10-K 1 FORM 10-K FOR PERIOD ENDED 12/31/94 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (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, 1994 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 NUMBER 1-6451 ------------------------ UJB FINANCIAL CORP. (Exact name of registrant as specified in its charter) NEW JERSEY 22-1903313 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 301 CARNEGIE CENTER P.O. BOX 2066 PRINCETON, NEW JERSEY 08543-2066 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 987-3200 ------------------------ Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------------------------------------------------------ ------------------------ Common Stock $1.20 par value New York Stock Exchange 7.75% Sinking Fund Debentures due November 1, 1997 New York Stock Exchange Adjustable-Rate Cumulative Preferred Stock -- Series B New York Stock Exchange 8.625% Subordinated Notes Due December 10, 2002 New York Stock Exchange
------------------------ Securities registered pursuant to Section 12(g) of the Act: NONE ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 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 is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / ------------------------ AS OF FEBRUARY 28, 1995, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS $1,460,004,157. ------------------------ AS OF FEBRUARY 28, 1995, THERE WERE 55,194,983 SHARES OF COMMON STOCK, $1.20 PAR VALUE OUTSTANDING. ------------------------ DOCUMENTS INCORPORATED BY REFERENCE UJB Financial Corp. 1994 Annual Report to Shareholders (portion) (Parts I, II and IV). Proxy Statement dated March 9, 1995 (portion) (Parts I and III). -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 UJB FINANCIAL CORP. INDEX TO FORM 10-K PART I Item 1. Business PAGE a) General development of business....................................... 3 b) Financial information about industry segments......................... 3 c) Narrative description of business..................................... 4 d) Financial information about foreign and domestic operations and export sales................................................. 12 e) Statistical information............................................... 12 Item 2. Properties............................................................... 21 Item 3. Legal Proceedings........................................................ 21 Item 4. Submission of Matters to a Vote of Security Holders...................... 25 Executive Officers of the Registrant..................................... 25 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.... 26 Item 6. Selected Financial Data.................................................. 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................ 26 Item 8. Financial Statements and Supplementary Data.............................. 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................................... 26 PART III Item 10. Directors and Executive Officers of the Registrant....................... 27 Item 11. Executive Compensation................................................... 27 Item 12. Security Ownership of Certain Beneficial Owners and Management........... 27 Item 13. Certain Relationships and Related Transactions........................... 27 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 28 Signatures............................................................... 33
2 3 PART I ITEM 1. BUSINESS. (A) GENERAL DEVELOPMENT OF BUSINESS. UJB Financial Corp. ("UJB" or the "company"), registrant, commenced operations on October 1, 1970 as a New Jersey corporation and as a bank holding company registered under the Bank Holding Company Act of 1956. The company owns two banks (bank subsidiaries) and nine active non-bank subsidiaries. At December 31, 1994 the company had total consolidated assets of $15,429,472,000 which ranked it as the third largest New Jersey based bank holding company. The bank subsidiaries engage in a general banking business. United Jersey Bank is UJB's largest bank subsidiary, accounting for approximately 82% of UJB's total consolidated assets at December 31, 1994. The non-bank subsidiaries engage primarily in securities brokerage, venture capital investment, commercial finance lending, lease financing, and reinsuring credit life and disability insurance policies related to consumer loans made by the bank subsidiaries. UJB Financial Corp. has its corporate office at 301 Carnegie Center, P.O. Box 2066, Princeton, New Jersey 08543-2066. On January 19, 1995, the company announced a definitive agreement to acquire Bancorp New Jersey, Inc. with total assets of approximately $480,371,000. The merger is expected to occur in the second or third quarter of 1995. In addition, the company successfully completed the acquisitions of VSB Bancorp, Inc. (VSB) and Palisade Savings Bank, FSB (Palisade) during 1994. VSB was accounted for as a pooling of interests and was consummated on July 1, 1994. On September 16, 1994 the acquisition of Palisade was completed and accounted for under the purchase method. The restructuring of the company along core lines of business and the consolidations of banks was completed. The three Pennsylvania banks were merged into one entity on March 18, 1994 under the name of First Valley Bank. In addition, the three New Jersey banks were consolidated into a single statewide bank called United Jersey Bank which was completed on July 15, 1994. The following table lists each bank subsidiary, the location of its principal office, the number of its banking offices and, in thousands of dollars, its total assets and deposits as of December 31, 1994. Both the New Jersey and Pennsylvania locations are state banks, however only the New Jersey bank is a member of the Federal Reserve System.
LOCATION NO. OF OF PRINCIPAL BANKING TOTAL TOTAL OFFICE OFFICES ASSETS(1) DEPOSITS(1) --------------- ------- ------------ ------------ United Jersey Bank(2)................. Hackensack, NJ 197 $ 12,582,814 $ 10,442,607 First Valley Bank..................... Bethlehem, PA 73 2,795,497 2,106,433
--------------- (1) Not adjusted to exclude interbank deposits or other transactions among the subsidiaries. (2) Restated to reflect the merger of Palisade Savings Bank, FSB on February 17, 1995. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. UJB is engaged in the business of managing or controlling banks and such other businesses related to banking as may be authorized under the Bank Holding Company Act of 1956, as amended. The registrant is also engaged in furnishing services to, or performing services for its present operating subsidiaries. The major line of business is banking. UJB owns and operates two bank subsidiaries. UJB also owns and operates nine active non-bank subsidiaries -- two stock brokerage firms, a venture capital company, a commercial finance company, two leasing companies, two credit life reinsurance companies and a data processing company. Total revenues (excluding intercompany revenues) for the non-bank subsidiaries as a group during the last three years did not account for 10% or more of consolidated revenues of UJB and subsidiaries. 3 4 (C)(1) NARRATIVE DESCRIPTION OF BUSINESS. Bank Subsidiaries United Jersey Bank was organized in 1899 and is the company's largest bank subsidiary. The bank had total assets of $12,582,814,000 at December 31, 1994. Based on the latest available data, it ranked as the third largest New Jersey based commercial bank. United Jersey Bank operates 51 offices to serve most of the 70 communities in Bergen County, the second most populous county in New Jersey. It also operates 146 banking offices throughout New Jersey. First Valley Bank was organized in 1968 and is the company's Pennsylvania bank subsidiary. The bank had total assets of $2,795,497,000 at December 31, 1994. First Valley Bank operates 73 offices in 13 counties in northeast Pennsylvania. The company's bank subsidiaries are engaged in a general banking business. Its major lines of business include commercial lending, retail banking, mortgage banking and investment management. These lines of business offer a wide range of financial services to individuals, businesses, not-for-profit organizations, government entities and other financial institutions. Non-Bank Subsidiaries The company, through its wholly-owned subsidiary, UJB Credit Corporation, owns and operates Gibraltar Corporation of America. The company directly owns and operates UJB Investor Services Company, United Jersey Credit Life Insurance Company and United Jersey Venture Capital, Inc. The company indirectly owns United Jersey Leasing Corporation, Lehigh Securities Corporation, First Valley Leasing, Inc., First Valley Life Insurance Company and UJB Financial Service Corporation. Gibraltar Corporation of America is a commercial finance company operating in the New York and New Jersey metropolitan areas, which specializes in making loans secured by accounts receivable, inventory, and equipment, as well as financing sales and leases of equipment. UJB Investor Services Company and Lehigh Securities Corporation are engaged in the stock brokerage business. United Jersey Credit Life Insurance Company and First Valley Life Insurance Company reinsure credit life and disability insurance policies related to the bank subsidiaries' consumer loans. United Jersey Venture Capital, Inc. makes venture capital investments. United Jersey Leasing Corporation and First Valley Leasing, Inc. were established for the purpose of making equipment leases. UJB Financial Service Corporation provides data processing services to banking subsidiaries. Supervision and Regulation The banking industry is highly regulated. Statutory and regulatory controls increase a bank holding company's cost of doing business and limit the options of its management to deploy assets and maximize income. Areas subject to regulation and supervision by the bank regulatory agencies include: nature of business activities; minimum capital levels; dividends; affiliate transactions; expansion of locations; acquisitions and mergers; interest rates paid on certain types of deposits; reserves against deposits; terms, amounts and interest rates charged to various types of borrowers; and investments. BANK HOLDING COMPANY REGULATION UJB is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "Holding Company Act"). As a bank holding company, UJB is supervised by the Board of Governors of the Federal Reserve System (the "FRB") and is required to file reports with the FRB and provide such additional information as the FRB may require. UJB is also regulated by the New Jersey and Pennsylvania Departments of Banking. The Holding Company Act prohibits UJB, with certain exceptions, from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to subsidiary banks, except that it may, upon application, engage in, and may own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking "as to be a proper incident 4 5 thereto" if the FRB determines that such acquisitions will be, on balance, beneficial to the public. The Holding Company Act requires prior approval by the FRB of the acquisition by UJB of more than five percent of the voting stock of any additional bank and in effect permits only the acquisition of banks located in New Jersey and in states (including Pennsylvania) where laws specifically permit acquisitions of banks by out-of-state bank holding companies having the largest proportion of their deposits in New Jersey. Acquisitions in any state will be permitted after September 29, 1995. See "Interstate Banking" below. Satisfactory financial condition, particularly with regard to capital adequacy, and satisfactory Community Reinvestment Act ratings are generally prerequisites to obtaining federal regulatory approval to make acquisitions. All of UJB's subsidiary banks are currently rated "satisfactory" or better under the Community Reinvestment Act. In addition, UJB is subject to various requirements under both New Jersey and Pennsylvania laws concerning future acquisitions. Such laws require the prior approval of the relevant Department of Banking to acquire any bank chartered by that State. Statewide branching is permitted in New Jersey and Pennsylvania. Branch approvals are subject to statutory standards relating to safety and soundness, competition, and public convenience. The Holding Company Act does not place territorial restrictions on the activities of non-bank subsidiaries of bank holding companies. The policy of the FRB provides that UJB is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources to support such subsidiary banks in circumstances in which it might not do so absent such policy. In addition, any capital loans by UJB to any subsidiary bank would be subordinate in right of payment to deposits and certain other indebtedness of such subsidiary bank. UJB is required by the Holding Company Act to file annual reports of its operations with the FRB and is subject to examination by the FRB. Under Section 106 of the 1970 amendments to the Holding Company Act and the regulations of the FRB, bank holding companies and their subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services. Regulations of the FRB under the Federal Reserve Act require that reserves be maintained by a UJB bank subsidiary to the extent that the proceeds of any UJB promissory note, acknowledgement of advance, due bill or similar obligation, with a maturity of less than four years, are used to supply or to maintain the availability of funds (other than capital) to the bank subsidiary, except any such obligation that, had it been issued directly by the bank subsidiary, would not constitute a deposit. They also place limits upon the amount of UJB's equity securities which may be repurchased or redeemed by UJB. Bank regulatory authorities in the United States have issued risk-based capital standards by which all bank holding companies and banks are evaluated in terms of capital adequacy. These guidelines relate a company's capital to the risk profile of its assets. The standards require all banks to have Tier I capital of at least 4 percent, total capital, including Tier I capital, of at least 8 percent of risk-adjusted assets and a minimum leverage ratio of 4 percent for institutions that have a regulatory rating of two or more. Failure to meet minimum capital requirements can initiate certain actions by regulators that could have a direct effect on the operations and financial statements. Tier I capital includes shareholders' equity less certain intangibles and unrealized gains and losses on available-for-sale securities, net of tax. Total capital is comprised of Tier I capital, qualifying debt instruments, and a portion of the allowance for loan losses. Tier I leverage ratio measures the ratio of Tier I capital to quarterly average assets less certain intangibles. As of December 31, 1994, UJB's Tier I capital was 9.27%, total risk-based capital was 12.04%, and the leverage ratio was 7.02%. 5 6 INTERSTATE BANKING AND REGULATORY RELIEF LEGISLATION IN 1994 The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, enacted September 29, 1994, permits full nationwide interstate banking (e.g., bank holding company ("BHC") acquisition of bank subsidiaries anywhere in the U.S.), with interstate branching to be permitted after June 1, 1997. Importantly, states retain the right to opt-out of interstate branching and to require that out-of-state BHCs and banks comply with state rules governing entry. A brief summary of the Act's major provisions follows: (A) INTERSTATE BANKING. One year after enactment, adequately capitalized and adequately managed BHCs would be permitted to acquire banks in any state. States cannot opt-out of this provision. State laws may prohibit the purchase of banks 5 years of age or less. Concentration limits are imposed (10% of bank and thrift deposits nationwide/30% in the state; the state supervisor may waive this 30% limit). States retain existing authority to impose nondiscriminatory deposit caps. Those banks with over 30% of statewide deposits may be sold to out-of-state BHCs without being subject to the 30% rule where the BHC has no presence in the host state (some limited exceptions may apply). (B) BANK/THRIFT AFFILIATE AGENCY AUTHORITY. One year after enactment, an insured bank subsidiary may act as agent for an affiliate bank or thrift in offering specified banking services (receive deposits, renew time deposits, close loans, service loans, and receive payments on loans and other obligations) both within and across state lines without offices of the agent being deemed branches of the affiliates on whose behalf they act. Thrift affiliates may provide these same agency services under limited circumstances. (C) INTERSTATE BRANCHING. (1) Branching Through Bank Mergers. After June 1, 1997, the appropriate Federal regulator may approve the merger of adequately capitalized banks across state lines, so long as the resulting institution is adequately capitalized and adequately managed. This will allow BHCs, after that date, to convert their subsidiary banks in different states into branches of the same bank; banks in different states, whether within holding companies or independent, will likewise be permitted to directly merge. Bank mergers would have to conform with state laws which impose age restrictions of up to 5 years on acquisitions of new banks. States may opt-out of interstate branching from September 29, 1994 until June 1, 1997. Doing so will preclude the merger of banks in that state with banks located in other states; banks located in states which opt-out would not be permitted to have interstate branches. States may permit interstate branching earlier than June 1, 1997, where both states involved with the bank merger expressly permit it by statute. Where the bank/BHC would be effectively moving into a new state as a result of the merger, regulators must consider Community Reinvestment Act compliance of all bank affiliates before approving the merger application. The 10% nationwide/30% deposit concentration limits discussed above also apply to bank mergers; states retain current authority to impose deposit caps. Host state banks with over 30% of statewide deposits may be merged with out-of-state banks without being subject to the 30% rule where the out-of-state bank has no presence in the host state (some limited exceptions may apply). (2) Direct Branching by Banks. National and state banks are prohibited from directly acquiring an existing branch (separate from the acquisition of a charter), or establishing a de novo branch, in a host state unless the law of the host state permits it. (D) FOREIGN BANKS. Foreign branches and agencies located in the U.S. will be permitted to branch interstate to the same extent as domestic institutions. However, certain restrictions are placed on foreign branch operations in the U.S. (E) LAWS APPLICABLE TO STATE INTERSTATE BRANCHES. Branches of out-of-state state chartered banks will be subject to the laws of the host state, including permissible activities, as if it were a branch of a bank located in that host state. State bank supervisors of the host state may examine an in-state branch of an out-of-state state bank for purposes of determining compliance with state law and to ensure that the branch is being operated in a safe and sound manner. 6 7 (F) OTHER. For financial institutions that maintain one or more branches outside the home state, the appropriate Federal banking agency must prepare a written evaluation of the entire institution's Community Reinvestment Act performance and a separate evaluation of the institution's performance for each state and metropolitan statistical area, and for the nonmetropolitan portion of the state. The Act prohibits the use of interstate branches primarily for the purpose of deposit production, and requires that the interstate bank's level of lending in the host state relative to deposits from the host state (using available information) is greater than half the average of all banks with home offices in that state. The appropriate Federal regulator may require closure of a branch which fails this test. In the case of an interstate bank that proposes to close any branch in a low- or moderate-income area, the branch closure notices must contain the mailing address of the bank's Federal regulator, and a statement that comments regarding the closure may be mailed to that regulator. If a person from the area in which the branch is located submits a written request and includes a statement of specific reasons, and the request is not frivolous, the agency must consult with community leaders and convene a meeting with such leaders and depository institutions to explore the feasibility of obtaining adequate alternative facilities and services. The legislation specifically states that this process shall not affect the authority of the bank to close the branch, or the timing of the closing. Congress also enacted the Riegle Community Development and Regulatory Improvement Act of 1994 on September 23, 1994. This Act amended the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") to allow regulators to issue guidelines instead of regulations on asset quality, earnings and stock valuation standards, provides for electronic filing of call reports and currency transaction reports, exempts business purpose loans from the Real Estate Settlement Procedures Act, reduces certain audit requirements of FDICIA, and included many other miscellaneous provisions intended to reduce regulatory burdens. However, stricter requirements are imposed on banks with respect to requiring flood insurance from borrowers. FDICIA The Federal Deposit Insurance Corporation Improvement Act of 1991, which became law in December 1991, in addition to authorizing increased funding for the Bank Insurance Fund ("BIF") by raising the FDIC's borrowing limits and eliminating the cap on deposit insurance premiums, imposes extensive additional statutory requirements regarding the roles, responsibilities, and liabilities of a bank's senior management, directors, independent auditors, and regulators in compliance, management and financial affairs of a bank. This Act has required additional time, effort and resources to be devoted to compliance and internal controls. FDICIA requires each financial institution with $500 million or more in total assets to have an annual audit of its financial statements by an independent public accountant and to have an audit committee consisting of independent outside directors. There are more stringent criteria for audit committees of institutions with $3 billion or more in total assets. It also requires that management report on and assess their responsibility for internal controls over financial reporting and compliance with designated laws and regulations. FDICIA requires each federal banking agency to ensure that its risk-based capital standards take adequate account of interest rate risk, concentration of credit risk and the risks of non-traditional activities, as well as reflect the actual performance and expected risk of loss on multi-family mortgages. In addition, pursuant to FDICIA, each federal banking agency has promulgated regulations specifying the levels at which a financial institution would be considered "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized," and to take certain mandatory and discretionary supervisory actions based on the capital level of the institution. Insured institutions are generally prohibited from paying dividends or management fees if after making such payments, the institution would be "undercapitalized." An "undercapitalized" institution also is required to develop and submit to the appropriate federal banking agency a capital restoration plan, and each company controlling such institution must guarantee the institution's compliance with such plan. The liability of a holding company under any such guarantee is limited to the lesser of five percent of the institution's total 7 8 assets at the time it became undercapitalized or the amount needed to comply with all applicable capital standards. The FDIC is accorded a priority over the claims of unsecured creditors in any bankruptcy proceeding of a holding company that has guaranteed an institution's compliance with a capital restoration plan. Further, "undercapitalized," "significantly undercapitalized," and "critically undercapitalized" institutions are subject to increasingly extensive requirements and limitations, including mandatory sale of stock, forced mergers, and ultimately receivership or conservatorship. A "critically undercapitalized" institution, beginning 60 days after it becomes "critically undercapitalized," generally is prohibited from making any payment of principal or interest on the institution's subordinated debt. FDICIA provides that the FDIC insurance assessments are to move from flat-rate premiums to a new system of risk-based premium assessments. The risk-based insurance assessment will evaluate an institution's potential for causing a loss to the insurance fund and base deposit insurance premiums upon individual bank profiles. Currently the annual assessment rates for the company's bank subsidiaries are 23 cents per $100 of domestic deposits. These rates are applicable through June 30, 1995 at which time they will be reevaluated based upon more current risk classifications. The FDIC has published proposals where BIF members would pay assessment rates ranging from 4 to 31 cents per $100 of domestic deposits depending upon risk classification. FDICIA also contains the Truth in Savings Act, which requires certain disclosures to be made in connection with deposit accounts offered to consumers. The FRB has adopted regulations implementing the provisions of the Truth in Savings Act. In addition, significant provisions of FDICIA require federal banking regulators to draft standards in a number of other areas to assure bank safety and soundness, including internal controls, information systems and internal audit systems, credit underwriting, asset growth, compensation, loan documentation and interest rate exposure. The bank regulators have proposed substantially similar regulations that impose on banks which fail to meet the safety and soundness standards of FDICIA substantially the same requirements respecting the formulation and implementation of a corrective plan of action as apply in the case of banks failing to meet the capital adequacy standards. FDICIA require the regulators to establish maximum ratios of classified assets to capital, and minimum earnings sufficient to absorb losses without impairing capital. The legislation also contains provisions which tighten independent auditing requirements, restrict the activities and investments of state-chartered banks to those permitted for national banks, amend various consumer banking laws, limit the ability of "undercapitalized" banks to borrow from the FRB discount window, and require federal banking regulators to perform annual on-site bank examinations and set standards for real estate lending. FDICIA has significantly increased costs for the banking industry due to higher FDIC assessments, additional layers of reporting and compliance requirements and more limitations on the activities of all but the most well capitalized banks. FIRREA Although the most significant purpose of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") was to restructure the savings and loan industry, many of its provisions have importance for the commercial banking industry, including the provision which authorized bank holding companies to acquire healthy as well as troubled thrift institutions, generally without limitations on interstate acquisitions, while retaining thrift branching powers. Under FIRREA, a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions, including a failure to meet minimum capital requirements, indicating that a "default" is likely to occur in the absence of regulatory assistance. These provisions have commonly been referred to as FIRREA's "cross guarantee" provisions. Liability under the "cross guarantee" provisions is subordinate to claims (other than claims by shareholders, including bank holding companies, in their capacity as sharehold- 8 9 ers, and affiliates of the institution) of depositors, secured creditors, other general or senior creditors, and holders of obligations subordinated to depositors or other creditors. The FDIC may waive its rights under limited circumstances generally applicable to acquisitions of troubled institutions. FIRREA gives the FDIC as conservator or receiver of a failed depository institution express authority to repudiate contracts with such institution which it determines to be burdensome or if such repudiation will promote the orderly administration of the institution's affairs. Certain "qualified financial contracts", defined to include securities contracts, commodity contracts, forward contracts, repurchase agreements, and swap agreements, are generally excluded from the repudiation powers of the FDIC. The FDIC is also given authority to enforce contracts made by a depository institution, notwithstanding any contractual provision providing for termination, default, acceleration, or exercise of rights upon, or solely by reason of, insolvency or the appointment of a conservator or receiver. Insured depository institutions are also prohibited from entering into contracts for goods, products or services which would adversely affect the safety and soundness of the institution. The bank regulatory agencies have broad discretion to issue cease and desist orders if they determine that the company or its subsidiaries are engaging in "unsafe or unsound banking practices." In addition, the federal bank regulatory authorities are empowered to impose substantial civil money penalties for violations of certain Federal banking statutes and regulations. Financial institutions, and directors, officers, employees, controlling shareholders, agents, consultants, attorneys, accountants, appraisers and others associated with a financial institution could now be subject to increased fines, penalties, and other enforcement actions as a result of provisions of FIRREA. Further, under FIRREA the failure to meet capital guidelines could subject a banking institution to a variety of enforcement remedies available to Federal regulatory authorities, including the termination of deposit insurance by the FDIC. REGULATION OF SUBSIDIARIES Various laws and the regulations thereunder applicable to the company and its bank subsidiaries impose restrictions and requirements in many areas, including capital requirements, the maintenance of reserves, establishment of new offices, the making of loans and investments, consumer protection, employment practices and other matters. There are various legal limitations, including Sections 23A and 23B of the Federal Reserve Act, on the extent to which a bank subsidiary may finance or otherwise supply funds to UJB or its non-bank subsidiaries. Under federal law, no bank subsidiary may, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its parent or non-bank subsidiaries of its parent or take their securities as collateral for loans to any borrower. Each bank subsidiary is also subject to collateral security requirements for any loans or extensions of credit permitted by such exceptions. Further, a subsidiary bank may only engage in most transactions with other subsidiaries if terms and conditions are at least as favorable to the bank as those prevailing for transactions with unaffiliated companies. UJB and its banking and other subsidiaries are also subject to certain restrictions with respect to engaging in the business of issuing, underwriting, public sale, flotation or distribution of securities. The two state-chartered subsidiary banks are subject to the supervision of, and to regular examination by, the New Jersey Departments of Insurance and Banking, in the case of United Jersey Bank, and the Pennsylvania Department of Banking, in the case of First Valley Bank. In addition, the subsidiary banks are subject to examination by the FDIC, and by the U.S Department of Education with respect to student loan activity. United Jersey Bank is also subject to examination by the FRB. The Municipal Bond Department of United Jersey Bank, as a registered municipal securities dealer, is subject to the supervision of the Municipal Securities Rulemaking Board. None of the stocks of the subsidiary banks or other subsidiaries owned or controlled by UJB carry statutory double liability. However, Article XIV, Section 11 of the Constitution of the State of Arizona provide that the stock of UJB's credit life insurance subsidiaries, may be subject to assessment to restore impaired capital under certain circumstances as and to the extent provided therein. There is no such provision in New Jersey or Pennsylvania law governing UJB's state-chartered banks. 9 10 Certain statutory restrictions may affect the declaration and payment of dividends by the subsidiary banks to UJB. For additional information see Note 14 on page 49 of the 1994 Annual Report incorporated herein by reference as Exhibit 13. UJB and its non-bank subsidiaries are subject to examination by the New Jersey and Pennsylvania state and the three federal bank regulatory agencies at their discretion. As a mortgagee approved by Department of Housing and Urban Development and a seller-servicer of mortgages approved by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the New Jersey Housing and Mortgage Finance Agency, United Jersey Bank is subject to regulation or supervision by these government agencies. First Valley Bank is a participant in the mortgage program conducted by the Pennsylvania Housing Finance Agency and is subject to the supervision of that agency. UJB Investor Services Company and Lehigh Securities Corporation are subject to regulation and examination by the Securities and Exchange Commission, the National Association of Securities Dealers, Inc. and the New Jersey Bureau of Securities. UJB Investor Services Company is also subject to regulation and examination by the New York Bureau of Investor Protection and Securities and the Florida Department of Banking and Finance. Lehigh Securities Corporation is also subject to regulation and examination by the Pennsylvania Securities Commission and, as a registered municipal securities dealer, is subject to the supervision of the Municipal Securities Rulemaking Board. United Jersey Credit Life Insurance Company and First Valley Life Insurance Company are subject to regulation and examination by the Department of Insurance of the State of Arizona. UJB and its subsidiaries are also subject to various reporting requirements of Federal and state securities laws and regulations of the Securities and Exchange Commission and the New York Stock Exchange. From time to time, various bills are introduced in the United States Congress and the New Jersey or Pennsylvania Legislature which could result in additional regulation of the business of UJB and its subsidiaries, or further increase competition. There is a continuing trend toward regulating every aspect of retail banking through consumer protection laws, at significant expense to financial institutions. At the same time, securities brokers, insurance companies, retailers and other non-bank entities are being allowed to offer a variety of traditional bank services without being subject to the same degree of regulation as banks and bank holding companies. If these trends continue without providing parity to the commercial banks in matters such as permissible services, taxation and interest rates chargeable on loans, adverse effects on commercial banks could ensue. In its operations in other countries, United Jersey Bank is also subject to restrictions imposed by the laws and banking authorities of such countries. References under this caption, Supervision and Regulation, to applicable statutes are brief summaries of portions thereof which do not purport to be complete and which are qualified in their entirety by reference to such statutes. Monetary Policy and Economic Conditions The earnings and business of UJB and its subsidiaries are affected by the policies of regulatory authorities, including the FRB. The monetary policies of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Because of the changing conditions in the national and international economy and in the money markets, as a result of actions by monetary and fiscal authorities, interest rates, credit availability and deposit levels may change due to circumstances beyond the control of UJB or its subsidiaries. Effects of Inflation A bank's asset and liability structure differs from that of an industrial company, since its assets and liabilities fluctuate over time based upon monetary policies and changes in interest rates. The growth in the bank's earning assets, regardless of the effects of inflation, will increase net interest income if the bank is able to maintain a consistent interest spread between earning assets and supporting liabilities. 10 11 A purchasing power gain or loss from holding net monetary assets during the year represents the effect of general inflation on monetary assets and liabilities. Almost all of the assets and liabilities of UJB are considered monetary because they are fixed in terms of dollars and therefore, are not materially affected by inflation. (C)(1)(I) PRINCIPAL PRODUCTS AND SERVICES RENDERED BY INDUSTRY SEGMENTS. Not applicable. See response to Item 1(b) contained elsewhere in this report. (C)(1)(II) DESCRIPTION OF NEW PRODUCTS OR SEGMENTS. Not applicable. (C)(1)(III) SOURCES AND AVAILABILITY OF RAW MATERIALS. Not applicable. (C)(1)(IV) IMPORTANCE OF PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS HELD. Patents and licenses, as such, are not of importance to UJB or its subsidiaries, but operating charters (similar to licenses) -- approved banking location authorizations granted by the New Jersey and Pennsylvania Departments of Banking for state-chartered bank subsidiaries -- are vital to the operation and expansion of the bank subsidiaries. Such charters are perpetual unless revoked by the granting authorities. Various licenses and approvals to do business are also required by the other regulatory agencies referred to under Supervision and Regulation above. Most of these licenses and approvals require periodic renewal. UJB has several registered service marks, none of which is considered material to its business. The duration of each registration is perpetual so long as the registrant continues to use the mark. (C)(1)(V) SEASONALITY OF BUSINESS. Not applicable. (C)(1)(VI) WORKING CAPITAL REQUIREMENTS RELATED TO INVENTORY. Not applicable. (C)(1)(VII) CONCENTRATION OF CUSTOMERS. The business of the registrant and its subsidiaries is not dependent on a single customer, nor on a small group of customers. (C)(1)(VIII) BACKLOG OF ORDERS. Not applicable. (C)(1)(IX) GOVERNMENT CONTRACTS. No material portion of the business of UJB and its subsidiaries is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. (C)(1)(X) COMPETITION. Each bank subsidiary faces strong competition for local business in the communities it serves from other banking institutions as well as from other financial institutions. United Jersey Bank and First Valley Bank compete in the national market with other major banking and financial institutions in the New York and Philadelphia areas, many of which are substantially larger and may have greater financial resources. A number of these institutions offer their services throughout New Jersey and Pennsylvania through bank and non-bank subsidiaries, loan production offices and solicitations through broadcast and print media and direct mail. For international business, United Jersey Bank competes not only with a substantial number of United States banks having foreign departments, but also with agencies and branches of foreign banks located in the United States and with other major banks throughout the world. The effect of liberalized branching and acquisition 11 12 laws has been to lower barriers to entry into the banking business and to increase competition for banking business, as well as to increase both competition for and opportunities to acquire other financial institutions. Nationwide interstate banking will accelerate these trends. For most of the services which the subsidiaries perform, there is increasing competition from financial institutions other than commercial banks due to the relaxation of regulatory restrictions. Money market funds actively compete with banks for deposits. Savings banks, savings and loan associations and credit unions also actively compete for deposits and for various types of loans; such institutions, as well as securities brokers, consumer finance companies, mortgage companies, factors, insurance companies and pension trusts, are important competitors. Financial institutions such as these, as well as retailers and other non-bank entities, have acquired so-called "non-bank banks" permitting them to offer traditional banking services without being subject to the same degree of regulation. Insurance companies, mutual fund investment counseling firms and other business firms and individuals offer competition for personal and corporate trust services and investment advisory services. Each of UJB's non-bank subsidiaries competes with a very large number of competitors, many of which are substantially larger and have greater financial resources. Competition for banking and permitted non-bank services is based on price, nature of product, quality of service, and in the case of retail activities, convenience of location. (C)(1)(XI) RESEARCH AND DEVELOPMENT. UJB and its subsidiaries conduct research activities, from time to time, relating to the development of new services. Expenditures for these activities are not considered material to the financial condition of UJB and its subsidiaries. Research expenditures during 1994 were charged directly to expense as incurred. (C)(1)(XII) COST OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS. It is not expected that compliance with Federal, state and local provisions relating to the protection of the environment will have any material effect on UJB or its subsidiaries. (C)(1)(XIII) NUMBER OF PERSONS EMPLOYED. At December 31, 1994, there were 6,143 persons, on a full-time equivalent basis, employed by UJB and its subsidiaries. (D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. United Jersey Bank operates an International Banking Department principally for the benefit of its domestic customers and, in January 1974, opened its first offshore banking facility on the island of Grand Cayman in the British West Indies. Business at the offshore facility constituted less than one-half of one percent of the total assets and income of United Jersey Bank in 1994. (E) STATISTICAL INFORMATION. The following tables set forth, on a consolidated basis, certain statistical information concerning UJB and its subsidiaries. The tables should be read in conjunction with the consolidated financial statements contained in the 1994 Annual Report to Shareholders, included herein as Exhibit 13. Average data have been derived from daily balances except in the case of certain smaller subsidiaries where month-end balances were used. 12 13 Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential. The following table shows the Average Balance Sheet with Resultant Interest and Rates for the years ended 1994 through 1992. Net interest income is the amount by which interest income exceeds interest expense. Net interest income in any given period is affected by the average volume of earning assets and the yield earned on such assets, the average volume of interest bearing sources of funds and the average rate paid on such liabilities.
TAX EQUIVALENT BASIS, IN 1994 1993 1992 THOUSANDS -------------------------------- -------------------------------- -------------------------------- NOT COVERED BY INDEPENDENT AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AUDITORS' REPORT BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE -------------------------- ----------- -------- ------- ----------- -------- ------- ----------- -------- ------- ASSETS Interest earning assets: Federal funds sold and securities purchased under agreements to resell................. $ 9,591 $ 600 6.26% $ 30,118 $ 955 3.17% $ 107,550 $ 4,615 4.29% Interest bearing deposits with banks............. 16,910 629 3.72 21,934 651 2.97 18,441 668 3.62 Trading account securities............. 27,495 772 2.81 31,447 1,385 4.40 22,741 1,429 6.28 Investment securities available for sale..... 613,915 34,300 5.59 754,213 31,023 4.11 126,820 10,782 8.50 Investment securities: U.S. Government and Federal agencies..... 1,871,038 107,700 5.76 2,227,309 146,926 6.60 2,773,209 200,497 7.23 States and political subdivisions......... 323,133 34,050 10.54 340,141 37,827 11.12 406,889 44,625 10.97 Other securities....... 1,603,764 88,500 5.52 565,208 31,146 5.51 253,748 16,828 6.63 ----------- -------- ----------- -------- ----------- -------- Total investment securities....... 3,797,935 230,250 6.06 3,132,658 215,899 6.89 3,433,846 261,950 7.63 ----------- -------- ----------- -------- ----------- -------- Loans: Commercial............. 4,458,589 337,473 7.57 4,354,160 304,945 7.00 4,554,227 328,337 7.21 Mortgage............... 2,574,625 201,336 7.82 2,459,970 200,893 8.17 2,335,920 207,578 8.89 Instalment............. 2,123,460 170,865 8.05 2,046,451 168,534 8.24 2,062,032 182,712 8.86 ----------- -------- ----------- -------- ----------- -------- Total loans........ 9,156,674 709,674 7.75 8,860,581 674,372 7.61 8,952,179 718,627 8.03 ----------- -------- ----------- -------- ----------- -------- Total interest earning assets... 13,622,520 976,225 7.17 12,830,951 924,285 7.20 12,661,577 998,071 7.88 ----------- -------- ----------- -------- ----------- -------- Non-interest earning assets: Cash and due from banks.................. 894,054 854,408 766,900 Allowance for loan losses................. (247,587) (262,658) (302,141) Other assets............. 593,534 612,440 644,234 ----------- ----------- ----------- Total non-interest earning assets... 1,240,001 1,204,190 1,108,993 ----------- ----------- ----------- Total Assets.............. $14,862,521 $14,035,141 $13,770,570 ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities: Savings deposits......... $ 5,563,805 $115,932 2.08 $ 5,461,273 $124,617 2.28 $ 5,063,121 $157,958 3.12 Other time deposits...... 3,106,316 123,782 3.98 3,495,293 146,728 4.20 4,012,866 208,065 5.18 Commercial certificates of deposit $100,000 and over................... 338,427 13,639 4.03 256,018 7,319 2.86 417,458 16,320 3.91 ----------- -------- ----------- -------- ----------- -------- Total interest bearing deposits......... 9,008,548 253,353 2.81 9,212,584 278,664 3.02 9,493,445 382,343 4.03 ----------- -------- ----------- -------- ----------- -------- Commercial paper......... 46,545 1,891 4.06 58,920 1,737 2.95 94,297 3,408 3.61 Other borrowed funds..... 1,417,304 71,428 5.04 803,187 32,045 3.99 907,750 35,985 3.96 Long-term debt........... 212,084 18,197 8.58 216,757 19,274 8.89 75,973 7,989 10.52 ----------- -------- ----------- -------- ----------- -------- Total interest bearing liabilities...... 10,684,481 344,869 3.23 10,291,448 331,720 3.22 10,571,465 429,725 4.06 ----------- -------- ----------- -------- ----------- -------- Non-interest bearing liabilities: Demand deposits.......... 2,897,980 2,582,206 2,177,219 Other liabilities........ 211,497 162,497 129,352 ----------- ----------- ----------- Total non-interest bearing liabilities...... 3,109,477 2,744,703 2,306,571 ----------- ----------- ----------- Shareholders' equity...... 1,068,563 998,990 892,534 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity................... $14,862,521 $14,035,141 $13,770,570 ============= ============= ============= Net Interest Income (tax-equivalent basis).. 631,356 3.94% 592,565 3.98% 568,346 3.82% ========= ========= ========= Tax-equivalent basis adjustment............... (15,252) (16,657) (19,063) -------- -------- -------- Net Interest Income....... $616,104 $575,908 $549,283 ========== ========== ========== Net Interest Income as a Percent of Interest Earning Assets (tax-equivalent basis)... 4.63% 4.62% 4.49% ========= ========= =========
--------------- Notes: -- The tax equivalent adjustment was computed based on a Federal income tax rate of 35% for 1994 and 1993 and 34% for 1992. 13 14 The following table shows the approximate effect on the effective interest differential of volume and rate changes for the years 1994 and 1993 on a tax-equivalent basis. For purposes of this table, the change in interest due to both volume and rate has been allocated to change due to volume and change due to rate in proportion to the relationship of the absolute dollar amounts of the change in each.
1994 VERSUS 1993 1993 VERSUS 1992 -------------------------------- -------------------------------- INCREASE/(DECREASE) INCREASE/(DECREASE) DUE TO CHANGE IN: DUE TO CHANGE IN: -------------------------------- -------------------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL -------- -------- -------- -------- -------- -------- (IN THOUSANDS) INTEREST EARNING ASSETS Interest bearing deposits with banks.................. $ (167) $ 145 $ (22) $ 114 $ (131) $ (17) Investment securities: U.S. Government and Federal agencies.................. (21,845) (17,381) (39,226) (37,134) (16,437) (53,571) States and political subdivisions.. (1,848) (1,929) (3,777) (7,401) 603 (6,798) Other securities............ 57,297 57 57,354 17,582 (3,264) 14,318 -------- -------- -------- -------- -------- -------- Total investment securities.. 33,604 (19,253) 14,351 (26,953) (19,098) (46,051) Investment securities available for sale.................... (6,488) 9,765 3,277 28,409 (8,168) 20,241 Trading account securities..... (158) (455) (613) 456 (500) (44) Federal funds sold and securities purchased under agreements to resell........ (912) 557 (355) (2,686) (974) (3,660) Loans: Commercial.................. 7,401 25,127 32,528 (14,066) (9,326) (23,392) Mortgage.................... 9,203 (8,760) 443 10,674 (17,359) (6,685) Instalment.................. 6,267 (3,936) 2,331 (1,381) (12,797) (14,178) -------- -------- -------- -------- -------- -------- Total loans............ 22,871 12,431 35,302 (4,773) (39,482) (44,255) -------- -------- -------- -------- -------- -------- Total interest earning assets............... 48,750 3,190 51,940 (5,433) (68,353) (73,786) -------- -------- -------- -------- -------- -------- INTEREST BEARING LIABILITIES Time Deposits: Savings deposits............ 2,320 (11,005) (8,685) 11,691 (45,032) (33,341) Other time deposits......... (15,602) (7,344) (22,946) (24,865) (36,472) (61,337) Commercial certificates of deposit $100,000 and over...................... 2,783 3,537 6,320 (5,312) (3,689) (9,001) -------- -------- -------- -------- -------- -------- Total time deposits.... (10,499) (14,812) (25,311) (18,486) (85,193) (103,679) Commercial paper............... (413) 567 154 (1,124) (547) (1,671) Other borrowed funds........... 29,299 10,084 39,383 (4,208) 268 (3,940) Long-term debt................. (411) (666) (1,077) 12,699 (1,414) 11,285 -------- -------- -------- -------- -------- -------- Total interest bearing liabilities.......... 17,976 (4,827) 13,149 (11,119) (86,886) (98,005) -------- -------- -------- -------- -------- -------- Change in net interest income...................... $ 30,774 $ 8,017 $ 38,791 $ 5,686 $ 18,533 $ 24,219 ======== ======== ======== ======== ======== ========
14 15 Investment Securities Available for Sale The following table shows the carrying value of investment securities available for sale at December 31 for each of the following years:
DECEMBER 31 -------------------------------------------- 1994 1993 1992 -------- ---------- -------- (IN THOUSANDS) Investment securities available for sale: Federal agencies.............................. $109,725 $ 669,841 $741,428 Other securities.............................. 91,490 492,247 139,850 -------- ---------- -------- Total investment securities available for sale..................................... $201,215 $1,162,088 $881,278 ======== ========= ========
The following table shows the maturity distribution and weighted average yields to maturity on a tax-equivalent basis for investment securities available for sale, by type and in total, of Federal agencies, and other securities at December 31, 1994. The carrying value represents the market value of securities at December 31, 1994 and are distributed by contractual maturity. However, mortgage-backed securities and other securities which may have prepayment provisions are distributed to a maturity category based on estimated average lives. These principal prepayments are not scheduled over the life of the investment, but are reflected as adjustments to the final maturity distribution. The distribution follows:
WEIGHTED CARRYING AVERAGE VALUE YIELD(2) --------- -------- (DOLLARS IN THOUSANDS) Investment securities available for sale (by type): Federal agencies: Within 1 year..................................................... $ -- --% After 1 but within 5 years........................................ 21,625 6.41 After 5 but within 10 years....................................... 67,228 6.57 After 10 years.................................................... 20,872 6.41 --------- Total........................................................ 109,725 6.51 --------- Other securities(1): Within 1 year..................................................... -- -- After 1 but within 5 years........................................ 36,336 4.94 After 5 but within 10 years....................................... 13,889 6.73 After 10 years.................................................... 1,980 6.47 --------- Total........................................................ 52,205 5.47 --------- Total investment securities available for sale............... $ 161,930 6.17% ======== ======= Investment securities available for sale (in total)(1): Total within 1 year............................................... $ -- --% Total after 1 but within 5 years.................................. 57,961 5.49 Total after 5 but within 10 years................................. 81,117 6.60 Total after 10 years.............................................. 22,852 6.41 --------- Total investment securities available for sale............... $ 161,930 6.17% ======== =======
--------------- (1) Excludes corporate stock with a carrying value of $27,884,000 and Federal Reserve Bank stock with a carrying value of $11,401,000. (2) Weighted average yields have been computed on a tax-equivalent basis using the statutory Federal income tax rate of 35%. 15 16 Investment Securities The following table shows the carrying value of investment securities at December 31 for each of the past three years:
DECEMBER 31, ----------------------------------------- 1994 1993 1992 ----------- ----------- ----------- (IN THOUSANDS) Investment securities: U.S. Government...................................... $ 234,268 $ 186,563 $ 176,988 Federal agencies..................................... 1,782,347 1,298,862 2,186,920 States and political subdivisions.................... 331,000 308,004 378,198 Other securities..................................... 1,745,373 892,221 68,161 ----------- ----------- ----------- Total investment securities.................. $ 4,092,988 $ 2,685,650 $ 2,810,267 ========= ========= =========
The following table shows the maturity distribution and weighted average yields to maturity on a tax-equivalent basis for investment securities, by type and in total, of U.S. Government, Federal agencies, states and political subdivisions and other securities at December 31, 1994. The carrying value and market value of securities at December 31, 1994 are distributed by contractual maturity. However, mortgage-backed securities and other securities which may have prepayment provisions are distributed to a maturity category based on estimated average lives. These principal prepayments are not scheduled over the life of the investment, but are reflected as adjustments to the final maturity distribution. The distribution follows:
WEIGHTED CARRYING MARKET AVERAGE VALUE VALUE YIELD(1) ---------- ---------- -------- (DOLLARS IN THOUSANDS) Investment securities (by type): U.S. Government: Within 1 year........................................ $ 113,236 $ 112,992 5.93% After 1 but within 5 years........................... 121,032 118,917 6.67 After 5 but within 10 years.......................... -- -- -- After 10 years....................................... -- -- -- ---------- ---------- Total.............................................. 234,268 231,909 6.31 ---------- ---------- Federal agencies: Within 1 year........................................ 43,490 41,123 5.50 After 1 but within 5 years........................... 869,673 811,206 5.53 After 5 but within 10 years.......................... 424,559 400,513 6.13 After 10 years....................................... 444,625 431,738 6.51 ---------- ---------- Total.............................................. 1,782,347 1,684,580 5.92 ---------- ---------- States and political subdivisions: Within 1 year........................................ 45,962 46,488 6.98 After 1 but within 5 years........................... 148,249 153,032 6.94 After 5 but within 10 years.......................... 98,871 101,134 6.18 After 10 years....................................... 37,918 38,776 7.39 ---------- ---------- Total.............................................. 331,000 339,430 6.77 ---------- ----------
16 17
WEIGHTED CARRYING MARKET AVERAGE VALUE VALUE YIELD(1) ---------- ---------- -------- (DOLLARS IN THOUSANDS) Other securities: Within 1 year........................................ $ 2,344 $ 2,333 5.74% After 1 but within 5 years........................... 472,722 449,186 5.38 After 5 but within 10 years.......................... 1,036,439 965,316 6.11 After 10 years....................................... 233,868 229,685 6.02 ---------- ---------- Total.............................................. 1,745,373 1,646,520 5.90 ---------- ---------- Total investment securities........................ $4,092,988 $3,902,439 6.00% ========= ========= ======= Investment securities (in total): Total within 1 year.................................. $ 205,032 $ 202,936 6.07% Total after 1 but within 5 years..................... 1,611,676 1,532,341 5.70 Total after 5 but within 10 years.................... 1,559,869 1,466,963 6.12 Total after 10 years................................. 716,411 700,199 6.40 ---------- ---------- Total investment securities........................ $4,092,988 $3,902,439 6.00% ========= ========= =======
--------------- (1) Weighted average yields have been computed on a tax-equivalent basis using the statutory Federal income tax rate of 35%. Loan Portfolio The following table shows the classification of consolidated loans (net of unearned discount and before deduction of the allowance for loan losses) by major category at December 31 for each of the past five years:
DECEMBER 31, --------------------------------------------------------------- 1994 1993 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS) Commercial, financial and agricultural........................ $ 3,604,331 $ 3,161,415 $ 3,257,245 $ 3,312,566 $ 3,399,953 Real estate-construction and development......................... 705,602 869,847 1,002,859 1,114,631 1,255,118 Real estate-mortgage.................. 2,790,988 2,493,661 2,448,489 2,340,437 2,054,347 Instalment loans to individuals....... 2,238,237 2,014,202 2,066,766 1,990,636 2,005,861 Lease financing....................... 317,416 204,583 153,221 179,603 145,343 ----------- ----------- ----------- ----------- ----------- Total loans...................... $ 9,656,574 $ 8,743,708 $ 8,928,580 $ 8,937,873 $ 8,860,622 ========= ========= ========= ========= =========
Unearned discount on loans and leases at December 31, 1994 and 1993 were $68.7 million and $39.3 million, respectively. At December 31, 1994 commercial mortgage loans and residential mortgage loans represented 15.1% and 13.8% of total loans, respectively. Home equity loans represented 15.8% of the total loan portfolio at year end. As of December 31, 1994 there are no other concentrations of loans which exceed 10% of total loans. 17 18 The following table shows the approximate maturities of selected loans at December 31, 1994. The loans are segregated between those which are at predetermined interest rates and those at floating or adjustable interest rates. The table includes non-performing loans which are discussed on pages 18 and 19 of this report:
OVER ONE OVER ONE YEAR YEAR THROUGH FIVE OR LESS FIVE YEARS YEARS TOTAL ---------- ------------ -------- ---------- (IN THOUSANDS) Loan categories: Commercial, financial and agricultural.......... $1,813,847 $1,455,202 $335,282 $3,604,331 Real estate-construction and development........ 304,525 302,745 98,332 705,602 ---------- ------------ -------- ---------- Total................................... $2,118,372 $1,757,947 $433,614 $4,309,933 ========= ========== ======== ========= Amounts of loans based upon: Predetermined interest rates.................... $ 441,197 $ 821,772 $211,948 $1,474,917 Floating or adjustable interest rates........... 1,677,175 936,175 221,666 2,835,016 ---------- ------------ -------- ---------- Total................................... $2,118,372 $1,757,947 $433,614 $4,309,933 ========= ========== ======== =========
The loan portfolio is reviewed regularly to determine whether specific loans should be placed in a non-performing status. Non-performing loans consist of commercial non-accrual and renegotiated loans. Non-accrual loans include loans that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collectibility. At the time a loan is placed on non-accrual status, previously accrued and uncollected interest is reversed against interest income. Interest collections on non-accrual loans are generally credited to interest income when received. However, if ultimate collectibility of principal is in doubt, interest collections are applied as principal reductions. After principal and interest payments are brought current and future collectibility is reasonably assured, loans are returned to accrual status. Renegotiated loans are loans whose contractual interest rates have been reduced to below market rates or other significant concessions made due to a borrower's financial difficulties. Interest income on renegotiated loans is generally credited to interest income as received. Non-performing loans do not include past due consumer loans 90 days or more as to principal or interest, but which are well collateralized and in the process of collection. The following table shows, in thousands of dollars, the principal amount of commercial non-accruing loans, renegotiated loans, and loans contractually past due 90 days or more at December 31 for each of the past five years, and their resultant impact on earnings before taxes for the years then ended. All loans in the following table represent domestic loans. There are no foreign loans included in any of the categories.
