merger
Agreement. Voting against, abstaining from voting or failing to vote on approval
of the Merger Agreement will not constitute written notice of an intent to
demand payment within the meaning of the BCL.
In the event a shareholder votes for approval of the Merger Agreement,
or delivers a proxy in connection with the UVB Special Meeting (unless the proxy
specifies a vote against, or an abstention from voting on, approval of the
Merger Agreement), the shareholder will have waived dissenters' rights and will
have nullified any written notice of an intent to demand payment submitted by
such holder. Failure to submit a proxy card specifying a vote against or
abstention from voting on the Merger does not waive a shareholder's dissenter's
rights.
A UVB shareholder may assert dissenter's rights as to less than all of
the shares registered in such holder's name only if such record holder dissents
with respect to all shares owned by any one beneficial owner and discloses the
name and address of each person on whose behalf such holder dissents. The rights
of a partial dissenter are determined as if the shares as to which the record
holder dissents and record holder's remaining shares were registered in the
names of different shareholders. A beneficial owner may assert dissenter's
rights as to shares held on such owner's behalf only if such owner submits to
UVB the record holder's written consent to the dissent no later than the time
the beneficial owner asserts his dissenter's rights. A beneficial owner may not
dissent with respect to less than all shares of the same class or series owned
by the beneficial owner, whether or not the shares owned by such beneficial
owner are registered in such beneficial owner's name.
If the Merger Agreement is approved, UVB will deliver a dissenter's
notice to all holders who have satisfied the foregoing requirements which will:
(i) state where and when a demand for payment is to be sent and certificates for
certificated shares are to be deposited; (ii) inform holders of uncertificated
shares to what extent transfer of shares will be restricted from the time that
the demand for payment is received; (iii) supply a form for demanding payment
that includes a requirement that the person certify the date on which he or she,
or the person on whose behalf he or she dissented, acquired beneficial ownership
of the shares; and (iv) be accompanied by a copy of Sections 1571 through 1580
of the BCL.
A shareholder sent a dissenter's notice is required to make a payment
demand to UVB, make the certification referred to above, and, in the case of
certificated shares, deposit the certificates representing the holder's
dissenting shares in accordance with the dissenter's notice. A shareholder who
takes these actions (including the depositing of share certificates) retains all
other rights as a holder of UVB Common Stock except to the extent such rights
are canceled or modified by the consummation of the Merger. A shareholder who
does not make a payment demand and deposit the holder's share certificates where
required, each by the date set forth in UVB's dissenters' notice, will not be
entitled to payment of the fair value of the holder's shares under Sections 1571
through 1580 of the BCL.
Promptly after effectuation of the Merger, or upon timely receipt of
the shareholder's payment demand if the Merger has already been effectuated, UVB
shall either (i) pay to
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dissenters who have made demand and, in the case of certificated shares, have
deposited their certificates, an amount that UVB estimates to be the fair value
of the shares; or (ii) give written notice that no payment is being made of the
estimated fair value.
The payment (or written notice that no payment is being made) by UVB
will be accompanied by: (i) UVB's balance sheet and statement of income as of
the end of a fiscal year ended not more than 16 months before the date of
remittance and the latest available interim financial statements; (ii) a
statement of UVB's estimate of the fair value of the shares; and (iii) a notice
of the right of the dissenter to demand payment or supplemental payment, as the
case may be, accompanied by a copy of Sections 1571 through 1580 of the BCL. If
UVB does not make payment of the estimated value, it is required to return to
the shareholder any certificates deposited with UVB and, with respect to
uncertificated shares, release transfer restrictions, with a notation on the
certificates or transfer records that a demand for payment has been made.
If UVB gives notice of its estimate of the fair value of the shares
without remitting payment, or remits payment of its estimate of fair value and
the dissenter believes that the amount stated or remitted is less than fair
value, the dissenter may send to UVB the dissenter's own estimate of fair value,
which is deemed to be a demand for payment of that amount (less any amounts
previously paid by UVB). If UVB has remitted payment of its estimate of fair
value, a dissenter must file the dissenter's own estimate within 30 days after
the mailing by UVB of its remittance or else be entitled to no more than the
amount remitted to the dissenter by UVB.
Within 60 days of the later of (i) the Merger Effective Date; (ii)
timely receipt of any demands for payment (other than those described in the
previous paragraph); or (iii) timely receipt of the demand for payment referred
to in the previous paragraph, UVB may apply in a court of common pleas of
Philadelphia County to have the court determine the fair value of any shares as
to which demands for payment are unsettled. All dissenters whose demands have
not been settled must be made parties to the proceeding. If UVB fails to file
such an action, dissenters whose demands have not been settled may file an
application for such a proceeding in that court within 30 days after the
expiration of the 60-day period referred to above. If such an application is not
filed by a dissenter within the prescribed time period, the dissenter shall be
paid UVB's estimate of fair value of the dissenter's shares, and no more, and
may bring an action to recover any of such amount not remitted to the dissenter.
Costs and expenses of a valuation proceeding will be borne by UVB
unless the court assesses some portion or all of the expenses against a
dissenter who demanded supplemental payment and whose action in so doing the
court finds to be dilatory, obdurate, arbitrary, vexatious or in bad faith.
Expenses of counsel and experts for the respective parties may be assessed
wholly or in part against UVB if it fails to comply substantially with Sections
1571 through 1580 of the BCL, and may be assessed against any party the court
finds acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious
manner.
The foregoing is only a summary of the rights of a dissenting
shareholder of UVB. Any shareholder who intends to dissent from the Merger
should carefully review the text of the
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applicable provisions of the BCL and should also consult with his or her
attorney. The failure of a shareholder to follow precisely the procedures
summarized above may result in loss of dissenter's rights. No further notice of
the events giving rise to dissenters' rights or any steps associated therewith
will be furnished to UVB shareholders, except as indicated above or otherwise
required by law.
In general, any dissenting shareholder who perfects the dissenter's
right to be paid the fair value of the dissenter's shares in cash will recognize
taxable gain or loss for federal income tax purposes upon receipt of such cash.
See "The Merger-Federal Income Tax Aspects."
Expenses
All expenses incurred by or on behalf of the parties in connection with
the Merger, which are estimated not to exceed $200,000, will be borne by the
party incurring such costs, except that printing expenses for this Joint Proxy
Statement/Prospectus will be shared equally between UVB and JBI.
Interests of Certain Persons
As a result of the Merger, it is anticipated that the Board of
Directors of JBI will remain unchanged except that two of the directors of UVB
will become additional directors of JBI. In addition, three UVB directors, one
of whom will be Thomas J. Lynch, will become additional directors of Jefferson.
For information concerning the security holdings of directors and
executive officers of UVB and United Valley, see "Security Ownership of Certain
Beneficial Owners and Management of UVB and United Valley."
JBI is required to file within ten days following the filing of its
Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 1997, a
registration statement under the Securities Act (the "Shelf Registration
Statement") with respect to (i) JBI Common Stock underlying those JBI Warrants
received in the Merger which expire on or after September 20, 1997, and (ii) JBI
Common Stock issued in exchange for those shares of UVB Common which were issued
pursuant to the exercise of UVB Warrants which had expiration dates on or after
September 20, 1997. Notwithstanding the foregoing, JBI is required to file the
Shelf Registration Statement no earlier than six months, but no later than nine
months, after the Merger Effective Date.
Three executive officers of UVB, Messrs. Lynch, Horner and Zuecca, have
existing agreements with UVB regarding employment and/or termination of
employment when there is a change in control of UVB. See "Management of UVB and
United Valley - Employment Contracts." The Merger Agreement provides that, on or
before September 30, 1996, JBI would enter into employment agreements with such
persons or terminate their existing agreements effective as of the Merger
Effective Date. JBI has elected to enter into employment arrangements with Mr.
Lynch and to terminate the agreements of Messrs. Horner and Zuecca.
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With respect to Mr. Lynch, JBI's subsidiary, Jefferson, has agreed to assume the
UVB employment agreement with certain amendments agreed to with Mr. Lynch. As
amended, the agreement provides that Mr. Lynch will become an Executive Vice
President and director of Jefferson, receive a base salary of $160,000 per year,
together with payment of club dues and an automobile allowance, and be eligible
for participation in Jefferson's Executive Officer Incentive Compensation
Program and Employee Stock Option Program. The term of the agreement will be for
three years, but will not contain the automatic renewal feature of the UVB
agreement.
As a result of the termination of their agreements with UVB, Messrs.
Horner and Zuecca are entitled to receive one year's compensation ($96,220 for
Mr. Horner and $116,539 for Mr. Zuecca) together with the right to participate
in such benefit plans as are generally made available to JBI's senior executive
employees. Mr. Horner and JBI have also agreed that, for the first three months
following the Merger Effective Date, Mr. Horner will continue active employment
with JBI to aid in the transition period. At the termination of such period, he
will receive the balance of the one year of salary due him, as described above,
plus benefits, in nine monthly payments of $9,696. JBI has agreed to waive
provisions in Mr. Horner's agreement with UVB which would have offset amounts
received by him from other employment against amounts payable under the
termination provisions of his UVB agreement, and to provide Mr. Horner an office
at a Jefferson NJ branch during the nine month period. Notwithstanding the
foregoing, there are continuing discussions between JBI and Mr. Horner regarding
longer term employment with JBI or its subsidiary banks.
In June 1994, UVB agreed with Vito S. Pantilione to form Eagle Valley
Financial Services, Inc. ("Eagle Valley") as a mortgage origination and
brokerage firm. The agreement with Mr. Pantilione provided that, in the event of
a merger (such as the Merger), Mr. Pantilione would be entitled to either (i)
purchase UVB's shares of capital stock in Eagle Valley for 125% of the
"corporate valuation" (as therein defined) of such shares, (ii) direct UVB to
purchase his shares in Eagle Valley for 125% of such value or (iii) elect not to
cause a sale of either party's shares. In addition, if Mr. Pantilione exercised
either of the options described in clause (i) or (ii), he would be entitled to
an employment contract with the acquiring corporation for a term of three years
at a base salary of $80,000 per year. It is a condition to JBI's obligation to
consummate the Merger that the arrangements with Mr. Pantilione be terminated
and, accordingly, on September 30, 1996, UVB and Mr. Pantilione entered into an
agreement to terminate their relationship with respect to Eagle Valley which
supersedes the shareholder's agreement described above. Pursuant to the new
agreement, Mr. Pantilione will purchase UVB's shares in Eagle Valley for an
amount equal to the corporate valuation of such shares on the closing date of
that transaction (the "Eagle Valley Closing Date"), less $70,000, under the
following terms: (i) Mr. Pantilione will receive financing for the purchase
price from United Valley, such loan to have an 18 month term with an interest
rate equal to the prime rate as reported in the Wall Street Journal on the Eagle
Valley Closing Date; (ii) Eagle Valley will have the right to continue renting
office space from UVB until July 31, 1997 at its present rent of $1,000 per
month, unless earlier terminated by Eagle Valley with 30 days' prior written
notice to UVB; (iii) Eagle Valley will have the right to the continued use of
office equipment and facilities owned or leased by UVB; (iv) Mr. Pantilione will
relinquish all of his rights under the shareholder's agreement; and (v) at
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UVB's discretion, Eagle Valley will provide inspection services for UVB's
construction loans and portfolio servicing for UVB's commercial and residential
loan portfolio at fees to be negotiated.
Pursuant to the Merger Agreement, JBI has agreed that, prior to the
Merger Effective Date, it will advise each of the current employees of United
Valley in writing that (i) it will interview all current employees of United
Valley; (ii) it will consider in good faith continuing to employ each such
employee after the Merger Effective Date; and (iii) any employee of United
Valley who is retained by JBI will be given credit for his or her prior service
with United Valley for purposes of determining the entitlement to and amount of
(a) retirement benefits provided under JBI's current retirement plans and (b)
the required employer contribution for the group health insurance currently
provided by JBI; and (iv) employees who continue employment with JBI after the
Merger Effective Date and whose employment is thereafter terminated will be
eligible for all severance benefits then offered by JBI, with credit given for
prior service with United Valley.
Pursuant to the Merger Agreement, JBI has agreed to provide
indemnification, for a period of two years from the Merger Effective Date and to
the fullest extent permitted under the Articles of Incorporation of UVB, the
Charter of United Valley or the Bylaws of either of them, to each present and
former director and officer of United Valley and UVB or its subsidiaries and
each officer or employee of each of United Valley and UVB or its subsidiaries
that is serving as a director or trustee of another entity expressly at United
Valley or UVB's request, with respect to claims arising out of matters existing
at or prior to the Merger Effective Date (including the transactions
contemplated by the Merger Agreement).
Federal Income Tax Aspects
Consummation of the Merger is conditioned upon there being delivered an
opinion of Blank, Rome, Comisky & McCauley, counsel to UVB, that for federal
income tax purposes, under current law, assuming the Merger and related
transactions are approved by the shareholders of JBI and UVB and take place as
described in the Merger Agreement, among other things, the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the Code.
In that case, in the opinion of such counsel, the following would be
the material federal income tax consequences of the Merger:
(i) no gain or loss will be recognized by UVB or JBI in the
Merger;
(ii) no gain or loss will be recognized by the shareholders of UVB
upon their receipt of JBI Common Stock and JBI Warrants in
exchange for UVB Common Stock and UVB Warrants, except that
shareholders who receive cash in lieu of fractional share
interests in JBI Common Stock will recognize gain or loss
equal to the difference between the amount of such cash and
the basis allocated to such fractional share interests. Any
such gain or loss will constitute capital gain or
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loss, provided the UVB Common Stock is held as a capital asset
on the Merger Effective Date;
(iii) the basis of JBI Common Stock (including fractional share
interests) to be received by the shareholders of UVB will be
the same as the basis of the UVB Common Stock surrendered in
exchange therefor; and
(iv) the holding period of JBI Common Stock to be received by a
shareholder of UVB will include the holding period of the UVB
Common Stock exchanged therefor, provided the UVB Common Stock
is held as a capital asset by the shareholder on the Merger
Effective Date.
The exchange of UVB Common Stock for cash pursuant to the exercise of
dissenters' rights and cash received in consideration of the cancellation
options will be taxable transactions. Persons electing to exercise dissenters'
rights or receiving cash in connection with the cancellation of options should
consult with their own tax advisors as to the tax treatment in their particular
circumstances. See "The Merger-Dissenters' Rights."
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER.
FURTHER, THE DISCUSSION MAY NOT BE ENTIRELY APPLICABLE TO SHAREHOLDERS WHO
RECEIVED THEIR UVB 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. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER, AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO
CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS
DISCUSSION. EACH SHAREHOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING
THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
Accounting Treatment
If completed as proposed, the Merger will be accounted for under the
"pooling of interests" method of accounting. Under this method of accounting (i)
the recorded assets and liabilities of JBI and UVB will be carried forward to
JBI (on a consolidated basis) at their recorded amounts after addressing any
conformity issues; (ii) income of JBI (on a consolidated basis) will include
income of UVB for the entire fiscal year in which the combination occurs after
addressing any conformity issues; and (iii) the reported income of the separate
companies for prior periods will be combined and restated as income of JBI (on a
consolidated basis) after addressing any conformity issues.
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It is a condition to consummation of the Merger that JBI shall have
received a letter, dated the Merger Effective Date, from Grant Thornton LLP
confirming such firm's concurrence with the conclusion of the managements of JBI
and UVB as to the appropriateness of pooling of interests accounting for the
Merger under Accounting Principles Board Opinion No. 16 if the Merger is
consummated in accordance with the Merger Agreement.
Exchange of Certificates and Warrants
As promptly as practicable after the Merger Effective Date, JBI will
send or cause to be sent to each holder of record of UVB Common Stock or a UVB
Warrant transmittal materials for use in exchanging all of such holder's
certificates representing UVB Common Stock or such holder's UVB Warrant for a
certificate or certificates representing the number of shares of JBI Common
Stock to which such holder is entitled and payment (if any) with respect to such
holder's fractional share interest, or a JBI Warrant exercisable for the number
of shares of JBI Common Stock to which the holder is entitled. The transmittal
materials will contain information and instructions with respect to the
surrender and exchange of such certificates and warrants. UVB SHAREHOLDERS AND
WARRANTHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES OR WARRANTS UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS. Upon surrender of all
of a holder's certificates for UVB Common Stock or his UVB Warrant, (or upon
providing indemnity satisfactory to JBI if any certificate or UVB Warrant has
been lost, stolen or destroyed), together with a properly completed letter of
transmittal, JBI will mail to the holder a certificate or certificates
representing the number of shares of JBI Common Stock to which the holder is
entitled, together with all undelivered dividends or distributions in respect of
such shares and, where applicable, a check for the amount representing any
fractional share interest (in each case, without interest) or, with respect to a
holder of a UVB Warrant, a JBI Warrant.
All JBI Common Stock and JBI Warrants issued pursuant to the Merger
will be deemed issued as of the Merger Effective Date. After the Merger
Effective Date, former holders of record of UVB Common Stock will be entitled to
vote at any meeting of holders of JBI Common Stock the number of shares of JBI
Common Stock into which their shares of UVB Common Stock have been converted,
regardless of whether they have surrendered their certificates therefor.
Dividends declared by JBI after the Merger Effective Date will include dividends
on all JBI Common Stock issued in the Merger, as applicable, but no dividend or
other distribution payable to the holders of record of JBI Common Stock at or as
of any time after the Merger Effective Date will be paid to the holder of any
UVB Common Stock share certificates until the holder physically surrenders all
such certificates as hereinabove described. Promptly after surrender, all
undelivered dividends and other distributions and, where applicable, a check for
the amount representing any fractional share interest, will be delivered to the
holder (without interest). After the Merger Effective Date, the transfer books
for UVB Common Stock and UVB Warrants will be closed and there will be no
transfers on the transfer books of UVB of any shares of UVB Common Stock or any
UVB Warrants that were outstanding immediately prior to the Merger Effective
Date.
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JBI
General
JBI is a Pennsylvania chartered, registered bank holding company
headquartered in Philadelphia with two wholly-owned subsidiaries, Jefferson PA
and Jefferson NJ. JBI operates principally through its subsidiary banks, which
are engaged in the commercial banking business in Philadelphia, Pennsylvania and
its immediately adjacent Pennsylvania and New Jersey suburbs. JBI currently
operates an executive office, twenty-seven retail branch offices and a mortgage
loan production office.
JBI recently has experienced substantial growth, resulting primarily
from the acquisitions of the Bank of Chester County and Security First Bank in
1994 and Constitution Bank in 1995. For the period from January 1993 through
September 30, 1996, JBI's total assets have grown from $558.2 million to $967.6
million, its deposits have grown from $503.7 million to $694.3 million and its
shareholders' equity has grown from $41.0 million (including minority interests)
to $78.0 million. JBI has also enjoyed increased profitability during the
period. JBI's income increased from $3.5 million (before minority interests and
dividends on preferred stock of subsidiary) for 1992 to $7.7 million for 1995.
Net income for the nine months ended September 30, 1996 increased to $6.7
million from $5.4 million for the same period in 1995. Return on average assets
increased from .66% for 1992 to .96% for 1995 and for the nine months ended
September 30, 1996.
JBI's primary strategy for further growth is to establish a reputation
and market presence as the "small and middle-market business bank." JBI has
sought to implement its strategy by targeting the banking needs of high net
worth or high income individuals within its market area and the businesses which
they own or control. To attract this market, JBI provides specialized commercial
lending, cash management, lease financing and personal credit services. In
particular, in its commercial lending, JBI seeks to respond to its targeted
market by customizing the terms of its loans to the specific or special needs of
individual customers or their businesses. Such services are also intended to aid
in generating loans and deposits from JBI's targeted market. JBI believes that
satisfactory attention to this selected market requires a combination of the
services of the type described above (which JBI believes are frequently
unavailable at small banks), and the personal attention of senior management
(which JBI believes is often unavailable to such customers at major financial
institutions). The customers in this market generally require relatively small
amounts of credit (almost never in excess of $5 million, and often less than $1
million), but often seek customized solutions to their financial requirements.
JBI also seeks to operate its branches as "community banks" and,
accordingly, provides a wide range of banking services for both individuals and
businesses in addition to the more specialized services referred to previously.
For individuals, JBI provides services which include demand, NOW, money market,
certificates of deposit, and other saving accounts. JBI also offers telephone
transfer services, automatic teller services through the MAC inter-bank
automated teller system, night depository services, safe-deposit facilities,
consumer loan programs (including
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installment loans for home repairs and for the purchase of consumer goods such
as automobiles and boats), home equity loans, credit card plans with Visa and
Mastercard, revolving lines of credit, automobile leases, residential
construction loans, permanent mortgages for single family and multi-family
houses and on-line bill-paying services. For businesses, JBI additionally offers
short-term loans for seasonal and working capital purposes, term loans secured
by real estate and other assets, loans for construction and expansion needs,
equipment and automobile leasing and loan programs, revolving credit plans, and
other commercial loans. JBI, through Monticello Investment Services, also offers
a full range of investment products including mutual funds, annuities and
discount brokerage. Trust services are marketed in conjunction with Chase
Manhattan Bank, N.A.
Deposits obtained through JBI's branch banking system have been the
principal source of funds for use in JBI's lending activities. At September 30,
1996, JBI had total deposits of $694.3 million. Of this total, 45% represented
time deposits, 39% represented savings and money market deposits and 16%
represented demand (non-interest bearing) deposits.
At September 30, 1996, JBI had a net loan portfolio (excluding mortgage
loans held for sale) of $694.5 million, representing 72% of total assets at that
date. The loan portfolio of JBI is categorized into commercial, commercial
mortgage, residential mortgage, construction, consumer (including home equity
lines of credit) and direct lease financing. At September 30, 1996, commercial
mortgages and other commercial loans were $428.3 million or approximately 62% of
JBI's net loan portfolio. Although in making its loans JBI relies upon its
evaluation of the creditworthiness and debt-servicing capability of a borrower,
its loans generally are secured by residential or commercial real property,
automobiles, equipment, fixtures, and other collateral. However, significant
exceptions may be made to this general operating philosophy. JBI does not
generally engage in non-recourse lending (i.e., lending as to which the lender
only looks to the asset securing the loan for repayment) and typically will
require the principals of any commercial borrower to personally guarantee the
loan. JBI does not generally engage in out-of-area lending, although it may
accept significant amounts of out-of-area collateral security (such as a second
home or other collateral) from borrowers in the Philadelphia area.
JBI has been active in originating residential mortgage loans for the
purposes of resale to the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation and other entities. For the year ended December
31, 1995, and the nine months ended September 30, 1996, JBI had originated $20.5
million and $16.9 million, respectively, of mortgage loans. JBI originates these
loans primarily through its branches and existing network of customers and
generally retains the servicing on loans sold. Originations are sold without
recourse to JBI. JBI generally obtains commitments to sell its mortgage
originations as they are made, to minimize the interest rate risk of holding
such originations. At September 30, 1996, JBI had approximately $170,000 of
mortgage loans held for sale.
Additionally, JBI periodically purchases the right to service other
portfolios located in its geographic markets. Amounts so purchased are subject
to, and limited by, management's assessment of the prepayment risk of the
underlying portfolio. Under its mortgage servicing
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arrangements, JBI collects and remits loan payments, maintains related account
records, makes or monitors insurance and tax payments, makes any required
physical inspections of property, contacts delinquent mortgagors, and supervises
foreclosures and property dispositions. At September 30, 1996, JBI was servicing
real estate loans for lenders other than itself in an aggregate principal amount
of approximately $244.3 million.
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UVB
Business
General. UVB, a one-bank holding company, was formed in 1994 and became
the parent company of United Valley effective in 1995. Other than United Valley,
UVB has no material subsidiaries. UVB functions primarily as the holder of all
of the capital stock of United Valley. UVB does not own or lease any property
and has no paid employees, and does not actively engage in business. United
Valley is a state-chartered banking institution organized under the banking laws
of the Commonwealth of Pennsylvania which commenced operations in 1987.
United Valley provides its banking services through three offices
located in Center City Philadelphia, Jenkintown and Bala Cynwyd, Pennsylvania.
United Valley conducts a general commercial banking business embracing
substantially all of the traditional deposit and lending functions of a local
commercial bank in Pennsylvania. These functions include primarily receiving
demand, time and savings deposits of individuals, firms and corporations and
making commercial and consumer loans, personal lines of credit and home equity
and other real estate loans. The Bank's deposits are insured by the FDIC to the
maximum extent permitted by law. United Valley is a member of the FRB.
In addition to the regular business hours, the Bank also offers 24
hour, 7 day a week automated banking services. United Valley does not provide
trust or agency facilities, as do some of its competitors, nor does it currently
transact any foreign or international business.
United Valley has a relatively stable deposit base and no material
amount of deposits is obtained from a single depositor or group of depositors.
As of September 30, 1996, United Valley had total assets of
approximately $122 million, total deposits of approximately $104 million and
shareholders' equity of approximately $12.8 million.
Competition and Relevant Geographic Markets. United Valley competes
with other banking and financial institutions in its primary market areas
(Center City Philadelphia, Jenkintown and Bala Cynwyd), including financial
institutions with resources substantially greater than its own. Commercial
banks, savings banks, savings and loan associations, credit unions and money
market funds actively compete for savings and time deposits and for many types
of loans. Such institutions, as well as consumer finance and insurance
companies, may be considered competitors of United Valley with respect to one or
more of the services it renders.
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United Valley faces vigorous competition from other banks and from
savings and loan associations for local business in the community it services.
United Valley also competes with many larger banks outside of its primary market
area. During periods of relatively reduced credit demand, the competition among
financial institutions for quality loans and for similar investments at adequate
rates of return typically becomes very vigorous.
Employees. At September 30, 1996, United Valley had approximately 35
employees on a full-time equivalent basis. United Valley believes that its
employee relations are good.
Supervision and Regulation
UVB. UVB is subject to the provisions of the Holding Company Act and to
supervision by the FRB. As such, it is required to file an annual report with
the FRB and such additional information as the FRB may require pursuant to the
Holding Company Act, and is subject to regular examination by the FRB. The
Holding Company Act limits the activities in which UVB and United Valley may
engage to those of banking and management of banking organizations, and to
certain non-banking activities, including those activities which the FRB has
found, by order or regulation, to be so closely related to banking or managing
or controlling banks as to be proper incidents thereto. In making such a
determination, the FRB considers whether the performance of these activities by
a bank holding company can reasonably be expected to produce benefits to the
public which outweigh the possible adverse effects. The FRB has by regulation
determined that certain activities are closely related to banking within the
meaning of the Holding Company Act. Such activities include, among other things,
and subject to certain limitations, operating a mortgage company, finance
company, credit card company or factoring company; performing certain data
processing operations; providing certain investment and financial advice; acting
as an insurance agent for certain types of credit related insurance and
providing certain securities brokerage services for customers.
Federal Reserve Act. UVB, as an affiliate of United Valley within the
meaning of the Federal Reserve Act, is subject to certain restrictions under the
Federal Reserve Act regarding, among other things, extensions of credit to it by
United Valley, and the use of the stock or other securities of UVB as collateral
for loans made by United Valley to any borrower. Further, under the Federal
Reserve Act and the FRB regulations, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
extensions of credit or provision of property or services. These so-called
"anti-tie-in provisions" generally provide that a bank many not extend credit,
lease or sell property or furnish any service, or fix or vary the consideration
for any of the foregoing to a customer on the condition or requirement that the
customer provide some additional credit, property or service to (or obtain the
same from) the bank, the bank's holding company or any other subsidiary of the
bank's holding company, or on the condition or requirement that the customer not
obtain other credit, property or services from a competitor of the bank, the
bank's holding company or any subsidiary of the bank's holding company.
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Further, under the Holding Company Act, UVB is required to secure the
prior approval of the FRB before it can merge or consolidate with any other bank
holding company or acquire all or substantially all of the assets of any bank or
acquire direct or indirect ownership or control of any voting shares of any bank
that is not already majority owned by it, if after such acquisition it would
directly or indirectly own or control more than 5% of the voting shares of such
bank.
The FRB has also issued policy statements which provide that bank
holding companies generally should pay dividends only out of current operating
earnings.
UVB is subject to additional regulation by the Pennsylvania Department
of Banking (the "Department"). Pennsylvania law currently permits Pennsylvania
bank holding companies to own an unlimited number of banking subsidiaries.
Federal Change in Control and Acquisition Regulation. Under the Change
in Bank Control Act of 1978 (the "Change in Control Act") and regulations
thereunder, and the Holding Company Act, persons who intend to acquire control
of a bank (such as United Valley) or bank holding company (such as UVB) are
required to give a least 60 days prior written notice to the FRB (in the case of
a bank holding company) or the FDIC (in the case of a state-chartered non-member
bank). Control for the purpose of this regulation exists when the acquiring
party obtains voting control of at least 25% of any class of the bank's or
holding company's voting securities. Subject to rebuttal, control is presumed to
exist when the acquiring party obtains voting control of at least 10% of any
class of the bank's or holding company's voting securities if (i) securities
issued by the bank or holding company are registered pursuant to Section 12 of
the Exchange Act, or (ii) following the acquisition, there would be no holder of
that class of the bank's or holding company's voting securities with a holding
larger than the acquiring party. Under the Holding Company Act, a company cannot
acquire control of a bank or bank holding company without the prior approval of
the FRB. Control has substantially the same definition for these purposes as
under the Change in Control Act. The Change in Control Act and the regulations
promulgated thereunder authorize the FRB or FDIC, as the case may be, to
disapprove any such acquisition on certain specified grounds. With respect to
the acquisition of banking organizations, UVB is required to obtain the prior
approval of the FRB before it may merge or consolidate with another bank holding
company, acquire all or substantially all of the assets of any bank, or acquire
ownership or control of any voting shares of any bank, if after such share
acquisition, it will own or control more than 5% of the voting shares of such
bank.
United Valley. As a Pennsylvania state chartered, FDIC-insured member
bank, United Valley is subject to regulation and supervision by both the
Department and the FRB. United Valley is also subject to the regulatory
requirements of the FRB applicable to FDIC-insured financial institutions.
Pennsylvania Regulation. United Valley is subject to the applicable
provisions of the Pennsylvania Banking Code of 1965, as amended (the "1965
Code"), and the regulations of the Department adopted thereunder. United Valley
derives its deposit, lending and investment powers
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from these laws and is subject to examination from time to time by the
Department. The 1965 Code provides for extensive regulation of the business of
United Valley, including limitations on the amount of interest it may charge on
various loans, limitations on the amount of credit it may extend to any one
customer and limitations on its ownership of shares of stock in other entities,
including banks and trust companies. With certain exceptions, the total loans to
any one customer, directly or indirectly, by any state bank may not exceed 15%
of the aggregate of such bank's capital, surplus, undivided profits and loan
loss reserves and capital securities. Further, the prior approval of the
Department is required to open branch offices and to consummate merger
transactions where the surviving bank would be a Pennsylvania chartered bank.
Under the 1965 Code, United Valley is permitted to operate branch offices
statewide. The Department conducts periodic examinations of United Valley.
Pennsylvania has adopted a reciprocal interstate banking law which
currently permits, subject to certain conditions, out-of-state bank holding
companies located in all fifty states to acquire banks and bank holding
companies in Pennsylvania, provided Pennsylvania bank holding companies are
accorded reciprocal rights. Subject to the reciprocity requirement and to the
prior approval of the Department, Pennsylvania permits out-of-state bank holding
companies to enter the state either by acquisition of an existing Pennsylvania
bank or bank holding company or by establishment of a new bank in Pennsylvania.
Approval of the Department is also required if a Pennsylvania bank holding
company acquires an out-of-state bank or bank holding company. Currently, the
interstate banking laws determined by the Department to be fully reciprocal with
the Pennsylvania law include the laws of New Jersey, New York and Ohio. However
the Reigle-Neal Act, summarized below, will supersede Pennsylvania law, subject
to certain conditions.
FRB Regulation. As an insured member bank, United Valley is subject to
supervision and examination by the FRB and is also subject to FRB regulations
regarding many aspects of its business, including types of deposit instruments
offered, permissible methods of acquisition of funds, and activities of
subsidiaries and affiliates of United Valley. The FDIC periodically makes its
own examination of insured institutions. United Valley is a member of the FRB
and the FRB requires FDIC-insured financial institutions to maintain reserves
against their transaction accounts and non-personal time deposits. The amounts
and percentages of the reserve requirements are subject to adjustment by the
FRB.
As a consequence of the extensive regulation of commercial banking
activities in the United States, United Valley's business is particularly
susceptible to being affected by federal and state legislation and regulations
which may have the effect of increasing the costs of doing business.
Recent Legislation. On September 29, 1994, the President signed into
law the "Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994"
(the "Interstate Act"). Among other things, the Interstate Act permits bank
holding companies to acquire banks in any state one year after enactment.
Pennsylvania law was recently amended to authorize any out-of-state bank holding
company to acquire control of any state or national bank located in Pennsylvania
after it receives prior written approval from the Department. Beginning June 1,
1997, a bank may
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<PAGE>
merge with a bank in another state so long as both states have not opted out of
interstate branching between the date of enactment of the Interstate Act and May
31, 1997. States may enact laws opting out of interstate branching before June
1, 1997, subject to certain conditions. States may also enact laws permitting
interstate merger transactions before June 1, 1997 and host states may impose
conditions on a branch resulting from an interstate merger transaction that
occurs before June 1, 1997, if the conditions do not discriminate against
out-of-state banks, are not preempted by federal law and do not apply or require
performance after May 31, 1997. Pennsylvania has recently enacted a law opting
in immediately to interstate merger and interstate branching transactions.
Interstate acquisitions and mergers would both be subject, in general, to
certain concentration limits and state entry rules relating to the age of the
bank.
Under the Interstate Act, the Federal Deposit Insurance Act is amended
to permit the responsible federal regulatory agency to approve the acquisition
of a branch of an insured bank by an out-of-state bank or bank holding company
without the acquisition of the entire bank or the establishment of a "de novo"
branch only if the law of the state in which the branch is located permits
out-of-state banks to acquire a branch of a bank without acquiring the bank or
permits out-of-state banks to establish "de novo" branches. Pennsylvania
recently passed such a law.
The foregoing necessarily is a summary and general description of
certain provisions of the Interstate Act and does not purport to be complete.
Many of the provisions of each will be implemented through the adoption of
regulations by the various federal banking agencies. Moreover, many of the
significant provisions of the legislation have not yet become effective. As of
the date hereof, UVB is continuing to study the legislation and regulations
relating to the legislation but cannot yet assess its impact on UVB.
Effects of Governmental Policy
One of the most significant factors affecting United Valley's earnings
is the difference between the interest rates paid by United Valley on its
deposits and its other borrowings and the interest rates earned by United Valley
on loans to its customers and securities owned by United Valley. The value and
yields of its assets and the rates paid on its liabilities are sensitive to
changes in prevailing rates of interest. Thus, the earnings and growth of United
Valley will be influenced by general economic conditions, the monetary and
fiscal policies of the federal government, and the policies of regulatory
agencies, particularly the FRB, which implements national monetary policy. An
important function of the FRB is to regulate the money supply and credit
conditions in order to mitigate recessionary and inflationary pressures. Among
the techniques used to implement these objectives are open market operations in
U.S. Government securities and changes in reserve requirements of banks and in
the discount rate on bank borrowings. These techniques influence overall growth
and distribution of credit, bank loans, investments and deposits, and may also
affect interest rates charged on loans or paid on deposits. The nature and
impact of any future changes in monetary policies cannot be predicted.
From time to time, legislation has been enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities, or affecting the competitive
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<PAGE>
balance between banks and other financial institutions. Legislative proposals
which could affect United Valley and the banking business in general have been
proposed and may be introduced before the United States Congress and other
governmental bodies. These proposals may alter United Valleys' structure,
regulation, disclosure, and reporting requirements. In addition, various banking
regulatory agencies frequently propose rules and regulations to implement and
enforce existing legislation. It cannot be predicted whether or in what form any
such legislation or regulations will be enacted or the extent to which the
business of United Valley would be affected thereby.
Legal Proceedings
United Valley is party to routine litigation which has arisen in the
normal course of its business, none of which litigation, in the opinion of
management, is expected to materially affect United Valley's business.
Market Prices and Dividends
There is no established trading market for UVB Common Stock and there
has been only limited trading in UVB Common Stock. Management of UVB is aware of
certain transfers of UVB Common Stock (and, prior to the formation of UVB, the
Common Stock of United Valley) since the original issuance at per share prices
ranging from $2.50 to $5.00. The most recent transaction of which management is
aware involved an aggregate of 2,000 shares of UVB Common Stock sold at $5.00
per share in May, 1996. This price should not be considered indicative of the
current market price of UVB Common Stock. As of the Record Date, there were
approximately 185 shareholders of record of the UVB Common Stock.
The Board of Directors of UVB has a policy of retaining earnings, if
any, for the purpose of increasing UVB's capital. UVB has never declared or paid
a cash or stock dividend on the UVB Common Stock. The Board of Directors of UVB
intends to continue this policy.
Holders of UVB Common Stock are entitled to receive dividends, when, as
and if declared by the Board of Directors out of funds legally available
therefor. Under the BCL dividends (except in its own shares) may not be made if,
after giving effect thereto, either UVB would be unable to pay its debts as they
become due in the usual course of its business or UVB's total assets would be
less than the sum of its total liabilities plus the amount that would be needed
upon dissolution to satisfy the preferential rights, if any, of shareholders
having superior preferential rights to those shareholders receiving the
distribution.
Cash available for dividend distribution to shareholders of UVB must
initially come from dividends by United Valley to UVB. Therefore, the
restrictions on United Valley's dividend payments are directly applicable to UVB
and will affect UVB's ability to declare and pay future cash dividends.
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<PAGE>
The 1965 Code and FRB regulations impose restrictions on the ability of
a Pennsylvania state member bank (such as United Valley) to declare dividends.
In general, the 1965 Code provides that dividends may be declared and paid out
of accumulated net earnings, while the FRB regulations prohibit cash dividends
in an amount greater than a bank's net profits less losses and bad debts (as
defined under the National Bank Act). In addition, under federal banking law no
dividends may be declared until the bank's surplus fund (as defined) is equal to
its common capital; provided, however, that quarterly or semi-annual dividends
may be paid if at least ten percent of the bank's net profits of the preceding
six months have been carried to the surplus fund, and annual dividends may be
paid if at least ten percent of the bank's net profits from the preceding two
consecutive six-month periods have been carried to the surplus fund. Further,
cash dividends must be approved by the FRB if the total of all cash dividends
declared by the bank in any calendar year, including the proposed cash
dividends, exceeds the total of the bank's net profits for that year plus its
retained net profits from the preceding two years less any required transfers to
surplus or a fund for the retirement of preferred stock, if any. The payment of
all stock dividends must receive the prior written approval of the FRB.
The FRB has the authority under federal banking law to prohibit the
payment of cash dividends by a state member bank when it determines such payment
to be an "unsafe or unsound banking practice" under then existing circumstances.
The Federal Deposit Insurance Corporation Act generally prohibits all
payments of dividends by any bank which is in default of any assessment to the
FDIC.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF UVB
The following discussion and analysis is intended to provide
information about the financial condition and results of operations of UVB for
the fiscal years ended December 31, 1995, 1994 and 1993, and for the nine months
ended September 30, 1996 and September 30, 1995, and should be read in
conjunction with the Financial Statements of UVB and related notes included
elsewhere herein. Prior period's financial statements have been reclassified in
order to conform to the current period's presentation.
Overview
Net income was $818,000 in 1995 compared to $1.1 million in 1994 and
$1.0 million in 1993. Earnings for 1995, 1994 and 1993 were positively impacted
by the loan growth during those periods. The decrease in 1995 from 1994
reflected an $851,000 increase in the provision for loan losses, compared to a
$791,000 increase in the net interest margin. In the nine months ended September
30, 1996, net income was $633,000 compared to $622,000 for the same period in
1995. See "Financial Condition - Non-Performing Loans," "-Provision for Loan
Losses," and "-Summary of Loan Loss Experience," below.
Fully diluted book value per share at December 31, 1995 was $5.22, as
compared to $4.83 and $4.28 at December 31, 1994 and 1993, respectively. Fully
diluted book value per share as of September 30, 1996 was $5.56, compared to a
fully diluted book value of $5.13 at September 30, 1995.
Net interest income increased to $5.1 million in 1995 from $4.3 million
in 1994 and $3.7 million in 1993. Net interest income for the nine months ended
September 30, 1996 increased to $4.2 million compared to $3.9 million for the
nine months ended September 30, 1995. The increase in 1996 over 1995 and in 1995
over 1994 reflected higher average loan volume. However, net loans outstanding
decreased to $92.7 million at September 30, 1996, compared to $99.7 million at
December 31, 1995, reflecting reduced loan demand. Loans at December 31, 1994
had amounted to $81.3 million.
Total assets at December 31, 1995 were $130.7 million, an increase of
$19 million or 17% over total assets of $111.7 million at December 31, 1994.
Total assets at December 31, 1994 reflected an increase of $4.9 million or 5%
over total assets of $106.8 million at December 31, 1993. Total assets were
$122.4 million at September 30, 1996. Total deposits at December 31, 1995 were
$115.5 million, an increase of $24 million, or 26%, over deposits of $91.5
million at December 31, 1994. The increase resulted primarily from increased
rate sensitive money market and certificate of deposit balances required to fund
higher loan balances. Total deposits at September 30, 1996 were $104 million a
decrease of $11.4 million over December 31, 1995. The decrease resulted
primarily from year end fluctuations in demand deposits and, to a lesser
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<PAGE>
degree, from reduced funding requirements resulting from lower loan balances.
Investment securities at December 31, 1995 were $17.8 million, an increase of
$1.3 million, or 8%, over investment securities of $16.5 million at December 31,
1994. Investment securities were $18 million at September 30, 1996. Amounts
remained relatively constant as they were deemed adequate to meet liquidity
requirements.
Results of Operations
General. UVB's principal source of revenue is net interest income, the
difference between interest income on earning assets and interest expense on
deposits and borrowings. Interest earning assets consist principally of loans,
investment securities and federal funds sold, while the sources used to fund
such assets consist primarily of deposits. UVB's net income is also affected by
its provision for possible loan losses, non-interest income and non-interest
expenses which include salaries, benefits, occupancy costs and charges relating
to non-performing and other classified assets. UVB has been profitable
continuously since 1992.
Net Income. Net income of $818,000 or $.36 per share was reported for
1995, compared to net income of $1.1 million or $.48 per share for 1994 and net
income of $1.0 million or $.45 per share for 1993. Net income for the nine
months ended September 30, 1996 was $633,000 or $.27 per share compared to
$622,000 or $.28 per share for the nine months ended September 30, 1995. The
decrease in earnings in 1995 as compared to 1994 reflected a higher provision
for possible loan losses associated with the weakened real estate economy for
borrowers to whom loans were made in UVB's first three years of operations, from
1988 to 1990. The $851,000 increase in the 1995 provision for loan losses over
1994 exceeded a $791,000 increase in the net interest margin in those two years.
See "Financial Condition - Non-Performing Loans," "- Provision for Loan Losses"
and "- Summary of Loan Loss Experience," below. Non-interest expense increased
to $3.5 million in 1995 from $3.2 million in 1994 and $2.6 million in 1993.
Amounts for 1995 and 1994 reflect additions in personnel in the commercial
lending area. The full period operations of two new branches opened in September
1995 and January 1996 comprised the single largest component of the increase in
non-interest expense for the nine months ended September 30, 1996 compared to
the comparable prior year period. Non-interest expense in those respective
periods amounted to $3.0 million and $2.7 million.
Net Interest Income and Average Balances. Net interest income increased
to $5.1 million in 1995 from $4.3 million in 1994 and $3.7 million in 1993. The
net interest margin, which is net interest income expressed as a percentage of
average earning assets, was 4.55%, 4.48% and 4.33%, respectively, for 1995, 1994
and 1993. The maintenance of relatively consistent net interest margins for
those years reflected, among other factors, UVB's efforts to match the
repricings of certain of its loans and deposits. In 1995, the yield on average
interest earning assets was 8.81% compared to 7.74% in 1994, an increase of 107
basis points. The average cost of interest bearing deposits in 1995 was 5.25%
compared to 4.04% in 1994, reflecting a comparable increase of 121 basis points.
In 1994, as compared to 1993, the increases were also comparable and
approximated 25 basis points.
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<PAGE>
Net interest income was $4.2 million for the nine months ended
September 30, 1996 compared to $3.9 million for the nine months ended September
30, 1995. The net interest margin decreased to 4.54% for the nine months ended
September 30, 1996 from 4.79% in the comparable 1995 period, a decrease of 25
basis points. For the nine months ended September 30, 1996 the yield on
interest-earning assets was 8.68% compared to 9.04% for the same period of 1995,
a decrease of 36 basis points. For the nine months ended September 30, 1996, the
average cost of interest-bearing liabilities was 5.12% compared to 5.22% for the
same period in 1995, a decrease of 10 basis points. The reduction in net
interest margins reflected the repricing of higher rate loans to lower market
rates. Increased competition for loans within UVB's markets resulted in
additional rate reductions.
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<PAGE>
The following table presents a summary of the principal components of
and changes in interest income and interest expense for the periods indicated:
<TABLE>
<CAPTION>
Changes from
Change From Prior Year Nine Months Ended Prior Period
Years Ended December 31, 1994 1995 September 30, 1995 compared to 1996
1993 1994 1995 Amount Percent Amount Percent 1995 1996 Amount Percent
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans ....... $5,610 $6,426 $8,844 $ 816 15% $ 2,418 38% $6,649 $ 6,907 $ 258 4%
Interest on investment securities
Held to maturity:
U.S. Treasury securities ...... 278 309 316 31 11% 7 2% 218 315 97 44%
Federal agency obligations .... 169 190 217 21 12% 27 14% 164 147 (17) (10%)
State and municipal obligations 56 76 56 100% 20 36% 57 48 (9) (16%)
Other ......................... 214 233 283 19 9% 50 21% 199 389 190 95%
Interest bearing deposits ........ 34 34 100% 25 56 31 124%
Interest on federal funds sold ... 86 305 189 219 255% (116) (38%) 124 108 (16) (13%)
------ ------ ------ ------ ------- ------ ------- -----
Total interest income ............ $6,357 $7,519 $9,959 $1,162 18% $ 2,440 32% $7,436 $ 7,970 $ 534 7%
------ ------ ------ ------ ------- ------ ------- -----
Interest Expense
Interest on deposits ............. $2,620 $3,061 $4,669 $ 441 17% $ 1,608 53% $3,376 $ 3,624 $ 248 7%
Other funds borrowed ............. 41 110 151 69 168% 41 37% 119 179 60 50%
------ ------ ------ ------ ------- ------ ------- -----
Total interest expense ........... $2,661 $3,171 $4,820 $ 510 19% $ 1,649 52% $3,495 $ 3,803 $ 308 9%
------ ------ ------ ------ ------- ------ ------- -----
Net interest income .............. $3,696 $4,348 $5,139 $ 652 18% $ 791 18% $3,941 $ 4,167 $ 226 6%
====== ====== ====== ====== ======= ====== ======= =====
</TABLE>
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<PAGE>
Net interest income is affected by changes in both average
interest rates and average volumes of interest earning assets and interest
bearing liabilities. The following table sets forth the amounts of the total
change in interest income that can be attributed to changes in the volume of
interest bearing assets and liabilities, and the amount of change that can be
attributed to changes in interest rates.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 versus 1993 1995 versus 1994 1996 versus 1995
Net Due to Net Due to Net Due to
Increase Changes in Increase Changes in Increase Changes in
(Decrease) Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans (1)........ $ 816 $ 355 $ 461 $ 2,418 $ 1,686 $ 732 $ 258 $ 759 ($501)
Interest on investment securities
Held to maturity and available for
sale .............................. 127 186 (59) 104 60 44 261 276 (15)
Interest bearing deposits ............ 34 34 31 47 (16)
Interest on federal funds sold and
securities purchased under agreements
to resell ........................... 219 137 82 (116) (191) 75 (16) (45) 29
------- ----- ----- ------- ------- ------- ----- ------- -----
Total increase (decrease) in
interest income ..................... $ 1,162 $ 678 $ 484 $ 2,440 $ 1,589 $ 851 $ 534 $ 1,037 ($503)
------- ----- ----- ------- ------- ------- ----- ------- -----
Interest Expense
NOW accounts ......................... $ 7 ($ 7) $ 10 $ 15 ($ 5) $ 5 $ 6 ($ 1)
Savings and money market ............. $ 505 324 181 724 441 283 33 218 (185)
Time deposits ........................ (64) (85) 21 874 95 779 210 184 26
Other funds borrowed ................. 69 46 23 41 31 10 60 96 (36)
------- ----- ----- ------- ------- ------- ----- ------- -----
Total increase (decrease) in interest
expense ............................. $ 510 $ 292 $ 218 $ 1,649 $ 582 $ 1,067 $ 308 $ 504 ($196)
------- ----- ----- ------- ------- ------- ----- ------- -----
Net interest income .................. $ 652 $ 386 $ 266 $ 791 $ 1,007 ($ 216) $ 226 $ 533 ($307)
======= ===== ===== ======= ======= ======= ===== ======= =====
<FN>
(1) Includes non-accrual loans.
</FN>
</TABLE>
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<PAGE>
During 1995, average interest earning assets totalled $113.0
million, an increase of $15.9 million or 16% over 1994, compared to an increase
of $11.8 million or 14% in 1994 over 1993. The average rate on interest earning
assets increased to 8.81% in 1995 from 7.74% in 1994, and 7.45% in 1993. Rate
increases during these periods reflected increases in market rates.
During 1995, average interest bearing liabilities totalled $91.8
million, an increase of $13.4 million or 17% over 1994, compared to an increase
of $8.1 million or 11% in 1994 over 1993. The average rate on interest bearing
liabilities increased to 5.25% in 1995 from 4.04% in 1994 and 3.78% in 1993.
Rate increases during these periods reflected increases in market rates and
additional increases required to attract rate sensitive deposits to fund
increased loan demand.
For the nine months ended September 30, 1996, average interest
earning assets totalled $122.5 million, an increase of $12.8 million or 12% over
the comparable prior year period. The average rate on interest earning assets
declined to 8.68% in the nine months ended September 30, 1996, as compared to
9.04% in the comparable prior year period, reflecting a decrease in market rates
and additional decreases resulting from rate competition within UVB's markets
for the 1996 period. Average interest bearing liabilities for the 1996 period
totalled $99.1 million, an increase of $9.8 million, or 11%, over the comparable
prior year period. The average rate on interest bearing deposits declined to
5.12% for the nine months ended September 30, 1996 from 5.22% for the nine
months ended September 30, 1995. The decline reflected a decrease in market
rates.
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<PAGE>
The following tables present the average daily balances of
assets, liabilities and shareholders' equity and the respective interest earned
or paid on interest earning assets and interest bearing liabilities, as well as
average rates for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1994 1995
------------------------- ------------------------- --------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- -------- ------- -------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Loans net of unearned discount(1).... $70,086 $5,610 8.00% $74,379 $ 6,426 8.64% $92,549 $8,844 9.56%
Allowance for credit losses.......... (1,439) (1,489) (1,350)
------- ------- ------- -------- ------- -------
Loans (net).......................... 68,647 5,610 8.17% 72,890 6,426 8.82% 91,199 8,844 9.70%
Investment securities held to
maturity andavailable for sale...... 11,770 661 5.62% 15,313 788 5.15% 16,435 892 5.43%
Interest bearing deposits............. 499 34 6.81%
Federal funds sold.................... 3,513 86 2.45% 7,464 305 4.09% 3,550 189 5.32%
------- ------ ------- ------- ------- ------
Net interest earning assets........... 83,930 6,357 95,667 7,519 111,683 9,959
Cash and due from banks............... 3,627 4,281 4,183
Accrued interest receivable........... 553 638 757
Bank premises and equipment........... 127 109 141
Other assets.......................... 1,282 1,768 1,441
Liabilities and Shareholders'
Equity:
Deposits:
Demand............................... $ 9,107 $12,759 $ 14,028
NOW accounts......................... 2,852 74 2.59% 3,129 74 2.36% 3,805 84 2.21%
Savings and money market accounts.... 20,115 625 3.11% 29,109 1,130 3.88% 39,121 1,853 4.74%
Time................................. 46,438 1,921 4.14% 44,392 1,857 4.18% 46,567 2,732 5.87%
------- ------ ------- ------ -------- ------
Total deposits...................... 78,512 2,620 89,389 3,061 103,521 4,669
------- ------ ------- ------ -------- ------
Other funds borrowed................. 990 41 4.14% 1,849 110 5.95% 2,337 151 6.46%
Accrued interest payable............. 686 820 978
Other liabilities.................... 147 181 200
Shareholders' equity:
Common stock......................... 5,115 5,115 5,145
Capital surplus...................... 5,115 5,115 5,134
Retained earnings................... (1,046) (6) 890
------- ------- -------
Total shareholders' equity.......... $ 9,184 $10,224 $11,169
------- ------- -------
Average total interest
earning assets...................... $85,369 $6,357 7.45% $97,156 $7,519 7.74% $113,033 $9,959 8.81%
Average total interest
bearing liabilities................. 70,395 2,661 3.78% 78,479 3,171 4.04% 91,830 4,820 5.25%
Net yield on average
interest earning assets
(net interest margin)............... 85,369 3,696 4.33% 97,156 4,348 4.48% 113,033 5,139 4.55%
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1996
------------------------- -------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- -------- ------- -------- --------
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans net of unearned discount(1).... $90,214 $6,649 9.83%$ 98,171 $6,907 9.38%
Allowance for credit losses.......... (1,303) (1,077)
------- ------- ------- ------
Loans (net).......................... 88,911 6,649 9.97% 97,094 6,907 9.48%
Investment securities held to
maturity andavailable for sale...... 15,832 638 5.37% 20,660 899 5.80%
Interest bearing deposits............. 510 25 6.54% 1,331 56 5.61%
Federal funds sold.................... 3,110 124 5.32% 2,345 109 6.20%
------- ------ ------- ------
Net interest earning assets........... 108,363 7,436 121,430 7,971
Cash and due from banks............... 4,012 4,252
Accrued interest receivable........... 739 875
Bank premises and equipment........... 110 303
Other assets.......................... 1,871 933
Liabilities and Shareholders'
Equity:
Deposits:
Demand............................... $ 13,716 $ 14,842
NOW accounts......................... 3,796 63 2.21% 4,080 68 2.22%
Savings and money market accounts.... 37,449 1,341 4.77% 42,270 1,374 4.33%
Time................................. 45,536 1,972 5.78% 48,652 2,182 5.98%
------- ------ ------- ------
Total deposits...................... 100,497 3,376 109,844 3,624
------- ------ ------- ------
Other funds borrowed................. 2,451 119 6.47% 4,055 179 5.89%
Accrued interest payable............. 910 1,372
Other liabilities.................... 182 221
Shareholders' equity:
Common stock......................... 5,134 5,304
Capital surplus...................... 5,127 5,364
Retained earnings................... 794 1,633
------- -------
Total shareholders' equity.......... $ 11,055 $ 12,301
------- -------
Average total interest
earning assets. $109,666 $7,436 9.04%$122,507 $7,971 8.68%
Average total interest
bearing liabilities 89,232 3,495 5.22% 99,057 3,803 5.12%
Net yield on average
interest earning assets
(net interest margin)......... 109,666 3,941 4.79% 122,507 4,168 4.54%
</TABLE>
(1) Includes non-performing loans for which the accrual of interest has been
discontinued.
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<PAGE>
Non-Interest Income. The following table provides a summary of
non-interest income, by category of income, for the three years ended December
31, 1995, 1994 and 1993 and for the nine months ended September 30, 1996 and
1995:
Nine Months
Year Ended Ended
December 31, September 30,
1993 1994 1995 1995 1996
(In thousands)
Non-Interest Income:
Service fees on deposit accounts ...... $ 76 $ 91 $114 $ 83 $125
Loan referral fees .................... 196 203 17 17
Gain on sale of assets ................ 124 124
Other ................................. 112 177 206 161 68
---- ---- ---- ---- ----
Total .................................. $384 $471 $461 $385 $193
==== ==== ==== ==== ====
Total non-interest income for 1995 was $461,000, a decrease of $10,000
or 2% from 1994 which had increased $87,000 or 23% when compared to 1993.
Service fees on deposit accounts in 1995 increased to $114,000 or 25% over 1994
which increased to $91,000 or 20% over 1993. The increases during these periods
were due primarily to growth in UVB's deposit base which generated the majority
of such fees.
The volume of residential mortgage referrals, and resulting loan
referral fees in all periods was directly related to changes in market demand
resulting from changes in market interest rate levels. Accordingly, loan
referral fees in 1994 and 1993 were significantly higher than other periods,
reflecting lower market interest rates in those years.
In 1995, UVB recognized a $124,000 gain on the sale of other real
estate owned.
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<PAGE>
Non-Interest Expense. The following table provides a summary of
non-interest expense, by category of expense, for the three years ended December
31, 1995, 1994 and 1993 and the nine months ended September 30, 1996 and 1995:
Nine Months
Year Ended Ended
December 31, September 30,
1993 1994 1995 1995 1996
(In thousands)
Non-Interest Expense:
Salaries and employee benefits ... $1,071 $1,389 $1,736 $1,455 $1,626
Occupancy expense ................ 329 367 444 324 388
Depreciation ..................... 52 48 55 36 68
FDIC assessment .................. 180 215 95 105 1
Data processing services ......... 132 141 174 128 136
Pennsylvania shares tax .......... 107 107 116 88 89
Legal services ................... 85 179 53 38 35
Stationery and supplies .......... 44 41 55 39 39
Advertising ...................... 84 89 81 37 62
Other operating expenses ......... 540 647 704 488 577
------ ------ ------ ------ ------
Total ............................. $2,624 $3,223 $3,513 $2,738 $3,021
====== ====== ====== ====== ======
Total non-interest expense for 1995 was $3.5 million, an increase of
$290,000, or 9% over 1994 which increased $599,000, or 23% when compared to
1993. Non-interest expense for the nine months ended September 30, 1996 was $3.0
million, an increase of $283,000 or 10% over the comparable prior year period.
The largest component of non-interest expense is salaries and employee benefits.
Salaries and benefits increased $347,000 or 25% in 1995 to $1.7 million. The
increase in 1994 over 1993 was $318,000 or 30%. In the nine months ended
September 30, 1996, salaries and benefits increased $171,000 or 12% over the
comparable prior year period. Most of the increases in 1995 and 1994 reflected
personnel additions in the commercial lending area. Reflected in the $171,000
increase for the nine months ended September 30, 1996 over the comparable prior
year period was $75,000 representing the full period effect of staffing two
branches opened in September 1995 and January 1996. The balance of the increase
in those periods resulted primarily from commercial lending staff additions.
Occupancy expense, excluding depreciation, totaled $444,000 in 1995,
$367,000 in 1994 and $329,000 in 1993. The majority of the $77,000 increase in
1995 and the $38,000 increase in 1994, over respective prior year periods,
resulted from the addition of leased office space at UVB's main office. Total
expense for the nine months ended September 30, 1996 and 1995 was, respectively,
$388,000 and $324,000. The $64,000 increase in the 1996 period over the
comparable prior year period reflected the full period operation of the two new
branches, which resulted in approximately $50,000 of additional rental expense.
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<PAGE>
The FDIC assessment amounted to $95,000 in 1995, $215,000 in 1994 and
$180,000 in 1993. In the nine months ended September 30, 1996, the assessment
was substantially reduced. However, the assessment may be increased at any time.
Legal services totaled $53,000 in 1995, $179,000 in 1994 and $85,000 in
1993. For the nine months ended September 30, 1996, legal services were $35,000.
The majority of the decreases in 1995 and 1996 over the comparable prior year
periods resulted from reductions in legal costs for workouts of problem loans.
Data processing services amounted to $174,000 in 1995, $141,000 in 1994
and $132,000 in 1993. The majority of the $33,000 increase in 1995 over 1994
resulted from increases in transaction volume resulting primarily from growth in
demand and NOW accounts.
The income tax provision was $418,000 in 1995, $512,000 in 1994 and
$245,000 in 1993. The effective income tax rate in those respective years was
34%, 32% and 32%. The income tax provision for the nine months ended September
30, 1996 and 1995 was $301,000 and $322,000, respectively. Respective effective
income tax rates for those periods were 32% and 34%.
The Company adopted, effective January 1, 1993, SFAS 109, "Accounting
for Income Taxes." Under the liability method specified by SFAS 109, deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities as measured by the
enacted tax rates which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in deferred tax assets and
liabilities. The principal types of differences between assets and liabilities
for financial statement and tax return purposes are allowance for loan losses
and deferred loan fees.
The change from a previously adopted liability method to the liability
method, specified by SFAS 109, of accounting for income taxes increased net
earnings for 1993 by $485,000, by the cumulative effect of the change in
accounting related to years prior to 1993 which were not restated.
Liquidity and Capital Resources
Liquidity defines the ability of UVB to generate funds to support asset
growth, meet deposit withdrawals, maintain reserve requirements and otherwise
operate on an ongoing basis. An important component of a bank's asset and
liability management structure is the level of liquidity which is available to
meet the withdrawal needs of its deposit customers and funding requirements of
its loan customers. During the past three years, the liquidity needs of UVB were
primarily met by cash on hand and federal funds and securities. UVB invests its
funds not needed for operations ("excess liquidity") primarily in daily federal
funds and securities which generally have average maturities of three years or
less.
UVB is required to comply with certain "risk-based" capital adequacy
guidelines issued by the FRB. The risk-based capital guidelines assign varying
risk weights to the individual assets
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<PAGE>
held by a bank. The guidelines also assign weights to the "credit-equivalent"
amounts of certain off-balance sheet items, such as letters of credit. Under
these guidelines, banks are expected to meet minimum ratios for "qualifying
total capital" and tier 1 capital to risk-weighted assets of 8% and 4%,
respectively, and a minimum leverage ratio of 3% plus an additional cushion of
100 to 200 basis points. As used in FRB guidelines, "tier 1 capital" includes
common shareholders' equity, certain qualifying perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, less
goodwill. "Tier 2 capital" components include allowances for loan losses (within
limits), certain excess levels of perpetual preferred stock and certain types of
"hybrid" capital instruments, subordinated debt and other preferred stock. The
following table sets forth the regulatory capital ratios of UVB as of December
31, 1995 and September 30, 1996 together with the minimum ratios required under
federal regulations for an institution to be deemed "well capitalized":
<TABLE>
<CAPTION>
Tier 1 Capital Total Capital
to Risk-Weighted to Risk-Weighted
Leverage Ratio(1) Assets Ratio Assets Ratio
December 31, September 30, December 31, September 30, December 31, September 30,
1995 1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C> <C>
UVB....................... 9.83% 10.00% 11.18% 14.42% 12.10% 15.82%
"Well capitalized"
institution (under
federal regulations)..... 5.00% 5.00% 6.00% 6.00% 10.00% 10.00%
<FN>
(1) The "leverage ratio" is the ratio of tier 1 capital to total average assets.
</FN>
</TABLE>
UVB's actual tier 1, total capital and tier 1 leverage ratio all exceed
minimum regulatory capital requirements as well as the federal "well
capitalized" standards above, and management believes that, under current
regulations, UVB will continue to meet its minimum capital requirements in the
foreseeable future.
Asset and Liability Management
Closely related to the concept of liquidity is interest rate
sensitivity which is controlled primarily by managing the repricing
characteristics of interest earning assets and interest bearing liabilities. An
interest rate sensitive asset or liability is one that, within a defined time
period, either matures or experiences an interest rate change in line with
general market rates. Interest rate sensitivity measures the relative volatility
of a bank's interest margin resulting from changes in market interest rates.
Through asset and liability management, UVB seeks to position itself to manage
fluctuations in its interest margin by matching repricings of certain loans and
deposits, while minimizing its interest expense.
The following table summarizes repricing intervals for interest earning
assets and interest bearing liabilities as of September 30, 1996, and the
difference or "gap" between them on an
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<PAGE>
actual and cumulative basis for the periods indicated. A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities. A gap is considered negative when the
amount of interest rate sensitive liabilities exceeds the amount of interest
rate sensitive assets. During a period of falling interest rates, a positive gap
would tend to adversely affect net interest income, while a negative gap would
tend to result in an increase in net interest income. During a period of rising
interest rates, a positive gap would tend to result in an increase in net
interest income while a negative gap would tend to affect net interest income
adversely. Loans presented in this table are categorized as to maturity based
upon their stated amortization schedule.
<TABLE>
<CAPTION>
September 30, 1996
One to 90 91-180 181-364 One to Three to Over Five
Days Days Days Two Years Five Years Years
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Loans net of unearned discount.......... $47,334 $1,088 $5,764 $ 8,555 $27,759 $3,456
Investment securities:
Held to maturity....................... 626 -- 679 3,013 4,076 1,314
Available for sale..................... 1,568 1,007 1,002 1,983 2,745 --
Federal funds sold...................... 3,000 -- -- -- -- --
------- ------ ------ ------- ------- ------
Total interest earning assets............ $52,528 $2,095 $7,445 $13,551 $34,580 $4,770
------- ------ ------ ------- ------- ------
Interest Bearing Liabilities:
NOW accounts............................ $ 5,371 -- -- -- -- --
Savings and money market
accounts............................... 42,008 -- -- -- -- --
Time deposits........................... 12,512 $8,624 $8,238 $ 2,891 $15,163 --
Borrowings.............................. 1,750 -- -- 2,000 -- --
------- ------ ------ ------- ------- ------
Total interest bearing liabilities....... $61,641 $8,624 $8,238 $ 4,891 $15,163 --
------- ------ ------ ------- ------- ------
GAP...................................... (9,113) (6,529) (793) 8,660 19,417 4,770
Cumulative GAP........................... (9,113) (15,642) (16,435) (7,775) 11,642 16,412
GAP to assets ratio...................... (7%) (5%) (1%) 7% 16% 4%
Cumulative GAP to assets ratio........... (7%) (13%) (13%) (6%) 10% 13%
</TABLE>
The method used to analyze interest rate sensitivity in the table above
has a number of limitations. Certain assets and liabilities may react
differently to changes in interest rates even though they reprice or mature in
the same or similar time periods. The interest rates on certain assets and
liabilities may change at different times than changes in market interest rates,
with some changing in advance of changes in market rates and some lagging behind
changes in market rates. Also, certain assets, e.g. adjustable rate loans, often
have provisions which may limit changes in interest rates each time the interest
rate changes and on a cumulative basis over the life of the loan. Additionally,
the actual prepayments and withdrawals experienced by UVB in the event of a
change in interest rates may deviate significantly from those assumed in the
calculations shown in the table. Finally, the ability of many borrowers to
service their debt may decrease in the event of an interest rate increase.
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<PAGE>
Financial Condition
General. Total assets of UVB increased by $19.0 million or 17% in 1995
over 1994, reflecting significant increases in loan balances. As of September
30, 1996, total assets had decreased by $8.3 million or 6%, over total assets as
of December 31, 1995. Total assets decreased during the nine months ended
September 30, 1996 primarily as a result of reduced loan demand and loan
paydowns, which reduced outstanding loans.
Investment Portfolio. Effective January 1, 1994, UVB adopted statement
of financial accounting standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" as fully described in to UVB's
financial statements. The following table presents the book and approximate
market values at September 30, 1996, and at December 31, 1995 and 1994,
respectively, for each major category of UVB's investment securities.
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994 1995 1995 1996 1996
---- ---- ---- ---- ---- ----
Book Market Book Market Book Market
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities Held to Maturity:
U.S. Treasury securities.................... $ 5,024 $ 4,830 -- -- -- --
Obligations of U.S. government
agencies................................... 4,144 3,934 $ 3,456 $ 3,424 $4,921 $4,850
Obligations of states and political
subdivisions............................... 1,952 1,897 1,939 1,938 1,221 1,219
Other....................................... 3,128 3,103 4,643 4,654 3,566 3,563
------- ------- ------- ------- ------ ------
Total investment securities
held to maturity............................ $14,248 $13,764 $10,038 $10,016 $9,708 $9,632
======= ======= ======= ======= ====== ======
Securities Available for Sale:
U.S. Treasury securities.................... -- -- $ 7,004 $ 7,032 $6,531 $6,508
Other....................................... $ 2,232 $ 2,232 762 762 1,807 1,797
------- ------- ------- ------- ------ ------
Total investment securities
available for sale.......................... $ 2,232 $ 2,232 $ 7,766 $ 7,794 $8,338 $8,305
======= ======= ======= ======= ====== ======
</TABLE>
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<PAGE>
The following table shows the contractual maturity distribution of the
investment securities portfolio and the weighted average yield of such
securities as of September 30, 1996:
<TABLE>
<CAPTION>
September 30, 1996
After One After Five Over
One Year Average to Five Average to Ten Average Ten Average
or Less Yield Years Yield Years Yield Years Yield Total
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held to Maturity:
U.S. Treasury securities
Obligations of U.S. government
agencies ........................ -- -- $3,606 6.39% $1,315 6.23% -- -- $4,921
Obligations of states in political
subdivisions .................... $ 301 5.15% 920 4.81% -- -- -- -- 1,221
Other ............................ 1,004 6.28% 2,562 6.08% -- -- -- -- 3,566
------ ------ ------ ------
Total investment securities held
to maturity ...................... $1,305 $7,088 $1,315 $9,708
====== ====== ====== ======
Weighted average yield ............. 6.01% 6.07% 6.23%
===== ===== =====
Securities Available for Sale:
U.S. Treasury securities .......... $2,510 5.30% $3,998 5.97% -- -- -- -- $6,508
Other ............................ 1,067 6.18% 730 6.10% -- -- -- -- 1,797
------ ------ ------
Total investment securities
available for sale ............... $3,577 $4,728 $8,305
====== ====== ======
Weighted average yield ............. 5.56% 5.99%
===== =====
</TABLE>
Investments consist primarily of U.S. Treasury notes and corporate
bonds, and municipal, mortgage-backed and government agency securities. UVB
controls longer term interest rate risk by purchasing average maturities which
are generally less than three years.
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<PAGE>
Loan Portfolio. Loans for commercial purposes comprised substantially
all of the $94.0 million loan portfolio as of September 30, 1996. A reduction in
that loan total from December 31, 1995 of approximately $6.7 million resulted
primarily from reduced loan demand and paydowns of existing loans. That
reduction followed an increase of $18.1 million in the year ended December 31,
1995.
The following table summarizes the loan portfolio of UVB by loan
category and amount at December 31 for the past five years and at September 30,
1996. The loan categories correspond to UVB's internal classifications.
Substantially all of the loans categorized as real estate loans were made for
commercial purposes. Net loans are stated at the amount of unpaid principal.
<TABLE>
<CAPTION>
December 31, September 30,
----------------------------------------------- -------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans ......... $ 23,128 $ 24,312 $ 21,836 $ 21,020 $ 35,067 $ 33,874
Commercial loans .......... 36,920 31,994 41,322 54,584 59,249 55,089
Individual loans .......... 2,758 2,563 2,161 1,811 1,280 1,172
Other loans ............... 3,199 4,510 9,387 5,192 5,107 3,821
-------- -------- -------- -------- -------- --------
Total loans (before
allowance for loan losses) $ 66,005 $ 63,379 $ 74,706 $ 82,607 $100,703 $ 93,956
======== ======== ======== ======== ======== ========
</TABLE>
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<PAGE>
The following table summarizes the loan portfolio of UVB by loan
category and amount at September 30, 1996 and corresponds to appropriate
regulatory definitions:
Book Value
September 30, 1996
(In thousands)
Loans secured by real estate:
Construction and land development ................. $ 5,534
Secured by 1-4 family residential properties ...... 26,316
Secured by multi-family residential properties .... 0
Secured by farmland ............................... 0
Secured by non-farm non-residential properties .... 2,024
Commercial and industrial loans:
To U.S. addresses (domicile) ...................... 55,089
Loans to individuals for household, family and other
personal expenditures:
Credit card and other related plans ............... 969
Other ............................................. 203
Other loans:
All other ......................................... 3,821
-------
Total .............................................. $93,956
=======
The following table presents loans as of September 30, 1996 by
maturity:
Period to Maturity
Within One to Five After
One Year Years Five Years Total
(In thousands)
Loans at fixed rates .. $ 10,756 $ 31,063 $ 3,251 $ 45,070
Loans at variable rates 43,430 5,251 205 48,886
---------- ---------- ---------- ----------
Total ................. $ 54,186 $ 36,314 $ 3,456 $ 93,956
========== ========== ========== ==========
Non-Performing Loans. Loans including loans past due 90 days or more
and still accruing interest are considered to be non-performing if they are on a
non-accrual basis or terms have been renegotiated to provide a reduction or
deferral of interest or principal because of a weakening in the financial
positions of the borrowers. A loan which is past due 90 days or more and still
accruing interest remains on accrual status only when it is both adequately
secured as
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<PAGE>
to principal and accruing interest and is in the process of collection. The
amount of UVB's non-performing assets(1) and loans past due 90 days or more and
still accruing interest has decreased substantially since 1991. At December 31,
1995, loans past due 90 days or more and still accruing interest were $22,000,
compared to $401,000 at December 31, 1994, while at September 30, 1996 such
loans were $0. Total non-performing loans were $1.0 million at December 31, 1995
as compared to $2.8 million at December 31, 1994. At September 30, 1996 total
non-performing loans were $1.6 million. Total non-performing assets(1) amounted
to $1.5 million at December 31, 1995 and $4.4 million at December 31, 1994.
Total non-performing assets amounted to $2.0 million for September 30, 1996.
The following table presents the principal amounts of non-accrual(1)
and restructured loans excluding loans past due 90 days or more and still
accruing interest at December 31 for the years 1991 through 1995 and at
September 30, 1996, in addition to a schedule presenting loans contractually
past due 90 days or more as to interest or principal still accruing interest.
<TABLE>
<CAPTION>
December 31, September 30,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a
non-accrual basis(1)............... $2,030 $1,899 $2,413 $2,152 $1,009 $1,590
Loan renegotiated to provide
a reduction or deferral of
interest or principal............. -- 1,448 696 617 -- --
------- ------ ------ ------ ------- -------
Total non-performing loans(2)....... 2,030 3,347 3,109 2,769 1,009 1,590
Other real estate owned............. 1,240 1,171 1,019 1,602 509 445
------ ------ ------ ------ ------ ------
Total non-performing assets....... $3,270 $4,518 $4,128 $4,371 $1,518 $2,035
====== ====== ====== ====== ====== ======
Non-performing loans/total
loans(2)........................... 3.08% 5.28% 4.16% 3.35% 1.00% 1.69%
Non-performing assets/total
loans and non-performing
assets(2).......................... 4.86% 7.00% 5.45% 5.19% 1.50% 2.16%
Loans past due 90 days or more
as to interest or principal
payments still accruing
interest and not included in
non-accrual loans.................. -- 49 4 401 22 --
Excluded loans past due 90 days
or more and still accruing
interest(1)........................ -- -- -- -- -- --
------- ------- ------- ------- -------- -----
Total loans......................... $66,005 $63,379 $74,706 $82,607 $100,703 $93,956
======= ======= ======= ======= ======== =======
<FN>
- --------
1(1) excluding loans 90 days or more past due and still accruing interest.
</FN>
</TABLE>
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<PAGE>
The FASB issued SFAS 114, "Accounting for Creditors for Impairment of a
Loan," which requires that a creditor measure impairment based on the present
value of expected future cash flows discounted at the loan's effective interest
rate, except that as a practical expedient, a creditor may measure impairment
based on a loan's observable market price, or the fair value of the collateral
if the loan is collateral dependent. Regardless of the measurement method, a
creditor must measure impairment based on the fair value of the collateral when
the creditor determines that foreclosure is probable. Because UVB already
recognizes such reductions of value through its provisions for loan losses
and/or other charges to income, the requirements of SFAS No. 114 did not have a
significant effect on UVB's financial condition or results of operations. UVB
adopted this new standard on January 1, 1995.
Interest Accrual Policies. Interest income is accrued and credited to
operations based on the principal amount of loans outstanding. Accrual of
interest is discontinued on a loan when management believes, after considering
economic and business conditions which may affect the borrower's ability to
repay and collection efforts, that the borrower's financial condition is such
that collection of interest is doubtful. Loans on which the accrual of interest
had been discontinued or reduced, amounted to $1.0 million, $2.2 and $2.4
million, respectively, at December 31, 1995, 1994 and 1993. At September 30,
1996, such loans amounted to $1.6 million. If interest on non-accrual loans had
been accrued, such income would have been approximately $138,000, $146,000 and
$183,000 for 1995, 1994 and 1993, respectively. For the nine months ended
September 30, 1996 such income would have been $108,000. At September 30, 1996,
there were no commitments to lend additional funds to borrowers whose loans were
classified as non-accrual(1).
Provision for Loan Losses. The provision for loan losses is an amount
charged against earnings to fund the reserve for possible future losses on
existing loans. In order to determine the amount of the provision for loan
losses, UVB conducts a quarterly review of the loan portfolio to evaluate
overall credit quality. This evaluation consists of an analysis of individual
loans and overall risk characteristics, and takes into consideration current
economic and market conditions, changes in non-performing loans, the capability
of specific borrowers to repay specific loan obligations as well as current loan
collateral values. UVB also considers past estimates of possible loan losses as
compared with actual losses. As adjustments become identified, they are reported
in earnings for the period in which they become known.
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<PAGE>
Summary of Loan Loss Experience. The following table summarizes the
loan loss experience of UVB for each of the past five years and for the nine
months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Nine Months Ended
As of and for the Year Ended December 31, September 30,
1991 1992 1993 1994 1995 1995 1996
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances in allowance for
credit losses at beginning
of period......................... $1,121 $ 995 $1,374 $1,584 $1,259 $1,259 $ 959
------ ------ ------ ------ ------ ------ ------
Loans charged off:
Commercial........................ 1,470 198 553 345 1,232 286 126
------ ------ ------ ------ ------ ------ ------
Total............................. $1,470 $ 198 $ 553 $ 345 $1,232 $ 286 $ 126
====== ====== ====== ====== ====== ====== ======
Recoveries:
Commercial........................ $ 57 $ 43 $ 73 $ 20 $ 81 $ -- $ 1
------ ------ ------ ------ ------ ------- ------
Total............................. $ 57 $ 43 $ 73 $ 20 $ 81 $ -- $ 1
====== ====== ====== ====== ====== ======= ======
Net charge-offs.................... $1,413 $ 155 $ 480 $ 325 $1,151 $ 286 $ 125
Provision charged to operations.... 1,287 534 690 -- 851 644 405
------ ------ ------ ------ ------ ------ ------
Balances in allowance for credit
losses at end of period........... $ 995 $1,374 $1,584 $1,259 $ 959 $1,617 $1,239
====== ====== ====== ====== ====== ====== ======
Net charge-offs/average loans(1)... 2.05% 0.25% 0.68% 0.44% 1.24% 0.42% 0.17%
</TABLE>
The provision for loan losses was $851,000 in 1995, compared to the
(-0-) provision in 1994, and $690,000 for 1993. The provision for loan losses
was $405,000 for the nine months ended September 30, 1996 as compared to
$644,000 for the nine months ended September 30, 1995. Provisions and net
charge-offs for 1995, 1993 and 1991 reflected significant charges resulting from
problems associated with loans recorded during UVB's first three years of
operations, from 1988 to 1990. The ratio of the allowance for loan losses to
total loans decreased from 1.52% at December 31, 1994, to 0.95% at December 31,
1995 primarily as a result of one such loan charged off in 1995. An increase in
the allowance percentage at September 30, 1996 to 1.32% reflected reduced levels
of charge-offs in the preceding nine months. The ratio of the allowance for loan
losses to non-performing loans(1) was approximately 45.47% at December 31, 1994,
95.04% at December 31, 1995 and 77.92% at September 30, 1996. UVB implemented
improved loan underwriting policies and procedures in April 1990, after which
non-performing loan(1) trends improved significantly. Management believes that
the allowance for loan losses is adequate. For certain information relating to
non-performing assets(1) and loan losses, see "Financial Condition -
Non-Performing Loans," "-Interest Accrual Policies" and "-Summary of Loan Loss
Experience".
UVB determines the level of its allowance for possible loan losses
based on a number of factors. UVB monitors individual commercial loans,
including commercial real estate and
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<PAGE>
construction loans as well as internally classified loans but the allowance is
not allocated as to the specific loan categories. Accordingly, the entire
allowance for loan losses is available to absorb future loan losses in any
category.
Commitments. In the normal course of its business, UVB makes
commitments to extend credit and issues standby letters of credit. Generally,
such commitments are provided by UVB as a service to customers with which UVB
has other relationships. Commitments to extend credit amounted to $18.7 million
at September 30, 1996, and $13.5 million and $13.6 million at December 31, 1995
and 1994, respectively. Outstanding letters of credit amounted to $916,000 at
September 30, 1996, and $575,000 and $846,000 at December 31, 1995 and 1994,
respectively.
Deposits. One of UVB's main goals is the accumulation and retention of
core deposits. Core deposits consist of all deposits except public funds and
certificates of deposit in excess of $100,000. At September 30, 1996, total
deposits were approximately $104.1 million, a decrease of $11.4 million or 10%
from December 31, 1995. The decrease resulted primarily from year end
fluctuations in demand deposits and reduced funding requirements resulting from
lower loan balances. At December 31, 1995 total deposits were approximately
$115.5 million, an increase of $24 million or 26% from December 31, 1994. The
increase resulted primarily from increased rate sensitive money market and
certificate of deposit balances required to fund higher loan balances. Year-end
core deposits as a percentage of total deposits were 90% in 1995 and 89% in
1994, while certificates of deposit in excess of $100,000, as a percentage of
total deposits, were 10% in 1995 and 11% 1994. At September 30, 1996, core
deposits amounted to 90% of total deposits while certificates of deposit in
excess of $100,000 amounted to 10% of total deposits.
The following tables present the average balances and rates paid on
deposits for each of the years 1995, 1994 and 1993 and for the nine months ended
September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
1993 1994 1995 1995 1996
----------------- ---------------- ---------------- ----------------- ----------------
Average Average Average Average Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand (non-interest
bearing)............... $9,107 $12,759 $14,028 $13,716 $14,842
NOW accounts............. 2,852 2.59% 3,129 2.36% 3,805 2.21% 3,796 2.21% 4,080 2.22%
Savings and money
markets................ 20,115 3.11% 29,109 3.88% 39,121 4.74% 37,449 4.77% 42,270 4.33%
Time..................... 46,438 4.14% 44,392 4.18% 46,567 5.87% 45,536 5.78% 48,652 5.98%
------- ------- ------- ------- -------
Total deposits........... $78,512 $89,389 $103,521 $100,497 $109,844
======= ======= ======== ======== ========
</TABLE>
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<PAGE>
As of September 30, 1996, UVB had total time deposits of approximately
$47.4 million. The following table summarizes the composition of these deposits:
Percentage
of Total
Amount Time Deposits
(Dollars in thousands)
Certificates of deposit in excess of $100,000 $10,395 22%
Individual retirement accounts .............. 6,037 13%
Other time deposits ......................... 30,996 65%
------- -------
Total ....................................... $47,428 100%
======= =======
Amount
(In thousands)
Maturity:
Three months or less ....................... $12,963
Three to six months ........................ 8,624
Six to 12 months ........................... 8,238
Over 12 months ............................. 17,603
-------
Total ....................................... $47,428
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<PAGE>
Short-Term Borrowings. UVB utilizes borrowing from the Federal Home
Loan Bank from time to time to match fund fixed rate loans and security
purchases. The following table summarizes these borrowings.
Year Ended
December 31, September 30,
----------------------- ---------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Average daily amount of
short-term borrowing
outstanding during the
period .................... $ 990 $1,849 $2,337 $2,451 $4,055
Weighted average interest
rate on average daily
short-term borrowings ..... 4.14% 5.95% 6.46% 6.47% 5.89%
Maximum outstanding short-
term borrowings outstanding
at any month-end .......... 3,100 8,471 2,000 2,000 5,750
Short-term borrowings
outstanding at period end . 500 8,471 2,000 2,000 3,750
Weighted average interest
rate on short-term
borrowings at period end .. 4.88% 5.50% 6.35% 6.35% 5.90%
Impact of Inflation. The financial statements and related financial
data presented in this Joint Proxy Statement/Prospectus have been prepared in
accordance with generally accepted accounting principles which require 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. The primary impact of inflation on the operation of
UVB is reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services. UVB believes that
continuation of its efforts to manage the rates, liquidity and interest
sensitivity of UVB's assets and liabilities is necessary to generate an
acceptable return on assets.
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MANAGEMENT OF UVB AND UNITED VALLEY
Directors and Executive Officers
The names and ages of those persons who are currently executive
officers and directors of UVB and will continue as officers and directors of the
Continuing Corporation are set forth below, along with the information as to
their positions with UVB and their business backgrounds:
Name Age Position with the Bank
Michael F. Avallone 61 Director
Robert J. Coleman 58 Director
Edward H. Devine 57 Director
Gregory C. Dillett 52 Director
Louis W. Fryman 59 Director
John G. Hoopes 51 Chairman of the Board of Directors
Ira Ingerman 58 Director
Thomas J. Lynch 55 Chief Executive Officer, President and Director
Timothy J. Michals 54 Director
Charles J. Reilly 58 Director
William S. Stamps 56 Director
Stanley L. Stein 56 Director
R. Scott Horner 45 Senior Vice President and Chief Financial Officer
Eugene F. Zuecca 54 Executive Vice President and Chief Lending Officer
Michael F. Avallone has served as a director of UVB and United Valley
since 1988. Dr. Avallone is the Chief Executive Officer of Michael F. Avallone
Associates and the President of Medical Management Enterprises. Dr. Avallone has
been in the general practice of medicine in Philadelphia for over 35 years.
Robert J. Coleman has served as a director of UVB and United Valley
since 1988. Mr. Coleman is the Chairman of the Executive Committee of the
regional law firm of Marshall, Dennehey, Warner, Coleman & Goggin. Mr. Coleman
is also a director of the Hero Scholarship Fund of Delaware County and the
Philadelphia Insurance Society.
Edward H. Devine has served as a director of UVB and United Valley
since 1988. Mr. Devine is the President of E. H. Devine Company, Inc., an
insurance firm in Wayne, Pennsylvania.
Gregory C. Dillett has served as a director of UVB and United Valley
since 1993. Mr. Dillett retired from Gensar Holding, Inc., a Fort Washington,
Pennsylvania company engaged in integrated point of sale processing in August
1996 where he served as the Chief Financial Officer
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since October 1993. Prior to joining Gensar Holding, Inc. Mr. Dillett served as
Group Executive Vice President and Chief Administrative Officer for Key Corp,
Inc.
Louis W. Fryman has served as a director of UVB and United Valley since
1988. Mr. Fryman is the Managing Partner of the Philadelphia law firm of Fox,
Rothschild, O'Brien & Frankel with which he has been associated for more than 14
years. Mr. Fryman is a member of the Board of Trustees of the Federation Allied
Jewish Appeal and the Walnut Street Theater as well as an honorary member of the
Board of Directors of the Philadelphia Geriatric Center, a member of the Board
of Directors of the Institute for Cancer and Blood Diseases of Hahnemann
University and the chairman of the Pennsylvania Jewish Coalition.
John G. Hoopes has served as Chairman of the Board and a director of
UVB and United Valley since 1988. Mr. Hoopes is the Chairman of Eagle Investment
Partners, Inc., an investment firm located in Wayne, Pennsylvania.
Ira Ingerman has served as a director of UVB and United Valley since
1988. Mr. Ingerman is the President of Diversified Investment Management, a
Philadelphia investment firm, and a certified public accountant. Mr. Ingerman is
a member of the Board of Directors of Ben Gurion University and the Middle East
Forum.
Thomas J. Lynch has served as the President, Chief Executive Officer
and a director of UVB and United Valley since 1989. Prior to joining UVB, Mr.
Lynch served for over 27 years as Senior Vice President of Industrial Valley
Bank and Fidelity Bank. Mr. Lynch is an executive committee member of the
Philadelphia Convention and Visitors Bureau as well as a member of the Board of
Directors of PhilaPride, Inc., the Business School Advisory Board of LaSalle
University and the Union League of Philadelphia.
Timothy J. Michals has served as a director of UVB since 1988. Dr.
Michals is a practicing physician in Philadelphia and serves as the Director of
Forensic Psychiatry at Jefferson Medical College.
Charles J. Reilly has served as a director of UVB since 1994. Mr.
Reilly is President and founder of Reilly Foam Corporation, a manufacturer of
foam products, and general partner of both Reilly Mita Industries, a real estate
holding company, and Reilly Real Estate Partnership, a family real estate
partnership, all of which are located in Conshohocken, Pennsylvania. Mr. Reilly
is a member of the Board of Trustees of LaSalle College High School and LaSalle
University. In addition, Mr. Reilly is a member of the Patrons Foundation and
the Development Council of West Catholic High School.
William S. Stamps has served as a director of UVB since 1988. Mr.
Stamps is President of Fleetway Leasing & Sales and Vice President of Colonial
Cadillac, Sterling, Hyundai, Inc., a Trenton, New Jersey company and Colonial
Nissan, Inc. in Feasterville, Pennsylvania. Mr. Stamps is a certified public
accountant.
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Stanley L. Stein has served as a director of UVB since 1988. Mr. Stein
has been a certified public accountant for over 25 years. Currently, Mr. Stein
is President of Stanley L. Stein and Associates, an accounting firm located in
Plymouth Meeting, Pennsylvania and President, Chief Executive Officer and
Chairman of American Health Corporation, a company that owns and leases nursing
homes.
Directors' Fees
Each director of UVB, who is not an employee of UVB or United Valley,
is paid a fee of $200 for each meeting of the Board of Directors attended.
Executive Committee members, who are not employees of UVB or United Valley, are
paid a fee of $400 for each executive committee meeting attended.
EXECUTIVE COMPENSATION OF UVB
Summary Compensation of Named Executives
The following table sets forth the cash compensation and other
components of compensation paid during 1993, 1994 and 1995 for UVB's Chief
Executive Officer and the other executive officers of UVB whose salary plus
bonus exceeded $100,000 for the fiscal year ended December 31, 1995. The table
includes compensation paid by UVB and United Valley to the individuals listed.
<TABLE>
<CAPTION>
Summary Compensation Table
LONG-TERM COMPENSATION
ANNUAL COMPENSATION Awards Payouts
Options, Long-Term
Restricted Stock Incentive
Name and Principal Other Annual Stock Appreciation Plan All Other
Position Year Salary($) Bonus($) Compensation($) Awards($) Rights(#) Payments($) Compensation($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas J. Lynch ......... 1995 159,288 40,000 0 0 10,000 0 0
Chief Executive ......... 1994 154,648 50,000 0 0 10,000 0 0
Officer and President ... 1993 150,143 50,000 0 0 10,000 0 0
Eugene F. Zuecca ........ 1995 102,747 20,300 0 0 0 0 0
Executive Vice President 1994 98,795 25,000 0 0 0 0 0
and Chief Lending Officer 1993 94,995 10,000 0 0 0 0 0
</TABLE>
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Warrant Grants in Last Fiscal Year
The following table sets forth the number of warrants granted to the
executive officers and directors listed in the Summary Compensation Table, the
exercise price of those warrants and certain related information as of December
31, 1995.
<TABLE>
<CAPTION>
Warrant Grants in Last Fiscal Year
Individual Grants(1) Grant Date Value
Warrants
Granted % of Total Warrants
(Number of Granted Employees Exercise Price Expiration Grant Date
Name Shares) in Fiscal Year (per Share) Date(2) Present Value(3)
<S> <C> <C> <C> <C>
Thomas J. Lynch 10,000 100% $4.00 12/31/05
<FN>
(1) The warrant grant listed in this table is reported as 1995 compensation
in the Summary Compensation Table.
(2) The listed warrants became exercisable on August 1, 1996 and terminate
upon the earlier to occur of (i) ten years from the date of grant or
(ii) termination of employment, excluding terminations of employment
occurring due to death, disability or retirement.
(3) Grant date present value has been calculated using the Black-Scholes
option pricing model.
</FN>
</TABLE>
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<PAGE>
The following table sets forth the aggregated option exercises during
1995 and the number of unexercised options and the value thereof on December 31,
1995 with respect to the executive officers and directors of UVB.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values Table
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares December 31, December 31,
Acquired 1995 1995
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable(2)
Michael F. Avallone .. 0 $ 0 33,334/0 $ 40,667
Robert J. Coleman .... 0 0 200,000/0 244,000
Edward H. Devine ..... 0 0 80,000/0 97,600
Louis W. Fryman ...... 667 1,213 1,334/0 1,627
John G. Hoopes ....... 0 0 50,000/0 61,000
R. Scott Horner ...... 4,333 7,886 14,666/0 17,892
Ira Ingerman ......... 0 0 100,000/0 122,000
Thomas J. Lynch ...... 0 0 60,000/10,000(1) 73,200/12,200
Timothy J. Michals ... 6,667 12,133 13,334/0 16,267
William S. Stamps .... 0 0 90,000/0 109,800
Stanley L. Stein ..... 0 0 80,000/0 97,600
Eugene F. Zuecca ..... 4,000 7,280 16,000/0 19,520
(1) 10,000 warrants granted to Thomas J. Lynch on December 31, 1995 became
exercisable August 1, 1996.
(2) Calculated as the difference between the book value per share of UVB
Common Stock as of December 31, 1995 ($5.22 per share) and the option
price per share ($4.00). For certain information relating to the lack
of a public market for UVB Common Stock, see "UVB - Market Prices and
Dividends."
Employment Contracts
Mr. Lynch's employment as President and Chief Executive Officer of UVB
is governed by the terms of an Employment Agreement dated August 17, 1989 and
amended on July 15, 1992, March 17, 1993 and December 31, 1993 (the "Lynch
Agreement"). The Lynch Agreement, as amended, provides for successive three-year
terms, commencing each December 31. UVB may elect not to renew the Lynch
Agreement at any time after December 31, 1993, in which case Mr. Lynch's
employment terminates three years from the date of UVB's notice not to renew.
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<PAGE>
The Lynch Agreement provides for annual salary to be negotiated by the parties.
The base salary for the calendar year commencing January 1, 1993 was fixed at
$150,000. If the parties are unable to agree on a base salary for any calendar
year, the prior year's base salary is increased in accordance with the Consumer
Price Index. The Lynch Agreement also provides for incentive compensation based
upon "Net Company Profits" as defined therein, stock option grants and certain
perquisites. The Lynch Agreement also contains a covenant not to compete.
Messrs. Zuecca and Horner have agreements with UVB, both dated January
31, 1994, that provide for their continued employment for up to one year
(subject to certain conditions contained therein) after a "change in control" of
UVB, as defined therein. Upon a change of control, Messrs. Zuecca and Horner
become eligible for their base salary at the rate in effect prior to the change
of control for up to one year, subject to certain conditions therein. See "The
Merger - Interests of Certain Persons."