1994 1993 1992 1991 1990 --------- --------- --------- --------- --------- (IN THOUSANDS) Non-accruing loans........................... $ 164,909 $ 250,691 $ 343,138 $ 424,655 $ 435,369 Renegotiated loans........................... 2,738 3,582 21,836 28,831 2,284 Loans contractually past due 90 days or more(1).................................... 23,595 30,080 38,631 57,441 43,536 Impact on interest income: Interest income that would have been recorded on non-accruing and renegotiated loans outstanding at December 31 in accordance with their original terms.......................... 16,074 21,573 27,831 44,106 33,705 Interest income actually received and recorded on non-accruing and renegotiated loans outstanding at December 31............................. 1,693 3,787 3,843 8,463 4,651
--------------- (1) Primarily all consumer loans which are well collateralized and in the process of collection. Potential problem loans are those which management believes conditions indicate that the collection of principal and interest may be doubtful in accordance with the original contract terms. They are not included in non-performing loans as these loans are still performing. Potential problem loans were $34,614,000 and 18 19 $37,684,000 at December 31, 1994 and 1993 respectively. Potential problem loans at December 31, 1994 comprised commercial and industrial loans of $26,130,000, construction and development loans of $1,710,000, and real estate related loans of $6,774,000. Such risk associated with these loans have been factored into the company's allowance for loan losses. Summary of Loan Loss Experience The relationship for the past five years among loans, loans charged off and loan recoveries, the provision for loan losses and the allowance for loan losses is shown below:
YEAR ENDED DECEMBER 31 -------------------------------------------------------------- 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) Loans: Average for the period............. $9,156,674 $8,860,581 $8,952,179 $8,854,036 $8,736,407 ========= ========= ========= ========= ========= Allowance for loan losses: Balance, beginning of period....... $ 244,154 $ 277,449 $ 292,490 $ 265,148 $ 122,719 Allowance of purchased entity...... 1,833 -- -- -- -- Provision charged to operating expenses........................ 84,000 95,685 139,555 167,650 251,888 Loans charged off: Commercial and industrial....... 33,406 68,088 75,462 70,240 99,551 Construction and development.... 39,180 37,589 66,919 47,283 405 Mortgage........................ 14,974 12,000 9,322 17,261 1,618 Instalment...................... 8,684 25,598 15,627 17,578 19,038 ---------- ---------- ---------- ---------- ---------- Total loans charged off.... 96,244 143,275 167,330 152,362 120,612 ---------- ---------- ---------- ---------- ---------- Recoveries: Commercial and industrial....... 10,544 9,249 6,428 4,893 7,197 Construction and development.... 1,244 1,264 1,224 403 -- Mortgage........................ 2,617 287 492 1,493 16 Instalment...................... 2,965 3,495 4,590 5,265 3,940 ---------- ---------- ---------- ---------- ---------- Total recoveries........... 17,370 14,295 12,734 12,054 11,153 ---------- ---------- ---------- ---------- ---------- Net loans charged off.............. 78,874 128,980 154,596 140,308 109,459 Write downs on transfer to assets held for accelerated disposition..................... 36,952 -- -- -- -- ---------- ---------- ---------- ---------- ---------- Balance, end of period............. $ 214,161 $ 244,154 $ 277,449 $ 292,490 $ 265,148 ========= ========= ========= ========= ========= Ratio of: Net charge offs to average loans outstanding..................... .86% 1.46% 1.73% 1.58% 1.25% Allowance to year-end loans........ 2.22 2.79 3.11 3.27 2.99
For additional information, see Financial Review on pages 25 through 37 of the 1994 Annual Report incorporated herein by reference as Exhibit 13. Implicit in the lending function is the fact that loan losses will be experienced and that the risk of loss will vary with the type of loan being made, the creditworthiness of the borrower and prevailing economic conditions. A standardized process has been established throughout the company to provide for loan losses through a reasonable and prudent methodology. This methodology includes a review to assess the risks inherent in the loan portfolio. It incorporates a credit review and gives consideration to areas of exposure such as concentrations of credit, economic and industry conditions, and negative trends in delinquencies and collections. Consideration is also given to collateral levels and the composition of the portfolio. 19 20 Specific allocations as well as a need for general reserves are identified by loan type and allocated according to the following categories of loans at December 31 for each of the past five years. The percentage of loans to total loans is based upon the classification of loans shown as follows:
1994 1993 1992 1991 1990 -------------------- -------------------- -------------------- -------------------- -------------------- (DOLLARS IN THOUSANDS) PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE OF OF OF OF OF LOANS TO LOANS TO LOANS TO LOANS TO LOANS TO TOTAL TOTAL TOTAL TOTAL TOTAL AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS -------- ---------- -------- ---------- -------- ---------- -------- ---------- -------- ---------- 1994 % 1993 % 1992 % 1991 % 1990 % ------------------------------------------------------------------------------------------------------------ Commercial and industrial........ $ 40,969 37.3% $ 53,561 36.2% $ 64,093 36.5% $ 96,218 37.0% $ 81,673 38.4% Construction and development....... 57,960 7.3 65,387 10.0 77,135 11.2 82,243 12.5 56,460 14.2 Mortgage............ 18,316 28.9 19,022 28.5 21,561 27.5 16,409 26.2 11,212 23.2 Instalment.......... 11,560 23.2 11,120 23.0 13,767 23.1 12,730 22.3 10,062 22.6 All other loans..... 3,221 3.3 1,226 2.3 1,696 1.7 1,266 2.0 1,889 1.6 Unallocated......... 82,135 N/A 93,838 N/A 99,197 N/A 83,624 N/A 103,852 N/A -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total........... $214,161 100.0% $244,154 100.0% $277,449 100.0% $292,490 100.0% $265,148 100.0% ======== ========= ======== ========= ======== ========= ======== ========= ======== =========
Deposits For information on classification of average balances for deposits, see "Comparative Average Balance Sheets With Resultant Interest and Rates" on page 13 of this report. The following table shows, by time remaining to maturity, all commercial certificates of deposit $100,000 and over at December 31, 1994 (in thousands): Less than three months.................................... $ 239,398 Three to six months....................................... 118,223 Six to twelve months...................................... 13,520 More than twelve months................................... -- --------- Total........................................... $ 371,141 ========
Return on Equity and Assets For information on consolidated ratios, see "Summary of Selected Financial Data" on pages 38 and 39 in the 1994 Annual Report to Shareholders incorporated herein by reference as Exhibit 13. Short-Term Borrowings The following table summarizes information relating to certain short-term borrowings for each of the past three years:
MAXIMUM DAILY AVERAGE FOR YEAR AMOUNT AMOUNT ---------------------------- OUTSTANDING OUTSTANDING AT AVERAGE RATE AT AMOUNT INTEREST AT ANY DECEMBER 31 DECEMBER 31 OUTSTANDING RATE MONTH END -------------- --------------- ----------- -------- ----------- (DOLLARS IN THOUSANDS) Securities sold under agreements to repurchase: 1994 $948,697 5.49% $ 764,275 4.41% $ 1,095,316 1993 274,255 2.70 358,141 2.90 620,829 1992 357,734 2.80 464,395 3.31 568,786 Federal funds purchased: 1994 $172,255 5.94% $ 494,311 4.20% $ 582,749 1993 160,554 3.00 280,429 3.04 340,289 1992 198,275 3.02 267,555 3.53 349,599
20 21 ITEM 2. PROPERTIES. United Jersey Bank owns the building, constructed in 1984, in West Windsor Township, New Jersey where UJB maintains its administrative headquarters. Additionally, UJB occupies offices in Hackensack, New Jersey in space provided by United Jersey Bank as well as at other locations in New Jersey, which it leases from third-party lessors. During 1978, UJB sold a six-story office building that it owned in Hackensack, adjacent to the administrative and principal banking office of United Jersey Bank. United Jersey Bank leases space in the building. The principal banking office and administrative offices of United Jersey Bank are located in Hackensack in a nine-story building owned by the bank which was constructed in 1927. The bank occupies substantially the entire building. In addition to its principal office, United Jersey Bank owns 99 of its branch office buildings; office space in certain of these buildings is leased to others. United Jersey Bank leases the buildings and property for 98 of its branch offices. It leases a multi-level parking garage accommodating 250 cars located near the principal office and an office and warehouse facility in Fair Lawn, New Jersey. UJB leases real property located in Ridgefield Park, New Jersey and a multi-story building containing approximately 300,000 square feet of space for use by UJB Financial Service Corporation as a data processing facility which was completed in 1991. The tenant improvements and furniture, fixtures and equipment for the new facility was initially funded by UJB. On August 31, 1992, the Company consummated the sale of certain assets and simultaneously negotiated the leaseback of these assets. The previous computer center in Hackensack, owned by United Jersey Bank, has been utilized to centralize certain banking activities. The principal banking and administrative offices of First Valley Bank are located in an eleven-story building built in 1974 in Bethlehem, Pennsylvania. First Valley leases the building for an initial term ending in the year 2000, with renewal options extending for an additional 38 years. First Valley occupies approximately two-thirds of the building. All properties owned by the various bank subsidiaries are unencumbered by mortgages or similar liens. The bank subsidiaries at December 31, 1994 operated banking offices in 17 of the 21 counties in New Jersey (Atlantic, Bergen, Burlington, Camden, Cumberland, Essex, Gloucester, Hudson, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Union and Warren), and 13 of the 67 counties in Pennsylvania (Berks, Bucks, Carbon, Chester, Delaware, Lackawanna, Lancaster, Lehigh, Luzerne, Montgomery, Northampton, Philadelphia and Schuylkill). Gibraltar Corporation of America occupies leased offices in New York City, New York. UJB Investor Services Company occupies leased offices in Fort Lee, Matawan, Morristown, Paramus, Princeton and West Caldwell, New Jersey. First Valley Leasing, Inc. occupies leased offices in Bethlehem, Pennsylvania. Lehigh Securities Corporation occupies leased offices in Whitehall, Pennsylvania. ITEM 3. LEGAL PROCEEDINGS. Management does not believe that the ultimate disposition of the litigation discussed below will have a material adverse effect on the financial position and results of operation of the company and its subsidiaries, taken as a whole. SHAREHOLDER SUIT In Re UJB Financial Corp. Shareholder Litigation, United States District Court for the District of New Jersey, Trenton, Civil Action No. 90-1569. Suit filed April 5, 1990. Three suits, UJB Financial Corporation, derivatively by Chappaqua Family Trust and Robert Bassman v. UJB Financial Corporation et al; Irwin Shapiro v. UJB Financial Corp. et al; Lester Associates and Jerome Katz v. UJB Financial Corp, et al were filed in April and May of 1990. These suits were consolidated and a Consolidated Amended Complaint and Derivative Complaint was filed on September 4, 1990. This purported derivative and class action securities lawsuit against UJB Financial Corp. ("UJB") and certain officers and directors is brought by Plaintiffs who are alleged to have owned or purchased securities of UJB from approximately February 1, 1988 through July 1990. Violations are alleged of Sections 10(b), 14(a) and 20 of the Exchange Act, Sections 11, 12 and 15 of the Securities Act of 1933 and New Jersey common law. The suit alleges that UJB's reserves for loan losses were inadequate, resulting in inaccurate financial 21 22 statements, and that the defendants made misleading positive statements about UJB's financial condition and failed to disclose negative information about UJB's lending policies, operations and finances, thus artificially inflating UJB's earnings and the prices of UJB's securities. The suit further alleges that UJB's internal credit review and controls were inadequate. In addition, plaintiffs assert that the 1990 Proxy Statement was false and misleading because it did not disclose that defendants had engaged in the conduct described in the preceding paragraph or that entrenchment allegedly was defendants' true motive behind the adoption of a shareholder rights plan and a provision amending UJB's certificate of incorporation to require 80% approval by the shareholders to increase the authorized number of directors (and 80% approval to amend or repeal any provision of the proposed amendments). The plaintiffs demand judgment including unspecified money damages, a declaration that all action taken at the 1990 Annual Meeting is null and void, a declaration that the shareholder rights plan is void, and attorneys' fees. Discovery and determination of class issues were stayed by District Court order. UJB and the defendant directors and officers moved to dismiss the complaint and each claim for relief on various grounds, including, among others: failure to state a claim; failure to plead with particularity; and failure to make the required demand. The District Court granted the motion in part and allowed plaintiffs thirty days to replead or amend their complaint with respect to other alleged wrongdoing. The plaintiffs determined not to replead or amend and appealed the District Court ruling to the U.S. Circuit Court of Appeals. Plaintiffs did not appeal dismissal of the derivative claims and voluntarily withdrew, with prejudice, the claim challenging UJB's 1990 Proxy Statement. On May 22, 1992 the Court of Appeals reversed in part the District Court's decision insofar as it dismissed certain claims in the complaint and remanded same to the District Court for further proceedings, including repleading by the plaintiffs. By orders dated July 7, 1992, the Court of Appeals denied the defendants' petition for rehearing en banc but stayed entry of its mandate until August 13, 1992 to permit defendants to seek review by the United States Supreme Court. All proceedings in the District Court were stayed pending entry of the mandate; the mandate issued upon denial of review by the Supreme Court. On October 13, 1992, the Supreme Court declined to accept the case for review. On March 22, 1993, the Plaintiffs served the Second Consolidated Amended Class Action Complaint which contained substantially the same claims (except for those that had been dismissed) as set forth in the prior Amended Complaint. UJB and the defendant directors and officers then moved to dismiss the Second Consolidated Amended Class Action Complaint and each claim for relief contained therein on various grounds. On September 13, 1993, the District Court denied the defendants' motion to dismiss the plaintiffs' claims under the Securities Exchange Act of 1934 and New Jersey common law and reserved decision on the motion with regard to plaintiffs' claims under the Securities Act of 1933. The plaintiffs subsequently stipulated to the dismissal with prejudice of their claims under the Securities Act of 1933 on October 14, 1993. The defendants filed a motion requesting certification of an appeal from the District Court order to the United States Court of Appeals for the Third Circuit pursuant to 12 U.S.C. 1292(b) on October 29, 1993. The defendants also filed an Answer denying the allegations of the Second Consolidated Amended Class Action Complaint on October 28, 1993. The District Court by order dated December 3, 1993 denied the defendants' motion requesting certification of an appeal. Discovery commenced in January 1994. On April 21, 1994 the court entered another consent order dismissing without prejudice all claims against the defendant Clifford H. Coyman (the former president and CEO of United Jersey Bank) and dismissing with prejudice all claims against the outside director defendants (Robert L. Boyle, Elinor J. Ferdon, Walter L. Dealtry, Fred G. Harvey, Francis J. Mertz, Henry S. Patterson II, James A. Skidmore, Jr. and Joseph M. Tabak.) On the same day, the court entered a consent order conditionally certifying the matter to proceed as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure with respect to Counts I, II, and VI of the Complaint, on behalf of a plaintiff class consisting of all persons who purchased UJB's common stock during the period beginning February 1, 1988 through and including July 18, 1990, and who allegedly sustained damages thereby. On December 30, 1994, the parties agreed to settle the action for $3.65 million, subject to, among other things, notice to the class and final approval by the Court. The Court approved the settlement on March 29, 1995. A portion of this settlement will be paid by UJB's insurance carrier and the remaining balance has been fully reserved. Therefore, the effect of this settlement will have no significant impact on the financial operating results of the Company. The Company has agreed to the settlement in light of a number of considerations including the avoidance of 22 23 continuing costs of the litigation and the burden and disruption to the Company, its directors, management and employees caused by the continued defense of the litigation. As permitted by New Jersey law, the expenses of the individual defendants are being advanced by UJB. OTHER LITIGATION 1. McAdoo CERCLA Matter. First Valley Bank ("FVB") foreclosed on property in McAdoo, Pennsylvania, taking title by a sheriff's deed in 1980. The property was later designated by the United States Environmental Protection Agency ("EPA") as a part of a site (the "McAdoo Site") listed on the National Priorities List of sites to be remediated pursuant to the federal Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"). On June 3, 1988, the United States District Court for the Eastern District of Pennsylvania entered a Consent Decree in United States v. Air Products and Chemicals, Inc., Civil Action No. 87-7352 (the "Air Products litigation"), in which sixty-five potentially responsible parties ("PRPs"), not including FVB, agreed to undertake remediation of the McAdoo Site and the United States agreed to pay 25% of the settling PRPs (the "Initial PRPs") cost of remediation. On June 11, 1988, after having made a demand upon FVB and a number of other non-settling PRPs, the United States sued a number of the PRPs other than FVB who did not enter into the Consent Decree in a matter entitled United States of America v. Alcan Aluminum et al, United States District Court, Eastern District of Pennsylvania, Civil Action No. 88-4970 (the "Alcan litigation"). Although the United States did not sue FVB, on April 16, 1990, one defendant in the Alcan Litigation, Kalama Chemical, Inc., filed a motion for leave to file a third party complaint against FVB seeking contribution. The motion was denied without prejudice. FVB then participated in settlement discussions in the Alcan litigation. Pursuant to those negotiations, FVB and certain defendants, third-party defendants and other potential third-party defendants deposited, in a Court registry, a sum which the United States agreed will satisfy all of its claims against FVB. The parties also executed a Consent Decree which was approved by the District Court by Order dated June 24, 1993. The Consent Decree gives FVB a broad covenant not to sue and contribution protection to the extent available under 42 U.S.C. sec. 9622(d)(2). The Consent Decree was the subject of public notice and comment, pursuant to 42 U.S.C. sec. 9622(d)(2). The Initial PRPs submitted comments to the United States objecting to the Consent Decree, including inter alia, the broad release provided to FVB. The Initial PRPs also filed a motion to intervene in the Alcan litigation, which was denied by the District Court. The Initial PRPs then appealed that denial to the United States Court of Appeals for the Third Circuit in a matter captioned United States v. Alcan Aluminum, Inc., et al., Action No. 93-1099 (3rd Cir.). On May 25, 1994, the Third Circuit vacated the District Court's orders denying the motion to intervene and approving the Consent Decree, holding that the Initial PRPs may intervene as a matter of right in the Alcan litigation if they can prove that they have a protectable interest in that litigation. Consequently, the case was remanded to the District Court to determine whether the Initial PRPs have a protectable interest in the Alcan litigation. As a result of settlement negotiations, the parties have reached an agreement in principle for the settlement of the case. In light of this agreement in principle, the Court has suspended all proceedings in the case. 2. In re Payroll Express Corporation of New York and Payroll Express Corporation, United States Bankruptcy Court for the Southern District of New York, Case Nos. 92-B-43149 (CB) and 92-B-43150 (CB). United Jersey Bank (the "Bank") is involved in six Chapter 11 cases venued in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Cases") involving a former customer of the Bank, Payroll Express Corp. ("Payroll"), and several related entities. Payroll was primarily in the business of providing on-site check cashing services. Customers of Payroll deposited funds into a general deposit account ("Account") at the Bank to cover their payrolls. The Account was given credit for deposits received by Payroll and cash was obtained by debiting the Account. 23 24 Payroll perpetrated a substantial check kiting scheme using the Account and another account at National Westminster Bank, NJ ("NatWest"). NatWest apparently discovered this scheme in late May of 1992. Due to this discovery, NatWest ceased honoring checks drawn by Payroll on its account. UJB was ultimately left with a loss of approximately $4 million in the Account. On June 5, 1992, Robert Felzenberg, the President of Payroll, was charged in a Federal court located in Manhattan with embezzlement and wire fraud. He has pled guilty to among other things, wire and tax fraud, and was sentenced to 6 1/2 years imprisonment in March 1994. A trustee (the "Trustee") has been appointed by the Bankruptcy Court, and he is currently conducting an investigation of Payroll. The Trustee has also retained special counsel to pursue potential claims against the fidelity insurers of Payroll Express Corp. and possibly Payroll's insurance agent. Several parties concerned with the Bankruptcy Cases have undertaken an extensive discovery pursuant to a Discovery Order under Bankruptcy Rule 2004. Payroll customers deposited a total of $11.8 million into the Account during this period of time. A number of these customers have asserted claims against the Bank, although only three lawsuits by seventeen customers are currently pending: Beth Israel Medical Center, et al. v. United Jersey Bank and National Westminster Bank New Jersey, United States District Court for the Southern District of New York, Civil Action No. 94-8256 (LAP), Frederick Goldman, Inc. v. United Jersey Bank and National Westminster Bank New Jersey, United States District Court for the Southern District of New York, Civil Action No. 94-8256 (LAP) and Towers Financial Corporation v. United Jersey Bank, United States District Court for the District of New Jersey, Civil Action No. 92-3175 (WGB). The lawsuits allege various common law causes of action against the Bank, including unjust enrichment, restitution, conversion, fraud, negligence and/or breach of fiduciary duty. The Beth Israel and Frederick Goldman matters have been consolidated and the Bank has filed a motion to dismiss the complaints for failure to state a claim upon which relief can be granted. The motion is pending. Towers Financial has filed for protection under the bankruptcy laws and this case has been inactive for some time. The Trustee appointed in the Bankruptcy Cases described above filed two adversary proceedings against the Bank. The first, captioned John E. Pereira, as Chapter 11 Trustee of the Estate of Payroll Express Corporation et al. v. United Jersey Bank, was originally filed in the United States Bankruptcy Court for the Southern District of New York. The adversary complaint alleges the Account received incoming wire transfers of at least $17,013,537.54 within the 90 days prior to the filing of bankruptcy by Payroll. These incoming wire transfers were allegedly used by the Bank to reduce its losses on the check kiting scheme. The Trustee claims that the amounts of the wire transfers are recoverable by the Trustee as avoidable preferences under the Bankruptcy Code. The Bank successfully moved to withdraw the reference of this matter to the United States District Court for the Southern District of New York where it is currently pending under Civil Action No. 94-1565 (LAP). The Bank has filed a motion for summary judgment in this matter. The motion is pending. The second adversary complaint, captioned John E. Pereira, as Chapter 11 Trustee of the Estate of Payroll Express Corporation et al. v. United Jersey Bank, United States Bankruptcy Court for the Southern District of New York, Adversary Proceeding No. 94-8297A, alleges that the mortgages given to UJB on property owned by the various Felzenberg-controlled entities, together with certain loan payments made by Payroll to UJB, were fraudulent conveyances. The properties in question have all been sold. The Trustee also seeks the return of $310,000.00 in principal and $152,487.50 in interest payments made by Payroll on its loan in the year prior to the bankruptcy. The Trustee claims that these transfers are recoverable under section 548 of the Bankruptcy Code, as well as under the New Jersey Uniform Fraudulent Transfer Act. The Bank has filed an answer denying the material allegations of the complaint and the parties are currently conducting discovery. 24 25 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT. The following data is supplied as of March 9, 1995:
TITLE (ALL POSITIONS AND OFFICES PRESENTLY HELD NAME AGE WITH REGISTRANT) AND YEAR APPOINTED TO OFFICE(S) --------------------------------- --- ------------------------------------------------------ T. Joseph Semrod................. 58 Chairman of the Board and President (1981) John G. Collins.................. 58 Vice Chairman (1986) John R. Howell................... 61 Vice Chairman (1987) John R. Haggerty................. 59 Senior Executive Vice President/Finance (1987) and Treasurer (1981) Sabry J. Mackoul................. 54 Senior Executive Vice President/Retail Banking (1993) John J. O'Gorman................. 61 Senior Executive Vice President/Private Banking/Investment Management/Mortgage (1994) Stephen H. Paneyko............... 52 Senior Executive Vice President/Commercial Banking (1987) Larry L. Betsinger............... 57 Executive Vice President/Corporate Information Services (1990) Alfred M. D'Augusta.............. 53 Executive Vice President/Human Resources (1988) William F. Flyge................. 57 Executive Vice President/Investment Management (1991) William J. Healy................. 50 Executive Vice President (1988) and Comptroller (1979) and Assistant Secretary (1980) James J. Holzinger............... 59 Executive Vice President/Commercial Banking (1987) Richard F. Ober, Jr. ............ 51 Executive Vice President (1988), General Counsel (1975) and Secretary (1978) Dennis Porterfield............... 58 Executive Vice President/Bank Investments (1991) and Assistant Secretary (1975) Alan N. Posencheg................ 53 Executive Vice President/Corporate Operations and Information Services (1984) Gary F. Simmerman................ 60 Executive Vice President/Consumer Loans and Services (1994) Edmund C. Weiss, Jr. ............ 52 Executive Vice President (1990) and Auditor (1977)
The term of each of the above officers is until the next organization meeting of the Board of Directors, which occurs immediately following the annual meeting of shareholders, and until a successor is appointed by the Board of Directors. Each officer may be removed at any time by the Board of Directors without cause. Management of UJB is not aware of any family relationship between any director or executive officer or person nominated or chosen to become a director or executive officer. 25 26 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. This item has been omitted pursuant to paragraph (2) of General Instruction "G" -- Information to be Incorporated by Reference. See the Shareholders' Equity and Dividends section in the Financial Review on pages 34 and 35, Notes 12 and 13 to the Consolidated Financial Statements on pages 48 and 49 and Unaudited Quarterly Financial Data on page 56 of the 1994 Annual Report incorporated herein by reference as Exhibit 13. At February 28, 1995 there were 20,168 record holders of UJB Common Stock. ITEM 6. SELECTED FINANCIAL DATA. This item is omitted pursuant to paragraph (2) of General Instruction "G" -- Information to be Incorporated by Reference. See Summary of Selected Financial Data on pages 38 and 39 of the 1994 Annual Report incorporated herein by reference as Exhibit 13. Included in non-interest income for the years 1994 through 1991 were investment securities gains of $1.9 million, $8.9 million, $18.5 million and $13.9 million respectively and investment securities losses of $.6 million in 1990. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This item is omitted pursuant to paragraph (2) of General Instruction "G" -- Information to be Incorporated by Reference. See Financial Review on pages 25 through 37 of the 1994 Annual Report incorporated herein by reference as Exhibit 13. Reference is made to page 10 of this report for a discussion of the effects of inflation. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. This item is omitted pursuant to paragraph (2) of General Instruction "G" -- Information to be Incorporated by Reference. See Consolidated Financial Statements and Notes to Consolidated Financial Statements on pages 40 through 54 of the 1994 Annual Report incorporated herein by reference as Exhibit 13. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 26 27 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. This item is omitted pursuant to paragraph (3) of General Instruction "G" -- Information to be Incorporated by Reference, except that certain information on Executive Officers of the Registrant is included in Part I of this report and herein as follows: At December 31, 1994 loans to officers and directors of the Company and its subsidiaries and to their associates amounted to $86.0 million compared to $1.1 billion of shareholders' equity. A definitive proxy statement, dated March 9, 1995 (the "Proxy Statement"), was filed with the Securities and Exchange Commission. Information required by Item 401 of Regulation S-K is provided at page 25 of this Annual Report on Form 10-K and at pages 2-5 of the Proxy Statement under the caption "Election of Directors", which is hereby incorporated herein by reference. Information required by Item 405 of Regulation S-K is provided at page 16 of the Proxy Statement in the material appearing under the caption "Additional Information Regarding Directors and Officers" and is hereby incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. This item is omitted pursuant to paragraph (3) of General Instruction "G" -- Information to be Incorporated by Reference. Information required by Item 402 of Regulation S-K is provided at page 9 of the Proxy Statement under the caption "Corporate Governance of UJB -- Remuneration of Outside Directors", at pages 9-15 of the Proxy Statement under the caption "Compensation Committee Report on Executive Compensation", at pages 11 and 13 of the Proxy Statement under the captions "Summary Compensation Table", "Options/SAR Grants in Last Fiscal Year" and "Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values", at page 15 of the Proxy Statement under the caption "Stock Performance Graph" and at pages 16-19 of the Proxy Statement under the caption "Certain Information As To Executive Officers", all of which information is hereby incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. This item has been omitted pursuant to paragraph (3) of General Instruction "G" -- "Information to be Incorporated by Reference". Information required by Item 403 of Regulation S-K is provided at page 1 of the Proxy Statement in the introductory information to the Proxy Statement and at pages 6-7 of the Proxy Statement under the caption "Beneficial Ownership of UJB Equity Securities by Directors and Executive Officers", all of which is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. This item is omitted pursuant to paragraph (3) of Instruction "G" -- "Information to be Incorporated by Reference". Information required by Item 404 of Regulation S-K is provided at page 16 of the Proxy Statement in the material appearing under the caption "Additional Information Regarding Directors and Officers", which is hereby incorporated herein by reference. 27 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. a)(1) Financial statements, UJB Financial Corp. and Subsidiaries:
PAGE ----- Management's and Independent Auditors' Report.......................... 55* Consolidated Balance Sheets -- December 31, 1994 and 1993.............. 40* Consolidated Statements of Income -- Three Years Ended December 31, 1994................................................................. 41* Consolidated Statements of Cash Flows -- Three Years Ended December 31, 1994................................................................. 42* Consolidated Statements of Shareholders' Equity -- Three Years Ended December 31, 1994.................................................... 43* Notes to Consolidated Financial Statements............................. 44* Unaudited Quarterly Financial Data..................................... 56*
Financial statement schedules are omitted as the required information is not applicable or the information is presented in the financial statements or related notes thereto. (3) Other Exhibits (all references to Forms 8-K, 10-K and 10-Q refer to Securities and Exchange Commission File No. 1-6451. Other Exhibits are numbered in accordance with Item 601 of Regulation S-K): (2) Plan of acquisition, reorganization, arrangement, liquidation or succession. A. Agreement and Plan of Merger, dated January 19, 1995, between UJB Financial Corp. and Bancorp New Jersey, Inc. (incorporated by reference without exhibits to Exhibit 2 to Registration Statement No. 33-58111 on Form S-4, filed March 15, 1995). (3) Articles of incorporation; By-laws. A. Restated Certificate of Incorporation of UJB Financial Corp., as restated July 1, 1988, as amended through May 19, 1994 (incorporated by reference to Exhibit (3)A.(i) on Form 10-Q for the quarter ended June 30, 1994). B. By-Laws of UJB Financial Corp. as amended through October 19, 1994 (incorporated by reference to Exhibit (3)B.(i) on Form 10-Q for the quarter ended September 30, 1994). (4) Instruments defining the rights of security holders, including indentures. A. Rights Agreement, dated as of August 16, 1989, by and between UJB Financial Corp. and First Chicago Trust Company of New York, as Rights Agent (incorporated by reference to Exhibit 2 to the Registration Statement on Form 8-A, filed August 28, 1989). B. Indenture, dated as of November 1, 1972, between UJB Financial Corp. (under former name of United Jersey Banks) and The Bank of New York, as Trustee, for $20,000,000 of 7 3/4% Sinking Fund Debentures due November 1, 1997 (incorporated by reference to Exhibit 4(a) to Amendment No. 2 to Registration Statement No. 2-45397 on Form S-1, filed October 25, 1972). C. Purchase Agreement, dated October 25, 1972, between UJB Financial Corp. (under former name of United Jersey Banks) and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Brothers, for 7 3/4% Sinking Fund Debentures (incorporated by reference to Exhibit 1(b) to Amendment No. 2 to Registration Statement No. 2-45397 on Form S-1, filed October 25, 1972). D. Note Agreement, dated as of August 19, 1993, between UJB Financial Corp. and The Northwestern Mutual Life Insurance Company relating to $20,000,000 of --------------- *Refers to the respective page numbers of UJB Financial Corp. 1994 Annual Report to Shareholders included as Exhibit 13. Such pages are incorporated herein by reference. 28 29 7.95% Senior Notes Due August 25, 2003 (incorporated by reference to Exhibit (4)D. on Form 10-Q for the quarter ended September 30, 1993). E. (deleted) F. (deleted) G. (i) Subordinated Indenture, dated as of December 1, 1992, between UJB Financial Corp. and Citibank, N.A., Trustee, relating to $175,000,000 of 8 5/8% Subordinated Notes Due December 10, 2002 of UJB Financial Corp. (incorporated by reference to Exhibit (4)G. on Form 10-K for the year ended December 31, 1992), and (ii) Specimen of UJB Financial Corp.'s 8 5/8% Subordinated Notes Due December 10, 2002 (incorporated by reference to Exhibit 4 on Form 8-K, dated December 10, 1992). (10) Material Contracts A. (i) Asset Purchase Agreement, dated as of March 1, 1995, among United Jersey Bank and certain subsidiaries of United Jersey Bank, as Sellers, and ANJ Portfolio, LLC, as Purchaser, and (ii) Amendment, dated March 27, 1995, to the Asset Purchase Agreement. B. (i) Master Agreement of Lease, dated January 26, 1982, between United Jersey Banks (former name of UJB Financial Corp.) and Sha-Li Leasing Associates, Inc. relating to equipment leases in excess of $10,000,000 in aggregate lease obligations, including form of Equipment Schedule (incorporated by referenced to Exhibit (10)B.(i) on Form 10-Q for the quarter ended September 30, 1993), (ii) Assignment and Assumption of Equipment Lease, effective December 31, 1991, between UJB Financial Corp. and UJB Financial Service Corporation (relating to assignment of Master Agreement of Lease) (incorporated by reference to Exhibit (10)B.(ii) on Form 10-Q for the quarter ended September 30, 1993), and (iii) Form of Guaranty Agreement between UJB Financial Corp. and various lenders under the Master Agreement of Lease relating to certain equipment leases in excess of $10,000,000 in aggregate lease obligations (incorporated by reference to Exhibit (10)B.(iii) on Form 10-Q for the quarter ended September 30, 1993). *C. (i) UJB Financial Corp. 1993 Incentive Stock and Option Plan (incorporated by reference to Exhibit 10(C) to Registration Statement No. 33-62972 on Form S-8, filed May 19, 1993), (ii) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10)C.(ii) on Form 10-Q for the quarter ended June 30, 1993), and (iii) Compensation Committee Interpretation of Section 5(e)(ii)(F) (incorporated by reference to Exhibit (10)C. (iii) on Form 10-Q for the quarter ended March 31, 1994). *D. (i) UJB Financial Corp. 1990 Stock Option Plan (incorporated by reference to Exhibit (10)D. on Form 10-Q for the quarter ended June 30, 1990), and (ii) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10)C.(ii) on Form 10-Q for the Quarter ended June 30, 1993). *E. (i) UJB Financial Corp. 1989 Long-Term Performance Stock Plan (incorporated by reference to Exhibit (10)E. on Form 10-K for the year ended December 31, 1990), and (ii) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10)C.(ii) on Form 10-Q for the Quarter ended June 30, 1993). *F. Description of Incentive Plan approved January 20, 1982. --------------- * Management contract or compensatory plan or arrangement. 29 30 G. (i) Deferred Compensation Plan for Directors, as revised October 17, 1979, and (ii) Amendment adopted April 25, 1994. *H. (i) Agreement dated April 2, 1981 between UJB Financial Corp. (under former name of United Jersey Banks) and T. Joseph Semrod, with (ii) Amendment No. 1 dated May 5, 1981, (iii) Amendment No. 2 dated December 15, 1982, and (iv) Amendment No. 3 dated August 20, 1986. I. (deleted) J. (deleted) K. (i) Guaranty Agreement, dated August 7, 1991, by and between UJB Financial Corp. and Security Pacific National Bank, as Trustee (incorporated by reference to Exhibit (10)K.(i) on Form 10-Q for the quarter ended June 30, 1991), (ii) Warranty Bill of Sale, dated August 7, 1991, of Trico Mortgage Company (incorporated by reference to Exhibit (10)K.(ii) on Form 10-Q for the quarter ended June 30, 1991), and (iii) Pooling and Servicing Agreement, dated as of June 30, 1991, by and among Trico Mortgage Company, Inc., Securitization Subsidiary I, Inc. and Security Pacific National Bank, as Trustee (incorporated by reference to Exhibit (10)K.(iii) on Form 10-Q for the quarter ended June 30, 1991). *L. (i) United Jersey Banks (former name of UJB Financial Corp.) 1982 Stock Option Plan (incorporated by reference to Exhibit 4 to Registration Statement No. 2-78500 on Form S-8, filed July 21, 1982) with (ii) Amendment No. 1, dated June 16, 1984, (iii) Amendment No. 2, dated December 19, 1990 (incorporated by reference to Exhibit (10)L.(iii) on Form 10-K for the year ended December 31, 1990), and (iv) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10)C.(ii) on Form 10-Q for the Quarter ended June 30, 1993). . *M. (i) Retirement Restoration Plan, adopted April 19, 1983, (ii) Supplemental Retirement Plan, adopted August 16, 1989, (iii) Written Consent of UJB Financial Corp. Benefits Committee interpreting the Retirement Restoration Plan, adopted August 30, 1989, and (iv) Amendments to the Retirement Restoration Plan and Supplemental Retirement Plan adopted April 25, 1994. N. (i) Equipment Lease Guaranty dated as of August 31, 1992 by UJB Financial Corp. to Sanwa General Equipment Leasing, Inc. (incorporated by reference to Exhibit (10)N.(i) on Form 10-Q for the quarter ended March 31, 1993), and (ii) Equipment Lease Agreement dated as of August 31, 1992 and Equipment Schedule Nos. A-1 and A-2 dated as of August 31, 1992 between Sanwa General Equipment Leasing, Inc. and UJB Financial Service Corporation, United Jersey Bank, United Jersey Bank/Central, N.A. and United Jersey Bank/South, N.A., pursuant to Equipment Lease Agreement dated as of August 31, 1992, for five year lease of furniture, fixtures and equipment (incorporated by reference to Exhibit (10)N.(ii) on Form 10-Q for the quarter ended March 31, 1993). O. (i) Equipment Lease Guaranty dated as of August 31, 1992 by UJB Financial Corp. to MetLife Capital Corporation (incorporated by reference to Exhibit (10)O.(i) on Form 10-Q for the quarter ended March 31, 1993), and (ii) Equipment Schedule Nos. B-1 and B-2 dated as of August 31, 1992 between MetLife Capital Corporation and UJB Financial Service Corporation, United Jersey Bank, United Jersey Bank/Central, N.A. and United Jersey Bank/South, N.A. pursuant to Equipment --------------- * Management contract or compensatory plan or arrangement. 30 31 Lease Agreement dated as of August 31, 1992 between Sanwa General Equipment Leasing, Inc. and United Jersey Bank, United Jersey Bank/Central, N.A. and United Jersey Bank/South, N.A., for five year lease of furniture, fixtures and equipment (incorporated by reference to Exhibit (10)O.(ii) on Form 10-Q for the quarter ended March 31, 1993). P. Twenty-year real estate lease executed and dated December 12, 1988 from Hartz Mountain Industries, Inc. for real property located in Ridgefield Park, New Jersey and improvements to be constructed by Hartz thereon for use as new data processing facility for the company (incorporated by reference to Exhibit (10)P. on Form 10-K for the year ended December 31, 1993). Q. (deleted) R. (deleted) S. (deleted) T. (deleted) U. (deleted) V. (deleted) W. (i) Retirement Plan for Outside Directors of UJB Financial Corp., as amended and restated February 20, 1990 (incorporated by reference to Exhibit (10)W. on Form 10-K for the year ended December 31, 1990), (ii) Interpretation, dated March 15, 1993, of the Retirement Plan for Outside Directors of UJB Financial Corp. (incorporated by reference to Exhibit (10)W.(ii) on Form 10-K for the year ended December 31, 1992), and (iii) Amendment adopted April 25, 1994. X. (deleted) Y. (deleted) Z. Stock Option Agreement, dated December 16, 1993, issued by VSB Bancorp, Inc. to UJB Financial Corp. (incorporated by reference to Exhibit (10)Z. on Form 8-K, dated December 15, 1993). AA. (deleted) BB. (deleted) CC. (deleted) DD. (deleted) *EE. (i) Form of Termination Agreement between UJB Financial Corp. and each of T. Joseph Semrod, John G. Collins, John R. Howell, John R. Haggerty, Stephen H. Paneyko, Larry L. Betsinger, Alfred M. D'Augusta, William J. Healy, James J. Holzinger, William F. Flyge, Sabry J. Mackoul, John J. O'Gorman, Richard F. Ober, Jr., Dennis Porterfield, Alan N. Posencheg, Gary F. Simmerman and Edmund C. Weiss, Jr. (incorporated by reference to Exhibit (10)EE.(i) on Form 10-K for the year ended December 31, 1991) with (ii) Amendment No. 1, dated December 20, 1989 (incorporated by reference to Exhibit (10)EE.(ii) on Form 10-K for the year ended December 31, 1991), (iii) Amendment No. 2, dated October 16, 1991 (incorporated by reference to Exhibit (10)EE.(iii) on Form 10-K for the year ended December 31, 1991), and (iv) Amendment No. 3, dated December 16, 1992 (incorporated by reference to Exhibit (10)EE.(iv) on Form 8-K, dated January 19, 1993). --------------- * Management contract or compensatory plan or arrangement. 31 32 *FF. (i) UJB Financial Corp. Executive Severance Plan, as amended through December 16, 1992 (incorporated by reference to Exhibit (10)FF. on Form 8-K, dated January 19, 1993), and (ii) Amendment adopted April 25, 1994. GG. (deleted) HH. Retirement Program for Outside Directors of Franklin State Bank (incorporated by reference to Exhibit (10)HH. on Form 10-K for the year ended December 31, 1991). II. Franklin State Bank Deferred Compensation Plan adopted January 10, 1984 (incorporated by reference to Exhibit (10)II. on Form 10-K for the year ended December 31, 1991). JJ. (i) Retirement Plan for Outside Directors of Commercial Bancshares, Inc. adopted May 1, 1986 (incorporated by reference to Exhibit (10)JJ. on Form 10-K for the year ended December 31, 1991), and (ii) Compensation Committee Interpretation, dated July 19, 1993 (incorporated by reference to Exhibit (10)JJ.(ii) on Form 10-Q for the quarter ended June 30, 1993). KK. (i) Commercial Bancshares, Inc. Directors Deferred Compensation Plan adopted May 20, 1986 (substantially identical plans were adopted by former subsidiaries of Commercial Bancshares, Inc.) (incorporated by reference to Exhibit (10)KK.(i) on Form 10-K for the year ended December 31, 1991) and (ii) related Master Trust Agreement (incorporated by reference to Exhibit (10)KK.(ii) on Form 10-K for the year ended December 31, 1991). *LL. (i) United Jersey Banks (former name of UJB Financial Corp.) 1987 Stock Option Plan (incorporated by reference to Exhibit (10)LL.(i) on Form 10-K for the year ended December 31, 1991) with (ii) Amendment dated April 25, 1989, (iii) amendment dated June 30, 1990 (incorporated by reference to Exhibit (10)LL.(ii) on Form 10-Q for the quarter ended June 30, 1990), and (iv) Compensation Committee Regulations for the Grant and Exercise of Stock Options and Restricted Stock (adopted July 19, 1993) (incorporated by reference to Exhibit (10)C.(ii) on Form 10-Q for the Quarter ended June 30, 1993). MM. (deleted) *NN. First Valley Bank Executive Management Incentive Bonus Plan (incorporated by reference to Exhibit (10)NN. on Form 10-K for the year ended December 31, 1992). (13) UJB Financial Corp. 1994 Annual Report to Shareholders (21) Subsidiaries of the registrant. (23) Consents of Experts and Counsel A. Independent Auditors' Consent -- KPMG Peat Marwick LLP (27) Financial Data Schedule --------------- * Management contract or compensatory plan or arrangement. None of the Exhibits listed above other than the UJB Financial Corp. 1994 Annual Report to Shareholders are furnished herewith (other than certain copies filed with the Securities and Exchange Commission). Any of such Exhibits will be furnished to any requesting securityholder upon payment of a fee of 15 cents per page. Contact Lori A. Wierzbinsky, Assistant Corporate Secretary, UJB Financial Corp., P.O. Box 2066, Princeton, NJ 08543-2066 for a determination of the fee necessary to fulfill any request. b) Reports on Form 8-K. None. 32 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UJB FINANCIAL CORP. Dated: March 28, 1995 By: /s/ J. R. HAGGERTY ------------------------------------ John R. Haggerty Senior Executive Vice President/Finance Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE --------------------------------------------- ------------------------------- ---------------- /s/ T. JOSEPH SEMROD Chairman of the Board, March 28, 1995 --------------------------------------------- President and Director (Chief T. Joseph Semrod Executive Officer) /s/ JOHN G. COLLINS Vice Chairman and Director March 28, 1995 --------------------------------------------- John G. Collins /s/ JOHN R. HOWELL Vice Chairman and Director March 28, 1995 --------------------------------------------- John R. Howell /s/ J. R. HAGGERTY President/Finance (Principal --------------------------------------------- Senior Executive Vice March 28, 1995 John R. Haggerty Financial Officer) /s/ WILLIAM J. HEALY Executive Vice President and March 28, 1995 --------------------------------------------- Comptroller (Principal William J. Healy Accounting Officer) /s/ ROBERT L. BOYLE Director March 28, 1995 --------------------------------------------- Robert L. Boyle /s/ T.J. DERMOT DUNPHY Director March 28, 1995 --------------------------------------------- T.J. Dermot Dunphy /s/ ANNE EVANS ESTABROOK Director March 28, 1995 --------------------------------------------- Anne Evans Estabrook /s/ ELINOR J. FERDON Director March 28, 1995 --------------------------------------------- Elinor J. Ferdon
33 34
SIGNATURES TITLE DATE --------------------------------------------- ------------------------------- ---------------- /s/ FRED G. HARVEY Director March 28, 1995 --------------------------------------------- Fred G. Harvey /s/ FRANCIS J. MERTZ Director March 28, 1995 --------------------------------------------- Francis J. Mertz /s/ GEORGE L. MILES, JR. Director March 28, 1995 --------------------------------------------- George L. Miles, Jr. /s/ HENRY S. PATTERSON II Director March 28, 1995 --------------------------------------------- Henry S. Patterson II /s/ RAYMOND SILVERSTEIN Director March 28, 1995 --------------------------------------------- Raymond Silverstein /s/ JOSEPH M. TABAK Director March 28, 1995 --------------------------------------------- Joseph M. Tabak
34 35 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ---------- -------------------------------------------------------------- (10)A.(i) Asset Purchase Agreement, dated as of March 1, 1995, among United Jersey Bank and certain subsidiaries of United Jersey Bank, as Sellers, and ANJ Portfolio, LLC, as Purchaser. (ii) Amendment, dated March 27, 1995, to the Asset Purchase Agreement. (10)F. Description of Incentive Plan approved January 20, 1982. (10)G.(i) Deferred Compensation Plan for Directors, as revised October 17, 1979. (ii) Amendment adopted April 25, 1994. (10)H.(i) Agreement dated April 2, 1981 between UJB Financial Corp. (under former name of United Jersey Banks) and T. Joseph Semrod. (ii) Amendment No. 1 dated May 5, 1981. (iii) Amendment No. 2 dated December 15, 1982. (iv) Amendment No. 3 dated August 20, 1986. (10)L.(ii) Amendment No. 1, dated June 16, 1984, to the United Jersey Banks (former name of UJB Financial Corp.) 1982 Stock Option Plan. (10)M.(i) Retirement Restoration Plan, adopted April 19, 1983. (ii) Supplemental Retirement Plan, adopted August 16, 1989. (iii) Written Consent of UJB Financial Corp. Benefits Committee interpreting the Retirement Restoration Plan, adopted August 30, 1989. (iv) Amendments to the Retirement Restoration Plan and Supplemental Retirement Plan adopted April 25, 1994. (10)W.(iii) Amendment adopted April 25, 1994 to the Retirement Plan for Outside Directors of UJB Financial Corp. (10)FF.(ii) Amendment adopted April 25, 1994 to the UJB Financial Corp. Executive Severance Plan. (10)LL.(ii) Amendment dated April 25, 1989. (13) UJB Financial Corp. 1994 Annual Report to Shareholders. (21) Subsidiaries of the Registrant. (23) Independent Auditors' Consent -- KPMG Peat Marwick LLP (27) Financial Data Schedule.