Certain Transactions
Directors and officers of the Company, and certain business
organizations and individuals associated with them, have been customers of and
have had normal banking transactions with United Valley. As of December 31,
1995, United Valley had loans outstanding to directors, officers, principal
shareholders and certain business organizations and individuals associated with
them of $2.8 million on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
unrelated parties. The aggregate outstanding balance of loans to directors,
officers and their affiliates made by United Valley represented 24.3% of its
shareholders' equity at December 31, 1995. These loans do not, in management's
opinion, represent a greater than normal risk of collectability or present any
other unfavorable features.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF UVB
The following table sets forth as of September 30, 1996, information
with respect to the beneficial ownership of UVB Common Stock of (i) each
director and executive officer of UVB; (ii) the directors and officers as a
group and (iii) each person known by the Company to own beneficially more than
five percent of outstanding UVB Common Stock. Unless otherwise indicated in
footnotes to the table, each person listed has sole voting and dispositive power
with respect to the securities owned by such person. Except for Mr. Katz, whose
address is 283 Second Street Pike, Suite 150, Southampton, PA, the business
address of the persons listed herein as owning in excess of 5% of any class of
securities is 1601 Market Street, Suite 305, Philadelphia, PA 19103.
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Number of Shares
and Nature of Percent of
Name Beneficial Ownership Class(1)
Michael F. Avallone .... 83,334(2) 3.74
Robert J. Coleman ...... 376,884(3) 15.64
Edward H. Devine ....... 197,550(4) 8.63
Gregory C. Dillett ..... 6,000 *
Louis W. Fryman ........ 13,700(5) *
John G. Hoopes ......... 213,250(6) 9.43
R. Scott Horner ........ 20,009(7) *
Ira Ingerman ........... 216,100(8) 9.35
Thomas J. Lynch ........ 97,800(9) 4.29
Timothy J. Michals ..... 33,335(10) 1.50
Charles J. Reilly ...... 6,000 *
William S. Stamps ...... 183,000(11) 7.96
Stanley L. Stein ....... 172,900(12) 7.55
Eugene F. Zuecca ....... 16,010(13) *
Harold Katz ............ 197,550 8.94
All directors and ...... 1,635,872 --
executive officers
as a group (13 persons)
*Less than 1%
(1) Shares of UVB Common Stock issuable pursuant to warrants are deemed
outstanding for purposes of computing the percentage of the person or
group holding such warrants but are not deemed outstanding for purposes
of computing the percentage of any other person. See Notes (2) - (12)
below, for information concerning outstanding warrants.
(2) Includes warrants to purchase 16,667 shares of UVB Common Stock held by
Mr. Avallone.
(3) Includes warrants to purchase 200,000 shares of UVB Common Stock held
by Mr. Coleman.
(4) Includes warrants to purchase 80,000 shares of UVB Common Stock held by
Mr. Devine.
(5) Includes warrants to purchase 667 shares of UVB Common Stock held by
Mr. Fryman.
(6) Includes warrants to purchase 50,000 shares of UVB Common Stock held by
Mr. Hoopes.
(7) Includes warrants to purchase 10,333 shares of UVB Common Stock held by
Mr. Horner.
(8) Includes warrants to purchase 100,000 shares of UVB Common Stock held
by Mr. Ingerman.
(9) Includes warrants to purchase 70,000 shares of UVB Common Stock held by
Mr. Lynch.
(10) Includes warrants to purchase 6,667 shares of UVB Common Stock held by
Mr. Michals.
(11) Includes warrants to purchase 90,000 shares of UVB Common Stock held by
Mr. Stamps.
(12) Includes warrants to purchase 80,000 shares of UVB Common Stock held by
Mr. Stein.
(13) Includes warrants to purchase 16,000 shares of UVB Common Stock held by
Mr. Zuecca.
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<PAGE>
DESCRIPTION OF JBI CAPITAL STOCK
General
JBI's authorized capital stock consists of 10 million shares of common
stock, par value $1.00 per share. As of September 30, 1996, there were
outstanding 3,957,198 shares of JBI Common Stock.
Description of JBI Common Stock
Holders of JBI Common Stock are entitled to dividends when, as and if
declared by JBI's Board of Directors and in such amounts as JBI's Board of
Directors may deem advisable. In the event of any liquidation, dissolution or
winding up of JBI, whether voluntary or involuntary, holders of JBI Common Stock
are entitled, after payment or provision for payment of the debts or other
liabilities of JBI, and subject to the prior rights of holders of any JBI
Preferred Stock which may then be outstanding, to share ratably in the remaining
assets of JBI. Shares of JBI Common Stock do not possess preemptive rights.
Holders of JBI Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote at a meeting of shareholders. There is
no cumulative voting in the election of directors. See "Comparison of Rights of
JBI and UVB Shareholders" for a description of certain provisions of JBI's
Articles of Incorporation, Bylaws and Pennsylvania law which affect the voting
rights of shareholders of JBI and provide for a classified board of directors.
Description of JBI Preferred Stock
Although there are currently no shares of JBI Preferred Stock issued
and outstanding, the Board of Directors is authorized to issue preferred stock
from time to time in one or more series, with each series to have such
designation or title as fixed by the Board of Directors. Pursuant to JBI's
Articles of Incorporation, each series of preferred stock may differ from every
other series already outstanding as may be determined by the Board of Directors
in any or all of the following, but in no other respects: rates of dividend,
rights and price of redemption, rights in the event of liquidation, sinking fund
provisions, rights of conversion and voting rights, if any.
The authorized but unissued and unreserved shares of preferred stock
are available for issuance in future mergers or acquisitions, in a future public
offering or private placement or for other general corporate purposes. Except as
otherwise required to approve the transaction in which the additional authorized
shares of preferred stock would be issued, shareholder approval may be required
pursuant to the requirements for continued listing of the JBI Common Stock on
Nasdaq or the requirements of any exchange on which the JBI Common Stock may
then be listed. The authority of the Board of Directors to issue shares of
preferred stock may be considered to have an anti-takeover effect.
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Certain Anti-Takeover Provisions
State and Federal Law Anti-Takeover Provisions. JBI is subject to
various provisions of the BCL which may have the effect of discouraging
unilateral tender offers or other attempts to acquire JBI whether or not the
terms thereof might be favored by some shareholders. See "Comparison of Rights
of JBI and UVB Shareholders." JBI is also subject to the provisions of the
Change in Control Act and the Holding Company Act which may also have the effect
of discouraging attempts to acquire JBI. For a discussion of the Change in
Control Act and Holding Company Act provisions relating to takeovers, see "UVB -
Supervision and Regulation."
Provisions in JBI's Articles and Bylaws. Certain provisions of JBI's
Articles of Incorporation and Bylaws may have the effect of discouraging
unilateral tender offers or other attempts to take over and acquire JBI whether
or not the terms thereof might be favored by some shareholders. For a discussion
of these provisions, see "Comparison of Rights of JBI and UVB Shareholders."
Following the UVB Merger, JBI will have approximately 5 million
authorized but unissued shares of JBI Common Stock. As a general matter, the
existence of unissued and unreserved shares of capital stock provides a board of
directors with the ability to cause the issuance of shares of capital stock
under circumstances that might prevent or render more difficult or costly the
completion of a takeover by diluting the voting or other rights of any proposed
acquiror, by creating a substantial voting block in institutional or other hands
that might undertake to support the position of a board of directors, or by
effecting an acquisition that might complicate or preclude a takeover or
otherwise.
The Board of Directors also has the authority to issue shares of JBI
Preferred Stock with such terms as it deems advisable. In the event of a
proposed merger, tender offer or other attempt to gain control of JBI which the
Board of Directors does not approve, the Board of Directors could authorize the
issuance of one or more series of JBI Preferred Stock with rights and
preferences which could impede the completion of such transaction. An effect of
the possible issuance of JBI Preferred Stock, therefore, may be to deter a
future takeover attempt.
In addition, the rights, preferences, privileges and limitations of any
preferred stock which may have been established by the Board of Directors prior
to any proposal for merger, tender offer or other attempt to gain control of JBI
could have the effect of impeding or discouraging attempts to acquire control of
JBI.
JBI's Articles of Incorporation provide for a classified Board of
Directors consisting of three classes as nearly equal in size as practicable.
One class is proposed for election at each annual meeting of shareholders. Each
class holds office until the third annual meeting for election of directors
following the election of such class. Except for removal for cause, a director
may be removed only upon the vote of the holders of at least two-thirds of the
outstanding shares entitled to vote. The number of directors constituting the
entire Board of Directors is fixed by a vote of three-quarters of the entire
Board of Directors.
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JBI's Articles of Incorporation and Bylaws further provide that the
shareholders may act by written consent only if the matter is consented to by
the larger of two-thirds of the shareholders entitled to vote or the minimum
percentage vote required by law, and that special meetings may only be called by
a majority of the Board of Directors.
Transfer Agent and Registrar
Chase Mellon Shareholder Services acts as the transfer agent and
registrar for the JBI Common Stock.
COMPARISON OF RIGHTS OF JBI
AND UVB SHAREHOLDERS
Each of JBI and UVB is a Pennsylvania corporation subject to the
provisions of the BCL. Shareholders of UVB, whose rights as shareholders are
currently governed by the BCL and UVB's Articles of Incorporation and Bylaws, as
amended to date, will become holders of JBI's Common Stock as a result of the
Merger. Accordingly, their rights will be governed by JBI's Articles of
Incorporation and Bylaws and the BCL. However, since JBI Common Stock is
registered under the Exchange Act, JBI is deemed to be a "registered
corporation" within the meaning of the BCL (while UVB is not a registered
corporation) and, accordingly, after the Merger the rights of UVB shareholders
will be governed by the BCL provisions pertaining to registered corporations.
The following is a summary of the material differences between the rights of
holders of JBI Common Stock and the holders of UVB Common Stock.
Shareholder Action: Amendments of Articles of Incorporation and Bylaws
The Articles of Incorporation of JBI may be amended by the affirmative
vote of a majority of the votes cast by shareholders entitled to vote thereon,
except as set forth in "Shareholder Action: Provisions in JBI's Articles
Regarding Certain Fundamental Transactions," below. The amendment or repeal of
the provisions of UVB's Articles of Incorporation requires an affirmative vote
of the shareholders of at least two-thirds of the shares which are entitled to
vote.
The Bylaws of JBI may be amended by a majority vote of the Board of
Directors or by an affirmative vote of at least two-thirds of the shares
entitled to vote. The Bylaws of UVB may be amended by an affirmative vote of at
least two-thirds of all shares entitled to vote.
Shareholder Action: Special Meetings
Under the BCL, shareholders of a "registered corporation" are not
entitled by statute to call special meetings of shareholders, except that an
"interested shareholder" is entitled to call a meeting for the purposes of
approving certain business combinations with such interested shareholder. As
used in the BCL, an "interested shareholder" is a shareholder who beneficially
owns at least 20% of the voting shares of the corporation or who is an affiliate
or associate of
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such corporation and, at any time during the five years prior to the date in
question, beneficially owned at least 20% of its voting shares. UVB's Bylaws
provide that special meetings of UVB shareholders may be called at any time by
any of the following: (i) the President of UVB; (ii) the Chairman of the Board
of Directors; (iii) a majority of the Board of Directors of UVB; or (iv) the
holders of not less than one-fifth of all shares entitled to vote.
Shareholder Action: Provisions in the BCL Regarding Certain Fundamental
Transactions
The BCL contains several significant provisions regulating fundamental
corporate transactions which are applicable to registered corporations as
follows:
Business Combinations. The BCL has special provisions which generally
restrict a registered corporation from engaging in a "business combination" with
an interested shareholder of the corporation for a period of five years after
the date on which the interested shareholder became such. The restrictions do
not apply to: (i) any business combination approved by the board of directors of
the corporation prior to the interested shareholder's "share acquisition date"
(the date on which the shareholder became an interested shareholder), or where
the purchase of shares by the interested shareholder on the share acquisition
date has been approved by the board of directors prior to the share acquisition;
(ii) a business combination approved by a majority of the shares entitled to
vote for directors, excluding shares owned by the interested shareholder or any
affiliate or associate of the interested shareholder, where (x) the interested
shareholder owns shares having 80% of the votes that all shareholders would be
entitled to cast, (y) the consideration to be received by the shareholders meets
certain criteria (generally that the cash and market value of non-cash
consideration to be received equals the higher of (A) the highest price paid by
the interested shareholder (at a time when he held shares having 5% of the
voting power) within a period of five years before announcement of the business
combination or the date the interested shareholder became such, or (B) the
market value of the corporation's shares on the date of the announcement of the
business combination or the date the interested shareholder became such), and
(z) the interested shareholder does not acquire further shares, with certain
limited exceptions, between the share acquisition date and the consummation of
the business combination; and (iii) a business combination approved by the
affirmative vote of all of the holders of all outstanding shares entitled to
vote. After five years following the share acquisition date, a business
combination between the corporation and an interested shareholder must be either
approved by a majority vote of the shares entitled to vote for directors
(excluding shares owned by the interested shareholder) or be approved at a
shareholder's meeting (which allows the voting of the shares of the interested
shareholder) and meet the criteria set forth in clauses (y) and (z), above.
As used in the BCL, the term "business combination" means (i) a merger,
consolidation, share exchange or division of the corporation or any subsidiary
of the corporation with the interested shareholder or with any other company
which is or will be an affiliate or associate of the interested shareholder;
(ii) a sale, lease, exchange, mortgage, pledge, transfer or other disposition of
assets of the corporation or a subsidiary having an aggregate market value of
10% or more of all consolidated assets, or 10% or more of the market value of
outstanding shares
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(equity securities or securities convertible thereto) of the corporation, or
representing 10% or more of the earning power or net income (on a consolidated
basis) of the corporation; (iii) the issuance or transfer of shares of the
corporation or a subsidiary having a market value equal to 5% of the market
value of all outstanding shares of the corporation; (iv) the adoption of a
proposal or plan of liquidation or dissolution of the corporation proposed by or
pursuant to an agreement or understanding with the interested shareholder; (v) a
recapitalization or reclassification proposed by or done pursuant to agreement
or understanding with the interested shareholder which would, directly or
indirectly, increase its proportionate share of the outstanding shares of any
voting securities or securities convertible thereto; or (vi) the receipt by the
interested shareholder of the benefit, directly or indirectly, of any loans,
advances, guarantees, pledges or financial assistance or any tax credits or
other tax advantages provided by or through the corporation.
Control Transactions. Under the BCL, before an acquiror of 20%, 33-1/3%
or 50% of the voting power of a registered corporation may exercise voting power
with respect to "control shares" (a term defined for these purposes to include
shares above the applicable threshold, shares acquired within 180 days of the
control-share acquisition and any shares acquired with the intention to make a
control-share acquisition), the shareholders of the corporation must have
approved such exercise by a vote of (i) a majority of all outstanding voting
power, and (ii) a majority of outstanding "disinterested shares" (a term defined
to exclude shares beneficially owned by executive officers, inside directors,
the acquiror and its affiliates and associates, employee stock plans where the
employee lacks the right to direct confidentially the manner in which the
employee's shares are to be voted on the issue of according voting rights to the
control shares, and shares purchased while the corporation is "in play" and that
were beneficially owned continuously, for the period from the last to occur of
(x) 12 months preceding the record date of the shareholders' meeting called for
the purpose of considering the voting rights of the control shares, and (y) five
business days prior to the first public disclosure of a control share
acquisition through the record date of the subject shareholders' meeting). The
vote may take place at the next available shareholders' meeting, or the acquiror
may request the acceleration of the consideration of the issue by agreeing to
pay the cost of a special meeting and satisfying certain other requirements. If
the acquiror does not seek voting rights in the prescribed manner or if such
voting rights are denied or lapse, unless otherwise provided in the
corporation's articles of incorporation, the BCL authorizes the corporation to
redeem all of the control shares from an acquiror at any time within two years
after the control-share acquisition. The redemption price of control shares
would be the average of the high and low sales prices of shares of the same
class and series on the date the corporation gives notice to the acquiror of the
call for redemption.
Disgorgement by Controlling Persons. Under the provisions of the BCL, a
"controlling person" (which for these purposes is defined generally to mean a
person or group which has acquired, offered to acquire or publicly disclosed the
intention of acquiring, or is seeking, at least a 20% voting interest or who
has, directly or indirectly, publicly disclosed that he or it may seek to
acquire control) would be required to disgorge any profit made by such
controlling person on the disposition of shares of the corporation during the 18
months following attainment of "controlling person" status. Any such profit
would belong to and be recoverable by the
-95-
<PAGE>
corporation, unless the shares involved were purchased more than 24 months
before the attainment of such status. The profit recovery may be enforced by the
corporation or by a shareholder if the corporation fails to prosecute the action
seeking such recovery in the prescribed manner.
Other Provisions. The BCL expressly authorizes the issuance of
securities or rights which contain such terms as may be fixed by a board of
directors, which may include provisions which limit any person owning or
offering to acquire a specified amount of the outstanding common shares of a
corporation from exercising or receiving the securities or rights. This
statutory authorization is intended to expressly validate the adoption of
shareholder rights plans ("poison pills") which are often implemented by
corporations to deter undesirable takeovers or accumulations of large equity
positions in the corporation. Neither JBI nor UVB has such a shareholder rights
plan.
The BCL also allows a corporation to classify the holders of shares of
a class or series into one or more special groups by reference to any facts or
circumstances that are not manifestly unreasonable and to treat the shares held
by particular shareholders, or group of shareholders, in a manner that differs
materially from the treatment accorded other shareholders who hold shares of the
same class or series. Such special treatment of shareholders may be used either
to effect a recapitalization or incident to a fundamental transaction, such as a
merger or acquisition. The BCL provides that such a plan may be permitted based
on a court finding that it was undertaken in good faith, after reasonable
deliberation, and is in the best interests of the corporation. Generally,
however, the adoption of such a plan must be approved by the normal vote of
shareholders required to approve the underlying transaction (e.g., the
recapitalization or merger), and, at the option of the board of directors, each
group of shareholders which receives the same special treatment must be given
either the right to approve the plan or dissenters' rights.
Shareholder Action: Provisions in Articles Regarding Certain Fundamental
Transactions
JBI's Articles of Incorporation provide that, with respect to
"fundamental transactions" and except where the BCL specifically requires a
different vote, a proposed corporate action may be approved by (i) the minimum
vote of shareholders required for authorization of such action by the BCL if
such approval is by recommendation of a vote of two-thirds of the entire Board
of Directors, or (ii) if the Board of Directors does not so recommend, a vote of
two-thirds of all shares entitled to vote, voting as a single class and, in
addition, the affirmative vote of any class of shares as may be required by
applicable law. JBI's Articles of Incorporation define a fundamental transaction
to be (A) the amendment of the Articles of Incorporation regarding the number,
classification, qualifications, removal and election of directors and regarding
fundamental transactions; or (B) any of the following, if any such transaction
requires the approval of the shareholders under the Articles of Incorporation or
the BCL: the sale, lease, exchange or other disposition of all or substantially
all of the assets of JBI or the merger, consolidation, division, reorganization,
recapitalization, dissolution, liquidation, or winding up of JBI.
-96-
<PAGE>
The Articles of UVB require an affirmative vote of the shareholders of
at least two-thirds of the shares entitled to vote with respect to: (i) an
amendment or repeal of the Articles of Incorporation or the Bylaws; (ii) a
merger or consolidation of UVB into any other corporation other than a
wholly-owned subsidiary; (iii) the sale, lease, conveyance or encumbrance of all
or substantially all of UVB's property; or (iv) the liquidation, in whole or in
part, of UVB.
Certain Anti-takeover Provisions in Articles of Incorporation and Bylaws
The Articles of Incorporation and Bylaws of JBI contain certain
provisions which may have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt, including those attempts that might
result in a premium over the market price for the shares held by the
shareholders. See "Description of JBI Capital Stock-Certain Anti-Takeover
Provisions" for a description of the anti-takeover provisions in the Articles of
Incorporation and Bylaws of JBI. Although many of these provisions are similar
to those contained in UVB's Articles of Incorporation and Bylaws, there are
certain differences. UVB's Articles provide that no person, corporation,
partnership, association or trust may acquire and/or hold, beneficially or of
record, more than 10% of the outstanding shares of UVB without the prior
approval of the Board of Directors. UVB's Articles provide further that no
person, corporation, partnership, association or trust may hold or acquire more
than 5000 shares of UVB if the Board of Directors determines that they do not
meet the standards or character and fitness for incorporators as set forth in
the 1965 Code.
JBI's Articles of Incorporation provide that the number of directors
constituting the entire Board of Directors is fixed by a vote of three-quarters
of the entire Board of Directors. Pursuant to UVB's Bylaws, the number of
directors constituting the entire Board of Directors of UVB (which may be no
less than 3 and no more than 25) is fixed by a vote of a majority of the
shareholders voting thereon at a regular or special meeting.
In addition, JBI's Board of Directors is divided into three classes
(see "Description of JBI Capital Stock-Certain Anti-Takeover Provisions") while
UVB's Board of Directors is a single class.
Removal of Directors
JBI's Articles of Incorporation provide that the entire Board of
Directors, or any individual director, may be removed from office only for
cause, by a two-thirds vote of all shareholders entitled to vote in the election
of directors. The Articles and Bylaws of UVB do not provide for the removal of
directors. The BCL provides that a director may be removed by a majority of the
votes cast at a duly organized meeting of shareholders.
Shareholder Action: Nomination of Directors and Other Matters to Be Placed on
Annual Meeting Agenda
-97-
<PAGE>
Shareholders of both JBI and UVB are required to submit to their
respective companies, in writing and in advance, any nomination of a candidate
for election as a director. JBI's Bylaws provide that nominations must be
submitted not less than 90 days prior to a scheduled meeting for the election of
directors (unless less than 21 days' notice of the meeting is given to
shareholders, in which case nominations may be submitted within seven days
following the mailing of notice to shareholders). UVB's Bylaws provide that a
person may be elected a director at any shareholders' meeting if they were
nominated by a shareholder with a written nomination submitted not less than
fifteen days before the meeting.
Shareholders of JBI are also required to submit to JBI, in writing and
in advance, any matter desired to be placed on the agenda of the annual meeting
of shareholders.
RESALE OF JBI COMMON STOCK
All shares of JBI Common Stock issuable in the Merger have been
registered under the Securities Act and can be traded freely. Shares of JBI
Common Stock issuable pursuant to the exercise of the JBI Warrants to be issued
in the Merger, and which expire on or before September 19, 1997, will also be
registered under the Securities Act and, upon exercise of the JBI Warrants, can
also be traded freely. Shares of JBI Common Stock issuable upon exercise of the
remaining JBI Warrants will be restricted, and may only be transferred upon
registration under the Securities Act or if an exemption from the registration
requirements of the Securities Act is available. However, JBI is required to
file the Shelf Registration Statement with respect to these shares following the
filing of its Quarterly Report on Form 10-Q for the quarter ended September 30,
1997 (see "The Merger - Interests of Certain Persons"). Upon effectiveness of
the Shelf Registration Statement, the remaining shares will also be freely
tradeable. With respect to those shareholders who may be deemed to be
"affiliates", the Securities Act (including Rule 144 and Rule 145 thereunder)
places certain restrictions on the transfer of JBI Common Stock received by
them. It is expected that each such affiliate will enter into an agreement with
JBI providing that such affiliate will not transfer any JBI Common Stock
received in the UVB Merger, except in compliance with the Securities Act.
EXPERTS
The consolidated financial statements of JBI as of and for the years
ended December 31, 1995 and 1994 incorporated by reference in this Joint Proxy
Statement/Prospectus have been audited by Grant Thornton LLP, independent
certified public accountants, whose report thereon appears therein, and in
reliance upon such report of Grant Thornton LLP, given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of JBI for the year ended
December 31, 1993 incorporated by reference in this Joint Proxy
Statement/Prospectus have been audited by Price Waterhouse LLP, independent
certified public accountants, whose report thereon appears therein, and in
reference upon such report of Price Waterhouse LLP, given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of UVB as of and for the year
ended December 31, 1995 included in this Joint Proxy Statement/Prospectus have
been audited by Grant Thornton LLP, independent certified public accountants,
whose report thereon appears herein, and in reliance upon such report of Grant
Thornton LLP, given upon the authority of such firm as experts in accounting and
auditing.
-98-
<PAGE>
The consolidated financial statements of UVB as of and for the years
ended December 31, 1994 and 1993 included in this Joint Proxy
Statement/Prospectus have been audited by Arthur Andersen LLP, independent
certified public accountants, whose report thereon appears herein, and in
reliance upon such report of Arthur Andersen LLP, given upon the authority of
such firm as experts in accounting and auditing.
Danielson Associates, Inc. has consented to the use of its name and its
opinion included as Annex B to this Joint Proxy Statement/Prospectus.
LEGAL OPINIONS
The validity of the JBI Common Stock being offered hereby is being
passed upon by Ledgewood Law Firm, P.C., counsel to JBI.
Certain federal income tax consequences of the Merger are being passed
upon by Blank, Rome, Comisky & McCauley, counsel to UVB.
OTHER BUSINESS
The Board of Directors of each of JBI and UVB are not aware of any
matters, other than the proposals described herein, to be presented at the
respective Special Meetings. If any other matters should properly come before
the meeting, the persons named in the enclosed proxy form will vote the proxies
in accordance with their best judgement.
-99-
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF UVB
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
UNITED VALLEY BANCORP AND SUBSIDIARY
December 31, 1995 and 1994
Page
Reports of Independent Certifid Public Accountants................
Consolidated Balance Sheets at December 31, 1994 and 1995, and
at September 30, 1996 (unaudited)...............................
Consolidated Statements of Income for each of the three years
ended Dcember 31, 1995 and for the nin months ended
September 30, 1995 and 1996 (unaudited).........................
Consolidated Statement of Shareholder's quity for ach of the
three years in the period ended December 31, 1995 and for the
nine months nded September 30, 1996 (unaudited).................
Consolidated Statements of Cash Flows for each of the three years
in the period endd December 31, 1995 and for the nine months
ended September 30, 1995 and 1996 (unaudited)...................
Notes to Consolidated Financial Statements........................
<PAGE>
Report of Independent Certified Public Accountants
Shareholders and Board of Directors
United Valley Bancorp
We have audited the accompanying consolidated balance sheet of United
Valley Bancorp (successor-in-interest to United Valley Bank) and Subsidiary as
of December 31, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of United Valley
Bancorp and Subsidiary as of December 31, 1995, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
GRANT THORTON
Philadelphia, Pennsylvania
January 19, 1996
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of United Valley Bank:
We have audited the accompanying consolidated balance sheet of United Valley
Bank and Affiliates (a Pennsylvania Corporation) as of December 31, 1994, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the two years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Valley Bank and
Affiliates as of December 31, 1994, and the results of their operations, and
their cash flows for each of the two years in the period ended December 31, 1994
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
January 17, 1995
<PAGE>
<TABLE>
<CAPTION>
United Valley Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
1996 1995 1994
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks ....................................... $ 6,583 $ 5,457 $ 10,961
Federal funds sold ............................................ 3,000 5,400 --
--------- --------- ---------
Cash and cash equivalents .......................... 9,583 10,857 10,961
Investment securities held to maturity ........................ 9,708 10,038 14,248
Investment securities available for sale ...................... 8,305 7,794 2,232
Loans, net .................................................... 92,717 99,744
81,348
Accrued interest receivable ................................... 933 1,020 756
Other real estate owned ....................................... 445 510 1,602
Premises and equipment, net ................................... 281 285 92
Other assets .................................................. 453 438 466
--------- --------- ---------
Total assets ....................................... $ 122,425 $ 130,686 $ 111,705
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Demand ................................................. $ 9,306 $ 16,739 $ 14,382
Interest-bearing demand ................................ 5,371 4,296 4,050
Savings ................................................ 2,341 3,451 4,152
Money market ........................................... 39,667 40,563 29,189
Certificates of deposit ................................ 47,428 50,500 39,765
--------- --------- ---------
Total deposits ..................................... 104,113 115,549 91,538
Borrowings ................................................ 3,750 2,000 8,471
Accrued expenses and other liabilities .................... 1,699 1,410 907
--------- --------- ---------
Total liabilities .................................. 109,562 118,959 100,916
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES ................................. -- -- --
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value per share; authorized,
3,000,000 shares; issued and outstanding, 2,210,261,
2,071,927 and 2,046,260 shares, respectively ........... 5,526 5,180 5,116
Capital surplus ........................................... 5,362 5,154 5,116
Retained earnings ......................................... 2,008 1,375 557
Net unrealized gain (loss) on securities available for sale (33) 18 --
--------- --------- ---------
Total shareholders' equity ......................... 12,863 11,727 10,789
--------- --------- ---------
Total liabilities and shareholders' equity ......... $ 122,425 $ 130,686 $ 111,705
========= ========= =========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
United Valley Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Nine months ended
September 30, Year ended December 31,
1996 1995 1995 1994 1993
(unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees .......................... $ 6,907 $ 6,649 $ 8,844 $ 6,426 $ 5,610
Federal funds sold ............................. 108 124 189 305 86
Investment securities .......................... 955 663 926 788 661
-------- -------- -------- --------- ---------
Total interest income ................... 7,970 7,436 9,959 7,519 6,357
INTEREST EXPENSE
Deposits ....................................... 3,624 3,376 4,669 3,061 2,620
Interest on borrowed funds ..................... 179 119 151 110 41
-------- -------- -------- --------- ---------
Net interest income ..................... 4,167 3,941 5,139 4,348 3,696
PROVISION FOR LOAN LOSSES .......................... 405 644 851 -- 690
-------- -------- -------- -------- ---------
Net interest income after
provision for loan losses .................. 3,762 3,297 4,288 4,348 3,006
-------- -------- -------- --------- ---------
OTHER INCOME
Service fees on deposit accounts ............... 125 83 114 91 76
Loan referral fees ............................. -- 17 17 203 196
Gain on sale of assets ......................... -- 124 124 -- --
Other .......................................... 68 161 206 177 112
-------- -------- -------- --------- ---------
Total other income ...................... 193 385 461 471 384
-------- -------- -------- --------- ---------
OTHER EXPENSES
Salaries ....................................... 1,487 1,327 1,562 1,272 985
Employee benefits .............................. 139 128 174 117 86
Occupancy expense .............................. 456 360 499 415 381
FDIC assessment ................................ 1 105 95 215 180
Insurance expense .............................. 63 60 105 94 75
Pennsylvania Shares Tax ........................ 89 88 116 107 107
Advertising .................................... 62 37 81 89 84
Legal services ................................. 35 38 53 179 85
Data processing services ....................... 136 128 174 141 132
Other operating expenses ....................... 553 467 653 594 509
-------- -------- -------- --------- ---------
Total other expenses .................... 3,021 2,738 3,513 3,223 2,624
-------- -------- -------- --------- ---------
Income before income taxes .............. 934 944 1,236 1,596 766
INCOME TAXES ....................................... 301 322 418 512 245
-------- -------- -------- --------- ---------
Income before cumulative effect of change
in accounting for income taxes ...... 633 622 818 1,084 521
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES .................... -- -- -- -- 485
-------- -------- -------- --------- ---------
NET INCOME .............................. $ 633 $ 622 $ 818 $ 1,084 $ 1,006
======== ======== ======== ========= =========
PER SHARE DATA
Income before cumulative effect of change in
accounting for income taxes ................. $ .27 $ .28 $ .36 $ .48 $ .23
Cumulative effect of change in accounting
for income taxes ............................ -- -- -- -- .22
-------- -------- -------- --------- ---------
Net income .............................. $ .27 $ .28 $ .36 $ .48 $ .45
======== ======== ======== ========= =========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
United Valley Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
Net unrealized
Retained gain (loss)
earnings on securities
Common stock Capital (accumulated available
Shares Amount surplus deficit) for sale Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1993 ..... 2,046,260 $ 5,116 $ 5,116 $ (1,533) $ -- $ 8,699
Net income .......... -- -- -- 1,006 -- 1,006
--------- ---------- ---------- ---------- ---------- ----------
BALANCE AT
DECEMBER 31, 1993 ... 2,046,260 5,116 5,116 (527) -- 9,705
Net income .......... -- -- -- 1,084 -- 1,084
--------- ---------- ---------- ---------- ---------- ----------
BALANCE AT
DECEMBER 31, 1994 ... 2,046,260 5,116 5,116 557 -- 10,789
Warrants exercised .. 25,667 64 38 -- -- 102
Net income .......... -- -- -- 818 -- 818
Net unrealized gain
on securities
available for sale -- -- -- -- 18 18
--------- ---------- ---------- ---------- ---------- ----------
BALANCE AT
DECEMBER 31, 1995 ... 2,071,927 5,180 5,154 1,375 18 11,727
Warrants exercised .. 138,334 346 208 -- -- 554
Net income .......... -- -- -- 633 -- 633
Net unrealized loss
on securities
available for sale -- -- -- -- (51) (51)
--------- ---------- ---------- ---------- ---------- ----------
BALANCE AT
SEPTEMBER 30, 1996
(UNAUDITED) ......... 2,210,261 $ 5,526 $ 5,362 $ 2,008 $ (33) $ 12,863
========= ========== ========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
United Valley Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended
September 30, Year ended December 31,
1996 1995 1995 1994 1993
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income ......................................................... $ 633 $ 622 $ 818 $ 1,084 $ 1,006
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses ....................................... 405 644 851 -- 690
Depreciation and amortization ................................... 68 36 55 47 52
Cumulative effect of change in accounting for income taxes ...... -- -- -- -- (485)
Decrease in deferred taxes ...................................... (21) 17 202 107 85
Increase in accrued interest receivable and other assets ........ (15) (219) (437) (149) (110)
Increase (decrease) in accrued expenses and other
liabilities ................................................. 289 438 501 (76) 342
Other ........................................................... -- -- -- (1) (15)
-------- -------- -------- -------- --------
Net cash provided by operating activities ................... 1,359 1,538 1,990 1,012 1,565
-------- -------- -------- -------- --------
INVESTING ACTIVITIES
Loan originations and principal payments on loans, net ............. 7,027 (15,742) (18,553) (8,227) (11,807)
Purchase of investment securities held to maturity ................. (1,750) (2,553) (2,553) (9,659) (7,529)
Principal collected on investment securities held to maturity ...... 1,859 1,000 1,000 6,370 1,357
Purchase of investment securities available for sale ............... (2,700) -- -- -- --
Principal collected on investment securities available for sale .... 2,127 -- -- -- --
Proceeds from sales of investment securities ....................... -- -- -- -- 2,469
Proceeds from sale of other real estate owned ...................... -- 124 124 66 167
Purchases of premises and equipment ................................ (64) (148) 244 19 (34)
Increase in investment in joint venture ............................ -- -- -- (101) --
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities ......... 6,499 (17,319) (19,738) (11,532) (15,377)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Net increase (decrease) in demand, savings and money
market deposits ................................................. (8,363) 7,016 13,276 8,606 10,569
Net increase (decrease) in certificates of deposit ................. (3,072) 8,587 10,735 (12,548) 13,753
Increase (decrease) in borrowed funds .............................. 1,750 (6,470) (6,470) 7,970 --
Exercise of stock warrants ......................................... 553 103 103 -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities ........ (9,132) 9,236 17,644 4,028 24,322
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents ........ (1,274) (6,545) (104) (6,492) 10,510
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................... 10,857 10,961 10,961 17,453 6,943
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $ 9,583 $ 4,416 $ 10,857 $ 10,961 $ 17,453
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for
Interest ........................................................ $ 3,521 $ 3,111 $ 4,820 $ 3,172 $ 2,396
======== ======== ======== ======== ========
Taxes ........................................................... $ 299 $ 263 $ 418 $ 532 $ 158
======== ======== ======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITY
Additions of other real estate owned ............................... $ -- $ -- $ -- $ 661 $ 65
======== ======== ======== ======== ========
Transfer of investments to available-for-sale classification ....... $ -- $ -- $ 7,032 $ -- $ --
======== ======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE A - DESCRIPTION OF BUSINESS
United Valley Bancorp (the Company) is a Pennsylvania corporation registered
under the Bank Holding Company Act of 1956. The Company conducts its
operations primarily through its wholly-owned subsidiary, United Valley Bank
(the Bank).
The Bank is a state-chartered commercial bank regulated by the Pennsylvania
Department of Banking and the Federal Deposit Insurance Corporation and is a
member of the Federal Reserve System and Federal Home Loan Bank.
The Bank operates as a commercial bank offering a variety of commercial
loans and, to a lesser degree, consumer credits.
The Bank conducts its operations through its main office in Philadelphia,
Pennsylvania and its Jenkintown and Bala Cynwyd branch offices. The Bank's
market area consists of the eight counties comprising the greater
Philadelphia area. The Bank attracts retail deposits from the general public
and invests those funds primarily in commercial loans and investment
securities.
The Bank competes with other banking and financial institutions in certain
primary market communities, including financial institutions with resources
substantially greater than its own. Commercial banks, savings banks, savings
and loan associations, credit unions and money market funds actively compete
for savings and time deposits and for types of loans. Such institutions, as
well as consumer finance and insurance companies, may be considered
competitors of the Bank with respect to one or more of the services it
renders.
The Bank is subject to regulations of certain state and federal agencies
and, accordingly, they are periodically examined by those regulatory
authorities. As a consequence of the extensive regulation of commercial
banking activities, the Bank's business is particularly susceptible to being
affected by state and federal legislation and regulations.
The Bank formed a wholly-owned subsidiary, UVB Real Estate Company, to
manage the assets acquired in connection with foreclosed loans. In 1994, the
Bank entered a joint venture agreement with an individual to form Eagle
Valley Financial Services. The joint venture provides services to the Bank
in originating mortgage loans. The operations of these entities were
insignificant to the consolidated financial condition and results of
operations of the Company in 1995 and 1994.
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company conform to generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
l. Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
the Bank and its wholly-owned subsidiary, UVB Real Estate Company, and joint
venture, Eagle Valley Financial Services. All significant intercompany
accounts and transactions have been eliminated.
2. Unaudited Interim Financial Statements
The accompanying consolidated financial statements of the Company as of
September 30, 1996 and for the nine months ended September 30, 1996 and 1995
are unaudited, but in the opinion of management reflect all adjustments
necessary for a fair presentation of such consolidated financial statements
in accordance with generally accepted accounting principles. The results of
operations for interim periods are not necessarily indicative of results for
a full year.
3. Investment Securities
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities," in
1994. SFAS No. 115 requires the Company to classify its investments,
including marketable equity securities and mortgage-backed securities, in
one of three categories: held to maturity, trading or available for sale.
Debt securities that the Company has the positive intent and ability to hold
to maturity are classified as held to maturity and are reported at amortized
cost. The Company does not engage in security trading; therefore, the
balance of its debt and any equity securities are classified as available
for sale. Net unrealized gains and losses for such securities are recognized
as a separate component of stockholders' equity and excluded from the
determination of net income. The adoption of SFAS No. 115 had no impact on
the Bank's consolidated financial position or results of operations.
Debt securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts over the term of the
related securities using a method which approximates the level-yield method.
Equity securities include nonmarketable equity investments in the Federal
Reserve Bank and Federal Home Loan Bank of Pittsburgh. These securities are
stated at cost and reported as available for sale. Realized security gains
and losses are computed using the specific identification method and are
recorded on a trade date basis.
(Continued)
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. Loans and Allowance for Possible Loan Losses
Loans held for investment are stated at the amount of the unpaid principal
balance. When mortgages are held for sale, they are carried at the lower of
aggregate cost or market as determined by outstanding commitments from
investors.
Interest on all loans is accrued and credited to operations over the terms
of the loans based on the amount of principal outstanding. Interest is not
accrued on those loans where a default of principal or interest exists if
management considers the collection of principal or interest to be doubtful.
Nonaccrual loans are restored to accrual status when delinquent interest and
principal become current and the loan and related interest, in management's
opinion, is considered secured and in the process of collection.
Generally accepted accounting principles require that loan origination fees,
net of certain direct loan origination costs (as defined) of completed
loans, be deferred and amortized over the life of the related loans as an
adjustment to yield. Management determined that the amount of net fees and
costs was not material and the Bank has not deferred such amounts. Fees were
netted with related costs, primarily salaries and wages, and the excess
costs are included as an adjustment to yield.
The allowance for possible loan losses is maintained at a level that
management considers adequate to provide for potential losses based upon an
evaluation of known and inherent risks attendant with the Company's loan
portfolio. Management's evaluation is based on regular review of the loan
portfolio and considers such factors as payment history, adverse situations
that may affect a borrower's ability to repay, collateral adequacy, and
current economic conditions. The allowance for possible loan losses is
increased through a provision for loan losses charged against income and
decreased by charge-offs (net of recoveries). Loans are charged against the
allowance for possible loan losses when amounts are considered by management
to be uncollectible. Actual losses may vary from current estimates. These
estimates are reviewed periodically and, if additions to the original
estimates of the allowance for possible loan losses are deemed necessary,
they will be reported in earnings in the period in which they become
reasonably estimable.
On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures."
The adoption of SFAS No. 114, as amended, had no material impact on the
Company's consolidated financial position or results of operations.
(Continued)
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5. Other Real Estate Owned
Other real estate owned (OREO), consisting of property acquired by
foreclosure or deed in lieu of foreclosure, is carried at the lower of
estimated fair value, less estimated selling expenses or cost, on an
individual asset basis. Costs relating to the development and improvement of
the property are capitalized, whereas those related to holding the property
are charged to expense.
Valuations are periodically performed by management and a loss provision is
established by a charge to operations if the carrying value of a property
exceeds its estimated fair value.
6. Premises and Equipment
Premises and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation of furniture and fixtures is computed using
the straight-line method over their estimated useful lives, which are five
years. Leasehold improvements are amortized using the straight-line method
over the shorter of their estimated useful lives or the lease term.
The Financial Accounting Standards Board (FASB) issued a new standard, SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which provides guidance on when to
recognize and how to measure impairment losses of long-lived assets and
certain identifiable intangibles and how to value long-lived assets to be
disposed of. The adoption of this new statement is not expected to have a
material impact on the Company's consolidated financial position or results
of operations. The Company is required to adopt this new standard for its
year ended December 31, 1996.
7. Financial Instruments
The Company adopted SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," in 1995. SFAS No. 107 requires all entities to disclose the
estimated fair value of their assets and liabilities considered to be
financial instruments. Financial instruments consist primarily of
securities, loans and deposits. The Company has provided such financial
statement disclosures in note L.
(Continued)
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
8. Income Taxes
Deferred income taxes are provided on temporary differences between amounts
reported for financial statement and tax purposes in accordance with SFAS
No. 109, "Accounting for Income Taxes" (see note I).
9. Advertising Costs
The Company's advertising costs are expensed as incurred.
10. Consolidated Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and interest-bearing deposits at banks.
11. Earnings Per Share
Earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the year, including the
effects of dilutive stock warrants. The weighted average number of common
shares outstanding was 2,312,625 and 2,243,562 for the nine months ended
September 30, 1996 and 1995, respectively, and 2,245,183, 2,234,860 and
2,265,961 for the years ended December 31, 1995, 1994 and 1993,
respectively.
12. Reclassifications
Certain prior year amounts have been reclassified to conform to current
period presentation.
NOTE C - RESTRICTED CASH BALANCES
Aggregate cash reserves of approximately $275 at September 30, 1996 and $308
and $125 at December 31, 1995 and 1994, respectively, were maintained to
satisfy federal regulatory requirements.
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE D - INVESTMENT SECURITIES
The carrying amounts of investment securities at their carrying value as
shown in the consolidated balance sheets of the Company and their
approximate market values are as follows:
September 30, 1996
Gross Gross Fair
Amortized unrealized unrealized market
cost gains losses value
(unaudited)
Held to maturity
Municipal bonds ............ $ 1,221 $ -- $ 2 $ 1,219
Corporate and utility bonds 3,566 -- 3 3,563
Mortgage-backed securities . 4,921 -- 71 4,850
-------- -------- -------- --------
$ 9,708 $ -- $ 76 $ 9,632
======== ======== ======== ========
Available for sale
U.S. Government securities . $ 6,531 $ -- $ 23 $ 6,508
Federal Reserve Bank stock . 317 -- -- 317
Federal Home Loan Bank stock 750 -- -- 750
Corporate bonds ............ 740 -- 10 730
-------- -------- -------- --------
$ 8,338 $ -- $ 33 $ 8,305
======== ======== ======== ========
December 31, 1995
Gross Gross Fair
Amortized unrealized unrealized market
cost gains losses value
Held to maturity
Municipal bonds ............ $ 1,939 $ -- $ 1 $ 1,938
Corporate and utility bonds 4,643 11 -- 4,654
Mortgage-backed securities . 3,456 -- 32 3,424
-------- -------- -------- --------
$ 10,038 $ 11 $ 33 $ 10,016
======== ======== ======== ========
Available for sale
U.S. Government securities . $ 7,004 $ 28 $ -- $ 7,032
Federal Reserve Bank stock . 307 -- -- 307
Federal Home Loan Bank stock 455 -- -- 455
-------- -------- --------
$ 7,766 $ 28 $ -- $ 7,794
======== ======== ======== ========
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE D - INVESTMENT SECURITIES - Continued
December 31, 1994
Gross Gross Fair
Amortized unrealized unrealized market
cost gains losses value
Held to maturity
U.S. Government securities .... $ 5,024 $ -- $ 194 $ 4,830
Municipal bonds ............... 1,952 -- 55 1,897
Corporate and utility bonds ... 3,128 -- 25 3,103
Mortgage-backed securities .... 4,144 -- 210 3,934
-------- -------- -------- --------
$ 14,248 $ -- $ 484 $ 13,764
======== ======== ======== ========
December 31, 1994
Gross Gross Fair
Amortized unrealized unrealized market
cost gains losses value
Available for sale
Federal Reserve Bank stock .... $ 307 $ -- $ -- $ 307
Federal Home Loan Bank stock .. 1,925 -- -- 1,925
-------- -------- -------- --------
$ 2,232 $ -- $ -- $ 2,232
======== ======== ======== ========
There were no sales of investment securities during any of the periods
presented. Purchases of the Federal Home Loan Bank stock occurred in
proportion to the amount of Federal Home Loan Bank borrowings outstanding.
The maturities of investment securities are as follows:
September 30, 1996 December 31, 1995
Amortized Market Amortized Market
cost value cost value
(unaudited)
Held to maturity
Due in one year or less ....... $ 1,305 $ 1,303 $ 2,391 $ 2,403
Due from one to five years .... 7,088 7,012 6,221 6,198
Due from five to ten years .... 1,315 1,317 719 709
Due after ten years ........... -- -- 707 706
-------- -------- --------
$ 9,708 $ 9,632 $ 10,038 $ 10,016
======== ======== ======== ========
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE D - INVESTMENT SECURITIES - Continued
September 30, 1996 December 31, 1995
Amortized Market Amortized Market
cost value cost value
(unaudited)
Available for sale
Due in one year or less ..... $ 2,509 $ 2,510 $ 3,010 $ 3,007
Due from one to five years .. 4,762 4,728 3,994 4,025
No maturity date ............ 1,067 1,067 762 762
-------- -------- -------- --------
$ 8,338 $ 8,305 $ 7,766 $ 7,794
======== ======== ======== ========
On November 15, 1995, the FASB issued a special report entitled "A Guide to
Implementation of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities." This guide allows enterprises to reassess the
appropriateness of the classification of all securities held. A one-time
reassessment was permitted on one day between November 15, 1995 and December
31, 1995. Reclassifications from the held-to-maturity category that result
from this one-time reassessment will not call into question the intent of an
enterprise to hold other debt and equity securities to maturity in the
future.
Based on this special report, on December 20, 1995, the Company reclassified
certain securities from the held-to-maturity category to the
available-for-sale category. The transfer was made at fair value and
resulted in an estimated net unrealized gain of $28 and an increase in
retained earnings of $18 based on current market values.