EX-10.A.I 2 ASSET PURCHASE AGREEMENT 1 Exhibit (10)A.(i) ASSET PURCHASE AGREEMENT by and among United Jersey Bank, PipAshely, Inc., Piphyde Park, Limited, Pipgate Mill Properties, Ltd., Pipco 121-123 Grand Avenue, Inc., Pipco Carlstadt, Inc., Pipco Norte, Inc., Pipco MK, Inc., PIPCO Oakland, Inc., Pipco Parsippany, Inc., and Pipco Windsong, Inc. as Sellers and ANJ Portfolio, L.L.C. as Purchaser, dated as of March 1, 1995 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.1 Purchase and Sale Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.2 The Deposit; Escrow Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.3 Payment of the Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.4 Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 2.5 Prorations on the OREO; Transfer of Utility Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2.6 Foreclosure Prior to Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 2.7 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 2.8 Post Closing Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE III CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.2 The Sellers' Closing Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.3 The Purchaser's Closing Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 3.4 Conditions to the Purchaser's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 3.5 Conditions to the Bank's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 3.6 Transfer and Recordation Taxes; Other Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 3.7 Limitations on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 3.8 Additional Assets; Schedule 9 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.1 The Purchaser's Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 5.1 Representations and Warranties of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 5.2 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 5.3 Assignability of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE VI CERTAIN COVENANTS OF THE SELLER AND THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 6.1 The Seller's Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 6.2 The Purchaser's Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 6.3 Appraisals and Expert Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-i- 3 Section 6.4 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE VII CURE AND REPURCHASE OF ASSET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 7.1 Purchaser's Claim of a Defective Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 7.2 Bank and PIPCOs Elections for Defective Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 7.3 Repurchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 7.4 Repurchase Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 7.5 Reconveyance of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 7.6 Defects Covered by Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 7.7 Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE VIII TRANSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 8.1 Transition of the Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE IX DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 9.1 The Purchaser's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 9.2 The Bank's and PIPCOs' Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 ARTICLE X NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE XI MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 11.1 Obligations of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 11.2 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 11.3 Rights Cumulative; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 11.4 Election By Bank on Behalf of PIPCOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 11.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 11.6 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 11.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 11.8 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 11.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 11.10 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 11.11 GOVERNING LAW; JURISDICTION; VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 11.12 No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 11.13 Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 11.14 No Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 11.15 Brokerage Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-ii- 4 SCHEDULES/EXHIBITS
SCHEDULE DESCRIPTION -------- ----------- Schedule 1 Asset Schedule Schedule 2 Exceptions to Representations and Warranties Schedule 3 Security Deposits (Leases) Schedule 4 Title Exceptions Schedule 5 Deposits on Agreements and Contracts of Sale assumed by Purchaser Schedule 6 Resignations Schedule 7 Certificates of Occupancy Schedule 8 Environmental Site Assessments Schedule 9 Issues Relating to Section 3.8(b) and (c) Schedule 10 Deeds in Blank Schedule 11 Violations/Repairs Schedule 12 Additional Assets Schedule 13 Asset File Indexes
EXHIBIT TITLE ------- ----- Exhibit A Affidavit of Lost Mortgage Note Exhibit B Mortgage Assignment Exhibit C Assignment of Distribution Rights Exhibit D Special Warranty Deed Exhibit E Bill of Sale and General Assignment and Assumption Exhibit F Notice to Mortgagors (or Obligors) Exhibit G Certificate of Defect Exhibit H Omnibus Assignment Exhibit I Assignment of All Rights and Claims Exhibit J Rent Rolls Exhibit K Assignment of Final Judgment and Writ of Execution Exhibit L Assignment of Bid Exhibit M Assignment of Assignment of Leases, Rents and Profits
-iii- 5 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT is entered into as of the 1st day of March, 1995, by and among United Jersey Bank (the "Bank"), PipAshely, Inc., Pipgate Mill Properties, ltd., Pipco 121-123 Grand Avenue, Inc., Pipco Carlstadt, Inc., Pipco Norte, Inc., Pipco Mk, Inc., PIPCO Oakland, Inc., Pipco Parsippany, Inc. (collectively, the "PIPCOs") and ANJ Portfolio, L.L.C. (the "Purchaser"). WITNESSETH WHEREAS, the Bank owns the Loans and the Related Mortgage Interests and the PIPCOs own the Real Estate and the Distribution Rights (all as hereinafter defined) and wish to sell the same; and WHEREAS, the Purchaser desires to purchase the same from the Bank and the PIPCOs. NOW, THEREFORE, in consideration of the mutual promises herein set forth and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Bank, the PIPCOs and the Purchaser agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement (as hereinafter defined), the following terms shall have the meanings indicated below: "ADDITIONAL ASSETS" means those Loans and OREO Parcels identified on SCHEDULE 12. "AGREEMENT" means this Asset Purchase Agreement, including all Schedules and Exhibits, as the same may be amended, supplemented, or otherwise modified. "ASSET(S)" means either singularly or collectively, a Loan, an OREO Parcel or the Distribution Rights. "ASSET FILES" means the files which contain for each Asset, to the extent in the Bank's or the applicable PIPCO's possession or control, the agreements, instruments, certificates or other documents at any time evidencing or otherwise relating to, governing or executed in connection with or as security for, an Asset, including the following: (1) with respect to Loans, (a) copies of the Collateral Documents (as hereinafter defined), (b) Notes (as hereinafter defined), bonds, letter of credit applications, assignments, undertakings, certificates, documents, legal opinions, participation agreements and intercreditor agreements, and all amendments, modifications, renewals, extensions, rearrangements and substitutions with respect to any of 6 the foregoing, (c) payment histories, (d) most recent financial statements of the Mortgagor (as hereinafter defined) and any other obligor, (e) most recent appraisals, (f) deeds or similar instruments of title and instruments of ownership or conveyance, deeds of foreclosure and bids, (g) credit files, (h) surveys, (i) correspondence, (j) site plans, (k) subdivision plans and approvals, (l) environmental reports, (m) permits, approvals, licenses and governmental consents, (n) books and records reflecting income and operating expenses of the underlying property, (o) managers' and receivers' reports, (p) pleadings and other court papers, (q) borrower estoppel certifications, (r) subordination agreements, (s) credit reports and summaries, (t) engineering reports, soil reports, architect certificates, (u) insurance policies or certificates, (v) land or occupancy leases, (w) any offers or expressions or solicitations of interest with respect to the disposition thereof, and (x) all other credit, contractual or insurance documents relating thereto, or copies of any thereof; (2) with respect to the OREO Parcels, (a) all the information specified in clause (1) above with the exception of items (c), (d), (g), (q), (r) and (s) and (b) all information and documents in the possession or control of the Bank relating to the Related Mortgage Interests; and (3) with respect to the Distribution Rights, all agreements, evidencing, modifying or otherwise relating to the Distribution Rights and the Agreement of Limited Partnership of East Sunland L.P. dated March 27, 1991 as amended on March 10, 1992 and all the information specified in clause (1) above with the exception of items (c), (d), (g), (q), (r) and (s). "ASSET SCHEDULE" means SCHEDULE 1 identifying the Loans, OREO Parcels (as hereinafter defined), Distribution Rights and Related Mortgage Interests to be sold, transferred, assigned and conveyed hereunder and containing the following information: (a) with respect to each Loan, (1) the Mortgagor's name and loan number; (2) the date of the original note and each amendment and modification to the note; (3) a description of the date and title of each security interest document, financing document or mortgage relating to the note; (4) the address of the Mortgaged Property; (5) codes indicating type of loan or method of calculating interest; (6) the property type description for each Mortgaged Property (as hereinafter defined); (7) the stated maturity date; (8) the original principal amount of the Loan; (9) the stated principal balance of the Loan as of the close of business on the Credit Date (as hereinafter defined); (10) the date as to which interest has been last paid on the Note; (11) accrued and unpaid interest, fees and charges; (12) amortization schedules; and (13) Schedule Price; (b) with respect to each OREO Parcel, the address or tax and block number of the OREO Parcel; (c) with respect to the Distribution Rights, a description of the distribution rights. "BUSINESS DAY" means any day other than a Saturday, a Sunday, a federal holiday or another day on which commercial banks in New Jersey are authorized or required to be closed for the conduct of their regular banking operations. -2- 7 "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601-9657. "CAMBRIDGE SQUARE (MARLBORO) LOAN" means the Loan identified as the Cambridge Square/Marlboro Loan in SCHEDULE 1. "CERTIFICATE OF DEFECT" means a certificate substantially in the form of EXHIBIT G, which shall be appropriately completed and shall include (1) identity of an Asset with respect to which a breach of a representation or warranty contained in Article V is claimed; (2) all reasonably available evidence of the existence of same; (3) reference to the section and subsection of this Agreement under which such breach is claimed and (4) the procedure and estimated cost to cure or remediate such breach (including copies of any third party report that describes or estimates the cure cost of same). "CLAIM" means any claim, demand, cause of action, judgment, loss, damage, liability, cost and expense (including reasonable attorneys' fees, whether or not suit is instituted). "CLOSING" means the closing of the purchase and sale of the Assets pursuant to this Agreement. "CLOSING DATE" means the date of the Closing, which shall be March 23, 1995, or such other date to which the Purchaser and the Bank may mutually agree in writing. "COLLATERAL DOCUMENTS" means, for (1) each Loan, the Note and the Mortgage and any other documents or instruments in the Bank's possession or control creating or relating to the security for the Note, which other documents or instruments may include any mortgage, deed of trust, mortgage note, security agreement, assignment of security interest, loan agreement, financing statement, assignment of rents, pledge agreement, guaranty, indemnification agreement, escrow agreement, ground lease and occupancy lease agreement, foreclosure bids, judgments and other documents, settlement agreement, restructuring and forbearance agreement, deeds in escrow, plan of reorganization, assignment of stock or partnership units, letter of credit, title insurance policy, fire and casualty insurance policy and flood hazard insurance policy; (2) for each OREO Parcel, the following documents: (i) an originally executed recorded Deed, in the name of the applicable PIPCO; (ii) a title policy insuring title of the Bank or a PIPCO in the property; (iii) an original counterpart of any contract of sale entered into by the Bank or any PIPCO on or prior to the Closing Date; (iv) leases, licenses and other occupancy agreements and (v) any other documents contained in the Asset Files for the related mortgage loan that are still retained by the Bank including, but not limited to, any retained title policies and legal opinions received by the Bank and foreclosure documents and (3) for the Distribution Rights, a certified copy of -3- 8 the partnership agreement and any amendments or modifications in connection therewith. "CONBRO" means the OREO Parcel identified on SCHEDULE 1 as "ConBro". "CONDEMNATION PROCEEDS" means all awards or settlements in respect of a Mortgaged Property or OREO Parcel whether permanent or temporary, partial or entire, by exercise of the power of eminent domain or condemnation or other taking by a federal, state or local governmental authority, and, with respect to any Loan, to the extent not required to be released to a Mortgagor in accordance with the terms of the related Loan document. "CONFIDENTIALITY AGREEMENTS" means the Confidentiality Agreement dated July 14, 1994 executed by Taylor Simpson Group, as the Purchaser's representative, the Confidentiality Agreement dated November 22, 1994 executed by O'Connor Capital, Inc., and the Confidentiality Agreement dated January 5, 1995 executed by Argo Partnership, L.P. in connection with their respective Due Diligence of the Assets. "CONTROL" means possession by counsel of record for the Bank or the PIPCOs in connection with the litigation and bankruptcy matters disclosed on SCHEDULE 2 or by their respective management agents or servicers. "CREDIT DATE" means February 1, 1995. "CRESTMONT MORTGAGE" means that certain mortgage referenced in paragraph 14 of the Order Confirming Plan of Reorganization recorded in Monmouth County in Book 5362, page 0812 et seq. "CURE PERIOD" means the period of 60 days commencing on the date the Purchaser delivers to the Bank or the applicable PIPCO a Certificate of Defect, as such period may be extended by mutual agreement of the Bank or the applicable PIPCO and the Purchaser. "DEED" means a grant, special warranty or other form of deed, with covenants against grantor's acts, substantially in the form of EXHIBIT D properly completed and executed by the Grantor in recordable form. "DEPOSIT" means $1,300,000 deposited by the Purchaser with the Bank and the PIPCOs, which consists of cash and/or a letter of credit in favor of the Bank in substantially the form of EXHIBIT M from a banking institution reasonably acceptable to the Bank. "DISTRIBUTION RIGHTS" means all of Pipco Windsong, Inc.'s right, title and interest to limited partnership distributions and any other rights to payment under the Agreement of Limited Partnership of East Sunland L.P., dated March 27, 1991, as amended on March 10, 1992, between East Sunrise Landing, Inc. and Pipco Windsong, Inc. -4- 9 "DONATO LOANS" means the Loans identified on SCHEDULE 1 as the Donato Loans. "ENVIRONMENTAL ASSESSMENT REPORTS" shall mean the inspections and reports as set forth in SCHEDULE 8. "ESCROW AGENT" means LeBoeuf, Lamb, Greene & MacRae, L.L.P., One Riverfront Plaza, Newark, New Jersey 07102-5490. "ESCROW AGREEMENT" shall mean the Escrow Agreement dated the date hereof among the Bank, the PIPCOs, the Purchaser and the Escrow Agent. "EXCLUDED DOCUMENTS" means certain internal reports, analyses and memoranda prepared by employees of the Bank; provided that Excluded Documents shall not include any documents essential to the Purchaser's ability to acquire title to the Assets, to own and service such Assets or reasonably to complete its due diligence with respect to such Assets. "FAIR LAWN OFFICE CENTER" shall mean the condominium units identified on SCHEDULE 1 as Fair Lawn Office Center. "HEATHCOTE LETTER OF CREDIT" means the Letter of Credit by ABN.AMRO Bank (Switzerland)-Geneva Branch, No. NR11984 dated October 25, 1994 in the amount of $3,088,806.77 in favor of United Jersey Bank. "INSURANCE PROCEEDS" means with respect to each Loan, proceeds of insurance policies insuring the Loan or the related Mortgaged Property and, with respect to each OREO Parcel, proceeds of insurance policies insuring the OREO Parcel. "KNOWLEDGE" means the actual awareness of facts or information relating to the Assets by the current officers of the Bank and the PIPCOs. The term "officers" shall mean those employees currently employed by the Bank and the PIPCOs who are presently responsible for the administration of the Assets, including without limitation, Robert W. Eberhardt, Jr. and Marc P. Sullivan. "KRAMER LOANS" means the Loans identified on SCHEDULE 1 as the Kramer Loans. "LIQUIDATION PROCEEDS" means cash and other assets received in connection with the liquidation of a Loan or OREO Parcel, whether through the sale or assignment of such Loan or OREO Parcel, trustee's sale, foreclosure sale or otherwise, or the sale of the related Mortgaged Property if the Mortgaged Property is acquired in satisfaction of the Loan or received in connection with any guaranties or other instruments or in the settlement of any lawsuits or in any restructurings. -5- 10 "LOAN" means a construction, term, land, commercial or mortgage loan, evidenced by a Note, described on the Loan section of the Asset Schedule which Loan includes, without limitation, the applicable Asset File, payments of principal and interest, Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds and all other payments, claims, rights, settlements, benefits, proceeds and obligations arising from or in connection with such Loan. "LOAN GROUP" means the Donato Loans or the Kramer Loans. "MATERIAL" or "MATERIALITY" shall have the meaning given to that term in SECTION 7.7 hereof. "MORTGAGE" means a mortgage, deed of trust or other security instrument, and all amendments and supplements thereto, creating a lien on the real property described therein to secure a Note. "MORTGAGE ASSIGNMENT" means an instrument to be delivered by the Bank to transfer a Mortgage hereunder, which instrument shall be in substantially the form of EXHIBIT B, with such changes therein as may be appropriate under applicable state law to ensure enforceability or permit recordation of the instrument in the relevant land records. "MORTGAGED PROPERTY" means the land, improvements, fixtures, personal property and other collateral, a lien on or security interest in which is created or purported to be created by a Mortgage. "MORTGAGOR" means the Obligor under a Note and Mortgage. "NOTE" means, with respect to each Loan, the promissory note, mortgage note or other instrument evidencing the obligation to repay such Loan and all amendments, modifications and supplements thereto. "OREO PARCEL" means the real property described in the OREO section of the Asset Schedule, which OREO Parcel includes, without limitation: (i) the Deed and/or foreclosure sale documents, as the case may be; (ii) a fee simple interest in the respective Real Estate, buildings and all other structures, facilities or improvements which are now, or may hereafter prior to the Closing Date be, placed in or attached to the OREO Parcel; (iii) all fixtures, systems, equipment and items of personal property (except items owned by tenants) which are now, or may hereafter prior to the Closing Date, be attached or appurtenant to, -6- 11 located on or used in connection with the OREO Parcel; (iv) to the extent legally assignable, all easements, licenses, rights and appurtenances relating to the OREO Parcel; (v) to the extent transferable, all licenses, permits, approvals and authorizations issued and in effect at the Closing Date relating to the OREO Parcel; (vi) all leases of all or any part of the OREO Parcel, lease payments and security deposits held in connection therewith; (vii) rights under any contract of sale (including downpayments and earnest money deposits) in effect at the Closing Date affecting the OREO parcel; (viii) to the extent assignable, all sewer and sewer rent allocation agreements; (ix) all Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds; and (x) all other legally assignable rights, benefits, proceeds, obligations, contracts and agreements (except to the extent intended to be terminated as provided herein) arising from or in connection with or relating to the OREO Parcel. "PERMITTED EXPENSES" means amounts paid or payable by Purchaser or its agents or affiliates after the date hereof in the ordinary course of business for (i) real estate taxes (including interest and penalties) and insurance on an OREO Parcel; (ii) real estate taxes (including interest and penalties) and insurance on a Mortgaged Property when such real estate taxes and insurance are not paid by the Mortgagor under the related Mortgaged Property; (iii) the reasonable costs of servicing a Loan; (iv) the interest paid on the Purchase Money Loan (as hereinafter defined) and any other loan to finance the development or attempted disposition of an Asset; (v) the reasonable costs of the operation of the Asset, including, without limitation, an allocated share of the Purchaser's management costs and site improvement costs and capital expenditure costs; (vi) the reasonable costs of maintaining, obtaining or perfecting building, zoning and site approvals; and (vii) specific costs incurred in acquiring the Assets, including, without limitation, due diligence costs and legal fees (but such legal fees are included only to the extent incurred from and after the Closing Date and directly attributable to a specific Asset). "PERSON" means an individual, corporation, partnership, joint venture, association, limited liability company, limited liability partnership, joint stock company, trust, bank, unincorporated -7- 12 organization or government or any agency or political subdivision thereof. "PIPCO(S)" means either singularly or collectively, PipAshely, Inc.; Pipgate Mill Properties, ltd., Pipco 121-123 Grand Avenue, Inc.; Pipco Carlstadt, Inc.; Pipco Mk, Inc.; Pipco Norte, Inc.; PIPCO Oakland, Inc.; and Pipco Parsippany, Inc., each of which is a direct or indirect wholly-owned subsidiary of the Bank, and such other Bank subsidiary as may be established from time to time by the Bank to acquire title to Mortgaged Property, upon a foreclosure, conveyance by deed in lieu of foreclosure or otherwise. "PRINCETON GATEWAY LOAN" means the Loan identified on SCHEDULE 1 as the Princeton Gateway Loan. "PURCHASE MONEY LOAN" means that certain loan from the Bank to the Purchaser in the principal amount equal to 75% of the Purchase Price, evidenced and secured by the Purchase Money Loan Documents. "PURCHASE MONEY LOAN DOCUMENTS" means the loan agreement and other documents to be entered into by the Purchaser and the Bank to effectuate the Purchase Money Loan, in form and substance satisfactory to the parties. "PURCHASE PRICE" means Fifty Six Million Twenty Thousand and 00/100 Dollars ($56,020,000.00). "RCG DOVER CONSTRUCTION REVOLVER" means the Construction Loan Agreement among the Bank, as lender, and RCG Dover Development Corp. of Toms River, Inc. and certain other obligors, as borrowers, dated September 1, 1994, as amended through the date hereof. "REAL ESTATE" means collectively the OREO Parcels. "RELATED MORTGAGE INTEREST" means any Mortgage and the related Note and other Collateral Documents encumbering an OREO Parcel or a Mortgaged Property that has been converted to an OREO Parcel prior to the Closing. "REPORTS" shall have the meaning given to that term in Section 6.3. "REPRESENTATION AND WARRANTY PERIOD" means the applicable survival period for the Bank's and the respective PIPCOs' representations and warranties as set forth in Section 5.2 hereof. "REPURCHASE DATE" shall have the meaning given to that term in Section 7.4 hereof. "REPURCHASE PRICE", means an amount equal to the Schedule Price of an Asset that has been deleted pursuant to Article VII plus Permitted Expenses less the Liquidation Proceeds, Insurance Proceeds and Condemnation Proceeds (in each case net of the costs -8- 13 of collecting same) received by Purchaser (as of the Repurchase Date) with respect to such Asset. "SCHEDULE PRICE" means with respect to any Asset the value assigned to such Asset as specified in the Asset Schedule. Schedule Prices are assigned solely for the purpose of calculating the Purchase Price and are subject to the disclaimer set forth in Section 6.3. "TINTON FALLS" shall mean the Loan identified on SCHEDULE 1 as "Tinton Falls". "WILLOW LAND" means the Loan identified on SCHEDULE 1 as the Willow Land Loan. "WYNDHAM LOAN" means the Loan identified on SCHEDULE 1 as the Wyndham Loan. ARTICLE II PURCHASE AND SALE SECTION 2.1 PURCHASE AND SALE GENERALLY. Subject to the terms and provisions set forth in this Agreement, on the Closing Date, the Bank and the PIPCOs shall sell, assign and convey the Assets to the Purchaser and the Purchaser shall purchase the Assets and pay to the Bank or the applicable PIPCO the Purchase Price for the Assets. The Purchase Price shall be allocated among the Bank and the PIPCO's based on the Schedule Prices for the Assets. SECTION 2.2 THE DEPOSIT; ESCROW AGENT. The Purchaser has delivered the cash portion of Deposit to the Bank or the Escrow Agent. The cash portion of the Deposit shall be deposited in Escrow Agent's interest bearing trust account at the Bank pursuant to the terms of the Escrow Agreement. SECTION 2.3 PAYMENT OF THE PURCHASE PRICE. Upon satisfaction of the conditions precedent to the obligations of the parties set forth in Sections 3.4 and 3.5, the Purchaser shall pay to the Bank and the PIPCOs as above provided the Purchase Price (subject to certain adjustments as described in Sections 2.4, 2.5 and 2.8) on the Closing Date in the following manner: (a) The Bank shall retain any cash portion of the Deposit; and (b) The Bank shall credit to the Purchase Price the cash portion of the Deposit and any interest earned thereon as of the Business Day immediately prior to the Closing Date; and (c) The Bank shall credit to the Purchase Price the principal amount of the Purchase Money Loan; and -9- 14 (d) The Purchaser shall remit to the Bank and the applicable PIPCOs, by wire transfer of immediately available federal funds, an amount equal to the difference between the Purchase Price, and the sum of (i) the cash portion of the Deposit, (ii) the earned interest thereon and (iii) the Purchase Money Loan; and (e) The Bank shall surrender the letter of credit constituting a portion of the Deposit to the Purchaser. SECTION 2.4 OTHER PAYMENTS. (a) CERTAIN PAYMENTS. The Bank shall hold in a separate account for the benefit of the Purchaser until the Closing Date, and deliver to the Purchaser at Closing, an amount equal to the sum (without duplication and without credit against the Purchase Price) of all payments received by the Bank on the Loans (including, for this purpose, prepayments, scheduled principal payments, Liquidation Proceeds, Condemnation Proceeds and Insurance Proceeds and interest payments) or in respect of the Real Estate (including rent, Liquidation Proceeds, Condemnation Proceeds and Insurance Proceeds) on or after the Credit Date and prior to the Closing Date. All payments of interest due and payable prior to the Credit Date on Loans identified on the Asset Schedule as "Performing Loans" and received by the Bank or the Purchaser prior to April 23, 1995 shall be for the account of the Bank. The collections received by the Bank pursuant to this subsection (a) shall be reduced by payments made or accrued during said period by the Bank or any PIPCO, as the case may be, to third parties in respect of the Loans or Real Estate and approved by the Purchaser in its reasonable discretion, but expressly excluding expenses relating to the violations and repairs set forth on SCHEDULE 11; provided, however, the Bank and the PIPCOs may make expenditures (i) to address emergency matters or (ii) for management fees pursuant to a current management arrangement or in the ordinary course of business that do not exceed $5,000 without the prior approval of the Purchaser. Expenditures made by the Bank or the applicable PIPCOs during the period from the Credit Date through the date hereof in the ordinary course of business shall also be deductible from the sums deliverable to the Purchaser hereunder. The term "emergency matters" shall mean expenses arising out of a fire or other casualty or other unforeseen event affecting an Asset or otherwise necessary to be incurred immediately in the reasonable opinion of the Bank or the applicable PIPCO for the preservation or safety of an Asset or the health or safety of persons therein or thereabout or to avoid criminal liability or civil penalty. Any sums collected by the Bank or the applicable PIPCO relevant to SECTION 2.7 (a) or (b) on or before the Closing Date, shall also be deposited into the account maintained under this SECTION 2.4 (a) and delivered to Purchaser together with the balance thereof. -10- 15 (b) POST-CLOSING PAYMENTS RECEIVED BY THE BANK. All payments received by the Bank after the Closing Date in respect of the Loans (other than payment of interest due and payable prior to the Credit Date as and to the extent provided in the second sentence of Section 2.4(a)) or the Real Estate shall be for the account of the Purchaser and shall be paid to the Purchaser within 10 Business Days of receipt. (c) SUSPENSION ACCOUNTS, ETC. The Bank's interest in amounts held in connection with a Loan or a related Mortgaged Property or any OREO Parcel, by a bankruptcy court, bankruptcy trustee, bankruptcy debtor-in-possession, receiver in foreclosure or similar party or escrow agent shall be assigned to the Purchaser at Closing and if any portion thereof is received by the Bank after the Closing Date, the Bank shall within 5 Business Days of its receipt pay such portion to the Purchaser. SECTION 2.5 PRORATIONS ON THE OREO; TRANSFER OF UTILITY SERVICES. (a) ITEMS TO BE PRORATED. On the Closing Date, the Purchase Price shall be subject to adjustment for the following items of income and expense with respect to each OREO Parcel, which income and expenses (whether identified before or after the Closing Date) shall be prorated as between the applicable PIPCOs and the Purchaser in accordance with local custom as of midnight of the day immediately preceding the Credit Date: (i) real estate taxes and assessments and interest and penalties thereon (special and general other than roll-back taxes), if the rate or amount of such taxes shall not be fixed prior to the Closing Date, the adjustment thereof at the Closing Date shall be on the basis of the rate for the preceding fiscal year applied to the latest assessed valuation (or other applicable basis of valuation), and the same shall be subject to further adjustment when the rate and valuation for the current fiscal year are fixed; provided, however, that real estate taxes on 25 Broad Street in an amount not to exceed $95,000.00 and attributable to the period prior to the confirmation of the plan of reorganization in the bankruptcy of the prior owner of the property shall be the responsibility of the Purchaser; and (ii) all water and sewer service charges and charges for other public utilities, if any, except those required to be paid directly by tenants; and (iii) condominium association assessments; and (iv) any rents paid to the applicable PIPCO prior to the Credit Date which are applicable to the periods subsequent to the Credit Date shall be credited to Purchaser; and -11- 16 (v) all other items customarily apportioned in connection with the sale of similar properties similarly located, subject, however, to the other express proration provisions set forth herein. (b) TRANSFER OF UTILITY SERVICES. The Purchaser shall cause the transfer of all utility services for each OREO Parcel as of the Closing Date and the applicable PIPCO shall cooperate with the Purchaser in connection therewith. (c) CERTAIN EXPENSES NOT TO BE PRORATED. The applicable PIPCO and the Purchaser agree that none of the insurance policies relating to the Real Estate will be assigned to the Purchaser (and the applicable PIPCO shall pay any cancellation fees resulting from the termination of such policies). Accordingly, there will be no prorations for insurance premiums. Notwithstanding Subsection (a)(i) above, the Purchaser agrees that all rollback taxes assessed against the OREO shall be the obligation of the Purchaser and the PIPCOs shall have no obligation in connection with such rollback taxes regardless of when they are assessed. (d) DEPOSITS. The Purchaser recognizes that the PIPCOs, in most instances, acquired each OREO Parcel through foreclosure or deed in lieu thereof and, as a result, generally did not receive the security deposits of tenants in occupancy as of such acquisition. Accordingly, only those security deposits under leases in effect prior to such foreclosure or other transfer and listed on SCHEDULE 2 and those security deposits required under leases entered into after such transfer, together with interest thereon, shall be paid over to the Purchaser; provided, however, all security deposits required under the residential leases shall be paid over, in full, to the Purchaser. All prepaid rentals and prepaid payments, if any, attributable to a period of time from and after the Credit Date shall be paid over to the Purchaser. SECTION 2.6 FORECLOSURE PRIOR TO CLOSING DATE. If prior to the Closing Date, the Bank forecloses upon a Mortgage or otherwise acquires title to a related Mortgaged Property in each instance with Purchaser's approval, then, the Asset Schedule shall be amended and such Mortgaged Property, the Collateral Documents related thereto and all other rights of the Bank arising out of or in connection with the related Mortgage Loan, shall be treated as an OREO Parcel for all purposes hereof and the Purchaser shall be obligated to acquire such OREO Parcel under and consistent with the terms hereof. SECTION 2.7 RISK OF LOSS. (a) CASUALTY. In the event of damage to any Mortgaged Property or OREO Parcel by fire or other casualty, act of God or any other event occurring prior to the Closing, the Bank or the applicable PIPCO, as the case may be, shall assign to the Purchaser all insurance proceeds paid or payable to the applicable PIPCO in connection therewith; provided, however, that in the event of an -12- 17 uninsured loss or a loss, whether or not covered by insurance, which is valued at more than an amount equal to the greater of (i) $50,000 or (ii) 10% of the Schedule Price of the related Loan or OREO Parcel, the Purchaser may elect to delete such Loan or OREO Parcel from the Asset Schedule, in which event the Purchase Price shall be reduced by the Schedule Price attributed to such Loan or OREO Parcel. (b) CONDEMNATION. The Bank or the applicable Pipco shall give the Purchaser written notice of any action or proceeding, instituted or threatened, in eminent domain or for condemnation affecting any material part of any Mortgaged Property or OREO Parcel, promptly after the receipt of notice or knowledge thereof. If prior to the Closing Date all or a substantial part of any such Mortgaged Property or OREO Parcel is taken by condemnation or eminent domain or by a transfer of the parcel in lieu thereof, the Bank shall, by the earlier to occur of the date which is five Business Days after receipt of notice or the Closing Date, deliver to the Purchaser notice of the same and thereupon the Bank's obligation to sell the related Loan or the OREO Parcel shall terminate and the Purchase Price shall be reduced by the Schedule Price attributed to such Loan or OREO Parcel; provided however, the Purchaser may elect to purchase such Asset for the Schedule Price less any Condemnation Proceeds received or payable. In the event of a partial taking of less than a substantial portion of any Mortgaged Property or OREO Parcel, the Bank's obligation to sell, and the Purchaser's obligation to purchase, the applicable Asset shall continue, and in such event (i) any condemnation proceeds received by the applicable PIPCO in connection with such related Loan or the OREO Parcel on or before the Closing Date shall be credited against the Purchase Price, or (ii) if by the Closing Date the applicable PIPCO has not received the related condemnation award, the applicable PIPCO on the Closing Date shall assign to the Purchaser all rights of its Condemnation Proceeds and all other rights, if any, arising out of or in connection with any such eminent domain or condemnation action or proceeding. No proceeding in connection with any Condemnation Proceeds may be settled without the Purchaser's approval. (c) WITHDRAWAL OF AN ASSET. If the Bank or any PIPCO reasonably believes that the sale of an Asset pursuant hereto would violate any law, rule or regulation applicable to the Bank or such PIPCO, the applicable owner thereof may, at its option, provide the Purchaser with notice of same and that such Asset shall be withdrawn, in which event the Purchase Price shall be reduced by the Schedule Price attributed to the withdrawn Asset. SECTION 2.8 POST CLOSING ADJUSTMENTS. If the amounts required to be paid or credited pursuant to this Article cannot be precisely determined by the Closing Date, or were determined erroneously on or before the Closing Date, the Bank or the applicable PIPCO, as the case may be, and the Purchaser shall make the necessary determination or redetermination promptly following the Closing and the Bank and the Purchaser shall make the necessary -13- 18 adjustments through remittances between themselves not later than the 30 days after the Closing Date. Without limitation of the foregoing, within 45 days after the Closing Date each party that receives a payment which is due to the other party under Section 2.4(a), (b) or (c) shall prepare an accounting of the amounts so received for the benefit of the party entitled to the same. The parties agree to work in good faith to effectuate this clause consistent with the intention and provisions of this Agreement. This provision shall survive the Closing. ARTICLE III CLOSING SECTION 3.1 CLOSING. (a) The Closing of the purchase and sale of the Assets shall be held on the Closing Date, at 10:00 a.m., Eastern Time, at the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P., One Riverfront Plaza, Newark, New Jersey 07102. The date and time of the Closing may be changed as the parties may mutually agree upon on or before the Closing Date. (b) PRE-CLOSING. On a day which is three (3) business days prior to the Closing Date, the parties shall meet at the aforesaid location at 10:00 a.m. for pre-Closing (the "Pre-Closing") to (i) examine and, to the extent practicable, execute all of the closing documents, and (ii) settle such other matters as are customarily determined in advance of Closing. SECTION 3.2 THE SELLERS' CLOSING ITEMS. At the Closing the Bank or the applicable PIPCO shall execute and deliver, cause to be executed and delivered or provide to the Purchaser the following: (a) For each Loan or Related Mortgage Interest: (i) the original Note, duly endorsed without recourse or representation or warranty of any nature (except as specifically set forth in this Agreement), or with respect to the Loans listed on SCHEDULE 1 with reference to this Section, a lost note affidavit in substantially the form of EXHIBIT A; (ii) the original recorded Mortgage, with evidence of recording information thereon or a certified copy thereof; if the Mortgage was executed pursuant to a power of attorney, the Bank shall further deliver a certified true copy of the power of attorney, certified by the recorder's office, with evidence of recording thereon; (iii) the original or a certified copy of all instruments that modify the terms and conditions of a Mortgage Note, including but not limited to any modification, consolidation, extension and assumption; (iv) all original recorded intervening assignments (or certified copies thereof) of the Mortgage, which assignments -14- 19 shall, together with the original Mortgage, show an unbroken chain of title from the originator of the Loan to the Bank; (v) all original security agreements, chattel mortgages or equivalent in connection with the Mortgage, with evidence of recording information thereon or a certified copy thereof; (vi) the original or a certified copy of any guarantee executed in connection with the Loan; (vii) to the extent possessed or controlled by the Bank, the original Collateral Documents, or if not so possessed or controlled, copies thereof but only if the Bank has such copies; (viii) an original Mortgage Assignment in substantially the same form as EXHIBIT B, executed by the Bank and in recordable form; (ix) an original assignment of any collateral or direct assignments of leases, rentals and profits and in recordable form in substantially the same form as EXHIBIT M; (x) the Asset Files; (xi) a UCC-3 form, or its equivalent assigning to the Purchaser, the Bank's rights as secured party under any financing statements related to such Loan; (xii) an original omnibus assignment in substantially the form of EXHIBIT H; (xiii) notices substantially in the form of EXHIBIT F to be sent by the Purchaser at the Purchaser's sole expense to each Mortgagor, obligor or guarantor; (xiv) such affidavits and similar documents as may be reasonably requested by the Purchaser or customarily delivered by assignors of mortgages in the locality in which the Mortgaged Property is situated; (xv) a notice to each escrow agent and receiver notifying him of the sale of the applicable Loan; (xvi) assignment of foreclosure bids in the form of EXHIBIT K; (xvii) assignment of rights in litigation in the form of EXHIBIT I; (xviii) assignment of rights in bankruptcies in the form of EXHIBIT I; and -15- 20 (xix) assignment of final judgment in the form of Exhibit K. (b) For each OREO Parcel: (i) a Deed for each OREO Parcel located in the State of New Jersey and a Bargain and Sale Deed With Covenants Against Grantor's Acts for each OREO Parcel located in the State of New York, which Deed in any case shall convey good and marketable title to the OREO Parcel in fee simple, subject to (A) liens for real property taxes and assessments not due and payable on the day immediately preceding the Credit Date, (B) rights of tenants, as tenants only, under leases and (C) such matters as are disclosed on SCHEDULE 4 attached hereto; (ii) an assignment in substantially the form of EXHIBIT M of all tenant leases and related agreements for space in or at any portion of the OREO Parcel, including all security deposits and prepaid rents and other sums held by the Bank or the applicable PIPCO, together with originals of each such executed lease to the extent in the applicable PIPCO's possession or control; (iii) delivery of the deposits held under the contracts listed on SCHEDULE 5; (iv) a bill of sale and general assignment in substantially the form of EXHIBIT E, duly executed without recourse or representation or warranty of any nature (except as specified herein), covering, among other items, all personal property owned by the PIPCOs and located at or used in connection with the operation of any improvement at the OREO Parcel; (v) notices substantially in the form of EXHIBIT I attached hereto, to each tenant leasing space in any OREO Parcel or any receiver or manager appointed in respect of such property of the sale of such OREO Parcel to the Purchaser; (vi) such affidavits, transfer tax returns and similar documents as may be reasonably requested by the Purchaser's title insurer or customarily delivered by institutional sellers of real estate in the locality in which the OREO Parcel is situated; (vii) to the extent possessed or controlled by the applicable PIPCO, the original Collateral Documents or if not so possessed or controlled, copies thereof but only if the Bank possesses such copies; (viii) the Asset Files; -16- 21 (ix) as to ConBro, a discharge of that certain mortgage dated August 21, 1986, recorded in the County of Bergen, Mortgage Book 7080 at page 97 et seq.; and (x) a notice to each escrow agent notifying it of the sale of the applicable OREO Parcel. (c) For the Distribution Rights an assignment in the form annexed hereto as EXHIBIT K, of Pipco Windsong, Inc.'s Distribution Rights under the Partnership Agreement (as hereinafter defined). (d) The funds held in the suspension account pursuant to Section 2.4(a); (e) A certificate of the Bank and each of the PIPCOs reaffirming as of the Closing Date the representations and warranties made in Section 5.1; (f) Evidence reasonably required by the Purchaser and in form reasonably satisfactory to the Purchaser demonstrating that (i) the Bank and each of the PIPCOs is an entity in good standing under the laws of the State of New Jersey, and (ii) the execution and delivery of this Agreement and the other documents delivered pursuant hereto and the consummation of the transactions contemplated hereby have been duly authorized on behalf of the Bank and each of the PIPCOs, which evidence shall include (w) certified copies of resolutions duly adopted by the members of the Board of Directors of the Bank and each PIPCO, (x) consents of the shareholder of each PIPCO, (y) certificates of incumbency and (z) certificates of good standing. SECTION 3.3 THE PURCHASER'S CLOSING ITEMS. At the Closing, the Purchaser shall execute and deliver or provide to the Bank and the PIPCOs the following: (a) evidence reasonably required by the Bank and the PIPCOs demonstrating that (i) the Purchaser is an entity in good standing under the laws of the jurisdiction in which it is formed, and (ii) Purchaser's execution and delivery of this Agreement and the other documents delivered pursuant hereto and the consummation of the transactions contemplated hereby have been duly authorized, which evidence shall mean (x) certified copies of resolutions duly adopted by the members of the Purchaser approving the Purchaser's execution and delivery of this Agreement and the other documents delivered pursuant hereto and the consummation of the transactions contemplated hereby, and (y) certificates of incumbency and (z) certificates of good standing; (b) payment of the amounts due under Section 2.3(d) which payment must be (i) made by a wire transfer of immediately available federal funds to the account designated by the Bank and (ii) received by the Bank by no later than 1:00 p.m. (Eastern Time) on the Closing Date; and -17- 22 (c) a certificate of the Purchaser reaffirming as of the Closing Date its representations and warranties made in Article IV (or specifying in reasonable detail the exceptions, if any, which then exist, which specification shall constitute a failure of this condition unless waived by the Bank). SECTION 3.4 CONDITIONS TO THE PURCHASER'S OBLIGATIONS. The obligation of the Purchaser to purchase the Assets pursuant to this Agreement is subject to the fulfillment by the Bank and the PIPCOs on or prior to the Closing Date of each of the following additional conditions, except to the extent waived in writing by the Purchaser: (a) The Bank shall have provided to the Purchaser the Purchase Money Loan; (b) The Bank shall have delivered or caused to be delivered all the items specified in Section 3.2; (c) all representations and warranties of the Bank and the PIPCOs set forth herein shall be true in all material respects at and as if made on the Closing Date; (d) all requisite federal, state and local governmental and regulatory approvals relating to the sale of the Assets, if any, required to be obtained by the Bank and the PIPCOs shall have been obtained; (e) The Bank shall have provided to the Purchaser the following additional documents each in form and substance reasonably satisfactory to the Purchaser: (1) letters of resignation and all other documentation required to facilitate the removal and resignation of officers of the Bank or the applicable PIPCO or any management agents of the Bank or the PIPCOs from the condominium associations described on SCHEDULE 6 attached hereto; (2) current Certificates of Occupancy for the OREO Parcels detailed on SCHEDULE 7 attached hereto and reflecting the transfers herein contemplated; (3) in respect of the OREO Parcel known as Willow Land an assignment, in form and substance reasonably satisfactory to the Purchaser, of the pledge of stock by Beverage Barn, Inc. (4) a discharge of the Crestmont Mortgage. SECTION 3.5 CONDITIONS TO THE BANK'S OBLIGATIONS. The obligation of the Bank and the PIPCOs to sell the Assets pursuant to this Agreement is subject to the fulfillment by the Purchaser on or prior to the Closing Date of each of the following additional -18- 23 conditions, except to the extent waived in writing by the Bank or the applicable PIPCO: (a) the Purchaser shall have delivered or caused to be delivered all the items specified in Section 3.3; (b) all representations and warranties of the Purchaser set forth in Article V shall be true in all material respects at and as if made on the Closing Date; and (c) all requisite federal, state and local governmental and regulatory approvals relating to the purchase of the Assets if any, required to be obtained by the Purchaser shall have been obtained. (d) the Bank and MUT, L.L.C. shall have entered into a carried interest agreement, in form and substance satisfactory to the parties, pursuant to which MUT, L.L.C. shall have agreed to pay to the Bank, from time to time, in accordance therewith, as a fee provided to MUT, L.L.C., an amount representing (x) forty percent (40%), of the amount otherwise payable to MUT, L.L.C., individually, pursuant to Section 4.01(a)(vii) of the Operating Agreement of Purchaser of even date herewith (or the comparable provisions of the Limited Partnership Agreement of the assignee of Purchaser contemplated by Section 3.5(f)) and (y) twenty percent (20%), of the amount otherwise payable to MUT, L.L.C., individually, pursuant to Section 4.01(a)(viii) of said Operating Agreement (or said comparable provision). The Bank acknowledges that such payments will be treated as an ordinary deductible expense of MUT, L.L.C. MUT, L.L.C. shall deliver a federal form 1099 to the Bank for such amounts. (e) the Bank, MUT, L.L.C. and the Purchaser shall have entered into an agreement, in form and substance satisfactory to the parties, whereby the Bank and MUT, L.L.C. shall have directed the Purchaser, and the Purchaser shall have agreed, to pay the amounts payable to the Bank pursuant to the carried interest agreement referred to in Section 3.5(d) directly to the Bank. (f) the Purchaser shall have caused this Agreement to be assigned to, and the obligations hereunder assumed by, a limited partnership entity having the same beneficial ownership as the Purchaser. SECTION 3.6 TRANSFER AND RECORDATION TAXES; OTHER COSTS. At Closing, the Bank shall pay all transfer, filing and recording taxes and any state, county or city documentary taxes, if any, relating to the filing or recording of any document or instrument contemplated hereby or the assignment of any Collateral Documents. The Purchaser shall pay, when due and payable, all filing and recording fees, if any, with respect to the filing or recording of any such documents. The Purchaser shall be solely responsible for the payment of any and all costs of title insurance premiums, survey costs, and other expenses of title examination procured by it; provided, however, as to the Loans, the Bank shall pay the cost -19- 24 of mortgagee title insurance in the amount of the current outstanding balance of each Note for any Loan for which no effective mortgagee title policy exists. The Bank or the applicable PIPCO and the Purchaser shall sign and deliver on the Closing Date all transfer tax and related forms reasonably required by the other party or required by applicable law. SECTION 3.7 LIMITATIONS ON LIABILITY. The Purchaser shall have no Claim and the Bank and the PIPCOs shall have no liability whatever as a result of or otherwise in connection with any notice of default not being given or being given between the date hereof and the Closing or any action or failure to act between the date hereof and the Closing in connection with any default, bankruptcy, foreclosure or litigation of any kind, request for modification or otherwise under or related to any Asset. SECTION 3.8 ADDITIONAL ASSETS; SCHEDULE 9 ASSETS. (a) The parties acknowledge and agree that the Purchaser's due diligence with respect to the Additional Assets is not yet complete for the Purchaser to be able to make an educated investment decision with respect to the purchase of such Assets. Accordingly, the parties agree that the Purchaser shall not be required to purchase the Additional Assets unless the Purchaser is satisfied as of three (3) days prior to the Closing Date, in the exercise of its reasonable discretion, with respect to the results of its due diligence on the Additional Assets. In any event, the Purchaser shall advise the Bank of its decision no later than three (3) days prior to the Closing Date. In the event that the Purchaser elects to purchase any one or more of the aforementioned Additional Assets, such assets shall be considered as constituting part of the "Assets" for the purposes of this Agreement. In the event that any such due diligence cannot be completed prior to the Closing, the parties shall enter into an option agreement with respect to the Tinton Falls and West Front Street properties extending the time period during which the Purchaser may elect to acquire said Additional Assets on the terms hereof for a period not to extend beyond July 31, 1995 with respect to Tinton Falls and for 60 days beyond the Closing Date for West Front Street. (b) The parties further agree that the status of certain conditions with respect to the Assets listed on SCHEDULE 9, or the agreements relating to the same, is also not yet sufficiently complete or certain for the Purchaser to be able to make an educated investment decision with respect to the purchase of such Assets. Accordingly, the parties agree that, subject to subsection (c) below, Purchaser shall not be required to purchase any Asset so identified on SCHEDULE 9 with respect to which it is not satisfied, as of three (3) days prior to Closing, in the exercise of its reasonable discretion, with respect to the status of the conditions so identified on SCHEDULE 9. (c) The parties further acknowledge and agree that, except as set forth in the proviso immediately following, the Purchaser shall -20- 25 be entitled to review the conditions set forth in Sections 3.4 and 3.8(b) on an Asset by Asset basis and may elect, in the event that any condition therein contained has not been fulfilled with respect to a particular Asset, to delete such Asset from the transaction herein contemplated or waive such condition; provided, however, that Seller shall not be required to close the transactions herein contemplated if any of the following Assets are not being conveyed by the Bank or the applicable PIPCO hereunder because of any such election made by the Purchaser to delete any such Asset: Wyndham; Bishop's Gate; Panther Valley; and Heathcote. In the event that any Asset is so deleted from the transaction, the Purchase Price shall be adjusted by reducing the Purchase Price by the Schedule Price relating to such Asset so deleted. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER SECTION 4.1 THE PURCHASER'S REPRESENTATIONS. The Purchaser represents and warrants to the Bank as of the date of delivery of this Agreement and on the Closing Date as follows: (a) AUTHORITY; ENFORCEABILITY. The Purchaser is a limited liability company and is duly organized, validly existing and in good standing under the laws of the State of Delaware. The Purchaser has taken all necessary action to authorize its execution, delivery and performance of, and has the power and authority to execute, deliver and perform its obligations under, this Agreement and all related documents and all the transactions contemplated hereby and thereby. Assuming due authorization, execution and delivery hereof by the Bank and the PIPCOs, this Agreement and all the obligations of the Purchaser hereunder are legal, valid and binding obligations of the Purchaser, enforceable against it in accordance with their terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) CONFLICT WITH EXISTING LAWS OR CONTRACTS. The execution and delivery of this Agreement does not, and the performance by the Purchaser of its obligations hereunder will not, conflict with any provision of any law or regulation to which the Purchaser is subject or conflict with or result in a breach of or constitute a default under any of the terms, conditions or provisions of any agreement or instrument to which the Purchaser is a party or by which it is bound, or any order or decree applicable to the Purchaser, or result in the creation or imposition of any lien on any of its assets or property which could materially and adversely affect the ability of the Purchaser to discharge its obligations under and complete the transactions contemplated by this Agreement; and the Purchaser has obtained all consents, approvals, authorizations and orders of any courts or governmental agencies or -21- 26 bodies required for the due execution, delivery and performance by the Purchaser of this Agreement. (c) LEGAL ACTION AGAINST THE PURCHASER. There are no judgments, orders or decrees of any kind against the Purchaser that are unpaid or unsatisfied of record, nor is there any legal action, suit or other legal or administrative proceeding pending, threatened or reasonably anticipated that could be filed against the Purchaser that, if concluded adversely to the Purchaser, could materially adversely affect the ability of the Purchaser to carry out the transactions contemplated by this Agreement. (d) BANKRUPTCY OR DEBT OF THE PURCHASER; FINANCIAL CONDITION. The Purchaser is not in the hands of a receiver, has not made any assignment for the benefit of creditors and is not insolvent; nor is it the subject of any bankruptcy proceeding. The Purchaser shall have as of the Closing Date sufficient capital to meet its present and continuing obligations under this Agreement. (e) DECISION TO PURCHASE. The Purchaser is a sophisticated investor and the Purchaser's offer and decision to purchase the Assets are based upon its own independent expert evaluations of (i) the materials deemed relevant by the Purchaser and its agents; and (ii) the Assets. The Purchaser has not relied in entering into this Agreement upon any oral or written information from the Bank or any of the PIPCOs, or any of its employees, affiliates, agents, legal counsel or other representatives, other than the representations and warranties set forth in this Agreement (subject, however, to the limitations set forth herein). The Purchaser further acknowledges that no employee, agent, legal counsel or other representative of the Bank or any of the PIPCOs has made or has been authorized to make, and that the Purchaser has not relied upon, any statements or representations other than as contained in the Asset Files or those specifically contained in this Agreement. In no event shall a breach of a representation or warranty in this Agreement be deemed in and of itself to constitute bad faith, misconduct or fraud for the purpose of alleging or proving punitive damages. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SELLER SECTION 5.1 REPRESENTATIONS AND WARRANTIES OF THE BANK AND PIPCOs Except (A) as specified on SCHEDULE 2; (B) as clearly identified in the Asset Files; (C) that no representations or warranties are made with respect to the Related Mortgage Interests; and (D) that the representations and warranties are made without any investigation, (other than the review of these representations and warranties by such officers of the Bank and the PIPCOs deemed appropriate by the Bank or the PIPCO in order to satisfy the requirements hereof), the Bank and the PIPCOs hereby represent and warrant to the Purchaser as of the date of delivery of this Agreement and on the Closing Date as follows; the term "clearly -22- 27 identified" meaning, with respect to any fact or circumstance, that such fact or circumstance was disclosed with clarity sufficient to have given a reasonably prudent purchaser, based upon customarily diligent inquiry and due diligence, notice or a basis for further inquiry and a reasonable basis for realizing or inquiring further into the significance of such fact or circumstance, provided, however, the absence of any written disclosure as to any fact or circumstance shall not be construed as having "clearly identified" such fact or circumstance: (a) AUTHORITY; BINDING ON THE BANK AND THE PIPCOS; ENFORCEABILITY OF AGREEMENT. The Bank and each PIPCO has taken all necessary action to authorize its execution, delivery and performance of, and the Closing Date will have the power and authority to execute, deliver and perform its obligations under, this Agreement and all related documents executed by the Bank or such PIPCO in connection herewith and to consummate all the transactions contemplated hereby and thereby, including the power and authority to sell, assign and transfer the Assets in accordance with this Agreement. Assuming due authorization, execution and delivery hereof by the Purchaser, this Agreement and all related documents and all the obligations of the Bank and each PIPCO, respectively, hereunder or thereunder are legal, valid and binding obligations of the Bank and each PIPCO, respectively, enforceable against the Bank and such PIPCO, respectively, in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) CONFLICT WITH EXISTING LAWS OR CONTRACTS. The execution and delivery of this Agreement does not, and the performance by the Bank and each PIPCO of its obligations hereunder will not, conflict with any provision of any law or regulation to which the Bank or any PIPCO is subject or conflict with or result in a breach of or constitute a default under any of the terms, conditions or provisions of any agreement or instrument to which the Bank or any PIPCO is a party or by which it is bound or any order or decree applicable to the Bank or such PIPCO, nor will such execution, delivery and performance result in the creation or imposition of any lien on any of the Bank's or such PIPCO's assets or properties that could materially and adversely affect the ability of the Bank or such PIPCO to discharge its obligations under and complete the transactions contemplated by this Agreement; and the Bank and each PIPCO, respectively, has obtained all consents, approvals, authorizations and orders of any courts or governmental agencies or bodies required for the due execution, delivery and performance by the Bank and each PIPCO of this Agreement. (c) LEGAL ACTION AGAINST THE BANK AND THE PIPCOS. There are no judgments or orders of any kind against the Bank or any PIPCO that are unpaid or unsatisfied of record, nor is there any legal action, suit or other legal or administrative proceeding pending, -23- 28 threatened or reasonably anticipated that could be filed against the Bank or any PIPCO, that if concluded adversely to the Bank or such PIPCO, could materially adversely affect the ability of the Bank or such PIPCO to carry out the transactions contemplated by this Agreement. (d) CONDEMNATION. There is no pending or, to the Bank's and PIPCOs' knowledge, threatened total or partial condemnation or similar proceeding affecting any Mortgaged Property or OREO Parcel. (e) LITIGATION. There is no litigation or governmental investigation pending or to the Bank's and the PIPCOs' knowledge, threatened, nor any order, injunction or decree relating to any Asset, that could have a material adverse effect upon such Asset or title thereto. (f) ENVIRONMENTAL MATTERS. Other than what is in the Environmental Assessment Reports, neither the Bank nor any of the PIPCOs has knowledge of any other material conditions or circumstances related to the Assets or any Mortgaged Property which pose a material risk to the environment or has received written notice of any violation of any applicable federal or state environmental law. (g) CAMBRIDGE SQUARE (MARLBORO LOAN). With respect to the Cambridge Square (Marlboro) Loan, which is secured in part upon a leasehold estate under a ground lease of the related Mortgaged Property, but not by the related fee interest therein: (i) Such ground lease permits the interest of the lessee thereunder to be encumbered by the related Mortgage; (ii) The Bank has received no notice of default and has no knowledge of the occurrence of any default under such ground lease or any event which, with the giving of notice or the passage of time, or both, would constitute a default under such ground lease. (h) GROUND LEASES. There are no ground leases except as set forth on the Asset Schedule. (i) SOLE OWNERSHIP AND RIGHT TO SELL. The Bank is the sole beneficial owner and record holder of each Loan, free of any participation interest, has full right to sell and assign such Loan free and clear of any ownership claims or security interests and without the consent of any third party. The applicable PIPCO is the sole owner and holder of the OREO Parcel and has good and marketable title to and the full right to sell the respective OREO Parcel without the consent of any third party. (j) ENFORCEABILITY. Each Note and Mortgage and any related guaranty is a legal, valid and binding obligation of the Mortgagor thereon, enforceable against such Mortgagor in accordance with its terms except as such enforcement may be limited by bankruptcy, -24- 29 insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). The unenforceability of any particular provision or provisions of any Mortgage or Note does not affect the ability of the holder thereof to enforce, and to realize the practical benefits of the security intended to be provided by, such Note and Mortgage. There is no valid offset, defense or counterclaim to any Note or Mortgage. (k) NO MODIFICATION. The Bank has not modified any Mortgage or Note in any material respect, nor satisfied, cancelled or subordinated such Mortgage or Note in whole or in part nor released all or any material portion of the Mortgaged Property from the lien of the Mortgage, nor executed any instrument of release, cancellation or satisfaction with respect to such Note or Mortgage. (l) NO RIGHT TO FUTURE ADVANCES. The Mortgagor has no right to disbursement of additional loan proceeds or future advances with respect to a related Loan. SCHEDULE 1 accurately reflects the outstanding principal balance of each Loan as of the Credit Date. (m) CROSS COLLATERALIZATION. Except for the Loans in a Loan Group, none of the Loans is cross collateralized with any other loan made by the Bank. (n) ASSET FILES. To the knowledge of the Bank and the PIPCOs, as of the date of this Agreement the Asset Files contained and as of the Closing Date the Asset Files will contain all material documents, which are listed on Schedule 13, or copies thereof, relating to each Asset that are in the possession or control of the Bank and PIPCOs. Except as otherwise provided in this Article, the Bank and the PIPCOs make no representation or warranty as to the accuracy of facts or opinions recited in the documents and papers which are included in the Asset Files, or otherwise provided to the Purchaser. (o) COMPLIANCE WITH LAWS. As of the date of this Agreement and the Closing Date, neither the Bank nor the applicable PIPCO has received any notice by any governmental authority or any Person entitled to enforce a restrictive covenant affecting any Mortgaged Property or OREO Parcel that any zoning, building, or other federal, state or municipal law, ordinance or regulation or any restrictive covenant is currently violated by the maintenance, operation, occupancy or use of the Mortgaged Property or OREO Parcel in its present manner, which violation could materially and adversely affect the value, operation, occupancy or use of such Mortgaged Property or OREO Parcel. Each Loan is in compliance in all material respects with applicable state and Federal usury and equal credit opportunity laws. (p) LEASES. To the knowledge of the Bank and the applicable PIPCO, each of the leases affecting the Real Estate is in full -25- 30 force and effect and has not been modified and the applicable PIPCO is not in material default under any such lease. (q) COLLATERAL DOCUMENTS. The Bank has furnished to the Purchaser all material documents evidencing the relationship among the Bank, the Mortgagors and any guarantors. (r) LIABILITY. To the knowledge of the Bank, there is no basis upon which any Mortgagor could initiate any valid claim for damages or other relief arising out of the acts or omissions of the Bank in connection with the underwriting, approval, disbursement, administration or restructuring of any of the Loans. To the knowledge of the Bank and each applicable PIPCO, there is no basis upon which any vendor, supplier, property manager, broker, contractor, subcontractor or contract vendee could initiate any valid suit against the applicable PIPCO for non-payment, damages or other relief in connection with any outstanding agreement affecting any OREO Parcel. (s) RENT ROLLS. The rent rolls attached hereto as EXHIBIT J relating to the Real Estate, are, as of the date on each such rent roll, true and correct in all material respects. (t) RIGHTS OF FIRST REFUSAL, OPTIONS. There are no rights of first refusal, rights of first offer or options to purchase in respect of any of the Assets. (u) ESCROW ACCOUNTS. There are no suspense accounts or escrow accounts held by the Bank, any affiliate thereof or any applicable PIPCO with respect to any Asset except security deposits held pursuant to leases of the OREO Parcels. (v) CONDOMINIUM ASSOCIATIONS. As of the Closing Date, no director, employee or agent of the Bank, any affiliate thereof or any applicable PIPCO will be on any board of a condominium association, which governs any OREO Parcel. Neither the Bank nor any PIPCO subsidizes the costs of any condominium association, which governs any OREO Parcel. (w) OUTSTANDING CONTRACTS. There are no outstanding contracts to sell OREO Parcels or any interest therein. The applicable PIPCOs are not in material default of their respective obligations under the contracts listed on SCHEDULE 2. (x) FARMLAND ASSESSMENT APPLICATIONS/PENDING TAX APPEAL/TENANT REBATE ACT. There are no pending tax appeals affecting any OREO Parcel. To the knowledge of the Bank and the applicable PIPCO, none of them has received notice of violation of the applicable rent control laws and tenant rebate acts, if applicable, in force in the jurisdictions in which the OREO Parcels are situated. All farmland assessment applications pertaining to the Real Estate have been delivered to the Purchaser. -26- 31 (y) HAZARD INSURANCE. Each Mortgaged Property and OREO Parcel is insured against loss by fire and hazards of extended coverage. The Bank or the applicable PIPCOs currently maintains the following casualty and liability insurance (i) casualty insurance in an amount not less than the full replacement cost of the Real Estate, with a deductible of not greater than $10,000 and (ii) liability insurance of not less than $60 million, with no deductible. (z) MECHANIC'S LIENS. To the knowledge of the Bank and each applicable PIPCO, except as shown on the title reports annexed as SCHEDULE 4, there are no mechanic's or similar liens or claims affecting the OREO Parcels which have been filed for work performed or materials ordered by or on behalf of the Bank or a PIPCO. The Bank and each applicable PIPCO has paid all of the outstanding invoices for work performed at, and materials ordered for, each of the OREO Parcels. (aa) BROKERAGE COMMISSIONS. All brokerage commissions, which are payable in connection with existing leases affecting any OREO Parcel have been paid in full. There are no sales or brokerage commissions payable in connection with the sale of any OREO Parcel. (ab) ASSETS AS DESCRIBED. The information set forth in the Asset Schedule is true and correct as of the date or dates respecting which such information is furnished. (ac) VALID LIEN. Each Mortgage is a valid and enforceable lien on the Mortgaged Property. Any security agreement, chattel mortgage or equivalent document related to each Mortgage and previously delivered to the Purchaser establishes in the Bank a valid and subsisting lien on the property described therein. (ad) TITLE INSURANCE. Each of the Loans is covered by a mortgagee title insurance policy or title binder insuring the Bank, its successors and assigns, as to the priority lien of the Mortgage in the original principal amount of each Loan (or any higher or lower amount resulting from a modification thereof). To the knowledge of the Bank, no claims have been made under such lender's title insurance policy or equivalent and the Bank has not done, by deed or omission, anything which would impair the coverage of such title insurance policy. (ae) BANKRUPTCY. No Mortgagor is a debtor in any state or Federal bankruptcy or insolvency proceeding. (af) FORECLOSURE. No foreclosure proceeding is pending on any Loan. (ag) PARTNERSHIP INTEREST OF PIPCO WINDSONG, INC. East Sunland L.P. is a duly formed limited partnership validly existing under the laws of the State of New Jersey; there have been no amendments to the Agreement of Limited Partnership of East Sunland L.P. (the "Partnership Agreement"), dated March 27, 1991, as -27- 32 amended on March 10, 1992, between East Sunland and PIPCO Windsong, Inc.; the partnership interest held by PIPCO Windsong, Inc. in the partnership is not subject to any buy-back arrangement or other encumbrance; no events of default exist under the Partnership Agreement; Pipco Windsong's construction and funding obligations have been satisfied. The partnership owns twenty- five (25) lots located and situated in East Brunswick, New Jersey. (ah) BULK SALE. The consummation of the transactions contemplated by this Agreement are in the ordinary course of business of the Bank, and the applicable PIPCOs, and the transfer, assignment and conveyance of the Assets by the Bank or the applicable PIPCO is not subject to the bulk transfer or any similar statutory provisions in effect in the State of New Jersey. (ai) STRUCTURE AND MAINTENANCE. To the knowledge of the Bank and each applicable PIPCO, each OREO Parcel is substantially free from material structural and mechanical defects and there are no material leaks in any of the roofs or walls thereof. (aj) NO ENCROACHMENTS. To the knowledge of the Bank and applicable PIPCO, all improvements are within the boundary lines of the OREO Parcel and no improvements of the adjoining properties encroach upon the OREO Parcel except where (i) such encroachments would not render title unmarketable; (ii) such encroachments are insured against under the related title insurance policy; and (iii) such encroachments would be reflected on a recent survey. (ak) MANAGEMENT AND BROKERAGE AGREEMENTS. There are no management, brokerage or service agreements in effect which relate to the Real Estate. SECTION 5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. It is understood and agreed that the representations and warranties in this Agreement shall survive the sale of the Assets to the Purchaser and shall inure to the benefit of the Purchaser, notwithstanding any restrictive or qualified endorsement on any instrument which provides that such instrument is without recourse or representations. Notwithstanding anything in this Agreement to the contrary, the following representations and warranties made by the Bank and the PIPCOs shall only survive for the period set forth below. (a) The representations and warranties made in Section 5.1, Subsections (d) [relating to condemnation], (g) [relating to the Cambridge Square (Marlboro Loan)], (h) [relating to ground lease], (p) [relating to leases], (u) [relating to escrow accounts], (v) [relating to condominium associations], (w) [relating to outstanding contracts], (x) [relating to farmland assessments/tenant rebates], (y) [relating to hazard insurance], (z) [relating to Mechanic's Liens], (ad) [relating to title insurance], (ae) [relating to bankruptcy], (af) [relating to foreclosure], and (ai) [relating to structure and maintenance] -28- 33 shall only survive for a period commencing on the date hereof and ending six (6) months from the Closing Date. (b) The representations and warranties made in Section 5.1, Subsection (e) [relating to litigation], (o) [relating to compliance with laws], (s) [relating to rent rolls], (aa) [relating to brokerage agreements], and (ac) relating to valid lien] shall only survive for a period commencing on the date hereof and ending twelve (12) months from the Closing Date. (c) The representations and warranties made in Section 5.1, Subsection (aj) [relating to encroachments] shall survive for a period commencing on the date hereof and ending three (3) months from the Closing Date. (d) The representations and warranties contained in Section 5.1, Subsection (j) [relating to enforceability] shall survive for a period commencing on the date hereof and ending on the earlier of the following to occur: (i) one (1) year after the current maturity date of the respective Loan; (ii) the date Purchaser takes title to the applicable Mortgaged Property and (iii) the date the Purchaser receives an unqualified borrower estoppel certificate confirming the matters contained in Section 5.1(j) hereof. SECTION 5.3 ASSIGNABILITY OF REPRESENTATIONS AND WARRANTIES. Except as provided in the remainder of this Subsection, the representations and warranties of the Bank and PIPCOs contained in this Article V are not assignable to any assignee or transferee of the Purchaser. The following representations and warranties are assignable to only one transferee: Section 5.2, Subsection (j) [relating to enforceability], (k) [relating to modification], (l) [relating to future advances], (m) [relating to cross collateralization], (s) [relating to rent rolls], (t) [relating to right of first refusal], (w)[relating to outstanding contracts], (ac) [relating to valid lien], and (ag) [relating to partnership interest]. SECTION 5.4 WYNDHAM AND PRINCETON GATEWAY. Except for the representations made in Section 5.1, Subsection (a) [relating to authority], (b) [relating to conflict with laws]; (c) [relating to legal action]; (e) [relating to litigation]; (i) [relating to sole ownership); (j) [relating to enforceability]; and (o) [relating to compliance with laws], neither the Bank nor any of the PIPCOs makes any representation or warranty with respect to the Wyndham Loan or Princeton Gateway Loan. ARTICLE VI CERTAIN COVENANTS OF THE SELLER AND THE PURCHASER SECTION 6.1 THE SELLER'S COVENANTS. Each of the Bank and the PIPCOs covenants and agrees with the Purchaser as follows, it being understood and agreed that each of the following covenants and agreements shall survive the Closing: -29- 34 (a) LITIGATION. The Bank shall cooperate with the Purchaser, at the Purchaser's sole expense, in connection with any litigation involving any of the Loans or any OREO Parcel. However, neither the Bank nor the PIPCOs shall be required to institute any lawsuit or to expend any sums of money in connection with such cooperation unless the Purchaser first agrees to reimburse the Bank or the applicable PIPCO or indemnify the Bank or the applicable PIPCO in a manner reasonably satisfactory to the Bank with respect to any such expense. (b) FURTHER ASSURANCES. Upon the reasonable request of the Purchaser and without payment of any further consideration to the Bank or any PIPCO, other than reimbursement for the Bank's or such PIPCO's reasonable out-of-pocket expenses (including, but limiting, reasonable attorneys' fees), the Bank or such PIPCO shall do, execute, acknowledge and deliver, and shall cause to be done, executed, acknowledged and delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may reasonably be required by the Purchaser in order to better assign, transfer, grant, convey, assure and confirm to the Purchaser, or to facilitate the collection and reduction to the Purchaser's possession of, any or all of the Assets as provided for herein. (c) LOCAL COUNSEL FEES. Bank or the applicable PIPCO shall pay counsel fees incurred by any of them in connection with the litigation matters referred to in SCHEDULE 2. (d) FAIR LAWN OFFICE CENTER. Bank shall apply proceeds received from the sale of the units at the Fair Lawn Office Center first to the payment of outstanding real estate taxes and then to condominium association assessments. (e) RCG DOVER. Bank shall continue to observe its obligation under the RCG Dover Construction Revolver. (f) CONDOMINIUM ASSOCIATIONS. The applicable PIPCO shall use reasonable efforts prior to the Closing Date to obtain an estoppel certificate from the condominium association governing any of the applicable OREO Parcels. (g) DRAGNET CLAUSES. The Bank shall waive its right under any dragnet clauses in its mortgages to the extent the same affects any Assets. (h) REPAIRS. The applicable PIPCO shall cause to be remediated or repaired, before the Closing Date (i) the violations cited by the Department of Community Affairs and currently outstanding with respect to the Coyle property (other than the fire wall barrier in the elevators) and (ii) such remediation or repair work (other than paving work with respect to 25 Broad) with respect to the 25 Broad and Strathmore properties as shall be required to be completed as a condition to the issuance of a certificate of occupancy with respect to each such property. The cost of such -30- 35 repairs shall be paid out of the sums deliverable to the Purchaser pursuant to Section 2.4(a) with respect to such property or if such sums shall not be sufficient at the expense of the applicable PIPCO. (i) INSURANCE. The Bank shall continue to maintain until the Closing the casualty and liability insurance in existence as of the date hereof (in the existing amounts, with the existing deductibles and with the existing carrier) with respect to the Real Estate and the Loans. (j) PARTNERSHIP. PIPCO Windsong, Inc. shall perform its obligations under the Partnership Agreement. (k) DEPOSIT IN SUSPENSION ACCOUNTS. Bank shall pay all amounts coming due after the Closing for which funds were withheld by the Bank pursuant to Section 2.4(a). SECTION 6.2 THE PURCHASER'S COVENANTS. The Purchaser covenants and agrees with the Bank and the PIPCOs as follows, it being understood and agreed that each of the following covenants and agreements shall survive the Closing: (a) INSPECTION BY THE SELLERS. The Purchaser shall permit the Bank and the PIPCOs and their representatives, employees, agents, attorneys and accountants to examine and copy the Asset Files to the extent reasonably required in connection with the preparation of tax returns and financial reporting matters (including without limitation any return or report relating to state or local real property transfer gains taxes), audit proceedings, governmental investigations and litigation. (b) NOTICE OF LITIGATION. The Purchaser shall promptly notify the Bank and the PIPCOs of any Claim or litigation asserted or filed, or threatened so to be, by any Person against the Bank or any PIPCO that arises from or relates to any of the Assets. (c) PENDING LITIGATION. As soon as practicable after the Closing Date, the Purchaser shall use all reasonable means to substitute itself as the named plaintiff or defendant in all pending litigation matters set forth on SCHEDULE 2. (d) ESTOPPEL CERTIFICATE. As soon as practicable after the Closing Date, the Purchaser shall request mortgage estoppel certificates from each Mortgagor confirming the matters contained in Section 5.1(j) hereof. (e) RELATED MORTGAGE INTERESTS. The Purchaser shall not seek a deficiency against any obligor under any Related Mortgage Interest, if enforcement of such deficiency is in conflict or prohibited by any settlement agreement, writing, deed in lieu agreement or order provided to the Purchaser in the Asset Files. -31- 36 SECTION 6.3 APPRAISALS AND EXPERT REPORTS. Any Schedule Prices, appraisals or estimated values of the Assets, structural reports, expert reports, legal opinions, fairness opinions, accountants' reports, Environmental Assessment Reports, or other third party reports (collectively, the "Reports") that have been delivered to the Purchaser by or on behalf of the Bank or the PIPCOs have been prepared solely for the Bank or the PIPCOs by the parties or experts named therein and have been furnished to the Purchaser solely for the Purchaser's convenience. No representation or warranty by any of the Bank or the PIPCOs or any of its or their employees, advisors, agents, property managers, consultants, representatives, accountants or attorneys is being made to the Purchaser, its employees, advisors, agents, property managers, consultants, representatives, accountants, investors or attorneys with respect to such Reports. Any reliance upon the Reports shall be at the sole risk of the Purchaser, and the Purchaser hereby expressly waives any claim, suit, recourse, damages, or other right of recovery or set- off it may have against the Bank, the PIPCOs, and its or their employees, advisors, agents, property managers, consultants, accountants, or attorneys with respect to reliance on such Reports by the Purchaser, its employees, advisors, agents, property managers, consultants, accountants, investors or attorneys. SECTION 6.4 ENVIRONMENTAL MATTERS. As to the Assets, the Purchaser is aware of the environmental conditions or contamination in the Environmental Assessment Reports. The Purchaser has been afforded the opportunity for itself, its attorneys, its agents, its engineers, its environmental engineers or consultants, and other representatives of its choosing, to fully inspect and assess the value and conditions of the Assets. The Bank and the PIPCOs have provided or otherwise made or offered to make available to Purchaser those materials which the Bank and the PIPCOs possess, pertaining to the environmental conditions of the Assets. SECTION 6.5 PHYSICAL CONDITION. The Purchaser expressly acknowledges that it is buying the Assets in their "AS IS" condition on the date hereof, subject to reasonable use, wear and tear and normal depreciation between the date hereof and the Closing Date. ARTICLE VII CURE AND REPURCHASE OF ASSET SECTION 7.1 PURCHASER'S CLAIM OF A DEFECTIVE ASSET. In the event of a material breach of a representation or warranty with respect to an Asset, then Purchaser may execute and deliver to Seller a Certificate of Defect no later than the end of the applicable Representation and Warranty Period for such representation and warranty. SECTION 7.2 BANK AND PIPCOS ELECTIONS FOR DEFECTIVE ASSET. By no later than thirty (30) days following its receipt of a -32- 37 Certificate of Defect, the Bank or the applicable PIPCO shall notify the Purchaser (i) (x) that the Bank or the applicable PIPCO disputes that the alleged breach exists or that the breach is material, and (y) of the basis for the Bank's or applicable PIPCOs position or (ii) that the Bank or the applicable PIPCO will cure such breach within the Cure Period by either curing such breach or paying to the Purchaser the amount to cure such breach or (iii) that the Bank or applicable PIPCO will repurchase the Asset as provided in SECTION 7.3. SECTION 7.3 REPURCHASE PRICE. The Bank with respect to the Loans and the PIPCOs with respect to the Real Estate, and Pipco Windsong, Inc. with respect to the Distribution Rights shall repurchase for the Repurchase Price any Asset (i) that it has either elected to repurchase under SECTION 7.2 hereof, or (ii) with respect to which it has failed to cure the breach under SECTION 7.2 hereof within the Cure Period. Seventy-five percent (75%) of the Repurchase Price shall be applied to the reduction of the Purchase Money Loan. SECTION 7.4 REPURCHASE DATE. The "Repurchase Date" for any Asset being repurchased pursuant to this Article VII shall be on or before the date thirty (30) days following (i) if the Bank has elected to repurchase the Asset, the date the Bank has made such election or (ii) if the Bank or the applicable PIPCO has elected to cure the breach and has failed to do so, the expiration of the Cure Period. SECTION 7.5 RECONVEYANCE OF ASSETS. On the Repurchase Date, Purchaser shall convey to the Bank or the applicable PIPCO all its right, title and interest in and to the repurchased Asset pursuant to an assignment, deed and other appropriate documents; provided, however, that neither the Bank nor the applicable PIPCO shall be required to repurchase any Asset to the extent that the physical condition of any applicable Asset, the substantive rights of the Bank under any applicable Loan, the condition of the title to any applicable Asset, or the collateral for any applicable Loan has been materially adversely affected as a result of the Purchaser's gross negligence, bad faith, willful misconduct or intentional disregard of prudent operating or servicing practices. Each of the Bank and the PIPCOs covenants and agrees that, whether or not it shall be required to repurchase any Asset hereunder, it shall indemnify and hold harmless, for actual damages (excluding consequential damages), the Purchaser, its affiliates and agents and their respective partners, members, shareholder, officers, directors and employees suffered as a result of any Claims arising in connection with any material breach of a representation or warranty with respect to which Purchaser shall have timely delivered a Certificate of Defect. SECTION 7.6 DEFECTS COVERED BY TITLE INSURANCE. Notwithstanding anything to the contrary contained in this Agreement, the Purchaser shall not be entitled to deliver a Certificate of Defect for an OREO Parcel if the Purchaser is -33- 38 entitled to assert a valid claim under a title insurance policy with respect to the loss caused by such breach. If the Purchaser would otherwise be entitled to deliver a valid Certificate of Defect but for the lack of a final determination as to whether a related loss is covered by either a title insurance policy despite the Purchaser's reasonable efforts to resolve such matter (which efforts shall consist of the prompt submission of a claim to the appropriate title company) then the Purchaser may deliver such Certificate of Defect to the Bank in accordance with SECTION 7.2, provided that the survival period of the applicable representations and warranties shall be tolled until such time as a final determination regarding such coverage has been made. SECTION 7.7 MATERIALITY. Notwithstanding anything in this Agreement to the contrary, the Purchaser shall only be entitled to deliver a Certificate of Defect if one or more breaches of a representation or warranty by the Bank or any PIPCO with respect to an Asset is "material". For the purposes of this Agreement the term "material" shall mean a breach by the Bank or any PIPCO of a representation or warranty that (a) with respect to an Asset having a Schedule Price greater than $400,000, cannot be cured or remediated for less than the greater of (i) $200,000 or (ii) 10% of the Schedule Price of the related Asset and (b) with respect to an Asset having a Schedule Price equal to $400,000 or less, cannot be cured or remediated for less than 25% of the Schedule Price of the related Asset. The "material" or "materiality" limitation herein shall not apply to any breach of representations contained in Section 5.1(u) or (ab) as it relates to security deposits or the outstanding principal balance of any Loan. SECTION 7.8 ARBITRATION. (a) Any controversy or claim between Purchaser and the Bank and the PIPCOs arising out of or relating to this Article shall be determined by arbitration. The arbitration shall be conducted under the Commercial Rules of the American Arbitration Association, but not under its auspices unless the parties agree. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s). The award rendered by the arbitrator(s) shall set forth findings of facts and conclusions of law and shall be final, and the judgment may be entered in any court having jurisdiction thereof. A failure by the arbitrator(s) to make findings of fact and conclusions of law shall be grounds for overturning the award. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for relief. (b) In any arbitration proceeding, the arbitrator(s) is (are) authorized to award interest and penalties and to apportion costs and expenses, including investigation, legal and other expense, which will include, if applicable, a reasonable estimate of allocated costs and expense. Such costs and expenses are to be -34- 39 awarded only after the conclusion of the arbitration and will not be advanced during the course of such arbitration. -35- 40 ARTICLE VIII TRANSITION SECTION 8.1 TRANSITION OF THE SALE OF ASSETS. (a) Between the date hereof until the Closing Date, the Bank shall service and administer each Loan in conformity with customary prudent industry servicing standards of servicers of similar loans. Between the date hereof and the Closing Date, neither the Bank nor the PIPCOs will, if the Purchaser objects within five (5) Business Days after written notice from the Bank (which notice the Bank covenants to deliver prior to any such act) (i) enter into, or cause or permit, any new leases for all or any portion of any OREO Parcel to be entered into, (ii) consent to any assignment or sublease in connection with any leases affecting any OREO Parcel or Mortgaged Property; (iii) make, or cause or permit to be made, any applications or institute or cause or permit to be instituted, legal or other proceedings except as expressly authorized herein; (iv) restructure, amend or modify a Loan; (v) restructure, release, foreclose, or permit any foreclosure, upon a mortgage or otherwise acquire title to a Mortgaged Property; (vi) further encumber any OREO Parcel; or (vii) enter into, or cause or permit any new service, maintenance construction, operating or other agreement to be entered into which might become the obligation of the Purchaser or to which an OREO Parcel would be subject following the Closing, nor modify, extend, renew, supplement, cancel, or cause or permit the modification, extension, renewal, supplementation, cancellation or accept the surrender of or the renewal of, such agreements, if any, which may exist at present or are hereafter entered into unless the same (except for leases and other occupancy agreements) is reasonably necessary for the normal operation of any OREO Parcel prior to the Closing Date and may be terminated by the Bank prior to or on the Closing Date; provided, however, the foregoing notice requirement shall not apply to matters addressed in SECTION 3.8(B) and the applicable Schedule. (b) The Bank or the applicable PIPCO shall keep, maintain and preserve the OREO Parcels in their present condition (normal wear and tear excepted) until the Closing Date, and comply with all laws pertaining to the OREO Parcels or the use or occupancy thereof. (c) The Bank or the applicable PIPCO shall give written notice to the Purchaser of any actions, claims, proceedings, or investigations threatened or commenced against the Bank or applicable PIPCO which relate to, or affect, any Asset. (d) The Bank or the applicable PIPCOs shall promptly provide Purchaser with a copy of any notice of violations of law or governmental ordinances, orders or requirements affecting any OREO Parcel or Mortgaged Property received by the Bank or the applicable PIPCO. (e) Until such time as the Bank or the applicable PIPCO physically delivers the Asset Files to the Purchaser, the Bank -36- 41 shall use reasonable efforts to arrange for the Purchaser, its agents and designees to have reasonable access thereto and to the OREO Parcels for the purposes of site inspections, reports, valuations and other related activities and agrees to permit the Purchaser access to all documentation reasonably requested by Purchaser and to use, inspect, make extracts from or request copies of such documentation. (f) The Bank or the applicable PIPCO shall prior to the Closing Date transfer to the Purchaser all files, correspondence, court papers, pleadings and documentation, in its possession, relating to any litigation involving any of the Assets and shall use all reasonable efforts and take all necessary actions, including a notice of motion and related materials, as may be required in order to substitute Purchaser as Plaintiff in any such actions to effect the resignation of its counsel therefrom. (g) The Bank shall, at the Closing and upon request of the Purchaser, terminate any service contracts pursuant to the terms thereof. ARTICLE IX DEFAULT SECTION 9.1 THE PURCHASER'S DEFAULT. In the event the Purchaser shall default in its obligation to purchase the Assets or materially breach a representation or warranty or covenant hereunder or otherwise fail to perform its obligations under this Agreement prior to the Closing, the Bank and the PIPCOs may terminate this Agreement by written notice to the Purchaser and the Bank and the PIPCOs shall be entitled to retain the Deposit, plus interest on the cash portion of the Deposit, as full compensation and liquidated damages as its sole remedy. If such default, breach or failure occurs, the Bank and the PIPCOs will incur costs and other damages in an amount that would be difficult or impractical to ascertain. The deposit bears a reasonable relationship to the damages which the Purchaser and the Bank and the PIPCOs estimate may be incurred by the Bank and the PIPCOs by reason of the Purchaser's breach, default or failure hereunder. SECTION 9.2 THE BANK'S AND PIPCOS' DEFAULT. Except as provided in Article VII hereof, upon any default by the Bank or any PIPCO as of or after the Closing, the Purchaser may avail itself of any remedies the Purchaser may have at law or in equity or under this Agreement, including, without limitation, specific performance. However, the Purchaser shall neither have (a) any right to consequential damages, nor (b) any right to offset amounts due to the Bank under the Purchase Money Loan Documents or any other contract or agreement between the Bank and the Purchaser or any affiliate of either against any damages on account of the Bank's or any PIPCO's default hereunder. -37- 42 ARTICLE X NOTICES Except as otherwise provided for herein, all notices, approvals, consents and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given or sent (a) when received, if dispatched by registered or certified mail (return receipt requested), (b) when received, if delivered in hand or by facsimile transmission with a copy thereof sent by reputable overnight courier which requires a signature of the receiving party, or (c) on the following Business Day, if dispatched by a reputable overnight courier which requires a signature of the receiving party, in each case to the party intended at its address as follows (or at such other address as may hereafter be specified by such party from time to time by like notice) (i) If to the Bank, at United Jersey Bank 25 East Salem Street Hackensack, NJ 07602 Attention: Robert W. Eberhardt, Jr., Executive Vice President Fax: (201) 489-3733 with a copy to LeBoeuf, Lamb, Greene & MacRae, L.L.P. One Riverfront Plaza Newark, NJ 07102-5490 Attention: Lawrence E. Miller, Esq. Fax: (201) 643-6111 (ii) If to the PIPCOs: c/o United Jersey Bank 25 East Salem Street Hackensack, NJ 07602 Attention: Marc P. Sullivan, President Fax: (201) 489-3733 -38- 43 with a copy to LeBoeuf, Lamb, Greene & MacRae, L.L.P. One Riverfront Plaza Newark, NJ 07102-5490 Attention: Lawrence E. Miller, Esq. Fax: (201) 643-6111 (iii) If to the Purchaser, at O'Connor Capital Incorporated 399 Park Avenue - 25th Floor New York, New York 10022 Attention: John F. Pipia Fax: (212) 308-8544 O'Connor Capital Incorporated 100 Menlo Park Suite 302 Edison, New Jersey 08837 Attention: Thomas E. Quinn Fax: (908) 603-4550 Matrix Development Group, Inc. Forsgate Drive, CN 4000 Cranbury, New Jersey 08512 Attention: Joseph Taylor Fax: (609) 395-8289 Shanley & Fisher 131 Madison Avenue Morristown, New Jersey 07962 Attention: Gerald W. Hull, Jr., Esq. Fax: (201) 285-1098 -39- 44 Shearman & Sterling Citicorp Center 153 East 53rd Street New York, NY 10022 Attention: John L. Opar, Esq. Fax: (212) 848-5252 The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. No failure or delay in the routing of any such notice, demand, request, consent, approval, declaration or other communication within any organization to the individual designated to receive the same or a copy thereof shall in any way qualify the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1 OBLIGATIONS OF BANK. In the event that any PIPCO fails to perform its obligations under this Agreement, the Bank shall cause such PIPCO to perform within 15 days after written demand for performance by the Purchaser. SECTION 11.2 SEVERABILITY. Each provision of this Agreement is intended to be severable. If any term, covenant, condition or other provision herein is unlawful, invalid or unenforceable for any reason whatsoever, and such illegality, invalidity or unenforceability does not affect the remaining parts of this Agreement, then all such remaining parts hereof shall be valid and enforceable and have full force and effect as though the invalid or unenforceable provision had not been included herein. SECTION 11.3 RIGHTS CUMULATIVE; WAIVERS. Except to the extent expressly limited in this Agreement, the rights of each of the parties under this Agreement are cumulative and may be exercised as often as such party considers appropriate. Without limitation on the foregoing, if in light of the terms and conditions of this Agreement a party disputes the position taken by the other party then either party may seek judicial resolution of such dispute. No right of any party hereunder shall be capable of being waived or varied otherwise than by an express waiver or variation in writing. Except to the extent expressly limited in this Agreement, failure to exercise or any delay in exercising any of such rights also shall not operate as a waiver or variation of that or any other such right. Except to the extent expressly limited in this Agreement, defective or partial exercise of any such right shall not preclude any other or further exercise of that or any other right. No act, course of conduct or negotiation on the part of any party shall in any way preclude such party from -40- 45 exercising any such right or constitute a suspension or variation of any such right. SECTION 11.4 ELECTION BY BANK ON BEHALF OF PIPCOS. Title to the OREO Parcels identified in SCHEDULE 1 is held by the PIPCOs. Whenever under this Agreement any PIPCO is entitled or required to make an election with respect to an OREO Parcel, each such PIPCO agrees that the Bank may make such election on behalf of such PIPCO. SECTION 11.5 HEADINGS. The headings contained in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof. SECTION 11.6 CONSTRUCTION. Unless the context otherwise requires, singular nouns and pronouns, when used herein, shall be deemed to include the plural s of such nouns or pronouns and pronouns of one gender shall be deemed to include the equivalent pronouns of the other gender. Wherever used the words "including" or "included" shall be deemed followed by the phrase "without limitation." SECTION 11.7 ASSIGNMENT. (a) GENERAL. Except as set forth in Section 3.5(f), neither party may assign any rights under this Agreement to any Person without the prior written consent of the other party; provided however, that the Purchaser may designate one or more related entities to take title to the Related Mortgage Interests or such other of the Assets as it may specify. (b) MISCELLANEOUS. Subject to the foregoing, this Agreement and the terms, covenants, conditions and other provisions hereof, and the obligations, undertakings, rights and benefits herein and hereunder, including the Schedules and Exhibits, shall bind and inure to the benefit of the undersigned parties and their respective successors and assigns. SECTION 11.8 INTEGRATION. Except for the Confidentiality Agreements, this Agreement supersedes any and all prior discussions and agreements between the Bank, any PIPCO and the Purchaser and Argo Partnership, L.P., Taylor Simpson Group, and The O'Connor Group with respect to the purchase of the Assets and other matters contained herein, and this Agreement, the Confidentiality Agreements and the documents expressly contemplated hereby contain the sole, final and complete expression and understanding among the parties hereto with respect to the transactions contemplated hereby and thereby. This Agreement shall not be altered or modified except by a subsequent writing signed by the parties hereto. SECTION 11.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts each of which shall constitute one -41- 46 and the same instrument, and each party hereto may execute this Agreement by signing any such counterpart. SECTION 11.10 SURVIVAL. Each and every representation, warranty and covenant herein made by the Purchaser or the Bank or any PIPCO that expressly survives the Closing shall not merge into any document executed as part of Closing, but shall instead be independently enforceable, except to the extent expressly limited in this Agreement. SECTION 11.11 GOVERNING LAW; JURISDICTION; VENUE. (a) GOVERNING LAW. This Agreement shall be construed, and the rights and obligations of the Bank, the Pipcos and the Purchaser hereunder determined, in accordance with New Jersey law without regard to principles of conflicts of law thereof. (b) JURISDICTION. For the purposes of any suit, action or proceeding involving this Agreement, the Purchaser hereby expressly submits to the jurisdiction of the federal and state courts sitting in the State of New Jersey and consents that any order, process, notice of motion or other application to or by any such court or a judge thereof may be served within or without such court's jurisdiction by registered mail or by service in hand, provided that a reasonable time for appearance is allowed, and the Purchaser agrees that such courts shall have exclusive jurisdiction over any such suit, action or proceeding commenced by either or both of said parties. In furtherance of such agreement, the Purchaser agrees, upon the request of the Bank or the PIPCOs to discontinue (or to the discontinuance of) any such suit, action or proceeding pending in any other jurisdiction. (c) VENUE. The Purchaser hereby irrevocably waives any objection that it may have now or hereafter to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any federal or state court sitting in the State of New Jersey and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 11.12 NO THIRD-PARTY BENEFICIARIES. No Person other than the parties hereto, which, for purposes of this Section 11.12, shall be the Bank, the PIPCOs and the Purchaser, shall have any rights or claims under this Agreement. SECTION 11.13 WAIVER OF TRIAL BY JURY. The Bank, the Pipcos and the Purchaser hereby knowingly, voluntarily and intentionally waive (to the extent permitted by applicable law) any right they may have to a trial by jury of any dispute arising under or relating to this Agreement and agree that any such dispute shall be tried before a judge sitting without a jury. SECTION 11.14 NO PARTNERSHIP. Nothing contained in this Agreement shall be construed to place the parties in relationship -42- 47 of partnership or joint venturers, or having the power to bind one another to any contracts or other instruments or to any undertakings, obligations, or other liabilities. SECTION 11.15 BROKERAGE COMMISSIONS. Each of the Purchaser, the Bank and the PIPCOs represents and warrants to the other that it has not hired, retained or dealt with any broker, consultant or finder in connection with the negotiation, execution or delivery of this Agreement or the consummation of the transactions contemplated hereby. The Bank, the PIPCOs and the Purchaser each covenant and agree to indemnify the other against liability arising out of any claim by any broker, consultant or finder with respect to the negotiation, execution or delivery of this Agreement or the consummation of the transactions contemplated hereby based upon the acts of the indemnifying party. The provisions of this Section shall survive the Closing. SECTION 11.16 CONFIDENTIALITY. The parties agree to use reasonable efforts to keep the specifics of the transactions contemplated by this Agreement confidential; provided, however, that nothing contained in this Section shall prevent any party from disseminating information regarding the transactions to the extent required to be disseminated by law, rule or regulation or judicial process. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. Purchaser ANJ Portfolio, L.L.C. By: /s/ Erwin Aulis ------------------------------- Name: Erwin Aulis ------------------------------- Title: Authorized Signatory ------------------------------- Seller UNITED JERSEY BANK By: ------------------------------- Name: ------------------------------- Title: ------------------------------- -43- 48 of partnership or joint venturers, or having the power to bind one another to any contracts or other instruments or to any undertakings, obligations, or other liabilities. SECTION 11.15 BROKERAGE COMMISSIONS. Each of the Purchaser, the Bank and the PIPCOs represents and warrants to the other that it has not hired, retained or dealt with any broker, consultant or finder in connection with the negotiation, execution or delivery of this Agreement or the consummation of the transactions contemplated hereby. The Bank, the PIPCOs and the Purchaser each covenant and agree to indemnify the other against liability arising out of any claim by any broker, consultant or finder with respect to the negotiation, execution or delivery of this Agreement or the consummation of the transactions contemplated hereby based upon the acts of the indemnifying party. The provisions of this Section shall survive the Closing. SECTION 11.16 CONFIDENTIALITY. The parties agree to use reasonable efforts to keep the specifics of the transactions contemplated by this Agreement confidential; provided, however, that nothing contained in this Section shall prevent any party from disseminating information regarding the transactions to the extent required to be disseminated by law, rule or regulation or judicial process. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. Purchaser ANJ Portfolio, L.L.C. By: ------------------------------- Name: ------------------------------- Title: ------------------------------- Seller UNITED JERSEY BANK By: /s/ Robert W. Eberhardt, Jr. ------------------------------- Name: Robert W. Eberhardt, Jr. ------------------------------- Title: Executive Vice President ------------------------------- -43- 49 PipAshely, Inc. By: /s/ Marc Sullivan --------------------------------- Name: -------------------------------- Title: ------------------------------- Piphyde Park, Limited By: /s/ Marc Sullivan --------------------------------- Name: -------------------------------- Title: ------------------------------- Pipgate Mill Properties, Ltd. By: /s/ Marc Sullivan --------------------------------- Name: -------------------------------- Title: ------------------------------- Pipco 121-123 Grand Avenue, Inc. By: /s/ Marc Sullivan --------------------------------- Name: -------------------------------- Title: ------------------------------- Pipco Carlstadt, Inc. By: /s/ Marc Sullivan --------------------------------- Name: -------------------------------- Title: ------------------------------- -44- 50 Pipco Norte, Inc. By: /s/ Marc Sullivan ---------------------------------- Name: -------------------------------- Title: ------------------------------- Pipco Mk, Inc. By: /s/ Marc Sullivan ---------------------------------- Name: -------------------------------- Title: ------------------------------- PIPCO Oakland, Inc. By: /s/ Marc Sullivan ---------------------------------- Name: -------------------------------- Title: ------------------------------- Pipco Parsippany, Inc. By: /s/ Marc Sullivan ---------------------------------- Name: -------------------------------- Title: ------------------------------- Pipco Windsong, Inc. By: /s/ Marc Sullivan ---------------------------------- Name: -------------------------------- Title: ------------------------------- -45- EX-10.A.II 3 AMENDMENT TO ASSET PURCHASE AGREEMENT 1 Exhibit (10)A.(ii) AMENDMENT TO ASSET PURCHASE AGREEMENT THIS AMENDMENT TO ASSET PURCHASE AGREEMENT is entered into as of the 27th day of March, 1995, by and among United Jersey Bank (the "Bank"), PipAshely, Inc., Piphyde Park Limited, Pipco Windsong, Inc., Pipgate Mill Properties, Ltd., Pipco 121-123 Grand Avenue, Inc., Pipco Carlstadt, Inc., Pipco Norte, Inc., Pipco Mk, Inc., PIPCO Oakland, Inc., Pipco Parsippany, Inc., and PIPCO Spring Hill, Inc. (collectively, the "PIPCOs") and ANJ Portfolio, L.P. (the "Purchaser"). WHEREAS, the Bank, the PIPCOs (exclusive of Pipco Spring Hill, Inc.) and ANJ Portfolio, L.L.C. entered into that certain Asset Purchase Agreement dated as of March 1, 1995 (the "Asset Purchase Agreement"); WHEREAS, the Purchaser has succeeded to the interests of ANJ Portfolio, L.L.C. by virtue of that certain assignment of contract of even date herewith between ANJ Portfolio, L.L.C. and Purchaser; WHEREAS, Pipco Spring Hill, Inc. is the owner of the Aberdeen Pavilion (Petris) Asset; WHEREAS, the Bank, the PIPCOs and the Purchaser desire to memorialize certain agreements and to amend the Asset Purchase Agreement, contemporaneously with the Closing thereunder, in the manner set forth herein; NOW, THEREFORE, in consideration of the mutual promises herein set forth and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Bank, the PIPCOs and the Purchaser agree as follows: 1. Corrections. The Parties acknowledge that: (a) the Schedule Price for the RAD Associates IV Note was inadvertently omitted from Schedule 1 to the Asset Purchase Agreement and that the Schedule Price $3,200,000.00 shall be deemed incorporated in said schedule; (b) the designation of "Performing Loans" was inadvertently omitted from the Asset Schedule and the designation of "Performing Loans" shall be incorporated in the Asset Schedules for Willow Land; Kramers; Princeton Gateway; RAD IV; Tinton Falls; Donato-Shrewsbury and Donato Corbett Way. (c) Schedule 1 for the Loan Asset designated as Fair Lawn Office Center incorrectly listed that Asset as an OREO Parcel and said Schedule 1 is deleted in its entirety and is replaced with Schedule 1 annexed hereto; and 2 (d) Schedule 1 for each of the following Assets is deleted in its entirety and replaced with the replacement Schedule 1s annexed hereto: RAD IV, RCG Dover, Kramer, and Heathcote. 2. Assets. (a) Purchaser has notified the Bank and the PIPCOs that it has determined not to acquire those additional Assets identified as "PT Associates" and "Route 23 Franklin" on Schedule 12 to the Asset Purchase Agreement. (b) Purchaser has elected to acquire "Aberdeen Pavilion (Petris)" and "Geller" and the same shall constitute Assets for all purposes of the Asset Purchase Agreement. (c) The parties hereby agree that Purchaser shall have an option to acquire the below named properties at any time prior to the respective dates set forth opposite same and on the terms and conditions of the Asset Purchase Agreement; provided, however that the provisions of Section 8.1 thereof shall apply during the option period without regard to the proviso appearing at the end of Section 8.1(a) thereof. DiSimone/Russo May 28, 1995 Tinton Falls July 31, 1995 West Front Street May 28, 1995 (d) Bank and Purchaser shall execute and deliver on the Closing Date the Participation Agreement annexed hereto as Exhibit A. (e) Bank shall procure for Purchaser, as soon as reasonably practicable and at its own cost and expense, a temporary Certificate of Occupancy for 25 Broad Street and a final Certificate of Occupancy for Aberdeen Pavilion (Petris). 3. Fair Lawn Office Center. The Collateral Documents for the Loan designated as Fair Lawn Office Center contain cross collateralization and cross default provisions (the "Cross Provisions") relating to loans made by the Bank to Wayne Hills Office Center Associates, Garden State Land Company and Apple BGM Associates (the "Fairlawn Affiliates") and the loan documents for loans made to the Fairlawn Affiliates contain corresponding Cross Provisions. The Bank and Purchaser covenant and agree with each other that they will not exercise any such Cross Provisions. Purchaser agrees to inform any subsequent purchaser of the Fair Lawn Office Center Loan of the above referenced limitation. 4. Distribution Rights. The definition of the term "Distribution Rights" is amended so that it reads as follows: "Distribution Rights" means all of Pipco Windsong, Inc.'s right, title and interest to limited partnership distributions and any other rights to payment under the Agreement -2- 3 of Limited Partnership of East Sunland, L.P., dated March 27, 1991, as amended on March 10, 1992, between East Sunrise Landing, Inc. and Pipco Windsong, Inc. less (x) sewer connection fees in an amount not to exceed $1,500 for each housing unit and (y) up to an aggregate of $170,000 for Pipco Parsippany's share of future site improvement costs. Bank agrees that the foregoing shall be the only deductions from the portion of the unit sales price payable to Pipco Windsong, Inc. pursuant to the provisions of the Agreement of Limited Partnership, as amended. 5. Aberdeen Pavilion (Petris). The Schedules to the Asset Purchase Agreement are supplemented to incorporate the Schedules annexed hereto regarding the Asset designated as Aberdeen Pavilion (Petris). Pipco Spring Hill, Inc. is joining as a party to this Amendment for the purpose of assuming the obligations (including, without limitation, the representations and warranties contained therein) in the Purchase Agreement as amended hereby with respect to the Aberdeen Pavilion (Petris) Asset. 6. West Front Street. The Purchaser and Pipco MK, Inc. agree that, if a sale to Hovnanian is consummated within 90 days of Closing, Pipco MK, Inc. shall be entitled to an additional purchase price based on the following formula: (i) If the net proceeds received are greater than $600,000 then Pipco MK, L.L.C. shall receive 25% of the Net Proceeds in excess of $600,000; (ii) If the net proceeds received are greater than $700,000 then Pipco MK, L.L.C. shall receive 30% of the Net Proceeds in excess of $600,000; (iii) If the net proceeds are greater than $800,000 then Pipco MK, L.L.C. shall receive 35% of the net proceeds in excess of $600,000. 7. Miscellaneous. (a) This Agreement shall be construed according to and governed by the laws of the State of New Jersey. (b) Bank and the PIPCOs reaffirm that they are responsible for any and all transfer taxes assessed with respect to the Real Estate, whether or not paid or assessed at the Closing. -3- 4 (c) This Agreement and the Asset Purchase Agreement contain the entire agreement among the parties and shall supersede and take the place of any and all prior agreements entered into among the parties regarding the subject matter hereof. (d) This Agreement may be amended only by a written instrument signed by the parties hereto. 8. Prorations. The parties agree that notwithstanding the provisions of Section 2.5 of the Asset Purchase Agreement, the closing prorations with respect to Strathmore Glen, 25 Broad, Coyle and Aberdeen Assets shall be settled by Sellers assigning, and the Bank does hereby assign, to Purchaser all monies in the possession and control of the manager's and receiver's of such Assets and all receivables relating to such Assets. 9. Repairs. The parties agree that the applicable PIPCO's shall not be obligated to complete the repairs specified in clause (h) of Section 6.1 of the Asset Purchase Agreement. Nothing herein contained shall be deemed to release the Bank from its obligations under clause (e) of paragraph 2 hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. Purchaser ANJ PORTFOLIO, L.P. by: ANJ I, Corp., its general partner By: /s/ Erwin K. Aulis --------------------------------- Name: Erwin K. Aulis ------------------------------- Title: Vice President ------------------------------ Seller UNITED JERSEY BANK By: /s/ Robert W. Eberhardt, Jr. --------------------------------- Name: Robert W. Eberhardt, Jr. Title: Executive Vice President -4- 5 EXHIBIT (10)A(ii) PipAshley, Inc. By: /s/ Marc Sullivan ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Piphyde Park, Limited By: /s/ Marc Sullivan ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Pipgate Mill Properties, Ltd. By: /s/ Marc Sullivan ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Pipco 121-123 Grand Avenues, Inc. By: /s/ Marc Sullivan ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Pipco Carlstadt, Inc. By: /s/ Marc Sullivan ------------------------------------ Name: ---------------------------------- Title: --------------------------------- -5- 6 Pipco Norte, Inc. By: /s/ Marc Sullivan ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Pipco Mk, Inc. By: /s/ Marc Sullivan ----------------------------------- Name: ---------------------------------- Title: --------------------------------- PIPCO Oakland, Inc. By: /s/ Marc Sullivan ----------------------------------- Name: ---------------------------------- Title: --------------------------------- Pipco Parsippany, Inc. By: /s/ Marc Sullivan ----------------------------------- Name: ---------------------------------- Title: --------------------------------- Pipco Windsong, Inc. By: /s/ Marc Sullivan ----------------------------------- Name: ---------------------------------- Title: --------------------------------- -6- 7 Pipco Spring Hill, Inc. By: /s/ Marc Sullivan ------------------------------------ Name: ---------------------------------- Title: --------------------------------- -7- EX-10.F 4 DESCRIPTION OF INCENTIVE PLAN 1 EXHIBIT (10)F. 2 Exhibit (10)F UNITED JERSEY BANKS INCENTIVE BONUS PLAN 1. OBJECTIVES OF THE PLAN * encourage the achievement of corporate and profit center performance goals and other business development objectives. * reinforce the importance of coordination among the sectors that together form the total corporation. * enable the Bank to retain and attract experienced key executives by holding forth the opportunity to earn awards which reflect the success of their managerial leadership. 2. GOAL-ORIENTED MANAGEMENT BONUS PLAN The Plan recognizes the performance of individuals and groups of individuals on the basis of the attainment of predetermined and explicitly communicated objectives. These objectives are restated on an annual basis and are often tied to budgets or forecasts. If objectives are realized, funds are accrued out of which bonuses are paid. The exact relationship between performance and bonus levels is determined in advance using a defined formula. While the measurement factors generally remain constant over a period of years, the goals with respect to these factors change from year to year. The expectation is that the goal set for any year represents a management challenge comparable to that of any other year, given the internal resources and external environment of the business at that time. This approach is most consistent with a management style that focuses on the accountability of individuals or groups of individuals for making specific, predefined contributions to the overall results of the business. The goal-oriented approach does require a process for setting reasonable goals at the beginning of the year and a means of measuring performance at the end of the year both qualitatively and quantitatively. This is usually accomplished as part of the normal management budgeting and control process. 3 3. PLAN DIMENSIONS The Incentive Bonus Plan has three basic elements: * Accumulative funding based on the use of guideline bonus award levels for each UJB salary grade. * Three level of participants to provide for direct focus on performance standards and objectives closest to the personal level of responsibility of each executive. * Eligibility limited to key executives and individual contributing bankers throughout UJB commercial and retail banking activities and central support functions. 4. ADMINISTRATION OF THE PLAN The Plan shall be administered under the direction of the Personnel Committee (the Committee) of the Board of Directors of United Jersey Banks, which shall take into consideration the recommendations of management. The Committee shall be composed of such members (not less than three) as shall be appointed from time to time by the Board of Directors. No member of the Committee while serving as such shall be eligible for participation in the Plan. The Committee has exclusive and final authority in all determinations affecting the Plan and shall have the sole authority to interpret the Plan, establish and revise rules and regulations relating to the Plan and make any other determinations that it believes necessary or advisable for the administration of the Plan. The Senior Vice President - Human Resources, will review all candidates and the Chief Executive Officer will review and approve additions and deletions of plan participants. -2- 4 5. PARTICIPATION Participants in the Plan shall be selected each year by the Committee from among the Bank's salaried key executive employees whose performance significantly affects the business results of the Bank. In addition, selected employees who have demonstrated the potential for rapid advancement into key positions may be considered for participation in the Plan. As a partial guide for eligibility, no employee will be eligible unless in a job assigned to salary grade 66 and above except in circumstances where personal potential indicates a rapid advance to such grades. Three levels of participants are identified in order to recognize different roles in the Bank. The levels are: 1. Chief Executive and heads of basic banking functions (e.g., commercial banking; operations) and staff departments (e.g., finance; human resources). 2. Bank presidents and head of basic functions in major banks (e.g., trust; branch operations). 3. Individual contributing bankers and heads of basic functions in smaller banks. 6. PERFORMANCE STANDARDS Specific performance standards will be developed for three Bonus Levels, each of which emphasizes a different facet of Bank activity ranging from broad corporate-wide responsibilities to responsbility limited in the main to one key sector of the Bank. Each participant will be assigned to the appropriate Bonus Level determined according to the participant's major responsibilities within the Bank. -3- 5 For Level 1, the performance standards and relative weightings would be: * UJB's annual financial plan (1/3). * UJB's earnings growth rate over the prior year (1/3). * UJB's overall financial performance as compared to other peer group banks (1/3). For these executives, the emphasis is on corporate-wide performance. The use of the annual plan will reinforce the importance of careful planning, as well as the execution of the overall business plan; the growth rate will stress the importance of increasing earnings; the comparison to other banks will emphasize the importance of moving into a stronger leadership position. Each performance standard is discrete, in that no award could be paid for failure in one, whereas an award may be paid for results in another. This Level reflects a management environment oriented to collective activity rather than to just individual accountability for achieving business results. This approach creates an identity of interest between Level 1 participants and the Company in the overall results of the business. For Level 2, the performance standards and relative weightings would be: * Corporate performance on same factors as used for Level 1 participants (1/3). * Annual financial plan for own profit center (2/3). For these executives, the emphasis shifts to the particular unit of UJB for which they are responsible and standards which are influenced by their own performance. As a means of reinforcing the importance of coordination and cooperation among all key executives, some part of Level 2 participants bonus will be tied to bank-wide performance. -4- 6 For Level 3, the performance standards and relative weightings would be: * Annual financial plan for own profit center (1/3). * Personal performance in meeting particular business development and other goals established for the year appropriate to the job (2/3). For these executives and key individual contributing professionals, the emphasis is on performance criteria over which they have significant influence. The corporate performance measure is omitted for this reason. In addition to the standards for Levels 1, 2, and 3: * The Chief Executive evaluates the performance of all those eligible for awards with respect to their support of the Bank's overall business development strategy and human resources development. * The Chief Executive should also adjust results derived from the formula guidelines to reflect top management and Board judgements concerning the quality of the performance in the economic environment in which the results were obtained. 7. DETERMINATION OF AWARDS An incentive bonus award schedule for each Bonus Level will be used by the Committee in determining annual incentive bonuses. The schedule will define guideline incentive bonus size as a percentage of each participant's base salary earnings in the year for which the award is made. The guideline incentive bonus awards will be in an amount that when combined with annual salary, the resulting total cash compensation will be equal to competitive rates. The guideline incentive bonus percentage will be increased for above-standard performance; conversely it will be decreased for below standard but still acceptable performance. Guideline awards will be paid for meeting performance standards and objectives as established for -5- 7 each of the three Levels of participants. When performance falls below expectation, the individual bonus rate will be reduced by up to 50 percent of the guideline rate at the lowest level of acceptable performance. Bonuses will be paid up to 150 percent of guideline rates for performance that goes clearly beyond expectations. The following guideline bonus rates at the indicated salary grades are set forth to demonstrate how they are linked to salary and adjusted for performance:
GUIDELINE BONUS RANGE --------------------- GRADE MINIMUM GUIDELINE MAXIMUM ----- ------- --------- ------- 80 79 20% 40% 60% 78 77 17 34 51 76 75 15 30 45 74 73 14 28 42 72 71 12 24 36 70 69 10 20 30 68 67 8 16 24 66 6 12 18