NOTE E - LOANS
A summary of the Company's outstanding loans is as follows:
September 30, December 31,
1996 1995 1994
(unaudited)
Commercial loans ........................... $ 88,041 $ 94,282 $ 76,279
Consumer installment loans ................. 5,915 6,421 6,328
-------- -------- --------
93,956 100,703 82,607
Less allowance for possible loan losses 1,239 959 1,259
-------- -------- --------
Total loans, net ........................... $ 92,717 $ 99,744 $ 81,348
======== ======== ========
(Continued)
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE E - LOANS - Continued
Nonaccrual loans amounted to $1,590 at September 30, 1996 and $1,009 and
$2,152 at December 31, 1995 and 1994, respectively. Interest income that
would have been recorded under the original terms of such loans totalled
approximately $108 and $128 for the nine months ended September 30, 1996 and
1995, respectively, and $138, $146 and $183 for the years ended December 31,
1995, 1994 and 1993, respectively. No interest income has been recognized on
nonaccrual loans for any of the periods presented.
The loan portfolio had variable interest rates on principal balances of
approximately $48,886 at September 30, 1996 and $58,762 and $49,208 at
December 31, 1995 and 1994, respectively, and fixed interest rates on
principal balances of approximately $45,070 at September 30, 1996 and
$41,941 and $33,399 at December 31, 1995 and 1994, respectively. The
weighted average variable rate was 9.44% at September 30, 1996 and 9.55% and
8.40% at December 31, 1995 and 1994, respectively, and the fixed rate was
8.94% at September 30, 1996 and 9.38% and 9.25% at December 31, 1995 and
1994, respectively.
Loan participations serviced for others were $2,825 at September 30, 1996
and $2,333 and $2,052 at December 31, 1995 and 1994, respectively.
Loans outstanding to directors, principal shareholders and executive
officers and their affiliated interests were $2,067 at September 30, 1996
and $2,846 and $2,383 at December 31, 1995 and 1994, respectively. Such
loans are made in the ordinary course of business at the Bank's normal
credit terms and do not present more than a normal risk of collection.
During the nine months ended September 30, 1996, loans of approximately $984
were disbursed to certain directors, principal shareholders and executive
officers or their affiliated interests, while principal repayments of
approximately $1,763 were received. For the year ended December 31, 1995,
disbursements amounted to approximately $1,223, while payments approximated
$760.
A summary of the activity in the allowance for possible loan losses is as
follows:
September 30, December 31,
1996 1995 1995 1994 1993
(unaudited)
Balance at beginning of period $ 959 $ 1,259 $ 1,259 $ 1,584 $ 1,374
Provision charged to
operating income .......... 405 644 851 -- 690
Loans charged off, net of
recoveries ................ (125) (286) (1,151) (325) (480)
------- ------- ------- ------- -------
Balance at end of period ..... $ 1,239 $ 1,617 $ 959 $ 1,259 $ 1,584
======= ======= ======= ======= =======
(Continued)
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE E - LOANS - Continued
On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118. SFAS No.
114 requires that a creditor measure impairment based on the present value
of expected future cash flows discounted at the loan's effective interest
rate, except that as a practical expedient, a creditor may measure
impairment based on a loan's observable market price, or the fair value of
the collateral if the loan is collateral dependent. Regardless of the
measurement method, a creditor must measure impairment based on the fair
value of the collateral when the creditor determines that foreclosure is
probable. SFAS No. 118 allows creditors to use existing methods for
recognizing interest income on impaired loans.
The Company identifies a loan as impaired when it is probable that interest
and principal will not be collected according to the contractual terms of
the loan agreement. Management evaluates all loans 90 days past due for
impairment. The accrual of interest is discontinued on such loans, and no
income is recognized until all recorded amounts of interest and principal
are recovered in full.
Loan impairment is measured by estimating the expected future cash flows and
discounting them at the respective effective interest rate or the fair value
of the collateral if the loan is collateral dependent. The amount of the
recorded investment in such loans in excess of their fair value is charged
off at disposition. The recorded investment in these loans and the valuation
for credit losses related to loan impairment are as follows:
September 30, December 31,
1996 1995
(unaudited)
Principal amount of impaired loans ..... $ 1,570 $ 694
Less valuation allowance ............. 485 199
-------- --------
$ 1,085 $ 495
======== ========
The average recorded investment in impaired loans during the nine months
ended September 30, 1996 and the year ended December 31, 1995 was $1,132 and
$1,285, respectively. Total cash collected on impaired loans during the nine
months ended September 30, 1996 and the year ended December 31, 1995 was
$240 and $1,042, respectively, of which $240 and $1,042, respectively, was
credited to the principal balance outstanding on such loans and $-0- was
recognized as interest income. Interest that would have been accrued on
impaired loans during the nine months ended September 30, 1996 and the year
ended December 31, 1995 was $82 and $124, respectively. Interest income
recognized was $-0-.
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following:
September 30, December 31,
1996 1995 1994
(unaudited)
Furniture and fixtures ........................... $ 694 $ 720 $ 537
Leasehold improvements ........................... 611 597 528
-------- -------- --------
1,305 1,317 1,065
Less accumulated depreciation and amortization 1,024 1,032 973
-------- -------- --------
$ 281 $ 285 $ 92
======== ======== ========
Depreciation and amortization expense amounted to $68 and $36 for the nine
months ended September 30, 1996 and 1995, respectively, and $55, $47 and $52
for the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE G - CERTIFICATES OF DEPOSIT
At September 30, 1996, scheduled maturities of certificates of deposit are
as follows:
Year ended September 30,
(unaudited)
1997 $ 29,825
1998 2,891
1999 2,934
2000 11,020
2001 758
------------
$ 47,428
============
Certificates of deposit outstanding with a face value greater than or equal
to $100,000 totaled $10,395 at September 30, 1996 and $11,879 and $9,947 at
December 31, 1995 and 1994, respectively.
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE H - BORROWED FUNDS
The Company has established credit arrangements with the Federal Home Loan
Bank of Pittsburgh consisting of a note payable for $2,000 and a Flexline
commitment of approximately $16,152. Loans serve as collateral for any
transactions executed under the arrangements. The note payable matures in
1998.
At September 30, 1996, the outstanding balance of the note payable was
$2,000. The maximum level of borrowings outstanding during 1996 was $5,750.
The amount outstanding under the Flexline arrangement at September 30, 1995
was $1,750. The weighted average fixed interest rate on 1996 borrowings was
5.9%.
At December 31, 1995, the outstanding balance of the note payable was
$2,000. The maximum level of borrowings outstanding during 1995 was $2,000.
The amount outstanding under the Flexline arrangement at December 31, 1995
was $-0-. The weighted average fixed interest rate on 1995 borrowings was
6.35%.
At December 31, 1994, the outstanding balance of the note payable was
$2,000. The maximum level of borrowings outstanding during 1994 was $8,471.
The amount outstanding under the Flexline arrangement at December 31, 1994
was $6,471. The weighted average fixed interest rate on 1994 borrowings was
5.5%.
NOTE I - INCOME TAXES
The provision for income taxes is as follows:
September 30, December 31,
1996 1995 1995 1994 1993
(unaudited)
Federal
Current .... $ 408 $ 415 $ 220 $ 405 $ 159
Deferred ... (107) (93) 193 107 86
------- ------- ------- ------- -------
301 322 413 512 245
State and local
Current .... -- -- 5 -- --
------- ------- ------- ------- -------
Total ......... $ 301 $ 322 $ 418 $ 512 $ 245
======= ======= ======= ======= =======
(Continued)
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE I - INCOME TAXES - Continued
The Company's effective income tax rate was different than the statutory
federal income tax rate as follows:
September 30, December 31,
1996 1995 1995 1994 1993
(unaudited)
Income before income taxes .. $ 934 $ 944 $ 1,236 $ 1,596 $ 766
======= ======= ======= ======= =======
Income tax expense at federal
statutory rate of 34% .... $ 318 $ 321 $ 420 $ 543 $ 260
Other ....................... (17) 1 (2) (31) (15)
------- ------- ------- ------- -------
Provision for income taxes .. $ 301 $ 322 $ 418 $ 512 $ 245
======= ======= ======= ======= =======
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. Deferred taxes are
comprised of the following:
September 30, December 31,
1996 1995 1994
(unaudited)
Loan loss reserves ............................. $ 163 $ 50 $ 240
Depreciation and amortization .................. 18 17 6
OREO reserves .................................. 26 26 19
Unrealized gain on securities available for sale (9) (9) --
Other .......................................... (97) 6 28
------- ------- -------
Total deferred tax assets .............. $ 101 $ 90 $ 293
======= ======= =======
Management believes the existing deductible temporary differences will
reverse during periods in which the Company generates net taxable income.
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE J - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit and both involve, to varying degrees, elements
of credit risk that are not recognized in the consolidated financial
statements. Exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Company uses the same credit policies in making these commitments as it does
for on-balance-sheet instruments.
The standby letters of credit are instruments issued by the Bank that
guarantee the beneficiary payment by the Bank in the event of default by the
Bank's customer in the nonperformance of an obligation or service.
Commitments outstanding under standby letters of credit were approximately
$916 as of September 30, 1996 and $575 and $846 at December 31, 1995 and
1994, respectively.
The Company had outstanding commitments to fund commercial loans of
approximately $18,699 at September 30, 1996 and $13,477 and $13,608 at
December 31, 1995 and 1994, respectively.
Loans totaling approximately 50% of the total loans outstanding at September
30, 1996 and 50% and 60% of the total loans outstanding at December 31, 1995
and 1994, respectively, are collateralized by mortgages on real estate
primarily located in the various counties surrounding Philadelphia. The
primary purpose of these loans may not be related to the real estate, but
the real estate is part of the collateral. The Company is able to decrease
its credit exposure by an amount equal to the appraised value of the
collateral. Additionally, the Company maintains the allowance for possible
loan losses to address any estimated depreciation in the collateral value on
impaired loans that might impact realizability of the related loan balance.
NOTE K - COMMITMENTS AND CONTINGENCIES
During 1991, the Company entered into a noncancellable operating lease for
the Philadelphia branch location and administrative offices at 1601 Market
Street. The lease expires August 15, 1997 and has two five-year options to
renew. Total minimum payments required are approximately $190 for the year
ended September 30, 1996.
The Company is subject to various legal actions and proceedings. In the
opinion of management, after consultation with legal counsel, the resolution
of these matters will not have a material adverse affect on the Company's
reported consolidated financial position or results of operations.
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE L - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires disclosure of the estimated fair value of the
Company's assets and liabilities considered to be financial instruments. As
with most financial institutions, the majority of the Company's assets and
liabilities are considered financial instruments as defined in SFAS No. 107.
However, many of such instruments lack an available trading market, as
characterized by a willing buyer and seller engaging in an exchange
transaction. Also, it is the Bank's general practice and intent to hold the
preponderance of its financial instruments to maturity and not to engage in
trading or sales activities. Therefore, the Company had to use significant
estimates and present value calculations to prepare this disclosure.
Changes in the assumptions or methodologies used to estimate fair value may
materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the
wide range of permitted assumptions and methodologies in the absence of
active markets. This lack of uniformity gives rise to a high degree of
subjectivity in estimating the fair value of financial instruments.
Fair values have been estimated using data which management considered the
best available.
Fair value of loans and deposits with floating interest rates is generally
presumed to approximate the recorded carrying amounts.
The estimation methodologies, resulting fair values and recorded carrying
amounts at December 31, 1995 were as follows:
Fair value of financial instruments actively traded in a secondary market
has been valued using quoted market prices.
December 31, 1995
Estimated
fair Carrying
value amount
Cash and due from banks ................ $ 5,457 $ 5,457
Federal funds sold ..................... 5,400 5,400
Investment securities .................. 17,810 17,832
(Continued)
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE L - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
Fair value of financial instruments with stated maturities has been
estimated using present value cash flow, discounted at a rate approximating
current market rates for similar assets and liabilities.
December 31, 1995
Estimated
fair Carrying
value amount
Deposits with stated maturities $51,288 $50,500
Short-term borrowings ......... 2,000 2,000
Fair value of financial instrument liabilities with no stated maturities has
been estimated to equal the carrying amount (the amount payable on demand)
totalling $65,000 at December 31, 1995.
The fair value of the loan portfolio has been estimated using present value
cash flow, discounted at an interest rate that gives effect to estimated
prepayment risk and credit loss factors.
December 31, 1995
Estimated
fair Carrying
value amount
Loans receivable ........ $100,614 $100,704
There is no material difference between the carrying amount and estimated
fair value of off-balance-sheet items totalling $18,699 and $13,477 at September
30, 1996 and December 31, 1995, respectively. Such off-balance-sheet items are
primarily comprised of unfunded loan commitments which are generally priced at
market at the time of the commitment.
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE M - CAPITAL TRANSACTIONS
The Company issued stock warrants to certain officers, directors and
significant shareholders to purchase an aggregate of approximately 1,098,505
shares of common stock. These warrants are exercisable at a price of $4 per
share and expire through February 2001. At September 30, 1996, there were
753,337 exercisable warrants outstanding to purchase 753,337 shares of
common stock. In 1996, 138,334 warrants were exercised and -0- warrants
expired. At December 31, 1995, there were 891,671 exercisable warrants
outstanding to purchase 891,671 shares of common stock. In 1995, 25,667
warrants were exercised and 36,662 warrants expired. At December 31, 1994,
there were 954,000 exercisable warrants outstanding to purchase 954,000
shares of common stock. In 1994, -0- warrants were exercised and -0-
warrants expired.
The FASB issued a new standard, SFAS No. 123, "Accounting for Stock-Based
Compensation," which contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation
cost at the grant date based on the fair value of the award. Compensation is
then recognized over the service period, which is usually the vesting
period. Alternatively, the standard permits entities to continue accounting
for employee stock options and similar equity instruments under Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined
in SFAS No. 123 had been applied. The Company has not determined which
method it will follow in the future, but anticipates following APB Opinion
No. 25. The Company will be required to adopt the new standard for its year
ended December 31, 1996.
NOTE N - REGULATORY MATTERS
The Bank Holding Company Act of 1956 restricts the amount of dividends the
Company can pay. Accordingly, dividends should generally only be paid out of
current earnings, as defined.
The Pennsylvania Banking Code of 1965 restricts the amount of dividends the
Bank can pay. Accordingly, dividends may be declared and paid only out of
net earnings, as defined.
Where surplus, as defined, is less than 50% of the amount of the Bank's
capital, no dividend may be paid or declared without the prior approval of
the Pennsylvania Department of Banking (the Department) until the surplus,
as defined, is equal to 50% of the total amount of capital. Where surplus,
as defined, is less than 100% of capital, until such time as surplus equals
capital, the Bank must transfer at least 10% of its net earnings to surplus,
as defined, prior to the declaration of a dividend. The Department has the
power to issue orders prohibiting the payment of dividends where such
payment is deemed to be an unsafe or unsound banking practice.
(Continued)
<PAGE>
United Valley Bancorp and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1996 and 1995 (unaudited)
and
December 31, 1995, 1994 and 1993
(in thousands, except share data)
NOTE N - REGULATORY MATTERS - Continued
The Company and the Bank are also required to maintain minimum amounts of
Tier 1 and total capital to total "risk-weighted" assets and a minimum Tier
1 leverage ratio, as defined by the banking regulators. At September 30,
1996, they were required to have minimum Tier 1 and total capital ratios of
4% and 8%, respectively, and a minimum Tier 1 leverage ratio of 3% plus an
additional cushion of 100 to 200 basis points. The Company's and the Bank's
Tier 1 and total capital ratios at September 30, 1996 were 14.52% and
14.42%, and 15.92% and 15.82%, respectively, and the entities' Tier 1
leverage ratios were 10.07% and 10.00%, respectively. The Company's
management believes that, under current regulations, it will continue to
meet its minimum capital requirement in the foreseeable future.
NOTE O - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS
September 30, December 31,
1996 1995
(unaudited)
Assets
Investment in bank subsidiary ...................... $ 12,752 $ 11,727
Investment in joint venture ........................ 111 --
--------- ---------
$ 12,863 $ 11,727
========= =========
Liabilities and shareholders' equity
Liabilities ........................................ $ -- $ --
Shareholders' equity
Common stock ................................... 5,526 5,180
Capital surplus ................................ 5,362 5,154
Retained earnings .............................. 2,008 1,375
Net unrealized gain (loss) on
securities available for sale ............... (33) 18
--------- ---------
$ 12,863 $ 11,727
========= =========
CONDENSED STATEMENTS OF INCOME
Noncash dividend from bank subsidiary ................. $ 132 $ --
Equity in undistributed net income of bank subsidiary . 524 818
Unrealized loss on investment in joint venture ........ (23) --
--------- ---------
$ 633 $ 818
========= =========
<PAGE>
ANNEX A
MERGER AGREEMENT
AGREEMENT AND PLAN OF MERGER
AGREEMENT and PLAN OF MERGER, dated this 5th day of September, 1996 (the
"Plan"), by and among United Valley Bancorp, Inc. ("UVHC"), United Valley Bank
("United Valley"), JeffBanks, Inc. ("JBI") and JeffBanks Acquisitioncorp., Inc.
("JBI Merger Sub").
RECITALS:
A. UVHC: UVHC is a corporation, duly organized and validly existing in
good standing under the laws of the Commonwealth of Pennsylvania, with its
headquarters located in Philadelphia, Pennsylvania. UVHC's authorized capital
stock consists of 6,000,000 shares of Class A common stock, $2.50 par value per
share ("UVHC Class A Common Stock") and 500,000 shares of Class B Common Stock,
$2.50 par value per share ("UVHC Class B Common Stock") (collectively the UVHC
Class A Common Stock and UVHC Class B Common Stock are referred to as "UVHC
Common Stock"). As of the date hereof, there are outstanding (i) 2,210,261
shares of UVHC Class A Common Stock, (ii) no shares of UVHC Class B Common Stock
and (iii) warrants to purchase 753,335 shares of UVHC Class A Common Stock at an
exercise price of $4.00 per share.
B. United Valley: United Valley is a banking corporation, duly
authorized and validly existing in good standing under the laws of the
Commonwealth of Pennsylvania, with its headquarters located in Philadelphia,
Pennsylvania. United Valley's authorized capital stock consists of 6,000,000
shares of Class A Common Stock, $2.50 par value per share ("United Valley Class
A
<PAGE>
Common Stock") and 500,000 shares of Class B Common Stock, $2.50 par value per
share ("United Valley Class B Common Stock") (collectively the United Valley
Class A Common Stock and the United Valley Class B Common Stock are referred to
as the "United Valley Common Stock"). As of the date hereof, there are
outstanding (i) 2,210,261 shares of United Valley Class A Common Stock, all of
which are owned by UVHC, and (ii) no shares of United Valley Class B Common
Stock.
C. JBI: JBI is a corporation duly organized and validly existing in
good standing under the laws of the Commonwealth of Pennsylvania with its
principal executive offices located in Philadelphia, Pennsylvania. JBI's
authorized capital stock consists of 10,000,000 shares of common stock, $1.00
par value per share ("JBI Common Stock"). As of the date hereof, there are
outstanding 3,957,198 shares of JBI Common Stock.
D. JBI Merger Sub: JBI Merger Sub is a corporation duly organized and
validly existing in good standing under the laws of the Commonwealth of
Pennsylvania with its principal executive offices located in Philadelphia,
Pennsylvania. JBI Merger Sub's authorized capital stock consists of 100 shares
of Common Stock, $.01 par value per share ("JBI Merger Sub Common Stock"). As of
the date hereof, there are outstanding 100 shares of JBI Merger Sub Common
Stock, all of which are owned by JBI.
E. Merger and Bank Acquisition: Pursuant to this Plan, the parties have
agreed that JBI will acquire UVHC and United Valley by means of a merger of JBI
Merger Sub with and into UVHC
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(the "Merger") as a result of which UVHC will become a direct wholly-owned
subsidiary of JBI and United Valley will become a second-tier subsidiary of JBI
(the "Bank Acquisition").
F. Approvals: The Board of Directors of each of UVHC, United Valley,
JBI and JBI Merger Sub has approved, at meetings of each of such Boards of
Directors, this Plan and has authorized the execution hereof in counterparts.
G. Fairness Opinion: UVHC has received the written opinion of Danielson
Associates, Inc., in form and substance satisfactory to UVHC, as to the fairness
of the Merger and Bank Acquisition to the shareholders of UVHC from a financial
point of view.
In consideration of their mutual premises and obligations, the parties
hereto, intending to be legally bound, adopt and make this Plan and prescribe
the terms and conditions hereof and the manner and basis of carrying it into
effect, which shall be as follows:
I. THE MERGER AND BANK ACQUISITION.
In the event that all of the conditions set forth in Article VI hereof have been
satisfied or waived:
(A) The Continuing Corporation. On the Merger Effective Date (as
hereinafter defined), JBI Merger Sub shall merge with and into UVHC, the
separate existence of JBI Merger Sub shall cease and UVHC (sometimes hereinafter
referred to as the "Continuing Corporation") shall survive. The name of the
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<PAGE>
continuing Corporation shall be "JeffBanks Acquisitioncorp., Inc."
(B) Rights, Etc. Upon consummation of the Merger, the Continuing
Corporation shall thereupon and thereafter possess all of the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, of UVHC and JBI Merger Sub; and all property, real, personal and mixed
and all debts due on whatever account, and all other choses in action, all and
every other interest of or belonging to or due to each of the corporations so
merged, shall be deemed to be vested in the Continuing Corporation without
further act or deed; and the title to any real estate or any interest therein,
vested in any of such corporations, shall not revert or be in any way impaired
by reason of the Merger as provided by the laws of the Commonwealth of
Pennsylvania.
(C) Liabilities. Upon consummation of the Merger, the Continuing
Corporation shall thenceforth be responsible and liable for all the liabilities,
obligations and penalties of each of the corporations so merged.
(D) Articles of Incorporation; Bylaws; Directors; Officers. The
Articles of Incorporation and Bylaws of the Continuing Corporation shall be
those of JBI Merger Sub, as in effect immediately prior to the Merger Effective
Date (as hereinafter defined). The directors and officers of JBI Merger Sub in
office immediately prior to the Merger Effective Date shall be the directors and
officers of the Continuing Corporation, together
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with such additional directors and officers as may thereafter be elected, who
shall hold office until such time as their successors are elected and qualified.
On or before the Merger Effective Date, JBI shall cause the election or
appointment of two (2) of the directors of United Valley in office immediately
prior to the Merger Effective Date as additional directors of JBI and three (3)
of the directors of United Valley in office immediately prior to the Merger
Effective Date as additional directors of Jefferson Bank, ("Jefferson"), a
wholly-owned subsidiary of JBI. The individuals elected or appointed as
directors of JBI may be the same or different from those individuals elected or
appointed as directors of Jefferson.
(E) Merger Effective Date; Closing. The Merger shall become effective
upon the filing and acceptance of articles of merger by the Pennsylvania
Department of State (the "Merger Effective Date") which such articles of merger
shall be filed within ten (10) days after satisfaction of all conditions set
forth in Article VI, including, without limitation, the receipt of the
regulatory approvals referred to in Paragraphs (B) and (C) thereof unless
otherwise agreed to in writing by the parties hereto. All documents required by
the terms of this Plan to be delivered at or prior to consummation of the Merger
shall be exchanged by the parties at the closing of the Merger, which shall take
place contemporaneously with the closing of the Bank Acquisition (the
"Closing"), and which shall be held on the Merger Effective Date at the offices
of Jefferson, 1609 Walnut
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<PAGE>
Street, Philadelphia, Pennsylvania (or at such other location as may be mutually
agreed upon) at 10:00 a.m.
(F) Other Matters: Notwithstanding any term of this Plan to the
contrary, JBI may, in its discretion at any time prior to the Merger Effective
Date, designate a direct or indirect wholly-owned subsidiary to substitute for
JBI Merger Sub as a constituent corporation in the Merger by written notice to
UVHC so long as the exercise of this right does not materially adversely affect
the interests of the UVHC shareholders, or cause a material delay in
consummation of the transactions contemplated herein. JBI shall also have the
right to cause JBI Merger Sub or such substitute, to be the surviving
corporation of the Merger, so long as the exercise of such right does not have a
material adverse effect on the interests of the holders of the capital stock of
UVHC, or cause a material delay in, or otherwise adversely affect, consummation
of the transactions described herein. Nothing in this Plan shall be deemed to
restrict the ability of JBI or any of its subsidiaries to merge with or with and
into another entity so long as no such other transaction shall have a Material
Adverse Effect on the parties' ability to consummate the Bank Acquisition or
cause a material delay in, or otherwise adversely affect, consummation of the
transactions contemplated herein.
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<PAGE>
II. MERGER CONSIDERATION.
(A) Outstanding JBI Common Stock. The shares of JBI Common Stock issued
and outstanding immediately prior to the Merger Effective Date shall, on and
after the Merger Effective Date, remain issued and outstanding shares of JBI
Common Stock.
(B) Outstanding UVHC Common Stock. On the Merger Effective Date, each
share of UVHC Common Stock (excluding shares owned by UVHC) issued and
outstanding immediately prior to the Merger Effective Date shall, by virtue of
the Merger, automatically and without any action on the part of the holder
thereof, become and be converted into the right to receive .339 shares (subject
to possible adjustment as set forth in Article II, Paragraph I (the "Exchange
Ratio")) of JBI Common Stock. Any shares of UVHC Common Stock owned by UVHC
shall be canceled and retired upon the Merger Effective Date and no
consideration shall be issued in exchange therefor.
(C) Outstanding Shares of JBI Merger Sub. The shares of JBI Merger Sub
Common Stock issued and outstanding immediately prior to the Merger shall, by
virtue of and after the Merger, be converted into and thereafter constitute the
issued and outstanding shares of the capital stock of the Continuing
Corporation.
(D) Outstanding Shares of United Valley. The shares of United Valley
Common Stock issued and outstanding immediately prior to the Merger shall, on
and after the Merger, remain issued and outstanding shares of United Valley
Common Stock.
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<PAGE>
(E) Shareholder Rights; Stock Transfers. On the Merger Effective Date,
holders of UVHC Common Stock shall cease to be, and shall have no rights as,
shareholders of UVHC, other than to receive the Merger consideration provided
under Paragraph (B) above and Paragraph (F) below. After the Merger Effective
Date, there shall be no transfers on the stock transfer books of UVHC or the
Continuing Corporation of the shares of UVHC Common Stock which were issued and
outstanding immediately prior to the Merger Effective Date.
(F) Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of JBI Common Stock, and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued in the Merger. Instead, JBI
shall pay to each holder of UVHC Common Stock who would otherwise be entitled to
a fractional share of JBI Common Stock an amount in cash determined by
multiplying such fractional share of JBI Common Stock by the Index Price (as
hereinafter defined). As used herein, the term "Index Price" shall mean the
average of the daily closing prices for JBI Common Stock on the Nasdaq National
Market System ("Nasdaq NMS") for the twenty (20) consecutive full trading days
ending at the close of trading on the business day immediately prior to the
Merger Effective Date.
(G) Exchange Procedures. As promptly as practicable after the Merger
Effective Date, JBI shall send or cause to be sent to each former shareholder of
record of UVHC immediately prior to the Merger Effective Date transmittal
materials for use in
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<PAGE>
exchanging such shareholder's certificates of UVHC Common Stock for the
consideration set forth in Paragraphs (B) and (F) above. Any fractional share
checks which a UVHC shareholder shall be entitled to receive in exchange for
such shareholder's shares of UVHC Common Stock, and any dividends paid on any
shares of JBI Common Stock that such shareholder shall be entitled to receive
prior to the delivery to Chase Mellon Securities Transfer Company (the "Exchange
Agent") of such shareholder's certificates representing all of such
shareholder's shares of UVHC Common Stock will be delivered to such shareholder
only upon delivery to the Exchange Agent of the certificates representing all of
such shares (or indemnity satisfactory to JBI and the Exchange Agent, in their
judgement, if any of the certificates are lost, stolen or destroyed). No
interest will be paid on any such fractional share checks or dividends to which
the holder of such shares shall be entitled to receive upon such delivery. After
the Merger Effective Date, to the extent required by law, former shareholders of
record of UVHC shall be entitled to vote at any meeting of holders of JBI Common
Stock the number of whole shares of JBI Common Stock into which their respective
shares of UVHC Common Stock are converted, regardless of whether such holders
have exchanged their certificates representing UVHC Common Stock for
certificates representing JBI Common Stock in accordance with the provisions of
this Plan.
(H) Options and Warrants. Any valid option or warrant to
purchase shares of UVHC Common Stock (a "UVHC Warrant"),
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<PAGE>
outstanding and unexercised immediately prior to the Merger shall, by virtue of
the Merger, automatically and without any action on the part of the holder
thereof, (i) become and be converted into a warrant to purchase that number of
shares of JBI Common Stock as shall equal the Exchange Ratio multiplied by that
number of shares of UVHC Common Stock which such option or warrant entitled the
holder thereof to purchase, at an exercise price equal to the exercise price per
share of the UVHC Warrant divided by the Exchange Ratio; (ii) be amended to
delete the provision relating to termination of such warrant or option upon
termination of the directorship held by the warrant or option holder and (iii)
in the event that the Shelf Registration Statement (as such term is defined in
Article V, Paragraph (E) hereof) has not become effective on or before the
expiration date of any warrant, be amended to extend the expiration date of such
warrant until such date that the Shelf Registration Statement shall become
effective and for a period of thirty (30) days after notice of the effectiveness
of the Shelf Registration Statement shall be sent to the holder of the warrant
at his address as it appears on the books and records of JBI (hereinafter
collectively referred to as the "JBI Warrants"). Any JBI Warrant to purchase a
fractional share which results from application of the Exchange Ratio shall be
cancelled. The maximum number of shares of UVHC Common Stock which are issuable
upon exercise of the warrants referred to above, as of the date hereof, has been
Previously
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<PAGE>
Disclosed (as such term is defined in Paragraph H(3) of Article VIII).
(I) Anti-Dilution Provisions. In the event JBI changes the number of
shares of JBI Common Stock issued and outstanding prior to the Merger Effective
Date as a result of a stock split, stock dividend, recapitalization or similar
transaction with respect to the outstanding JBI Common Stock and the record date
therefor shall be prior to the Merger Effective Date, the Exchange Ratio shall
be proportionately adjusted.
III. ACTIONS PENDING MERGER.
After the date hereof but prior to the consummation of the Merger, without the
prior written consent or approval of the Chairman or President of JBI, neither
United Valley nor UVHC will:
(A) make, declare or pay any dividend;
(B) enter into any employment contracts with, increase the
rate of compensation of (except in accordance with existing policy consistent
with past practice), or pay or agree to pay any bonus to, any of its directors,
officers or employees, except in accordance with plans or agreements existing,
as Previously Disclosed and as in effect on the date hereof;
(C) enter into or modify (except as may be required by applicable law)
any pension, retirement, stock option, stock purchase, savings, profit sharing,
deferred compensation, consulting, bonus, group insurance, or other employee
benefit,
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<PAGE>
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees, including without limitation taking any action that accelerates (i)
the vesting or exercise of any benefits payable thereunder; or (ii) the right to
exercise any employee stock options outstanding thereunder.
(D) dispose of or discontinue any portion of its assets, business or
properties (except for the sale of foreclosed properties, or properties received
in lieu of foreclosure, in the ordinary course of business, consistent with past
practice), which is material to United Valley or UVHC, or merge or consolidate
with, or acquire all or any substantial portion of, the business or property of
any other entity (except for properties received through, or in lieu of,
foreclosure in the ordinary course of business, consistent with past practice);
(E) amend its Articles of Incorporation or Bylaws;
(F) take any other action or engage in any loan, deposit,
investment or other transaction not in the usual, regular and ordinary course of
business consistent with past practice, including, but not limited to, (i)
significantly changing asset liability sensitivity, (ii) making loans which are
not consistent with past practice, (iii) purchasing securities or (iv) entering
into any material contract, except for this Plan, to be performed after the date
hereof; or
(G) agree to take any of the foregoing actions.
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<PAGE>
IV. REPRESENTATIONS AND WARRANTIES.
Each of United Valley and UVHC hereby represents and warrants to JBI Merger Sub
and JBI, and each of JBI Merger Sub and JBI hereby represents and warrants to
United Valley and UVHC as follows:
(A) the facts set forth in the Recitals of this Plan with
respect to it are true and correct;
(B) the outstanding shares of it are validly issued and
outstanding, fully paid and nonassessable, and subject to no
preemptive rights;
(C) it and each of its subsidiaries is duly qualified to do business
and is in good standing in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified. It has in effect all federal, state and
local authorizations, licenses and approvals necessary for it to own or lease
its properties and assets and to carry on its business as it is now conducted;
(D) except as Previously Disclosed, in the case of United
Valley and UVHC, it does not have any subsidiaries;
(E) subject to receipt of any necessary approval by its shareholders
and the regulatory approvals referred to in Paragraphs (B) and (C) of Article
VI, this Plan has been authorized by all necessary corporate action by it and is
a valid and binding agreement of it enforceable against it in accordance with
its terms, subject to bankruptcy, insolvency, receivership, conservatorship and
other laws of general applicability relating
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<PAGE>
to or affecting creditors rights and to general equity
principles;
(F) the execution, delivery and performance of this Plan and the
consummation of the transactions contemplated hereby by it, will not constitute
(i) a breach or violation of, or a default under, any law, rule or regulation or
any judgment, decree, order, governmental permit or license, or agreement,
indenture or instrument of it or of any of its subsidiaries or to which it or
any of its subsidiaries or properties is subject or by which any of them are
bound, which breach, violation or default is reasonably likely to have, either
by itself or in the aggregate with one or more other events, occurrences or
circumstances, a Material Adverse Effect (as such term is defined in Paragraph
H(2) of Article VIII) on it, or (ii) a breach or violation of, or a default
under, its Articles of Incorporation or Bylaws; and the consummation of the
transactions contemplated by this Plan will not require any consent or approval
under any such law, rule, regulation, judgment, decree, order, governmental
permit or license or, except as Previously Disclosed, the consent or approval of
any other party to any such agreement, indenture or instrument, other than the
required approvals of applicable regulatory authorities referred to in
Paragraphs (B) and (C) of Article VI.
(G) except as Previously Disclosed, its Annual Report, for the fiscal
year ended December 31, 1995, its Quarterly Report for the fiscal quarter ended
June 30, 1996 and all other documents,
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<PAGE>
as amended prior to the date of this Plan, delivered or to be delivered to
shareholders (in each such case, a "Financial Report" or, collectively, the
"Financial Reports"), did not and will not contain any untrue statement of
material fact or omit to state a 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; and each of the balance sheets in or
incorporated by reference into the Financial Reports (including the related
notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which it relates as of its date
and each of the statements of income and changes in shareholders' equity and
cash flows or equivalent statements in the Financial Reports (including any
related notes and schedules thereto) fairly presents and will fairly present the
results of operations of the entity or entities to which it relates for the
periods set forth therein, in each case in accordance with generally accepted
accounting principles consistently applied to banks and bank holding companies
during the periods involved, except as may be noted therein, subject to normal
and recurring year-end audit adjustments in the case of unaudited statements;
and it has previously delivered to the other parties true and complete copies of
its Financial Reports for all periods ended after January 1, 1993 through the
date of this Plan;
(H) except as Previously Disclosed, since December 31, 1995, or, with
respect to loans, since August 31, 1996 (i) it and
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<PAGE>
each of its subsidiaries have conducted their respective businesses in the
ordinary and usual course (excluding the incurrence of expenses related to this
Plan and the transactions contemplated hereby) and (ii) no event has occurred
which, either by itself or in the aggregate with one or more other events,
occurrences or circumstances, is reasonably likely to have a Material Adverse
Effect on it;
(I) except as Previously Disclosed, no litigation, proceeding, or
controversy before any court or governmental agency is pending which, either by
itself or in the aggregate with one or more other events, occurrences or
circumstances, is reasonably likely to have a Material Adverse Effect on it and,
to the best of its knowledge, no such litigation, proceedings or controversy has
been threatened; and except as Previously Disclosed, neither it nor any of its
subsidiaries is a party to, or subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, or has adopted any board resolution at the request of,
any federal, state or other government, governmental agency or authority charged
with the supervision or regulation of financial institutions or their holding
companies or the issuance of securities or engaged in the insurance of deposits
(including, without limitation, the Pennsylvania Department of Banking, the
Board of Governors of the Federal Reserve System and the Federal Deposit
Insurance Corporation (the "FDIC")) or the supervision or regulation of it or
any of its
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<PAGE>
subsidiaries or properties (collectively, the "Regulatory Authorities"); and
except as Previously Disclosed, neither it nor any of its subsidiaries has been
advised by any Regulatory Authority that such authority is contemplating issuing
or requesting (or is considering the appropriateness of issuing or requesting)
any such order, decree, agreement, memorandum of understanding, commitment
letter or similar submission or any such resolutions;
(J) except as Previously Disclosed, it and each of its subsidiaries is
in material compliance, in the conduct of its business, with all applicable
federal, state and local statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable thereto or to the employees conducting
such businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure Act and all other applicable fair lending laws relating to
discriminatory business practices; and except as Previously Disclosed, it and
each of its subsidiaries has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations with, all
Regulatory Authorities that are required in order to permit them to conduct
their businesses substantially as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect and, to the best of its knowledge, no suspension or cancellation of any
of them is threatened; and except as Previously Disclosed,
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<PAGE>
neither it nor any of its subsidiaries has received notification or
communication from any Regulatory Authority (i) asserting that it or any of its
subsidiaries is not in material compliance with any of the statutes,
regulations, or ordinances which such Regulatory Authority enforces or (ii)
threatening to revoke any license, franchise, permit, or governmental
authorization or (iii) threatening or contemplating revocation or limitation of,
or which would have the effect of revoking or limiting, federal deposit
insurance (nor, to its knowledge, do any grounds for any of the foregoing
exist);
(K) except as Previously Disclosed or set forth in the Financial
Reports, and except for this Plan and arrangements made in the ordinary course
of business, in the case of United Valley and UVHC only, it is not bound by any
material contract to be performed after the date hereof;
(L) except as Previously Disclosed, in the case of United Valley and
UVHC only, neither it nor any of its subsidiaries is in default under any
material contract, agreement, commitment, arrangement, lease, insurance policy,
or other instrument to which it is a party, by which its respective assets,
business, or operations may be bound or affected, or under which it or its
respective assets, business, or operations receives benefits, and there has not
occurred any event that, with the lapse of time or the giving of notice or both,
would constitute such a default;
(M) except as Previously Disclosed, in the case of UVHC
only, it and each of its subsidiaries has good and marketable
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title, free and clear of any charge, mortgage, pledge, security interest,
restriction, claim, lien or encumbrance ("Liens") (other than Liens for current
taxes not yet delinquent, pledges to secure deposits or in the ordinary course
of business consistent with past practice) to all of the properties and assets,
tangible and intangible, owned by it or its subsidiaries. To the best of its
knowledge, all buildings and all fixtures, equipment and other property and
assets are held under valid leases or subleases by it or its subsidiaries
enforceable in accordance with their respective terms (except as may be limited
by bankruptcy, insolvency, receivership, conservatorship and other laws of
general applicability relating to or affecting creditors rights or by general
equity principles);
(N) all negotiations relative to this Plan and the transactions
contemplated hereby have been carried on by it and its agents directly with the
other parties hereto and their agents and no action has been taken by it that
would give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment;
(O) except as Previously Disclosed:
(1) United Valley has delivered to JBI a true and complete
copy of each "employee benefit plan" within the meaning of section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), covering
employees or former employees of it and its subsidiaries (the "Employees");
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(2) all employee benefit plans of United Valley covering
Employees, to the extent subject to ERISA (the "ERISA Plans"), are in material
compliance with ERISA, except for failures to so comply which are not reasonably
likely, either by themselves or in the aggregate with one or more other events,
occurrences or circumstances, to have a Material Adverse Effect on it; each
ERISA Plan which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), has either (a) received a favorable determination letter from the
Internal Revenue Service; or (b) is or will be the subject of an application for
a favorable determination letter, and it is not aware of any circumstances
likely to result in the revocation or denial of any such favorable determination
letter; there is no pending or, to the best of its knowledge, threatened
litigation relating to the ERISA Plans which is reasonably likely, either by
itself or in the aggregate with one or more other events, occurrences or
circumstances, to have a Material Adverse Effect on it; and neither it nor any
of its subsidiaries has engaged in a transaction with respect to any ERISA Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, would subject it or any of its subsidiaries to a tax or penalty imposed
by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which
is reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on it;
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(3) no liability under Subtitle C or D of Title IV of ERISA
has been or is expected to be incurred by United Valley or any of its
subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan", within the meaning of Section 4001(a) (15) of ERISA, currently or
formerly maintained by any of them or any entity which is considered one
"employer" with it under Section 4001 (a) (14) of ERISA or Section 414 of the
Code (an "ERISA Affiliate"), which liability is reasonably likely to have either
by itself or in the aggregate with one or more other events, occurrences or
circumstances a Material Adverse Effect on it; United Valley and its
subsidiaries have not incurred and do not expect to incur any withdrawal
liability with respect to a multi-employer plan under Subtitle E of Title IV of
ERISA; and to the knowledge of United Valley no notice of a "reportable event"
within the meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any Pension
Plan or the Pension Plan of an ERISA Affiliate within the 12-month period ending
on the date hereof;
(4) during the current plan year and the immediately preceding
three (3) plan years of such ERISA Plan, all contributions required to be made
under the terms of any ERISA Plan of United Valley, its subsidiaries, or an
ERISA Affiliate have been timely made; and no pension plan of United Valley, its
subsidiaries, or an ERISA Affiliate has an "accumulated funding deficiency"
(whether or not waived) within the meaning of Section 412 of the Code or Section
302 of ERISA which is reasonably
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likely, either by itself or in the aggregate with one or more other events,
occurrences or circumstances, to have a Material Adverse Effect on it;
(5) under each Pension Plan of United Valley which is a
single-employer plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities," within the meaning of Section 4001(a) (16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the ERISA
Plan's most recent actuarial valuation) did not exceed the then current value of
the assets of such ERISA Plan, and there has been no material adverse change in
the financial position of such ERISA Plan since the last day of the most recent
plan year; and
(6) there are no material current or projected liabilities for
retiree health or life insurance benefits;
(P) it knows of no reason why the regulatory approvals referred to in
Paragraphs (B) and (C) of Article VI should not be obtained;
(Q) it is not a party to, or bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization, nor is it the subject of a proceeding asserting that it has
committed an unfair labor practice (within the meaning of the National Labor
Relations Act) or seeking to compel it to bargain with any labor organization as
to wages and conditions of employment, nor is there any strike or other labor
dispute involving it, pending or,
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to the best of its knowledge, threatened, nor is it aware of any activity
involving its employees seeking to certify a collective bargaining unit or
engaging in any other organization activity;
(R) it and each of its subsidiaries has taken all requisite action
(including without limitation the making of claims and the giving of notices)
pursuant to its directors' and officers' liability insurance policy or policies
in order to preserve all rights thereunder with respect to all matters (other
than matters arising in connection with this Plan and the transactions
contemplated hereby) that are known to it;
(S) in the case of United Valley and UVHC only, it has Previously
Disclosed a list, accurate and complete in all material respects, of all loans,
extensions of credit or other assets of United Valley that are classified as of
July 31, 1996 by it (the "Asset Classification"); and no amounts of loans,
extensions of credit or other assets that are classified as of July 31, 1996 by
any regulatory examiner as "Other Assets Especially Mentioned", "Substandard",
"Doubtful," "Loss," or words of similar import are excluded from the amounts
disclosed in the Asset Classification, other than amounts of loans, extensions
of credit or other assets that were charged off by United Valley prior to July
31, 1996; and in the case of United Valley and UVHC only, the allowance for loan
and lease losses shown on its Financial Reports were, and the allowance for loan
and lease losses shown on its Financial Reports for periods ending after the
date of this Plan will be, adequate as of the
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date thereof, under generally accepted accounting principles consistently
applied to banks and bank holding companies and all other applicable regulatory
requirements for all losses reasonably anticipated in the ordinary course of
business as of the date thereof based on information available as of such date;
and in the case of United Valley only, the assets comprising other real estate
owned and in-substance foreclosures included in any of its non-performing assets
are carried net of reserves at the lower of cost or market value based on
current independent appraisals or current management appraisals.
(T) except as Previously Disclosed, in the case of United Valley and
UVHC only, to the best of its knowledge, there is no person who, as of the date
of this Plan, may be deemed to be an "affiliate" of United Valley or UVHC as
that term is used in Rule 145 under the Securities Act of 1933, as amended
(together with the rules and regulations thereunder, the "Securities Act"):
(U) in the case of United Valley and UVHC only, it has taken all
necessary action to exempt the transactions contemplated by this Plan from, or
the transactions contemplated by this Plan are otherwise exempt from, any
applicable state takeover laws in effect as of the date of this Plan, including,
without limitation, the Pennsylvania Business Corporation Law. For purposes of
this Paragraph (U), Section 112 and Section 1610 of the Pennsylvania Banking
Code of 1965, as amended, are not deemed to be a state takeover law;
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(V) it has taken all action so that the entering into of this Plan and
the consummation of the transactions contemplated hereby (including without
limitation the Merger) or any other action or combination of actions, or any
other transactions, contemplated hereby do not and will not (i) result in the
grant of any rights or claims that would give rise to monetary damages under the
Articles of Incorporation or Bylaws of United Valley or UVHC or under any
agreement to which United Valley or UVHC is a party, or (ii) restrict or impair
in any way the ability of JBI or JBI Merger Sub to exercise the rights granted
hereunder;
(W) except as Previously Disclosed, in the case of United Valley only,
to the best of the knowledge of UVHC or United Valley:
(1) neither United Valley nor any properties owned or operated
by United Valley has been or is in violation of or liable under any
Environmental Law, except for such violations or liabilities that, either by
themselves or in the aggregate with one or more other events, occurrences or
circumstances, would not have a Material Adverse Effect on the assets, business,
financial condition or results of operation of United Valley taken as a whole.