-6- 8 8. TIME OF PAYMENT All incentive bonuses earned under the Plan will be paid in cash within a reasonable period after annual performance achievements have been determined, reviewed, and approved by the Committee. 9. RIGHT TO PAYMENT OF INCENTIVE BONUS A participant shall have no right to receive payment for any part of the annual incentive bonus. The incentive bonus shall be forfeited unless the participant remains in the employment of the Bank until the last day of the Plan Year as defined in Section 2. The Committee may, if it determines that circumstances so warrant, approve payment of any part or all of an incentive bonus which would otherwise be forfeited as a result of a participant terminating employment with the Bank prior to the end of the Plan Year. A participant shall not receive any part or all of an incentive bonus in the event of dismissal with cause. 10. SPECIAL LIMITATIONS The aggregate incentive bonuses paid under this Plan to the participant group shall not exceed 50 percent of the participants' aggregate salaries for the year for which the incentive bonuses are paid. No incentive bonuses shall be paid for any year in which after tax income is less than seven percent of average capital employed for the year. The above limitations notwithstanding, the Committee may in its judgement provide for incentive bonus awards to any individual whose performance clearly so warrants. No participant in this Plan will be eligible for any other annual bonus arrangement. -7- 9 11. MISCELLANEOUS PROVISIONS An employee's rights and interests under the Plan may not be assigned or transferred. In the case of an employee's death, payment under the Plan shall be made to his/her designated beneficiary, or in the absence of such designation, by will or the laws of descent and distribution. No employee or other person shall have any claim or right to be granted an incentive bonus under the Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Bank. The Bank shall have the right to deduct from all incentive bonuses any taxes required by law to be withheld with respect to such cash awards. The Board of Directors of the Bank may amend, suspend or terminate the Plan or any portion thereof at any time. 12. TERM OF THE PLAN The Plan is designed to operate on an annual basis commencing January 1, 1982. The Plan Year shall be January 1 through December 31. No awards shall be made under the Plan after December 31, 1987. -8- EX-10.G.I 5 DEFERRED COMPENSATION PLAN 1 EXHIBIT (10)G.(i) UNITED JERSEY BANKS DEFERRED COMPENSATION PLAN FOR THE BOARD OF DIRECTORS 1. United Jersey Banks (the "Company") hereby establishes The United Jersey Banks Deferred Compensation Plan (the "Plan") for the benefit of members of the Board of Directors of the Company. A Director may elect to defer receipt of all fees payable to the Director by the Company for services rendered as a member of the Board of the Company and Committees thereof, following the effective date of such election and prior to revocation of the election. For purposes of the Plan, "Directors Fees" shall mean any compensation payable to a Director for services rendered to the Company in that capacity, including fees payable for services as a member of any Committee of the Board of Directors. 2. The Comapny shall establish and maintain a book memorandum account ("Memorandum Account") which shall be administered by the Chief Financial Officer of the Company in the name of each Director who elects to participate in the Plan. Upon a Director's election, pursuant to the election provisions of the Plan, to defer receipt of all of his Directors' Fees each quarter, the Company shall credit such amounts to the Memorandum Account as of the last day of each quarter and shall also credit to the Memorandum Account as of the end of each calendar quarter an additional amount equal to interest at the rate currently paid by United Jersey Bank on IRA and Keogh Accounts, or such other rate as the Board of Directors may from time to time determine, compounded quarterly, on the amounts held in the Memorandum Account as of the end of the previous calendar quarter. All right, title, and interest in and to all amounts credited to the Memorandum Account shall at all times be the sole and absolute property of the Company and shall in no event be deemed to constitute a fund or collateral security for the payments provided under the applicable Plan provisions. All amounts credited to the Memorandum Account shall for all purposes be a part of the general funds of the Company. To the extent that any Director or his designee acquires a right to receive payments under the Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. Neither the Director nor his designee shall have any interest in any amounts credited to the Memorandum Account, or any right to commute, encumber, pledge, sell, assign, or transfer any right to receive payments under the Plan, except by will or the laws of descent and distribution. All payments and rights thereto are expressly declared to be non-assignable. 3. An election to defer receipt of Directors' Fees shall be made in writing on a form provided for that purpose, and shall become effective upon filing with the Secretary of the Company, or such later effective date stated thereon. An election shall remain in effect for each succeeding calendar year 2 unless the Director amends or terminates his election by a notice in writing filed with the Secretary of the Company. Any amendment or termination of an election shall be applicable only prospectively for Directors' Fees payable for services rendered after the effective date of the amendment or termination and shall not affect amounts previously credited to the Memorandum Account. A Director may not amend or terminate his Memorandum Account with respect to the method or time of payment of amounts held in or to be credited to the Memorandum Account. 4. All amounts credited to the Memorandum Account shall be paid to the Director, if living, at the time and in the manner specified in his initial election filed with the Company. The Director may elect to receive all amounts credited to the Memorandum Account in one lump-sum or in a specified number of annual installment payments (the amounts of which shall equal a fraction of the balance credited to the Memorandum Account at the time of such payment, the numerator of such fraction being one (1) and the denominator of such fraction being the number of unpaid annual installments). The date on which lump-sum payment or the initial installment payment shall be made shall be specified in the form of an election filed with the Company and shall be determined by reference to a Director's age and/or the date on which he ceases to be a Director. 5. In the event that a Director shall die before all amounts credited to the Memorandum Account shall have been paid to him, the Company shall make payments of the balance of the Memorandum Account in one lump-sum to such person or persons as the Director shall designate by notice in writing filed with the Company or, in the absence of such designation, to the Director's estate. The Director may, from time to time, by notice filed with the Company, substitute another or further beneficiary or beneficiaries to receive all or a portion of such lump-sum payment payable subsequent to his death. 6. Any amendments or termination of the Plan shall be made at the discretion of the Board of Directors. However, any changes made thereto will not affect any amount already credited to the Memorandum Account. -2- EX-10.G.II 6 AMENDMENT TO DEFERRED COMPENSATION PLAN 1 Exhibit (10)G.(ii) DEFERRED COMPENSATION PLAN RESOLVED, that Section 6 of the Deferred Compensation Plan is hereby amended, effective as of January 1, 1994, to read in its entirety as follows: "6. The Plan may be amended or terminated at the discretion of the Board of Directors; provided, however, that any such amendment or termination shall not affect any amount already credited to the Memorandum Account. Any amendment or termination of the Plan shall be adopted by the Board of Directors, by resolution of the Board of Directors at a regular meeting of the Board of Directors or special meeting called for such purpose or by unanimous written consent." EX-10.H.I 7 AGREEMENT BETWEEN UJB AND T. JOSEPH SEMROD. 1 EXHIBIT (10)H.(i) 2 EXHIBIT (10)H.(i) THIS AGREEMENT dated April 2, 1981, between UNITED JERSEY BANKS, a New Jersey Corporation with its office at 90 Nassau Street, Princeton, New Jersey (UJB) and T. JOSEPH SEMROD, 1700 Bedford, Oklahoma City, Oklahoma (Semrod). 1. Employment. UJB hereby agrees to employ Semrod and Semrod hereby accepts employment, upon the terms and conditions set forth herein. 2. Position. Semrod is employed as the president and chief executive officer of UJB, to perform such services in those capacities as are usual and customary for a bank holding company of the nature of UJB, as shall from time to time be established by the Board of Directors of UJB. Semrod shall devote his full time and attention to the business of UJB, and shall not during the term of the agreement be engaged in any other business activities. This paragraph shall not be construed as preventing Semrod from managing any investments of his which do not require any service on his part in the operation of the affairs of the entities in which the investments are made, nor preventing his service on any board of directors, with the prior approval of the UJB Board of Directors. 3. Compensation. UJB shall pay to Semrod compensation for his services as follows: A. Salary. Base salary shall be at the rate of not less than $200,000.00 per annum, in equal bi-weekly installments, beginning on the date of commencement of employment and 3 payable on the regular payment dates of UJB. The base salary shall be reviewed periodically to reflect the impact of inflation, performance and competitive compensation levels. B. Bonus. In lieu of any participation in the existing UJB bonus plan, at the time incentive bonuses are paid to other employees of UJB pursuant to that plan, and in any event no later than March 1 of the year following the calendar year for which the bonus is earned (the year 1981 and each calendar year thereafter being considered a bonus year for these purposes), a bonus equal to the greater of: i) $25,000.00; or ii) 1.5% of UJB income in the bonus year, before securities transactions and extraordinary items, in excess of $15,000,000. The increase in income upon which the bonus is calculated shall be based upon the data as set forth in the annual report of UJB; provided however, that the amount of the bonus in any one year shall not exceed $225,000. C. Stock Appreciation Units. UJB shall issue to Semrod stock appreciation units (units) -2- 4 which become available and are exercisable as set forth below. i) For each of the first five years Semrod is employed, as president and chief executive officer, beginning on the first day of his employment and on the anniversary date of his employment thereafter, UJB grants to Semrod 10,000 units, for a maximum of 50,000 units. ii) Each unit shall have a value at conversion equal to the appreciation of one share of UJB common stock as of the date of conversion, valued as the average price per share at the close of trading on the preceeding five trading days of the New York Stock Exchange, over the value of a share of stock as of the date of the issuance of the unit. The value of the share as of the date of the issuance of the unit shall be the average of the closing quotes on the New York Stock Exchange for each trading day in the 90 days immediately preceeding the April 1 next preceeding the date of issuance. -3- 5 Appropriate adjustments shall be made for each stock split, reverse split, or stock dividend. iii) Each unit (in minimum multiples of 500 units) may be converted to cash, (payable by UJB within five days after receipt of the within notice to it) only during the period from the first day of the fourth year after its issuance to the last day of the sixth year after its issuance. Any units not converted during the specified time shall be automatically cancelled. iv) In the event of termination of the employment of Semrod due to his death, disability (as defined in the disability insurance program of UJB) or any reason other than for cause or other than the voluntary resignation of Semrod, all units held at the time of such termination may be converted by Semrod (or his estate or personal representative as the case may be), upon five days written notice to UJB, at any time from the date of termination through the final date on which the unit may have been coverted -4- 6 had Semrod's employment not so terminated. v) Any units not previously converted to cash shall be automatically cancelled, with no right of conversion then or thereafter, in the event the employment of Semrod is terminated for cause, or upon his voluntary resignation. vi) In the event that 51% or more of the outstanding common stock of UJB is acquired by a single stockholder or an affiliated group of stockholders as that term is defined by the Federal securities laws, Semrod shall automatically then be entitled to payment as if the entire 50,000 units had been granted to him and this right to payment may be exercised, on five days notice to UJB or its successor, at any time from the date of the acquisition through the final date on which the units could be converted if they had been issued in due course pursuant to subparagraph (i) hereinabove without regard to the fact that the time period specified in subparagraph (iii) hereof has not been reached. In this event, the value of the unit shall be - 5 - 7 measured by the price then offered by the acquiring stockholder or group of stockholders, or the average closing quote on the New York Stock Exchange of a share of UJB common stock for the preceeding five trading days, whichever is greater; and the value of a share of UJB stock at the date of issuance for the newly issued units shall be the average of all values established pursuant to subparagraph (ii) hereof for the units previously issued. 4. Term. The term of this Agreement shall be three years, and shall continue for one year terms from year to year thereafter according to the terms hereof unless notice of non-renewal is given by one party to the other at least 120 days prior to the expiration of the original or any renewal term, or unless employment is earlier terminated by UJB for cause, or due to disability or death. 5. Severance. In the event that employment is terminated for other than voluntary resignation, cause, disability or death, during the initial three year term of this Agreement, Semrod is entitled to receive the salary, and other benefits exclusive of bonus agreed upon by the parties, which he would have received if employment had continued for the remainder of the initial three-year term, to be paid as a lump sum severance payment. Upon the -6- 8 mutual agreement of the parties, the severance payment may be paid in installments. For purposes of this Agreement, "termination for cause" shall mean termination of employment due to misfeasance, malfeasance, or breach of fiduciary duty to UJB or its stockholders, as determined by the Board of Directors of UJB. 6. Pension. At any Normal or Early Retirement Date, as defined in the UJB Retirement Plan (the Plan) or at any later retirement date provided for in such plan, at the time of such retirement, and not earlier: i) Semrod shall be entitled to retirement benefits as if he had commenced his employment with United Jersey Banks as an "Employee", as that term is defined in the Plan, on February 1, 1963. ii) The retirement benefits to which Semrod shall be entitled shall be computed on the basis of the benefit formula set forth in the Plan, as in effect at the time of retirement, based on a date of commencement of employment as set forth in subparagraph (i) above, subject to such limitations in the Plan as to maximum Years of Service and ceilings on the maximum retirement benefit payable, but not subject to any limitations imposed by the Employee Retirement Income -7- 9 Security Act of 1974 (ERISA) or its successor or replacement. iii) As a beneficiary of the Plan, Semrod shall receive from the Plan as much of his entitled benefits as the Plan may pay, according to its terms and limitations, and within the legal limits of ERISA, to the end that the Plan does not make payments contrary to its terms or in violation of law, or which would jeopardize its tax exemption by discriminating in favor of Semrod. iv) The portion (if any) of the retirement benefits to which Semrod is entitled which cannot be paid directly from the Plan shall be an unfunded contractual obligation of UJB to Semrod, and shall be paid at the same time and in the same manner as the payments from the Plan, unless Semrod requests and the Plan Administrator approves a different method of payment, so that the aggregate payments from both sources shall total the benefit to which Semrod is entitled. v) With respect to the retirement benefits not payable from the Plan, Semrod shall have the same options, including but not limited to early retirement and choice of annuity benefits, as are -8- 10 available to him under the Plan. vi) References to Semrod in this paragraph shall include, where appropriate, his designated beneficiaries under the Plan. vii) All payments pursuant to this paragraph 6 shall be in addition to any payments to which Semrod may be entitled to pursuant to any prior employment. 7. Insurance Benefits. i) Semrod shall be entitled to the same hospital, health, medical and disability insurance benefits enjoyed by all other senior management employees of UJB. In the event that a period of employment with UJB is necessary to be eligible for such benefits, and Semrod or any member of his family would be eligible to receive such benefits but for the period of eligibility, then UJB agrees to assume as a contractual liability the payments that would be payable under such insurance programs; provided, however, that if Semrod or any member of his immediate family under such circumstances is eligible to receive benefits through the insurance program of his previous employer, he will first seek to recover such benefits from -9- 11 that source. ii) Semrod shall be entitled to a life insurance program, in accordance with the program available to all other senior management employees of UJB; provided that the principal amount payable thereunder in the event of death, excluding double indemnity, shall be at least two times base salary. 8. Disability. The parties agree that if Semrod becomes disabled, as that term is defined for eligibility for long term disability benefits under the UJB disability insurance program, UJB may terminate the employment of Semrod. In such event, in addition to any insurance or other benefits to which Semrod may then be entitled, Semrod shall be entitled to supplemental disability benefits as the parties will agree upon within 30 days of the commencement of employment hereunder, which benefits will be at least equal to the average of similar benefits established for the chief executive officer of the five largest New Jersey bank holding companies. 9. Relocation Expenses. To defray in part the expenses to be incurred by Semrod in relocating to New Jersey, UJB agrees to make payment of: i) $25,000, upon the execution of this agreement; ii) Reimbursement for all reasonable moving - 10 - 12 expenses, plus an amount equal to the estimated Federal income tax payable by Semrod on account of receipt of this amount; iii) Reimbursement for the real estate commission payable by Semrod upon the sale of his present home, not to exceed $20,000.00; iv) Living expenses in New Jersey, and transportation expenses to and from Oklahoma, until Semrod's family is relocated, or until September 1, 1981, whichever first occurs. v) Transportation expenses for Semrod's wife (2 trips) and children (1 trip) to and from New Jersey. 10. Other. Semrod shall be entitled to reimbursement for all other business expenses incurred during the term of his employment, to the use of an automobile, and vacations, in accordance with the practices and procedures of UJB for other senior management employees. 11. Commencement of Employment. Semrod shall commence employment hereunder at such date as the parties may mutually select, but not later than May 1, 1980. IN WITNESS WHEREOF, United Jersey Banks has caused this Agreement to be signed by its duly authorized representative pursuant to the authority of its Board of Directors, and T. -11- 13 Joseph Semrod has hereunto set his hand and seal, as of the day and year first above written. UNITED JERSEY BANKS By: /s/ HENRY S. PATTERSON II --------------------------- /s/ T. JOSEPH SEMROD ---------------------- T. Joseph Semrod -12- EX-10.H.II 8 AMENDMENT # 1 TO AGREEMENT BETWEEN UJB AND SEMROD 1 EXHIBIT (10)H.(ii) 2 Exhibit (10)H.(ii) Amendment No. 1 to Agreement dated April 2, 1981 between UNITED JERSEY BANKS and T. JOSEPH SEMROD A. The introductory subparagraph of Paragraph 6 is restated in full to read as follows: "6. Pension. At any Normal or Early Retirement Date, as defined in the UJB Retirement Plan (the Plan) or at any later retirement date provided for in such plan, at the time of such retirement, and not earlier, provided that Semrod is then employed by UJB or receiving benefits under UJB's disability plans." B. Paragraph 8 is hereby amended by deleting the second sentence, the parties having agreed that UJB's current disability benefits are comparable to those available to the chief executive officers of the other largest New Jersey bank holding companies. C. Paragraph 11 is amended by deleting "May 1, 1980" and inserting therefor "May 1, 1981." IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 this 5th day of May, 1981. UNITED JERSEY BANKS BY: /s/ JOHN R. HAGGERTY ------------------- Senior Vice President /s/ T. JOSEPH SEMROD ------------------- T. Joseph Semrod EX-10.H.III 9 AMENDMENT # 2 TO AGREEMENT 1 EXHIBIT (10)H.(iii) 2 Exhibit (10)H.(iii) Amendment No. 2 to Agreement dated April 2, 1981 between UNITED JERSEY BANKS and T. JOSEPH SEMROD (the "Agreement") WHEREAS, Semrod has surrendered the 10,000 stock appreciation units granted to him on April 20, 1981 and the 10,000 stock appreciation units granted to him on April 20, 1982; and WHEREAS, it is necessary to amend Paragraph 3(C)(vi) to provide for the value of a share of UJB stock at the date of issuance for units which may be newly issued as a result of the events referred to in Paragraph 3(C)(vi) in the event that units have been surrendered or not issued as contemplated by the original Agreement; NOW THEREFORE, the parties agree as follows: Paragraph 3(C)(vi) is amended to read in full as follows: vi) In the event that 51% or more of the outstanding common stock of UJB is acquired by a single stockholder or an affiliated group of stockholders, as that term is defined by the Federal securities laws, Semrod shall automatically then be entitled to payment as 3 if all units granted and not surrendered and all units remaining to be granted to him under this Agreement had been granted to him and were immediately convertible to cash, not withstanding the provisions of subparagraph (iii) above, and this right to payment may be exercised, on five days notice to UJB or its successor, at any time from the date of the acquisition through the final date on which the units could be converted if they had been issued in due course pursuant to subparagraph (i) hereinabove without regard to the fact that the minimum time period specified in subparagraph (iii) hereof has not been reached. In this event, the value of the unit shall be measured by the price then offered by the acquiring stockholder or group of stockholders, or the average closing quote on the New York Stock Exchange of a share of UJB common stock for the preceding five trading days, whichever is greater; and the value of a share of UJB stock at the date of issuance for 4 the newly issued units shall be the average of all values established pursuant to subparagraph (ii) hereof for the units which have been or would have been previously issued under the terms of the original Agreement, notwithstanding that units may have been surrendered or not issued. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 this 15th day of December, 1982. UNITED JERSEY BANKS By: /s/ HENRY S. PATTERSON II -------------------------- /s/ T. JOSEPH SEMROD -------------------------- T. Joseph Semrod EX-10.H.IV 10 AMENDMENT # 3 TO AGREEMENT 1 EXHIBIT (10)H.(iv) 2 Exhibit (10)H.(iv) Amendment No. 3 to Agreement dated April 2, 1981 between UNITED JERSEY BANKS and T. JOSEPH SEMROD The introductory subparagraph of Paragraph 6 is restated in full to read as follows: "6. Pension. At any Normal or Early Retirement Date, as defined in the UJB Retirement Plan (the Plan) or at any later retirement date provided for in such plan, at the time of such retirement, and not earlier, whether or not Semrod is then employed by UJB:" IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 3 this 20th day of August, 1986. UNITED JERSEY BANKS By: /s/ JOHN R. HAGGERTY -------------------------------- John R. Haggerty, Executive Vice President /s/ T. JOSEPH SEMROD -------------------------------- T. Joseph Semrod EX-10.L.II 11 AMENDMENT # 1 TO 1982 STOCK OPTION PLAN 1 Exhibit (10)L.(ii) AMENDMENT NO. 1 (dated June 16, 1984) to the UNITED JERSEY BANKS 1982 STOCK OPTION PLAN (dated February 17, 1982) RECITALS WHEREAS, on February 17, 1982, the Board of Directors of United Jersey Banks adopted the United Jersey Banks 1982 Stock Option Plan (the "Plan"); WHEREAS, the shareholders of United Jersey Banks approved the Plan on April 20, 1982; WHEREAS, the Board of Directors of United Jersey Banks desires to amend the Plan in accordance with Article XIX thereof; NOW, THEREFORE, effective June 16, 1984, the United Jersey Banks 1982 Stock Option Plan is hereby amended as follows: 1. Article XII, TERMINATION OF EMPLOYMENT, is hereby amended by inserting after the third full paragraph of said Article XII, so as to constitute the fourth full paragraph of said Article XII, the following: Notwithstanding any other provision of this Article XII, if the employment of any employee with the Company and all subsidiary and parent corporations is terminated, whether voluntarily or involuntarily, following a change in control of the Company (as defined in Article XIII) and while such employee is entitled to exercise an Option or Right as herein provided, other than a termination of such employment by the employer for cause, such employee shall have the right to exercise all or any portion of such Option or Right at any time up to and including three (3) months after the date of such termination of employment, at which time such Option or Right shall cease to be exercisable. 2. The second paragraph of Article XIII, ADJUSTMENT OF SHARES, EFFECT OF CERTAIN TRANSACTIONS, is hereby amended and restated in its entirety to read as follows: In the event of a change in control of the Company all then outstanding Options and Rights shall immediately become exercisable. For purposes of the Plan, a "change in control" of the Company occurs if: (a) any "person" (including as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, 2 as amended) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty-three percent or more of the combined voting power of the Company's outstanding securities then entitled to vote for the election of directors; or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof; or (c) the Company shall meeet the delisting criteria of the New York Stock Exchange or any successor exchange in respect of the number of publicly-held shares or the number of stockholders holding one hundred shares or more; or (d) the Board shall approve the sale of all or substantially all of the assets of the Company; or (e) the Board shall approve any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of any event described in clause (a), (b) or (c) above. 3. Article IX, EXERCISE OF OPTIONS, is hereby amended by deleting from the fourth line of said Article IX the following words and marks: ,not less than ten (10) days and EX-10.M.I 12 RETIREMENT RESTORATION PLAN 1 EXHIBIT (10)M.(i) 2 Exhibit (10)M.(i) RETIREMENT RESTORATION PLAN FOR PARTICIPANTS IN THE UNITED JERSEY BANKS RETIREMENT PLAN PREAMBLE WHEREAS, the Employee Retirement Income Security Act of 1974 ("ERISA") requires that limits be set on the maximum benefits which may be paid from a tax-qualified defined benefit pension plan to a participant in such a plan; and WHEREAS, as required by ERISA, the United Jersey Banks Retirement Plan (the "Basic Plan") has been amended to impose a maximum benefit provision; NOW, THEREFORE, United Jersey Banks adopts the Retirement Restoration Plan ("Plan") for employees who participate in the Basic Plan ("the Participants") for the purpose of providing for the payment to each Participant and Beneficiary of that part of any pension or pension-related benefit which cannot be paid under the Basic Plan because of the benefit restrictions imposed by ERISA. 3 THE PLAN 1. Eligibility All Participants and Beneficiaries whose retirement income benefits are limited, directly or indirectly, by the provisions of Article IV, Section 8 of the Basic Plan, as amended from time to time by resolutions adopted by the Board of Directors, shall receive benefits pursuant to this Plan. In no event shall a Participant or Beneficiary who is not entitled to benefits under the Basic Plan be eligible for, or receive, a benefit under this Plan. 2. Amount of Benefit The benefits which the Corporation shall pay to a Participant or such Participant's beneficiaries under this Plan shall equal the excess, if any, of (a) over (b) where; (a) is the benefit which would have been paid to such Participant or on the Participant's behalf to his or her Beneficiaries under the Basic Plan, if the provisions of the Basic Plan were administered without regard to the special benefit limitations set forth in Article IV, Section 8 of the Basic Plan; and (b) is the limited benefit which is payable to such Participant or, on the Participant's behalf, to his or her Beneficiaries under (i) the Basic Plan and (ii) any contract or agreement between the Participant and the 4 Corporation or other participating employer in the Basic Plan which provides for a supplementary benefit to the limited benefit payable under the Basic Plan and does not by its specific terms (whether executed prior or subsequent to the adoption of this Plan) state that the Participant or his or her Beneficiaries shall be entitled to the benefits payable under this Plan in addition to the benefits payable under such contract. 3. Form and Timing of Benefits Payments of benefits under this Plan shall be coincident in time and form with the payment of the limited benefit payments made to, or on behalf of, a Participant or Beneficiary under the Basic Plan, unless otherwise determined by the Corporation. Any benefit payments under this plan shall be net of any applicable withholding under federal or state law. 4. Vesting Subject to the right of the Corporation to discontinue the Plan, as provided in Section 8, a Participant shall have a nonforfeitable interest in benefits payable under the Plan to the same extent as the Participant has a "Vested Right" under Article I, Section 15 of the Basic Plan. Amounts otherwise vested, however, shall be forfeited to the extent that a Participant engages in activity resulting in a detriment to the Corporation, as determined by the Corporation, whether before or after the Participant's retirement. 5 5. Funding Benefits under this Plan shall be paid from the general assets of the Corporation and other participating employers in the Basic Plan. This Plan shall be administered as an unfunded plan which is not intended to meet the qualification requirements of Section 401 of the Internal Revenue Code. No Participant or Beneficiary shall be entitled to receive any payment for benefits under this Plan from the qualified Trust maintained for the Basic Plan. 6. Operation and Administration This Plan shall be operated under the direction of the Board of Directors and administered by the Benefits Committee in a manner consistent with the operation and administration of the Basic Plan as set forth in Article X of the Basic Plan. The Benefits Committee's decision in any matter involving the interpretation and application of this Plan shall be final and binding. 7. Definitions All terms under this Plan shall have the same meaning as those terms used in the Basic Plan. 8. Amendment and Discontinuance/State Laws The Corporation expects to continue this Plan indefinitely but reserves the right to amend or discontinue it if, in its sole judgment, such a change is deemed necessary or desirable. The interpretation of this Plan shall be pursuant to the laws of the State of New Jersey. EX-10.M.II 13 SUPPLEMENTAL RETIREMENT PLAN 1 Exhibit (10)M.(ii) RESOLUTION OF THE BOARD OF DIRECTORS OF UJB FINANCIAL CORP. Meeting of October 18, 1989 ------------------------------------------------------------------------------- SUPPLEMENTAL RETIREMENT PLAN FOR PARTICIPANTS IN THE UJB FINANCIAL CORP. RETIREMENT PLAN WHEREAS, the Internal Revenue Code of 1986, as amended ("Code") requires with respect to tax-qualified pension plans (i) that annual benefit payments by such plans to any participant not exceed 60% of that participant's average annual base salary (the "60% limitation") and (ii) that annual salary of any participant in excess of $200,000 be excluded from the calculations of that participant's average annual base salary (the "salary limitation"); and WHEREAS, the UJB Financial Corp. Retirement Plan (the "Basic Plan") conforms to above-described requirements of the Code; and WHEREAS, the Corporation's Retirement Restoration Plan restores to participants in the Basic Plan benefits not payable because of the 60% limitation but does not restore benefits not payable because of the salary limitation; and WHEREAS, the Corporation desires to provide participants in the Basic Plan with the full benefits to which they would otherwise be entitled under the Basic Plan without regard to the 60% limitation or the salary limitation (the "full benefits"); and WHEREAS, counsel has advised the Corporation to adopt a Supplemental Retirement Plan, rather than amend the Corporation's Retirement Restoration Plan, to so provide full benefits to participants in the Basic Plan; NOW, THEREFORE, BE IT: RESOLVED, that the Corporation hereby adopts the Supplemental Retirement Plan in the form presented to this meeting and attached hereto (the "Plan") for employees who participate in the Basic Plan (the "Participants") for the purpose of providing Participants and their beneficiaries with pension or pension-related benefits which otherwise could not be paid to them under the Basic Plan because of the above-described salary limitation. 2 SUPPLEMENTAL RETIREMENT PLAN 1. Eligibility All Participants and beneficiaries whose retirement income benefits are limited, directly or indirectly, by the provisions of Code Section 401(a)(17) (or any successor provision) shall receive benefits pursuant to this Plan. In no event shall a Participant or beneficiary who is not entitled to benefits under the Basic Plan be eligible for, or receive, a benefit under this Plan. 2. Amount of Benefit The benefits which the Corporation shall pay to a Participant or such Participant's beneficiaries under this Plan shall equal the excess, if any, of (a) over (b) where; (a) is the benefit which would have been paid to such Participant or on the Participant's behalf to his or her beneficiaries under the Basic Plan, if the provisions of the Basic Plan were administered without regard to the special limitations set forth in Code Sections 415 and 401(a)(17) (or any successor provisions); and (b) is the total limited benefit which is payable to such Participant or, on the Participant's behalf, to his or her beneficiaries under (i) the Basic 3 Plan, (ii) the Retirement Restoration Plan for Participants in the United Jersey Banks Retirement Plan ("Restoration Plan") and (iii) any contract or agreement between the Participant and the Corporation or other participating employer in the Basic Plan which provides for a supplementary benefit to the limited benefit payable under the Basic Plan and does not by its specific terms (whether executed prior or subsequent to the adoption of this Plan or the Restoration Plan) state that the Participant or his or her beneficiaries shall be entitled to the benefits payable under this Plan or the Restoration Plan in addition to the benefits payable under such contract. 3. Form and Timing of Benefits Payments of benefits under this Plan shall be coincident in time and form with the payment of the limited benefit payments made to, or on behalf of, a Participant or beneficiary under the Basic Plan, unless otherwise determined by the Corporation. Any benefit payments under this Plan shall be net of any applicable withholding under federal or state law. 4 4. Vesting Subject to the right of the Corporation to discontinue the Plan, as provided in Section 8, a Participant shall have a nonforfeitable interest in benefits payable under the Plan to the same extent as the Participant has a "Vested Right" under Article I, Section 15 of the Basic Plan. Amounts otherwise vested, however, shall be forfeited to the extent that a Participant engages in activity resulting in a detriment to the Corporation, as determined by the Corporation, whether before or after the Participant's retirement. 3. Funding Benefits under this Plan shall be paid from the general assets of the Corporation and other participating employers in the Basic Plan. This Plan shall be administered as an unfunded plan which is not intended to meet the qualification requirements of Section 401 of the Internal Revenue Code. No Participant or beneficiary shall be entitled to receive any payment for benefits under this Plan from the qualified Trust maintained for the Basic Plan. 6. Operation and Administration This Plan shall be operated under the direction of the Board of Directors and administered by the Benefits Committee in a manner consistent with the operation and administration of 5 the Basic Plan as set forth in Article X of the Basic Plan. The Benefits Committee's decision in any matter involving the interpretation and application of this Plan shall be final and binding. 7. Definitions All terms under this Plan shall have the same meaning as those terms used in the Basic Plan. 8. Amendment and Discontinuance/State Laws The Corporation expects to continue this Plan indefinitely but reserves the right to amend or discontinue it if, in its sole judgment, such a change is deemed necessary or desirable. The interpretation of this Plan shall be pursuant to the laws of the State of New Jersey. EX-10.M.III 14 WRITTEN CONSENT OF BENEFITS COMMITTEE 1 Exhibit (10)M.(iii) Written Consent of UJB Benefits Committee WHEREAS, the Board of Directors of UJB Financial Corp. adopted a Retirement Restoration Plan on April 19, 1983, which Plan made reference to specific sections of the United Jersey Banks Retirement Plan; and WHEREAS, the United Jersey Banks Retirement Plan was restated on January 1, 1984 and has since been further amended, resulting in the renumbering of sections referred to in the Retirement Restoration Plan; NOW THEREFORE, BE IT: RESOLVED, that pursuant to its authority to interpret the Retirement Restoration Plan as set forth in Section 6 thereof, the Benefits Committee hereby determines that references in the Retirement Restoration Plan to Article IV, Section 8 of the United Jersey Banks Retirement Plan shall be construed to refer to Article IV, Section 7 of the United Jersey Banks Retirement Plan, and references to Article I, Section 15 shall be construed to refer to Article I, Section 32. /s/ Alfred M. D'Augusta Date: October 24, 1989 ------------------------ --------------- Alfred M. D'Augusta /s/ John R. Haggerty Date: October 24, 1989 ------------------------ --------------- John R. Haggerty /s/ William F. Flyge Date: October 30, 1989 ------------------------ --------------- William F. Flyge /s/ Richard F. Ober, Jr. Date: October 19, 1989 ------------------------ --------------- Richard F. Ober, Jr. EX-10.M.IV 15 AMENDMENTS TO RETIREMENT RESTORATION PLAN 1 Exhibit (10)M.(iv) SUPPLEMENTAL RETIREMENT PLAN RESOLVED, that Section 8 of the Supplemental Retirement Plan is hereby amended, effective as of January 1, 1994, to read in its entirety as follows: "8. Amendment and Discontinuance/State Laws The Corporation expects to continue this Plan indefinitely but reserves the right to amend or discontinue it if, in its sole judgment, such a change is deemed necessary or desirable. Any amendment or discontinuance of the Plan shall be adopted by the Board of Directors of the Corporation, by resolution of the Board of Directors at a regular meeting of the Board of Directors or special meeting called for such purpose or by unanimous written consent. The interpretation of this Plan shall be pursuant to the laws of the State of New Jersey." RETIREMENT RESTORATION PLAN RESOLVED, that Section 8 of the Retirement Restoration Plan is hereby amended, effective as of January 1, 1994, to read in its entirety as follows: "8. Amendment and Discontinuance/State Laws The Corporation expects to continue this Plan indefinitely but reserves the right to amend or discontinue it if, in its sole judgment, such a change is deemed necessary or desirable. Any amendment or discontinuance of the Plan shall be adopted by the Board of Directors of the Corporation, by resolution of the Board of Directors at a regular meeting of the Board of Directors or special meeting called for such purpose or by unanimous written consent. The interpretation of this plan shall be pursuant to the laws of the State of New Jersey." EX-10.W.III 16 AMENDMENT TO RETIREMENT PLAN FOR OUTSIDE DIRECTORS 1 Exhibit (10)W.(iii) April 25, 1994 RETIREMENT PLAN FOR OUTSIDE DIRECTORS RESOLVED, that Section 9 of the Retirement Plan for Outside Directors is hereby amended, effective as of January 1, 1994, to read in its entirety as follows: "9. AMENDMENT AND TERMINATION UJB Financial Corp. reserves the right to terminate this Plan or amend this Plan in any respect at any time, and any such amendment may be retroactive; provided, however, that no such termination or amendment may reduce the benefits of any Director who has previously retired hereunder or any spouse receiving benefits hereunder. Any amendment or termination of the Plan shall be adopted by the Board of Directors of UJB Financial Corp., by resolution of the Board of Directors at a regular meeting of the Board of Directors or special meeting called for such purpose or by unanimous written consent." EX-10.FF.II 17 AMENDMENT TO EXECUTIVE SEVERENCE PLAN 1 Exhibit (10)FF.(ii) April 25, 1994 EXECUTIVE SEVERANCE PLAN RESOLVED, that Section 9 of the Executive Severance Plan is hereby amended, effective as of January 1, 1994, to read in its entirety as follows: "9. TERMINATION AND AMENDMENT OF THE PLAN The Board shall have the power at any time, in its discretion, to amend, in whole or in part, or terminate the Plan, except that no amendment or termination shall impair or abridge the obligations of the Company or a Subsidiary or the rights of the Participants under any Participation Letters previously delivered pursuant to the Plan. Any amendment or termination of the Plan shall be adopted by the Board, by resolution of the Board at a regular meeting of the Board or special meeting called for such purpose or by unanimous written consent. EX-10.LL.II 18 AMENDMENT TO 1987 STOCK OPTION PLAN 1 Exhibit (10)LL.(ii) [UNITED JERSEY BANKS LOGO] Amendment to 1987 Stock Option Plan April 25, 1989 Article V of the United Jersey Banks 1987 Stock Option Plan is hereby amended, effective as of the effective date of the Plan, to read in full as follows: V. LIMITATION ON EXERCISE OF INCENTIVE OPTIONS Except as otherwise provided under the Code, to the extent that the aggregate fair market value of stock with respect to which Incentive Options are exercisable for the first time by an employee during any calendar year (under all stock options plans of the Company and any parent corporation or subsidiary corporation of the Company) exceeds $100,000, such options shall be treated as Non-Qualified Options. For purposes of this limitation, (i) the fair market value of stock is determined as of the time the Option is granted, (ii) the limitation will be applied by taking into account Options in the order in which they were granted, and (iii) Incentive Options granted before 1987 shall not be taken into account. EX-13 19 ANNUAL REPORT 1 [UJB FINANCIAL LOGO] 1994 Annual Report PROGRESS REPORT [CHART] Animated people working together conveyed on inside cover. 2 Exhibit 13 ----------- UJB Financial Mission ----------- UJB Financial will be the most consistent regional provider of highly profitable, quality financial services. We seek preeminent position in the marketplace. UJB will lead by delivering: - Superior products and excellent customer service. - An environment in which employees share mutual respect and operate as a team. Employees will be trained, empowered and rewarded for excellence. - The commitment and support to enhance the quality of life in our communities. - Long-term shareholder value. 1 Financial Highlights 2 Lines of Business 4 Chairman's Message 7 Introduction to Progress Report 8 Progress Report 21 Community Reinvestment ABOUT THE COVER: Strengthened by the 22 restructuring, our core business lines Board of Directors have a united focus to enhance customer service, increase market share and 24 position the company for progress and 1994 Financial Review growth. 3 UJB Financial Corp. and Subsidiaries FINANCIAL HIGHLIGHTS
Increase (Dollars in thousands, except per share data) 1994 1993 (Decrease) ------------------------------------------------------------------------------------------------------------------ FOR THE YEAR ENDED DECEMBER 31 Net income......................................................... $ 130,150 $ 82,418 57.9% Per common share: Net income...................................................... 2.35 1.50 56.7 Cash dividends declared......................................... .94 .69 36.2 Book value at year end.......................................... 19.53 18.23 7.1 ------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA AT DECEMBER 31 Total assets....................................................... $15,429,472 $13,789,641 11.9% Total deposits..................................................... 12,567,791 11,751,499 6.9 Demand deposits................................................. 3,260,641 2,805,819 16.2 Savings and time deposits....................................... 8,936,009 8,719,094 2.5 Total loans........................................................ 9,656,574 8,743,708 10.4 Commercial loans................................................ 4,627,349 4,235,845 9.2 Mortgage loans.................................................. 2,790,988 2,493,661 11.9 Instalment loans................................................ 2,238,237 2,014,202 11.1 Shareholders' equity............................................... 1,104,260 1,019,252 8.3 Allowance for loan losses.......................................... 214,161 244,154 (12.3) ------------------------------------------------------------------------------------------------------------------ CONSOLIDATED RATIOS Return on average assets........................................... .88% .59% Return on average common equity.................................... 12.36 8.32 Efficiency ratio................................................... 60.4 64.4 Tier I capital to average assets (leverage)........................ 7.02 7.20 Tier I capital to risk-adjusted assets............................. 9.27 9.64 Total capital to risk-adjusted assets.............................. 12.04 12.67 Allowance for loan losses to year-end loans........................ 2.22 2.79 Non-performing loans to year-end loans............................. 1.74 2.91 ------------------------------------------------------------------------------------------------------------------
See accompanying consolidated financial statements and notes. EARNINGS PER SHARE The following table presents the earnings per share (EPS) for the years 1989 to 1994 in dollars.
Year EPS ---- ------ 1989 $ 2.62 1990 (0.29) 1991 0.46 1992 1.09 1993 1.50 1994 2.35
ANNUAL INDICATED DIVIDEND The following table presents the annual indicated dividend for the years 1989 to 1994 in dollars.
Year Dividend ---- -------- 1989 $1.16 1990 0.60 1991 0.60 1992 0.60 1993 0.84 1994 1.04
NON-PERFORMING LOANS TO YEAR-END LOANS The information conveyed by this chart is presented for the years 1989 to 1994 in the Summary of Selected Financial Data table on pages 38 and 39 of this report. [CHART] 1 4 LINES OF BUSINESS COMMERCIAL BANKING Provides commercial, specialized and real estate lending, leasing, corporate banking services, investment, administrative and financial advice to businesses and government entities. STRENGHTS - Sustains banking relationships with 25% of all middle market companies within the region. - Largest asset based lender in New Jersey. - Secured lending comprises 86% of the portfolio compared to regional average of 72%. - Consistent presence in the marketplace confirms strong relationship orientation. 1994 SUCCESSES - Increased commercial and industrial lending 16.5%. - Maintained No. 2 market share position in New Jersey for commercial and industrial loans. - Initiated new fee based products - secondary commercial mortgage market conduit program, overseas letter of credit issuance facility, and StatLink, a package of automated claims and payment processing services for the medical community. KEY DATA COMMERCIAL LOANS The following table represents commercial loans in billions for 1994.
Description Amount ----------- ------ Middle market 1.5 Construction 0.7 Asset based 0.6 Other 0.5 Large corporate 0.4 Small business/retail 0.3 Leasing 0.3 International 0.2 Health/medical 0.1 ------ Total Commercial loans 4.6
CURRENT STRATEGIES - Enhance strong competitive position in middle market. - Install relationship profitability system; centralize customer service center, loan documentation and closing units. - Expand asset based lending, health and medical lending, treasury services, international trade services, and letters of credit. - Employ risk-based relationship pricing. RETAIL BANKING Delivers retail banking services to consumers and small businesses through 270 community banking offices in New Jersey and eastern Pennsylvania. STRENGTHS - Serves more than 900,000 households and 60,000 small businesses across the UJB Financial region. - Operates 256 automated teller machines which average 6,400 transactions per month, compared to a national peer average of 5,300. - Customer Call Center processed nearly five million calls in 1994. - Largest merchant bankcard processor in New Jersey. 1994 SUCCESSES - Acquisition of VSB Bancorp, Inc. strengthened No. 1 deposit market share in Bergen County. - Palisade Savings Bank acquisition strengthened position in Bergen and Hudson counties. - More than 600,000 debit card holders. - Centralized small business lending in retail with streamlined credit approval, specialized products and services, and minority lending group. KEY DATA CUSTOMER CALL CENTER (calls in millions) The following table represents calls received by the Customer Call Center in millions for the years 1989 to 1994.
Year Calls ---- ----- 1990 0.9 1991 1.986 1992 2.458 1993 3.169 1994 4.9
CURRENT STRATEGIES - Expand market share by acquisition and continue to prune branch network. - Increase customer retention through relationship packages. - Centralize Customer Call Center functions and increase volume. - Automate consumer loan originations. - Reduce loan approval time. - Build small business emphasis. - Further strengthen sales and customer service orientation. 2 5 LINES OF BUSINESS (continued) MORTGAGE BANKING Offers full-service mortgage banking that serves customers from the mortgage application through final payoff. STRENGTHS - Major force in home mortgage originations and mortgage loan servicing. - Residential servicing portfolio of $2.1 billion. - Residential mortgage outstandings of more than $1.3 billion representing about 15,000 accounts. 1994 SUCCESSES - Unified mortgage operations in New Jersey and Pennsylvania. - Residential mortgages rose 43% including acquisitions. - Originated $552 million in mortgage loans. KEY DATA RESIDENTIAL MORTGAGE SERVICING ($ in billions) The following table represents residential mortgage servicing in billions for the years 1989 to 1994.
Year Services ---- -------- 1989 1.185 1990 1.178 1991 1.321 1992 1.675 1993 1.78 1994 2.133
CURRENT STRATEGIES - Streamline mortgage production; re-engineer and automate for low cost structure and fast service. - Expand penetration of retail branch customer base. - Purchase servicing portfolios on a selective basis. - Expand servicing fee income stream. INVESTMENT MANAGEMENT Provides private banking, a full range of investment products, and administrative and custodial services to individuals and institutions, as well as full-service discount brokerage. STRENGHTS - One of the region's largest proprietary mutual fund providers with $1.1 billion in assets. - Through UJB Investor Services and Lehigh Securities, provide full-service and discount brokerage services in selected offices across the retail banking network. - Trust department with assets of $18.0 billion and discretionary assets of $3.9 billion. 1994 SUCCESSES - Developed team approach built around a sales unit and headed by a relationship manager. - Created new cross-selling opportunities. - Integrated the Private Bank into the line of business. KEY DATA TRUST ASSETS UNDER MANAGEMENT ($ in billions) The following table presents trust assets under management for the years 1989 to 1994 in billions.
Trust Years Assets ----- ------ 1989 7.026 1990 7.808 1991 12.021 1992 15.501 1993 17.502 1994 18.031
CURRENT STRATEGIES - Cross-sell investment products to expanding wholesale and retail customer base. - Enhance customer service through redesign of the referral program. - Expand market share in corporate trust and employee benefit products. - Position Private Bank as bank of choice in region. - Increase sales penetration within institutional market. 3 6 WORKING THROUGH OUR FOUR CORE BUSINESS LINES -- COMMERCIAL BANKING, RETAIL BANKING, MORTGAGE BANKING AND INVESTMENT MANAGEMENT -- WE HAVE STREAMLINED THE COMPANY FOR COMPETITIVE ADVANTAGE AND INCREASED PROFITABILITY. ... OUR ENTIRE ORGANIZATION IS FOCUSED ON CUSTOMER SERVICE. CHAIRMAN'S MESSAGE This past year was one of progress and one of challenge. Our earnings increased for the fourth consecutive year. A strengthened regional economy helped us achieve significant loan growth. Non-performing loans declined to their lowest level in six years. The restructuring of the company along core lines of business was completed, as well as the consolidation of our member banks into United Jersey Bank in New Jersey and First Valley Bank in eastern Pennsylvania. Working through our four core business lines - commercial banking, retail banking, mortgage banking and investment management - we have streamlined the company for competitive advantage and increased profitability. Simultaneously, our entire organization is focused on customer service, and each business unit has developed specific service quality goals. A new partnership has been created between our operations center and the business lines which is certain to increase productivity. With the new structure comes a redefined mission: our objectives are to reinforce our position as a market leader in financial services and deliver long-term shareholder value. Along with setting new financial goals, we have also set a goal to achieve total customer satisfaction. We want to make customer service our ultimate focus - to make our customers the reason for everything that we do. We believe that every decision we make and every technological investment should be to benefit or serve customers. You will be reading more of our thoughts on this subject in the UJB Financial: Progress Report section. DIVIDEND RAISED As a result of UJB Financial's continued earnings improvement, the common stock dividend was increased 11.5 percent in February 1995 to $.29 per share, with an annual dividend rate of $1.16 per share. Since March 1993, the dividend has been raised a total of 81.3 percent. This reflects the Board of Directors' continued confidence in our progress. THREE ACQUISITIONS As part of our strategy to expand market share and maximize the value of our franchise, during 1994 we acquired VSB Bancorp, Inc., parent of Valley Savings Bank, and Palisade Savings Bank, FSB which had combined assets of over $700 million. The VSB Bancorp merger was completed in July 1994. Their branches have 4 7 [PHOTO] Photo of T. Joseph Semrod T. JOSEPH SEMROD Chairman and Chief Executive Officer further enhanced our strong presence in affluent Bergen County. Palisade Savings Bank with branches in both Bergen and Hudson counties was acquired in September 1994. Our acquisition activity continued into 1995 when in January we entered into a definitive merger agreement with Bancorp New Jersey, Inc., parent of New Jersey Savings Bank, with $480 million in assets. Their retail offices are in Somerset, Hunterdon and Mercer counties. The addition of Bancorp will move us into second place for market share in Somerset County, which ranked fifth in the nation in the latest per capita income rankings by county. We will also gain access to Hunterdon County. IMPROVED PERFORMANCE Net income for 1994 was $130.2 million, or $2.35 per common share, a 57.9 percent increase over 1993. Increased net interest income, lower non-interest expenses, and a reduction in non-performing loans contributed to our improved performance. To further accelerate the resolution of non-performing loans and other real estate owned (OREO), we identified certain assets with a net realizable value of $90.9 million at December 31, 1994 for potential sale in bulk transactions. An additional provision for loan losses of $10 million was recorded in the fourth quarter of 1994 in connection with this transaction. At December 31, 1994, non-performing loans declined 34.1 percent from a year ago, and OREO 57.9 percent. The execution of our new line of business strategies will keep us competitive and allow our organization to achieve a solid financial performance while further improving customer service. We are making progress, however, there is still much to be done. FINANCIAL GOALS When we announced the restructuring in September 1993, we set new financial goals for the company: a return on assets (ROA) of 1.20 percent, a return on common equity (ROE) of over 15 percent, and a 59 percent efficiency ratio, all by the fourth quarter of 1995. 5 8 UJB FINANCIAL HAS EMERGED FROM THE RESTRUCTURING AND CONSOLIDATION AS A MUCH STRONGER COMPANY AND A MAJOR REGIONAL FORCE IN THE FINANCIAL SERVICES INDUSTRY. OUR BUSINESS LINES ARE POSITIONED TO BENEFIT FROM THE IMPROVING REGIONAL ECONOMY. WE HAVE SHARPENED OUR FOCUS ON EFFICIENCY AND PROFITABILITY. For the fourth quarter of 1994, our ROA was .89 percent, and ROE was 12.57 percent. If you exclude the additional provision for loan losses recorded for the bulk sale, ROA would have been 1.04 percent, and ROE 14.77 percent. This core performance shows that we are on the way to our stated goals. The efficiency ratio for 1994 improved to 60.4 percent, excluding OREO and restructuring expenses. The efficiency ratio is a measure of productivity. We compare very favorably against our bank peer group average of 62.4 percent. LOAN GROWTH Substantial loan growth in 1994 played an important part in our improved performance. Total loans at December 31, 1994 were $9.7 billion, a 10.4 percent increase from the prior year. With help from strong growth in commercial and municipal accounts, demand deposits climbed 16.2 percent to $3.3 billion at year end. Total deposits reached $12.6 billion, a 6.9 percent increase over the prior year. In April 1994, it was my pleasure to welcome Anne Evans Estabrook to the Board of Directors. Mrs. Estabrook is the owner of Elberon Development Co., a real estate company. She is also president of David O. Evans, Inc., a real estate management and construction firm. Her expertise in property management and previous experience as a bank director should prove invaluable to our company. UJB Financial has emerged from the restructuring and consolidation as a much stronger company and a major regional force in the financial services industry. Our business lines are positioned to benefit from the improving regional economy. We have sharpened our focus on efficiency and profitability. At UJB Financial, we remain committed to maximizing shareholder value and maintaining long-term earnings growth. Your support of our ongoing endeavors is appreciated. /s/ T. Joseph Semrod T. Joseph Semrod Chairman and Chief Executive Officer March 9, 1995 6 9 UJB FINANCIAL: PROGRESS REPORT ON THE FOLLOWING PAGES, UJB FINANCIAL CHAIRMAN T. JOSEPH SEMROD AND SEVEN MEMBERS OF THE SENIOR MANAGEMENT TEAM DISCUSS THE COMPANY'S PROGRESS SINCE THE RESTRUCTURING AND THE IMPLICATIONS FOR THE FUTURE. [PHOTO] Photo of senior management team having a round table discussion. (left to right) John R. Haggerty, Alan N. Posencheg, John J. O'Gorman, T. Joseph Semrod, Stephen H. Paneyko, John R. Howell (standing), Sabry J. Mackoul and John G. Collins. 7 10 UJB FINANCIAL: PROGRESS REPORT [PHOTO] Photo of John G. Collins OUR STRONG LOAN GROWTH IN 1994 -- THE FIRST SIGNIFICANT INCREASE IN LOAN VOLUME SINCE 1990 -- CHANGED THE WAY WE MANAGED THE INVESTMENT PORTFOLIO. WE REDIRECTED INVESTMENT MATURITIES AND OTHER CASH FLOWS TO FUND THIS LOAN GROWTH. JOHN G. COLLINS Vice Chairman Q. HAS THE RESTRUCTURING MET MANAGEMENT'S EXPECTATIONS? SEMROD Yes, all in all, we're quite pleased. We established visible financial goals for the company, and at the same time we set some ambitious customer service expectations. We are also putting together some very, very aggressive business development goals for our business lines. We fully expect to meet these goals -- financial and otherwise. I think that we are starting to show some real positive results. COLLINS There were some areas of real challenge when we began the restructuring. We wanted to get closer to the customer, stay current on technology, and be sure that we had appropriate levels of customer service. Of course, we also wanted to keep our financial house in order. When you consider all those challenges, we are proud of the progress that we have made. Q. WHEN WE ANNOUNCED THE RESTRUCTURING IN 1993, WE ESTABLISHED NEW FINANCIAL GOALS FOR THE COMPANY. THEY ARE A RETURN ON ASSETS OF 1.2 PERCENT, A RETURN ON COMMON EQUITY OF OVER 15 PERCENT, AND AN EFFICIENCY RATIO OF 59 PERCENT ALL BY THE FOURTH QUARTER OF 1995. HOW ARE WE DOING? HAGGERTY We continue to make steady progress in reaching these goals. For example, in 1993 our efficiency ratio was 64.4 percent. In 1994, it improved to 60.4 percent. Return on average assets rose to .88 percent during 1994, compared to .59 percent for 1993. Finally, return on common equity moved up to 12.36 percent in 1994, from 8.32 percent in 1993. Q. AN IMPORTANT COMPONENT OF OUR RESTRUCTURING WAS THE CREATION OF A CENTRALIZED CREDIT RISK MANAGEMENT GROUP. WHAT BENEFITS HAS THIS PROVIDED? HOWELL The creation of a centralized credit risk management group has provided uniformity and consistency throughout our company in credit administration and loan approvals. This group is dedicated to ensuring our commitment to a balanced and disciplined approach to the credit process. Our credit culture promotes a consistent methodology for generating quality assets within realistic growth and profitability objectives. This strategy fosters an enhanced and proactive response to customers and prospects. We have redesigned our monitoring tools to sustain quality within the portfolio. These tools help us to better assess situations that we should improve or exit. The consolidation has created a uniformity in the language throughout the company. It has enhanced training and created a total awareness of important issues such as credit concentration. All of these efforts strengthen our ability to achieve our business objectives while assuring the risk quotient is appropriate. Q. OUR NET INCOME FOR 1994 WAS $130.2 MILLION, A 58 PERCENT INCREASE OVER 1993. TO WHAT DO YOU ATTRIBUTE THIS GROWTH? 8 11 EXPORTING / INTERNATIONAL TRADE HAS A TREMENDOUS IMPACT ON NEW JERSEY'S ECONOMY. [PHOTO] Photo of a cargo ship unloading at a dock and a First Valley Bank and United Jersey Bank Global Access card. GLOBAL ACCESS VISA CHECK CARD ALLOWS CUSTOMERS TO MAKE WITHDRAWALS AND PURCHASES WORLDWIDE. 9 12 PRIVATELY HELD SMALL BUSINESSES ARE MAKING AN IMPORTANT CONTRIBUTION TO OUR REGION'S GROWING ECONOMY. [PHOTO] Photo of two men working together and a personal computer monitor with the words "Business Express/PC" on the screen. BUSINESS EXPRESS/PC LINKS SMALL BUSINESSES TO OUR BANKS VIA THEIR PERSONAL COMPUTERS. 10 13 [PHOTO] Photo of John R. Howell THE CREATION OF A CENTRALIZED CREDIT RISK MANAGEMENT GROUP HAS PROVIDED UNIFORMITY AND CONSISTENCY THROUGHOUT OUR COMPANY IN CREDIT ADMINISTRATION AND LOAN APPROVALS. THIS GROUP IS DEDICATED TO ENSURING OUR COMMITMENT TO A BALANCED AND DISCIPLINED APPROACH TO THE CREDIT PROCESS. JOHN R. HOWELL Vice Chairman HAGGERTY Many areas of the company contributed to our 1994 earnings performance, in addition to the improvement in our region's economy. The economy helped us in two ways. First, we experienced significant loan growth, which from year-end 1993 to year-end 1994 rose over $900 million, or 10.4 percent. Second, real estate values stabilized which enabled us to resolve problem loans and reduce non-performing loans and other real estate owned (OREO). Our credit quality costs, including the provision for loan losses and OREO expenses, declined $34 million from a year ago. To further accelerate the resolution of non-performing loans and OREO, certain assets were identified for potential sale in bulk transactions. These assets had a net realizable value of $90.9 million at December 31, 1994. They were construction and commercial real estate loans, both non-accruing and accruing, and OREO properties. An additional provision for loan losses of $10 million was recorded in the fourth quarter of 1994 in conjunction with this transaction. The sale will enable us to take non-productive dollars and reinvest them into assets that will have a positive effect on earnings. Q. WE HAVE ALL READ ABOUT LARGE BANKS THROUGHOUT THE COUNTRY THAT ARE CLOSING BRANCHES TO REDUCE EXPENSES. WHAT HAS UJB FINANCIAL ALREADY DONE IN THIS REGARD AND WHAT ARE THE FUTURE PLANS FOR OUR BRANCH NETWORK? MACKOUL Over the last six years, we have closed or consolidated 39 branches. During 1995, we plan to consolidate an additional seven offices, which include four of the Palisade Savings branches. So, in six years we've pruned about 18 percent of our facilities. Q. IN THE RESTRUCTURING, WE COMBINED PRIVATE BANKING AND INVESTMENT MANAGEMENT. BOTH OF THESE PLUS RESIDENTIAL MORTGAGES REPORT TO THE SAME LINE OF BUSINESS HEAD. WHAT HAS BEEN THE RESULT? O'GORMAN I think that our greatest accomplishment here is that we've substantially improved the referral process. For example, in the mortgage area prior to the consolidation, applications were not referred elsewhere in the bank for cross-selling opportunities. Now, all mortgages over $250,000 are automatically sent to the private banking department to see if this individual qualifies as a private banking or investment management client. Cross-selling is our philosophy and that has substantially accelerated the interaction between our divisions. Q. WE HAVE HAD GREAT SUCCESS WITH OUR GLOBAL ACCESS CHECK CARD. ARE THERE ANY NEW FEATURES OR BENEFITS IN STORE FOR THIS DEBIT CARD? MACKOUL Our Global Access VISA check card can now be used at the teller line the same way it is used at an automated teller machine (ATM). That is, customers can withdraw money without writing a check, simply by giving 11 14 [PHOTO] Photo of John R. Haggerty OVER THE LAST SIX YEARS, REVENUE ENHANCEMENT IDEAS SUBMITTED BY OUR EMPLOYEES HAVE ENHANCED THE COMPANY'S EARNINGS BY $33 MILLION. MANY ARE DIRECTED TOWARDS IMPROVING PROCESSES AND ENHANCING PRODUCTIVITY. JOHN R. HAGGERTY Senior Executive Vice President Finance the card to the teller and entering their personal identification number (PIN) into a PIN pad at the teller counter. Customers can also transfer funds between accounts and make deposits without a deposit ticket. The customers are reducing the number of checks they have to write each month, and reducing the expense of reordering checks. During the first quarter of 1995, we were the first bank in the country to introduce the United Jersey/First Valley Bank Global Access Business check card to small businesses. This VISA check card can be used by small business owners to make purchases anywhere that VISA, MAC and NYCE are accepted. They can also withdraw cash from any participating ATM, and can even use it to pay for travel and entertainment. Q. OUR INTERNAL CONSOLIDATIONS HAVE FURTHER STRENGTHENED THE TIES BETWEEN OUR NEW JERSEY AND EASTERN PENNSYLVANIA OPERATIONS. HAS THE CONSOLIDATION ALSO ENHANCED OUR ABILITY TO GARNER MORE BUSINESS FROM THE EASTERN PENNSYLVANIA MARKET? HOWELL Definitely. From the commercial side of our business, reorganization and structural changes have allowed us to have one management team focus across both New Jersey and eastern Pennsylvania. This has permitted an increased and consistent calling presence in the Philadelphia marketplace. With higher lending limits, we now have the opportunity to work with customers on the upper end of the middle market. Also, by coordinating our advertising and marketing efforts, our business development program is more efficient and effective. This is particularly evident in the small business and retail areas where our community branches are enjoying record levels of growth. Q. DURING 1994, UJB FINANCIAL SHOWED AN INCREASE IN COMMERCIAL LOAN GROWTH. WHAT AREAS HAD THE MOST SIGNIFICANT GROWTH AND WHAT WILL BE THE KEY EMERGING GROWTH MARKETS GOING FORWARD? PANEYKO During 1994, we saw significant growth in middle market lending, national accounts and asset based lending. We continue to be the largest asset based lending institution in New Jersey, and going forward will capitalize on our expertise. In the Northeast, we are continually in contact with institutions who have credit strategies and capabilities similar to ours to do loan participations. As 1995 unfolds, you'll see us developing a common marketing name for our asset based lending related activities. In 1994, this was a profitable way to increase assets, and we expect it to continue into the future. In addition, import/export trade finance credit related business continues to have a lot of potential for UJB Financial. Our investments in technology such as our automated letters of credit, as well as our highly trained staff, position us to take advantage of two of the more significant ports in the United States -- Port Elizabeth and Philadelphia. 12 15 THE TRANSPORTATION INDUSTRY PROVIDES A POWERFUL STIMULUS FOR ECONOMIC GROWTH. [PHOTO] Photo of a freight truck crossing an elevated bridge over a city at sunset and a ledger book inscribed with "Asset Based Lending." WE HAVE GROWN TO BE ONE OF THE LARGEST ASSET BASED LENDERS IN THE NORTHEAST. 13 16 HEALTH CARE SERVICES OFFER RESIDENTS OF OUR REGION AN ULTRA MODERN NETWORK OF FACILITIES. [PHOTO] Photo of a doctor listening to a child's lungs with a stethoscope and an advertising circular for Statlink. STATLINK IS A LEADING EDGE ELECTRONIC DATA PRODUCT FOR THE REGION'S HEALTH CARE INDUSTRY. 14 17 [PHOTO] Photo of Sabry J. MacKoul CONSUMERS WANT A BANK TO CONCENTRATE ON TIMELY SERVICE, DEMONSTRATE A SINCERE INTEREST IN RESOLVING PROBLEMS, BE AS HELPFUL AS POSSIBLE WHEN PROVIDING SERVICE AND BE COURTEOUS..... WE ARE NOW EXPANDING OUR TRAINING PROGRAMS TO FOCUS ON THESE QUALITY ISSUES. SABRY J. MACKOUL Senior Executive Vice President Retail Banking United Jersey Bank is also the recognized leader in serving the premier hospitals in New Jersey, and we work with numerous doctor partnerships. We have the capability to meet the needs of the rapidly changing medical industry. Q. THE INVESTMENT MANAGEMENT DIVISION IS USING THE RELATIONSHIP MANAGER/TEAM APPROACH. WHAT SPECIFICALLY DOES THIS MEAN? O'GORMAN In the private bank area, each of our clients is assigned a relationship manager who acts as the single point of contact with that customer. As no one individual can possess all skills, we've created a relationship team centered around that manager. The entire team will work on the client's behalf. The customer talks to one individual for service of all financial needs such as insurance, brokerage, investment advice and mortgage. Q. HOW HAS THE CONSOLIDATION CHANGED THE ORGANIZATION OF UJB FINANCIAL SERVICE CORPORATION? POSENCHEG The Service Corporation has restructured itself to be more responsive to the lines of business. Our system development efforts, as well as our operational support areas, are aligned with wholesale, retail, mortgage and investment management/private banking. In reality, the lines of business are our customers. In fact, we try to deal with them as if they have an alternative and can go elsewhere for service if we don't perform up to their expectations. As a result, the company is assured a far greater return on its investment in technology. COLLINS The organizational change has made the Service Corporation sharpen its customer focus. Now everything is measured and analyzed to be sure that the business lines are being served. A partnership has been created between the Service Corporation and the business lines. This can't help but produce positive results. Q. WHAT SPECIFICALLY WILL THE SERVICE CORPORATION BE DOING DURING 1995 TO HELP THE BUSINESS LINES REACH THEIR FINANCIAL GOALS? POSENCHEG Supporting consolidations has been a high priority for the Service Corporation for the last four years. These activities have increased our ability to serve the entire organization and have driven down the company's overall operation and technology costs. In 1995, we will use our technology initiatives to further lower line of business expenses. For example, working closely with the business lines, we are addressing the origination function for various lending areas including instalment, small business, mortgage and commercial to reduce operating costs. Simultaneously, we will be increasing revenues and improving service to our customers. Q. HAS THE RESTRUCTURING ACTUALLY CHANGED THE OPERATIONS OF THE FINANCE DEPARTMENT? HAGGERTY Very much so. The restructuring has caused us to consolidate the reporting units and focus on supporting the lines of business. Accordingly, we are designing and building a line of business accounting system. This is a major 15 18 [PHOTO] Photo of John J. O'Gorman THERE ARE MANY NEW OPPORTUNITIES FOR CROSS-SELLING OUR FINANCIAL SERVICES. UNDER OUR NEW LINE OF BUSINESS STRUCTURE, OUR CHALLENGE WILL BE TO RECOGNIZE THEM AND EXPAND OUR CUSTOMER RELATIONSHIPS. OUR GOAL IS TO BETTER SERVE OUR CUSTOMERS, SELL MORE PRODUCTS PER CLIENT AND BE MORE PROFITABLE. JOHN J. O'GORMAN Senior Executive Vice President Private Banking/Investment Management/Mortgage undertaking and requires tremendous dedication and commitment on the part of our staff. There is excitement for this project, and it is progressing very well. Once completed, we will be able to report by business segment and provide product profitability. Q. WHAT IS THE COMPANY'S STRATEGY FOR THE CORE BUSINESSES? SEMROD We must continue to strive for superior customer service. Every strategy of the lines of business must start by embodying that important principle. The restructuring has allowed us to give one senior executive singular responsibility for everything that affects the customer in that line of business. For example, all of our senior executives are making more customer calls whether in retail, wholesale, investment management or private banking. Right now, all of our business lines are doing a great job of cross-selling within their own areas. But, I want to see us do a better job in cross-selling across lines of business. There are tremendous opportunities here. Q. HOW HAVE OUR CUSTOMERS BENEFITED FROM THE CONSOLIDATION OF THE MEMBER BANKS? HOWELL The most obvious benefit is that our customers now have access to the entire branch network in their state. United Jersey Bank clients can do business with any one of the 197 community offices throughout New Jersey. Pennsylvanians have available the entire 73 branch system stretching from Wilkes-Barre to the Philadelphia suburbs and to Lancaster. The consolidation has resulted in each of the two banks having higher lending limits and has provided the opportunity to standardize and expand product lines. We have taken advantage of new technology by installing a state-of-the-art branch automation system throughout the entire network. This translates to better service at less cost to the customer. The unified approach to product and marketing, combined with our new technology, has provided benefits which we have just begun to tap. Q. WHAT IS UJB FINANCIAL DOING IN RETAIL BANKING TO FURTHER IMPROVE SERVICE TO OUR CUSTOMERS? MACKOUL To achieve excellence, we first had to know the consumer's definition of superior customer service. We had a customer satisfaction survey done which showed that consumers want a bank to concentrate on timely service, demonstrate a sincere interest in resolving problems, be as helpful as possible when providing service and be courteous. As a result of the survey, we are now expanding our training programs to focus on these quality issues. But, that's not all. We will be automating our instalment loan origination department in the second quarter of 1995 which will result in faster loan approvals. We'll continue to enhance our branch automation system at both the teller window and the platform areas. We will be expanding our Customer Call Center which experienced a fifty percent 16 19 TELECOMMUNICATIONS REPRESENTS ONE OF THE REGION'S FASTEST GROWING TECHNOLOGIES. [PHOTO] Photo of an industrial satellite dish with a portable personal computer displaying a welcome to UJB Financial's Mortgage Origination System. TECHNOLOGY ALSO EXPEDITES OUR MORTGAGE LOAN APPROVAL PROCESS WHILE REDUCING COSTS. 17 20 FINANCIAL SERVICES COMPANIES ARE EXPANDING THEIR CUSTOMER BASE BY FOCUSING ON INDIVIDUAL NEEDS. [PHOTO] Photo of two people reviewing documents at a table and a briefcase with an advertisement for Private Banking on top of it. THE PRIVATE BANK OFFERS HIGH NET WORTH INDIVIDUALS A UNIQUE, PERSONALIZED RELATIONSHIP. 18 21 [PHOTO] Photo of Stephen H. Paneyko WE'LL DIFFERENTIATE OURSELVES FROM THE COMPETITION BY UNDERSTANDING CUSTOMER NEEDS, RAPID RESPONSE, QUICK RESOLUTION OF PROBLEMS, PROVIDING INDUSTRY EXPERTISE AND BEING PERCEIVED AS A STRATEGIC BUSINESS PARTNER. THESE CONCEPTS ARE PART OF EVERY UJB FINANCIAL RELATIONSHIP MANAGER'S CREDO. STEPHEN H. PANEYKO Senior Executive Vice President Commercial Banking growth in call volume in 1994. In fact, in 1995 we expect six million calls to go to the Center. That's very significant because it frees up branch staff to cross-sell products and services. Q. IN OUR MARKETPLACE, AS COMPETITION FROM BANKS AND NON-BANKS BECOMES MORE INTENSE IN PROVIDING CREDIT AND NON-CREDIT PRODUCTS, HOW WILL WE DIFFERENTIATE OURSELVES FROM THE COMPETITION? PANEYKO On the commercial side as well as the retail, we'll differentiate ourselves from the competition by understanding customer needs, rapid response, quick resolution of problems, providing industry expertise, and being perceived as a strategic business partner. These concepts are part of every relationship manager's credo. Q. WHAT ARE THE STRATEGIES EMPLOYED IN MANAGING THE COMPANY'S INVESTMENT SECURITIES PORTFOLIO, AND ARE DERIVATIVES USED IN ANY WAY? COLLINS During 1994, we experienced the first significant increase in loan volume since 1990. From 1990 until early 1994, excess funds generated from deposits were placed in the investment portfolio, which grew on average from $3.0 billion in 1990 to $3.9 billion in 1993. We concentrated on using the investment portfolio as a primary source of interest income and maintaining net interest margin. Our strong loan growth in 1994 changed the way we managed the investment portfolio, as we redirected investment maturities and other cash flows to fund this loan growth. The stronger economic conditions during 1994 also produced a rising interest rate environment, as the Federal Reserve moved interest rates upward to restrain perceived inflationary pressures. The shift in the asset mix to the higher yielding loan portfolio, combined with this interest rate scenario, resulted in increased net interest income in 1994. At year end, we had derivatives in the form of interest rate swaps with a notional value of $923.5 million, or 6 percent of assets, which were accounted for as hedges. These instruments are used primarily as part of our asset/liability management process. In 1994, hedged transactions reduced net interest income by $1.2 million, or less than one percent. Q. SINCE THE INCEPTION OF OUR REVENUE ENHANCEMENT PROGRAM IN 1989, OVER $33 MILLION IN EMPLOYEE SUGGESTIONS HAVE BEEN IMPLEMENTED. AFTER FIVE YEARS, HAS THIS PROGRAM LOST ITS MOMENTUM? HAGGERTY Not at all. In 1994, we received 600 ideas from our employees. We were able to implement 180 of them, which contributed $7.2 million annually to our bottom line. Others will be implemented in 1995. We continue to receive about 50 suggestions a month, and experience a 40 percent acceptance rate. Many are directed towards improving processes and enhancing productivity. For example, one of the best 1994 ideas was to create a more efficient process in the asset based lending audit function using lap top computers. That one idea generated 19 22 [PHOTO] Photo of Alan N. Posencheg CONSOLIDATION ACTIVITIES HAVE INCREASED OUR ABILITY TO SERVE THE ENTIRE ORGANIZATION AND HAVE DRIVEN DOWN THE COMPANY'S OVERALL OPERATION AND TECHNOLOGY COSTS. ALAN N. POSENCHEG Executive Vice President Corporate Operations and Information Services $300,000 in annual savings. As you can see, there is still potential left in this program, and we'll continue to realize the benefits. Q. NON-CREDIT FEE INCOME IS AN INCREASINGLY IMPORTANT ASPECT OF A BANK'S EARNINGS. HOW WILL COMMERCIAL BANKING CONTRIBUTE TO THIS INCOME CATEGORY? PANEYKO For the last five years, non-credit fee income for commercial banking has shown a compounded growth rate of 13 percent a year. By continually introducing new products, we have supplemented our fee income base. One example is StatLink, an electronic medical claims processing system that is used by doctors and hospitals. We have the exclusive right as a financial organization to offer this product in New Jersey and Pennsylvania. We are also the only commercial bank in the country that has been selected by Merrill Lynch to go into a joint venture whereby UJB Financial originates commercial mortgages for sale and retains the servicing for a fee. This will also introduce opportunities to expand our fee based business. Q. UJB FINANCIAL IS ALREADY A MAJOR FORCE IN THE ORIGINATION OF HOME MORTGAGES AND IN MORTGAGE LOAN SERVICING. WITH RISING INTEREST RATES, WAS THERE A DECLINE IN THE MORTGAGE AREA IN 1994? O'GORMAN No, due to our early reaction in anticipation of changing rates, we proactively and aggressively sold our adjustable rate mortgage products as opposed to traditional 30-year fixed rate loans. As a result, we actually experienced an increase in 1994. When you look at the current market, there is now much less difference in rates between the two products, so you might actually see fixed rate mortgages becoming popular again in 1995. Q. WHAT IS OUR ACQUISITION STRATEGY FOR 1995? WHERE WOULD WE CONSIDER EXPANDING? Collins Our acquisition strategy has not changed. We remain interested in expanding our existing markets in New Jersey and Pennsylvania. For example, the Bancorp New Jersey acquisition will greatly enhance our presence in Somerset County and gain us entry into Hunterdon County. There are additional opportunities that might be available in New York State in markets that are close to our strong Bergen County branch network. We are also looking at Connecticut and Delaware. In addition, we're exploring smaller non-bank financial organizations that would aid our business lines and increase fee income. We are looking for ways to expand our franchise that do not create dilution or significantly impact our return on equity and return on assets. Q. WHAT IS YOUR VIEW OF THE COMPANY'S FUTURE? SEMROD First of all, we aren't just a bank anymore. We are truly a financial services company. A lot of our income comes from areas other than what used to be known as traditional banking. I really believe that in the region we serve, we have an opportunity with our lines of business to become the premier financial services provider. In many areas, we are already the best. 20 23 ---------------------- COMMUNITY REINVESTMENT ---------------------- AN INTEGRAL PART OF OUR BUSINESS STRATEGY Community outreach has taken on new and exciting dimensions at UJB Financial. Partnerships with community groups, state and local government agencies and community leaders have always been an important element in accomplishing community development goals. Today, internal partnerships among divisions and business lines are also enriching community development efforts. The Community Development group's new structure, with distinct community outreach and data analysis functions, allows it to interface more effectively throughout the company. It has also led to strong ties with small business banking and the minority lending group. In addition, all branch managers have been charged with furthering the banks' community reinvestment commitments. The reshaping of the community development effort has already had a positive impact on the banks' ability to assist low and moderate income communities. Community reinvestment lending commitments reached $394 million in 1994, a 14 percent increase over 1993. The 1994 figure was boosted by a $53 million rise in residential mortgage loans, partly due to unusually low interest rates early in the year, but sustained by enthusiastic support from our mortgage division and branch personnel. Community reinvestment has become an integral part of this organization, and UJB Financial has provided leadership in helping breathe new life into its communities. Here are a few examples: In March of 1994, United Jersey Bank organized New Jersey's first Affordable Housing Forum, gathering lenders from more than 30 institutions and representatives from 15 affordable housing programs to discuss opportunities for financing redevelopment of declining neighborhoods. The bank also financed a New Jersey Citizen Action Mortgage Loan Counseling Office in Trenton. We also closed a $100,000 loan to the New Jersey Community Loan Fund, making United Jersey one of the fund's largest investors. United Jersey also instituted the Mercer Partners Breakfasts, a series of working sessions with members of the Mercer County Black Business Association. A similar series of meetings was held to encourage and support black entrepreneurship with members of the Monmouth/Ocean Investment Corp. and the Central and Southern New Jersey Chapters of the National Business League. In Pennsylvania during the fourth quarter, First Valley Bank issued a $100,000 investment challenge to small investors of the Delaware Valley Community Reinvestment Fund (DVCRF). By December 31, DVCRF, which has been nationally acclaimed for its work in low and moderate income communities, had attracted 73 new investments totaling $338,000. First Valley was also an active participant in the Lehigh Valley Mortgage Plan (LVMP), which offers its members the opportunity to consider mortgage applications from low and moderate income borrowers that are slated for rejection by another lender. Thanks to LVMP intervention, ten percent of the reconsidered loans were closed. Early in 1994, UJB Financial began using the name "Partners in PRIDE"* to describe the community reinvestment and related activities of its member banks. UJB Financial is indeed proud of the many individuals from all corners of the organization who have contributed to the success and continued growth of its community development programs. *PRograms to Initiate DEvelopment 21 24 BOARD OF DIRECTORS UJB FINANCIAL Key (1) Executive and Compensation Committees (2) Audit Committee (3) Acquisition Committee (4) Capital and Dividend Committee (5) Nominating Committee * Chair [PHOTO] Photo of Board of Directors members Elinor J. Ferdon Raymond Silverstein, CPA T. Joseph Semrod Robert L. Boyle Top row (left to right): ELINOR J. FERDON Volunteer Professional First Vice President Girl Scouts of U.S.A. 1, 2*, 5 RAYMOND SILVERSTEIN, CPA Consultant Alloy, Silverstein, Shapiro Adams, Mulford & Co., P.C. 1, 3, 5 Bottom row (left to right): T. JOSEPH SEMROD Chairman, President and Chief Executive Officer UJB Financial Corp. ROBERT L. BOYLE Representative William H. Hintelmann Firm 2, 4, 5 22 25 [PHOTO] Photo of Board of Directors members Fred G. Harvey Anne Evans Estabrook Francis J. Mertz John G. Collins Henry S. Paterson II Top row (left to right): FRED G. HARVEY Vice President E&E Corporation 1, 4, 5 ANNE EVANS ESTABROOK Owner Elberon Development Co. 2, 3, 4 FRANCIS J. MERTZ President Fairleigh Dickinson University 2, 3, 5* Bottom row (left to right): JOHN G. COLLINS Vice Chairman UJB Financial Corp. 4 HENRY S. PATTERSON II President E'town Corporation 1*, 2, 3, 4 [PHOTO] Photo of Board of Directors members Joseph M. Tabak T.J. Dermot Dunphy John R. Howell George L. Miles, Jr., CPA Top row (left to right): JOSEPH M. TABAK President and Chief Executive Officer JPC Enterprises, Inc. 2, 3, 4* T.J. DERMOT DUNPHY President and Chief Executive Officer Sealed Air Corporation 1, 3* Bottom row (left to right): JOHN R. HOWELL Vice Chairman UJB Financial Corp. 3 GEORGE L. MILES, JR., CPA President and Chief Executive Officer QED Communications, Inc. 1, 3, 4 23 26 [PHOTO] 1994 Financial Review 38 Summary of Selected Financial Data 40 Financial Statement and Notes 55 Management's Report and Independent Auditors' Report 56 Unaudited Quarterly Financial Data 57 Corporate Directory 59 Corporate Information 24 27 1994 FINANCIAL REVIEW BASIS OF PRESENTATION The Financial Review has been restated to include VSB Bancorp, Inc., which was acquired on July 1, 1994. INTRODUCTION UJB Financial's performance for 1994 was highlighted by continued progress in earnings growth, improved asset quality and the completion of the restructuring program. This was the fourth consecutive year of improved earnings since the loss in 1990 and net income exceeded the previous high achieved in 1989. The common stock dividend was increased for the third time in two years. Additionally, with the acquisitions of VSB Bancorp, Inc. and Palisade Savings Bank, we were able to further increase our market share in Bergen and Hudson counties. NET INCOME [CHART] (for the years 1989 to 1994) The information conveyed by this chart is presented in the Summary of Selected Financial Data table on pages 38 and 39 of this report. Net income amounted to $130.2 million, a 57.9% increase compared to the $82.4 million reported in 1993. Earnings per common share increased 56.7% to $2.35, from $1.50 earned in 1993. Earnings were enhanced by the significant loan growth experienced during the year. The loan portfolio increased $912.9 million, or 10.4%, from a year ago. Continued progress in asset quality was reflected in declines in non-performing loans and other real estate owned (OREO). During 1994, non-performing loans were reduced by $86.6 million, or 34.1%, to $167.6 million. Non-performing loans as a percentage of total loans declined to 1.74% from 2.91% in 1993. OREO declined $43.3 million, or 57.9%, to $31.4 million. At year-end 1994, $132.7 million of accruing loans, non-accruing loans and OREO were identified for bulk sale in an accelerated disposition program. These assets were written down to a net realizable value of $90.9 million. During the third quarter, the three New Jersey banks were consolidated into United Jersey Bank, resulting in the largest state-chartered New Jersey bank. In addition, the consolidation of the three Pennsylvania banks into First Valley Bank occurred during the first quarter. These consolidations enabled us to reduce non-interest expenses and further improve our operating efficiency. Finally, the quarterly common stock dividend was increased to an annual dividend rate of $1.04 per share, a 23.8% increase over the $.84 dividend rate at year-end 1993. RESULTS OF OPERATIONS Net income for the year ended December 31, 1994 was $130.2 million compared to $82.4 million the prior year, an increase of $47.8 million, or 57.9%. On a per share basis, earnings were $2.35 compared to $1.50 reported in 1993. Return on average assets improved to .88% compared to .59% the previous year, while return on common equity reached 12.36% compared to 8.32% for 1993. In addition, the efficiency ratio, the relationship of non-interest expenses (excluding OREO and non-recurring expenses) to net operating income, improved to 60.4% for 1994 compared to 64.4% in 1993. Improved earnings in 1994 were primarily the result of growth in net interest income, a lower provision for loan losses and reduced non-interest expenses. Net interest income rose $40.2 million, or 7.0%, over the prior year as a result of growth in earning assets, particularly loans, as well as increased non-interest bearing demand deposits. The loan loss provision decreased $11.7 million as a result of the declining level of non-performing loans. Excluding the $21.5 million 1993 third quarter restructuring charge, non-interest expenses declined $27.4 million and reflected a significant decrease in the provision for OREO as well as reduced salaries and employee benefits. INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES Average interest earning assets totaled $13.6 billion in 1994, an increase of $791.6 million, or 6.2%, compared to 1993. Most of the increase occurred in the investment and loan portfolios. During 1994, total investment securities increased $525.0 million, or 13.5%, to average $4.4 billion, while the loan portfolios increased $296.1 million, or 3.3%, to average $9.2 billion. Average interest bearing liabilities totaled $10.7 billion in 1994, an increase of $393.0 million, or 3.8%, compared to 1993. This increase was primarily attributable to an increase in other borrowed funds of $614.1 million and was partially offset by a $204.0 million decrease in interest bearing deposits. The tax-equivalent yield on total interest earning assets amounted to 7.17%, a decline of 3 basis points from 7.20% earned in 1993. The cost of interest bearing liabilities remained relatively unchanged at 3.23% for 1994 compared to 3.22% in 1993. Net interest spread, the difference between the yield on interest earning assets and the cost of interest bearing liabilities, was 3.94% for 1994, compared to 3.98% in 1993. 25 28 1994 FINANCIAL REVIEW (continued) COMPARATIVE AVERAGE BALANCE SHEETS
Not covered by independent auditors' report (Dollars in thousands) 1994 1993 1992 1991 1990 1989 =================================================================================================================================== ASSETS Interest earning assets: Federal funds sold and securities purchased under agreements to resell................ $ 9,591 $ 30,118 $ 107,550 $ 356,864 $ 340,276 $ 35,051 Interest bearing deposits with banks......... 16,910 21,934 18,441 34,099 65,521 131,445 Trading account securities................... 27,495 31,447 22,741 13,524 5,511 54,206 Investment securities available for sale..... 613,915 754,213 126,820 35,199 -- -- Investment securities: U.S. Government and Federal agencies...... 1,871,038 2,227,309 2,773,209 2,293,572 1,688,613 982,470 States and political subdivisions......... 323,133 340,141 406,889 489,731 588,545 622,435 Other securities.......................... 1,603,764 565,208 253,748 431,292 726,392 882,696 ----------------------------------------------------------------------------------------------------------------------------------- Total investment securities 3,797,935 3,132,658 3,433,846 3,214,595 3,003,550 2,487,601 ----------------------------------------------------------------------------------------------------------------------------------- Loans: Commercial................................ 4,458,589 4,354,160 4,554,227 4,692,901 4,875,019 4,454,860 Mortgage.................................. 2,574,625 2,459,970 2,335,920 2,144,361 1,969,757 1,845,754 Instalment................................ 2,123,460 2,046,451 2,062,032 2,016,774 1,891,631 1,659,540 ----------------------------------------------------------------------------------------------------------------------------------- Total loans 9,156,674 8,860,581 8,952,179 8,854,036 8,736,407 7,960,154 ----------------------------------------------------------------------------------------------------------------------------------- Total interest earning assets 13,622,520 12,830,951 12,661,577 12,508,317 12,151,265 10,668,457 ----------------------------------------------------------------------------------------------------------------------------------- Non-interest earning assets: Cash and due from banks...................... 894,054 854,408 766,900 684,345 641,985 651,205 Allowance for loan losses.................... (247,587) (262,658) (302,141) (299,995) (164,471) (118,025) Other assets................................. 593,534 612,440 644,234 625,407 484,041 398,094 ----------------------------------------------------------------------------------------------------------------------------------- Total non-interest earning assets 1,240,001 1,204,190 1,108,993 1,009,757 961,555 931,274 ----------------------------------------------------------------------------------------------------------------------------------- Total Assets $14,862,521 $14,035,141 $13,770,570 $13,518,074 $13,112,820 $11,599,731 =================================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities: Savings deposits............................. $ 5,563,805 $ 5,461,273 $ 5,063,121 $ 4,224,428 $ 3,741,612 $ 3,380,529 Other time deposits.......................... 3,106,316 3,495,293 4,012,866 4,217,849 3,718,861 3,166,641 Commercial certificates of deposit $100,000 and over......................... 338,427 256,018 417,458 760,264 880,857 791,441 ----------------------------------------------------------------------------------------------------------------------------------- Total interest bearing deposits 9,008,548 9,212,584 9,493,445 9,202,541 8,341,330 7,338,611 ----------------------------------------------------------------------------------------------------------------------------------- Commercial paper............................. 46,545 58,920 94,297 167,396 234,069 194,175 Other borrowed funds......................... 1,417,304 803,187 907,750 1,214,448 1,560,795 1,112,304 Long-term debt............................... 212,084 216,757 75,973 80,441 85,780 87,652 ----------------------------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities 10,684,481 10,291,448 10,571,465 10,664,826 10,221,974 8,732,742 ----------------------------------------------------------------------------------------------------------------------------------- Non-interest bearing liabilities: Demand deposits.............................. 2,897,980 2,582,206 2,177,219 1,854,847 1,835,274 1,841,209 Other liabilities............................ 211,497 162,497 129,352 146,736 143,703 140,174 ----------------------------------------------------------------------------------------------------------------------------------- Total non-interest bearing liabilities 3,109,477 2,744,703 2,306,571 2,001,583 1,978,977 1,981,383 ----------------------------------------------------------------------------------------------------------------------------------- Shareholders' equity 1,068,563 998,990 892,534 851,665 911,869 885,606 ----------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $14,862,521 $14,035,141 $13,770,570 $13,518,074 $13,112,820 $11,599,731 ===================================================================================================================================
26 29 INVESTMENT SECURITIES AVAILABLE FOR SALE On January 1, 1994, Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115) was adopted. This statement required the classification of securities into one of three categories: trading, available for sale or held to maturity. Investment securities available for sale are held for an indefinite period of time and may be sold in response to changing market and interest rate conditions as part of the asset/liability management strategy. Effective January 1, 1994, these securities are reported at fair value with unrealized gains and losses, net of tax, included as a separate component of shareholders' equity. Available-for-sale securities averaged $613.9 million during 1994, compared with an average balance of $754.2 million in 1993, a decrease of $140.3 million, or 18.6%. At December 31, 1994, these securities totaled $201.2 million, compared to $1.2 billion at the prior year end, a reduction of $960.9 million, or 82.7%. A major factor in the decline was a $707.8 million second quarter transfer of collateralized mortgage obligations (CMOs) to held-to-maturity securities. In anticipation of the January 1, 1994 adoption of SFAS No. 115, UJB Financial transferred $666.7 million of CMOs from the held-to-maturity portfolio to the available-for-sale portfolio as of December 31, 1993. Although management had the intent and ability to hold these securities until maturity, the transferred securities had the potential to not meet certain regulatory suitability tests (FFIEC tests) in the future. The Financial Accounting Standards Board reasoned that securities which may fail the FFIEC tests could not be categorized as held to maturity because bank regulators could force the sale of such securities. On April 15, 1994, the FFIEC amended their policy to state that the mere existence of regulatory divestiture authority should not preclude an institution from classifying as held to maturity those securities which may subsequently fail the FFIEC tests. As a result of these policy statements and additional suitability testing, $707.8 million of CMOs were transferred back to the held-to-maturity portfolio. These securities were transferred at fair value. The related unrealized loss of $4.8 million was deferred and is being amortized, net of tax, through shareholders' equity over the life of the related securities. At December 31, 1994, the average estimated life of the portfolio, adjusted for prepayments, was 6 years, 7 months. The yield on this portfolio increased 148 basis points to 5.59% in 1994, compared to 4.11% in 1993. After the second quarter transfer to held-to-maturity securities, the portfolio consisted of primarily higher yielding, fixed-rate CMOs. During the year, $3.5 million of available-for-sale investments were sold for a net gain of $1.6 million and maturities for the period amounted to $261.1 million. At December 31, 1994, the available-for-sale portfolio had pre-tax net unrealized losses of $12.5 million. INVESTMENT SECURITIES The investment securities portfolio is carried at amortized historical cost and consists of those securities for which there is a positive intent and ability to hold to maturity. Investment securities held to maturity averaged $3.8 billion during 1994, an increase of $665.3 million, or 21.2%, from 1993. This increase was primarily the result of the aforementioned $707.8 million transfer of securities from the available-for-sale category as well as purchases of agency and corporate CMOs early in the year. At December 31, 1994, the average estimated life of investment securities adjusted for prepayments was 5 years. The yield on this portfolio declined 83 basis points to 6.06% in 1994, compared to 6.89% in 1993, as higher yielding investments prepaid or matured. At December 31, 1994, all CMOs in the held-to-maturity portfolio met the FFIEC tests. U.S. Government and Federal agency securities averaged $1.9 billion during 1994, a decrease of $356.3 million, or 16.0%, as maturities were primarily reinvested in corporate CMOs. The yield on this portfolio declined 84 basis points to 5.76% in 1994, compared to 6.60% in 1993. A majority of the purchase activity in this portfolio occurred during the lower rate environment of late 1993 and early 1994. In addition, the securities in this category are primarily adjustable-rate instruments which repriced at these lower interest rates. State and municipal securities declined $17.0 million, or 5.0%, to average $323.1 million during the year. The tax-equivalent yield on this portfolio was 10.54% in 1994 compared to 11.12% in 1993, a decrease of 58 basis points. Other securities, primarily corporate CMOs, averaged $1.6 billion during 1994, an increase of $1.0 billion, or 183.7%, compared to 1993. This increase reflected the reinvestment of prepayments and cash flows received in early 1994, as well as the securities transferred from the available-for-sale portfolio. The yield on this portfolio was at 5.52% in 1994 compared to 5.51% in 1993. LOANS The improvement in the regional economy during 1994 contributed to the growth in loans, most of which occurred in the second half of the year. Total loans averaged $9.2 billion during 1994, an increase of $296.1 million, or 3.3%, compared to 1993. At December 31, 1994, loans totaled $9.7 billion, an increase of $912.9 million, or 10.4%, compared to the prior year. Commercial loans grew $391.5 million, mortgage loans increased $297.4 million and instalment loans rose $224.0 million. The yield on the total portfolio was 7.75% in 1994 compared to 7.61% in 1993. The commercial loan portfolio, which consists primarily of commercial and industrial (C & I) and construction and development loans, grew $104.4 million, or 2.4%, to average $4.5 billion. This portfolio totaled $4.6 billion at December 31, 1994, up $391.5 million, or 9.2%, from the prior year. The yield on the portfolio increased 57 basis points to 7.57% in 1994 from 7.00% the prior year, reflecting the steady rise in the prime rate throughout the year. 27 30 1994 FINANCIAL REVIEW (continued) The following chart illustrates the level of year-end commercial loans for the past six years. COMMERCIAL LOANS ($ in billions) The following table presents the commercial loans for the years 1989 to 1994 in billions.
Years Commercial Loans ----- ---------------- 1989 $4.8 1990 4.8 1991 4.6 1992 4.4 1993 4.2 1994 4.6
The 1994 commercial loan growth was concentrated in the C & I portfolio. These loans totaled $3.9 billion at year-end 1994, an increase of $555.7 million, or 16.5%, over 1993. The major areas contributing to this growth included: middle market lending, up $183.1 million; national accounts, up $106.0 million; asset-based lending, up $90.9 million; and leasing, up $58.9 million. This portfolio continued to mirror the business diversification in the region with no concentration greater than 5% of total C & I loans to any one industry. Construction and development loans amounted to $705.6 million at December 31, 1994, a decline of $164.2 million, or 18.9%, compared to 1993. Contributing to this decline were paydowns and transfers to permanent financing, as well as a managed reduction in construction loan activity. In addition, $80.8 million of the decline was the result of the year-end transfer to assets held for accelerated disposition. The accompanying table illustrates the composition of the construction portfolio.
December 31 -------------------- In thousands 1994 1993 =================================================================== Commercial: Office $121,817 $186,294 Warehouse/industrial 77,245 96,729 Retail 61,150 89,033 Other 99,343 46,049 ------------------------------------------------------------------- 359,555 418,105 Residential: Single family 65,008 112,409 Multi-family 51,952 68,225 Apartment/rental 21,386 27,030 ------------------------------------------------------------------- 138,346 207,664 Land: Residential 44,246 76,974 Commercial 40,039 62,381 ------------------------------------------------------------------- 84,285 139,355 Lines of credit: Secured 99,994 93,201 Unsecured 23,422 11,522 ------------------------------------------------------------------- 123,416 104,723 ------------------------------------------------------------------- $705,602 $869,847 ===================================================================
Total mortgage loans, which include residential and commercial mortgage loans, averaged $2.6 billion in 1994, an increase of $114.7 million, or 4.7%, from 1993. Total year-end mortgage loans were $2.8 billion, an increase of $297.4 million, or 11.9%, over the prior year, with the Palisade acquisition accounting for $157.0 million of this increase. The yield on the mortgage portfolio decreased 35 basis points to 7.82%, reflecting the full year impact of the lower rate environment and refinancing activity in 1993 and early 1994. At December 31, 1994, residential mortgage loans were $1.3 billion, up $401.2 million, or 43.2%, from 1993. Although interest rates rose steadily during 1994, mortgage origination volume remained favorable, rising 5.1% in 1994 to $552.1 million. This rate environment resulted in a shift in originations from refinancings to new loans and from fixed-rate to adjustable-rate loans. Refinance activity accounted for 19.9% of new loans in 1994 compared with 56.5% of 1993 originations. Adjustable-rate loans, which are generally retained for long-term investment, represented 55.1% of loan originations in 1994, compared to 21.3% in 1993. Fixed-rate loans are generally sold in the secondary market with servicing retained to provide an ongoing source of fee income. With fewer fixed-rate loans originated during 1994, mortgage loans sold in the secondary market totaled $145.9 million, compared to $317.7 million in 1993. Also included in mortgage loans at December 31, 1994 were $1.5 billion of commercial mortgages, a decrease of $103.8 million, or 6.6%, from 1993. Generally, these loans represent owner-occupied or investment properties and complement a broader commercial lending relationship. The decrease reflected both accelerated prepayment activity and continued adherence to underwriting policies. Total instalment loans averaged $2.1 billion for the year, an increase of $77.0 million, or 3.8%, from 1993. At December 31, 1994, instalment loans amounted to $2.2 billion, an increase of $224.0 million, or 11.1%, over the prior year. The following chart represents the year-end balance of instalment loans for the past six years. INSTALMENT LOANS ($ in billions) The following table presents instalment loans for the years 1989 to 1994 in billions.
Years Instalment Loans ----- ---------------- 1989 $1.8 1990 2.0 1991 2.0 1992 2.1 1993 2.0 1994 2.2
28 31 The growth was concentrated in home equity and automobile lease loans. The home equity portfolio increased $136.5 million, or 9.8%, to $1.5 billion at year end and represented 68.3% of total instalment loans. Automobile lease loans totaled $199.3 million at December 31, 1994, an increase of $114.8 million, or 135.8%. The yield on the instalment loan portfolio was 8.05%, a decline of 19 basis points from the 8.24% earned in 1993 primarily due to the lower rate environment and the impact of promotional rates offered on home equity loans during 1994. DEPOSITS Average total deposits remained relatively unchanged at $11.9 billion for 1994, compared to $11.8 billion for 1993. However, total deposits were $12.6 billion at December 31, 1994, an increase of $816.3 million, or 6.9% over the prior year end. The acquisition of Palisade accounted for $254.3 million of this increase. With the lower rate environment in 1993 and early 1994, investors searched for higher yielding investment alternatives, such as the stock market or mutual funds. This resulted in an outflow of retail time deposits and a shift of deposit funds into more liquid transaction and savings accounts, primarily money market accounts. With rising rates during most of 1994, this trend began to reverse. The higher interest rates offered on intermediate term certificates of deposit (CDs) caused retail time deposits to show significant growth during the last five months of 1994. The following chart illustrates the level of year-end demand deposits for the past six years. DEMAND DEPOSITS ($ in billions) The following table presents demand deposits for the years 1989 to 1994 in billions.
Demand Years Deposits ----- -------- 1989 $2.0 1990 2.0 1991 2.1 1992 2.6 1993 2.8 1994 3.3
Demand deposits continued to show strong growth in business, municipal and correspondent accounts. Average demand deposits increased $315.8 million, or 12.2%, to $2.9 billion for the year. At December 31, 1994, these deposits totaled $3.3 billion, an increase of 16.2%, or $454.8 million, over 1993. The percentage of demand deposits to total deposits grew to 25.9% at December 31, 1994 compared to 23.9% at year-end 1993. The increase in demand deposits, an interest-free source of funds, was a contributing factor in the growth of net interest income and net interest margin. Total savings deposits, which include interest-bearing checking, money market and savings accounts, increased $102.5 million, or 1.9%, to average $5.6 billion during 1994. The preferred money market account, a tiered-rate product, increased $228.7 million, or 26.1%, to average $1.1 billion in 1994. This increase was partially offset by a decline of $76.0 million in average interest bearing checking accounts and a decline of $72.5 million in average money market accounts. The cost of total savings deposits declined 20 basis points to 2.08% in 1994 compared to 2.28% in 1993. Other time deposits, which consist primarily of retail CDs, declined $389.0 million, or 11.1%, during 1994 to average $3.1 billion. However, these deposits totaled $3.6 billion at December 31, 1994, an increase of $413.4 million, or 13.1% over the prior year end. This increase reflected the shift in deposit activity during the second half of 1994 from transaction and savings accounts to higher yielding CDs. The "SureWin CD," a variable-rate instrument which is indexed to the prime rate, was reintroduced in August 1994. This product accounted for approximately $213.2 million of the $487.7 million growth in retail CDs experienced during the last five months of the year. In addition, $150.0 million of brokered CDs were issued in the fourth quarter. The cost of other time deposits declined to 3.98% in 1994 from 4.20% in 1993. Due to the average maturity for these funds, the 1994 cost reflects the impact of lower rates during 1993. Commercial certificates of deposit $100,000 and over are primarily used as an additional funding source to support growth in the loan and investment portfolios. These deposits averaged $338.4 million during 1994, an increase of $82.4 million, or 32.2%, compared to 1993. At December 31, 1994, commercial CDs totaled $371.1 million, an increase of $144.6 million, or 63.8%, compared to the prior year. The cost of commercial CDs increased by 117 basis points during the year to 4.03%, compared with 2.86% in 1993, and reflected the impact of rising interest rates. OTHER BORROWED FUNDS Other borrowed funds include Federal funds purchased, repurchase agreements, treasury tax and loan deposits and other short-term borrowings. These borrowings are generally used to support growth in the loan and investment portfolios. During 1994, other borrowed funds increased $614.1 million, or 76.5%, to average $1.4 billion. The cost of borrowed funds increased 105 basis points during the year to 5.04%, compared with 3.99% in 1993. Commercial paper, which amounted to $42.2 million at year end, is a funding source for the non-bank subsidiaries. These funds averaged $46.5 million during the year, a decrease of $12.4 million, or 21.0%, from 1993. The cost of commercial paper increased 111 basis points to 4.06% in 1994, from 2.95% in 1993, reflecting the impact of rising interest rates. 29 32 1994 FINANCIAL REVIEW (continued) COMPARATIVE INTEREST RATES
Tax-equivalent basis* Not covered by independent auditors' report 1994 1993 1992 1991 1990 1989 ================================================================================================================================ ASSETS Interest earning assets: Federal funds sold and securities purchased under agreements to resell ............................. 6.26% 3.17% 4.29% 6.18% 8.09% 9.28% Interest bearing deposits with banks ...................... 3.72 2.97 3.62 6.56 8.74 9.35 Trading account securities ................................ 2.81 4.40 6.28 9.36 7.35 9.25 Investment securities available for sale .................. 5.59 4.11 8.50 9.97 -- -- Investment securities: U.S. Government and Federal agencies ................... 5.76 6.60 7.23 8.72 9.11 8.92 States and political subdivisions ...................... 10.54 11.12 10.97 10.88 10.86 10.90 Other securities ....................................... 5.52 5.51 6.63 8.34 8.54 8.60 -------------------------------------------------------------------------------------------------------------------------------- Total investment securities 6.06 6.89 7.63 9.00 9.31 9.30 -------------------------------------------------------------------------------------------------------------------------------- Loans: Commercial ............................................. 7.57 7.00 7.21 8.89 10.37 11.58 Mortgage ............................................... 7.82 8.17 8.89 9.88 10.28 10.46 Instalment ............................................. 8.05 8.24 8.86 10.44 11.79 12.24 -------------------------------------------------------------------------------------------------------------------------------- Total loans 7.75 7.61 8.03 9.48 10.66 11.46 -------------------------------------------------------------------------------------------------------------------------------- Total interest earning assets 7.17 7.20 7.88 9.25 10.24 10.91 ================================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities: Savings deposits .......................................... 2.08 2.28 3.12 4.95 5.46 5.66 Other time deposits ....................................... 3.98 4.20 5.18 6.87 7.92 8.42 Commercial certificates of deposit $100,000 and over ...... 4.03 2.86 3.91 6.12 7.99 8.79 -------------------------------------------------------------------------------------------------------------------------------- Total interest bearing deposits 2.81 3.02 4.03 5.93 6.83 7.19 -------------------------------------------------------------------------------------------------------------------------------- Commercial paper .......................................... 4.06 2.95 3.61 6.10 8.11 9.00 Other borrowed funds ...................................... 5.04 3.99 3.96 5.77 8.02 8.88 Long-term debt ............................................ 8.58 8.89 10.52 10.98 10.99 11.14 -------------------------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities 3.23 3.22 4.06 5.95 7.07 7.48 ================================================================================================================================ Net Interest Spread (tax-equivalent basis) 3.94% 3.98% 3.82% 3.30% 3.17% 3.43% ================================================================================================================================ Net Interest Income as a Percent of Interest Earning Assets (tax-equivalent basis) 4.63% 4.62% 4.49% 4.18% 4.29% 4.79% ================================================================================================================================ Net Interest Income (tax-equivalent basis, in millions) $631.4 $592.6 $568.3 $523.2 $521.5 $510.5 ================================================================================================================================
* The tax-equivalent adjustment was computed based on a Federal income tax rate of 35% for 1994 and 1993 and 34% for 1992 through 1989. 30 33 NET INTEREST INCOME Interest income on a tax-equivalent basis was $976.2 million, an increase of $51.9 million, or 5.6%, compared to 1993. This increase was primarily due to volume increases in the loan and investment portfolios. The yield on interest earning assets was 7.17% for 1994, compared to 7.20% for 1993. Interest expense was $344.9 million for 1994, an increase of $13.1 million, or 4.0%, from $331.7 million a year ago. The increase was principally a result of volume increases in borrowed funds and commercial CDs. These increases were partially offset by the decline in retail time deposits. The cost of all interest bearing liabilities was 3.23% in 1994, relatively unchanged from 3.22% in 1993. The following chart illustrates the growth in tax-equivalent net interest income for the past six years. NET INTEREST INCOME (tax-equivalent basis, $ in millions) [CHART] The information conveyed by this chart is presented for the years 1989 to 1994 in the Comparative Interest Rates table found on page 30 of this report. Net interest income on a tax-equivalent basis amounted to $631.4 million, an increase of $38.8 million, or 6.5%, from the $592.6 million earned in 1993. The net interest spread on a tax-equivalent basis, the difference between the rate earned on interest earning assets and the rate paid on interest bearing liabilities, remained relatively unchanged at 3.94% for the year, compared to 3.98% earned in 1993. Net interest margin, tax-equivalent net interest income as a percentage of average interest earning assets, also remained relatively unchanged at 4.63% for 1994, compared to 4.62% in 1993. NON-INTEREST INCOME Non-interest income, including investment securities gains, amounted to $177.3 million in 1994, compared to $179.5 million the prior year, a decrease of $2.2 million, or 1.2%. Excluding investment securities gains, non-interest income rose $4.8 million, or 2.8%, from 1993. Non-interest income categories compared to the prior year are shown in the accompanying table.
Increase (Decrease) ------------------ In thousands 1994 1993 Amount Percent ------------------------------------------------------------------------------ Service charges on deposit accounts $ 64,474 $ 60,474 $ 4,000 6.6% Service and loan fee income 42,008 34,626 7,382 21.3 Trust income 21,792 21,852 (60) (0.3) Trading account gains 670 1,884 (1,214) (64.4) Other 46,503 51,809 (5,306) (10.2) ------------------------------------------------------------------------------ 175,447 170,645 4,802 2.8 Investment securities gains 1,888 8,877 (6,989) (78.7) ------------------------------------------------------------------------------ $ 177,335 $179,522 $(2,187) (1.2)% ==============================================================================
Service charges on deposit accounts increased $4.0 million, or 6.6%, to $64.5 million in 1994. This growth was primarily attributed to service charges on personal demand deposit accounts. Service and loan fee income increased $7.4 million, or 21.3%, to $42.0 million in 1994. Merchant card fees totaled $22.5 million, an increase of $3.0 million, or 15.8%. Commercial loan fees increased $2.4 million, or 26.4%, to $11.5 million, as a result of increased loan activity. Trust income of $21.8 million was relatively unchanged from the prior year. Assets under trust administration, including corporate debt issue trusteeships, grew $530.0 million during the year to total $18.0 billion as of December 31, 1994. Trust assets under discretionary management were $3.9 billion for both 1994 and 1993. These assets included the Pillar Funds, a family of mutual funds established by UJB Financial in 1992, which totaled $1.1 billion at year-end 1994 and 1993. Other income amounted to $46.5 million, a decline of $5.3 million, or 10.2%, compared to the prior year. This decrease was primarily due to a $1.4 million decline in brokerage fees and a $2.7 million decrease in secondary market mortgage income as a result of lower fixed-rate mortgage loan originations. For the year ended December 31, 1994, securities gains were $1.9 million, compared to $8.9 million in 1993, a decline of $7.0 million, or 78.7%. The 1993 gains were realized as securities available for sale were sold to reduce prepayment risk in the CMO portfolio. NON-INTEREST EXPENSES Non-interest expenses totaled $505.2 million in 1994, a decrease of $48.9 million, or 8.8%, compared to 1993. Excluding the 1993 restructuring charge of $21.5 million, non-interest expenses decreased $27.4 million, or 5.2%, from 1993. The efficiency ratio improved to 60.4% for 1994 compared to 64.4% in 1993. This improvement in the efficiency ratio was attributable to the savings realized from the restructuring program as well as increased net interest income. 31 34 1994 FINANCIAL REVIEW (continued) Non-interest expense categories compared to the prior year are shown in the accompanying table.
Increase (Decrease) -------------------- In thousands 1994 1993 Amount Percent ================================================================================= Salaries $ 183,339 $185,570 $ (2,231) (1.2)% Pension and other employee benefits 53,386 58,601 (5,215) (8.9) Occupancy, net 50,749 48,487 2,262 4.7 Furniture and equipment 49,065 45,592 3,473 7.6 FDIC assessment 27,933 29,244 (1,311) (4.5) Other real estate owned expenses 18,287 40,925 (22,638) (55.3) Advertising and public relations 10,843 10,517 326 3.1 Other 111,644 113,754 (2,110) (1.9) --------------------------------------------------------------------------------- 505,246 532,690 (27,444) (5.2) Restructuring charge - 21,500 (21,500) (100.0) --------------------------------------------------------------------------------- $ 505,246 $554,190 $(48,944) (8.8)% =================================================================================
Salaries totaled $183.3 million in 1994, a decrease of $2.2 million, or 1.2%, compared to 1993. Total full-time equivalent employees at December 31, 1994 were 6,143 compared to 6,300 at December 31, 1993, a decline of 2.5%. Pension and other employee benefits totaled $53.4 million for the year ended December 31, 1994, and were $5.2 million, or 8.9%, below 1993. The decreases in salaries and benefits reflected the impact of the restructuring and consolidation activities in 1994. Occupancy expenses were $50.7 million for 1994, an increase of $2.3 million, or 4.7%. This increase was attributed to additional maintenance costs, primarily snow removal in the first quarter of 1994, as well as increased rental expense and real estate taxes. Furniture and equipment expenses amounted to $49.1 million, an increase of $3.5 million, or 7.6%, from $45.6 million in 1993. The increase was principally due to additional lease and maintenance costs associated with new equipment required to support the branch automation project completed in 1994. The FDIC assessment of $27.9 million decreased $1.3 million, or 4.5%, from 1993. The amount of the assessment is calculated by applying an assessed rate to the level of outstanding deposits. Beginning in January 1993, the FDIC changed their assessment methodology so that banks are assessed a rate based on their respective regulatory rating. OREO expenses totaled $18.3 million for 1994, down $22.6 million, or 55.3%, from 1993 due to a reduction in the number of OREO properties. A provision of $10.6 million was recorded in 1994, compared to $32.1 million in 1993. OREO expenses also include expenses related to holding and operating foreclosed properties. These costs declined $1.1 million, or 13.0%, in 1994 and amounted to $7.7 million for the year. Other expenses, which include professional fees, communication expenses, and merchant bankcard processing fees, were $111.6 million in 1994, a decrease of $2.1 million, or 1.9%, from 1993. This decline is primarily the result of a $3.2 million reduction in professional fees which totaled $37.1 million for 1994. A restructuring charge of $21.5 million was recorded in the third quarter of 1993 for incremental costs incurred as a result of the restructuring and consolidation program announced in September 1993. To date, approximately $18.5 million of these costs have been recognized. Included in the 1994 results were approximately $20.0 million of reduced expenses and increased revenues related to the restructuring program. INCOME TAXES Federal and state income tax expense for 1994 was $72.3 million compared to $27.0 million in 1993. The increase was primarily the result of higher pre-tax income. The effective income tax rate, total income taxes as a percentage of pre-tax income, was 35.4% for 1994, compared to 25.5% for 1993. The increase in the effective tax rate for 1994 was the result of increased pre-tax earnings with a relatively constant level of tax-free income. Differences between the book basis and tax basis of assets and liabilities recorded in the financial statements result in deferred taxes. As of December 31, 1994 and 1993, net deferred tax assets were $105.5 million and $118.9 million, respectively. For additional information on income taxes, see Note 18 of the Notes to Consolidated Financial Statements. NON-PERFORMING LOANS UJB Financial continued to make progress in reducing the level of non-performing loans in 1994. These loans declined $86.6 million, or 34.1%, in 1994, following a decline of $110.7 million, or 30.3% in 1993. Continued reductions and the transfer of $46.8 million of non-performing loans to assets held for accelerated disposition contributed to the 1994 decline. At December 31, 1994, non-performing loans totaled $167.6 million, and represented 1.74% of total loans, compared to $254.3 million, or 2.91%, the prior year. Non-performing loans, which consist primarily of commercial non-accrual and renegotiated loans, declined to their lowest level in six years as illustrated in the following chart. NON-PERFORMING LOANS ($ in millions) The following table presents non-performing loans for the years 1989 to 1994 in millions.
Non-Performing Years Loans ------ -------------- 1989 $188.4 1990 437.7 1991 453.5 1992 365.0 1993 254.3 1994 167.6
During the year, lost interest on non-accrual loans amounted to $16.2 million, compared with $18.7 million in 1993. Interest payments received on non-accrual loans were $2.7 million for 1994 and $4.2 million in 1993. Total lost interest on non-accrual loans, after deducting interest payments received, amounted to $13.5 million and $14.5 million for 1994 and 1993, respectively. 32 35 The accompanying table represents the composition of non-performing loans by type.
Decrease -------------------- In thousands 1994 1993 Amount Percent ============================================================================ Commercial and industrial $ 37,362 $ 57,433 $(20,071) (34.9)% Construction and development 45,075 88,748 (43,673) (49.2) Real estate related 85,210 108,092 (22,882) (21.2) ---------------------------------------------------------------------------- $167,647 $254,273 $(86,626) (34.1)% ============================================================================
Loans 90 days or more past due and not included in the non-performing loan category, because they are both well-secured and in the process of collection, totaled $23.6 million at year-end 1994, compared to $30.1 million at the prior year end. The accompanying table illustrates the activity in non-performing loans over the past two years.
In thousands 1994 1993 ============================================================================= Balance, beginning of year $254,273 $364,974 Additions: From loan portfolio 193,633 199,980 From purchase acquisition 1,579 - ----------------------------------------------------------------------------- Total additions 195,212 199,980 ----------------------------------------------------------------------------- Deductions: To full performing 45,770 49,511 Payments received 84,543 108,932 Loan charge offs 77,107 115,457 To other real estate owned 27,641 36,781 Transfer to assets held for accelerated disposition 46,777 - ----------------------------------------------------------------------------- Total deductions 281,838 310,681 ----------------------------------------------------------------------------- Balance, end of year $167,647 $254,273 =============================================================================
OTHER REAL ESTATE OWNED Other real estate owned amounted to $31.4 million at year end compared to $74.8 million the prior year, a decline of $43.3 million, or 57.9%. This decline was primarily the result of the transfer of $33.9 million to assets held for accelerated disposition in the fourth quarter of 1994. OREO includes foreclosed assets as well as in-substance foreclosures (ISFs) and is carried at the lower of cost or fair value less estimated costs to sell. If the fair value less estimated costs to sell is less than the cost of the asset, the deficiency is recognized as a valuation allowance. At year-end 1994, the allowance totaled $15.0 million, compared to $31.1 million the prior year end. As of December 31, 1994, OREO had been written down by approximately 63.5% of its original value and consisted of $25.0 million of foreclosed properties for which title was held and $6.4 million of ISFs. The accompanying table illustrates the activity in OREO for the past two years.
In thousands 1994 1993 ============================================================================== Balance, beginning of year $105,897 $142,264 Additions: From non-performing loans 27,641 36,781 From loan portfolio 13,376 15,003 ------------------------------------------------------------------------------ Total additions 41,017 51,784 ------------------------------------------------------------------------------ Deductions: Sales and other reductions 46,955 68,750 Write downs on sales 19,663 19,401 Transfer to assets held for accelerated disposition 33,870 - ------------------------------------------------------------------------------ Total deductions 100,488 88,151 ------------------------------------------------------------------------------ Balance, end of year 46,426 105,897 Less allowance for other real estate owned 14,977 31,117 ------------------------------------------------------------------------------ Balance, end of year, net $ 31,449 $ 74,780 ==============================================================================
As shown in the table, OREO, excluding the allowance, declined $59.5 million, or 56.2%, from the prior year. Total additions to OREO declined $10.8 million, or 20.8%, from 1993. Write downs on sales generally do not represent a reduction in income as the majority of these write downs have already been reserved in the allowance for OREO. The distribution by property type of OREO at December 31, 1994 is detailed in the following table.
Percent In thousands Amount Total of Total ================================================================================ Residential property: Condo/apartment $11,797 Single family 5,848 Multi-family 2,850 Other 1,899 $22,394 48.2% -------------------------------------------------------------------------------- Commercial property: Retail 4,424 Office 3,142 Warehouse/industrial 2,818 Other 943 11,327 24.4 -------------------------------------------------------------------------------- Land: Residential 8,373 Commercial 2,622 Other 1,710 12,705 27.4 -------------------------------------------------------------------------------- Balance, gross 46,426 100.0% -------------------------------------------------------------------------------- Less allowance for other real estate owned 14,977 -------------------------------------------------------------------------------- Balance, net $31,449 ================================================================================
ASSETS HELD FOR ACCELERATED DISPOSITION In the fourth quarter of 1994, certain assets were identified for potential sale in bulk transactions in order to accelerate the resolution of non-performing loans and OREO. The assets selected had an aggregate book value of $132.7 million at December 31, 1994, and consisted of accruing and non-accruing construction and commercial real estate loans and OREO properties. In anticipation of the bulk sale transactions, these assets were transferred to a category on the balance sheet entitled "Assets held for accelerated disposition" at their net realizable value of $90.9 million. This transaction 33 36 1994 FINANCIAL REVIEW (continued) resulted in a charge of $37.0 million to the allowance for loan losses and a charge of $4.8 million to the allowance for OREO. An additional fourth quarter provision for loan losses of $10.0 million was also recorded as a result of the aforementioned transaction. The following table shows the assests identified for accelerated disposition as of December 31, 1994.
Percent In thousands Amount Total of Total -------------------------------------------------------------------- Residential property: Condo/apartment $29,262 Single family 3,100 $32,362 35.6% -------------------------------------------------------------------- Commercial property: Office 17,200 Warehouse/industrial 8,586 Retail 5,980 31,766 35.0 -------------------------------------------------------------------- Land: Commercial 16,460 Residential 10,300 26,760 29.4 -------------------------------------------------------------------- $90,888 100.0% ====================================================================
It is expected that the majority of this portfolio will be liquidated during the first half of 1995, with the entire portfolio sold by year-end 1995. The sales of these assets are subject to successful negotiation of terms, completion of definitive agreements and satisfaction of closing conditions. No assurance can be given that the bulk sale of these assets will be consummated or that, if consummated, they will be sold for their current carrying value. ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION The allowance for loan losses at December 31, 1994 was $214.2 million, compared to $244.2 million at the prior year end, a decrease of $30.0 million, or 12.3%. The ratio of the allowance for loan losses to total loans was 2.22% at year-end 1994 and 2.79% at year-end 1993. The allowance for loan losses as a percentage of non-performing loans was 127.7% at year-end 1994 compared to 96.0% at the end of 1993. A standardized process has been established to assess the adequacy of the allowance for loan losses and to identify the risks inherent in the loan portfolio. This process incorporates credit reviews and gives consideration to areas of exposure such as concentrations of credit, economic and industry conditions, trends in delinquencies and collections, collateral coverage and the composition of the loan portfolio. Specific allocations are identified by individual loan while general reserve percentages are identified by loan category or grade and allocated accordingly. Certain loans classified by regulators, which may not be included in the non-performing loan totals, are graded and incorporated in the process of assessing the adequacy of the allowance for loan losses. Therefore, such loans, if any, would not have a material impact on future operating results beyond what was provided in the allowance for loan losses. The allowance is maintained at a level considered sufficient to absorb estimated losses in the loan portfolio. As of year end, of the total $214.2 million loan loss allowance, approximately $23.2 million was specifically identified for problem credits, $108.9 million was allocated to specific categories or grades of loans as deemed necessary under the assessment process, and $82.1 million was considered a general unallocated reserve for the remaining inherent risk in the portfolio. The provision for loan losses was $84.0 million for the year ended December 31, 1994, down $11.7 million, or 12.2%, from the $95.7 million recorded in 1993. This decrease resulted primarily from improvement in asset quality during 1994 as non-performing loans declined 34.1% and net charge offs declined 38.8%. Net charge offs in 1994, which do not include the write down of $37.0 million on the transfer of assets held for accelerated disposition, totaled $78.9 million, a decline of $50.1 million from $129.0 million in 1993. These net charge offs represented .86% of average loans in 1994, compared to 1.46% of average loans in 1993. STOCKHOLDER'S EQUITIES AND DIVIDENDS A strong capital position is fundamental to support continued growth and profitability, to serve the needs of depositors and creditors, and to yield an attractive return for shareholders. Shareholders' equity averaged $1.1 billion during 1994, an increase of $69.6 million, or 7.0%, compared to 1993. The ratio of average total equity to average total assets improved slightly to 7.19% for 1994, compared to 7.12% for 1993. Book value per common share rose to $19.53 at year-end 1994 from $18.23 the prior year. As a result of continued earnings progress, the quarterly dividend was increased by 23.8% to $.26 per share, from $.21 per share, beginning in the third quarter. Common stock dividends declared totaled $.94 per share for 1994, compared to $.69 for 1993, an increase of 36.2%. The market price of the common stock was $24.13 at December 31, 1994, compared with $24.00 the prior year end. The common stock of UJB Financial is traded on the New York Stock Exchange under the symbol UJB. The quarterly market price ranges per common share for the last two years are shown in the accompanying chart. UJB FINANCIAL COMMON STOCK PRICE RANGE The following table presents the common stock high, low and close price per quarter for 1993 and 1994 in dollars.