There are no actions, suits or proceedings, or demands, claims, notices or
investigations including, without limitation, notices, demand letters or
requests for information from any environmental agency or other person,
instituted, pending or threatened relating to the liability of any property
owned or operated by United Valley under any Environmental Law;
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(2) Neither United Valley nor UVHC has received any notice,
citation, summons or order, complaint or penalty assessment by any governmental
or other entity or person with respect to a property in which it holds a
security interest or other lien for (i) any alleged violation of Environmental
Law, (ii) any failure to have any environmental permit, certificate, license,
approval, registration, and (iii) any use, possession, generation, treatment,
storage, recycling, transportation or disposal of any Hazardous Material;
(3) the following definitions apply for purposes of this
Paragraph (W): "Environmental Law" means (i) any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, relating to (a) the
protection, preservation or restoration of the environment, (including, without
limitation, air, water vapor, surface water, groundwater, drinking water supply,
surface land, subsurface land, plant and animal life or any other natural
resource), or to human health or safety, or (b) the exposure to, or the use,
storage, recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Material, in each case as
amended and as in effect on or prior to the date of this Plan and includes,
without limitation, the Federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, the Superfund Amendments
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and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic
Substances Control Act, and the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970, each as amended and
as now in effect, and (ii) any common law or equitable doctrine (including,
without limitation, injunctive relief and tort doctrines such as negligence,
nuisance, trespass and strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Material; "Hazardous Material" means
any substance presently listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated, under any Environmental
Law, whether by type or quantity, and includes, without limitation, any oil or
other petroleum product, toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos,
asbestos containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyl;
(X) except as Previously Disclosed, in the case of United Valley and
UVHC only, (i) all reports and returns with respect to Taxes (as defined below)
that are required to be filed by or with
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respect to it (collectively, the "Tax Returns"), have been duly filed, or
requests for extensions have been timely filed and have not expired, for all
periods immediately preceding the Merger Effective Date except to the extent
such filing is not yet due or all such failures to file, taken together, are not
reasonably likely to have either by themselves or in the aggregate with one or
more other events, occurrences or circumstances, a Material Adverse Effect on
it, and such Tax Returns were true, complete, accurate and correct in all
material respects, (ii) all taxes (which shall mean federal, state, local or
foreign income, gross receipts, windfall profits, severance, property,
production, sales, use, occupancy, license, excise, franchise, employment,
withholding or similar taxes imposed on the income, properties, operations or
activities of it, together with any interest, additions, or penalties with
respect thereto and any interest in respect of such additions or penalties,
collectively the "Taxes") shown to be due on the Tax Returns have been paid in
full on or before the due date or are being contested in good faith and
adequately reserved for on UVHC's consolidated balance sheet, (iii) the Tax
Returns have never been examined by the Internal Revenue Service, (iv) no notice
of deficiency, pending audit or assessment with respect to the Tax Returns has
been received from the appropriate state, local or foreign taxing authority, or
the period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired, (v) all Taxes due with respect to completed
and settled examinations have been paid
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in full, (vi) no issues have been raised by the relevant taxing authority in
connection with the examination of any of the Tax Returns which are reasonably
likely to result in a determination that would have, either by themselves or in
the aggregate with one or more other events, occurrences or circumstances, a
Material Adverse Effect on it, except as reserved against in its Financial
Reports, and (vi) no waivers of statutes of limitations have been given by or
requested with respect to any Taxes of it;
(Y) it is aware of no reason why the Merger will fail to qualify (i)
for pooling-of-interests accounting treatment or (ii) as a reorganization under
Section 368(a) of the Code.
(Z) except as Previously Disclosed or pursuant to this Plan, in the
case of United Valley and UVHC only, there are no shares of United Valley or
UVHC Common Stock authorized and reserved for issuance and neither United Valley
nor UVHC has any commitment to authorize, issue, or sell any such shares or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from such party, any such shares
and no securities or obligations representing any such rights are outstanding;
(AA) it has previously delivered to the other parties its Articles of
Incorporation and Bylaws which are true, correct and complete copies of such
documents as in effect on the date of this Plan.
(AB) in the case of JBI Merger Sub only, (i) it possesses no
assets nor is subject to any liabilities and will not acquire
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assets or incur liabilities prior to the Merger Effective Date, and (ii) since
the date of its incorporation, it has not engaged in any activities other than
in connection with the consummation of the Merger and the Bank Acquisition or as
expressly contemplated by this Plan.
(AC) to the extent applicable to it, it has previously delivered to the
other parties (i) all of its annual reports on Form 10-K filed with the United
States Securities and Exchange Commission (the "SEC") since January 1, 1995 and
its annual reports to shareholders for each of the three years ended December
31, 1995, 1994 and 1993, respectively; (ii) all of its quarterly reports on Form
10-Q and current reports, if any, on Form 8-K filed with the SEC on or after
July 1, 1996; (iii) each final registration statement, prospectus or offering
circular which it has used in connection with the sale of securities since
January 1, 1995 and (iv) each definitive proxy statement distributed by it to
its shareholders since January 1, 1995. All such reports comply in all material
respects with the requirements of the Securities and Exchange Act of 1934, as
amended, and the rules and regulations thereunder, and do not contain any untrue
statement of material fact or omit to state a 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.
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V. COVENANTS.
United Valley and UVHC hereby covenant to JBI and JBI Merger Sub, and JBI and
JBI Merger Sub hereby covenant to United Valley and UVHC, that:
(A) subject to the terms and conditions of this Plan, it shall use its
best efforts in good faith to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or desirable, or advisable
under applicable laws, as promptly as practicable so as to permit consummation
of the Merger at the earliest possible date and to otherwise enable consummation
of the transactions contemplated hereby and shall cooperate fully with the other
parties hereto, and each party shall use, and shall cause each of their
respective subsidiaries to use, its best efforts to cause to be satisfied the
conditions referred to in Article VI and to obtain all consents (governmental or
other) necessary or desirable for the consummation of the transactions
contemplated by this Plan;
(B) in the case of UVHC and United Valley only, it shall use its best
efforts to deliver to JBI on the date of this Plan irrevocable proxies from each
of the directors and executive officers of UVHC and United Valley, naming Betsy
Z. Cohen, Harmon S. Spolan, or either of them, as the attorneys-in-fact for such
director and executive officer to vote the shares of UVHC held in his name (or
to instruct the record holder of any such shares held in nominee name for his
benefit) for approval of the Plan, the Merger and the Bank Acquisition.
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(C) each shall use its best efforts in good faith and in cooperation
with the other parties to promptly prepare and file with the SEC in accordance
with the requirements of the Securities Act, a registration statement (the
"Registration Statement") in connection with the issuance of the JBI Common
Stock contemplated by this Plan (but excluding the issuance of JBI Common Stock
pursuant to the exercise of the JBI Warrants or with respect to shares of UVHC
Common Stock issued in connection with any exercise of the UVHC Warrants); each
shall use its best efforts to promptly prepare and, if required, file with the
SEC, a proxy or information statement to be mailed to the holders of JBI Common
Stock and UVHC Common Stock, respectively, and it shall call a special meeting
of the holders of such common stock to be held as soon as practicable after the
effective date of the Registration Statement for purposes of voting upon (i) in
the case of UVHC, a proposal seeking approval of this Plan and the Merger
contemplated hereby and thereby, and, subject to the fiduciary duties of the
Board of Directors of UVHC (as advised in writing by its counsel), UVHC shall
solicit and obtain a vote, of not less than 66 2/3% of all holders of UVHC
Common Stock entitled to vote, in favor of the above proposal and UVHC shall, at
JBI's request, recess or adjourn said meeting if such recess or adjournment is
deemed by JBI to be necessary or desirable; and (ii) in the case of JBI, a
proposal seeking approval of this Plan and the Merger contemplated hereby and
thereby, and, subject to the fiduciary duties of the Board of Directors of JBI
(as advised
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in writing by its counsel), JBI shall solicit and obtain a vote of not less than
a majority of all votes cast by the holders of JBI Common Stock for such
proposal;
(D) in the case of JBI only: (i) it shall use its best efforts to cause
the Registration Statement to be declared effective as soon as practicable after
the filing thereof; (ii) it 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, provided that JBI shall not be
required by virtue thereof to submit to general jurisdiction in any state; (iii)
when the Registration Statement or any post-effective amendment or supplement
thereto shall become effective, and at all times subsequent to such
effectiveness, up to and including the date of the meetings, such Registration
Statement and all amendments or supplements thereto, with respect to all
information set forth therein furnished by UVHC or United Valley relating to
UVHC, United Valley or their subsidiaries and by JBI relating to JBI and its
subsidiaries (a) will comply in all material respects with the provisions of the
Securities Act and any other applicable statutory or regulatory requirements,
and (b) will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein not misleading; provided however, in no event shall
any party hereto be liable for any untrue statement of a material fact or
omission to state a material fact in the Registration
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Statement made in reliance upon and in conformity with, written information
concerning another party furnished by such other party specifically for use in
the Registration Statement;
(E) in the case of JBI only, it shall (a) prepare and file within ten
(10) days following the filing by JBI of its Quarterly Report on Form 10-Q for
its fiscal quarter ended June 30, 1997, a registration statement under the
Securities Act and Rule 415 thereunder (the "Shelf Registration Statement") with
respect to the offer and sale of the shares of JBI Common Stock issuable
pursuant to the JBI Warrants or issued in exchange for shares of UVHC Common
Stock issued pursuant to exercise of the UVHC Warrants; provided, however, that
JBI shall not be obligated to file the Shelf Registration Statement earlier than
six (6) months after the Merger Effective Date, but shall be obligated to file
the Shelf Registration Statement no later than nine (9) months following the
Merger Effective Date; (b) use its best efforts to cause the Shelf Registration
Statement to be declared effective as soon as practicable after the filing
thereof; and (c) use its best efforts to maintain the shelf registration in
effect for two (2) years from the effective date thereof. The provisions of this
Paragraph (E) are intended to be for the benefit of, and shall be enforceable
by, each holder of a JBI Warrant and each holder of shares of JBI Common Stock
issued in exchange for shares of UVHC Common Stock issued in connection with the
exercise of a UVHC Warrant and their respective heirs and representatives;
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(F) it agrees that, unless approved by the other parties hereto in
advance, it will not issue any press release or written statement for general
circulation relating to the transactions contemplated hereby, except as
otherwise required by law or applicable stock exchange, National Association of
Securities Dealers, Inc. ("NASD") or Nasdaq NMS rule;
(G) (1) upon reasonable notice, it shall afford the other parties
hereto, and their owners, employees, counsel, accountants and other authorized
representatives, access, during normal business hours throughout the period
prior to the Merger Effective Date to all of its properties, books, contracts,
commitments and records and, during such period, it shall furnish promptly to
the other parties hereto, (i) a copy of each material report, schedule and other
document filed by it pursuant to the requirements of federal or state securities
or banking laws, and (ii) all other information concerning its business,
properties and personnel as the other parties hereto may reasonably request,
provided that no investigation pursuant to this Paragraph (G) by any party shall
affect or be deemed to modify or waive any representation or warranty made by
any other party hereto or the conditions to the obligation of the first party to
consummate the transactions contemplated by this Plan; and (2) each party hereto
will not use any information obtained pursuant to this Paragraph (G) for any
purpose unrelated to this Plan, the consummation of the transactions
contemplated hereby and, if the Merger is not consummated, will hold all
information and documents obtained
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pursuant to this paragraph in confidence (as provided in Paragraph (F) of
Article VIII) unless and until such time as such information or documents become
publicly available other than by reason of any action or failure to act by such
party or as it is advised by counsel that any such information or document is
required by law or applicable stock exchange, NASD or Nasdaq NMS rule to be
disclosed, and in the event of the termination of this Plan, each party will,
upon request by the other party, deliver to the other all documents so obtained
by it or destroy such documents;
(H) in the case of United Valley and UVHC only, it shall not solicit or
encourage inquiries or proposals with respect to, or, except as required by the
fiduciary duties of the Board of Directors of United Valley or UVHC (as advised
in writing by its counsel), furnish any nonpublic information relating to or
participate in any negotiations or discussions concerning, any acquisition or
purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, United Valley or UVHC or any merger or other business
combination with United Valley or UVHC other than as contemplated by this Plan
and it shall instruct its officers, directors, agents, advisors and affiliates
to refrain from doing any of the foregoing; provided that United Valley or UVHC
may communicate information about such proposal to its stockholders if and to
the extent that it is legally required to do so (as advised in writing by its
counsel); it shall notify JBI immediately if any such inquiries or
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proposals are received by, or any such negotiations or discussions are sought to
be initiated with United Valley or UVHC;
(I) in the case of United Valley and UVHC only, it will cause each
person who may be deemed to be an "affiliate" of United Valley or UVHC for
purposes of Rule 145 under the Securities Act to execute and deliver to JBI on
or before the mailing of the proxy statements for the meetings referred to in
Paragraph (C) of this Article V an agreement in the form attached hereto as
Exhibit A restricting the disposition of such affiliate's shares of UVHC Common
Stock and the shares of JBI Common Stock to be received by such person in
exchange for such person's shares of UVHC Common Stock or shares of JBI Common
Stock issuable pursuant to the exercise of the JBI Warrants, as applicable;
(J) in the case of United Valley, it shall use its best efforts to make
reasonable modifications and changes to its loan, litigation and real estate
valuation policies and practices (including loan classifications and levels of
reserves) prior to the Merger Effective Date so as to be consistent on a
mutually satisfactory basis with those of JBI and generally accepted accounting
principles. United Valley shall not be required to modify or change any such
policies or practices, however, until (i) satisfaction of the conditions set
forth in Paragraph (A) of Article VI, (ii) commencement of the 30 day United
States Department of Justice review period set forth in 12 U.S.C. ss.1849;
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(iii) such time as United Valley and JBI shall reasonably agree that the Merger
Effective Date will occur prior to public disclosure of such modifications or
changes in regular periodic earnings releases or periodic reports filed with any
Regulatory Authority, and (iv) such time as JBI acknowledges in writing that all
conditions to JBI's obligations to consummate the Merger (and JBI's rights to
terminate this Plan) have been waived or satisfied; provided, however, that in
all circumstances United Valley shall make such modifications and changes not
later than immediately prior to the expiration of the statutory waiting period
referred to above in clause (ii). United Valley's representations, warranties
and covenants contained in this Plan shall not be deemed to be untrue or
breached in any respect for any purpose as a consequence of any modifications or
changes undertaken solely on account of this Paragraph (J) nor will any such
modifications or changes affect or be considered in the definition of "Material
Adverse Effect" contained in Article VIII, Section H(2);
(K) in the case of JBI only, it shall use its best efforts to (i) list,
prior to the Merger Effective Date, on the Nasdaq NMS, upon official notice of
issuance, the shares of JBI Common Stock to be issued to the holders of United
Valley Common Stock pursuant to the Merger and (ii) list, prior to the effective
date of the Shelf Registration Statement, on the Nasdaq NMS, upon official
notice of issuance, the shares of JBI Common Stock to be issued to the holders
of the JBI Warrants upon exercise and sale
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thereof and the shares of JBI Common Stock issued in exchange for shares of UVHC
Common Stock issued in connection with the exercise of a UVHC Warrant. The
provisions of clause (ii) of this Paragraph (K) are intended to be for the
benefit of, and shall be enforceable by, each holder of (i) a JBI Warrant and
(ii) JBI Common Stock issued in exchange for shares of UVHC Common Stock issued
in connection with the exercise of a UVHC Warrant, and their respective heirs
and representatives;
(L) in the case of United Valley and UVHC only, it shall not take any
action that would cause the transactions contemplated by this Plan to be subject
to any applicable state takeover statute in effect as of the date of this Plan
and United Valley shall take all necessary steps to exempt (or ensure the
continued exemption of) the transactions contemplated by this Plan from, or if
necessary challenge the validity or applicability of, any applicable state
takeover law, as now or hereafter in effect, including, without limitation, the
Pennsylvania Business Corporation Law;
(M) in the case of United Valley and UVHC only, it shall take all
necessary steps to ensure that the entering into of this Plan and the
consummation of the transactions contemplated hereby and thereby (including
without limitation the Merger) and any other action or combination of actions,
or any other transactions contemplated hereby or thereby do not and will not (i)
result in the grant of any rights or claims that would give rise to monetary
damages under the Articles of Incorporation or Bylaws of
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United Valley or UVHC or under any agreement to which United Valley or UVHC is a
party, or (ii) restrict or impair in any way the ability of JBI or JBI Merger
Sub to exercise the rights granted hereunder;
(N) in the case of United Valley and UVHC only, it shall not adopt any
other plan or arrangement that would adversely affect in any way the rights of
JBI or JBI Merger Sub under this Plan;
(O) it undertakes and agrees to use its best efforts to cause the
Merger to be effected, including, without limitation, promptly preparing any and
all regulatory applications and disclosure documents, and to take no action
which would cause the Merger to fail to qualify for pooling-of-interests
accounting treatment;
(P) in the case of JBI, prior to the completion of the Merger, it will
advise each of the current employees of United Valley in writing that (i) it
will interview all current employees of United Valley; (ii) it will consider in
good faith continuing to employ each such employee upon the completion of the
Merger; and (iii) any employee of United Valley that is retained by JBI will be
given credit for his or her prior service with United Valley for the purposes of
determining the entitlement to and amount of (a) retirement benefits provided
under JBI's current retirement plans (and any successor thereto) and (b) the
required employer contribution for the group health insurance currently provided
by JBI;
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(Q) in the case of JBI, with respect to the employment agreements of
Thomas J. Lynch, R. Scott Horner and Eugene F. Zuecca, on or before September
30, 1996, it shall either (i) enter into a mutually acceptable amended
employment agreement or (ii) terminate such agreement as of the Merger Effective
Date;
(R) in the case of United Valley and UVHC only, it shall promptly after
the end of each fiscal quarter after the date of this Plan and on the Merger
Effective Date provide JBI with a list of all of its loans, extensions of credit
or other assets that have been classified internally or by any regulatory
examiner since the date it provided JBI with the Asset Classification; and
(S) in the case of JBI only:
(1) from and after the Merger Effective Date through the
second anniversary of the Merger Effective Date, it agrees to indemnify and hold
harmless each present and former director and officer of each of United Valley
and UVHC or its subsidiaries and each officer or employee of each of United
Valley and UVHC or its subsidiaries that is serving as a director or trustee of
another entity expressly at United Valley or UVHC's request or direction (each,
an "Indemnified Party"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, the "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, and whether or not the Indemnified Party is a
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party thereto, arising out of matters existing or occurring at or prior to the
Merger Effective Date (including the transactions contemplated by this Plan),
whether asserted or claimed prior to, at or after the Merger Effective Date, to
the fullest extent permitted under the UVHC Articles of incorporation, the
charter of United Valley, or the bylaws of either in effect on the date hereof;
provided, however, that no Indemnified Party shall be entitled to
indemnification for Costs arising out of any matter that such Indemnified Party
had an obligation, pursuant to this Plan, to Previously Disclose to JBI and did
not so disclose;
(2) any Indemnified Party wishing to claim indemnification
under Paragraph S(1) above, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify JBI thereof, but the failure
to so notify shall not relieve JBI of any liability it may have hereunder to
such Indemnified Party if such failure does not materially prejudice JBI. In the
event of any such claim, action, suit, proceeding or investigation, (i) JBI
shall have the right to assume the defense thereof with counsel reasonably
acceptable to the Indemnified Party and JBI shall not be liable to such
Indemnified Party for any legal expenses of other counsel subsequently incurred
by such Indemnified Party in connection with the defense thereof, except that if
JBI does not elect to assume such defense within a reasonable time or if there
are issues which constitute conflicts of interest between JBI and the
Indemnified Party, the Indemnified Party may retain counsel satisfactory to such
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Indemnified Party, and JBI shall remain responsible for the reasonable fees and
expenses of such counsel, with respect to those matters as to which a conflict
of interest exists as set forth above, promptly as statements therefor are
received; provided, however, that JBI shall be obligated pursuant to this
Paragraph S(2) to pay for only one firm of counsel for all Indemnified Parties
in any one jurisdiction with respect to any given claim, action, suit,
proceeding or investigation unless the use of one counsel for such Indemnified
Parties would present such counsel with a conflict of interest; (ii) the
Indemnified Party will reasonably cooperate in the defense of any such matter
and (iii) JBI shall not be liable for any settlement effected by an Indemnified
Party without its prior written consent, which consent may not be withheld
unless such settlement is unreasonable in light of such claims, actions, suits,
proceedings or investigations against and defenses available to, such
Indemnified Party;
(3) in the event JBI or any of its successors of assigns (1)
consolidates with or merges into any other corporation or entity and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any person or entity, then, and in each case, to the extent
necessary, proper provision shall be made so that the successors and assigns of
JBI assume the obligations set forth in this Paragraph S; and
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(4) the provisions of this Paragraph S are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and their
respective heirs and representatives.
VI. CONDITIONS TO CONSUMMATION OF THE MERGER.
Consummation of the Merger is conditioned upon:
(A) (i) approval of the Merger and the other transactions contemplated
hereby by the required vote of the shareholders of UVHC and as and to the extent
required by law, by UVHC, as the sole shareholder of United Valley, and (ii)
approval of the Merger by the shareholders of JBI and JBI Merger Sub;
(B) (i) procurement by JBI of approval by the Federal Reserve Board and
the Pennsylvania Department of Banking of the Merger and the Bank Acquisition
and the expiration of applicable statutory waiting periods relating thereto, and
(ii) procurement by Jefferson of approval by the FDIC and the Pennsylvania
Department of Banking of the Merger and the merger (immediately after
consummation of the Merger) of United Valley with and into Jefferson, with
Jefferson as the surviving entity, and the expiration of applicable statutory
waiting periods relating thereto;
(C) procurement of all other regulatory consents and approvals and
satisfaction of all other requirements prescribed by law which are necessary to
the consummation of the Merger and the Bank Acquisition;
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(D) there not being in effect any order, decree or injunction of any
court or agency of competent jurisdiction that enjoins or prohibits consummation
of the Merger or the Bank Acquisition;
(E) upon the request of JBI, at least thirty (30) days prior to the
required date of receipt, receipt by JBI from Grant Thornton LLP of letters,
dated the date of or shortly prior to: (i) the mailing of the proxy statements,
(ii) the public offering of any securities by JBI prior to the Merger Effective
Date, and (iii) the Merger Effective Date, in form and substance satisfactory to
JBI, with respect to UVHC's and United Valley's consolidated financial position
and results of operations, which letters shall be based upon customary specified
procedures undertaken by such firm; and, further, receipt by JBI from Grant
Thornton LLP of a letter confirming that the Merger will be treated as a
pooling-of-interests for accounting purposes;
(F) the receipt by United Valley, UVHC and their directors and officers
of an opinion, dated the Merger Effective Date, of Ledgewood Law Firm, P.C.
counsel for JBI and Jefferson, in form and substance reasonably satisfactory to
United Valley;
(G) the receipt by JBI and its directors and officers who sign the
Registration Statement of an opinion, dated the Merger Effective Date, of Blank
Rome Comisky & McCauley, in form and substance reasonably satisfactory to JBI;
(H) (i) each of the representations and warranties
contained herein of any party being true and correct as of the
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date of this Plan and upon the Merger Effective Date with the same effect as
though all such representations and warranties had been made on the Merger
Effective Date, except (x) for any such representations and warranties made as
of a specified date, which shall be true and correct as of such date, (y) as
expressly contemplated by this Plan, or (z) for representations and warranties
(other than the representations and warranties set forth in Paragraph (A) of
Article IV, which shall be true and correct in all material respects) the
inaccuracies of which relate to matters that, individually or in the aggregate,
do not materially adversely affect the Merger and the other transactions
contemplated by this Plan, and (ii) each and all of the agreements and covenants
contained herein of any party to be performed and complied with pursuant to this
Plan and the other agreements contemplated hereby prior to the Merger Effective
Date shall have been duly performed and complied with in all material respects,
and JBI and UVHC shall have received a certificate signed by the Chief Executive
Officer and the Chief Financial Officer of the other party dated the Merger
Effective Date, to such effect;
(I) the Registration Statement having become effective, no stop order
suspending the effectiveness of the Registration Statement having been issued
and no proceedings for that purpose having been initiated or threatened by the
SEC or any other regulatory authority;
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(J) JBI having received all state securities laws and "blue sky"
permits and other authorizations necessary in connection with the issuance of
the JBI Common Stock as set forth in the Registration Statement and to otherwise
consummate the Merger;
(K) JBI and UVHC having received an opinion from Blank Rome Comisky &
McCauley to the effect that the Merger constitutes a reorganization under
Section 368 of the Code, which such opinion may rely upon factual
representations contained in certificates of officers of JBI, JBI Merger Sub,
UVHC, United Valley and others;
(L) the shares of JBI Common Stock issuable pursuant to the Merger
having been approved for listing on Nasdaq NMS, subject to official notice of
issuance;
(M) approval of the Merger and the other transactions contemplated
hereby by not less than the minimum stockholder vote required by applicable laws
or governing instrument by the shareholders of each of UVHC, United Valley, JBI
and JBI Merger Sub;
(N) INTENTIONALLY OMITTED;
(O) the sum of (i) the number of shares of UVHC Common Stock as to
which dissenters' rights have been elected, and (ii) the number of shares of
UVHC Common Stock, the conversion of
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<PAGE>
which to JBI Common Stock subsequent to the Merger would result in fractional
shares which JBI is required to purchase pursuant to Article II, Paragraph (F),
being equal to no more than ten percent (10%) of UVHC Common Stock outstanding
immediately prior to the Merger Effective Date;
(P) the election or appointment of two (2) of the directors of United
Valley in office immediately prior to the Merger Effective Date as additional
directors of JBI and three (3) of the directors of United Valley in office
immediately prior to the Merger Effective Date as additional directors of
Jefferson; and
(Q) UVHC having received the written opinion of Danielson Associates,
Inc., in form and substance satisfactory to UVHC, as to the fairness of the
Merger and Bank Acquisition to the shareholders of UVHC from a financial point
of view, dated as of a date not less than five (5) business days prior to the
date of mailing of the proxy statement with respect to the Merger and Bank
Acquisition.
Provided, however, a failure to satisfy any of the conditions set forth
in Paragraphs (G), (K), (N) or (O) of this Article VI shall only constitute
conditions if asserted by JBI; and a failure to satisfy any of the conditions
set forth in Paragraph (F) or (Q) of this Article VI shall only constitute
conditions if asserted by UVHC.
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VII. TERMINATION.
This Plan may be terminated prior to the Merger Effective Date either before or
after receipt of required shareholder approvals:
(A) by the mutual consent of JBI and UVHC, if the Board of
Directors of each so determines by vote of a majority of the
members of its entire Board;
(B) by JBI or UVHC, if its Board of Directors so determines by vote of
a majority of the members of its entire Board, in the event of (i) a breach by
the other party of any representation or warranty contained herein, which breach
has not been cured within thirty (30) days after the giving of written notice to
the breaching party of such breach and which breaches, individually or in the
aggregate, materially adversely affect the Merger and the other transactions
contemplated by this Plan, (ii) a material breach by the other party of any of
the covenants or agreements contained herein, which breach has not been cured
within thirty (30) days after the giving of written notice to the breaching
party of such breach;
(C) by JBI or UVHC, if its Board of Directors so determines by vote of
a majority of the members of its entire Board, in the event that the Merger is
not consummated by June 30, 1997; provided, however, that such date may be
extended by an agreement in writing among the parties hereto approved by their
respective Boards of Directors and executed in the same manner as this Plan;
(D) by JBI or UVHC, if its Board of Directors so determines
by a vote of a majority of the members of its entire Board, in
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the event that any shareholder approval contemplated by Paragraph (A) of Article
VI is not obtained at a meeting or meetings called for the purpose of obtaining
such approval; or
(E) by JBI, (i) if the sum of (a) the number of shares of UVHC Common
Stock as to which dissenters' rights have been elected, and (b) the number of
shares of UVHC Common Stock, the conversion of which to JBI Common Stock
subsequent to the Merger would result in fractional shares which JBI is required
to purchase pursuant to Article II, Paragraph (F), shall equal more than ten
percent (10%) of UVHC Common Stock outstanding immediately prior to the Merger
Effective Date, or (ii) a breach by UVHC of the covenant contained in Article V,
Paragraph B.
VIII. OTHER MATTERS.
(A) Survival. If the Merger Effective Date occurs, the agreements of
the parties in Paragraphs (E) and (K) of Article V and Paragraphs (A), (C), (D),
(F), (G), and (I) of this Article VIII shall survive the Merger Effective Date;
all other representations, warranties, agreements and covenants contained in
this Plan shall be deemed to be conditions of the Merger and shall not survive
the Merger Effective Date. If this Plan is terminated prior to the Merger
Effective Date, the agreements and representations of the parties in Paragraph
(N) of Article IV, Paragraph (G)(2) of Article V and Paragraphs (A), (D), (E),
(F) and (I) of this Article VIII shall survive such termination.
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(B) Waiver or Amendment. Prior to the Merger Effective Date, any
provision of this Plan may be (i) waived by the party benefitted by the
provision, or (ii) amended or modified at any time (including the structure of
the transaction), by an agreement in writing among the parties hereto approved
by their respective Boards of Directors and executed in the same manner as this
Plan, except that, after the vote by the shareholders of UVHC, the consideration
to be received by the shareholders of UVHC for each share of UVHC Common Stock
shall not thereby be decreased.
(C) Counterparts. This Plan may be executed in one or more
counterparts, each of which shall be deemed to constitute an original. This Plan
shall become effective when one counterpart has been signed by each party
hereto.
(D) Governing Law. This Plan shall be governed by, and interpreted in
accordance with, the substantive laws of the Commonwealth of Pennsylvania
without regard to its principles of conflicts of laws, except as federal law may
be applicable.
(E) Expenses. Each party hereto will bear all expenses incurred by it
in connection with this Plan and the transactions contemplated hereby, except
printing expenses of the Registration Statement which shall be shared equally
between UVHC and JBI.
(F) Confidentiality. Except as otherwise provided in Paragraph (G)(2)
of Article V, each of the parties hereto and their respective agents, attorneys
and accountants will maintain
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the confidentiality of all information provided in connection herewith which has
not been publicly disclosed.
(G) Notices. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed to have been duly given when
delivered by hand, telegram or telex (confirmed in writing) to such party at its
address set forth below or such other address as such party may specify by
notice to the parties hereto:
If to JBI or JBI Betsy Z. Cohen, Chairman
Merger Sub, to: and Chief Executive Officer
JeffBanks, Inc.
1609 Walnut Street
Philadelphia, PA 19103
With, in each J. Baur Whittlesey, Esq.
instance, a copy to: Ledgewood Law Firm, P.C.
1521 Locust Street - 8th Floor
Philadelphia, PA 19102
If to UVHC or Thomas J. Lynch, President
United Valley, to: United Valley Bank
1601 Market Street - 3rd Floor
Philadelphia, PA 19103
With, in each Lawrence Wiseman, Esq.
instance, a copy to: Blank Rome Comisky & McCauley
Four Penn Center Plaza
Philadelphia, PA 19103
(H) Definitions. Any term defined anywhere in this Plan shall have the
meaning ascribed to it for all purposes of this Plan (unless expressly noted to
the contrary). In addition:
(1) the term "knowledge" when used with respect to a party
shall mean the knowledge, after due inquiry, of any "Executive Officer" of such
party, as such term is defined in Regulation O of the Federal Reserve Board;
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(2) the term "Material Adverse Effect" shall mean (a) in the
case of United Valley only, an event, occurrence or circumstance, which
individually or in the aggregate, results, or is reasonably likely to result, in
a decrease in the shareholders' equity account of United Valley, as determined
in accordance with generally accepted accounting principles and as measured from
the United Valley June 30, 1996 Financial Reports, in an amount equal to or
greater than $500,000, including, without limitation, (i) the making of any
provisions for possible loan and lease losses, write-downs of other real estate
and taxes, (ii) operating losses and (iii) a breach of a representation or
warranty, or (b) as applied to any of the parties, a breach of a representation
or warranty which would materially impair the party's ability to perform its
obligations under this Plan or the consummation of the Merger and the other
transactions contemplated by this Plan; provided, however, that the term
Material Adverse Effect shall not be deemed to include the impact of (a) changes
in banking and similar laws of general applicability or interpretations thereof
by courts or governmental authorities; (b) changes in generally accepted
accounting principles or regulatory accounting requirements applicable to banks
and bank holding companies generally, and (c) with respect to any loan of United
Valley, pursuant to Paragraph (J) of Article V, where the financial condition of
the borrower of such loan and the value of any and all collateral securing such
loan has not materially deteriorated, any material increase
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in United Valley's loan loss reserve with respect to such loan or any loan
charge off with respect to such loan or any loan charge off in an amount which,
in the view of JBI, should be reserved against possible losses on such loan or
charged off with respect to such loan; and
(3) the term "Previously Disclosed" by a party shall mean
information set forth in a written disclosure letter that is delivered by that
party to the other party contemporaneously with the execution of this Plan and
specifically designated as information "Previously Disclosed" pursuant to this
Plan; provided, however, that any information so disclosed shall specify the
provision of this Plan pursuant to which such information is being disclosed and
shall not be deemed to be disclosed pursuant to any other provision of, or for
any other purpose under, this Plan.
(I) Entire Understanding. This Plan represents the entire understanding
of the parties hereto with reference to the transactions contemplated hereby and
thereby and supersedes any and all other oral or written agreements heretofore
made. Nothing in this Plan expressed or implied, is intended to confer upon any
person, other than the parties hereto or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this Plan.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
Attest: JEFFBANKS, INC.
/s/Michele Rudoi By:/s/Betsy Z. Cohen
Assistant Secretary Chairman and
Chief Executive Officer
[Corporate Seal]
Attest: JEFFBANKS ACQUISITIONCORP.,
INC.
/s/Michele Rudoi By:/s/Betsy Z. Cohen
Assistant Secretary Chairman and
Chief Executive Officer
[Corporate Seal]
Attest: UNITED VALLEY BANCORP, INC.
/s/R. Scott Horner By:/s/Thomas J. Lynch
Secretary President and
Chief Executive Officer
[Corporate Seal]
Attest: UNITED VALLEY BANK
/s/R. Scott Horner By:/s/Thomas J. Lynch
Secretary President and
Chief Executive Officer
[Corporate Seal]
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FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment")
dated this 30th day of September, 1996 (the "Amendment"), by and among United
Valley Bancorp, Inc. ("UVHC"), United Valley Bank ("United Valley"), JeffBanks,
Inc. ("JBI") and JeffBanks Acquisitioncorp., Inc. ("JBI Merger Sub").
RECITALS
A. Pursuant to an Agreement and Plan of Merger dated September 5, 1996 (the
"Plan"), UVHC, United Valley, JBI and JBI Merger Sub agreed that JBI will
acquire UVHC and United Valley by means of a merger of JBI Merger Sub with and
into UVHC (the "Merger") as a result of which UVHC will become a direct
wholly-owned subsidiary of JBI and United Valley will become a second-tier
subsidiary of JBI (the "Bank Acquisition").
B. The parties hereto wish to amend the Plan as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Capitalized terms not otherwise defined herein shall have the same
meanings as set forth in the Plan.
2. Article I, Paragraph D of the Plan is hereby amended and restated in its
entirety to read as follows:
(D) Articles of Incorporation; Bylaws; Directors; Officers. The Articles of
Incorporation and Bylaws of the Continuing Corporation shall be those of
JBI Merger Sub, as in effect immediately prior to the Merger Effective Date
(as hereinafter defined). The directors and officers of UVHC in office
immediately prior to the Merger Effective Date shall be the directors and
officers of the Continuing Corporation, together with such additional
directors and officers as may thereafter be elected, who shall hold office
until such time as their successors are elected and qualified. On or before
the Merger Effective Date, JBI shall cause the election or appointment of
two (2) of the directors of United Valley in office immediately prior to
the Merger Effective Date as additional directors of JBI and three (3) of
the directors of United Valley in office immediately prior to the Merger
Effective Date as additional directors of Jefferson Bank, ("Jefferson"), a
wholly-owned subsidiary of JBI. The individuals elected or appointed as
directors of JBI may be the same or different from those individuals
elected or appointed as directors of Jefferson.
<PAGE>
3. Article II, Paragraph H of the Plan is hereby amended and restated in
its entirety to read as follows:
(H) Options and Warrants. Any valid option or warrant to purchase shares of
UVHC Common Stock (a "UVHC Warrant"), outstanding and unexercised
immediately prior to the Merger shall, by virtue of the Merger,
automatically and without any action on the part of the holder thereof
become and be converted into a warrant to purchase that number of shares of
JBI Common Stock as shall equal the Exchange Ratio multiplied by that
number of shares of UVHC Common Stock which such option or warrant entitled
the holder thereof to purchase, at an exercise price equal to the exercise
price per share of the UVHC Warrant divided by the Exchange Ratio
(hereinafter collectively referred to as the "JBI Warrants"). Any JBI
Warrant to purchase a fractional share which results from application of
the Exchange Ratio shall be cancelled. The maximum number of shares of UVHC
Common Stock which are issuable upon exercise of the warrants referred to
above, as of the date hereof, has been Previously Disclosed (as such term
is defined in Paragraph H(3) of Article VIII).
4. Article V, Paragraph (C) of the Plan is hereby amended and restated in
its entirety to read as follows:
(C) each shall use its best efforts in good faith and in cooperation with
the other parties to promptly prepare and file with the SEC in accordance
with the requirements of the Securities Act, a registration statement (the
"Registration Statement") in connection with the issuance of the JBI Common
Stock contemplated by this Plan, including the shares of JBI Common Stock
(x) issuable pursuant to the exercise of any JBI Warrant which has an
expiration date on or before September 19, 1997 or (y) issued in exchange
for shares of UVHC Common Stock issued pursuant to exercise of any UVHC
Warrant which has an expiration date on or before September 19, 1997 (but
excluding the issuance of JBI Common Stock issuable pursuant to the
exercise of any JBI Warrant with an expiration date on or after September
20, 1997 or with respect to shares of UVHC Common Stock issued in
connection with any exercise of any UVHC Warrant with an expiration date on
or after September 20, 1997); each shall use its best efforts to promptly
prepare and, if required, file with the SEC, a proxy or information
statement to be mailed to the holders of JBI Common Stock and UVHC Common
<PAGE>
Stock, respectively, and it shall call a special meeting of the holders of
such common stock to be held as soon as practicable after the effective
date of the Registration Statement for purposes of voting upon (i) in the
case of UVHC, a proposal seeking approval of this Plan and the Merger
contemplated hereby and thereby, and, subject to the fiduciary duties of
the Board of Directors of UVHC (as advised in writing by its counsel), UVHC
shall solicit and obtain a vote, of not less than 66 2/3% of all holders of
UVHC Common Stock entitled to vote, in favor of the above proposal and UVHC
shall, at JBI's request, recess or adjourn said meeting if such recess or
adjournment is deemed by JBI to be necessary or desirable; and (ii) in the
case of JBI, a proposal seeking approval of this Plan and the Merger
contemplated hereby and thereby, and, subject to the fiduciary duties of
the Board of Directors of JBI (as advised in writing by its counsel), JBI
shall solicit and obtain a vote of not less than a majority of all votes
cast by the holders of JBI Common Stock for such proposal;
5. Article V, Paragraph (E) of the Plan is hereby amended and restated in
its entirety to read as follows:
(E) in the case of JBI only, it shall (a) prepare and file within ten (10)
days following the filing by JBI of its Quarterly Report on Form 10-Q for
its fiscal quarter ended June 30, 1997, a registration statement under the
Securities Act and Rule 415 thereunder (the "Shelf Registration Statement")
with respect to the offer and sale of the shares of JBI Common Stock
issuable pursuant to JBI Warrants which have an expiration date on or after
September 20, 1997 or issued in exchange for shares of UVHC Common Stock
issued pursuant to exercise of UVHC Warrants which have an expiration date
on or after September 20, 1997; provided, however, that JBI shall not be
obligated to file the Shelf Registration Statement earlier than six (6)
months after the Merger Effective Date, but shall be obligated to file the
Shelf Registration Statement no later than nine (9) months following the
Merger Effective Date; (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective as soon as practicable
after the filing thereof; and (c) use its best efforts to maintain the
shelf registration in effect for two (2) years from the effective date
thereof. The provisions of this Paragraph (E) are intended to be for the
benefit of, and shall be enforceable by, each holder of a JBI Warrant with
an expiration date on or after September 20, 1997 and each holder of shares
of JBI Common Stock issued in exchange for shares of UVHC Common Stock
issued in connection with the exercise of a UVHC Warrant with an expiration
date on or after September 20, 1997, and their respective heirs and
representatives;
<PAGE>
6. Article V, Paragraph (K) of the Plan is hereby amended and restated in
its entirety to read as follows:
(K) in the case of JBI only, it shall use its best efforts to (i) list,
prior to the Merger Effective Date, on the Nasdaq NMS, upon official notice
of issuance, the shares of JBI Common Stock to be issued to the holders of
United Valley Common Stock pursuant to the Merger, including (x) the shares
of JBI Common Stock to be issued to the holders of the JBI Warrants which
have an expiration date on or before September 19, 1997 or (y) the shares
of JBI Common Stock to be issued in exchange for shares of UVHC Common
Stock issued in connection with the exercise of any UVHC Warrant which has
an expiration date on or before September 19, 1997 and (ii) list, prior to
the effective date of the Shelf Registration Statement, on the Nasdaq NMS,
upon official notice of issuance, the shares of JBI Common Stock to be
issued to the holders of the JBI Warrants, upon exercise and sale thereof,
which have expiration dates on or after September 20, 1997 and the shares
of JBI Common Stock issued in exchange for shares of UVHC Common Stock
issued in connection with the exercise of a UVHC Warrant with an expiration
date on or after September 20, 1997. The provisions of clause (ii) of this
Paragraph (K) are intended to be for the benefit of, and shall be
enforceable by, each holder of (i) a JBI Warrant with an expiration date on
or after September 20, 1997 and (ii) JBI Common Stock issued in exchange
for shares of UVHC Common Stock issued in connection with the exercise of a
UVHC Warrant with an expiration date on or after September 20, 1997, and
their respective heirs and representatives;
7. Article V, Paragraph T is hereby added to the Plan and reads as follows:
(T) in the case of JBI only, it shall (i) not dissolve, liquidate,
consolidate, merge or sell the Continuing Corporation from the Merger
Effective Date until the date that all of the JBI Warrants have either been
exercised or have expired pursuant to their terms and (ii) cause each
director, officer and special advisor of UVHC in office immediately prior
to the Merger Effective Date to continue as a director, officer or special
advisor of the Continuing Corporation from the Merger Effective Date until
the date that such director, officer or special advisor has either
exercised all of his or her JBI Warrants or his or her JBI Warrants have
expired pursuant to their terms.
8. Article VI, Paragraph (L) of the Plan is hereby amended and restated in
its entirety to read as follows:
<PAGE>
(L) the shares of JBI Common Stock issuable pursuant to the Merger,
including the shares of JBI Common Stock (x) issuable pursuant to the
exercise of any JBI Warrant which has an expiration date on or before
September 19, 1997 or (y) issued in exchange for shares of UVHC Common
Stock issued pursuant to exercise of any UVHC Warrant which has an
expiration date on or before September 19, 1997, having been approved for
listing on Nasdaq NMS, subject to official notice of issuance;
9. Article VIII, Paragraph (A) of the Plan is hereby amended and restated
in its entirety to read as follows:
(A) Survival. If the Merger Effective Date occurs, the agreements of the
parties in Paragraphs (E), (K) and (T) of Article V and Paragraphs (A),
(C), (D), (F), (G), and (I) of this Article VIII shall survive the Merger
Effective Date; all other representations, warranties, agreements and
covenants contained in this Plan shall be deemed to be conditions of the
Merger and shall not survive the Merger Effective Date. If this Plan is
terminated prior to the Merger Effective Date, the agreements and
representations of the parties in Paragraph (N) of Article IV, Paragraph
(G)(2) of Article V and Paragraphs (A), (D), (E), (F) and (I) of this
Article VIII shall survive such termination.
10. Except as amended hereby, the Plan shall remain in full force and
effect and unmodified.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
Attest: JEFFBANKS, INC.
/s/Michele Rudoi By:/s/Betsy Z. Cohen
Assistant Secretary Chairman and
Chief Executive Officer
[Corporate Seal]
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE>
Attest: JEFFBANKS ACQUISITIONCORP., INC.
/s/Michele Rudoi By:/s/Betsy Z. Cohen
Assistant Secretary Chairman and
Chief Executive Officer
[Corporate Seal]
Attest: UNITED VALLEY BANCORP, INC.
/s/R. Scott Horner By:/s/Thomas J. Lynch
Secretary President and
Chief Executive Officer
[Corporate Seal]
Attest: UNITED VALLEY BANK
/s/R. Scott Horner By:/s/Thomas J. Lynch
Secretary President and
Chief Executive Officer
[Corporate Seal]
<PAGE>
ANNEX B
OPINION OF DANIELSON ASSOCIATES, INC.
September 4, 1996
Board of Directors
United Valley Bancorp
1601 Market Street
Suite 350
Philadelphia, Pennsylvania 19103
Dear Members of the Board:
Set forth herein is the opinion of Danielson Associates Inc.
("Danielson Associates") as to the "fairness" of the offer by JeffBanks, Inc.
("JeffBanks") of Philadelphia, Pennsylvania to acquire all of the shares of the
common stock of United Valley Bancorp ("United Valley" and the "Holding
Company") also of Philadelphia, Pennsylvania, which would include its banking
subsidiary, United Valley Bank (also "United Valley" and the "Bank"). The "fair"
sale value is defined as the price at which all of the shares of United Valley's
common stock would change hands between a willing seller and a willing buyer,
each having reasonable knowledge of the relevant facts. In opining as to the
"fairness" of the offer, it also must be determined if the JeffBanks common
stock to be exchanged for United Valley common stock is "fairly" valued.
In preparing the opinion, the Bank's market has been analyzed; its
business and prospects have been discussed with management; and its financial
performance has been compared with other Pennsylvania banks. In addition, any
unique characteristics have been considered.
This opinion is partly based on data supplied to Danielson Associates
by United Valley, but it relies on some public information, all of which is
believed to be reliable, but neither the completeness nor accuracy of such
information can be guaranteed. In particular, the opinion assumes, based on
management's representation, that there are no significant asset quality
problems beyond what is stated in recent reports to regulatory agencies and in
the monthly report to the directors.
In determining the "fair" sale value of United Valley, the emphasis has
been on prices paid for banks with similar financial, structural and market
characteristics. These prices were then related to assets and equity capital,
also referred to as "book."
The "fair" market value of JeffBanks' common stock to be exchanged for
United Valley stock has been determined by a comparison with other similar bank
holding companies and includes no in-person due diligence of JeffBanks. This
comparison shows the JeffBanks stock to be fairly valued.
Based on this analysis, the "fair" sale value of United Valley is $18.1
to $21.4 million, or $7.00 to $8.25 per share. Thus, JeffBanks' offer of $22.1
million, or $8.52 per share, is a "fair" offer from a financial point of view
for United Valley and its shareholders.
Respectfully submitted,
Arnold G. Danielson
Chairman
Danielson Associates, Inc.
<PAGE>
ANNEX C
PROVISIONS OF PENNSYLVANIA BUSINESS CORPORATION LAW
RELATING TO DISSENTERS' RIGHTS
<PAGE>
PENNSYLVANIA BUSINESS CORPORATION LAW
Subchapter D. - Dissenters Rights
ss.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 option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(d) (relating to dissenters rights upon election).
Section 2705(c) (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).
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(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.
(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.
(3) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(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.
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(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).
ss.1572. Definitions.
The following words and phrases when used in this subchapter shall have
the meanings given to them in this section unless the content 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.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate actio to which the dissenter objects, taking into
account all relevant factors, but excluding any appreciation or deprecation 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 of the
circumstances, taking into account all relevant factors including the average
rate currently paid by the corporation on its principal bank loans.
ss.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
beneficially owned by any one person and discloses the name and address of the
person or persons 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.
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(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.
ss.1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a 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.
ss.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 corporation 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.
(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 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 this notice.
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ss.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.
ss. 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 requirements 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.
(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.
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(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 therefor 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.
ss.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 this 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.
ss.1579. Valuation proceedings generally.
(a) General rule. - Within 60 days after the latest of:
(1) effectuation of the proposed corporate actions;
(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 application shall be
served on each such dissenter. If a dissenter is a
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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 and
recommend a decision on the issue of fair value. The 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) Elect 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.
ss.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.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Pursuant to the Pennsylvania Business Corporation Law, the
Bylaws of each of JBI and UVB provide that a director is not personally liable,
as such, for monetary damages for any act taken, or any failure to take action,
unless (a) the director has breached or failed to perform the duties of his
office and (b) the breach or failure constitutes self-dealing, willful
misconduct or recklessness. The Bylaw provision of each of JBI and UVB does not
eliminate the personal monetary liability of a director where such director is
responsible or liable pursuant to any criminal statute or for the payment of
taxes.
Pursuant to their respective Bylaws, each of JBI and UVB is
required to indemnify any director or officer who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that he or she is or was a director or officer.
Item 21. Exhibits and Financial Statement Schedules.
a. Exhibits
2. Agreement and Plan of Merger between JBI and UVB
(included in Joint Proxy Statement/Prospectus as
Annex A)
3.(a)* Articles of Incorporation of Registrant.