1993 High Price Low Price Close ---- ---------- --------- ----- First Quarter $29.375 $22.500 $27.125 Second Quarter 29.250 21.625 24.500 Third Quarter 33.250 24.250 30.000 Fourth Quarter 30.250 23.375 24.000 1994 ---- First Quarter 28.625 23.500 26.875 Second Quarter 29.250 25.500 27.625 Third Quarter 29.125 26.125 26.375 Fourth Quarter 27.125 22.500 24.125
The dividends declared on the Series B $50 stated value, adjustable-rate cumulative preferred stock are determined based on prevailing interest rates, subject to a 6.0% floor and an 11.0% ceiling. Preferred dividends declared during 1994 amounted to $3.07 per share, compared to $3.00 per share declared during 1993. 34 37 UJB Financial and its bank subsidiaries are subject to various regulatory capital requirements administered by the Federal Reserve Board and the Federal Deposit Insurance Corporation. Regulatory capital is defined in terms of Tier I capital (shareholders' equity excluding unrealized gains or losses on available-for-sale securities and certain intangibles), Tier II capital (certain debt instruments and a portion of the allowance for loan losses) and total capital (Tier I plus Tier II). The Federal Reserve Board has established the Tier I leverage ratio, which measures the ratio of Tier I capital to quarterly average assets less certain intangibles. Risk-based capital ratios are expressed as a percentage of risk-adjusted assets, where balance sheet assets and off-balance-sheet exposures are assigned a predetermined weight to measure their level of risk. The current minimum regulatory guideline for the Tier I leverage ratio is 4.0% for institutions that have a regulatory rating of two or more. For Tier I and total risk-based capital ratios, the minimum regulatory guidelines are 4.0% and 8.0%, respectively. Failure to meet minimum capital requirements can initiate certain actions by regulators that could have a direct effect on the operations and financial statements. The following table illustrates the leverage and risk-based capital ratios at December 31, which were well above the required minimums.
Dollars in millions 1994 1993 ======================================================================= Ratios: Tier I leverage 7.02% 7.20% Tier I capital 9.27 9.64 Total capital 12.04 12.67 Capital: Tier I capital $ 1,077.1 $ 1,005.5 Tier II capital 321.5 316.1 Total regulatory capital 1,398.6 1,321.6 Assets: Risk-adjusted assets 11,617.1 10,429.3 Average assets (leverage capital basis) 15,337.4 13,966.9 =======================================================================
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) established five capital level designations ranging from "well capitalized" to "critically undercapitalized." At December 31, 1994, each of the subsidiary banks met the "well capitalized" criteria, which requires a minimum Tier I leverage ratio of 5.0% and minimum Tier I and total risk-based capital ratios of 6.0% and 10.0%, respectively. LIQUIDITY Bank liquidity is the ability to support asset growth while satisfying the borrowing needs and deposit withdrawal requirements of customers. Traditional sources of liquidity include asset maturities, asset repayments and deposit growth. Purchased liabilities such as Federal funds purchased, securities sold under agreements to repurchase and commercial paper represent other major sources of funding. In addition, the banking subsidiaries have established lines of credit with the Federal Reserve Bank, the Federal Home Loan Bank of New York and other correspondent banks which further support and enhance liquidity. Liquidity management is a function of the Asset/Liability Management Committee (ALCO) and includes monitoring current and projected cash flows, as well as economic forecasts for the industry. UJB Financial also maintains a liquidity contingency plan designed to effectively manage potential liquidity concerns due to changes in interest rates, credit markets or other external risks. The Consolidated Statements of Cash Flows present the change in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents increased by $145.6 million during 1994. Net cash provided by operating activities totaled $202.9 million. This amount was primarily attributable to results of operations adjusted for the provisions for loan losses and OREO, and proceeds from the sales of mortgages held for sale. Net cash used in investing activities totaled $1.5 billion and was the result of investment and loan activity. Net cash provided by financing activities totaled $1.5 billion in 1994 reflecting the increases in short-term borrowings and deposits. The total investment portfolio, including investment securities available for sale, is also a source of liquidity as portfolio assets provide cash flows through maturities and periodic repayments of principal. During the year ended December 31, 1994, proceeds from maturities in the combined portfolios were $1.2 billion, while proceeds from the sales of investment securities available for sale were $5.1 million. Investment portfolio cash flows were primarily used to fund loan growth and manage the borrowed funds position. As a result of this reinvestment of cash flow, total scheduled maturities of interest bearing deposits with banks plus maturities and anticipated principal repayments of the combined investment portfolio will be approximately $391.3 million during 1995. In addition, all or part of the investment securities available-for-sale portfolio could be sold to provide additional liquidity. At December 31, 1994, the average maturity of the available-for-sale and held-to-maturity investment portfolios, adjusted for historical prepayment patterns on mortgage-backed securities, was estimated to be approximately 6 years, 7 months and 5 years, respectively. A strong base of low-cost demand and retail deposits, which are a cornerstone of liquidity, is managed through an extensive branch network. Total demand and retail time deposits amounted to $12.2 billion at December 31, 1994, compared to $11.5 billion at year-end 1993. Liquidity is also available through lines of credit and the ability to incur additional debt. During 1994, average short-term borrowings increased $614.1 million and were used to fund the growth in the loan and investment portfolios. Liquidity is also important at the Parent Corporation to provide funds for operations and to pay dividends to shareholders. Parent Corporation cash requirements are met primarily through dividends from its subsidiaries and the issuance of short and long-term debt. The amount of dividends from bank subsidiaries is subject to certain regulatory restrictions as detailed in Note 14 of the Notes to Consolidated Financial Statements. In addition, at December 31, 1994, there were $40.0 million of short-term lines of credit available for general corporate purposes. Commercial paper issued by the Parent Corporation of UJB Financial is primarily a funding source for the second mortgage and asset-based lending subsidiaries. These funds averaged $46.5 million during the year, a decrease of $12.4 million, or 21.0%, from 1993, and amounted to $42.2 million at year end. 35 38 1994 FINANCIAL REVIEW (continued) At December 31, 1994, long-term debt outstanding was $204.8 million, compared to $208.7 million at December 31, 1993. Under the most restrictive limitations on various debt agreements, the unrestricted consolidated retained earnings available for dividends amounted to $249.4 million at December 31, 1994. The amount of additional funded debt that could have been created as of year-end 1994 was $298.8 million. For additional information about the creation of additional funded debt and the limitations on retained earnings available for the payment of dividends, see Notes 12 and 14 of the Notes to Consolidated Financial Statements. INTEREST SENSITIVITY Interest rate sensitivity and the repricing characteristics of assets and liabilities are managed by ALCO. The principal objective of ALCO is to maximize net interest income within acceptable levels of risk established by policy. Interest rate risk is managed using financial modeling techniques, including stress tests, to measure the impact of changes in interest rates. Net interest income, the primary source of earnings is affected by interest rate movements. To mitigate the impact of changes in interest rates, the balance sheet must be structured so that repricing opportunities exist for both assets and liabilities in approximately equivalent amounts at basically the same time intervals. Imbalances in these repricing opportunities at any point in time constitute interest-sensitivity gaps, the difference between interest-sensitive assets and interest-sensitive liabilities. These static measurements do not reflect the results of any projected activity and are best used as early indicators of potential interest rate exposures. As illustrated by the interest rate sensitivity analysis in the accompanying table, sensitivity to interest rate fluctuations is measured in a number of time frames. ALCO monitors the gap position on an adjusted basis allowing for the impact of off-balance-sheet transactions. At December 31, 1994, UJB Financial had a negative 30-day gap position of $829.8 million and a negative one-year gap of $912.8 million. A negative gap means an excess of interest-sensitive liabilities over interest-sensitive assets. In a rising rate environment, a negative gap position indicates that increases in the cost of interest bearing liabilities will outpace increases in income from interest earning assets. This risk is mitigated by ALCO's numerous strategies, including the administration of liability costs and a re-deployment of asset maturities and cash flows to insulate net interest income from the effects of changes in interest rates. These gap positions are monitored as part of the ALCO process, which includes periodic forecasts of future business activity applied to various interest rate environments in a simulation process. The use of these financial modeling techniques assists management in its continuing efforts to achieve earnings growth in ever-changing interest rate environments. Asset and liability management efforts also involved the use of derivatives, which was primarily limited to interest rate swaps. These swaps were accounted for as hedges and were not recorded on the balance sheet. Income or expense related to these instruments was accrued monthly and recognized as an adjustment to interest income or interest expense for those balance sheet instruments being hedged. Hedged transactions resulted in a net interest income reduction of $1.2 million in 1994, compared to a $6.8 million contribution in 1993. The accompanying table illustrates the aggregate notional amounts and expected maturities of the interest rate swaps at December 31, 1994.
Weighted Notional Avg. Estimated In millions Amount Maturity =================================================================== Receive fixed/pay floating $855.0 7/97 Receive floating/pay fixed 68.5 1/96 ------------------------------------------------------------------- $923.5 - ===================================================================
INTEREST RATE SENSITIVITY TABLE AS OF DECEMBER 31, 1994 Interest Sensitivity Period Total One Year Non-Interest ---------------------------------------------------- Within to Sensitive and In thousands 30 Day 90 Day 180 Day 365 Day One Year Two Years Over Two Years ============================================================================================================================== Earning Assets Total investments $ 716,658 $ 325,646 $ 404,711 $ 358,882 $1,805,897 $ 238,414 $2,302,214 Loans, net 4,418,951 625,272 410,033 575,925 6,030,181 670,251 2,741,981 Money market investments 44,875 - - - 44,875 - - ------------------------------------------------------------------------------------------------------------------------------ Total 5,180,484 950,918 814,744 934,807 7,880,953 908,665 5,044,195 ------------------------------------------------------------------------------------------------------------------------------ Sources of Funds Savings and time deposits 4,880,637 381,067 467,788 568,258 6,297,750 478,120 2,160,139 Commercial CDs 239,398 118,223 9,910 3,610 371,141 - - Borrowed funds 928,767 19,775 51,085 338,772 1,338,399 700 199,085 Non-interest bearing sources - - - - - - 2,988,479 ------------------------------------------------------------------------------------------------------------------------------ Total 6,048,802 519,065 528,783 910,640 8,007,290 478,820 5,347,703 ------------------------------------------------------------------------------------------------------------------------------ Asset/Liability Interval Gap (868,318) 431,853 285,961 24,167 (126,337) 429,845 Net effect of off-balance-sheet instruments 38,541 (855,000) - 30,000 (786,459) - ------------------------------------------------------------------------------------------------------------------------------ Asset/Liability Sensitivity Gap Period gap (829,777) (423,147) 285,961 54,167 (912,796) 429,845 Cumulative gap $ (829,777) $(1,252,924) $(966,963) $(912,796) $ (912,796) $(482,951) ==============================================================================================================================
Interest Rate Sensitivity Table as of December 31, 1994 In thousands Total ============================================= Earning Assets Total investments $ 4,346,525 Loans, net 9,442,413 Money market investments 44,875 --------------------------------------------- Total 13,833,813 --------------------------------------------- Sources of Funds Savings and time deposits 8,936,009 Commercial CDs 371,141 Borrowed funds 1,538,184 Non-interest bearing sources 2,988,479 --------------------------------------------- Total 13,833,813 --------------------------------------------- Asset/Liability Interval Gap Net effect of off-balance-sheet instruments --------------------------------------------- Asset/Liability Sensitivity Gap Period gap Cumulative gap =============================================
36 39 At year-end 1994, the swap agreements had an average maximum remaining maturity of 30 months. Most of the swaps were Indexed Amortizing Swaps (IAS) that were structured to contain an initial principal lockout period followed by scheduled principal amortization. The amortization speed was determined by a sliding percentage scale which used different amortization percentages for varying levels of LIBOR. As a result, the actual lives of these agreements will move with the level of rates, but cannot exceed the maximum life contained in each agreement. The following table illustrates the interest rate swap activity for the past two years.
In millions 1994 1993 ===================================================================== Balance, beginning of year $1,019.0 $ 161.3 Additions 30.0 890.0 Maturities (47.5) (32.3) Terminations (78.0) - --------------------------------------------------------------------- Balance, end of year $ 923.5 $1,019.0 =====================================================================
For additional information on the use of derivative financial instruments, see Notes 21 and 22 of the Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS - 1993 COMPARED WITH 1992 Total earnings in 1993 amounted to $82.4 million, or $1.50 per share, compared to $56.8 million for 1992, or $1.09 per share. As a result of improved earnings for the third year, the quarterly common stock dividend was increased twice during 1993 to an annual dividend rate of $.84 per share, a 40.0% increase over the $.60 dividend rate at year-end 1992. Improved earnings were primarily the result of growth in net interest income and a reduction in the provision for loan losses. Net interest income on a tax-equivalent basis amounted to $592.6 million, an increase of $24.3 million, or 4.3%, from $568.3 million earned in 1992. The net interest spread on a tax-equivalent basis increased to 3.98%, compared to 3.82% earned in 1992. Net interest margin increased to 4.62% during 1993 compared to 4.49% in 1992. The increase in the net interest spread and margin reflected the growth in demand deposits, the repricing of interest bearing liabilities in a declining rate environment and the benefit of reduced levels of non-performing loans. Interest income on a tax-equivalent basis was $924.3 million, a decrease of $73.8. million, or 7.4%, compared to 1992. This decline was primarily due to the reinvestment of cash flows and the repricing of variable rate loans in a lower rate environment. Interest expense was $331.7 million, a decrease of $98.0 million, or 22.8%, from $429.7 million in 1992. The decline was the result of lower rates paid on deposits and other funding sources, in addition to the decline in average interest bearing liabilities. The provision for loan losses was $95.7 million for the year ended December 31, 1993, down $43.9 million, or 31.4%, from $139.6 million recorded in 1992. This reduction was due principally to the decline in non-performing loans. Net charge offs declined $25.6 million to $129.0 million, or 1.46% of average loans, compared to $154.6 million, or 1.73%, in 1992. Non-interest income, including investment securities gains, amounted to $179.5 million in 1993 compared to $177.5 million in 1992, an increase of $2.0 million, or 1.1%. Excluding investment securities gains, non-interest income rose 7.3% over 1992. Service charges on deposit accounts increased $6.1 million, or 11.3%, to $60.5 million in 1993. Service and loan fee income increased $1.7 million, or 5.2%, to $34.6 million in 1993. Trust income rose $2.0 million, or 10.2%, to $21.9 million in 1993. The Pillar Funds grew to $1.1 billion by year-end 1993 and accounted for $4.8 million and $2.0 million in fee income for 1993 and 1992, respectively. Other income amounted to $51.8 million, an increase of $1.7 million, or 3.4%, compared to the prior year. For the year ended December 31, 1993, securities gains were $8.9 million compared to $18.5 million in 1992. These gains were realized as securities available for sale were sold to reduce prepayment risk in the CMO portfolio resulting from the declining interest rate environment. Non-interest expenses totaled $554.2 million, an increase of $43.2 million, or 8.4%, compared to 1992. Excluding the 1993 restructuring charge of $21.5 million, non-interest expenses would have been $532.7 million, an increase of $21.7 million, or 4.2%, over 1992. Salaries totaled $185.6 million in 1993, an increase of $6.1 million, or 3.4%, compared to 1992. Pension and other employee benefits of $58.6 million for the year ended December 31, 1993 were $7.4 million, or 14.4%, above 1992. The incremental expenses related to the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," amounted to $2.9 million in 1993. Furniture and equipment expenses amounted to $45.6 million, an increase of $3.2 million, or 7.5%, over the $42.4 million in 1992. OREO expenses totaled $40.9 million for 1993 and were up $2.8 million, or 7.4%, over 1992. Included in this total was a provision of $32.1 million for valuation adjustments to maintain the carrying value of the OREO portfolio at the lower of cost or fair value less costs to sell on an individual property-by-property basis. Also included in this total were expenses related to holding and operating foreclosed properties. These costs declined by 12.4%, or $1.3 million, in 1993 to $8.9 million for the year. The FDIC assessment of $29.2 million reflected an increase of $3.2 million, or 12.3%, above 1992. Other expenses were $113.8 million in 1993, a decrease of $1.6 million, or 1.4%, from 1992. This decrease was primarily the result of reduced expenses on non-performing loans and lower charge offs on check losses. In the third quarter of 1993, a charge of $21.5 million was recorded to reflect the costs associated with consolidation of the bank subsidiaries and reorganizing the company along business lines. The charge generally represented those incremental costs incurred as a result of the restructuring plan. 37 40 UJB FINANCIAL CORP. AND SUBSIDIARIES SUMMARY OF SELECTED FINANCIAL DATA
Not covered by independent auditors' report 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS (IN THOUSANDS) Interest income................................................................. $ 960,973 $ 907,628 $ 979,008 Interest expense................................................................ 344,869 331,720 429,725 ------------------------------------------------------------------------------------------------------------------------------- Net interest income.......................................................... 616,104 575,908 549,283 Provision for loan losses....................................................... 84,000 95,685 139,555 ------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses.......................... 532,104 480,223 409,728 Non-interest income............................................................. 177,335 179,522 177,503 Non-interest expenses........................................................... 505,246 554,190 511,013 ------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes............................................ 204,193 105,555 76,218 Federal and state income taxes (benefit)........................................ 72,312 26,953 19,430 ------------------------------------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of a change in accounting principle... 131,881 78,602 56,788 Cumulative effect of a change in accounting principle........................... (1,731) 3,816 -- ------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 130,150 $ 82,418 $ 56,788 =============================================================================================================================== COMMON SHARE DATA Net income (loss)............................................................... $ 2.35 $ 1.50 $ 1.09 Cash dividends declared......................................................... .94 .69 .60 Book value at year end.......................................................... 19.53 18.23 17.38 Market value at year end........................................................ 24.13 24.00 24.25 Number of registered common shareholders at year end............................ 20,323 21,173 22,139 Average common shares outstanding (in thousands)................................ 54,697 53,917 50,398 Common shares outstanding at year end (in thousands)............................ 55,005 54,261 53,493 Common stock dividend payout.................................................... 40.00% 46.00% 55.05% =============================================================================================================================== BALANCE SHEET DATA (AT YEAR END, IN THOUSANDS) Total assets.................................................................... $15,429,472 $13,789,641 $14,114,550 Total deposits.................................................................. 12,567,791 11,751,499 12,087,328 Total loans..................................................................... 9,656,574 8,743,708 8,928,580 Shareholders' equity............................................................ 1,104,260 1,019,252 959,492 Allowance for loan losses....................................................... 214,161 244,154 277,449 Long-term debt.................................................................. 204,754 208,654 216,945 =============================================================================================================================== OPERATING RATIOS Return on average assets........................................................ .88% .59% .41% Return on average common equity................................................. 12.36 8.32 6.37 Net interest margin............................................................. 4.63 4.62 4.49 Efficiency ratio................................................................ 60.4 64.4 65.4 =============================================================================================================================== LOAN QUALITY RATIOS Allowance for loan losses to year-end loans..................................... 2.22% 2.79% 3.11% Net charge offs to average loans................................................ .86 1.46 1.73 Non-performing loans to year-end loans.......................................... 1.74 2.91 4.09 =============================================================================================================================== CAPITAL RATIOS Average total equity to average total assets.................................... 7.19% 7.12% 6.48% Tier I capital to average assets (leverage)..................................... 7.02 7.20 6.79 Tier I capital to risk-adjusted assets.......................................... 9.27 9.64 9.18 Total capital to risk-adjusted assets........................................... 12.04 12.67 12.26 =============================================================================================================================== OTHER DATA (AT YEAR END) Number of banking offices....................................................... 270 264 265 Number of employees (full-time equivalent)...................................... 6,143 6,300 6,405 Number of employees (full-time)................................................. 5,361 5,557 5,750 Number of employees (part-time)................................................. 987 931 820 ===============================================================================================================================
Selected Financial Data has been restated to reflect the merger of VSB Bancorp. Per share data from the year 1989 and prior was not restated as VSB Bancorp was a mutual association. See accompanying consolidated financial statements and notes. NA - Not applicable. 38 41
1991 1990 1989 1988 1987 1986 1985 --------------------------------------------------------------------------------------------------------------------------------- $ 1,134,624 $ 1,217,082 $ 1,132,793 $ 943,985 $ 813,357 $ 747,027 $ 729,390 634,432 723,064 653,402 505,487 415,464 404,955 427,086 --------------------------------------------------------------------------------------------------------------------------------- 500,192 494,018 479,391 438,498 397,893 342,072 302,304 167,650 251,888 51,955 40,090 33,315 38,194 24,492 --------------------------------------------------------------------------------------------------------------------------------- 332,542 242,130 427,436 398,408 364,578 303,878 277,812 150,125 170,509 123,690 114,998 107,103 105,341 74,050 454,731 441,221 386,614 356,250 327,153 302,627 268,912 --------------------------------------------------------------------------------------------------------------------------------- 27,936 (28,582) 164,512 157,156 144,528 106,592 82,950 3,684 (17,166) 42,973 39,127 38,095 19,277 11,076 --------------------------------------------------------------------------------------------------------------------------------- 24,252 (11,416) 121,539 118,029 106,433 87,315 71,874 -- -- -- -- -- -- -- --------------------------------------------------------------------------------------------------------------------------------- $ 24,252 $ (11,416) $ 121,539 $ 118,029 $ 106,433 $ 87,315 $ 71,874 ================================================================================================================================= $ .46 $ (.29) $ 2.62 $ 2.58 $ 2.31 $ 2.02 $ 1.79 .60 1.02 1.11 1.01 .91 .82 .73 16.92 17.09 18.67 17.02 15.47 13.97 12.02 14.63 7.13 18.88 20.75 22.25 23.75 23.75 22,653 23,159 22,407 22,042 18,819 19,211 19,109 48,279 47,230 43,785 43,113 42,166 40,655 37,204 48,515 47,726 44,077 43,474 42,753 41,428 38,120 130.43% NA 42.37% 39.15% 39.39% 40.59% 40.78% ================================================================================================================================= $13,727,539 $13,156,273 $12,511,455 $11,198,616 $ 10,430,982 $ 9,584,132 $ 8,307,047 11,620,247 10,912,739 9,623,498 9,176,608 8,143,268 7,986,219 6,912,046 8,937,873 8,860,622 8,509,331 7,476,451 6,719,347 5,909,764 4,788,088 850,873 845,551 898,222 823,082 772,566 626,255 503,105 292,490 265,148 122,719 108,485 96,292 84,602 69,624 65,152 72,960 82,055 87,937 89,196 108,670 118,262 ================================================================================================================================= .18% (.09)% 1.05% 1.11% 1.10% 1.01% .93% 2.70 (1.53) 14.15 15.61 15.68 15.16 15.15 4.18 4.29 4.79 4.86 4.99 5.11 5.06 66.8 66.1 61.7 61.4 59.9 60.9 62.5 ================================================================================================================================= 3.27% 2.99% 1.44% 1.45% 1.43% 1.43% 1.45% 1.58 1.25 .47 .40 .35 .44 .32 5.07 4.94 2.21 1.41 .75 1.02 1.07 ================================================================================================================================= 6.30% 6.95% 7.63% 7.49% 7.32% 6.80% 6.26% 6.10 6.07 7.35 7.40 7.44 NA NA 8.27 8.23 NA NA NA NA NA 9.77 9.83 NA NA NA NA NA ================================================================================================================================= 267 272 257 249 247 245 246 6,584 6,565 6,443 6,524 6,332 6,247 6,086 5,904 5,855 5,756 5,827 5,704 5,624 5,479 880 889 842 1,061 1,012 1,001 975 =================================================================================================================================
39 42 UJB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31 ------------------------------ (Dollars in thousands) 1994 1993 ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents: Cash and due from banks (Note 3) .............................................................. $ 925,421 $ 725,174 Federal funds sold and securities purchased under agreements to resell ........................ 44,875 99,500 ----------------------------------------------------------------------------------------------------------------------------------- Total cash and cash equivalents 970,296 824,674 ----------------------------------------------------------------------------------------------------------------------------------- Interest bearing deposits with banks ............................................................. 18,809 19,962 Trading account securities ....................................................................... 33,513 29,735 Investment securities available for sale (Note 4) (Market value of $201,215 in 1994 and $1,177,585 in 1993) ....................................................................... 201,215 1,162,088 Investment securities (Note 5) (Market value of $3,902,439 in 1994 and $2,728,994 in 1993) ....................................................................... 4,092,988 2,685,650 Loans (Notes 6, 7 and 23) ........................................................................ 9,656,574 8,743,708 Less: Allowance for loan losses (Note 8) ...................................................... 214,161 244,154 ----------------------------------------------------------------------------------------------------------------------------------- Net loans 9,442,413 8,499,554 ----------------------------------------------------------------------------------------------------------------------------------- Premises and equipment (Note 9) .................................................................. 167,905 171,439 Assets held for accelerated disposition .......................................................... 90,888 -- Accrued interest receivable ...................................................................... 89,926 74,487 Other real estate owned, net (Note 10) ........................................................... 31,449 74,780 Due from customers on acceptances ................................................................ 21,159 20,126 Other assets (Notes 1 and 18) .................................................................... 268,911 227,146 ----------------------------------------------------------------------------------------------------------------------------------- Total Assets $15,429,472 $13,789,641 =================================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing demand deposits .......................................................... $ 3,260,641 $ 2,805,819 Interest bearing deposits: Savings and time deposits .................................................................. 8,936,009 8,719,094 Commercial certificates of deposit $100,000 and over ....................................... 371,141 226,586 ----------------------------------------------------------------------------------------------------------------------------------- Total deposits 12,567,791 11,751,499 ----------------------------------------------------------------------------------------------------------------------------------- Other borrowed funds (Note 11) ................................................................... 1,333,430 619,687 Long-term debt (Note 12) ......................................................................... 204,754 208,654 Accrued interest payable ......................................................................... 30,234 23,340 Bank acceptances outstanding ..................................................................... 21,159 20,126 Accrued expenses and other liabilities (Notes 15 and 18) ......................................... 167,844 147,083 ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 14,325,212 12,770,389 ----------------------------------------------------------------------------------------------------------------------------------- Commitments and contingent liabilities (Notes 19, 20 and 21) Shareholders' equity (Notes 12, 13, 15 and 16): Preferred stock: Authorized 4,000,000 shares without par value: Series B:Authorized 1,200,000 shares; issued and outstanding 600,166 in 1994 and 1993, adjustable-rate cumulative, $50 stated value .......................... 30,008 30,008 Common stock par value $1.20: Authorized 130,000,000 shares; issued and outstanding 55,005,306 in 1994 and 54,260,768 in 1993 .......................................................... 66,006 65,113 Surplus ....................................................................................... 413,429 398,723 Retained earnings ............................................................................. 604,066 525,408 Net unrealized gain (loss) on investment securities, net of tax ............................... (9,249) -- ----------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 1,104,260 1,019,252 ----------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $15,429,472 $13,789,641 ===================================================================================================================================
See accompanying notes to consolidated financial statements. 40 43 UJB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 ------------------------------------------- (Dollars in thousands, except per share data) 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME Interest and fees on loans (Note 7) .................................................. $ 706,049 $ 670,705 $ 713,987 Interest on investment securities (Note 5): Taxable ........................................................................... 195,904 177,549 217,383 Tax-exempt ........................................................................ 22,823 25,448 30,206 Interest on investment securities available for sale (Note 4) ........................ 34,300 31,023 10,782 Interest on Federal funds sold and securities purchased under agreements to resell ... 600 955 4,615 Interest on trading account securities ............................................... 668 1,297 1,367 Interest on deposits with banks ...................................................... 629 651 668 ------------------------------------------------------------------------------------------------------------------------------------ Total interest income 960,973 907,628 979,008 ------------------------------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE Interest on savings and time deposits ................................................ 239,714 271,345 366,023 Interest on commercial certificates of deposit $100,000 and over ..................... 13,639 7,319 16,320 Interest on borrowed funds (Notes 11 and 12) ......................................... 91,516 53,056 47,382 ------------------------------------------------------------------------------------------------------------------------------------ Total interest expense 344,869 331,720 429,725 ------------------------------------------------------------------------------------------------------------------------------------ Net interest income ............................................................ 616,104 575,908 549,283 Provision for loan losses (Note 8 ) .................................................. 84,000 95,685 139,555 ------------------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 532,104 480,223 409,728 ------------------------------------------------------------------------------------------------------------------------------------ NON-INTEREST INCOME Service charges on deposit accounts .................................................. 64,474 60,474 54,356 Service and loan fee income .......................................................... 42,008 34,626 32,900 Trust income ......................................................................... 21,792 21,852 19,837 Investment securities gains (Notes 4 and 5) .......................................... 1,888 8,877 18,485 Trading account gains ................................................................ 670 1,884 1,804 Other ................................................................................ 46,503 51,809 50,121 ------------------------------------------------------------------------------------------------------------------------------------ Total non-interest income 177,335 179,522 177,503 ------------------------------------------------------------------------------------------------------------------------------------ NON-INTEREST EXPENSES Salaries ............................................................................. 183,339 185,570 179,457 Pension and other employee benefits (Note 15) ........................................ 53,386 58,601 51,209 Occupancy, net (Notes 9 and 19) ...................................................... 50,749 48,487 47,872 Furniture and equipment (Notes 9 and 19) ............................................. 49,065 45,592 42,404 FDIC assessment ...................................................................... 27,933 29,244 26,047 Other real estate owned expenses (Note 10) ........................................... 18,287 40,925 38,092 Advertising and public relations ..................................................... 10,843 10,517 10,578 Restructuring charge ................................................................. -- 21,500 -- Other (Note 17) ...................................................................... 111,644 113,754 115,354 ------------------------------------------------------------------------------------------------------------------------------------ Total non-interest expenses 505,246 554,190 511,013 ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes ..................................................... 204,193 105,555 76,218 Federal and state income taxes (Note 18) ............................................. 72,312 26,953 19,430 ------------------------------------------------------------------------------------------------------------------------------------ Income before cumulative effect of a change in accounting principle ............ 131,881 78,602 56,788 Cumulative effect of a change in accounting principle (Notes 15 and 18) .............. (1,731) 3,816 -- ==================================================================================================================================== Net Income $ 130,150 $ 82,418 $ 56,788 ==================================================================================================================================== Net Income Per Common Share: Income before cumulative effect of a change in accounting principle ............ $ 2.38 $ 1.43 $ 1.09 Cumulative effect of a change in accounting principle (Notes 15 and 18) .............. (.03) .07 -- ==================================================================================================================================== Net Income Per Common Share $ 2.35 $ 1.50 $ 1.09 ==================================================================================================================================== Average Common Shares Outstanding (in thousands) 54,697 53,917 50,398 ====================================================================================================================================
See accompanying notes to consolidated financial statements. 41 44 UJB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 ----------------------------------------- (Dollars in thousands) 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income .................................................................... $ 130,150 $ 82,418 $ 56,788 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for loan losses and other real estate owned ...................... 94,573 127,747 167,524 Depreciation, amortization and accretion, net ............................... 33,352 27,876 22,776 Restructuring charge ........................................................ -- 21,500 -- Deferred income tax (benefit) ............................................... 19,030 (5,725) (4,811) Gains on sales of investment and trading account securities ................. (2,558) (10,761) (20,289) Gains on sales of mortgages held for sale ................................... (500) (3,492) (3,511) Gains on sales of other real estate owned ................................... (1,457) (1,716) (1,484) Proceeds from sales of other real estate owned .............................. 44,927 62,012 79,464 Proceeds from sales of mortgages held for sale .............................. 146,435 321,226 314,379 Originations of mortgages held for sale ..................................... (118,627) (269,655) (329,436) Net increase in trading account securities .................................. (3,108) (5,890) (16,902) (Increase) decrease in accrued interest receivable and other assets ......... (167,957) (26,381) 19,834 Increase (decrease) in accrued interest payable, accrued expenses and other liabilities ......................................................... 28,688 31,145 (6,166) ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 202,948 350,304 278,166 ------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from sales of investment securities .................................. -- -- 193,976 Proceeds from maturities of investment securities ............................. 975,071 1,283,651 938,997 Purchases of investment securities ............................................ (1,700,063) (1,833,506) (2,500,286) Purchases of investment securities available for sale ......................... (11,471) (316,303) -- Proceeds from maturities of investment securities available for sale .......... 261,098 192,605 178,961 Proceeds from sales of investment securities available for sale ............... 5,109 517,906 1,051,453 Net decrease (increase) in interest bearing deposits with banks ............... 1,153 (6,143) 12,087 Proceeds from sales of loans .................................................. -- 84,836 -- Net increase in loans ......................................................... (1,061,876) (109,388) (220,687) Purchases of premises and equipment, net ...................................... (16,589) (14,592) (8,389) ------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (1,547,568) (200,934) (353,888) ------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net increase in demand and savings deposits ................................... 258,291 362,450 1,197,745 Net increase (decrease) in time deposits ...................................... 558,001 (698,279) (730,664) Net increase (decrease) in short-term borrowings .............................. 719,371 (84,574) (330,574) Principal payments on long-term debt, net ..................................... (10,568) (28,075) (26,949) Proceeds from issuance of debt, net of related expenses ....................... 1,040 20,000 172,489 Dividends paid ................................................................ (49,817) (34,806) (30,888) Proceeds from issuance of common stock, net of related expense ................ -- -- 68,345 Proceeds from issuance of common stock under dividend reinvestment and other stock plans ........................................................... 15,256 15,186 13,577 Other, net .................................................................... (1,332) (3,301) 954 ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 1,490,242 (451,399) 334,035 ------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents .............................. 145,622 (302,029) 258,313 Cash and cash equivalents at beginning of year ................................ 824,674 1,126,703 868,390 ------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 970,296 $ 824,674 $ 1,126,703 =============================================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid: Interest payments ........................................................... $ 337,975 $ 345,805 $ 451,858 Income tax payments ......................................................... 60,063 28,913 22,059 Noncash investing activities: Loans made in conjunction with the sale of other real estate owned .......... 9,891 17,112 510 Transfer of investments (from) to investment securities available for sale .. (707,808) 666,687 1,737,999 Transfer of loans to other real estate owned ................................ 41,017 51,784 139,489 Transfer of assets to assets held for accelerated disposition, net .......... 90,888 -- -- ===============================================================================================================================
See accompanying notes to consolidated financial statements. 42 45 UJB FINANCIAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Net Total Preferred Common Retained Unrealized Shareholders' (Dollars in thousands) Stock Stock Surplus Earnings Gain (Loss) Equity ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1991.................... $30,008 $58,219 $308,509 $455,909 $ (1,772) $ 850,873 Net income, 1992........................... -- -- -- 56,788 -- 56,788 Proceeds from issuance of common stock (4,000,000 shares)...................... -- 4,800 63,545 -- -- 68,345 Cash dividends declared: Preferred stock......................... -- -- -- (1,847) -- (1,847) Common stock............................ -- -- -- (29,756) -- (29,756) Common stock issued: Dividend reinvestment and other stock plans (779,140 shares)............... -- 935 10,833 -- -- 11,768 Exercise of stock options, net (198,396 shares).............................. -- 238 1,571 -- -- 1,809 Change in valuation allowance for marketable equity securities............ -- -- -- -- 1,512 1,512 ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1992 30,008 64,192 384,458 481,094 (260) 959,492 ----------------------------------------------------------------------------------------------------------------------- Net income, 1993........................... -- -- -- 82,418 -- 82,418 Cash dividends declared: Preferred stock......................... -- -- -- (1,801) -- (1,801) Common stock............................ -- -- -- (36,303) -- (36,303) Common stock issued: Dividend reinvestment and other stock plans (459,430 shares)............... -- 551 9,918 -- -- 10,469 Exercise of stock options, net (308,395 shares).............................. -- 370 4,347 -- -- 4,717 Change in valuation allowance for marketable equity securities............ -- -- -- -- 260 260 ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 30,008 65,113 398,723 525,408 -- 1,019,252 ----------------------------------------------------------------------------------------------------------------------- Net unrealized gain (loss) on investment securities upon adoption of a change in accounting principle, net of tax........ -- -- -- -- 9,355 9,355 Adjustment for the pooling of a company with a different fiscal year end........ -- -- 343 1,769 -- 2,112 Net income, 1994........................... -- -- -- 130,150 -- 130,150 Cash dividends declared: Preferred stock......................... -- -- -- (1,835) -- (1,835) Common stock............................ -- -- -- (51,426) -- (51,426) Common stock issued: Dividend reinvestment and other stock plans (353,345 shares)............... -- 424 8,635 -- -- 9,059 Exercise of stock options, net (391,193 shares).............................. -- 469 5,728 -- -- 6,197 Change in unrealized gain (loss) on investment securities, net of tax....... -- -- -- -- (18,604) (18,604) ----------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 $30,008 $66,006 $413,429 $604,066 $ (9,249) $1,104,260 =======================================================================================================================
See accompanying notes to consolidated financial statements. 43 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS UJB Financial Corp. (UJB Financial) commenced operations on October 1, 1970, as a New Jersey corporation and as a bank holding company registered under the Bank Holding Company Act of 1956. Through its bank and active non-bank subsidiaries, UJB Financial provides a full range of banking services and certain non-bank services to individual and corporate customers in a competitive environment. UJB Financial is regulated by various Federal and state agencies and is subject to periodic examination by those regulatory authorities. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of UJB Financial and all of its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Prior period consolidated financial statements and related footnote disclosures have been restated to include the acquisition of VSB Bancorp, Inc. This acquisition occurred on July 1, 1994 and was accounted for on the pooling-of-interests method. Palisade Savings Bank, FSB acquired on September 16, 1994, was recorded under the purchase method of accounting, with the operating results included from the date of acquisition. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from these estimates. CASH FLOW REPORTING The Consolidated Statements of Cash Flows are presented using the indirect method. Cash and cash equivalents include cash on hand, amounts due from banks, Federal funds sold, and securities purchased under agreements to resell. Generally, Federal funds are sold for one day periods and securities purchased under agreements to resell are short-term, highly liquid assets. SECURITIES Effective January 1, 1994, Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115) was adopted. As required by SFAS No. 115, securities are classified into one of three investment categories: trading account securities, investment securities available for sale and investment securities. Securities that are purchased specifically for short-term appreciation and held with the intent of selling in the near future are classified as trading account securities. Securities purchased with the intent and ability to hold until maturity are classified as investment securities. All other securities, including equity securities, are classified as investment securities available for sale. Trading account securities are reported at market value on a specific identification basis. Realized and unrealized gains and losses are reported in non-interest income as trading account gains. Securities are classified as available for sale where there is intent to hold the securities for an indefinite period of time, but not necessarily to maturity. Investments classified as available for sale may be sold in response to changing market and interest rate conditions, or as part of an overall asset/liability management strategy. These securities are reported at fair value with unrealized gains and losses reported, net of tax, in shareholders' equity. Realized gains and losses are reported in non-interest income as investment securities gains. Investment securities are held for long-term investment upon evaluation of intent and the ability to hold these securities until maturity. The investment securities are recorded at amortized cost. Transfers of securities between categories are at fair value as of the transfer date, with the accounting treatment of unrealized gains or losses determined by the category into which the security is transferred. LOANS Loans are stated at principal amounts outstanding, net of unearned discounts and net deferred loan origination fees and costs. Interest income on loans is accrued and credited to interest and fees on loans as earned. Loan origination fees and certain direct loan origination costs are deferred and recognized over the estimated life of the loan as an adjustment to the loan's yield. Other loan fees are recorded as earned and included in non-interest income. NON-PERFORMING LOANS Non-performing loans generally consist of commercial non-accrual and renegotiated loans. These loans are classified as non-accrual loans when they are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collectibility. At the time a loan is placed on non-accrual status, previously accrued and uncollected interest is reversed against interest income. Interest collections on non-accrual loans are generally credited to interest income when received. However, if ultimate collectibility of principal is in doubt, interest collections are applied as principal reductions. After principal and interest payments are brought current and future collectibility is reasonably assured, loans are returned to accrual status. Renegotiated loans are loans whose contractual interest rates have been reduced to below market rates or other significant concessions made due to a borrower's financial difficulties. Interest on renegotiated loans is generally credited to interest income when received. Consumer loans are charged off when they are 120 days past due. Accruals cease at 180 days on home equity loans, and uncollected interest is reversed against interest income. Past due residential mortgage loans and home equity loans are monitored and charged off when deemed uncollectible. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is a valuation reserve available for losses incurred or expected on extensions of credit. Credit losses arise primarily from the loan portfolio, but may also be derived from other credit-related sources including commitments to extend credit, guarantees, standby letters of credit, and derivatives. Additions are made to the allowance through periodic provisions which are charged to earnings. All losses of principal are charged to the allowance when the loss actually occurs or when a determination is made that a loss is probable. Subsequent recoveries, if any, are added back to the allowance. 44 47 The adequacy of the allowance for loan losses is determined through a quarterly review of outstanding extensions of credit. The impact of economic conditions on the creditworthiness of the borrowers is given consideration, as well as loan loss experience, changes in the composition and volume of the loan portfolio, and management's assessment of the risk inherent in the loan portfolio. These and other factors are used in assessing the overall adequacy of the allowance for loan losses and the resulting provision for loan losses. PREMISES AND EQUIPMENT Premises, furniture and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization charges are computed using the straight-line method. Premises, furniture and equipment are depreciated over the estimated useful life of the assets, except for leasehold improvements, which are amortized over the term of the lease or the estimated useful life of the asset, if shorter. Estimated useful lives are ten to forty years for premises, and three to ten years for furniture and equipment. The cost of major renewals and improvements are capitalized. Expenditures for maintenance and repairs are expensed as incurred. Premises and major items of furniture and equipment are removed from property accounts upon disposition at their carrying amount, and gains or losses on such transactions are included in other non-interest income or expense. ASSETS HELD FOR ACCELERATED DISPOSITION In December 1994, certain commercial accruing and non-accruing loans and other real estate owned properties were identified for sale under an accelerated disposition program. These assets were transferred into an accelerated disposition classification and were written down to their estimated net realizable value. The valuation of the assets in this classification will be determined quarterly and will be carried at the lower of the initially established carrying value or a new net realizable value. Additional write downs, if any, will be charged against earnings. OTHER REAL ESTATE OWNED Other real estate owned includes both foreclosed and in-substance foreclosed property. In-substance foreclosed property includes properties for which borrowers have little or no equity or prospects for building equity in the collateral and for which the loan repayment can only be expected from the operation or sale of the collateral. When a property is acquired through foreclosure or in-substance foreclosure, the excess of the carrying amount over fair value, if any, is charged to the allowance for loan losses. An allowance for other real estate owned has been established to maintain these properties at the lower of cost or fair value less estimated cost to sell. Other real estate owned is shown net of the allowance. The allowance is established through charges to other real estate owned expense. Operating results of other real estate owned, including rental income, operating expenses, and gains and losses realized from the sale of properties owned, are recorded in other real estate owned expense. DERIVATIVES Derivative financial instruments are primarily used in the management of interest rate risk and are accounted for on an accrual basis. Interest income or expense arising from these instruments is recorded as a yield adjustment to the related hedged assets or liabilities. Gains or losses on the termination of interest rate swaps are deferred and amortized as an adjustment to the yield of the hedged asset or liability over its remaining life. INCOME TAXES The amount provided for income taxes is based on income reported for consolidated financial statement purposes after elimination of income which is exempt from Federal income tax. Such tax-exempt income is derived primarily from investment securities of states and political subdivisions and certain commercial and mortgage loans. On January 1, 1993, Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109) was adopted. Under SFAS No. 109, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates to differences between the financial statement carrying amounts and tax basis of existing assets and liabilities. The effect of a change in tax rate on deferred taxes is recognized in the period of the enactment date. The cumulative effect at January 1, 1993, of this change in the method of accounting for income taxes has been included in the Consolidated Statements of Income for the year ended December 31, 1993. UJB Financial and its subsidiaries file a consolidated Federal income tax return, and the amount of income tax expense or benefit is computed and allocated on a separate return basis. INTANGIBLE ASSETS Other assets include goodwill which represents the excess of the purchase price over the estimated fair value of identifiable net assets acquired through purchase acquisitions. Goodwill is being amortized on a straight-line method over the future periods estimated to be benefited, ranging from ten to forty years. Goodwill amounted to $31,998,000 and $13,561,000 at December 31, 1994 and 1993, respectively. Core deposit intangibles and other identifiable intangibles amounted to $16,004,000 and $15,003,000 at December 31, 1994 and 1993, respectively, and are being amortized over their estimated future periods of benefit ranging from five to ten years. RETIREMENT PLANS UJB Financial and its subsidiaries have several formal non-contributory retirement plans which cover substantially all employees. Annual contributions are made to the plans in amounts not less than the minimum regulatory requirements. The costs associated with these benefits are accrued based on actuarial assumptions and included in non-interest expenses. INCOME PER SHARE Income per common share is calculated by dividing net income, less the dividend on the adjustable-rate cumulative preferred stock, by the average daily number of common shares outstanding during the period. Common stock equivalents are not included in the calculation as they are not material. 45 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 ACQUISITIONS In December 1993, UJB Financial entered into an agreement to acquire VSB Bancorp, Inc. (VSB) and its wholly owned subsidiary Valley Savings Bank. The transaction, accounted for as a pooling of interests, was consummated on July 1, 1994. UJB Financial common stock was exchanged at the rate of .7727 for each share of VSB common stock. There were 2,628,912 shares of UJB Financial common stock issued for 3,402,619 shares of VSB common stock. Separate results of operations of the entities for the two years prior to acquisition were as follows:
In thousands 1993 1992 --------------------------------------------------------------------- Net interest income: UJB Financial $563,135 $538,225 VSB Bancorp, Inc. 12,773 11,058 --------------------------------------------------------------------- $575,908 $549,283 ===================================================================== Net income: UJB Financial $78,055 $ 53,824 VSB Bancorp, Inc. 4,363 2,964 --------------------------------------------------------------------- $82,418 $ 56,788 =====================================================================
Prior to the combination, VSB's fiscal year ended September 30. In recording the pooling of interests, an adjustment has been made to stockholders' equity as of January 1, 1994 to reflect the effect of including VSB's results of operations for the three months ended December 31, 1993. In May 1994, UJB Financial entered into an agreement to purchase Palisade Savings Bank, FSB (Palisade). On September 16, 1994, the acquisition of Palisade was completed at a cost of $42,156,000 and the transaction was recorded under the purchase method. Palisade had total assets of $324,237,000, loans of $164,843,000 and deposits of $266,678,000. Results of operations are included from the acquisition date. The acquisition of Palisade resulted in goodwill of $19,942,000 which is being amortized over fifteen years. The proforma results of operations for the period January 1, 1994 to September 16, 1994 and for the year ended December 31, 1993, assuming Palisade had been acquired as of January 1, 1993, would not have been significantly different from those presented in the Consolidated Statements of Income. On January 19, 1995, UJB Financial announced a definitive agreement to acquire Bancorp New Jersey, Inc. (Bancorp) for a combination of cash and stock with an approximate value of $88,900,000. Bancorp is a bank holding company with assets of $480,371,000, loans of $293,363,000 and deposits of $421,993,000. It operates New Jersey Savings Bank with 12 banking offices - nine in Somerset County, two in Hunterdon County and one in Mercer County. NOTE 3 RESTRICTIONS ON CASH AND DUE FROM BANKS Certain subsidiary banks are required to maintain reserve balances with a Federal Reserve Bank based principally upon deposits. These reserve balances averaged $359,124,000 in 1994 and $332,881,000 in 1993. NOTE 4 INVESTMENT SECURITIES AVAILABLE FOR SALE The following is a comparative summary of investment securities available for sale at December 31:
Gross Gross Amortized Unrealized Unrealized Market In thousands Cost Gains Losses Value ---------------------------------------------------------------------------- 1994 U.S. Government and Federal agencies $ 122,974 $ 2 $ 13,251 $ 109,725 Other securities: Mortgage-backed 55,090 - 2,885 52,205 Equities, net 35,605 4,810 1,130 39,285 ---------------------------------------------------------------------------- Total, other 90,695 4,810 4,015 91,490 ---------------------------------------------------------------------------- $ 213,669 $ 4,812 $ 17,266 $ 201,215 ============================================================================ 1993 U.S. Government and Federal agencies $ 669,841 $ 8,051 $ 174 $ 677,718 Other securities: Mortgage-backed 474,554 3,914 816 477,652 Other debt 3,500 - 30 3,470 Equities, net 14,193 4,552 - 18,745 ---------------------------------------------------------------------------- Total, other 492,247 8,466 846 499,867 ---------------------------------------------------------------------------- $1,162,088 $16,517 $ 1,020 $1,177,585 ============================================================================
The amortized cost and market value of investment securities available for sale at December 31, 1994 are distributed by contractual maturity. However, mortgage-backed securities and other securities which may have principal prepayment provisions are distributed to a maturity category based on the estimated average life. These prepayments are not scheduled over the life of the investment, but are reflected as adjustments to the final maturity distribution. The following is a summary of the expected maturity distribution at December 31, 1994:
Amortized Market In thousands Cost Value ------------------------------------------------------------------------ Due in one year or less $ - $ - Due after one year through five years 60,316 57,961 Due after five years through ten years 90,900 81,117 Due after ten years 26,848 22,852 Marketable equity securities, net 35,605 39,285 ------------------------------------------------------------------------ $ 213,669 $ 201,215 ========================================================================
Gains and losses were realized on sales of investment securities available for sale as follows:
In thousands 1994 1993 1992 --------------------------------------------------------------------- Gains $1,591 $11,147 $14,783 Losses - (2,816) (63) --------------------------------------------------------------------- Net gains $1,591 $ 8,331 $14,720 =====================================================================
Interest and dividend income on investment securities available for sale was as follows:
In thousands 1994 1993 1992 -------------------------------------------------------------------- U.S. Government and Federal agencies $ 20,504 $17,082 $10,290 Other securities 13,796 13,941 492 -------------------------------------------------------------------- $ 34,300 $31,023 $10,782 ====================================================================
The carrying value of securities pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes required by law was $62,485,000 at December 31, 1994. 46 49 NOTE 5 INVESTMENT SECURITIES The following is a comparative summary of investment securities at December 31:
Gross Gross Amortized Unrealized Unrealized Market In thousands Cost Gains Losses Value ---------------------------------------------------------------------------------------------- 1994 U.S. Government and Federal agencies $2,016,615 $ 517 $ 100,643 $1,916,489 States and political subdivisions 331,000 11,749 3,319 339,430 Other securities: Mortgage-backed 1,725,367 275 99,128 1,626,514 Other debt 20,006 -- -- 20,006 ---------------------------------------------------------------------------------------------- Total, other 1,745,373 275 99,128 1,646,520 ---------------------------------------------------------------------------------------------- $4,092,988 $ 12,541 $ 203,090 $3,902,439 ============================================================================================== 1993 U. S. Government and Federal agencies $1,485,425 $ 23,169 $ 7,494 $1,501,100 States and political subdivisions 308,004 28,274 520 335,758 Other securities: Mortgage-backed 860,642 1,827 1,869 860,600 Other debt 31,579 2 45 31,536 ---------------------------------------------------------------------------------------------- Total, other 892,221 1,829 1,914 892,136 ---------------------------------------------------------------------------------------------- $2,685,650 $ 53,272 $ 9,928 $2,728,994 ==============================================================================================
The amortized cost and the market value of investment securities at December 31, 1994 are distributed by contractual maturity. However, mortgage-backed securities and other securities which may have principal prepayment provisions are distributed to a maturity category based on the estimated average life. These prepayments are not scheduled over the life of the investment, but are reflected as adjustments to the final maturity distribution. The following is a summary of the expected maturity distribution at December 31, 1994:
Amortized Market In thousands Cost Value -------------------------------------------------------------------------------- Due in one year or less $ 205,032 $ 202,936 Due after one year through five years 1,611,676 1,532,341 Due after five years through ten years 1,559,869 1,466,963 Due after ten years 716,411 700,199 -------------------------------------------------------------------------------- $4,092,988 $3,902,439 ================================================================================
Gains and losses were realized on early redemptions and sales of investment securities as follows:
In thousands 1994 1993 1992 ------------------------------------------------------------------------- Investments in debt securities: Gains on early redemptions $303 $ 732 $ -- Gains on sales -- -- 4,189 Losses on early redemptions and sales (6) (186) (850) ------------------------------------------------------------------------- 297 546 3,339 Net gains on marketable equity securities -- -- 426 ------------------------------------------------------------------------- Net securities gains $297 $ 546 $3,765 =========================================================================
Interest and dividend income on investment securities was as follows:
In thousands 1994 1993 1992 -------------------------------------------------------------------------------- U.S. Government and Federal agencies $107,700 $146,926 $200,497 States and political subdivisions 22,816 25,204 30,514 Other securities 88,211 30,867 16,578 -------------------------------------------------------------------------------- $218,727 $202,997 $247,589 ================================================================================