(b)* By-Laws of Registrant
4.* Form of Certificate evidencing shares of JBI Common
Stock.
5.** Opinion of Ledgewood Law Firm, P.C., as to the
legality of the securities being registered
(including consent).
8.** Opinion of Blank, Rome, Comisky & McCauley, as to
federal tax matters (including consent).
10.* JBI Key Employee Stock Option Plan.
12.* Statements re computation of ratios.
13.* Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 for JBI.
21.* Subsidiaries of the Registrant.
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23.(a) Consent of Grant Thornton
(b) Consent of Price Waterhouse
(c) Consent of Arthur Andersen LLP
(d) Consent of Ledgewood Law Firm, P.C. (included in
Exhibit 5).
(e) Consent of Blank, Rome, Comisky & McCauley(included
in Exhibit 8)
(f) Consent of Danielson Associates, Inc.
99. (a)** Form of Proxy.
(b) Opinion of Danielson Associates, Inc. (included in
Joint Proxy Statement/Prospectus as Annex B).
b. Financial Statement Schedules.
Inapplicable.
* Exhibits 3(a), 3(b), 12 and 21 appear in Exhibits 3 (i), 3(ii), 12 and
21, respectively, of Registrant's registration statement on Form S-4,
as amended, Registration No. 33-62428; Exhibits 3(i), 3(ii), 12 and 21
of said registration statement are hereby incorporated herein by
reference. Exhibits 4 and 10 appear as Exhibits 4 and 10 to the
Registrant's registration statement on Form S-1, as amended,
Registration No. 33-70278; Exhibits 4 and 10 of said registration
statement are hereby incorporated herein by reference. Exhibit 13 has
heretofore been filed with the Commission, and is hereby incorporated
herein by reference.
** To be filed by amendment.
Item 23. Undertakings.
1. 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 facts 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. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20%
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change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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. 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. The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through the 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), 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.
4. The registrant undertakes that every prospectus (a) that is filed
pursuant to paragraph (2) immediately preceding, or (b) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 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 the time shall be deemed
to be the initial bona fide offering thereof.
5. 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
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documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
6. 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.
7. 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 its Articles of Incorporation, Bylaws, 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 Securities Act of 1933 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania on November ___, 1996.
JEFFBANKS, INC.
By:_____________________________________________
Betsy Z. Cohen, Chairman of the Board
and Chief Executive Officer
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POWER OF ATTORNEY
Each person whose signature appears below in so signing also makes,
constitutes and appoints Betsy Z. Cohen, Harmon S. Spolan and Edward E. Cohen,
and each of them acting alone, his true and lawful attorney-in-fact, with full
power of substitution, for him in any and all capacities, to execute and cause
to be filed with the Securities and Exchange Commission any and all amendments
and post-effective amendments to this Registration Statement, with exhibits
thereto and other documents in connection therewith, and hereby ratifies and
confirms all that said attorney-in-fact or said attorney-in-fact's substitute or
substitutes may do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Date:_________________, 1996
BETSY Z. COHEN, Chairman of
the Board, Chief Executive
Officer and Director
(Chief Executive Officer)
Date:_________________, 1996
EDWARD E. COHEN, Chairman
of the Executive Committee
and Director
Date:_________________, 1996
PAUL FRENKIEL, Senior Vice
President - Finance, Chief
Financial Officer and
Treasurer (Chief Financial
and Accounting Officer)
Date:_________________, 1996
WILLIAM H. LAMB
Secretary and Director
II-6
<PAGE>
Date:_________________, 1996
JAMES R. SIBEL, Chief Credit
Officer and Director
Date:_________________, 1996
HARMON S. SPOLAN, President
and Director
Date:__________________, 1996
HERSH KOZLOV, Director
Date:_________________, 1996
ARTHUR MAKADON, Director
Date:_________________, 1996
P. SHERRILL NEFF, Director
Date:_________________, 1996
WILLIAM D. WHITE, Director
II-7
<PAGE>
EXHIBIT 23(a)
Consent of Independent Certified Public Accountants
We have issued our report dated January 19, 1996 accompanying the
consolidated financial statements of United Valley Bancorp and Subsidiary
contained in the Registration Statement and Joint Proxy/Prospectus. We consent
to the use of the aforementioned report in the Registration Statement and Joint
Proxy/Prospectus, and to the use of our name as it appears under the caption
"Experts."
GRANT THORNTON LLP
Philadelphia, Pennsylvania
November 15, 1996
Consent of Independent Certified Public Accountants
We have issued our report dated January 17, 1996 accompanying the
consolidated finacial statements of JeffBanks, Inc. (formerly named State
Bancshares, Inc.) and Subsidiaries appearing in the 1995 Annual Report of the
Company to its shareholders included in the Annual Report on Form 10-K for the
year ended December 31, 1995 which ar incorporated by reference in this Joint
Proxy Statement/Prospectus. We consent to the incorporation by reference in the
Joint Proxy Statemnt/Prospectus of the aforementioned report and to the use of
our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Philadelphia, PA
November 13, 1996
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of our report dated
February 4, 1994 appearing in JeffBanks, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1995.
Price Waterhouse LLP
Philadelphia, PA
November 14, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 17, 1995 and to all references to our firm included in or made a
part of this JeffBanks, Inc. Form S-4 Registration Statement.
ARTHUR ANDERSEN LLP
Philadelphia, PA
November 12, 1996
EXHIBIT 23(f)
We hereby consent to the reference to our name appearing herein under
the captions entitled "Summary - The Merger - Opinion of Financial Advisor" and
"The Merger - Reasons for the Merger; Recommendations of the Board of Directors
- - Advice of Financial Advisors and Fairness Opinion" and "The Merger - Opinion
of Financial Advisor." We further consent to the use of our letter to the Board
of Directors of UVB concerning the fairness of the financial terms of the
proposed merger, appearing as Annex B to the Joint Proxy Statement/Prospectus
contained herein.
Arnold G. Danielson, Chairman
Rockville, Maryland
, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _______________
Commission File No. 0-22850
JEFFBANKS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2189480
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1609 Walnut Street
Philadelphia, PA 19103
(Address of registrant's (Zip Code)
principal executive officers)
Registrant's telephone number, including area code: (215) 564-5040
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part II
of this Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon closing sale price as quoted on NASDAQ National
Market on February 14, 1996: $62,444,783.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicating the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 3,758,834 shares as
of February 14, 1996.
<PAGE>
PART I
ITEM 1. BUSINESS
General
JeffBanks, Inc. (the "Company") is a Pennsylvania chartered, registered
bank holding company headquartered in Philadelphia with two wholly-owned
subsidiaries, Jefferson Bank ("Jefferson PA") and Jefferson Bank of New Jersey
("Jefferson NJ"). The Company operates principally through its subsidiary banks,
which are engaged in the commercial banking business in Philadelphia,
Pennsylvania and its immediately adjacent Pennsylvania and New Jersey suburbs.
The Company currently operates an executive office, twenty-four retail branch
offices and a mortgage loan production office.
The Company recently has experienced substantial growth, resulting
primarily from the acquisitions of the Bank of Chester County and Security First
Bank in 1994 and Constitution Bank in 1995. For the three-year period ended
December 31, 1995, the Company's total assets have grown from $558.2 million to
$939.0 million, its deposits have grown from $503.7 million to $725.0 million
and its shareholders' equity has grown from $41.0 million (including minority
interests) to $73.3 million. The Company has also enjoyed increased
profitability during the period. The Company's income increased from $3.5
million (before minority interests and dividend on preferred stock of
subsidiary) for 1992 to $7.7 million for 1995. Return on average assets
increased from .66% for 1992 to .96% for 1995.
The Company's primary strategy for further growth is to establish a
reputation and market presence as the "small and middle-market business bank."
The Company has sought to implement its strategy by targeting the banking needs
of high net worth or high income individuals within its market area and the
businesses which they own or control. To attract this market, the Company
provides specialized commercial lending, cash management, lease financing and
personal credit services. In particular, in its commercial lending, the Company
seeks to respond to its targeted market by customizing the terms of its loans to
the specific or special needs of individual customers or their businesses. Such
services are also intended to aid in generating loans and deposits from the
Company's targeted market. The Company believes that satisfactory attention to
this selected market requires a combination of the services of the type
described above (which the Company believes are frequently unavailable at small
banks), and the personal attention of senior management (which the Company
believes is often unavailable to such customers at major financial
institutions). The customers in this market generally require relatively small
amounts of credit (almost never in excess of $5 million, and often less than $1
million), but often seek customized solutions to their financial requirements.
The Company provides a wide range of banking services for both
individuals and businesses in addition to the more specialized services referred
to previously. For individuals, the Company provides services which include
demand, NOW, money market, certificates of deposit, and other saving accounts.
The Company also offers telephone transfer services,
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<PAGE>
automatic teller services through the MAC inter-bank automated teller system,
night depository services, safe-deposit facilities, consumer loan programs
(including installment loans for home repairs and for the purchase of consumer
goods such as automobiles and boats), home equity loans, credit card plans with
Visa and Mastercard, revolving lines of credit, automobile leases, residential
construction loans and permanent mortgages for single family and multi-family
houses. For businesses, the Company additionally offers short-term loans for
seasonal and working capital purposes, term loans secured by real estate and
other assets, loans for construction and expansion needs, equipment and
automobile leasing and loan programs, revolving credit plans, and other
commercial loans. The Company, through Monticello Investment Services, also
offers a full range of investment products including mutual funds, annuities and
discount brokerage. Trust services are marketed in conjunction with Chase
Manhattan Bank, N.A.
Deposits obtained through the Company's branch banking system have been
the principal source of funds for use in the Company's lending activities. At
December 31, 1995, the Company had total deposits of $725.0 million. Of this
total, 46% represented time deposits, 34% represented savings and money market
deposits and 20% represented demand (non-interest bearing) deposits.
At December 31, 1995, the Company had a net loan portfolio (excluding
mortgage loans held for sale) of $659.3 million, representing 70% of total
assets at that date. The loan portfolio of the Company is categorized into
commercial, commercial mortgage, residential mortgage, construction, consumer
(including home equity lines of credit) and direct lease financing. At December
31, 1995, commercial mortgages and other commercial loans were $429.5 million or
approximately 65% of the Company's net loan portfolio. Although in making its
loans the Company relies upon its evaluation of the creditworthiness and
debt-servicing capability of a borrower, its loans generally are secured by
residential or commercial real property, automobiles, equipment, fixtures, and
other collateral. However, significant exceptions may be made to this general
operating philosophy. The Company does not generally engage in non-recourse
lending (i.e., lending as to which the lender only looks to the asset securing
the loan for repayment) and typically will require the principals of any
commercial borrower to personally guarantee the loan. The Company does not
generally engage in out-of-area lending, although it may accept significant
amounts of out-of-area collateral security (such as a second home or other
collateral) from borrowers in the Philadelphia area.
The Company has been active in originating residential mortgage loans
for the purposes of resale to the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation and other entities. For the year ended
December 31, 1995, the Company had originated $20.5 million of mortgage loans.
The Company originates these loans primarily through its branches and existing
network of customers and generally retains the servicing on loans sold.
Originations are sold without recourse to the Company. The Company generally
obtains commitments to sell its mortgage originations as they are made, to
minimize the interest rate risk of holding such originations. At December 31,
1995, the Company had approximately $484,000 of mortgage loans held for sale.
-3-
<PAGE>
Additionally, the Company periodically purchases the right to service
other portfolios located in its geographic markets. Amounts so purchased are
subject to, and limited by, management's assessment of the prepayment risk of
the underlying portfolio. Under its mortgage servicing arrangements, the Company
collects and remits loan payments, maintains related account records, makes or
monitors insurance and tax payments, makes any required physical inspections of
property, contacts delinquent mortgagors, and supervises foreclosures and
property dispositions. At December 31, 1995, the Company was servicing real
estate loans for lenders other than itself in an aggregate principal amount of
approximately $254.2 million.
Competition
In its Philadelphia metropolitan service area, the Company is subject
to intense competition for customers among numerous commercial banks, savings
and loan associations and other financial institutions. The Company actively
competes with these institutions for deposits and local retail and commercial
accounts. Many of its competitors have significantly greater financial resources
than the Company. In consumer transactions, which typically involve loans in
amounts far less than the lending limit of either of the subsidiary banks, the
Company believes it is able to compete on a substantially equal basis with
larger financial institutions. In commercial loan transactions, Jefferson PA's
lending limit to a single customer (approximately $11.0 million as of December
31, 1995) enables the Company to compete effectively for the credit needs of
small and moderate-sized businesses, while the lending limit of Jefferson NJ
(approximately $1.3 million at December 31, 1995) enables it to effectively
compete for the credit needs of small businesses. These lending limits are,
however, considerably below those of various competing institutions, which makes
it difficult, and in some cases impossible, for the Company to compete
effectively when the amount of the loan or financing required is in excess of
the lending limits of its subsidiary banks. In competing with other banks, as
well as savings and loan associations and other financial institutions, the
Company seeks to provide personalized services through officers' and directors'
knowledge of the Company's primary service area and customers. The size of such
customers, in management's opinion, often inhibits close attention to their
needs by larger institutions.
In addition to competition from savings and loan associations, thrift
institutions and other commercial banks, commercial banks are experiencing
competition from non-traditional sources. Industrial and retail organizations
and securities firms, through their financial services units, through various
new products and services, are providing strong competition in traditional
banking activities. These competitors are not regulated on the same basis as
banks.
Acquisition Activity
The Company made several acquisitions in 1994 and 1995, in addition to
its acquisition of the minority interest in Jefferson NJ, as follows:
Bank of Chester County. On March 29, 1994, the Company, through
Jefferson PA, completed a merger with the Bank of Chester County ("Chester
County") pursuant to which it
-4-
<PAGE>
acquired that institution. Under the terms of the merger, each share of Chester
County common stock was converted into .25 of a share of the Company's common
stock, resulting in the issuance of 111,530 shares of the Company's common
stock. Chester County was a Pennsylvania chartered, FDIC insured banking
institution engaged in commercial and retail banking with three locations in
Chester County. Chester County had total assets of $57.8 million at the time of
acquisition.
Security First Bank. On December 22, 1994, the Company, through
Jefferson PA, completed a merger with Security First Bank ("Security First"),
pursuant to which it acquired that institution. Under the terms of the merger,
each share of Security First common stock was converted into .3397 of a share of
the Company's common stock, resulting in the issuance of 202,932 shares of the
Company's common stock. Security First was a Pennsylvania chartered, FDIC
insured banking institution engaged in commercial and retail banking with one
location in Delaware County. Security First had total assets of $33.8 million at
the time of acquisition.
Constitution Bank. On August 4, 1995, the Company, through Jefferson
PA, completed a merger with Constitution Bank ("Constitution"), pursuant to
which it acquired that institution. Under the terms of the merger, each share of
Constitution's common stock became .05909 of a share of the Company's common
stock, resulting in the issuance of 106,456 shares of the Company's common
stock. Constitution was a Pennsylvania chartered banking institution engaged in
commercial and retail banking with two offices in Philadelphia. Constitution had
total assets of $122.0 million at the time of acquisition.
Services to Subsidiary Banks
The Company provides a number of services to Jefferson PA and Jefferson
NJ, including arranging for and maintaining computer services, insurance
coverage, marketing and advertising, internal audit services, and loan review
services (primarily review of loan quality, loan documentation, supervision of
the loan watch list and workouts on problem loans). The Company received fees
from its subsidiary banks for such services aggregating $2.9 million in 1995,
$2.5 million in 1994 and $2.0 million in 1993. On a consolidated basis, for
financial reporting purposes, these fees are eliminated except to the extent
they have reduced income applicable to minority interests in 1993 and prior
years.
Recent Developments
In September 1995, the Company called for redemption all of its
outstanding preferred stock. At the close of the redemption period in October
1995, substantially all of the holders of preferred stock had elected, pursuant
to rights included in the terms of the preferred stock, to convert their
preferred shares to shares of the Company's common stock. As a result of such
conversion, the Company issued 906,930 shares of its common stock.
-5-
<PAGE>
ITEM 2. PROPERTY
The Company and its subsidiary banks currently operate twenty-four
branch offices, one bank executive office, one mortgage loan production office
and an operations center. The Company's executive offices occupy a portion of
one of Jefferson PA's branch offices. Twenty-one of these offices occupy
approximately 104,000 square feet and are leased under leases expiring between
1994 and 2011. During 1994, the Company paid aggregate rentals of $1.7 million
under these leases. Four offices are owned and occupy approximately 24,000
square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceeding. However,
its subsidiary banks are involved in routine litigation in the normal course of
their business. In the opinion of the Company, final disposition of this
litigation will not have a material adverse effect on the financial condition or
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-6-
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market
under the symbol "JEFF." The following table sets forth, on a quarterly basis,
the high and low bid prices for the Company's common stock for the Company's two
most recent fiscal years as reported by Nasdaq, together with quarterly dividend
payment information for such period:
Cash Dividends
1994 High Low Per Share
---- ------ ------ ---------
First Quarter .......................... $ 17.25 $ 15.50 $ .10
Second Quarter ......................... 17.75 15.50 .10
Third Quarter .......................... 18.25 17.25 .10
Fourth Quarter ......................... 18.75 16.75 .10
Cash Dividends
1995 High Low Per Share
---- ------ ------ ---------
First Quarter .......................... $ 21.50 $ 18.50 .125
Second Quarter ......................... 23.25 19.25 .125
Third Quarter .......................... 25.00 23.25 .125
Fourth Quarter ......................... 26.00 22.00 .15
As of January 15, 1996, there were approximately 2,500 holders of JBI Common
Stock.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial and operating information
of the Company should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company, including the notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
As of or for the Year Ended December 31,
1995 1994 1993 1992 1991
(Dollars in Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income ..................................... $ 64,317 $ 46,943 $ 40,475 $ 41,491 $ 46,124
Interest expense .................................... 28,229 17,412 16,591 19,422 27,731
-------- -------- -------- -------- --------
Net interest income ................................. 36,088 29,531 23,884 22,069 18,393
Provision for credit losses ......................... 3,135 1,857 1,829 3,153 2,864
-------- -------- -------- -------- --------
Net interest income after provision for credit losses 32,953 27,674 22,055 18,916 15,529
Non-interest income(1)(8) ........................... 6,508 5,343 5,495 4,907 3,135
Non-interest expense ................................ 27,647 23,755 20,741 18,609 16,536
-------- -------- -------- -------- ---------
Income before income taxes, dividends on preferred .. 11,814 9,262 6,809 5,214 2,128
stock and minority interest
Income taxes(9) ..................................... 4,153 3,081 2,062 1,714 742
-------- -------- -------- -------- ---------
Income before dividends on preferred stock and ...... 7,661 6,181 4,747 3,500 1,386
minority interest
Dividends on preferred stock of subsidiary .......... 789 646 478
Minority interest in net income of subsidiaries ..... 1,191 877 316
--------- --------- --------- --------- ---------
Net income ................................. $ 7,661 $ 6,181 $ 2,767 $ 1,977 $ 592
========= ========= ========= ========= =========
Per Common Share Data:
Net income(2) ....................................... $ 2.10 $ 1.86 $ 1.64 $ 1.16 $ .05
Fully diluted net income(2) ......................... 1.94 1.71 1.49 1.16 .05
Book value .......................................... 18.20 17.51 17.04 15.84 14.68
Fully diluted book value(3) ......................... 18.20 16.70 16.21 15.07 14.21
Balance Sheet Data:
Total assets ........................................ $ 939,006 $ 751,525 $ 633,936 $ 558,211 $ 543,110
Total loans(4) ...................................... 673,788 551,865 459,281 438,929 421,033
Allowance for credit losses ......................... (14,032) (7,728) (5,283) (5,094) (4,233)
Investment securities(5) ............................ 145,762 80,628 96,550 46,431 31,874
Goodwill ............................................ 8,978 809 135 156 175
Deposits ............................................ 724,967 619,131 535,509 503,660 490,373
Securities sold under repurchase agreements ......... 46,549 16,229 16,211 7,893 8,501
Minority interest ................................... 437 15,690 11,543
Convertible preferred stock and related surplus ..... 12,835 12,845 5,346 5,346
Common shareholders' equity ......................... 73,311 51,541 43,350 19,916 18,467
Selected Operating Ratios:
Return on average assets ............................ .96% .95% .83% .66% .28%
Return on average common equity ..................... 11.30% 10.75% 10.72% 7.63% .35%
Net interest margin ................................. 4.87% 4.89% 4.47% 4.46% 3.91%
Ratio of earnings to fixed charges .................. 1.33% 1.36% 1.25% 1.16% 1.02%
Dividend payout ratio ............................... 24.82% 20.34%
Selected Capital and Asset Quality Ratios:
Equity/assets ....................................... 7.80% 8.57% 8.86% 4.52% 4.38%
Non-performing loans/total loans(6) ................. 1.80% 1.60% 1.14% 1.31% 1.47%
Non-performing assets/total loans and
non-performing assets(7) ........................... 2.34% 2.40% 2.18% 2.32% 1.96%
Allowance for credit losses/total loans ............. 2.08% 1.40% 1.15% 1.16% 1.01%
Allowance for credit losses/non-performing assets(7) 88.42% 57.97% 52.13% 49.54% 51.00%
Net charge-offs/average loans ....................... .48% .51% .38% .54% .49%
<FN>
(1) Includes net gain on securities of $333,000 in 1995, $128,000 in 1994,
$376,000 in 1993, $605,000 in 1992 and $34,000 in 1991.
(2) Net income per share is based upon the respective weighted average
number of common shares outstanding, as follows: 3,116,505 (1995);
2,617,962 (1994); 1,368,705 (1993); 1,244,066 (1992); and 1,244,066
(1991), after giving retroactive effect to a 5% stock dividend declared
on January 17, 1996. Fully diluted net
-8-
<PAGE>
income per share in 1995, 1994 and 1993 gives effect to the increase in
average shares that would be outstanding, and the increase in net
income applicable to common stock that would result from, the assumed
conversion of the Company's dilutive convertible preferred stock.
(3) Fully diluted book values in 1995 through 1991 give effect to the
increase in average shares that would be outstanding, and the increase
in common equity that would result from, the assumed conversion of the
Company's dilutive convertible preferred stock.
(4) Includes mortgage loans held for sale of $484,000 (1995), $380,000
(1994), $19.0 million (1993), $7.0 million (1992) and $11.9 million
(1991).
(5) Effective January 1, 1994, the Company adopted SFAS No. 115 "Accounting
for Certain Investments in Debt and Equity Securities." The adoption
had no effect on the Company's financial position or results of
operations.
(6) Non-performing loans consist of non-accrual loans and renegotiated
loans and exclude loans past due 90 days or more still accruing
interest. Effective January 1, 1995, the Company adopted SFAS No. 114
"Accounting for Impairment of a Loan," as amended by SFAS No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures." The effect of adoption was not significant to the
Company's financial position or results of operations.
(7) Non-performing assets consist of non-accrual loans, renegotiated loans
and other real estate owned and exclude loans past due 90 days or more
still accruing interest.
(8) Effective October 1, 1995, the Company adopted SFAS No. 122,
"Accounting for Mortgage Servicing Rights." The effect of adoption was
not significant to the Company's financial position or results of
operations.
(9) Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." The effect of adoption was not
significant to the Company's financial position or results of
operations.
(10) All acquisitions have been accounted for under the purchase method of
accounting and accordingly, the results of these entities' operations
are included from their respective dates of acquisition.
</FN>
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the consolidated
financial statements of the Company and related notes included elsewhere herein.
Overview
Net income of the Company increased to $7.7 million in 1995 from $6.2
million in 1994 and $4.7 million (before minority interests) in 1993.
Non-accrual loans were $12.1 million at December 31, 1995, compared to $8.1
million a year earlier. Non-performing assets amounted to $15.9 million at
December 31, 1995 and $13.3 million at December 31, 1994(1). Non-performing
assets reflected a decrease in other real estate owned to $3.8 million at
December 31, 1995 from $4.5 million at December 31, 1994(1). The majority of the
increases in non-accrual loans and non-performing assets in 1995 as compared to
1994 resulted from the acquisition of Constitution Bank. Management believes
that the loans so acquired are adequately reserved in the allowance for credit
losses and that other real estate owned so acquired is properly reflected at
collectible amounts.
As set forth in "Results of Operations - General," below, the Company's
results of operations depend primarily on its net interest income. Consistent
with recent trends in the industry, the Company's interest margins widened in
1995 and 1994. Net interest income in 1995 increased approximately 22% over 1994
which increased 24% over 1993. The net interest margin, expressed as net
interest income divided by average interest earning assets, increased to 4.87%
in 1995 and 4.89% in 1994, as compared to 4.47% in 1993. As interest rates
generally increased in 1994, the Company was able to reprice its loans sooner
than it repriced its liabilities. Also in 1994, growth in demand, NOW and
savings and money market deposits, generally the least expensive source of
funds, enabled the Company to reduce its reliance on higher cost time deposits.
In 1995, the Company maintained net interest margins at approximately the prior
year's level by continuing to maintain interest rates on many core deposits at
lower levels more consistent with industry averages, and as a result of growth
in demand deposit balances. Net loans at December 31, 1995 increased 21%, or
$121.9 million over the prior year amount. Of that increase, approximately $72.0
million resulted from the acquisition of Constitution. Net loans at December 31,
1994 increased 20% or $90.1 million over the prior year amount. Of that
increase, approximately $60.0 million resulted from the acquisition of Chester
County and Security First. See "The Company - Acquisition Activity." Overall
loan growth for 1993 was significantly lower than in 1994 and 1995 as the
Company sought to maintain its capital ratios during that year. Jefferson PA
increased its capital through the issuance of $9.0 million of its 9.5%
subordinated debentures in February, 1993. In November, 1993 the Company issued
- --------
1 Non-accrual loans and non-performing assets exclude loans past due 90 days or
more still accruing interest.
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<PAGE>
750,000 shares of common stock at $19 per share, through a public offering. The
net proceeds of the offering were utilized primarily to provide additional
capital to the Company's subsidiary banks. As of December 31, 1995, the capital
ratios of the Company and each of its subsidiary banks significantly exceeded
the "well-capitalized" standard established by regulatory authorities.
See "Liquidity and Capital Resources," below.
Results of Operations
General. The Company's results of operations depend primarily on net
interest income, which is the difference between interest income on interest
earning assets and interest expense on interest bearing liabilities. Interest
earning assets consist principally of loans and investment securities, while
interest bearing liabilities consist primarily of deposits. The Company's net
income is also affected by the provision for credit losses and the level of
non-interest income as well as by non-interest expenses, including salary and
employee benefits, occupancy costs, data processing expense, charges relating to
non-performing and other classified assets and other expenses.
Net Income. Net income (before minority interests) was $7.7 million in
1995 compared to $6.2 million in 1994 and $4.7 million in 1993. The minority
interest was eliminated for periods after 1993 as a result of the acquisition of
minority interest shares; but, for 1993, net income excluded minority interest
in net income of subsidiaries of $1.2 million and dividends on preferred stock
of subsidiary of $789,000. In 1995, the Company maintained net interest margins
at approximately the prior year's level by continuing to maintain interest rates
on many core deposits at lower levels more consistent with industry averages,
and as a result of growth in demand deposit balances. See "Net Interest Income
and Average Balances," below. Repricing opportunities for loans and the shift in
deposit base to lower cost demand, NOW, savings and money market deposits served
to increase interest margins in 1994. In 1994, the Company reduced its cost of
funds to levels more consistent with industry averages by maintaining interest
rates on many core deposits at or below their lowered prior year levels when
rates had generally declined. Concurrently, the Company was able to increase
loan rates during 1994 when rates generally rose. During 1993, the Company's
cost of funds was at high levels relative to the banking industry generally. The
provision for credit losses increased to $3,135,000 in 1995 as compared to
$1,857,000 in 1994 and $1,829,000 in 1993. See "Financial Condition - Provision
for Credit Losses," below. Gain on sales of residential mortgages decreased to
$261,000 in 1995 from $405,000 in 1994 and $1.5 million in 1993 as higher rates
in 1995 and 1994 significantly reduced refinancing volume. Net securities gains
were $333,000 in 1995, as compared with $128,000 in 1994 and $376,000 in 1993.
See "Results of Operations - Net Interest Income and Average Balances" and
"Non-Interest Income," below. Jefferson NJ earned $288,000 in 1995, $214,000 in
1994 and $26,000 in 1993.
Net Interest Income and Average Balances. Net interest income was $36.1
million in 1995, compared to $29.5 million in 1994, and $23.9 million in 1993.
Yields on assets increased to 8.66% in 1995 from 7.77% in 1994, a difference of
.89% as assets were repriced to market interest rates which continued their
cycle of 1994 increases into the first half of 1995, when the
-11-
<PAGE>
Wall Street Journal prime peaked at 9%. Decreases in interest rates in the
latter half of 1995 were too modest to offset the effect of the increases in the
first half of the year. Such decreases did result in a prime rate of 8.75% for
most of the latter half of 1995. Accordingly, the cost of interest bearing
liabilities also increased, to 4.57% in 1995, from 3.49% in 1994, a difference
of 1.08% as liabilities adjusted to market interest rates more rapidly than
assets. In 1995 the Company was nonetheless able to maintain interest rates on
many core deposits at lower levels (relative to market rates) which were more
consistent with industry averages, as it had done in 1994. Also in 1995,
increases in demand deposits served to partially offset the impact of increases
in the cost of interest bearing liabilities. Accordingly, net interest margins
of 4.87% in 1995 and 4.89% in 1994 were comparable. Yields on assets increased
to 7.77% in 1994 from 7.56% in 1993, a difference of .21%. The cost of interest
bearing liabilities decreased to 3.49% in 1994 from 3.63% in 1993, a difference
of .14%. In 1994, the net yield on the Company's average interest earning assets
of 4.89% was .42% higher than the 4.47% net yield in 1993.
In 1995, average time deposits and FHLB advances, which represent the
Company's highest cost of short term borrowed funds, respectively totaled $309.2
and $47.3 million, representing respective increases of $69.1 and $32.0 million
over 1994. That growth, which compared to a prior year reduction, was
accompanied by demand, NOW, savings and money market deposit growth of $30.6
million in 1995 over 1994. That demand, NOW, savings and money market deposit
growth lessened the increase in the 1995 ratio of time deposits and FHLB
advances to total interest bearing liabilities. That ratio was 58% in 1995, 51%
in 1994, and 55% in 1993. As interest rates generally increased in 1994, the
Company was able to reprice its loans sooner than it repriced its liabilities.
Moreover, in that year the Company was able to reduce its cost of funds to
levels more consistent with industry averages by maintaining interest rates on
many core deposits at or below their lowered prior year levels when rates had
generally declined. A shift in the Company's deposit base from time deposits,
which represent a higher cost of deposit funds than demand, NOW, savings and
money market deposits, also contributed to the increase in net yield in 1994.
Average balances for time deposits decreased to $240.0 million in 1994 from
$249.9 million in 1993 while average balances for demand, NOW, savings and money
market deposits increased to $298.5 million in 1994 from $245.3 million in 1993.
The Company intends to continue to pay rates on its NOW, savings and money
market accounts which are consistent with industry averages. However, the
Company's cost of funds, which was high relative to the industry before 1994,
may increase in the future. In addition to matching its local competitors'
rates, which may fluctuate significantly, a higher relative proportion of
certificates of deposit, if required to fund loan growth or increase liquidity,
might serve to increase the cost of funds.
The following tables present the average daily balances of assets,
liabilities and shareholders' equity and the respective interest earned or paid
on interest earning assets and interest bearing liabilities, as well as average
rates for the periods indicated:
-12-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
--------------------------- ------------------------- --------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Mortgages held for sale...... $ 867 $ 69 7.96% $ 4,114 $ 321 7.80% $ 9,587 $ 757 7.90%
Loans net of unearned
discount(1)................. 608,385 56,739 9.33% 487,505 41,586 8.53% 424,233 35,595 8.39%
Allowance for credit
losses...................... (9,750) (7,003) (5,384)
-------- -------- ------- -------- ------- -------
Loans, net................... 599,502 56,808 9.48% 484,616 41,907 8.65% 428,436 36,352 8.48%
Investment securities:
Held to maturity:
Taxable investment
securities................ 4,199 233 5.55% 5,973 374 6.26%
Non-taxable investment
securities................ 632 49 7.75%(2) 425 33 7.76%(2)
Available for sale:
Taxable investment
securities................ 85,219 4,597 5.39% 80,018 3,528 4.41% 54,154 2,603 4.81%
Non-taxable investment
securities................ 2,962 226 7.63%(2) 3,720 274 7.37%(2) 2,799 218 7.79%(2)
Federal funds sold........... 41,436 2,498 6.03% 24,098 931 3.86% 45,615 1,376 3.02%
-------- ------- -------- ------- -------- -------
Net interest earning assets... 733,950 64,411 598,850 47,047 531,004 40,549
Cash and due from banks....... 30,639 25,300 21,569
Accrued interest receivable... 4,809 3,875 3,237
Bank premises and
equipment.................... 12,448 10,318 8,096
Other real estate owned....... 6,080 5,208 4,628
Other assets.................. 12,718 5,468 3,673
Liabilities and
Shareholders' Equity:
Deposits:
Demand (non-interest
bearing)....................$ 105,006 $ 85,331 $ 65,289
NOW accounts................. 60,101 $ 1,273 2.12% 52,877 $ 1,056 2.00% 47,721 $ 1,081 2.27%
Savings and money market..... 163,989 4,866 2.97% 160,291 4,270 2.66% 132,319 3,803 2.87%
Time......................... 309,152 17,479 5.65% 240,014 10,035 4.18% 249,905 10,417 4.17%
-------- ------- -------- ------- -------- -------
Total deposits............. 638,248 23,618 538,513 15,361 495,234 15,301
Securities sold under
repurchase agreements........ 27,962 980 3.50% 21,699 498 2.30% 16,444 411 2.50%
Subordinated debentures....... 9,000 855 9.50% 9,000 855 9.50% 7,975 760 9.53%
FHLB advances................. 47,309 2,776 5.87% 15,359 698 4.54% 3,054 119 3.90%
Accrued interest payable...... 6,725 4,050 4,138
Other liabilities............. 3,324 460 (236)
Shareholders' equity:
Common stock(3).............. $ 3,246 $ 2,506 $ 1,306
Preferred stock and related
surplus(3).................. 11,235 12,840 21
Additional paid-in capital(3). 35,857 30,382 16,601
Retained earnings(3)......... 17,458 13,070 10,192
-------- -------- --------
Total shareholders' equity.. $ 67,796 $ 58,798 $ 28,120
======== ======== ========
Average total interest
earning assets............... $743,700 64,411 8.66% $605,853 $47,047 7.77% $536,388 $40,549 7.56%
Average total interest
bearing liabilities.......... $617,513 28,229 4.57% $499,240 17,412 3.49% $457,418 16,591 3.63%
------- ------- -------
Net yield on average
interest earning assets
(net interest margin)........ $743,700 $36,182 4.87% $605,853 $29,635 4.89% $536,388 $ 23,958 4.47%
======= ======= ========
<FN>
(1) Non-accrual loans have been included in the appropriate average loan
balance category, but interest on non-accrual loans has not been
included for purposes of determining interest income.
(2) The interest earned on non-taxable investment securities is shown on a
tax equivalent basis assuming a federal tax rate of 34% for all
periods.
(3) On January 17, 1996, the Company declared a 5% common stock dividend to
shareholders of record on February 22, 1996 payable March 15, 1996. The
information in this table has not been adjusted to give retroactive
effect to this dividend.
</FN>
</TABLE>
-13-
<PAGE>
The following table presents a summary of the principal components of
and changes in interest income and interest expense of the Company for the
periods indicated:
<TABLE>
<CAPTION>
Change from Prior Year
Year Ended December 31, 1995 1994
1995 1994 1993 Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Mortgages held for sale............... $ 69 $ 321 $ 757 $ (252) (79%) $ (436) (58%)
Interest and fees on loans............ 56,739 41,586 35,595 15,153 36% 5,991 17%
Interest on investment
securities:
Held to maturity:
U.S. Treasury securities.......... 102 77 25 32% 77
Federal agency obligations........ 131 297 (166) (56%) 297
State and municipal
obligations..................... 32 22 10 45% 22
Available for sale:
U.S. Treasury securities.......... 1,964 2,821 2,100 (857) (30%) 721 34%
Federal agency obligations........ 2,321 569 350 1,752 308% 219 63%
State and municipal
obligations...................... 149 181 144 (32) (18%) 37 26%
Other ........................... 312 138 153 174 126% (15) (10%)
Interest on federal funds sold......... 2,498 931 1,376 1,567 168% (445) (32%)
------- ------- ------- ------- ------
Total interest income.................. 64,317 46,943 40,475 17,374 37% 6,468 16%
------- ------- ------- ------- ------
Interest Expense:
Deposits........................... 23,618 15,361 15,301 8,257 54% 60 *
FHLB advances...................... 2,776 698 119 2,078 298% 579 487%
Securities sold under
repurchase agreements............. 980 498 411 482 97% 87 21%
Subordinated debentures............ 855 855 760 95 13%
------- ------- ------- ------- ------
Total interest expense................. 28,229 17,412 16,591 10,817 62% 821 5%
------- ------- ------- ------- ------
Net interest income.................... $36,088 $29,531 $23,884 $ 6,557 22% $5,647 24%
======= ======= ======= ======= ======
<FN>
- ----------
* Less than 1%.
</FN>
</TABLE>
-14-
<PAGE>
The following table sets forth changes in net interest income
attributable either to changes in volume (average balances) or to changes in
average rates for interest earning assets and interest bearing liabilities:
<TABLE>
<CAPTION>
1995 Versus 1994 1994 Versus 1993
--------------------------- ----------------------------
Net Due to Net Due to
Increase Changes in Increase Changes in
(Decrease) Volume Rate (Decrease) Volume Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Mortgages held for sale................ $ (252) $ (257) $ 5 $ (436) $ (432) $ (4)
Loans.................................. 15,153 11,010 4,143 5,991 5,309 682
Investment securities:
Held to maturity:
Taxable investment securities..... (141) (102) (39) 374 374
Non-taxable investment securities. 10 10 22 22
Available for sale:
Taxable investment securities..... 1,069 241 828 925 1,244 (319)
Non-taxable investment securities. (32) (38) 6 37 72 (35)
Federal funds sold and securities
purchased under agreements to resell. 1,567 881 686 (445) (650) 205
------- ------- ------ ------ ------ ----
Total increase in interest income.......... 17,374 11,745 5,629 6,468 5,939 529
------- ------- ------ ------ ------ ----
Interest Expense:
NOW accounts........................... 217 151 66 (25) 117 (142)
Savings and money market............... 596 100 496 467 803 (336)
Time deposits.......................... 7,444 3,349 4,095 (382) (412) 30
Securities sold under repurchase
agreements........................... 482 171 311 87 131 (44)
Subordinated debentures................ 95 98 (3)
FHLB advances.......................... 2,078 1,823 255 579 480 99
------- ------ ------ ------ ------ ----
Total increase (decrease) in interest expense 10,817 5,594 5,223 821 1,217 (396)
------- ------ ------ ------ ------ ----
Changes in net interest income............. $ 6,557 $ 6,151 $ 406 $5,647 $4,722 $925
======= ======= ====== ====== ====== ====
</TABLE>
During 1995, average interest earning assets totaled $743.7 million, an
increase of $137.8 million or 23% over 1994, as compared to an increase of $69.5
million or 13% in 1994 over 1993. Of the $137.8 million increase in 1995, $117.6
million resulted from increased average loan balances, which includes $33.3
million of average loan balances resulting from the Constitution acquisition on
August 4, 1995; $21.9 million from the Security First acquisition on December
22, 1994; and $9.6 million from the full year effect on 1995 from the Chester
County acquisition on March 29, 1994. Of the $69.5 million increase in 1994,
$57.8 million resulted from increased average loan balances, which includes the
$28.7 million average loan balance resulting from the Chester County acquisition
on March 29, 1994. As the Security First acquisition occurred on December 22,
1994, it had an insignificant effect on the 1994 annual average. Lesser growth
in 1993, as compared to historical and 1995 and 1994 periods, resulted from the
Company's efforts to maintain its capital ratios in that year. The average rate
on interest earning assets was 8.66% in 1995, 7.77% in 1994 and 7.56% in 1993.
During 1995,
-15-
<PAGE>
average interest bearing liabilities totaled $617.5 million, an increase of
$118.3 million or 24% over 1994 compared to an increase of $41.8 million or 9%
in 1994 from 1993. Of the $118.3 million increase in 1995, $10.9 million
resulted from increases in NOW, savings and money market accounts. Of the $41.8
million increase in 1994, $33.1 million resulted from increases in NOW savings
and money market accounts. The average rate on interest bearing liabilities
increased to 4.57% in 1995 after declining to 3.49% in 1994 from 3.63% in 1993.
Non-Interest Income. The following table provides a summary of
non-interest income:
Year Ended December 31,
---------------------------
1995 1994 1993
---- ---- ----
(Dollars in Thousands)
Non-interest income:
Service fees on deposit accounts ............ $2,654 $2,191 $1,661
Gain on sales of residential mortgages ...... 261 405 1,490
Gain on sales of investment securities ...... 333 128 376
Mortgage servicing fees ..................... 885 742 762
Merchant credit card deposit fees ........... 1,247 871 385
Other ....................................... 1,128 1,006 821
------ ------ ------
Total ....................................... $6,508 $5,343 $5,495
====== ====== ======
Total non-interest income for 1995 was $6.5 million, an increase of
$1.2 million or 22% from 1994, which in turn had shown a decrease of $152,000 or
3% from the prior year. Service fees on deposit accounts increased by 21% and
32% respectively in 1995 and 1994, as compared to the prior year period and
totaled $2.7 million in 1995. The increases in 1995 reflected the impact of the
Constitution and Security First acquisitions, as well as the full year impact of
the Chester County acquisition. The increases in 1994 reflect the impact of the
Chester County acquisition. Additionally, increases in 1995 and 1994 over 1993
reflect the increase in service charges instituted in the third quarter of 1993,
as well as the growth in both years in core deposit accounts, from which most of
the fees are generated.
Gain on the sales of residential mortgages for 1995 amounted to
$261,000, a decrease of $144,000 or 36% from 1994, which in turn had shown a
decrease of $1.1 million or 73% from the prior year. The reductions in 1995 and
1994 resulted primarily from decreased refinancing volume due to the increased
levels of market interest rates during that two year period. The Company
generally sells all the residential mortgage loans it originates under fixed
price commitments from the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation and other entities. Gain on the sales of
residential mortgage loans is recognized at the time of sale and substantially
all such gains result from fees collected on such loans.
Sales of securities resulted in net gains of $333,000 in 1995, as
compared to $128,000 in 1994 and $376,000 in 1993. In structuring the Company's
investment portfolio, management attempts to lock in yields in the most
advantageous rate environments. In the latter half of 1995, investment
securities available for sale were sold and replaced with securities offering
higher yields. Sales of investment securities available for sale in 1994, all
made in the first quarter, amounted to $18.7 million, and reflected management's
expectation of increases in market interest
-16-
<PAGE>
rates. The anticipated interest rate increases occurred shortly thereafter and
there were no additional sales in 1994. In 1993, gains reflected $150,000 which
resulted from the sale of $1.3 million of Student Loan Marketing Association
adjustable rate preferred stock.
Mortgage servicing fees were $885,000 in 1995, compared to $742,000 in
1994 and $762,000 in 1993. The increase in 1995 mortgage servicing fees over the
prior year resulted primarily from the fourth quarter 1994 purchase of servicing
rights to a $70.0 million mortgage portfolio. That purchase was the primary
factor in the increase in the servicing portfolio to $254.2 million and $247.0
million, respectively, at December 31, 1995 and 1994 from $183.4 million at
December 31, 1993. At December 31, 1995 and 1994, unamortized amounts for
mortgage servicing rights were $1.1 million and $914,000, respectively, and are
being amortized over the estimated lives of the portfolios. The decrease in 1994
over the prior year resulted from reduced amounts of loans serviced, primarily
as a result of fewer average outstanding loans in the servicing portfolio.
The Company adopted SFAS No. 122, "Accounting for Mortgage Servicing
Rights," effective October 1, 1995. The Company originates mortgages under a
definitive plan to sell or securitize those loans and allocates the cost of the
loans to originated mortgage servicing rights and the loans, based on relative
fair values at the date of origination. For the period from October 1, 1995 to
December 31, 1995, originated mortgage servicing rights of $72,000 resulted from
the origination of $5,768,000 of mortgages.
Merchant credit card fees increased in 1995 as compared to 1994 which
had increased significantly over 1993. Most of the increases, which resulted
primarily from increases in volume, are offset by increases in related expense,
reflected under non-interest expense as merchant credit card deposit expense.
-17-
<PAGE>
Non-Interest Expense. The following table provides a summary of
non-interest expense, by category of expense:
Year Ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
(Dollars in Thousands)
Non-interest expense:
Salaries and employee benefits ............ $12,218 $10,809 $ 9,731
Occupancy ................................. 3,029 2,738 2,381
Depreciation .............................. 1,510 1,351 1,127
FDIC insurance ............................ 731 1,221 1,094
Data processing ........................... 1,135 885 748
Legal and auditing ........................ 847 564 614
Stationery, printing, and supplies ........ 700 470 481
Shares tax ................................ 476 338 261
Advertising ............................... 704 440 404
Other real estate-owned maintenance expense 362 204 305
Loss on sale and write-downs of other
real estate owned ........................ 298 324 9
Amortization of intangibles ............... 816 237 278
Merchant credit card deposit .............. 984 637 271
Other ..................................... 3,837 3,537 3,037
------- ------- -------
Total ........................... $27,647 $23,755 $20,741
======= ======= =======
Total non-interest expense for 1995 was $27.6 million, an increase of
$3.9 million or 16% over the $23.8 million in 1994, which had increased $3.0
million or 15% over 1993. Salaries and employee benefits represent the largest
component of non-interest expense. Increases over the prior year period were
$1.4 million or 13% in 1995 and $1.1 million or 11% in 1994. The increases in
salary and employee benefits in 1995 over 1994, and in 1994 over 1993, reflected
the expansion of the commercial and consumer loan departments, the addition of
new branches and increases in ESOP and 401(k) contributions. Salaries and
employee benefits in both 1995 and 1994 also reflected decreases in mortgage
department staffing levels resulting primarily from reduced mortgage refinancing
originations in those years.
Of the 1995 increase in salary and employee benefits of $1.4 million,
$366,000 resulted from commercial loan department expansion; $92,000 resulted
from consumer loan department expansion; and approximately $334,000 resulted
from additional branches. In 1995, ESOP and 401(k) contributions amounted to
$279,000, an increase of $98,000 over 1994. In 1995, reductions in the mortgage
department from the prior year amounted to approximately $126,000. Of the 1994
increase in salaries and benefits of $1.1 million, approximately $211,000
resulted from expansion of the commercial lending department, $138,000 from
expansion of the consumer lending function and $415,000 from additional branch
locations. In 1994, ESOP and 401(k) contributions amounted to $181,000, an
increase of $106,000 over 1993. Reductions in the mortgage department in 1994,
compared to the previous year, amounted to $354,000. The increases in 1995, 1994
and 1993 also reflected annual merit increases which averaged 3% to 4.5%.
-18-
<PAGE>
Occupancy expense totaled $3.0 million in 1995 compared to $2.7 million
in 1994 and $2.4 million in 1993. Of the $291,000 increase in 1995, $249,000
resulted from additional branch locations. Of the $357,000 increase in 1994,
$172,000 resulted from expenses in connection with additional branch locations
and the relocation of two branches, and $111,000 resulted from increases in
maintenance and repairs. The majority of the increases in 1993 over the prior
year resulted from building rentals and other expenses in connection with new
branch locations. Depreciation expense was $1.5 million in 1995, $1.4 million in
1994, and $1.1 million in 1993. Substantially, all of the increase in 1995
compared to 1994 resulted from additional branch locations. Of the $224,000
increase in 1994 compared to 1993, approximately $188,000 resulted from new
branch locations.
The FDIC insurance assessment for 1995 amounted to $731,000 compared to
$1.2 million in 1994 and $1.1 million in 1993. The $490,000 reduction in 1995 as
compared to 1994 resulted from a reduction in assessment rates over those in
effect during both 1994 and 1993. For 1996, assessments are scheduled to be
virtually eliminated; however, assessments may be re-instituted at any time, and
may be subject to periodic increases or decreases.
Data processing expense amounted to $1.1 million in 1995, $885,000 in
1994, and $748,000 in 1993. The $250,000 increase in 1995 over 1994, and the
$137,000 increase in 1994 over 1993 reflected increases in transaction volume
resulting primarily from acquisitions.
Legal and auditing expense amounted to $847,000 in 1995, $564,000 in
1994, and $614,000 in 1993. Of the $283,000 increase in 1995, $108,000 reflected
an increase in case management fees, and $47,000 reflected increased expense for
Securities Exchange Commission and other regulatory filings.
Stationery printing and supplies amounted to $700,000 in 1995, $470,000
in 1994, and $481,000 in 1993. The $230,000 increase in 1995 over 1994 reflected
the impact of acquisitions and additional branch locations. Amounts in 1994 and
1993 were comparable.
Shares tax is a tax assessed in Pennsylvania in lieu of a state income
tax. The tax is assessed at the rate of 1.25% against a six year moving average
of shareholders' equity.
Advertising expense amounted to $704,000 in 1995, $440,000 in 1994, and
$404,000 in 1993. Of the $264,000 increase in 1995 over 1994, $138,000 resulted
from newspaper advertising campaigns promoting certificates of deposit.
Amortization of intangibles amounted to $816,000 in 1995, $237,000 in
1994, and $278,000 in 1993. Of the $579,000 increase in 1995, $384,000 resulted
from goodwill amortization substantially all of which resulted from the
Constitution and Security First acquisitions. Goodwill from each of those
acquisitions is being amortized over a fifteen year period. A total of $93,000
resulted from core deposit intangibles amortization, primarily from the
Constitution acquisition, and $87,000 resulted from amortization of purchased
mortgage servicing rights on new purchases.
-19-
<PAGE>
Merchant credit card deposit expense increased in 1995 as compared to
1994 which had increased significantly over 1993. Most of the increases, which
resulted primarily from increases in volume, are offset by increases in related
income, reflected under non-interest income as merchant credit card deposit
fees.
Income Taxes. The Company's income tax provision was $4.2 million in
1995 compared to $3.1 million in 1994 and $2.1 million in 1993. The effective
income tax rate was 35% in 1995, 33% in 1994 and 30% in 1993. The increase in
the effective rate in 1995 over 1994 was primarily due to increases in taxable
income and an increase in non-deductible amortization. This was offset by an
increase in tax-exempt loan and investment income. The increase in the effective
rate in 1994 over 1993 was primarily due to increases in taxable income, offset
by tax-exempt loan and interest income. The effective rate of 30% in 1993 was
primarily due to tax-exempt loan and interest income and reductions in certain
valuation allowances.
Liquidity and Capital Resources
Liquidity defines the ability of the Company to generate funds to
support asset growth, meet deposit withdrawals, satisfy borrowing needs,
maintain reserve requirements and otherwise operate on an ongoing basis. During
the past three years, the liquidity needs of the Company were primarily met by
cash on hand, deposits in other banks, federal funds sold and the sale of
investment securities. The Company invests its funds not needed for operations
("excess liquidity") primarily in daily federal funds and securities.
The major source of funds for the Company's investing activities are
cash inflows resulting from net increases in deposits. Advances from the FHLB
are also periodically utilized. Net increases in FHLB advances amounted to $39.7
million in 1995 as compared to $25.0 million in 1994 and $10.3 million in 1993.
Net increases in deposits amounted to $5.6 million, $3.7 million, and $31.8
million respectively, in 1995, 1994 and 1993. Cash inflows were also increased
by the issuance of $9.0 million of 9.5% subordinated debentures and $12.4
million in net proceeds from an offering of common stock in 1993. Funding was
directed primarily at cash outflows required by net increases in loans of $47.8
million, $54.6 million and $11.9 million, respectively, in 1995, 1994 and 1993.
In addition to demand, NOW and savings and money market deposit growth,
the Company utilizes certificates of deposit to fund its loans. Amounts of such
certificates have historically been generated by matching upper market
Philadelphia-area certificate of deposit rates. In 1995, average certificate of
deposit balances were increased. See "Results of Operations - Net Interest
Income and Average Balances," above. Overall, the Company was able to reduce
average certificate of deposit balances in 1994 and 1993 as a result of
increases in its lower cost demand, NOW, savings and money market deposits.
Operating activities include cash outflows for residential mortgages
originated for sale, which amounted to $20.5 million, $36.6 million and $103.0
million, respectively, in 1995, 1994 and 1993. Outflows for mortgages originated
for sale are generally offset within 90 days by the
-20-
<PAGE>
receipt of related sales proceeds. Securities cash outflows represent purchases
of investment securities. Investment securities available for sale may be sold
for liquidity purposes as necessary. Investment securities held to maturity are
available for liquidity after such maturity.
The cash flow balances from the banks acquired by the Company were
excluded from the consolidated statements of cash flows and from the preceding
discussion since they arose when such banks were independent from the Company.
The Company knows of no adverse conditions which would impact the
continued short or long term use of its cash inflows as heretofore described. To
enhance liquidity, Jefferson PA maintains membership in the FHLB. Thus, it may
obtain overnight funding of up to 10% of its total assets at rates approximately
.40% over daily federal funds rates by pledging first mortgage residential
collateral against such advances. Longer term funding at rates approximately
.40% over U.S. Treasury rates is also available. As of December 31, 1995, the
Company had outstanding $75.0 million of overnight advances, all of which
matured in January 1996.
Both the Company and its subsidiary banks are required to comply with
certain "risk-based" capital adequacy guidelines issued by the FRB (for the
Company) and the FDIC (for the subsidiary banks). The risk-based capital
guidelines assign varying risk weights to the individual assets held by a bank.
The guidelines also assign weights to the "credit-equivalent" amounts of certain
off-balance sheet items, such as letters of credit and interest rate and
currency swap contracts. Under these guidelines, institutions are expected to
meet minimum ratios for "qualifying total capital" and tier 1 capital to
risk-weighted assets of 8% and 4% respectively and a minimum leverage ratio (the
ratio of Tier 1 capital to total average assets) of 3% plus an additional
cushion of between 1% and 2%. As used in the guidelines, "Tier 1 capital"
includes common shareholders' equity, certain qualifying perpetual preferred
stock and minority interests in the equity accounts of consolidated
subsidiaries, less goodwill. "Tier 2 capital" components (limited in the
aggregate to one-half of total qualifying capital) include allowances for credit
losses (within limits), certain excess levels of perpetual preferred stock and
certain types of "hybrid" capital instruments, subordinated debt and other
preferred stock. The subordinated debt component of Tier 2 capital is reduced by
20% per year over the last five years of the term of the subordinated debt. The
following table sets forth the regulatory capital ratios of the Company,
Jefferson PA and Jefferson NJ as of December 31, 1995, together with the minimum
ratios required under the regulation for an institution to be deemed "well
capitalized":
-21-
<PAGE>
<TABLE>
<CAPTION>
Tier 1 Capital Total Capital
to Risk-Weighted to Risk-Weighted
Leverage Ratio(1) Assets Ratio Assets Ratio
December 31, December 31, December 31,
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
Entity:
<S> <C> <C> <C> <C> <C> <C>
The Company ......................... 6.54% 7.50% 9.16% 10.72% 11.74% 14.43%
Jefferson, PA ....................... 6.01% 6.98% 8.26% 9.86% 10.92% 13.77%
Jefferson, NJ ....................... 12.16% 13.56% 17.56% 20.55% 18.13% 20.28%
"Well capitalized" institution (under
FDIC Regulations) ................. 5.00% 5.00% 6.00% 6.00% 10.00% 10.00%
<FN>
- ----------
(1) The "leverage ratio" is the ratio of tier 1 capital to total average assets.
</FN>
</TABLE>
At December 31, 1995, both the Company and its subsidiary banks were
"well-capitalized" under FDIC regulations.
Proposed regulations will increase capital requirements when as yet
undetermined levels of interest rate risk are exceeded. Because the Company's
liabilities (such as deposits) generally reprice within a period of one year,
interest rate risk occurs when assets funded by such liabilities (such as loans)
reprice at longer intervals. However, due to the relatively limited amounts of
the Company's assets which reprice in periods longer than three years, it is not
anticipated that such regulations will have a significant impact on the
Company's capital requirements.
Asset and Liability Management
Closely related to the concept of liquidity is the management of
interest earning assets and interest bearing liabilities. An interest rate
sensitive asset or liability is one that, within a defined time period, either
matures or experiences an interest rate change in line with general market
rates. Interest rate sensitivity measures the relative volatility of a bank's
interest margin resulting from changes in market interest rates.
The following table summarizes repricing intervals for interest earning
assets and interest bearing liabilities as of December 31, 1995, and the
difference or "gap" between them on an actual and cumulative basis for the
periods indicated. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds interest rate sensitive assets. During a period of falling
interest rates, a positive gap would tend to adversely affect net interest
income, while a negative gap would tend to result in an increase in net interest
income. During a period of rising interest rates, a positive gap would tend to
result in an increase in net interest income while a negative gap would tend to
affect net interest income adversely. To the extent loans presented in this
table are on a demand basis, they are categorized as to maturity based upon
their stated amortization schedule.
-22-
<PAGE>
<TABLE>
<CAPTION>
1-90 91-180 181-364 1 - 3 3 - 5 Over 5
Days Days Days Years Years Years
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Mortgage held for sale....................... $ 484
Loans net of unearned discount............... 304,675 $49,242 $87,891 $83,653 $114,236 $33,607
Investment securities:
Held to maturity:
Taxable investment securities.............. 2,000 1,197
Non-taxable investment securities.......... 272 420
Available for sale:
Taxable investment securities.............. 8,523 33,861 19,999 44,006 29,219 3,648
Non-taxable investment securities.......... 401 55 175 654 1,151 181
Other........................................ 100 300
Federal funds sold........................... 37,575
-------- ------- -------- -------- -------- -------
Total interest earning assets................ 353,758 83,158 108,365 129,510 144,878 37,856
-------- ------- -------- -------- -------- -------
Interest bearing liabilities:
NOW Accounts................................. 65,059
Savings and money market accounts............ 180,175
Time deposits................................ 76,712 82,343 138,145 24,677 10,535 2,257
Securities sold under repurchase
agreements.................................. 46,549
FHLB advances................................ 75,000
Subordinated debentures...................... 9,000
-------- -------- -------- -------- -------- --------
Total interest bearing liabilities............. 443,495 82,343 138,145 24,677 10,535 11,257
-------- ------- -------- -------- ------- -------
Gap............................................ ($ 89,737) $ 815 ($ 29,780) $104,833 $134,343 $26,599
======== ======= ======== ======== ======== =======
Cumulative gap................................. ($ 89,737) ($88,922) ($118,702) ($ 13,869) $120,474 $147,073
======== ======= ======== ======== ======== ========
Gap to assets ratio............................ (10%) * (3%) 11% 14% 3%
Cumulative gap to assets ratio................. (10%) (9%) (13%) (1%) 13% 16%
<FN>
- ----------
* Less than 1%.
</FN>
</TABLE>
The method used to analyze interest rate sensitivity in the table above
has a number of limitations. Certain assets and liabilities may react
differently to changes in interest rates even though they reprice or mature in
the same or similar time periods. The interest rates on certain assets and
liabilities may change at different times than changes in market interest rates,
with some changing in advance of changes in market rates and some lagging behind
changes in market rates. Also, certain assets, e.g., adjustable rate loans,
often have provisions which may limit changes in interest rates each time the
interest rate changes and on a cumulative basis over the life of the loan.
Additionally, the actual prepayments and withdrawals experienced by the Company
in the event of a change in interest rates may deviate significantly from those
assumed in calculating the data shown in the table. Finally, the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
-23-
<PAGE>
Financial Condition
General. Total average assets of the Company amounted to $800.6 million
in 1995, $649.0 million in 1994, and $572.2 million in 1993. This amounted to a
$151.6 million or 23% increase in 1995 over 1994, as compared with an increase
of $76.8 million or 13% in 1994 over 1993. Total average assets increased during
1995 primarily as a result of the 1995 Constitution acquisition and the full
year effect of the 1994 Security First and Chester County acquisitions. Total
assets increased during 1994 primarily as a result of the Chester County
acquisition. A smaller increase in assets in 1993 over prior historical periods
resulted from the Company's decision during that period to sustain its capital
ratios by not emphasizing asset growth. Capital position in that year was
enhanced by the $9.0 million offering of the 9.5% subordinated debentures and
$12.4 million in net proceeds from an offering of the Company's Common Stock in
1993. See "Liquidity and Capital Resources," above.
Investment Portfolio. The following tables present the book and
approximate market values for each major category of the Company's investment
securities for securities held to maturity and securities available for sale:
December 31,
1995 1994
Book(1) Market Book(1) Market
(Dollars in Thousands)
Securities Held to Maturity:
U.S. Treasury securities ............... $2,000 $1,999 $ 2,001 $ 1,944
Federal agency obligations ............. 1,197 1,198 10,281 9,986
State and municipal obligations ........ 692 711 697 664
------ ------ ------- -------
Total investment securities
held to maturity (2) ................. $3,889 $3,908 $12,979 $12,594
====== ====== ======= =======
-24-
<PAGE>
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
Book(1) Market Book(1) Market Book(1) Market
(Dollars in Thousands)
Securities Available for Sale:
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities ...... $ 54,524 $ 54,527 $53,269 $51,632 $80,570 $80,503
Federal agency obligations .... 75,274 75,946 9,142 8,950 10,487 10,599
State and municipal obligations 2,584 2,617 3,448 3,368 2,850 2,898
Other securities .............. 8,783 8,783 3,699 3,699 2,643 2,644
-------- -------- ------- ------- ------- -------
Total investment securities
available for sale(2) ....... $141,165 $141,873 $69,558 $67,649 $96,550 $96,644
======== ======== ======= ======= ======= =======
<FN>
- ----------
(1) Book value for securities held to maturity is stated at par plus any
remaining unamortized premium paid or less any remaining unamortized
discount received. Effective January 1, 1994, the Company adopted SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities". Prior thereto, all investment securities were categorized
as available for sale and carried at the lower of amortized cost or
market.
(2) Except for U.S. Treasury and agency securities, investments in the
securities of any one issuer do not exceed 10% of the total amount of
investment securities held.
</FN>
</TABLE>
To enhance liquidity and diversification of its interest earning
assets, the Company has been increasing its investment portfolio. To optimize
liquidity, investments consist primarily of U.S. Treasury and agency securities.
Repricing periods currently average less than three years. The Company has been
increasing the average maturity of its investment portfolio by purchasing
securities in the three-to-five year maturity range.
Investment securities with a carrying value of $55.6 million and $30.4
million at December 31, 1995 and 1994, respectively, were pledged to secure
deposits of state and local governments, federal government agencies, and
securities sold under repurchase agreements as required or permitted by law.
-25-
<PAGE>
The following table shows the contractual maturity distribution of the
investment securities portfolio and the weighted average yield of such
securities as of December 31, 1995:
<TABLE>
<CAPTION>
After After
One to Five Over
One Year Average Five Average to Ten Average Ten Average
or less Yield(1) Years Yield(1) Years Yield(1) Years Yield(1) Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. Treasury securities......... $ 2,000 5.10% $ 2,000
Federal agency obligations....... $ 1,197 6.10% 1,197
State and municipal obligations.. 272 7.12% $ 420 8.16% 692
------- ------- ------ -------
Total held to maturity......... 2,000 1,469 420 3,889
======= ======= ====== =======
Weighted average yield (1)... 5.10% 6.18% 8.16%
===== ===== =====
Available for Sale:
U.S. Treasury securities......... $28,061 4.72% $26,466 5.29% $ 54,527
Federal agency obligations....... 25,743 5.33% 46,724 6.34% $2,778 7.51% $ 701 7.06% 75,946
State and municipal obligations.. 631 7.81% 1,805 6.79% 181 7.24% 2,617
Other securities................. 260 8.58% 8,523 6.25% 8,783
------- ------- ------ ------ --------
Total available for sale....... $54,435 $74,995 $3,219 $9,224 $141,873
======= ======= ====== ====== ========
Weighted average yield (1)... 5.05% 5.98% 7.58% 6.31%
===== ===== ===== =====
<FN>
- ----------
(1) Yields on tax-exempt obligations have been computed on a tax equivalent
basis assuming a federal tax rate of 34%.
</FN>
</TABLE>
Loan Portfolio. The mainstay of the Company's lending business
continues to be commercial loans and commercial mortgages. However, other lines
of business are also being pursued. Accordingly, while commercial loans and
commercial mortgages grew to $429.5 million at December 31, 1995, a $150.1
million increase over December 31, 1991, consumer loans, primarily indirect
automobile loans, grew by $71.6 million during that period and amounted to
$117.1 million at December 31, 1995. The construction loan portfolio, comprised
primarily of single family residential construction loans, also increased $27.9
million during the period, to a total of $56.3 million.
The following table summarizes the loan portfolio of the Company by
loan category and amount at December 31 for the past five years. The loan
categories correspond to the Company's internal classifications. Net loans are
stated at the amount of unpaid principal, and are net of unearned discount and
unearned loan fees. Loans with a principal amount in excess of 2% of the
Company's capital are generally considered to be "large" loans. By these
standards, large loans were those exceeding $1.5 million, $1.3 million, and $1.1
million at December 31, 1995, 1994 and 1993, respectively. Large loans as a
percentage of total loans at December 31, 1995, 1994 and 1993 were 13%, 10% and
16%, respectively.
-26-
<PAGE>
<TABLE>
<CAPTION>
Book Value
December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Mortgages held for sale ......... $ 484 $ 380 $ 19,009 $ 7,018 $ 11,881
-------- -------- -------- -------- --------
Residential mortgages ........... 55,691 57,599 47,320 56,790 50,539
Commercial mortgages ............ 186,750 125,006 114,090 100,250 90,752
Commercial loans(1) ............. 242,715 211,855 173,760 175,911 188,625
Construction loans .............. 56,322 48,400 38,427 35,904 28,402
Consumer loans .................. 117,088 94,157 56,330 53,933 45,511
Overdrafts ...................... 1,096 912 508 1,812 1,260
Lease financing, net ............ 13,642 13,556 9,837 7,311 4,063
-------- -------- -------- -------- --------
Net loans (before allowance
for credit losses) ............ 673,304 551,485 440,272 431,911 409,152
-------- -------- -------- -------- --------
Total (net loans and mortgages
held for sale) ............. $673,788 $551,865 $459,281 $438,929 $421,033
======== ======== ======== ======== ========
<FN>
- ----------
(1) At December 31, 1995, commercial loans secured by real property totalled
$164.0 million.
</FN>
</TABLE>
The following table summarizes the loan portfolio of the Company by
loan category and amount at December 31, 1995 and corresponds to appropriate
regulatory definitions:
Book Value
(Dollars in
Thousands)
Loans secured by real estate:
Construction and land development .............................. $ 57,679
Secured by 1-4 family residential properties ................... 189,628
Secured by multifamily (5 or more) residential properties ...... 21,695
Secured by non-family, non-residential properties .............. 217,959
Commercial and industrial loans:
To U.S. addresses (domicile) ................................... 78,801
Loans to individuals for household, family
and other personal expenditures:
Credit cards and related plans ................................. 3,728
Other .......................................................... 86,535
Tax-exempt industrial development obligations ................... 3,025
All other loans ................................................. 1,096
Lease financing receivables, net of unearned income ............. 13,642
--------
Total ...................................................... $673,788
========
-27-
<PAGE>
The following table presents selected loan categories at December 31,
1995 by maturity. Loans having no stated schedule of repayments and no stated
maturity are reported as due in one year or less:
Period to Maturity
Within One to Five After
One Year Years Five Years Total
(Dollars in Thousands)
Commercial ........................ $242,298 $153,782 $33,385 $429,465
Construction ...................... 50,690 5,632 56,322
-------- -------- ------- --------
Total ......................... $292,988 $159,414 $33,385 $485,787
======== ======== ======= ========
Amount of loans:
Loans at fixed rates ............ $ 80,778 $ 33,385
Loans at variable rates ......... 78,636
-------- --------
Total ........................ $159,414 $ 33,385
======== ========
The following table presents loans, including mortgages held for sale,
as of December 31, 1995 by maturity:
Period to Maturity
Within One to Five After
One Year Years Five Years Total
(Dollars in Thousands)
Mortgages held for sale ........... $ 484 $ 484
Loans at fixed rates .............. 79,530 $154,313 $ 61,504 295,347
Loans at variable rates ........... 286,412 91,088 457 377,957
-------- -------- -------- --------
Total ........................ $366,426 $245,401 $ 61,961 $673,788
======== ======== ======== ========
Non-Performing Loans. Loans are considered to be non-performing if they
are on a non-accrual basis or terms have been renegotiated to provide a
reduction or deferral of interest or principal because of a weakening in the
financial positions of the borrowers. A loan which is past due 90 days or more
and still accruing interest remains on accrual status only when it is both
adequately secured as to principal and accruing interest and is in the process
of collection. The amount of the Company's non-performing assets has increased
substantially since 1991(1). Non-accrual loans were $12.1 million, $8.1 million,
$4.4 million, $5.4 million and $6.1 million,
- --------
(1) Excluding loans past due 90 days or more and still accruing interest.
-28-
<PAGE>
respectively, at December 31, 1995, 1994, 1993, 1992 and 1991(1). Non-performing
assets amounted to $15.9 million, $13.3 million, $10.1 million, $10.3 million
and $8.3 million, respectively, at December 31, 1995, 1994, 1993, 1992 and
1991(1). Non-performing assets included other real estate owned of $3.8 million,
$4.5 million, $4.9 million, $4.5 million and $2.1 million, respectively, at
December 31, 1995, 1994, 1993, 1992 and 1991(1). Increases in non-performing
assets in 1992 resulted from the general decline in economic conditions and the
depressed real estate market during the period. These conditions reduced the
market price of real estate generally, and resulted in increased vacancies in
office, commercial and residential rental properties as well as increased
competition for tenants, thus either lowering rentals which could be charged or
lowering or eliminating the ability to raise rents, even when operating costs
increased. These factors caused a number of borrowers to default or to suffer
temporary reductions in liquidity, with resulting delinquencies. During 1993,
however, somewhat improved economic circumstances affecting real estate in the
Philadelphia area eased the liquidity problems of the Company's borrowers,
resulting in a reduction of loans 90 days or more past due and still accruing
interest from those in 1991 and a small reduction in non-performing assets from
those in 1992(1). Loans past due 90 days or more at December 31, 1995 were $6.9
million and reflected $2.2 million from the Constitution acquisition. Loans 90
days or more past due were $5.8 million at December 31, 1994 representing an
increase of $1.1 million over the prior year. That increase reflected
approximately $500,000 resulting from the Chester County and Security First
acquisitions in addition to periodic fluctuations within this category. Of the
$12.1 million non-accrual loans at December 31, 1995, $3.0 million resulted from
the Constitution acquisition, and $895,000 remained from the Chester County and
Security First acquisitions. Activity in 1995 excluding the remaining year end
balances from the Constitution acquisition reflected $7.5 million of additions,
$2.3 million of transfers to other real estate owned, $1.4 million returned to
accrual status and $1.6 million of charge-offs and $1.1 million of payments.
Non-accrual loans were $8.1 million at December 31, 1994 representing an
increase of $3.7 million over the prior year(1). That increase reflected
approximately $1.7 million resulting from the Chester County and Security First
acquisitions. The balance of the increase consisted primarily of two loans. The
larger of these two loans originally was in the amount of $1.4 million, $637,000
of which was charged off and the balance of which was recovered through a sale.
Although significant increases in non-accrual loans and loans 90 days or more
past due resulted from acquisitions, management believes that such loans are
adequately reserved in the allowance for credit losses. See "Summary of Credit
Loss Experience" below.
Other real estate owned at December 31, 1995 totalled $3.8 million, a
decrease of $740,000 from December 31, 1994. The balance at December 31, 1995
included insignificant amounts from the Chester County and Security First
acquisitions and $2.2 million of other real estate owned from the Constitution
acquisition, which management believes is reflected at collectible amounts. The
balance at December 31, 1994 included approximately $917,000 resulting from the
Chester County and Security First acquisitions. Significant activity in 1995
excluding remaining year end balances from the Constitution acquisition
reflected additions of
- --------
(1)Excluding loans past due 90 days or more and still accruing interest.
-29-
<PAGE>
$3.9 million with sales and other receipts of $6.3 million and chargeoffs of
$539,000. Significant activity in 1994 excluding remaining year end balances
from acquisitions included approximately $2.6 million of additions, $3.3 million
of sales proceeds, and $608,000 of write downs to market value and other
charge-offs.
The following table presents the principal amounts of non-accrual and
renegotiated loans (excluding loans past due 90 days or more and still accruing
interest) at December 31 for the years 1995 through 1991 in addition to a
schedule presenting loans contractually past due 90 days or more as to interest
or principal still accruing interest. Totals for other real estate owned are
also presented.
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis $12,118 $ 8,088 $ 4,419 $ 5,445 $6,134
Loans renegotiated to provide a reduction
or deferral of interest or principal...... -0- 750 797 298 49
------- ------- ------- ------- ------
Total non-performing loans(1)............... 12,118 8,838 5,216 5,743 6,183
------- ------- ------- ------- ------
Other real estate owned..................... 3,751 4,491 4,918 4,539 2,117
------- ------- ------- ------- ------
Total non-performing assets(1).............. $15,869 $13,329 $10,134 $10,282 $8,300
======= ======= ======= ======= ======
Non-performing loans/total loans(1)......... 1.80% 1.60% 1.14% 1.31% 1.47%
Non-performing assets/total loans and
non-performing assets(1).................. 2.34% 2.40% 2.18% 2.32% 1.96%
Loans past due 90 days or more as to
interest or principal payments still
accruing interest and not included in
non-accrual loans......................... $ 6,876 $ 5,789 $ 4,560 $ 3,607 $9,288
======= ======= ======= ======= ======
</TABLE>
Interest Accrual Policies. Interest income is accrued as it is earned
on a simple interest basis. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions which
may affect the borrower's ability to repay and collection efforts, that the
borrower's financial condition is such that collection of interest is doubtful.
Loans on which the accrual of interest had been discontinued or reduced,
amounted to $12.1 million, $8.1 million and $4.4 million at December 31, 1995,
1994 and 1993, respectively. If interest on non-accrual loans had been accrued,
such income would have been approximately $774,000, $802,000 and $351,000 for
the years ended December 31, 1995, 1994 and 1993, respectively(1). At December
31, 1995 and 1994, there were no commitments to lend additional funds to
borrowers whose loans were classified as non-accrual.
The balance of impaired loans was $12.1 million at December 31, 1995.
The Company has identified a loan as impaired when it is probable that interest
and principal will not be collected according to the contractual terms of the
loan agreements. The allowance for loan loss
- --------
(1)Non-accrual loans and non-performing assets exclude loans past due 90 days or
more still accruing interest.
-30-
<PAGE>
associated with impaired loans was $3.1 million at December 31, 1995. The
average recorded investment in impaired loans was $9.9 million in 1995 and the
income recognized on impaired loans during 1995 was $-0-. Total cash collected
on impaired loans during 1995 was $1.1 million which was credited to the
principal balance outstanding on such loans. Interest which would have been
accrued on impaired loans during 1995 was $774,000. The Company's policy for
interest income recognition on impaired loans is to recognize income on
restructured loans under the accrual method. The Company recognizes income on
non-accrual loans under the cash basis when the loans are both current and the
collateral on the loan is sufficient to cover the outstanding obligation to the
Company; if these factors do not exist, the Company will not recognize income.
Provision for Credit Losses. The provision for credit losses is an
amount charged against earnings to fund the reserve for possible future losses
on existing loans. In order to determine the amount of the provision for credit
losses, the Company conducts a quarterly review of the loan portfolio to
evaluate overall credit quality. This evaluation consists of an analysis of
individual loans and overall risk characteristics and size of the different loan
portfolios, and takes into consideration current economic and market conditions,
changes in non-performing loans, the capability of specific borrowers to repay
specific loan obligations as well as current loan collateral values. The Company
also considers past estimates of possible loan losses as compared with actual
losses, potential problems relating to sizable loans and large loan
concentrations (if any). As adjustments become identified, they are reported in
earnings for the period in which they become known.
The provision for credit losses was $3.1 million in 1995, as compared
to $1.9 million in 1994 and $1.8 million in 1993. The ratio of the allowance for
credit losses to total loans was 2.08%, 1.40% and 1.15% respectively at December
31, 1995, 1994 and 1993. The ratio of the allowance for credit losses to
non-performing assets was 88%, 58% and 52% at December 31, 1995, 1994 and 1993.
The ratio of the allowance for credit losses to non-accrual loans, including
loans 90 days past due still accruing interest, was 74%, 56% and 59% at December
31, 1995, 1994 and 1993, respectively. The increases include allowances for
credit losses on problem loans resulting from acquired banks. The $1.3 million
increase in 1995 over the prior year in the provision for credit losses, to a
total of $3.1 million, was required by the ongoing quarterly analyses of
adequacy of the allowance for credit losses. Jefferson PA charge-offs, excluding
the effect of acquisitions, amounted to $3.3 million in 1995, $2.4 million in
1994 and $1.7 million in 1993. The historical levels of recoveries of
charge-offs increased in 1995 and 1994, as compared to 1993, primarily as a
result of the effect of acquisitions. Substantially all of the $672,000 of
recoveries in 1995, and the majority of the $513,000 of recoveries in 1994,
resulted from acquired loans. In 1993, recoveries totaled $60,000.
In 1993 and 1994, quarterly provisions for credit losses were within
budgeted ranges of $400,000 to $500,000. Quarterly provisions in 1995, in
chronological order, were $540,000, $615,000, $1,215,000 and $765,000. As noted
above, the increases in these quarters were required by the ongoing quarterly
analyses of adequacy of the allowance for credit losses. The $1,215,000 included
a special provision of $500,000 resulting from a management decision to
-31-
<PAGE>
eliminate a problem credit by disposing of the underlying real estate collateral
at a then current loss instead of pursuing a lengthy work out, as was previously
intended. Except for the impact of actual charge-offs related to acquired
Constitution non-performing loans which are believed to be adequately reserved
and the disposition and timing of which remains uncertain, 1996 net charge-offs
to average loans are not anticipated to exceed the levels experienced in the
last five years as shown below.
Summary of Credit Loss Experience. The following table summarizes the
credit loss experience of the Company for each of the past five years:
December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in Thousands)
Balance in allowance for credit
losses at beginning of year .... $ 7,727 $5,283 $5,094 $4,233 $3,313
------- ------ ------ ------ ------
Loans charged-off:
Commercial .................... 1,584 853 183 854 1,085
Construction .................. 167 134 160
Real estate mortgage .......... 1,588 1,768 1,274 1,209 617
Installment and lease financing 451 236 243 157 112
------- ------ ------ ------ ------
Total ...................... 3,623 3,024 1,700 2,354 1,974
------- ------ ------ ------ ------
Recoveries:
Commercial .................... 184 289 17
Construction .................. 1
Real estate mortgage .......... 437 196 31 41
Installment and lease financing 51 28 28 21 13
------- ------ ------ ------ ------
Total ...................... 672 513 60 62 30
------- ------ ------ ------ ------
Net charge-offs ................. 2,951 2,511 1,640 2,292 1,944
Purchase of Chester County ...... 2,434
Purchase of Security First ...... 664
Purchase of Constitution ........ 6,121
Provision charged to operations . 3,135 1,857 1,829 3,153 2,864
------- ------ ------ ------ ------
Balance in allowance for credit
losses at end of period ....... $14,032 $7,727 $5,283 $5,094 $4,233
======= ====== ====== ====== ======
Net charge-offs/average loans ... .48% .51% .38% .54% .49%
Management of the Company has not attempted to allocate specific
portions of the allowance for credit losses to specific loan categories.
However, the Company regularly monitors the credit-worthiness and financial
condition of its significant borrowers, in all loan categories.
The Company determines the level of its allowance for possible credit
losses based on a number of factors. An analysis of individual commercial
business loans, commercial real estate and construction loans as well as
internally classified loans is conducted and specific reserves are allocated for
those credits which are determined to have weaknesses. In addition, an analysis
-32-
<PAGE>
based upon historical loss experience is conducted. In this analysis, the
Company applies its loss experience over the preceding eight fiscal quarters in
each loan portfolio segment to the balance outstanding in such segment at the
end of the period as to which the determination of allowance adequacy is being
made, and uses this analysis as a predictor of future loss. In conjunction with
the above analyses, the Company considers both internal and external factors
which may affect the adequacy of the allowance for possible credit losses. Such
factors may include, but are not limited to, present and prospective industry
trends and regional and national economic conditions, past estimates of possible
loan losses as compared to actual losses, potential problems with sizable loans
and large loan concentrations. The Board of Directors reviews management's
assessments at least on a quarterly basis.
Historically, the Company has not generally been an unsecured lender
either to businesses or individuals, and most of its loans are secured by some
form of collateral. However, significant exceptions may be made to this general
operating philosophy from time to time. For most loans, which are
collateralized, the primary risk element, other than fraud, relates to the
market acceptability and appropriate value of the collateral securing the loans.
Commitments. In the normal course of its business, the Company makes
commitments to extend credit and issues standby letters of credit. Generally,
such commitments are provided by the Company as a service to customers with
which the Company has other relationships. Commitments to extend credit amounted
to $158.8 million and $133.8 million at December 31, 1995 and 1994,
respectively. Outstanding letters of credit amounted to $16.1 million and $6.5
million at December 31, 1995 and 1994, respectively.
Deposits. One of the primary components of sound growth and
profitability is core deposit accumulation and retention. Core deposits consist
of all deposits except public funds and certificates of deposit in excess of
$100,000. Since core deposits exclude certificates of deposit issued in excess
of $100,000, it is the Company's general policy to issue such certificates only
to customers with which the Company has other relationships. At December 31,
1995, total deposits were approximately $725.0 million, an increase of
approximately $105.9 million or 17% from December 31, 1994. At December 31,
1994, total deposits were approximately $619.1 million, an increase of
approximately $83.6 million or 16% over 1993. Year end core deposits as a
percentage of total deposits remained constant at December 31, 1995 and 1994 and
amounted to 91%, while certificates of deposit in excess of $100,000, as a
percentage of total deposits also remained constant, and amounted to 9%.
-33-
<PAGE>
The following tables present the average balances and rates paid on
deposits for each of the years 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1995 1994 1993
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand (non-interest bearing).......... $105,006 $ 85,331 $ 65,289
NOW.................................... 60,101 2.12% 52,877 2.00% 47,721 2.27%
Savings and money market............... 163,989 2.97% 160,291 2.66% 132,319 2.87%
Time................................... 309,152 5.65% 240,014 4.18% 249,905 4.17%
-------- -------- --------
Total deposits....................... $638,248 $538,513 $495,234
======== ======== ========
</TABLE>
As of December 31, 1995, the Company had total time deposits of
approximately $334.7 million. The following table summarizes the composition of
these deposits:
Percentage of
Total Time
Amount Deposits
(Dollars in Thousands)
Certificates of deposit in excess of $100,000 .... $ 68,803 21%
Individual retirement accounts ................... 36,581 11%
Other time deposits .............................. 229,285 68%
-------- ---
Total ........................................ $334,669 100%
======== ===
The remaining maturity on certificates of deposit of $100,000 or more
as of December 31, 1995 is presented below:
Amount
(Dollars in Thousands)
Maturity:
Three months or less ................... $33,874
Three to six months .................... 19,880
Six to 12 months ....................... 10,523
Over 12 months ......................... 4,526
-------
Total .............................. $68,803
=======
-34-
<PAGE>
Impact of Inflation. The financial statements and related financial
data presented in this report have been prepared in accordance with generally
accepted accounting principles which require 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. The primary impact of inflation on the operation of the Company is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services. The Company believes that
continuation of its efforts to manage the rates, liquidity and interest
sensitivity of the Company's assets and liabilities is necessary to generate an
acceptable return on assets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Financial Statement Schedules are set
forth at pages 36 to 61 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Previously reported.
-35-
<PAGE>
PART III
The information called for by Part III of this report is incorporated
herein by reference to the Company's definitive proxy statement for its 1996
annual meeting of shareholders which will be filed not later than 120 days from
the end of the Company's fiscal year (April 29, 1996).
-62-
<PAGE>
PART IV
ITEM 14. FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)1. Financial Statements
Report of Independent Certified Public Accountants
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statement of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
None.
3. Exhibits
Exhibits 2, 11, 12 and 21 appear in Exhibits 3, 11, 12 and 21
of the Company's registration statement on Form s-4, as
amended, Registration No. 33-62428, each of which such
exhibits is hereby incorporated herein by reference. Exhibit 4
appears in Exhibit 4 to the Company's registration statement
on Form S-1, Registration No. 33-70278, and is hereby
incorporated herein by reference. Exhibit 23(a) - Consent of
Grant Thornton LLP to incorporation of Financial Statements by
reference in the Company's registration statements on Form
S-8, Registration Nos. 33-80654 and 33-80656, and Form S-3,
Registration No.
33-99988.
Exhibit 23(a) Consent of Grant Thornton LLP
Exhibit 23(b) Consent of Price Waterhouse LLP
(b) Reports on Form 8-K during the fourth quarter
The Company filed a Form 8-KA for October 6, 1995 containing
financial statements and pro forma financial information
required by Item 7(a) on Form 8-K with respect to the
acquisition of Constitution Bank, the reporting of which had
been deferred pursuant to Item 7(a)(4) of Form 8-K for August
4, 1995.
-63-
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
JeffBanks, Inc.
We have audited the accompanying consolidated balance sheets of
JeffBanks, Inc. (formerly State Bancshares, Inc.) and Subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company'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 position of
JeffBanks, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements,
JeffBanks, Inc. and Subsidiaries changed their method of accounting for certain
investments in debt and equity securities in 1994.
GRANT THORNTON LLP
Philadelphia, Pennsylvania
January 17, 1996
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
1995 1994
(in thousands)
ASSETS
<S> <C> <C>
Cash and cash equivalents
Cash and due from banks ............................................... $ 53,309 $ 62,462
Federal funds sold .................................................... 37,575 35,575
--------- ---------
90,884 98,037
Investment securities available for sale ................................. 141,873 67,649
Investment securities held to maturity ................................... 3,889 12,979
Mortgages held for sale .................................................. 484 380
Loans, net ............................................................... 659,272 543,757
Premises and equipment ................................................... 12,880 12,412
Accrued interest receivable .............................................. 6,004 4,528
Other real estate owned .................................................. 3,751 4,491
Goodwill ................................................................. 8,978 809
Other assets ............................................................. 10,991 6,483
--------- ---------
Total assets ................................................... $ 939,006 $ 751,525
========= =========
LIABILITIES
Deposits
Demand (non-interest bearing) ......................................... $ 145,064 $ 110,861
Savings, money market and NOW ......................................... 245,234 242,063
Time deposits ......................................................... 265,866 207,595
Time deposits, $100,000 and over ...................................... 68,803 58,612
--------- ---------
724,967 619,131
Securities sold under repurchase agreements .............................. 46,549 16,229
FHLB advances ............................................................ 75,000 35,274
Subordinated debentures .................................................. 9,000 9,000
Accrued interest payable ................................................. 6,216 5,582
Other liabilities ........................................................ 3,963 1,933
--------- ---------
Total liabilities .............................................. 865,695 687,149
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock - authorized, 1,000,000 shares of $1 par value; issued and
outstanding, -0- and 185,936 shares, respectively ..................... -- 186
Common stock - authorized, 10,000,000 shares of $1 par value; issued and
outstanding, 3,946,776 and 2,734,369 shares, respectively ............. 3,947 2,734
Additional paid-in capital ............................................... 53,470 47,714
Retained earnings ........................................................ 15,427 15,001
Net unrealized gain (loss) on securities available for sale .............. 467 (1,259)
--------- ---------
Total shareholders' equity ..................................... 73,311 64,376
--------- ---------
Total liabilities and shareholders' equity ..................... $ 939,006 $ 751,525
========= =========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
December 31,
1995 1994 1993
(in thousands, except per share data)
<S> <C> <C> <C>
Interest income
Loans, including fees ........................................ $56,808 $41,907 $36,352
Investment securities ........................................ 5,011 4,105 2,747
Federal funds sold ........................................... 2,498 931 1,376
------- ------- -------
64,317 46,943 40,475
------- ------- -------
Interest expense
Time deposits, $100,000 and over ............................. 3,938 2,014 2,204
Other deposits ............................................... 19,680 13,346 13,097
FHLB advances ................................................ 2,776 698 119
Subordinated debentures ...................................... 855 855 760
Securities sold under repurchase agreements .................. 980 499 411
------- ------- -------
28,229 17,412 16,591
------- ------- -------
Net interest income .................................... 36,088 29,531 23,884
Provision for credit losses ...................................... 3,135 1,857 1,829
------- ------- -------
Net interest income after provision for credit losses .. 32,953 27,674 22,055
------- ------- -------
Non-interest income
Service fees on deposit accounts ............................. 2,654 2,191 1,661
Gain on sales of residential mortgages ....................... 261 405 1,490
Gain on sales of investment securities ....................... 333 128 376
Mortgage servicing fees ...................................... 885 742 762
Merchant credit card deposit fees ............................ 1,247 871 385
Other ........................................................ 1,128 1,006 821
------- ------- -------
6,508 5,343 5,495
------- ------- -------
Non-interest expense
Salaries and employee benefits ............................... 12,218 10,809 9,731
Occupancy expense ............................................ 3,029 2,738 2,381
Depreciation ................................................. 1,510 1,351 1,127
FDIC expense ................................................. 731 1,221 1,094
Data processing expense ...................................... 1,135 885 748
Legal and auditing ........................................... 847 564 614
Stationery, printing and supplies ............................ 700 470 481
Shares tax ................................................... 476 338
261
Advertising .................................................. 704 440 404
Other real estate-owned maintenance expense .................. 362 204 305
Loss on sale and write-downs of other real estate owned ...... 298 324 9
Amortization of intangibles .................................. 816 237 278
Merchant credit card deposit expense ......................... 984 637 271
Other ........................................................ 3,837 3,537 3,037
------- ------- -------
27,647 23,755 20,741
------- ------- -------
Income before income taxes, dividends on preferred stock
and minority interest ............................ 11,814 9,262 6,809
Income taxes ..................................................... 4,153 3,081 2,062
------- ------- -------
Income before dividends on preferred stock and
minority interest ................................ 7,661 6,181 4,747
Dividends on subsidiary preferred stock .......................... -- -- 789
Minority interest ................................................ -- -- 1,191
------- ------- -------
Net income ............................................. $ 7,661 $ 6,181 $ 2,767
======= ======= =======
Net income applicable to common stock .................. $ 6,534 $ 4,868 $ 2,240
======= ======= =======
Per share data
Net income per common share - primary ........................ $ 2.10 $ 1.86 $ 1.64
Net income per common share - fully diluted .................. $ 1.94 $ 1.71 $ 1.49
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
JeffBanks, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Net unrealized
gain (loss)
Additional on securities
Common stock Preferred paid-in Retained available
Class A Class B stock capital earnings for sale Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 ........ $ 536 $ 649 $ 6 $ 15,173 $ 8,900 $ -- $ 25,264
Net income ........................ -- -- -- -- 2,767 -- 2,767
Conversion of Class B
common stock to Class
A common stock ................ 649 (649) -- -- -- -- --
Shares issued to acquire
minority interest in
Jefferson Bank ................ 449 -- 180 15,641 -- -- 16,270
Public offering of common
stock ......................... 750 -- -- 11,671 -- -- 12,421
Cash dividends on preferred
stock ......................... -- -- -- -- (528) -- (528)
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1993 ...... 2,384 -- 186 42,485 11,139 -- 56,194
Change in accounting for
investments on
January 1, 1994 ............... -- -- -- -- -- 62 62
Net income ........................ -- -- -- -- 6,181 -- 6,181
Purchase of The Bank of
Chester County ................ 112 -- -- 1,896 -- -- 2,008
Purchase of Security
First Bank .................... 203 -- -- 2,955 -- -- 3,158
Conversion of preferred stock ..... 1 -- -- (1) -- -- --
Issuance of common stock
for 401(k) plan ............... 8 -- -- 131 -- -- 139
Issuance of options
granted and exercised
by underwriters of
common stock .................. 1 -- -- 15 (16) -- --
Additional costs of 1993
stock issuance ................ -- -- -- (105) -- -- (105)
Shares issued to acquire
minority interest in
Jefferson Bank
of New Jersey ................. 25 -- -- 338 -- -- 363
</TABLE>
<PAGE>
(Continued)
<TABLE>
<CAPTION>
JeffBanks, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - CONTINUED
Net unrealized
gain (loss)
Additional on securities
Common stock Preferred paid-in Retained available
Class A Class B stock capital earnings for sale Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash dividends on preferred
stock ......................... $ -- $ -- $ -- $ -- $ (1,313) $ -- $ (1,313)
Cash dividends on common
stock ......................... -- -- -- -- (990) -- (990)
Net unrealized loss on securities
available for sale ............ -- -- -- -- -- (1,321) (1,321)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1994 ...... 2,734 -- 186 47,714 15,001 (1,259) 64,376
Net income ........................ -- -- -- -- 7,661 -- 7,661
Purchase of Constitution Bank ..... 107 -- -- 2,075 -- -- 2,182
Conversion of preferred stock ..... 907 -- (186) (822) -- -- (101)
Issuance of common stock for
401(k) plan ................... 11 -- -- 219 -- -- 230
Cost to acquire minority interest
in Jefferson Bank of
New Jersey .................... -- -- -- (15) -- -- (15)
Cash dividends on preferred
stock ........................ -- -- -- -- (1,127) -- (1,127)
Cash dividends on common stock .... -- -- -- -- (1,621) -- (1,621)
Change in net unrealized
loss on securities available
for sale ...................... -- -- -- -- -- 1,726 1,726
5% stock dividend ................. 188 -- -- 4,299 (4,487) -- --
-------- -------- -------- -------- -------- -------- --------
Balance at December 31,
1995 .......................... $ 3,947 $ -- $ -- $ 53,470 $ 15,427 $ 467 $ 73,311
======== ======== ======== ======== ======== ======== ========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31,
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Operating activities
Net income ......................................................... $ 7,661 $ 6,181 $ 2,767
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Depreciation and amortization ................................... 3,068 2,240 1,884
Provision for credit losses ..................................... 3,135 1,857 1,829
Gain on sales of investment securities .......................... (333) (128) (376)
Minority interest in undistributed net income of subsidiaries ... -- -- 1,013
Mortgage loans originated for sale .............................. (20,497) (36,606) (103,003)
Mortgage loan sales ............................................. 20,394 55,235 91,012
Increase in interest receivable ................................. (676) (17) (201)
(Decrease) increase in interest payable ......................... (258) 1,314 (787)
Increase in other assets ........................................ (1,462) (368) (928)
Increase (decrease) in other liabilities ........................ 946 (2,103) 1,392
--------- --------- ---------
Net cash provided by (used in) operating activities ...... 11,978 27,605 (5,398)
--------- --------- ---------
Investing activities
Proceeds from sales of investment securities available for sale .... 31,147 18,668 7,573
Proceeds from maturities of investment securities available for sale 36,212 20,395 3,804
Proceeds from maturities of investment securities held to maturity . 4,018 -- 16,225
Purchases of investment securities available for sale .............. (129,264) (4,105) (78,097)
Purchases of investment securities held to maturity ................ -- (12,979) --
Proceeds from sales of other real estate owned ..................... 6,297 3,336 1,523
Net increase in loans .............................................. (47,380) (54,601) (11,901)
Cash of entities acquired .......................................... 8,698 13,695 --
Purchases of premises and equipment ................................ (1,846) (2,362) (1,561)
--------- --------- ---------
Net cash used in investing activities .................... (92,118) (17,953) (62,434)
--------- --------- ---------
Financing activities
Net increase in deposits ........................................... 5,576 3,676 31,849
Net increase in repurchase agreements .............................. 30,320 18 8,318
Proceeds from issuance of common stock ............................. 113 33 12,421
Proceeds from FHLB advances ........................................ 39,726 25,000 10,274
Proceeds from issuance of subordinated debentures .................. -- -- 9,000
Dividends paid on preferred stock .................................. (1,127) (1,313) (528)
Dividends paid on common stock ..................................... (1,621) (990) --
--------- --------- ---------
Net cash provided by financing activities ................ 72,987 26,424 71,334
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ................... (7,153) 36,076 3,502
Cash and cash equivalents at beginning of year ......................... 98,037 61,961 58,459
--------- --------- ---------
Cash and cash equivalents at end of year ............................... $ 90,884 $ 98,037 $ 61,961
========= ========= =========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The accounting policies followed by JeffBanks, Inc. (the Company) and its
wholly-owned subsidiaries, Jefferson Bank (JBPA) and Jefferson Bank of New
Jersey (JBNJ) (collectively referred to as the Banks), conform to generally
accepted accounting principles and predominant practices within the banking
industry. The Company is registered under the Bank Holding Company Act of
1956. The Banks are state-chartered banks regulated by the Pennsylvania
Department of Banking and the New Jersey Department of Banking,
respectively, and the Federal Deposit Insurance Corporation. In 1995, the
Company changed its name to JeffBanks, Inc. from State Bancshares, Inc.
The Banks operate as commercial banks offering a wide variety of commercial
loans and, to a lesser degree, consumer credits, primarily indirect
automobile loans. Their primary future strategic aim is to establish a
reputation and market presence as the "small and middle market business
bank" in their principal markets. The Company funds its loans primarily by
offering time, savings and money market and demand deposit accounts to both
commercial enterprises and individuals. Additionally, the Company
originates, and in limited amounts, purchases residential mortgage loans,
and services such loans which are owned by other investors. Also, the
Company serves as a processor of merchant credit card deposits. However,
these activities are peripheral to the Company's core business of commercial
and consumer lending, and represent less significant aspects of its
operations, as determined by their net contributions to net income.
Principal markets consist of Philadelphia and contiguous Pennsylvania and
southern New Jersey counties.
The Company and the Banks are subject to regulations of certain state and
federal agencies and, accordingly, they are periodically examined by those
regulatory authorities. As a consequence of the extensive regulation of
commercial banking activities, the Banks' business is particularly
susceptible to being affected by state and federal legislation and
regulations.
Basis of financial statement presentation
The accounting and reporting policies of the Company and the Banks conform
with generally accepted accounting principles and predominant practices
within the banking industry. All intercompany balances and transactions have
been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. These estimates and assumptions also affect reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. Significant estimates implicit in these
financial statements are as follows.
The principal estimates that are particularly susceptible to significant
change in the near term relate to the allowance for credit losses; certain
intangible assets, such as goodwill, core deposits and mortgage servicing
rights; and other real estate owned.
The evaluation of the adequacy of the allowance for credit losses includes
an analysis of historical loss rates, by category, applied to current loan
totals. However, actual losses may be higher or lower than historical
trends, which vary. Actual losses on specified problem loans, which also are
provided for in the evaluation, may vary from estimated loss percentages,
which are established based upon a limited number of potential loss
classifications.
Substantially all outstanding goodwill resulted from the acquisition of
Constitution Bank, a central Philadelphia institution which had developed a
compelling, if not predominant, market position of being the small business
bank in Philadelphia. As the result of Constitution Bank's market
penetration, JBPA had formulated its own strategy to create such a market
role. Accordingly, implicit in the purchase of the Constitution Bank
franchise was the acquisition of that role. However, if such measured
benefits, including new business, are not derived, estimated amortization
may increase and/or a charge for impairment may be recognized.
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES - Continued
Core deposit intangibles are amortized over estimated lives of deposit
accounts. However, decreases in deposit balances may result in increased
amortization and/or a charge for impairment may be recognized.
Purchased and originated mortgage servicing rights are amortized consistent
with prepayment estimates. However, if prepayments differ from those
estimates, or if market values decline in excess of amortization, future
amortization may increase and/or a charge for impairment may be recognized.
Other real estate owned is written down to market based both upon estimates
derived through appraisals and other resources. However, realization of
sales proceeds may ultimately be higher or lower than those estimates.
Financial instruments
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value
of Financial Instruments," which requires all entities to disclose the
estimated fair value of their assets and liabilities considered to be
financial instruments. Financial instruments requiring disclosure consist
primarily of investment securities, loans and deposits.
Investment securities
The Company adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," on January 1, 1994. This new standard requires
investments in securities to be classified in one of three categories: held
to maturity, trading or available for sale. Investments in debt securities,
for which management has both the ability and intent to hold to maturity,
are carried at amortized cost. Investments in debt securities, which
management believes may be sold prior to maturity due to changes in interest
rates, prepayment risk and equity, liquidity requirements or other factors,
are classified as available for sale. Net unrealized gains and losses for
such securities, net of tax effect, are required to be recognized as a
separate component of shareholders' equity and excluded from the
determination of net income. The Company does not engage in security
trading. Security transactions are accounted for on a trade date basis.
Prior to the adoption of SFAS No. 115, investment securities that were
principally debt securities were stated at cost and adjusted for
amortization of premiums and accretion of discounts computed by the interest
method. Gains or losses on disposition of investment securities are based on
the net proceeds and the adjusted carrying amount of the securities sold,
using the specific identification method.
Loans and allowance for credit losses
Loans are stated at the amount of unpaid principal and are net of unearned
discount, unearned loan fees and an allowance for credit losses. The
allowance for credit losses is established through a provision for credit
losses charged to expense. Loan principal considered to be uncollectible by
management is charged against the allowance for credit losses. The allowance
is an amount that management believes will be adequate to absorb possible
losses on existing loans that may become uncollectible based upon an
evaluation of known and inherent risks in the loan portfolio. The evaluation
takes into consideration such factors as changes in the nature and size of
the loan portfolio, overall portfolio quality, specific problem loans, and
current and future economic conditions which may affect the borrowers'
ability to pay. The evaluation details historical losses by loan category,
the resulting loss rates for which are projected at current loan total
amounts. Loss estimates for specified problem loans are also detailed.
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES - Continued
Interest income is accrued as earned on a simple interest basis. Accrual of
interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection of interest is
doubtful. When a loan is placed on such non-accrual status, all accumulated
accrued interest receivable applicable to periods prior to the current year
is charged off to the allowance for credit losses. Interest which had
accrued in the current year is reversed out of current period income.
Payments received subsequent to the non-accrual classification are applied
as a reduction of principal in accordance with both regulatory guidelines
and generally accepted accounting principles. Loans 90 days or more past due
and still accruing interest must have both principal and accruing interest
adequately secured and must be in the process of collection.
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan," on January 1, 1995. This new standard requires that a creditor
measure impairment based on the present value of expected future cash flows
discounted at the loan's effective interest rate, except that as a practical
expedient, a creditor may measure impairment based on a loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. Regardless of the measurement method, a creditor must measure
impairment based on the fair value of the collateral when the creditor
determines that foreclosure is probable. In October 1994, SFAS No. 114 was
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," which allows creditors to use their
existing methods for recognizing interest income on impaired loans. Because
the Company already recognized such reductions of value through its
provision for credit losses, the adoption of SFAS No. 114, as amended by
SFAS No. 118, did not have a material impact on its financial condition or
results of operations.
Bank premises and equipment
Bank premises and equipment, including leasehold improvements, are stated at
cost less accumulated depreciation. Depreciation expense is computed on the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are depreciated over the shorter of the estimated
useful lives of the improvements or the terms of the related leases.
Other real estate owned
Other real estate owned, representing property acquired through foreclosure,
is carried at the lower of the principal balance of the secured loan or fair
value, less estimated disposal costs, of the acquired property. Costs
relating to holding the assets are charged to expense. Loans in the amount
of $3,496,000 in 1995 and $855,000 in 1994 were made on competitive terms
and in conformity with normal underwriting standards to facilitate the sale
of other real estate owned.
Core deposit intangibles
Net assets of a certain branches acquired by JBPA were recorded at their
fair value at the date of acquisition. The core deposit intangible and the
remaining excess of purchase price over the fair value of net assets
acquired of $546,000 are being amortized on a straight-line basis over 10
years and are included in other assets. The unamortized balances at December
31, 1995 and 1994 were $199,000 and $254,000, respectively.
As a result of the Constitution Bank acquisition, the Company recognized
approximately $2,300,000 of core deposit intangibles which will be amortized
on a straight-line basis over approximately seven years. The unamortized
balance at December 31, 1995 was $2,207,000.
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES - Continued
Other assets
Deferred financing fees of $410,000, related to the issuance of subordinated
debentures, are being amortized over the 10-year term of the debentures and
are included in other assets. The unamortized balances at December 31, 1995
and 1994 were $292,000 and $333,000, respectively.
Mortgage servicing
JBPA performs various servicing functions on loans owned by others. A fee,
usually based on a percentage of the outstanding principal balance of the
loan, is received for these services. At December 31, 1995 and 1994, JBPA
was servicing approximately $254,232,000 and $247,000,000, respectively, of
loans for others.
During 1995, 1994 and 1993, the Banks purchased $258,000, $876,000 and $-0-,
respectively, of mortgage servicing rights. Amortization is based upon the
ratio of servicing fees earned during the period to total servicing fees
expected over the estimated lives of the portfolios. Additional amortization
is recognized when prepayments exceed expected amounts. Unamortized
purchased mortgage servicing rights are included in other assets and
amounted to $982,000 and $914,000 at December 31, 1995 and 1994,
respectively. Amortization expense amounted to $190,000, $104,000 and
$179,000 in 1995, 1994 and 1993, respectively. At December 31, 1995 and
1994, JBPA maintained $422,000 and $457,000, respectively, of escrow
balances associated with the servicing portfolio.
The Company adopted SFAS No. 122, "Accounting for Mortgage Servicing
Rights," effective October 1, 1995. The Company originates mortgages under a
definitive plan to sell or securitize those loans and allocates the cost of
the loans to originated mortgage servicing rights and the loans, based on
relative fair values at the date of origination. For the period from October
1, 1995 to December 31, 1995, originated mortgage servicing rights of
$72,000 resulted from the origination of $5,768,000 of mortgages.
Amortization on originated mortgage servicing rights is recognized in
accordance with policies for purchased mortgages, as previously discussed.
The carrying values of purchased and originated mortgage servicing rights at
December 31, 1995 approximate fair value.
Long-lived assets
The FASB issued a new standard, SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which
provides guidance on when to recognize and how to measure impairment losses
of long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. The adoption of this new statement is
not expected to have a material impact on the Banks' financial position or
results of operations. The Banks are required to adopt this new standard for
the year ended December 31, 1996.
Mortgages held for sale
Mortgages held for sale are recorded at cost which approximates market.
These mortgages are typically sold within three months of origination
without recourse to the Banks. Gain on the sales of residential mortgages is
recognized at the time of sale and substantially all such gains result from
the recognition of previously deferred fees collected upon the origination
of such loans.
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES - Continued
Income taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective
January 1, 1993. Under the liability method specified by SFAS No. 109,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these
differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities. The principal types of accounts
resulting in differences between assets and liabilities for financial
statement and tax return purposes are purchased net operating loss
carryforwards, allowance for credit losses, write-downs of other real estate
owned, deferred loan fees, net unrealized gains or losses on securities
available for sale and accumulated depreciation.
Restrictions on cash and due from banks
The Banks are required to maintain reserves against customer demand deposits
by keeping cash on hand or balances with the Federal Reserve Bank in a
non-interest bearing account. The amounts of those reserves and cash
balances at December 31, 1995 and 1994 were approximately $9,203,000 and
$7,864,000, respectively.
Earnings per common share
Primary earnings per common share are calculated by dividing net income
applicable to common stock by the weighted average number of common shares
and stock option common share equivalents outstanding during the period
(3,116,505 in 1995, 2,617,962 in 1994 and 1,368,705 in 1993), after giving
retroactive effect to a 5% stock dividend declared on January 17, 1996.
Fully diluted earnings per share give effect to the increase in average
shares that would be outstanding, and the increase in net income applicable
to common stock that would result, from the assumed conversion of the
Company's dilutive convertible preferred stock. All of the Company's
preferred stock was converted into common stock in October 1995. Subsequent
to those conversions, fully diluted earnings per share are computed
consistent with the primary earnings per share computation, as previously
discussed.
Advertising costs
The Company expenses advertising costs as incurred.
Employee benefit plans
The Banks have certain employee benefit plans covering substantially all
employees. The Banks accrue such costs as incurred.
Statement of cash flows
Cash and cash equivalents are defined as cash on hand, cash items in the
process of collection, amounts due from banks and federal funds sold with an
original maturity of three months or less. Cash paid for income taxes was
$2,170,000 in 1995, $2,425,000 in 1994 and $2,510,000 in 1993. Cash paid for
interest was $28,194,000 in 1995, $15,568,000 in 1994 and $17,378,000 in
1993. Loans transferred to other real estate owned were $6,097,000 in 1995,
$3,601,000 in 1994 and $2,652,000 in 1993.
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES - Continued
The consolidated statement of cash flows for the year ended December 31,
1995 excludes the effect of Constitution Bank and for the year ended
December 31, 1994 excludes the effect of The Bank of Chester County and
Security First Bank acquisitions, as those business combinations did not
involve related cash flows.
NOTE 2 - ACQUISITIONS AND MERGERS
On August 4, 1995, the Company, through JBPA, completed a merger with
Constitution Bank. Under the terms of the merger, each share of Constitution
Bank common stock was converted into .05909 of a share of the Company's
common stock, resulting in the issuance of 106,456 shares of the Company's
common stock. This transaction was accounted for under the purchase method
of accounting. A total of $8,646,000 of goodwill and $2,300,000 of core
deposit intangibles were recorded and are being amortized over 15 and 7
years, respectively. The unamortized balances at December 31, 1995 were
$8,384,000 and $2,207,000, respectively.
On December 22, 1994, the Company, through JBPA, completed a merger with
Security First Bank (Security First). Under the terms of the merger, each
share of Security First common stock was converted into .3397 of a share of
the Company's common stock, resulting in the issuance of 202,932 shares of
the Company's common stock. This transaction was accounted for under the
purchase method of accounting. A total of $493,000 of goodwill was recorded
in other assets and is being amortized over a 15-year period.
On November 30, 1994, the Company, through a tender offer, issued 25,597
shares of common stock to acquire the remaining minority interest ownership
of JBNJ. Under the terms of the tender offer, each share of JBNJ common
stock was converted into .6 of a share of the Company's common stock.
Issuance costs amounted to $111,000.
On March 29, 1994, the Company, through JBPA, completed a merger with The
Bank of Chester County (Chester County). Under the terms of the merger, each
share of Chester County common stock was converted into .25 of a share of
the Company's common stock, resulting in the issuance of 111,530 shares of
the Company's common stock. This transaction was accounted for under the
purchase method of accounting. At the date of acquisition, Chester County
premises and land were increased to their fair market values of $1,521,000
and $300,000, respectively. There is no remaining goodwill resulting from
this purchase.
In October 1993, the shareholders of JBPA approved a merger pursuant to
which each share of common stock of JBPA not owned by the Company would be
converted into .5 shares of the Company's common stock and preferred stock
of JBPA would be converted into similar preferred stock of the Company. The
merger occurred in December 1993 and, as a result, the Company issued
449,443 shares upon conversion of 898,886 shares of JBPA common stock held
by the minority shareholders. Each share of the Company's common stock
issued was valued at $19.52 per share which approximated twice the market
value of the JBPA common stock immediately before and after the announcement
of the transaction. The value of the Company's common stock issued
approximated the book value of shares not owned by the Company. This
transaction was accounted for under the purchase method of accounting. The
Company's consolidated statement of income includes 100% of JBPA's activity
for December 1993. Prior to December 1993, the net income of JBPA
attributable to minority interest was shown as a deduction in determining
the Company's consolidated net income. Had this transaction occurred at the
beginning of 1993, unaudited pro forma net income, net income applicable to
common stock, and primary and fully diluted earnings per share for 1993
would have been $4,747,000, $3,431,000, $2.00 and $1.79, respectively.
However, this information does not purport to be indicative of what would
have occurred had the transaction been effective at the beginning of 1993
and is not intended to be a projection of future results.
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 2 - ACQUISITIONS AND MERGERS - Continued
Pro forma income statements for the years ending December 31, assuming the
acquisition of Constitution Bank at the beginning of the respective periods
shown, are as follows.
1995 1994
--------- ---------
Pro forma
(in thousands)
Interest income .............................. $ 68,989 $ 57,662
Interest expense ............................. 30,573 21,851
-------- --------
Net interest income .................... 38,416 35,811
Provision for credit losses .................. 13,037 3,643
-------- --------
Net interest income after provision
for credit losses ................. 25,379 32,168
Non-interest income .......................... 6,609 5,573
Non-interest expense ......................... 34,253 31,765
-------- --------
Income before income taxes ............. (2,265) 5,976
Income taxes ................................. (520) 2,077
-------- --------
Net (loss) income ...................... $ (1,745) $ 3,899
======== ========
Net (loss) income per share .................. $ (.44) $ 1.05
======== ========
NOTE 3 - INVESTMENT SECURITIES
The amortized cost, unrealized gains and losses, and the approximate fair
value of the Company's available for sale and held to maturity securities
are as follows:
1995
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
(in thousands)
Available for sale
U.S. Treasury securities ...... $ 54,524 $ 88 $ 85 $ 54,527
Federal agency obligations .... 75,274 714 42 75,946
State and municipal obligations 2,584 40 7 2,617
Other securities .............. 8,783 -- -- 8,783
-------- -------- -------- --------
$141,165 $ 842 $ 134 $141,873
======== ======== ======== ========
Held to maturity
U.S. Treasury securities ...... $ 2,000 $ -- $ 1 $ 1,999
Federal agency obligations .... 1,197 1 -- 1,198
State and municipal obligations 692 19 -- 711
-------- -------- -------- --------
$ 3,889 $ 20 $ 1 $ 3,908
======== ======== ======== ========
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - INVESTMENT SECURITIES - Continued
1994
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
(in thousands)
Available for sale
U.S. Treasury securities ...... $ 53,269 $ -- $ 1,637 $ 51,632
Federal agency obligations .... 9,142 28 220 8,950
State and municipal obligations 3,448 8 88 3,368
Other securities .............. 3,699 -- -- 3,699
-------- -------- -------- --------
$ 69,558 $ 36 $ 1,945 $ 67,649
======== ======== ======== ========
Held to maturity
U.S. Treasury securities ...... $ 2,001 $ -- $ 57 $ 1,944
Federal agency obligations .... 10,281 -- 295 9,986
State and municipal obligations 697 -- 33 664
-------- -------- -------- --------
$ 12,979 $ -- $ 385 $ 12,594
======== ======== ======== ========
The following table lists maturities of debt and equity securities at
December 31, 1995 classified as available for sale and held to maturity:
<TABLE>
<CAPTION>
Available for sale Held to maturity
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less .................. $ 54,563 $ 54,435 $ 2,000 $ 1,999
Due after one year through five years .... 74,191 74,995 1,469 1,475
Due after five years through ten years ... 3,180 3,219 420 434
Due after ten years ...................... 708 701 -- --
-------- -------- -------- --------
132,642 133,350 3,889 3,908
Federal Home Loan Bank of Pittsburgh stock 8,523 8,523 -- --
-------- -------- -------- --------
$141,165 $141,873 $ 3,889 $ 3,908
======== ======== ======== ========
</TABLE>
Proceeds on sales of securities classified as available for sale were
$31,147,000 in 1995, $18,668,000 in 1994 and $7,573,000 in 1993. Realized
gains and losses on sales of investment securities were $334,000 and $1,000;
$181,000 and $53,000; and $376,000 and $-0- in 1995, 1994 and 1993,
respectively.
Tax-exempt interest income on state and municipal obligations classified as
either investment securities or loans was $439,000, $463,000 and $424,000 in
1995, 1994 and 1993, respectively.
Investment securities with an aggregate carrying value of approximately
$55,594,000 and $30,430,000 at December 31, 1995 and 1994, respectively,
were pledged to secure public deposits and for other purposes required or
permitted by law.
<PAGE>
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - LOANS
Major classifications of loans are as follows:
1995 1994
(in thousands)
Commercial ................. $ 242,715 $ 211,855
Commercial mortgage ........ 186,750 125,006
Residential mortgage ....... 55,691 57,599
Consumer loans ............. 117,088 94,157
Construction ............... 56,322 48,400
Direct financing leases, net 13,642 13,556
Overdrafts ................. 1,096 912
--------- ---------
673,304 551,485
Allowance for credit losses (14,032) (7,728)
--------- ---------
$ 659,272 $ 543,757
========= =========
Changes in the allowance for credit losses are as follows:
1995 1994 1993
(in thousands)
Balance at beginning of year .. $ 7,727 $ 5,283 $ 5,094
Provision charged to operations 3,135 1,857 1,829
Loans charged off ............. (3,623) (3,024) (1,700)
Recoveries .................... 672 513 60
Purchase of Chester County .... -- 2,434 --
Purchase of Security First .... -- 664 --
Purchase of Constitution Bank . 6,121 -- --
-------- -------- --------
Balance at end of year ........ $ 14,032 $ 7,727 $ 5,283
======== ======== ========
The balance of impaired loans was $12,118,000 at December 31, 1995. The
Banks have identified a loan as impaired when it is probable that interest
and principal will not be collected according to the contractual terms of
the loan agreements. The allowance for credit loss associated with impaired
loans was $3,146,000 at December 31, 1995. The average recorded investment
in impaired loans was $9,939,000 in 1995 and the income recognized on
impaired loans during 1995 was $-0-. Total cash collected on impaired loans
during 1995 was $1,148,000, of which $1,148,000 was credited to the
principal balance outstanding on such loans. Interest which would have been
accrued on impaired loans during 1995 was $774,000. The Banks' policy for
interest income recognition on impaired loans is to recognize income on
restructured loans under the accrual method. The Banks recognize income on
non-accrual loans under the cash basis when the loans are both current and
the collateral on the loan is sufficient to cover the outstanding obligation
to the Banks; if these factors do not exist, the Banks will not recognize
income.
Loans on which the accrual of interest has been discontinued or reduced
amounted to $8,088,000 at December 31, 1994. If interest on those
non-earning loans had been accrued, such income would have been $802,000 in
1994 and $351,000 in 1993. Loans past due 90 days or more as to interest or
principal payments still accruing interest at December 31, 1995 and 1994
were $6,876,000 and $5,789,000, respectively. At December 31, 1995 and 1994,
there were no commitments to lend additional funds to borrowers whose loans
are classified as non-accrual.
Loans totalling $100,000,000 and $44,093,000 at December 31, 1995 and 1994,
respectively, were pledged as collateral to secure advances from the Federal
Home Loan Bank (FHLB).
<PAGE>
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment are as follows:
Estimated
useful lives 1995 1994
(in thousands)
Land - $ 2,445 $ 2,195
Building 10 to 40 years 3,709 3,265
Furniture, fixtures and equipment 5 to 8 years 12,014 9,966
Leasehold improvements 5 to 20 years 7,892 6,723
-------- --------
26,060 22,149
Less accumulated depreciation (13,180) (9,737)
-------- --------
$ 12,880 $ 12,412
======== ========
NOTE 6 - DEBT
FHLB advances
At December 31, 1995, JBPA had $75,000,000 in advances maturing in January
1996, with an interest rate of 5.65%. The maximum amount outstanding at any
month-end was $75,000,000. Maturing advances are generally renewed for
periods ranging from one day to three months. For 1995, the average amount
outstanding was $47,309,000, with a weighted average interest rate of 5.87%.
At December 31, 1995, JBPA had approximately $75,000,000 in unused advances
from the FHLB.
At December 31, 1994, JBPA had $35,274,000 in advances outstanding from the
FHLB. The maximum amount outstanding at any amount was $35,274,000. Of that
total, $30,000,000 was overnight advances with interest rates averaging
approximately .40% over the daily federal funds rate, or approximately 6%. A
total of $5,274,000 at 4% was repaid in September 1995. At December 31,
1994, JBPA had approximately $113,000,000 in unused advances from the FHLB.
Subordinated debentures
In February 1993, JBPA issued $9 million of 9.5% subordinated debentures due
February 15, 2003. The debentures are redeemable at the option of JBPA, in
whole or in part, at any time on or after February 15, 2000, at their stated
principal amount plus accrued interest, if any. Interest is payable
semi-annually on February 15 and August 15. The debenture agreement
restricts the payment of cash dividends and any other distributions to (i)
50% of the cumulative net income of JBPA since JBPA's inception plus (ii)
$500,000 without the consent of a majority of the holders of the
subordinated debentures. JBPA shall also not redeem or repurchase any of its
preferred or common stock subject to the above limitation.
NOTE 7 - MINORITY INTEREST IN SUBSIDIARIES
In December 1993, the Company acquired through merger the remaining 33%
minority interest in JBPA through the issuance of 449,443 shares of its
common stock.
In November 1993, the Company, in conjunction with its stock offering,
purchased at book value $3,500,000 of JBNJ common stock to provide
additional capital to JBNJ. This purchase increased the Company's ownership
in JBNJ to 95% at December 31, 1993. In November 1994, the Company acquired
through a tender offering the remaining minority ownership interest in JBNJ
through the issuance of 25,597 shares of its common stock.
<PAGE>
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 8 - SHAREHOLDERS' EQUITY
On January 17, 1996, the Company declared a 5% common stock dividend,
payable March 15, 1996, in addition to its regular quarterly cash dividend.
Quarterly cash dividends per common share totalled $.525 in 1995 and $.40 in
1994. Prior to 1994, dividends were paid by JBPA, but were not paid at the
holding company level.
In November 1993, the Company sold 750,000 shares of its common stock at $19
per share through a public offering. Costs incurred in the offering,
including underwriters' discounts, approximated $1.8 million and were netted
against the gross proceeds received.
The JBPA preferred stock, which was converted in 1993 into the Company's
preferred stock, was all converted into shares of the Company's common stock
in October 1995. The number of shares of common stock which were issued on
conversion was determined by dividing the original issue price of such
preferred stock by the conversion price, as adjusted for the conversion of
JBPA common stock into the Company's common stock and to reflect certain
increases and decreases in the amount of common stock outstanding. Each
share of Series B, 12%, $5,000 face value, and Series C, 11%, $5,000 face
value, preferred stock was converted into common stock at a price of $17.10
per share. Each share of Series D, 9.5%, $1,000 face value, preferred stock
was converted into common stock at a price of $11.00 per share. Each share
of Series E, 8%, $20.00 face value, preferred stock was converted into
common stock at a price of $16.00 per share. Additionally, each share of
9.5%, $1,000 face value, preferred stock was converted into common stock at
a price of $13.50 per share. As a result of the above conversions, 906,930
shares of the Company's common stock were issued.
NOTE 9 - INCOME TAXES
An analysis of current and deferred income taxes is as follows:
1995 1994 1993
(in thousands)
Current ...................... $3,438 $2,207 $1,856
Deferred ..................... 715 874 206
------ ------ ------
Total .................. $4,153 $3,081 $2,062
====== ====== ======
The income tax provision reconciled to the tax computed at the statutory
federal rate was as follows:
1995 1994 1993
(in thousands)
Tax at statutory rate ..................... $ 4,017 $ 3,148 $ 2,315
Increase (decrease) in taxes resulting from
Tax-exempt loan and investment income .. (151) (132) (151)
Reduction in valuation allowance ....... -- -- (203)
Non-deductible amortization ............ 151 18 --
Other, net ............................. 136 47 101
------- ------- -------
Applicable income tax ............... $ 4,153 $ 3,081 $ 2,062
======= ======= =======
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 9 - INCOME TAXES - Continued
The net deferred tax asset consisted of the following:
1995 1994
(in thousands)
Allowance for credit losses ........................ $ 3,235 $ 1,865
Net unrealized loss on securities available for sale -- 534
Deferred loan fees ................................. 155 194
Allowance for real estate owned .................... 1,036 119
Purchased net operating loss carryforwards ......... 5,344 --
Other .............................................. -- 82
------- -------
Total deferred tax assets .................. 9,770 2,794
Deferred asset valuation allowance ................. (6,348) --
------- -------
3,422 2,794
------- -------
Accumulated depreciation ........................... (1,957) (1,758)
Net unrealized gain on securities available for sale (240) --
Other .............................................. (15) (43)
------- -------
Total deferred tax liabilities ............. (2,212) (1,801)
------- -------
Net deferred tax asset, included in other assets ... $ 1,210 $ 993
======= =======
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company established an Employee Stock Ownership Plan (ESOP) for
employees of the Banks. Contributions to this plan are made by the Company
in amounts determined by the Board of Directors. Contributions by the
Company amounted to $201,000, $113,000 and $75,000 in 1995, 1994 and 1993,
respectively. Contributions are distributed to the Banks in proportion to
their respective employee salaries.
In 1993, the Company established a 401(k) plan which was effective in 1994
covering substantially all employees. The Company matches $.25 for each
dollar contributed by participants up to an annual maximum of $2,000 per
participant.
The Company's matching contributions were $78,000 in 1995 and $68,000 in
1994.
NOTE 11 - STOCK OPTIONS
The Company maintains a Key Employee Stock Option Plan (the Plan). Under the
Plan, options to purchase a maximum of 350,000 shares of the Company's
common stock may be issued to executive officers and other key employees of
the Company who occupy responsible managerial or professional positions and
who have the capability of making a substantial contribution to the success
of the Company, as selected by the Plan committee. Directors and independent
contractors who, in the judgment of the Plan committee, have contributed to
the success of the Company are also eligible to participate subject to
certain limitations. Options granted under the Plan may be either qualified
or non-qualified. Option prices must be 100% of fair market value of the
shares on the date of grant and the exercise period may not exceed 10 years,
except that, in the case of qualified options granted to persons holding 10%
or more of the combined voting power of the Company, the option exercise
price may not be less than 110% of the fair market value of the shares on
the date of grant and the exercise period for any option may not exceed five
years. Vesting of options granted under the Plan is determined by the Plan
committee. The Plan committee has the right, in its discretion, to permit an
optionee to be paid the difference between the option exercise price and the
fair market value of the option shares on the date of option exercise. At
December 31, 1995, there were exercisable options outstanding to purchase
105,000 shares at $21.43, 135,975 shares at $17.38 and 29,400 shares at
$15.48. No options were exercised or expired during 1995, 1994 or 1993.
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 11 - STOCK OPTIONS - Continued
At December 31, 1995, 1994 and 1993, there were exercisable options
outstanding to purchase 63,000 shares of the Company's common stock at
$14.29 per share and 30,707 shares at $13.85 per share under former plans of
the Company and JBPA. No options were exercised or expired during 1995, 1995
or 1993.
The FASB issued a new standard, SFAS No. 123, "Accounting for Stock-Based
Compensation," which contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation
cost at the grant date based on the fair value of the award. Compensation is
then recognized over the service period, which is usually the vesting
period. Alternatively, the standard permits entities to continue accounting
for employee stock options and similar equity instruments under Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined
in SFAS No. 123 had been applied. The Company has not determined which
method it will follow in the future, but anticipates following APB Opinion
No. 25. The Company will be required to adopt the new standard for its year
ended December 31, 1996.
NOTE 12 - RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1994, loans outstanding to certain officers and
directors of the Company and their subsidiaries and companies in which they
have material ownership amounted to $10,468,000 and $5,732,000,
respectively. An analysis of activity in loans to related parties at
December 31, 1995 and 1994 resulted in new loans of $6,126,000 and
$1,348,000, respectively; reductions of $660,000 and $1,140,000,
respectively, representing payments; and respective reductions and additions
of $730,000 and $1,291,000, respectively, representing changes in the
composition of related parties. Deposits of these individuals and their
affiliated companies at December 31, 1995 and 1994 were $7,438,000 and
$2,438,000, respectively.
The Banks lease premises from several limited partnerships whose partners
are persons related to the Company. Rental expense under these leases was
$340,000, $334,000 and $331,000 for 1995, 1994 and 1993, respectively.
The Company incurred $392,000, $436,000 and $333,000 in 1995, 1994 and 1993,
respectively, in legal fees to Ledgewood Law Firm for legal services related
to the acquisition of the minority interest in the Banks; the acquisitions
of Constitution Bank, Chester County and Security First; and other matters.
A member of the Board of the Company is also a principal of Ledgewood Law
Firm.
The Banks are parties to a management agreement with the Company under which
the Company provides services in the areas of management, accounting,
internal audit, loan review, marketing and advertising. Total charges for
such services amounted to $2,945,000, $2,477,000 and $1,951,000 for the
years ended December 31, 1995, 1994 and 1993, respectively. These fees were
eliminated in consolidation.
<PAGE>
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases certain of its operating facilities under non-cancellable
operating leases expiring in 1996 through 2011. The leases require payment
by the Company of the real estate taxes and insurance on the leased
properties.
Approximate future minimum annual rental payments are as follows (in
thousands):
Year ending December 31
1996 .................... $ 1,488
1997 .................... 1,405
1998 .................... 1,264
1999 .................... 1,197
2000 .................... 1,114
Thereafter .............. 4,377
-------
$10,845
=======
Rental expense amounted to $1,680,000, $1,493,000 and $1,375,000 in 1995,
1994 and 1993, respectively.
Other
In the normal course of business, the Banks have been named as defendants in
several lawsuits. Although the ultimate outcome of these suits cannot be
ascertained at this time, it is the opinion of management that the
resolution of such suits will not have a material adverse effect on the
financial position or results of operations of the Company.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires disclosure of the estimated fair value of an entity's
assets and liabilities considered to be financial instruments. For the
Company, as for most financial institutions, the majority of its assets and
liabilities are considered financial instruments as defined in SFAS No. 107.
However, many such instruments lack an available trading market, as
characterized by a willing buyer and seller engaging in an exchange
transaction. Also, it is the Company's general practice and intent to hold
its financial instruments to maturity and not to engage in trading or sales
activities, except for certain loans. Therefore, the Company had to use
significant estimations and present value calculations to prepare this
disclosure.
Changes in the assumptions or methodologies used to estimate fair values may
materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the
wide range of permitted assumptions and methodologies in the absence of
active markets. This lack of uniformity gives rise to a high degree of
subjectivity in estimating financial instrument fair values.
Estimated fair values have been determined by the Company using the best
available data and an estimation methodology suitable for each category of
financial instruments. The estimation methodologies used, the estimated fair
values, and recorded book balances at December 31, 1995 and 1994 are
outlined below.
For cash and due from banks, the recorded book values of $90,884,000 and
$98,037,000 at December 31, 1995 and 1994, respectively, approximate fair
values. The estimated fair values of investment securities are based on
quoted market prices, if available. Estimated fair values are based on
quoted market prices of comparable instruments if quoted market prices are
not available.
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
The net loan portfolio at December 31, 1995 and 1994 has been valued using a
present value discounted cash flow where market prices were not available.
The discount rate used in these calculations is the estimated current market
rate adjusted for credit risk. The carrying value of accrued interest
approximates fair value.
1995 1994
Carrying Estimated Carrying Estimated
amount fair value amount fair value
(in thousands)
Investment securities ... $145,762 $145,781 $ 80,628 $ 80,243
Loans, including
mortgages held for sale 659,756 665,210 544,138 535,361
The estimated fair values of demand deposits (i.e., interest (NOW) and
non-interest bearing demand accounts, savings and certain types of money
market accounts) are, by definition, equal to the amount payable on demand
at the reporting date (i.e., their carrying amounts). The carrying amounts
of variable rate accounts and certificates of deposit approximate their fair
values at the reporting date. The carrying amount of accrued interest
payable approximates its fair value.
Virtually all time deposits with stated maturities totalling $334,669,000
and $266,207,000 mature or reprice within one year of December 31, 1995 and
1994, respectively; therefore, the recorded book value of such deposits
approximates their fair value.
The recorded book balance of subordinated debentures of $9,000,000 at
December 31, 1995 and 1994 had an approximate fair value of $9,500,000 and
$9,000,000, respectively.
The fair values of the FHLB advances totalling $75,000,000 and $35,274,000
are estimated to approximate their recorded book balances at December 31,
1995 and 1994, respectively.
There was no material difference between the notional amount and the
estimated fair value of off-balance-sheet items which totalled approximately
$174,882,000 and $140,331,000 at December 31, 1995 and 1994, respectively,
and primarily comprise unfunded loan commitments which are generally priced
at market at the time of funding.
NOTE15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Banks are parties to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of their
customers and to reduce their own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable. Those instruments involve, to
varying degrees, elements of credit and interest rate risks in excess of the
amount recognized in the consolidated balance sheets. The contract or
notional amounts of those instruments reflect the extent of involvement the
Banks have in particular classes of financial instruments.
The Banks' exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual or notional
amount of those instruments. The Banks use the same credit policies in
making commitments and conditional obligations as they do for
on-balance-sheet instruments.
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK - Continued
Unless noted otherwise, the Banks do not require collateral or other
security to support financial instruments with credit risk. The approximate
contract amounts are as follows:
Financial instruments whose contract amounts represent credit risk
1995 1994
(in thousands)
Commitments to extend credit . $158,784 $133,836
Standby letters of credit and
financial guarantees written 16,098 6,495
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Banks evaluate each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Banks upon extension of
credit, is based on management's credit evaluation.
Standby letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Banks hold
residential or commercial real estate, accounts receivable, inventory and
equipment as collateral supporting those commitments for which collateral is
deemed necessary. The extent of collateral held for those commitments at
December 31, 1995 varies up to 100%.
The Banks grant loans primarily to customers in Philadelphia and its
immediately adjacent suburban Pennsylvania counties which include Chester,
Delaware and Montgomery and southern New Jersey which includes Camden and
Burlington counties. Although the Banks have diversified loan portfolios, a
large portion of their loans are secured by commercial or residential real
property. The Banks do not generally engage in non-recourse lending and
typically will require the principals of any commercial borrower to obligate
themselves personally on the loan. Although the Banks have diversified loan
portfolios, a substantial portion of their debtors' ability to honor their
contracts is dependent upon the economic sector. The distribution of
commitments to extend credit approximates the distribution of loans
outstanding. Commercial and standby letters of credit were granted primarily
to commercial borrowers.
NOTE 16 - REGULATORY MATTERS
The Bank Holding Company Act of 1956 restricts the amount of dividends the
Company can pay. Accordingly, dividends should generally only be paid out of
current earnings, as defined.
The Pennsylvania Banking Code of 1965 restricts the amount of dividends JBPA
can pay. Accordingly, dividends may be declared and paid only out of net
earnings, as defined.
Where surplus, as defined, is less than 50% of the amount of JBPA's capital,
no dividend may be paid or declared without the prior approval of the
Pennsylvania Department of Banking (the Department) until the surplus, as
defined, is equal to 50% of the total amount of capital. Where surplus, as
defined, is less than 100% of capital, until such time as surplus equals
capital, JBPA must transfer at least 10% of its net earnings to surplus, as
defined, prior to the declaration of a dividend. The Department has the
power to issue orders prohibiting the payment of dividends where such
payment is deemed to be an unsafe or unsound banking practice.
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 16 - REGULATORY MATTERS - Continued
The New Jersey Banking Act of 1948 restricts the amount of dividends paid on
JBNJ capital stock. Accordingly, no dividends shall be paid by JBNJ on its
capital stock unless, following the payment of such dividends, the capital
stock of JBNJ will be unimpaired, and (1) JBNJ will have a surplus, as
defined, of not less than 50% of its capital, or, if not, (2) the payment of
such dividend will not reduce the surplus, as defined, of JBNJ.
The Company and the Banks are also required to maintain minimum amounts of
Tier 1 and total capital to total "risk-weighted" assets and a minimum Tier
1 leverage ratio, as defined by the banking regulators. At December 31,
1995, they were required to have minimum Tier 1 and total capital ratios of
4% and 8%, respectively, and a minimum Tier 1 leverage ratio of 3% plus an
additional cushion of 100 to 200 basis points. The Company's, JBPA's and
JBNJ's Tier 1 and total capital ratios at December 31, 1995 were 9.16%,
8.26% and 17.56% and 11.74%, 10.92% and 18.13%, respectively, and the
entities' Tier 1 leverage ratios were 6.54%, 6.01% and 12.16%, respectively.
The Company's management believes that, under current regulations, it will
continue to meet its minimum capital requirement in the foreseeable future.
NOTE 17 - SEGMENT INFORMATION
The Company operates primarily as a commercial bank. Additionally, certain
mortgage banking activities are pursued and include the origination and
purchase of mortgage loans, the sale of mortgage loans in the secondary
market and the servicing of mortgage loans.
Segment information is as follows:
Commercial Mortgage
banking banking Consolidated
(in thousands)
Year ended December 31, 1995
Total revenue ................... $ 69,611 $ 1,214 $ 70,825
Income (loss) before income taxes 11,991 (177) 11,814
Identifiable assets, end of year 937,952 1,054 939,006
Year ended December 31, 1994
Total revenue ................... 51,082 1,204 52,286
Income (loss) before income taxes 9,698 (436) 9,262
Identifiable assets, end of year 750,611 914 751,525
Year ended December 31, 1993
Total revenue ................... 43,695 2,276 45,971
Income before income taxes ...... 6,643 165 6,808
Identifiable assets, end of year 633,799 137 633,936
<PAGE>
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 18 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
The condensed financial information for JeffBanks, Inc. (parent company
only) is as follows:
CONDENSED BALANCE SHEETS
1995 1994
(in thousands)
Assets
Cash ....................................... $ 241 $ 66
Investment in the Banks .................... 73,016 64,331
Premises and equipment, net ................ 226 123
-------- --------
$ 73,483 $ 64,520
======== ========
Liabilities and shareholders' equity
Other liabilities .......................... $ 172 $ 144
-------- --------
Shareholders' equity
Preferred stock ......................... -- 186
Common stock ............................ 3,947 2,734
Additional paid-in capital .............. 53,470 47,714
Retained earnings ....................... 15,427 15,001
Net unrealized gain (loss) on
investment securities available for sale 467 (1,259)
-------- --------
73,311 64,376
-------- --------
$ 73,483 $ 64,520
======== ========
CONDENSED STATEMENTS OF INCOME
1995 1994 1993
(in thousands)
Income
Dividends from the Banks ............. $2,749 $2,302 $ 824
Management service fees from the Banks 2,945 2,477 1,951
------ ------ ------
Total income ......................... 5,694 4,779 2,775
------ ------ ------
Expenses
Salaries and employee benefits ....... 1,046 964 822
Occupancy expense .................... 56 63 60
Depreciation ......................... 40 20 17
Data processing expense .............. 1,073 812 686
Advertising .......................... 312 292 333
Insurance ............................ 351 268 230
Other ................................ 73 113 259
------ ------ ------
Total expenses ....................... 2,951 2,532 2,407
------ ------ ------
Income before income taxes
and equity in undistributed
net income of the Banks ......... 2,743 2,247 368
Provision for income taxes .............. -- -- 55
Equity in undistributed net
income of the Banks .................... 4,918 3,934 2,344
------ ------ ------
Net income ................................. $7,661 $6,181 $2,767
====== ====== ======
Net income applicable to common stock ...... $6,534 $4,868 $2,240
====== ====== ======
<PAGE>
(Continued)
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 18 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY - Continued
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
December 31,
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Operating activities
Net income ........................................ $ 7,661 $ 6,181 $ 2,767
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization ................. 40 20 17
Loss from change in interest in JBNJ .......... 34
Equity in undistributed net income of
the Banks .................................... (4,918) (3,934) (2,344)
Increase in other liabilities ................. 69 124 16
Decrease (increase) in other assets ........... -- 66 (52)
-------- -------- --------
Net cash provided by operating activities 2,852 2,457 438
-------- -------- --------
Investing activities
Capital contributions made to the Banks ........... -- -- (12,693)
Purchases of premises and equipment ............... (144) (11) (22)
-------- -------- --------
Net cash used in investing activities ... (144) (11) (12,715)
-------- -------- --------
Financing activities
Dividends paid on preferred stock ................. (1,127) (1,312) (528)
Dividends paid on common stock .................... (1,621) (990) --
Proceeds from issuance of common stock ............ 230 33 12,421
Costs to acquire minority interest in JBNJ ........ (15) (111) --
-------- -------- --------
Net cash (used in) provided by financing
activities ......................... (2,533) (2,380) 11,893
-------- -------- --------
Net increase (decrease) in cash ...................... 175 66 (384)
Cash at beginning of year ............................ 66 -- 384
-------- -------- --------
Cash at end of year .................................. $ 241 $ 66 $ --
======== ======== ========
</TABLE>
<PAGE>
JeffBanks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of the Company
which, in the opinion of management, reflects all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
the Company's results of operations.
<TABLE>
<CAPTION>
Three months ended
December 31 September 30 June 30 March 31
(in thousands, except per share data)
<S> <C> <C> <C> <C>
1995
Interest income ............................... $ 18,096 $ 16,979 $ 15,319 $ 13,923
Interest expense .............................. 8,247 7,579 6,752 5,651
Net interest income ........................... 9,849 9,400 8,567 8,272
Provision for credit losses ................... 765 1,215 615 540
Gain on sale of securities .................... 56 122 35 120
Other operating income ........................ 1,843 1,500 1,382 1,450
Other operating expenses ...................... 7,456 6,782 6,633 6,776
Income before income taxes .................... 3,527 3,025 2,736 2,526
Net income .................................... 2,236 1,944 1,809 1,672
Net income applicable to common stock ......... 2,082 1,624 1,484 1,344
Per share data
Average common shares outstanding ......... 3,534 3,048 2,960 2,922
Net income per common share - primary ..... .59 .53 .50 .48
Net income per common share - fully diluted .55 .49 .47 .43
1994
Interest income ............................... $ 12,794 $ 12,461 $ 11,629 $ 10,059
Interest expense .............................. 4,965 4,531 4,129 3,787
Net interest income ........................... 7,829 7,930 7,500 6,272
Provision for credit losses ................... 478 461 459 459
Gain on sale of securities .................... -- -- -- 128
Other operating income ........................ 1,357 1,380 1,230 1,248
Other operating expenses ...................... 6,304 6,286 5,929 5,236
Income before income taxes .................... 2,404 2,563 2,342 1,953
Net income .................................... 1,609 1,651 1,557 1,248
Net income applicable to common stock ......... 1,281 1,322 1,229 1,036
Per share data
Average common shares outstanding ......... 2,704 2,646 2,625 2,505
Net income per common share - primary ..... .47 .50 .47 .42
Net income per common share - fully diluted .45 .45 .43 .38
</TABLE>
<PAGE>