The carrying value of securities pledged to secure public funds, securities sold under agreements to repurchase, and for other purposes required by law was $2,395,564,000 at December 31, 1994. NOTE 6 LOANS The composition of the loan portfolio, net of unearned discount and net deferred loan origination fees and costs, at December 31, was as follows:
In thousands 1994 1993 -------------------------------------------------------------------------------- Commercial and industrial $3,921,747 $3,365,998 Construction and development 705,602 869,847 -------------------------------------------------------------------------------- Total commercial loans 4,627,349 4,235,845 Commercial mortgages 1,461,571 1,565,413 Residential mortgages 1,329,417 928,248 -------------------------------------------------------------------------------- Total mortgage loans 2,790,988 2,493,661 Home equity 1,529,468 1,393,007 Auto loans 504,574 422,846 Other instalment 204,195 198,349 -------------------------------------------------------------------------------- Total instalment loans 2,238,237 2,014,202 -------------------------------------------------------------------------------- $9,656,574 $8,743,708 ================================================================================
Residential mortgage loans held for sale amounted to $3,536,000 at December 31, 1994 and $30,844,000 at December 31, 1993. These loans are accounted for at the lower of aggregate cost or market value. Subsidiaries of UJB Financial have granted loans to officers and directors of the company and its significant subsidiaries and to their associates. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. The aggregate dollar amount of these loans was $86,016,000 and $67,818,000 at December 31, 1994 and 1993, respectively. During 1994, there were $37,792,000 of new loans made and repayments totaled $19,594,000. NOTE 7 NON-PERFORMING LOANS At December 31, non-performing loans were as follows:
In thousands 1994 1993 -------------------------------------------------------------------------------- Non-accrual loans $164,909 $250,691 Renegotiated loans 2,738 3,582 -------------------------------------------------------------------------------- $167,647 $254,273 ================================================================================
The following information is presented for those loans classified as non-performing at December 31:
In thousands 1994 1993 1992 -------------------------------------------------------------------- Income that would have been recorded under original contract terms $16,074 $21,573 $27,831 Less interest income received 1,693 3,787 3,843 -------------------------------------------------------------------- Lost income on non-performing loans at year end $14,381 $17,786 $23,988 ====================================================================
47 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 ALLOWANCE FOR LOAN LOSSES Transactions in the allowance for loan losses were as follows:
In thousands 1994 1993 1992 -------------------------------------------------------------------------------- Balance, January 1 $244,154 $277,449 $292,490 Allowance of purchased entity 1,833 -- -- Add provision charged to expense 84,000 95,685 139,555 -------------------------------------------------------------------------------- 329,987 373,134 432,045 -------------------------------------------------------------------------------- Less charge offs: Commercial 72,586 105,677 142,381 Mortgage 14,974 12,000 9,322 Instalment 8,684 25,598 15,627 -------------------------------------------------------------------------------- Total charge offs 96,244 143,275 167,330 -------------------------------------------------------------------------------- Add recoveries: Commercial 11,788 10,513 7,652 Mortgage 2,617 287 492 Instalment 2,965 3,495 4,590 -------------------------------------------------------------------------------- Total recoveries 17,370 14,295 12,734 -------------------------------------------------------------------------------- Net charge offs 78,874 128,980 154,596 -------------------------------------------------------------------------------- Write downs on transfer to assets held for accelerated disposition 36,952 -- -- -------------------------------------------------------------------------------- Balance, December 31 $214,161 $244,154 $277,449 ================================================================================
On January 1, 1995, Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS No. 114) and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" will be adopted. These Statements address the accounting for impaired loans and specify how allowances for credit losses related to these impaired loans should be determined. The adoption of these Statements is not expected to have a material effect on the allowance for loan losses or to the existing income recognition and charge off policies for non-performing loans. Upon adoption of SFAS No. 114, in-substance foreclosures will be classified as non-performing loans. NOTE 9 PREMISES AND EQUIPMENT The major components of premises and equipment at December 31, were as follows:
In thousands 1994 1993 -------------------------------------------------------------------------------- Land $ 18,476 $ 17,897 Premises and leasehold improvements 194,014 189,427 Furniture and equipment 137,214 129,445 -------------------------------------------------------------------------------- 349,704 336,769 Less accumulated depreciation and amortization 181,799 165,330 -------------------------------------------------------------------------------- $167,905 $171,439 ================================================================================
Amounts charged to non-interest expenses for depreciation and amortization amounted to $20,124,000 in 1994, $20,489,000 in 1993 and $20,644,000 in 1992. NOTE 10 OTHER REAL ESTATE OWNED At December 31, other real estate owned consisted of the following:
In thousands 1994 1993 -------------------------------------------------------------------------------- Other real estate owned $ 35,967 $ 71,120 In-substance foreclosures 10,459 34,777 -------------------------------------------------------------------------------- 46,426 105,897 Less allowance for other real estate owned 14,977 31,117 -------------------------------------------------------------------------------- $ 31,449 $ 74,780 ================================================================================
Transactions in the allowance for other real estate owned were as follows:
In thousands 1994 1993 1992 -------------------------------------------------------------------------------- Balance, January 1 $31,117 $13,416 $ 2,612 Add provision charged to expense 10,573 32,062 27,969 -------------------------------------------------------------------------------- 41,690 45,478 30,581 Less: Write downs on sales 16,818 14,361 17,165 Write downs on transfer to assets held for accelerated disposition 9,895 -- -- -------------------------------------------------------------------------------- Balance, December 31 $14,977 $31,117 $13,416 ================================================================================
NOTE 11 OTHER BORROWED FUNDS Other borrowed funds at December 31, consisted of the following:
In thousands 1994 1993 -------------------------------------------------------------------------------- Securities sold under agreements to repurchase $ 948,697 $ 274,255 Federal funds purchased 172,255 160,554 Treasury tax and loan deposits 135,746 85,322 Commercial paper 42,211 33,359 Federal Home Loan Bank advances 4,620 36,699 Other 29,901 29,498 -------------------------------------------------------------------------------- $1,333,430 $ 619,687 ================================================================================
Lines of credit are available to support commercial paper borrowings and for general corporate purposes on which interest approximates the prime lending rate at the time of borrowing. Unused lines amounted to $40,000,000 at December 31, 1994. Commitment fees on the credit facilities and the lines of credit amounted to $86,000 in 1994, $161,000 in 1993 and $236,000 in 1992. NOTE 12 LONG-TERM DEBT Long-term debt at December 31, consisted of the following:
In thousands 1994 1993 --------------------------------------------------------------------------- 8.625% Subordinated notes due December 10, 2002 $175,000 $175,000 7.95% Senior notes due August 25, 2003 20,000 20,000 7.75% Sinking fund debentures due November 1, 1997 9,338 10,715 Other 416 2,939 --------------------------------------------------------------------------- $204,754 $208,654 ===========================================================================
The 8.625% subordinated notes were issued in 1992 and are unsecured. Interest is payable semi-annually on June 10 and December 10 of each year. The notes are not subject to redemption prior to maturity. No sinking fund is provided for the notes. The 7.95% ten year maturity private placement senior notes were issued in 1993 with interest payable quarterly on the twenty-fifth day of each February, May, August and November. UJB Financial shall have the option, on any interest payment date, to prepay the notes in whole or in part, but in no event shall the prepayment 48 51 be less than $1,000,000, subject to certain contractual prepayment provisions. The 7.75% sinking fund debentures are currently redeemable at the option of UJB Financial at 100% of the principal amount, plus accrued interest. An annual sinking fund of $700,000 is calculated to retire 52.5% of this issue prior to maturity. UJB Financial may, at its option, increase its sinking fund payment in any year by making an additional payment not in excess of the mandatory sinking fund payment. The debentures are redeemable, through the sinking fund, at the principal amount thereof plus accrued interest. At December 31, 1994, $162,000 was being held to satisfy future sinking fund requirements. Certain of the above long-term debt agreements include restrictions upon the creation of liens by UJB Financial, the disposition of stock of subsidiaries, the payment of cash dividends and the creation of funded debt, as defined. At December 31, 1994, under the most restrictive limitations, consolidated retained earnings of $249,399,000 were unrestricted and available for dividends, and the amount of additional funded debt, as defined, that could be created was $298,799,000. The principal amount of long-term debt due in the following year is included in other borrowed funds. Principal amounts due, including sinking fund payments, for the years 1995 through 1997 are $1,419,000, $1,116,000 and $8,638,000. No principal amounts are due for 1998 and 1999. NOTE 13 COMMON AND PREFERRED STOCK At December 31, 1994, approximately 7,582,000 common shares were reserved for issuance under the Dividend Reinvestment Plan, Incentive Stock and Option Plan, Stock Option Plans, Savings Incentive Plan and Long-Term Performance Stock Plan. At December 31, 1994, UJB Financial had 4,000,000 shares of preferred stock authorized of which 600,166 shares of Series B Preferred Stock were outstanding. Each outstanding share of Series B Preferred Stock has a $50 stated value, is non-convertible and has no voting rights. Dividends are cumulative and are payable quarterly on February 1, May 1, August 1, and November 1 of each year. For each quarterly period, the dividend rate will be determined in advance of such period, and the dividend rate will be 1.5% less than the highest of the Three Month Treasury Bill Rate, the Ten Year Constant Maturity Rate or the Thirty Year Constant Maturity Rate. The dividend rate for any dividend period will not be less than 6% per annum or greater than 11% per annum. The preferred stock is redeemable at the option of UJB Financial, in whole or in part, plus accrued and unpaid dividends. The preferred stock may be redeemed prior to May 1, 1995 at a redemption price of $51.50 per share and, thereafter, at $50 per share. Dividends in the amounts of $3.07, $3.00 and $3.06 per share were declared on the Series B Preferred Stock for 1994, 1993 and 1992, respectively. A Shareholder Rights Plan exists which is designed to ensure fair and equal treatment for all UJB Financial shareholders in the event of any proposal to acquire UJB Financial. The terms of the plan provide that effective August 28, 1989, each share of common stock also represents one "right." Each right will entitle the holder to buy one one-hundredth of a share of a new series of preferred stock upon the occurrence of certain events. In addition, upon the occurrence of certain other events, holders of the rights will be entitled to purchase either shares of this new preferred stock or shares in an "acquiring person" at half their fair market value as determined under the plan. NOTE 14 RESTRICTIONS ON SUBSIDIARY BANK DIVIDENDS Certain bank regulatory limitations exist on the availability of subsidiary bank undistributed net assets for the payment of dividends to UJB Financial Parent Corporation without the prior approval of the bank regulatory authorities. The Federal Reserve Act, which affects the New Jersey state member bank, restricts the payment of dividends in any calendar year to the net profit of the current year combined with retained net profits of the preceding two years. The Pennsylvania state-chartered bank may declare a dividend up to the amount of accumulated net profit. In addition to these statutory restrictions, the subsidiary banks are required to maintain adequate levels of capital under FDICIA. At December 31, 1994, the total undistributed net assets of the subsidiary banks were $1,079,115,000 of which $199,405,000 was available under the most restrictive limitations for the payment of dividends to UJB Financial Parent Corporation. NOTE 15 BENEFIT PLANS UJB Financial has several trusteed non-contributory defined benefit retirement plans covering substantially all of its employees. The benefits are based on years of service and the employees' final average compensation. The funding policy is to contribute annually an amount that can be deducted for Federal income tax purposes. Contributions are intended to provide not only for benefits attributed for service to date, but also for those expected to be earned in the future. The following table sets forth the plans' funding status and amounts recognized in the consolidated financial statements at December 31:
In thousands 1994 1993 1992 ------------------------------------------------------------------------------- Accumulated benefit obligation, including vested benefits of $118,784 in 1994, $108,491 in 1993 and $91,037 in 1992 $(128,070) $(116,035) $ (97,968) =============================================================================== Projected benefit obligation for service rendered to date $(157,157) $(146,772) $(126,318) Plan assets at fair value 135,567 144,497 134,498 ------------------------------------------------------------------------------- Plan assets (under) over projected benefit obligation (21,590) (2,275) 8,180 Unrecognized transition asset (8,727) (11,101) (13,476) Unrecognized prior service cost 753 (7) (7) Unrecognized net loss from past experience which is different from that assumed, and effect of changes in assumptions 23,560 6,020 2,014 ------------------------------------------------------------------------------- Accrued pension cost $ (6,004) $ (7,363) $ (3,289) =============================================================================== Net pension expense components: Service cost $ 6,736 $ 6,833 $ 6,030 Interest cost 11,210 10,510 9,620 Actual return on plan assets 7,879 (14,987) (11,719) Net deferral and amortization (22,074) 2,049 (390) ------------------------------------------------------------------------------- Net pension expense $ 3,751 $ 4,405 $ 3,541 ===============================================================================
The plans' assets were principally invested in units of mutual funds. The weighted average discount rates for the plans were 8.0% in 1994, 7.5% in 1993 and 8.0% in 1992. The rate of increase in 49 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) future compensation levels used in determining the actuarial present value of the projected benefit obligation was 5.5% in 1994 and 1993 and 6.0% in 1992. The expected long-term rate of return on plan assets was 9.0% in 1994, 1993 and 1992. In addition to pension benefits, certain health care and life insurance benefits are made available to retired employees. In 1993 UJB Financial adopted, on a prospective basis, Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106). Under SFAS No. 106 the costs of such benefits are accrued based on actuarial assumptions from the date of hire to the date the employee is fully eligible to receive the benefits. Prior to the adoption of SFAS No. 106, the costs of these benefits were expensed as paid and amounted to $1,039,000 in 1992. The following table sets forth the net periodic postretirement benefit cost and accumulated postretirement benefit obligation (APBO) at December 31:
In thousands 1994 1993 ------------------------------------------------------------------------------- Accumulated postretirement benefit obligation (APBO) $(33,055) $(35,009) Fair value of assets -- -- ------------------------------------------------------------------------------- Projected benefit obligation funded status (33,055) (35,009) Unrecognized transition obligation 24,514 26,414 Unrecognized prior service cost 141 -- Unrecognized loss 3,156 5,731 ------------------------------------------------------------------------------- Accrued APBO $ (5,244) $ (2,864) =============================================================================== Net postretirement benefit cost components: Service cost $ 322 $ 305 Interest cost 2,248 2,303 Amortization of transition obligation 1,355 1,390 ------------------------------------------------------------------------------- Net postretirement benefit cost $ 3,925 $ 3,998 ===============================================================================
For measurement purposes, the cost of medical benefits was projected to increase at a rate of 14.0% in 1994, 15.0% in 1993 and thereafter decreasing linearly to 6.0% over eight years. Increasing the assumed health care cost trend by one percent in each year would increase the accumulated postretirement benefit obligation as of January 1, 1994 by $1,504,000 and the aggregate of the service and interest components of net periodic postretirement benefit cost for the year ended December 31, 1994 by $127,000. The present value of the accumulated benefit obligation assumed an 8.0% and a 7.5% discount rate in 1994 and 1993, respectively. The rate of increase used in future compensation levels was 5.5% in 1994 and 1993. Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits"(SFAS No. 112) was issued in November 1992 to establish accounting for benefits provided to former or inactive employees after employment but before retirement. SFAS No. 112 requires that employers accrue the costs associated with providing benefits, such as salary and benefit continuation under disability plans, when payment of the benefits is probable and the amount of the obligation can be reasonably estimated. Effective January 1, 1994, UJB Financial adopted SFAS No. 112. UJB Financial recognized the January 1, 1994 SFAS No. 112 transitional liability of $2,663,000. During 1994, net costs of $2,945,000 were recognized, of which $2,174,000 were paid. At December 31, 1994, the resultant SFAS No. 112 liability was $3,434,000. Management incentive plans have been established with the intention of providing added incentive to key executives to increase the profits of the company. The executives and the amount of the awards are subject to limits as set forth in the plans. Accruals for the plans amounted to $3,258,000, $1,640,000 and $1,420,000 in 1994, 1993 and 1992, respectively. There is a Savings Incentive Plan which covers substantially all employees with one or more years of service. The Plan permits eligible employees to make basic contributions to the Plan up to 3% of base compensation in 1994, 1993 and 1992, and additional contributions up to 12% of base compensation. Under the Plan, the employer provides a matching contribution equal to 65% in 1992, 1993 and through October 31, 1994 of the basic contributions. Effective November 1, 1994, the employer matching contribution was increased to 100%. Matching contributions to the Plan amounted to $2,446,000, $2,084,000 and $1,863,000 in 1994, 1993 and 1992, respectively. Certain subsidiaries have other incentive plans and profit sharing agreements. Accruals under these plans amounted to $1,959,000, $1,826,000 and $1,525,000 in 1994, 1993 and 1992, respectively. The Incentive Stock and Option Plan and previous Long-Term Performance Stock Plans of UJB Financial and the VSB Management Recognition and Retention Plan and Trust provide for the grant of shares of common stock in the form of restricted stock awards. Shares issued as stock awards were 60,250 in 1994, 73,431 in 1993 and 83,766 in 1992. The shares awarded are subject to certain forfeiture restrictions as set forth in the Plans. NOTE 16 STOCK OPTION PLANS The Stock Option Plans permit UJB Financial common stock to be issued to key employees of the company and its subsidiaries. The options granted under the Plans are intended to be either Incentive Stock Options or Non-Qualified Options. Options have been granted to purchase common stock principally at the fair market value of the stock at the date of grant. Options are exercisable starting one year after the date of grant and generally expire ten years from the date of grant. Upon the exercise of options, proceeds received in excess of par value of the shares are credited to surplus. Changes in options outstanding during the past three years were as follows:
Price Range Shares Per Share ------------------------------------------------------------------------------- Outstanding, December 31, 1991 (1,794,044 shares exercisable) 2,857,830 $ 3.745 to $29.438 Granted during 1992 562,593 7.864 to 17.000 Exercised during 1992 242,975 7.875 to 20.375 Expired or cancelled during 1992 55,353 7.864 to 29.438 ------------------------------------------------------------------------------- Outstanding, December 31, 1992 (2,559,502 shares exercisable) 3,122,095 3.745 to 29.438 Granted during 1993 489,382 12.133 to 25.063 Exercised during 1993 390,554 3.745 to 29.438 Expired or cancelled during 1993 31,127 7.875 to 29.438 ------------------------------------------------------------------------------- Outstanding, December 31, 1993 (2,700,414 shares exercisable) 3,189,796 3.745 to 29.438 Granted during 1994 449,500 24.688 Exercised during 1994 486,573 7.864 to 28.333 Expired or cancelled during 1994 65,329 7.875 to 29.438 ------------------------------------------------------------------------------- Outstanding, December 31, 1994 (2,637,894 shares exercisable) 3,087,394 $ 7.864 to $29.438 ===============================================================================
50 53 NOTE 17 OTHER EXPENSES Other expenses consisted of the following:
In thousands 1994 1993 1992 ----------------------------------------------------------------------------- Professional and other fees $ 37,113 $ 40,263 $ 44,742 Communications (postage and telephone) 18,905 18,535 17,350 Merchant card processing fees 15,156 14,464 12,534 Other 40,470 40,492 40,728 ----------------------------------------------------------------------------- $111,644 $113,754 $115,354 =============================================================================
NOTE 18 INCOME TAXES Effective January 1, 1993, Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109) was adopted on a prospective basis. The cumulative effect of the adoption resulted in a positive effect to earnings of $3.8 million, or $.07 per share. The provision for income taxes in the Consolidated Statements of Income consists of the following:
In thousands 1994 1993 1992 ---------------------------------------------------------------------------- Current provision Federal $45,077 $23,223 $20,234 State 8,205 9,455 4,007 ---------------------------------------------------------------------------- 53,282 32,678 24,241 Deferred provision (benefit) Federal 13,681 (682) (4,811) State 5,349 (5,043) -- ---------------------------------------------------------------------------- 19,030 (5,725) (4,811) ---------------------------------------------------------------------------- Total income tax provision $72,312 $26,953 $19,430 ============================================================================
A summary of the differences between the actual income tax provision and the amounts computed by applying the statutory Federal income tax rate to income is as follows:
In thousands 1994 1993 1992 ----------------------------------------------------------------------------- Federal tax at statutory rate $71,468 $ 36,944 $ 25,914 Increase (decrease) in taxes resulting from: Tax-exempt interest income (9,491) (10,523) (12,407) State taxes, net of Federal tax effect 8,810 2,868 2,645 Other, net 1,525 (2,336) 3,278 ----------------------------------------------------------------------------- Total income tax provision $72,312 $ 26,953 $ 19,430 =============================================================================
The significant Federal and state temporary differences which comprise the deferred tax assets and liabilities presented at December 31, are as follows:
In thousands 1994 1993 ------------------------------------------------------------------------------- Deferred tax assets: Provision for loan losses $ 84,379 $ 99,033 Provision for other real estate owned 10,098 12,744 Restructuring charge 2,479 8,773 Alternative minimum tax credit carry forwards -- 3,055 Net unrealized loss on securities available for sale 5,695 -- Other 19,919 12,421 ------------------------------------------------------------------------------- 122,570 136,026 Deferred tax liabilities: Leasing operations (12,601) (10,601) Other (4,432) (6,553) ------------------------------------------------------------------------------- (17,033) (17,154) ------------------------------------------------------------------------------- Net deferred tax asset $105,537 $118,872 ===============================================================================
Included in deferred tax assets "Other" is a valuation allowance which has been established against certain Federal and state temporary differences. The valuation allowance was $7,756,000 at December 31, 1994 compared with $7,346,000 at December 31, 1993 and $7,150,000 at January 1, 1993. At December 31, 1994, there was a deferred state tax asset of $5,077,000 resulting from operating loss carry forwards. This asset was reserved by the valuation allowance. UJB Financial is not aware of any factors which would generate significant differences between taxable income and pretax book income in future years except for the effects of the reversal of current or future net deductible temporary differences. However, there can be no assurances that there will not be any significant differences in the future, if circumstances change. Management believes, based upon current facts, that more likely than not there will be sufficient taxable income in future years to realize the net deferred tax asset. However, there can be no assurance about the level of future earnings. The significant components which affected the net deferred tax asset were as follows:
In thousands 1994 1993 1992 ---------------------------------------------------------------------------------------------------- Provision for loan losses and other real estate owned on tax return in excess of provision charged to operating expense $ 15,859 $ 2,875 $ 383 Loan interest income recognized on tax return less than amount included in operating income 293 1,867 297 Depreciation expense on tax return less than amount charged to operating expense (1,613) (1,625) (584) Income from loan securitization included in operating income, but not reflected on tax return -- -- (2,532) Adjustment of securities to market value not reflected on tax return -- (261) 134 Restructuring charge 6,294 (8,773) -- Utilization of the alternative minimum tax credit carry forward 3,055 5,090 -- Other, net (4,858) (4,898) (2,509) ---------------------------------------------------------------------------------------------------- Income (loss) from operations 19,030 (5,725) (4,811) Net unrealized loss on securities available for sale (5,695) -- -- ---------------------------------------------------------------------------------------------------- Total $ 13,335 $(5,725) $(4,811) ====================================================================================================
Included in shareholders' equity are income tax benefits attributable to restricted stock awards and the exercise of non-qualified stock options of $1,957,000, $1,207,000 and $403,000 for the years ended December 31, 1994, 1993 and 1992, respectively. NOTE 19 LEASE COMMITMENTS Non-interest expenses include rentals for premises and equipment of $38,403,000 in 1994, $34,435,000 in 1993 and $31,969,000 in 1992, after reduction for sublease rentals of $2,684,000, $2,894,000, and $3,164,000 in each of the respective years. At December 31, 1994, UJB Financial and its subsidiaries were obligated under a number of non-cancellable leases for premises and equipment, many of which provide for increased rentals based upon increases in real estate taxes and the cost of living index. These leases, most of which have renewal provisions, are principally non-financing leases. Minimum rentals under the terms of these leases for years 1995 through 1999 are $36,412,000, $29,754,000, $26,837,000, $20,704,000, and $12,853,000, respectively. Minimum rentals due after 1999 are $67,974,000. 51 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20 CONTINGENT LIABILITIES UJB Financial and its subsidiaries may, from time to time, be defendants in legal proceedings relating to the conduct of their business. UJB Financial was a defendant in a class action lawsuit brought by plaintiffs alleged to have owned or purchased securities of UJB Financial. Following pre-trial discovery, the parties agreed in principle to settle the action. A portion of this settlement is expected to be recovered through insurance carried by UJB Financial and the remaining balance has been fully reserved. In the best judgment of management, the consolidated financial position of UJB Financial and subsidiaries will not be affected materially by the final outcome of any pending legal proceedings or other contingent liabilities and commitments. NOTE 21 OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS In the ordinary course of business, UJB Financial and its subsidiaries enter into a variety of financial instruments that are recorded off the balance sheet. This reporting is considered appropriate where either the exchange of the underlying asset or liability has not yet occurred or the notional amounts are used solely as a means to determine the cash flows to be exchanged. These off-balance-sheet financial instruments are primarily divided into two categories; credit-related financial instruments and derivative financial instruments. Credit-related financial instruments are principally customer related, while derivative financial instruments are acquired primarily for asset/liability management purposes. Credit-related financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. UJB Financial's derivative financial instruments are limited to interest rate swaps, interest rate caps, and foreign exchange contracts. The following table summarizes the notional amount of significant off-balance-sheet financial instruments at December 31:
In thousands 1994 1993 -------------------------------------------------------------------------------- Credit-related instruments: Commitments to extend credit $3,642,423 $3,525,521 Standby letters of credit 291,612 266,631 Commercial letters of credit 93,229 136,239 Derivative instruments: Interest rate swaps 923,541 1,019,042 Interest rate caps 47,895 23,386 Foreign exchange contracts 45,496 21,683 ================================================================================
CREDIT-RELATED FINANCIAL INSTRUMENTS Commitments to extend credit are legally binding agreements to lend to a customer provided all established contractual conditions are met. These commitments generally have fixed expiration dates and usually require the payment of a fee. UJB Financial did not issue fixed-rate loan commitments that could be locked in during the commitment period. Standby letters of credit are conditional guarantees issued to ensure the performance of a customer to a third party and are generally terminated through the fulfillment of a specific condition or through the lapse of time. Commercial letters of credit are conditional commitments, generally less than 180 days, issued to guarantee payment by a customer to a third party upon proof of an international trade shipment. The short-term nature of these instruments limit their credit risk. Fees received from credit-related financial instruments are recognized over the terms of the contracts and are generally included in non-interest income in service and loan fee income. The credit risk associated with these financial instruments is essentially the same as that involved in extending loans to customers. Credit risk is managed by limiting the total amount of arrangements outstanding and by applying normal credit policies. Many of the commitments to extend credit are expected to expire without being drawn upon and, therefore, the amounts do not necessarily represent future cash flow requirements. DERIVATIVE FINANCIAL INSTRUMENTS At December 31, 1994, the notional value of the derivative financial instruments portfolio consisted of $923,541,000 of interest rate swaps, $47,895,000 of interest rate caps and $45,496,000 of foreign exchange contracts. Activities involving interest rate swaps are primarily attributed to asset/liability risk management efforts. Asset/liability risk management objectives are aimed at stabilizing net interest income through periods of changing interest rates. The interest rate swaps were acquired to hedge interest rate risk on certain interest earning assets and interest bearing liabilities. Interest rate swaps are contractual agreements between two parties to exchange interest payments at particular intervals, computed on different terms, on a specified notional amount. The notional amounts represent the base on which interest due each counterparty is calculated and do not represent the potential for gains or losses associated with the market risk or credit risk of such transactions. Under the terms of the interest rate swaps at December 31, 1994, there were $855,000,000 of contracts to receive fixed payments of 5.90% with an expected maturity of July 1997, and an average payout based on LIBOR plus .74%. Additionally, there were $68,541,000 of interest rate swaps to receive payments at LIBOR and make fixed payments of 5.55% with an expected maturity of January 1996. These swaps have resulted in a decrease of $1,176,000 in net interest income during 1994 and an increase of $6,775,000 in 1993. Credit-related losses can occur in the event of non-performance by the counterparties to the derivative financial instruments. The credit risk that results from interest rate swaps is represented by the fair value of contracts that have a positive value at the reporting date. At December 31, 1994, the total amount of credit risk was $1,121,000; however, this amount can increase or decrease if interest rates change. To minimize the risk of credit losses, UJB Financial monitors the credit standing of the counterparties and only transacts with those that have AA credit ratings or better. Interest rate caps are purchased from brokers to accommodate those customers who desire interest rate protection on variable rate loans. There is nominal risk associated with these products as the credit rating of the counterparty is closely monitored. UJB Financial enters into contracts to purchase or sell foreign currency to be delivered at a future date to facilitate customer transactions. The notional amount represents the outstanding contracts at year end. 52 55 NOTE 22 FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced liquidation. Fair value estimates are made at a specific point in time based on the type of financial instrument and relevant market information. Because no quoted market price exists for a significant portion of UJB Financial's financial instruments, the fair values of such financial instruments are derived based on the amount and timing of future cash flows, estimated discount rates, as well as management's best judgment with respect to current economic conditions. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. The fair value information provided is indicative of the estimated fair values of those financial instruments and should not be interpreted as an estimate of the value of UJB Financial taken as a whole. The disclosures do not address the value of recognized and unrecognized non-financial assets and liabilities or the value of future anticipated business. The following methods and assumptions were used to estimate the fair values of significant financial instruments at December 31, 1994 and 1993. CASH, SHORT-TERM INVESTMENTS AND CUSTOMER ACCEPTANCES These financial instruments have relatively short maturities or no defined maturities but are payable on demand, with little or no credit risk. The carrying amounts reported in the Consolidated Balance Sheets approximate fair value. INVESTMENTS AND TRADING ACCOUNT SECURITIES Trading account securities and investment securities available for sale are reported at their respective fair values in the Consolidated Balance Sheets. These values were based on quoted market prices. The fair values of investment securities held to maturity were also based upon quoted market prices. LOANS The fair value of loans is estimated using a combination of techniques including discounted estimated future cash flows and, where available, quoted market prices of similar instruments. The loan portfolios are segmented based upon loan type, credit quality and repricing characteristics. The fair values of most fixed-rate loans are estimated using discounted cash flow models taking into consideration current rates that would be offered to borrowers with similar credit risk for loans with similar remaining terms. The fair values of variable rate loans are estimated by reducing their carrying values by their corresponding general and specific credit reserves. Non-performing loans are primarily valued based upon the net realizable value of the loan's underlying collateral. DEPOSITS The estimated fair values of demand and savings deposits are equal to the amounts recognized in the Consolidated Balance Sheets. These amounts do not recognize the fair value of core deposit intangibles, which represent the value of a core deposit base with an expected duration. The fair values for medium to long-term deposit liabilities are calculated by discounting estimated future cash flows using current rates offered for deposits of similar remaining maturities. BORROWED FUNDS AND BANK ACCEPTANCES The fair values for borrowed funds are calculated by discounting estimated future cash flows using current rates offered for borrowings of similar remaining maturities. Due to the short maturities of bank acceptances, their carrying value approximates fair value. LONG-TERM DEBT The fair value of long-term debt is based upon quoted market prices. For long-term debt issuances where quoted market prices are not available, the fair values are determined using discounted cash flow analyses. OTHER The estimated fair values of accrued interest receivable, accrued interest payable and assets held for accelerated disposition are deemed to be equal to the amounts recognized in the Consolidated Balance Sheets. OFF-BALANCE-SHEET INSTRUMENTS The estimated fair values of derivative financial instruments are based upon quoted market prices, without consideration of the market values related to the hedged on-balance-sheet financial instruments. For commitments to extend credit and letters of credit, the fair values would approximate fees currently charged to enter into similar agreements. The following table presents the carrying amounts and fair values of financial instruments at December 31:
1994 1993 ----------------------------------------------------------------- Carrying Fair Carrying Fair In millions Value Value Value Value -------------------------------------------------------------------------------------------------------- Financial Assets: Cash and short-term investments $ 989.1 $ 989.1 $ 844.6 $ 844.6 Trading account securities 33.5 33.5 29.7 29.7 Investment securities available for sale 201.2 201.2 1,162.1 1,177.6 Investment securities 4,093.0 3,902.4 2,685.7 2,729.0 Loans, net 9,442.4 9,474.5 8,499.6 8,929.8 Assets held for accelerated disposition 90.9 90.9 -- -- Accrued interest receivable 89.9 89.9 74.5 74.5 Due from customers on acceptances 21.2 21.2 20.1 20.1 Financial Liabilities: Deposits $12,567.8 $12,560.0 $11,751.5 $11,777.6 Other borrowed funds 1,333.4 1,331.0 619.7 619.7 Long-term debt 204.8 203.4 208.7 218.8 Accrued interest payable 30.2 30.2 23.3 23.3 Bank acceptances outstanding 21.2 21.2 20.1 20.1 Off-balance-sheet instruments: Interest rate swaps NA $ (52.0) NA $ (1.2) Loan commitments NA (20.3) NA (19.7) Standby letters of credit NA (2.9) NA (2.7) Commercial letters of credit NA (.1) NA (.2) --------------------------------------------------------------------------------------------------------
NA - Not applicable, off-balance-sheet financial instruments 53 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 23 CONCENTRATIONS OF CREDIT RISK UJB Financial's credit policy emphasizes diversification of risk among industries and borrowers. Concentrations of credit risk, whether on or off the balance sheet, exist in relation to certain groups of customers or counterparties. A group concentration arises when a number of customers or counterparties have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. UJB Financial does not have a significant exposure to any individual customer or counterparty. At December 31, 1994, the ten largest credit relationships have outstanding loan balances of $345,858,000 and have unexercised commitments of $288,357,000. UJB Financial's business is concentrated in New Jersey and eastern Pennsylvania. A significant portion of the total loan portfolio is secured by real estate or other collateral located in these states. This concentration is mitigated by the diversification of the loan portfolio among instalment, residential mortgage, commercial mortgage, construction and commercial loans. The commercial loan portfolio, excluding construction and development loans, represents approximately 41% of the entire loan portfolio and has no concentration greater than 5% to any specific industry. NOTE 24 PARENT CORPORATION INFORMATION As part of the comprehensive restructuring program, on August 31, 1994 UJB Financial Parent Corporation transferred a significant portion of its operations to United Jersey Bank. This included the transfer of 649 employees and $26,269,000 of assets, primarily premises and equipment. Beginning September 1, 1994, the operating results of these functions were recorded in the operating results and financial condition of United Jersey Bank. UJB Financial Parent Corporation information is as follows: CONDENSED BALANCE SHEETS
December 31 --------------------------------- In thousands 1994 1993 ------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 118,252 $ 152,024 Interest bearing deposits with banks 5,000 5,000 Investment securities 4,994 3,738 Investment in subsidiaries 1,098,670 963,406 Due from subsidiaries 156,832 149,410 Premises and equipment 503 20,665 Other assets 18,063 24,467 ------------------------------------------------------------------------------------------------- Total Assets $1,402,314 $1,318,710 ================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Commercial paper $ 42,211 $ 33,359 Accrued expenses and other liabilities 51,505 60,384 Long-term debt 204,338 205,715 ------------------------------------------------------------------------------------------------- Total liabilities 298,054 299,458 Total shareholders' equity 1,104,260 1,019,252 ------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $1,402,314 $1,318,710 =================================================================================================
CONDENSED STATEMENTS OF INCOME
Year Ended December 31 ------------------------------------------ In thousands 1994 1993 1992 -------------------------------------------------------------------------------------------------- OPERATING INCOME Management and service charges to subsidiaries $ 29,322 $38,994 $40,177 Dividends from subsidiaries 56,441 40,311 33,266 Interest from subsidiaries 17,026 16,356 10,763 Investment securities gains -- -- 422 Other interest 300 120 390 Other 202 12 (204) -------------------------------------------------------------------------------------------------- Total operating income 103,291 95,793 84,814 -------------------------------------------------------------------------------------------------- OPERATING EXPENSES Salaries and employee benefits 26,491 32,887 28,924 Interest 19,586 20,044 11,247 Occupancy and equipment 3,983 5,768 5,776 Other 9,298 11,797 14,098 -------------------------------------------------------------------------------------------------- Total operating expenses 59,358 70,496 60,045 -------------------------------------------------------------------------------------------------- Income before income taxes and equity in undistributed net income of subsidiaries 43,933 25,297 24,769 Federal and state income taxes (benefit) (4,114) (701) 450 -------------------------------------------------------------------------------------------------- 48,047 25,998 24,319 Equity in undistributed net income of subsidiaries 82,103 56,420 32,469 -------------------------------------------------------------------------------------------------- Net Income $130,150 $82,418 $56,788 ==================================================================================================
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31 ------------------------------------------ In thousands 1994 1993 1992 -------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 130,150 $ 82,418 $ 56,788 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,794 2,481 3,070 Decrease (increase) in other assets 6,404 (10,677) (478) (Decrease) increase in accrued expenses and other liabilities (7,122) 13,697 7,759 Equity in undistributed net income of subsidiaries (82,103) (56,420) (32,469) Other, net -- -- (213) -------------------------------------------------------------------------------------------------- Net cash provided by operating activities 49,123 31,499 34,457 -------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from sales of investment securities -- -- 9,354 Net (increase) decrease in short-term investments -- (5,000) 10 Payments received on advances to subsidiaries 205,611 191,761 128,300 Advances to subsidiaries (198,189) (168,000) (216,709) Proceeds from sale of assets -- -- 17,732 Purchases of premises and equipment, net (2,069) (817) (1,242) Capital contributions to subsidiaries (56,476) (55,000) (35,000) -------------------------------------------------------------------------------------------------- Net cash used in investing activities (51,123) (37,056) (97,555) -------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net increase (decrease) in commercial paper 8,852 (29,502) (17,950) Net decrease in borrowed funds -- (5,250) (74,750) Proceeds from issuance of long-term debt, net of related expenses -- 20,000 172,489 Principal payments on long-term debt (3,134) (21,830) (18,047) Dividends paid (49,817) (34,806) (30,888) Proceeds from issuance of common stock, net 15,256 15,186 81,922 Other, net (2,929) (2,891) 2,101 -------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (31,772) (59,093) 114,877 -------------------------------------------------------------------------------------------------- (Decrease) increase in cash equivalents (33,772) (64,650) 51,779 Cash equivalents at beginning of year 152,024 216,674 164,895 -------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 118,252 $152,024 $216,674 ==================================================================================================
54 57 MANAGEMENT'S REPORT UJB Financial Corp. and its subsidiaries are responsible for the preparation, integrity and fair presentation of the audited financial statements contained on pages 40 through 54 in this report. The statements were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and include amounts that are based on management's estimates and judgments. Other financial information presented throughout the annual report is prepared on a basis consistent with these financial statements. The financial statements of UJB Financial Corp. have been audited by KPMG Peat Marwick LLP, independent auditors, whose selection has been ratified by the shareholders. Their audit was made in accordance with generally accepted auditing standards and considered the internal control structure to the extent deemed necessary to support their independent auditors' report appearing herein. UJB Financial Corp. is responsible for establishing and maintaining an internal control structure to provide reasonable assurance that financial statements are presented in conformity with generally accepted accounting principles. There are inherent limitations in the effectiveness of any internal control structure, no matter how well designed, including the possibility of human error, the circumvention or overriding of controls and the consideration of cost in relation to the benefit of the control. Accordingly, even an effective internal control structure can provide only reasonable assurance with respect to financial statement preparation. Furthermore, because of changes in conditions, the effectiveness of an internal control structure may vary over time. To monitor compliance, UJB Financial Corp. maintains an internal auditing program. This program includes a review for compliance with written policies and procedures and a review of the adequacy and effectiveness of internal controls. The Audit Committee of the Board of Directors of UJB Financial Corp., composed entirely of outside directors, meets periodically with the independent auditors, management, and internal auditors to review the work of each and ensure that each is properly discharging its responsibilities. The independent auditors and internal auditors have full and free access to the Committee to discuss the results of their audit work and their evaluation of internal controls and the quality of financial reporting. INDEPENDENT AUDITORS' REPORT The Shareholders and Board of Directors UJB Financial Corp.: We have audited the accompanying consolidated balance sheets of UJB Financial Corp. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of UJB Financial Corp. and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Notes 1, 15 and 18 to the consolidated financial statements, the Corporation adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" and Statement No. 112, "Employers' Accounting for Postemployment Benefits" in 1994 and Statement No. 109 "Accounting for Income Taxes" in 1993. /s/ KPMG PEAT MARWICK LLP Short Hills, New Jersey January 18, 1995 55 58 UJB FINANCIAL CORP. AND SUBSIDIARIES UNAUDITED QUARTERLY FINANCIAL DATA
1994 -------------------------------------------------------------- Dec. 31 Sept. 30 June 30 Mar. 31 ----------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS (IN THOUSANDS) Interest income.......................... $ 260,771 $ 248,285 $ 232,623 $ 219,294 Interest expense......................... 99,971 89,302 81,605 73,991 ----------------------------------------------------------------------------------------------------------- Net interest income................... 160,800 158,983 151,018 145,303 Provision for loan losses................ 28,500 18,500 18,500 18,500 ----------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses.......... 132,300 140,483 132,518 126,803 Non-interest income...................... 44,555 45,053 43,649 44,078 Non-interest expenses.................... 126,759 125,926 128,578 123,983 ----------------------------------------------------------------------------------------------------------- Income before income taxes............ 50,096 59,610 47,589 46,898 Federal and state income taxes........... 15,773 21,039 18,893 16,607 ----------------------------------------------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle... 34,323 38,571 28,696 30,291 Cumulative effect of a change in accounting principle.................. -- -- -- (1,731) ----------------------------------------------------------------------------------------------------------- Net income $ 34,323 $ 38,571 $ 28,696 $ 28,560 =========================================================================================================== COMMON SHARE DATA Net income............................... $ .62 $ .70 $ .52 $ .51 Cash dividends declared.................. .26 .26 .21 .21 Book value............................... 19.53 19.21 18.79 18.65 Market value............................. 24.13 26.38 27.63 26.88 Common stock dividend payout............. 41.94% 37.14% 40.38% 41.18% Number of registered common shareholders.......................... 20,323 20,457 20,682 21,138 Average common shares outstanding (in thousands)........................ 54,973 54,797 54,610 54,401 Common shares outstanding (in thousands)........................ 55,005 54,921 54,684 54,503 =========================================================================================================== BALANCE SHEET DATA (AT QUARTER END, IN THOUSANDS) Total assets............................. $15,429,472 $15,517,860 $14,820,208 $ 14,518,409 Total deposits........................... 12,567,791 12,167,335 11,850,467 11,717,325 Total loans.............................. 9,656,574 9,599,558 9,091,122 8,862,837 Shareholders' equity..................... 1,104,260 1,084,991 1,057,383 1,046,262 Allowance for loan losses................ 214,161 237,745 238,636 241,469 Long-term debt........................... 204,754 206,252 206,402 208,846 =========================================================================================================== OPERATING RATIOS Return on average assets................. .89% 1.02% .78% .81% Return on average common equity.......... 12.57 14.51 10.98 11.27 Net interest margin...................... 4.63 4.70 4.59 4.61 Efficiency ratio......................... 58.8 58.2 62.2 62.5 =========================================================================================================== LOAN QUALITY RATIOS Allowance for loan losses to quarter-end loans..................... 2.22% 2.48% 2.62% 2.72% Net charge offs to average loans......... .62 .91 .96 .98 Non-performing loans to quarter-end loans..................... 1.74 2.23 2.50 2.73 =========================================================================================================== CAPITAL RATIOS Tier I capital to average assets (leverage)............................ 7.02% 7.04% 7.11% 7.20% Tier I capital to risk-adjusted assets... 9.27 9.05 9.48 9.44 Total capital to risk-adjusted assets.... 12.04 11.87 12.37 12.39 ===========================================================================================================
1993 -------------------------------------------------------------- Dec. 31 Sept. 30 June 30 Mar. 31 ----------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS (IN THOUSANDS) Interest income.......................... $ 219,572 $ 227,353 $ 231,371 $ 229,332 Interest expense......................... 74,872 81,358 85,836 89,654 ----------------------------------------------------------------------------------------------------------- Net interest income................... 144,700 145,995 145,535 139,678 Provision for loan losses................ 21,500 24,000 25,110 25,075 ----------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses.......... 123,200 121,995 120,425 114,603 Non-interest income...................... 45,969 44,717 41,376 47,460 Non-interest expenses.................... 133,477 152,449 129,624 138,640 ----------------------------------------------------------------------------------------------------------- Income before income taxes............ 35,692 14,263 32,177 23,423 Federal and state income taxes........... 11,032 1,253 8,733 5,935 ----------------------------------------------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle... 24,660 13,010 23,444 17,488 Cumulative effect of a change in accounting principle.................. -- -- -- 3,816 ----------------------------------------------------------------------------------------------------------- Net income $ 24,660 $ 13,010 $ 23,444 $ 21,304 =========================================================================================================== COMMON SHARE DATA Net income............................... $ .45 $ .23 $ .43 $ .39 Cash dividends declared.................. .21 .16 .16 .16 Book value............................... 18.23 17.96 17.90 17.63 Market value............................. 24.00 30.00 24.50 27.13 Common stock dividend payout............. 46.67% 69.57% 37.21% 41.03% Number of registered common shareholders.......................... 21,173 21,341 21,573 21,835 Average common shares outstanding (in thousands)........................ 54,208 53,990 53,815 53,648 Common shares outstanding (in thousands)........................ 54,261 54,146 53,860 53,743 =========================================================================================================== BALANCE SHEET DATA (AT QUARTER END, IN THOUSANDS) Total assets............................. $13,789,641 $13,963,191 $13,903,418 $14,099,394 Total deposits........................... 11,751,499 11,699,599 11,766,321 11,676,034 Total loans.............................. 8,743,708 8,845,895 8,844,628 8,892,072 Shareholders' equity..................... 1,019,252 1,002,677 993,992 977,448 Allowance for loan losses................ 244,154 248,886 250,839 255,185 Long-term debt........................... 208,654 212,936 195,436 216,451 =========================================================================================================== OPERATING RATIOS Return on average assets................. .70% .37% .66% .62% Return on average common equity.......... 9.73 5.08 9.61 8.93 Net interest margin...................... 4.63 4.64 4.62 4.58 Efficiency ratio......................... 64.7 62.7 63.7 66.8 =========================================================================================================== LOAN QUALITY RATIOS Allowance for loan losses to quarter-end loans..................... 2.79% 2.81% 2.84% 2.87% Net charge offs to average loans......... 1.18 1.16 1.33 2.16 Non-performing loans to quarter-end loans..................... 2.91 3.12 3.37 3.63 =========================================================================================================== CAPITAL RATIOS Tier I capital to average assets (leverage)............................ 7.20% 7.02% 6.92% 6.94% Tier I capital to risk-adjusted assets... 9.64 9.41 9.32 9.12 Total capital to risk-adjusted assets.... 12.67 12.44 12.35 12.15 ===========================================================================================================
Unaudited Quarterly Financial Data has been restated to reflect the merger of VSB Bancorp. 56 59 CORPORATE DIRECTORY UJB FINANCIAL CORP. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 609-987-3200 CORPORATE MANAGEMENT Chairman, President and Chief Executive Officer T. Joseph Semrod Vice Chairmen John G. Collins John R. Howell Senior Executive Vice Presidents John R. Haggerty Sabry J. Mackoul John J. O'Gorman Stephen H. Paneyko Executive Vice Presidents Larry L. Betsinger Alfred M. D'Augusta William F. Flyge William J. Healy James J. Holzinger Richard F. Ober, Jr. Dennis Porterfield Alan N. Posencheg Gary F. Simmerman Edmund C. Weiss, Jr. Senior Vice Presidents Susan U. Bredehoft Dennis J. Flanagan Peter J. Gindin Robert A. Gunther George J. Soltys, Jr. Paul V. Stahlin Timothy S. Tracey BOARD OF DIRECTORS Robert L. Boyle Representative William H. Hintelmann Firm John G. Collins Vice Chairman UJB Financial Corp. T.J. Dermot Dunphy President and Chief Executive Officer Sealed Air Corporation Anne Evans Estabrook Owner Elberon Development Co. Elinor J. Ferdon Volunteer Professional First Vice President Girl Scouts of U.S.A. Fred G. Harvey Vice President E&E Corporation John R. Howell Vice Chairman UJB Financial Corp. Francis J. Mertz President Fairleigh Dickinson University George L. Miles, Jr., CPA President and Chief Executive Officer QED Communications, Inc. Henry S. Patterson II President E'town Corporation T. Joseph Semrod Chairman, President and Chief Executive Officer UJB Financial Corp. Raymond Silverstein, CPA Consultant Alloy, Silverstein, Shapiro, Adams, Mulford & Co., P.C. Joseph M. Tabak President and Chief Executive Officer JPC Enterprises, Inc. UNITED JERSEY BANK 210 Main Street Hackensack, New Jersey 07602 201-646-5000 SENIOR MANAGEMENT Chairman, President and Chief Executive Officer T. Joseph Semrod Vice Chairman John G. Collins Senior Executive Vice Presidents John R. Haggerty Sabry J. Mackoul John J. O'Gorman Stephen H. Paneyko Executive Vice Presidents Anthony J. Allora Alfred M. D'Augusta Robert Eberhardt, Jr. William F. Flyge Peter D. Halstead William J. Healy James J. Holzinger H. Richard Minette Richard F. Ober, Jr. Robert J. Peters Dennis Porterfield Gary F. Simmerman Lenore Smith Christophe-Pierre Terlizzi Timothy S. Tracey William J. Wolverton Senior Vice Presidents John D. Battaglia Donald W. Blum Susan U. Bredehoft Thomas B. Butler Richard O. Carmichael Paul J. Cavaliere Stephen Chaberski J. Michael Cunnane Gaetana P. Cunsolo Thomas J. D'Angelo Louis M. Daniels James F. Deutsch James N. Ferrier Thomas M. Finn Dennis J. Flanagan William R. Frasca Peter J. Fusco Kevin T. Gillen John W. Gustafson Ferdinand R. Horn IV Dorinda Jenkins-Glover Virginia A. Ibarra Michael T. Jordan John J. Kartanowicz L. David Lyons Michael J. Maiorino, Jr. Charles A. Maraziti Simone Marino Stephen J. Mauger James T. Melone Richard J. Morbee Robert J. Motherwell George L. Nichols Ronald Phillips Peter C. Platt Edward E. Poor IV Richard D. Rein Garrett W. Roberts Jorge Rojas Maurice J. Spagnoletti Paul V. Stahlin Marc P. Sullivan Francis P. Testa Paul A. Towers Roger M. Tully Harold W. Ullmann Joseph Verbaro, Jr. Arty C. Zulawski BOARD OF DIRECTORS Bjorn Ahlstrom Robert L. Boyle Barry D. Brown John G. Collins T.J. Dermot Dunphy Anne Evans Estabrook Elinor J. Ferdon Samuel Gerstein, Esq. Richard H. Goldberger Robert S. Hekemian Thomas C. Jamieson, Jr., Esq. Vincent P. Langone Francis J. Mertz George L. Miles, Jr., CPA Bertram B. Miller Henry S. Patterson II T. Joseph Semrod Raymond Silverstein, CPA Sylvester L. Sullivan Alexander Summer, Jr. Joseph M. Tabak Robert A. Woodruff, Sr. 57 60 CORPORATE DIRECTORY (CONTINUED) FIRST VALLEY CORPORATION One Bethlehem Plaza Bethlehem, Pennsylvania 18018 610-865-8411 SENIOR MANAGEMENT Chairman and Chief Executive Officer John R. Howell President Robert E. Wilkes Executive Vice Presidents Tomas J. Bamberger Fredric B. Cort William J. Healy FIRST VALLEY BANK One Bethlehem Plaza Bethlehem, Pennsylvania 18018 610-865-8411 SENIOR MANAGEMENT Chairman of the Board and Chief Executive Officer John R. Howell President and Chief Operating Officer Robert E. Wilkes Regional President Gary F. Lamont Executive Vice Presidents Tomas J. Bamberger Fredric B. Cort Senior Vice Presidents John M. Adams, Jr. Philip D. Beck Thomas L. Burns Stephen D. Gilligan I. Gail Howard C. Palmer Zigmund Brian C. Zwann BOARD OF DIRECTORS Charles J. Bufalino, Esq. Walter J. Dealtrey Ronald D. Ertley Alfred M. Giannangeli Henry A. Giuliani, Esq. Allan L. Goodman John R. Haggerty Fred G. Harvey John R. Howell Msgr. Andrew J. McGowan Robert J. Miorelli William L. Morse, Jr. Michael J. Naples, Jr. Donald M. Pachence Richard H. Penske John W. Pharo Robert J. Tunnessen Robert E. Wilkes John W. Woltjen UJB FINANCIAL SERVICE CORPORATION 55 Challenger Road Ridgefield Park, New Jersey 07660 201-296-3000 SENIOR MANAGEMENT Chairman of the Board John G. Collins President and Chief Executive Officer Alan N. Posencheg Executive Vice Presidents Larry L. Betsinger Joseph L. Branciforte Senior Vice Presidents Hubert P. Clarke Theodore M. Kest Ray W. Mead Santiago Patino John J. Smith UJB INVESTOR SERVICES COMPANY 305 Route 17 South P.O. Box 929 Paramus, New Jersey 07652 201-262-8400 1-800-631-1635 Regional Offices: 201-224-0700 (Fort Lee) 908-290-3050 (Matawan) 201-984-1151 (Morristown) 609-683-5470 (Princeton) 201-575-6035 (West Caldwell) SENIOR MANAGEMENT President and Chief Executive Officer Joseph J. McCaffrey Executive Vice President Jack R. Ader Senior Vice President John T. Henry UNITED JERSEY VENTURE CAPITAL, INC. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 609-987-3200 President and Chief Executive Officer Stephen H. Paneyko UNITED JERSEY CREDIT LIFE INSURANCE COMPANY 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 609-987-3200 President and Chief Executive Officer Charles A. Maraziti UNITED JERSEY LEASING COMPANY 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 609-987-3200 President and Chief Executive Officer Stephen H. Paneyko GIBRALTAR CORPORATION OF AMERICA 350 Fifth Avenue New York, New York 10118 212-868-4400 SENIOR MANAGEMENT Chairman of the Board Robert J. Peters President and Chief Executive Officer Irwin Schwartz Executive Vice President and Chief Operating Officer Harvey A. Mackler Executive Vice President Leonard Stowe Senior Vice President Harvey Friedman FIRST VALLEY LEASING, INC. One Bethlehem Plaza Bethlehem, Pennsylvania 18018 610-865-8713 President Patrick A. McGee LEHIGH SECURITIES CORPORATION 1457 MacArthur Road Whitehall, Pennsylvania 18052 1-800-245-4487 President Lawrence J. Dottor FIRST VALLEY LIFE INSURANCE COMPANY One Bethlehem Plaza Bethlehem, Pennsylvania 18018 610-865-8411 President Philip D. Beck 58 61 CORPORATE INFORMATION HEADQUARTERS UJB Financial Corp. 301 Carnegie Center P.O. Box 2066 Princeton, New Jersey 08543-2066 ANNUAL SHAREHOLDERS MEETING UJB Financial Corp.'s annual shareholders meeting will be held on Monday, April 24, 1995 at 2:30 p.m. at the Hyatt Regency Princeton, Route One and Alexander Road, Princeton, New Jersey. DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN UJB Financial Corp. offers its shareholders a convenient plan to increase their investment in the company. Through the Dividend Reinvestment and Stock Purchase Plan, holders of stock may have their quarterly dividends automatically reinvested in additional common shares without service charges. In addition, optional cash payments toward the purchase of additional shares are permitted at any time, up to $10,000 per quarter. Shareholders not enrolled in this plan, as well as brokers and custodians who hold stock for clients, may receive a plan prospectus and enrollment card by contacting First Chicago Trust Company of New York at 201-324-0498. CONTACTS Security analysts, portfolio managers, and others seeking financial information about UJB Financial Corp. should contact Kerry K. Calaiaro, vice president investor relations, at 609-987-3226. News media representatives and other seeking general information should contact C. Scott Rombach, vice president, director, of corporate communications/ investor relations, at 609-987-3350. Shareholders seeking assistance should write to Lori A. Wierzbinsky, assistant corporate secretary, at the Princeton Headquarters address to the left. For assistance with stock records, please contact First Chicago Trust Company of New York at 201-324-0498, Monday through Friday 8:00 a.m. to 10:00 p.m., and Saturday 8:00 a.m. to 3:00 p.m. (Eastern Time). OTHER REPORTS Copies of UJB Financial Corp.'s Form 10-K and Regulatory Reports required under Section 112 of the Federal Deposit Insurance Corporation Improvement Act are available without charge by writing UJB Financial Corp., Corporate Comptroller, P.O. Box 2066, Princeton, New Jersey 08543-2066. NYSE SYMBOL UJB Financial Corp.'s common and preferred stock are traded on the New York Stock Exchange under the symbols UJB and UJBB, respectively. TRANSFER AND DIVIDEND PAYING AGENT/REGISTRAR (COMMON AND PREFERRED) First Chicago Trust Company of New York P.O. Box 2500 Jersey City, New Jersey 07303-2500 CO-TRANSFER AGENT (COMMON) United Jersey Bank 62 STAYING POWER. PUT THEM BOTH TO WORK FOR YOU. Our member banks have been serving businesses, through good times and bad, for over a hundred years. Even when other banks pulled back, we never stopped lending. Nobody knows this market better. Or has a greater commitment to helping business grow. Now we're poised for the future. Our member banks have a network of 270 branches. With international specialists who are second to none. With sophisticated cash management services. An Investment Management Division offering a full range of employee benefit programs. A complete lineup of business and retail banking services. All backed by over $15 billion in assets. It's everything you need to make your business -- and your employees -- thrive. Put all this power to work for you. FINANCIAL POWER. [UJB FINANCIAL LOGO] EX-21 20 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit (21) Subsidiaries of UJB Financial Corp. UJB Financial Corp. is the parent corporation. Detailed information on its present subsidiaries appears in the Narrative description of business. Additional information is as follows:
Jurisdiction of Name Incorporation ---- --------------- United Jersey Bank New Jersey Palisade Funding Corp. New Jersey Palvest Corp. New Jersey Palservco, Inc. New Jersey Palisade Financial Services, Inc. New Jersey Nelav, Inc. New Jersey VerValen, Inc. New Jersey UJB Trade Finance (HK), Limited Hong Kong First Pipco, Inc. New Jersey C.I. Pip Restaurant Co. New Jersey CiPip Properties Co. New Jersey UJB Leasing Corporation New Jersey United Jersey Hackensack Investment Corporation New Jersey CTC Investment Co. Delaware S.A.R. Realty Holding Corporation New Jersey Pipco-On-The-Hudson, Inc. New Jersey Pipco/TM8, Inc. New Jersey Pipco/TM10, Inc. New Jersey Pipco/TM13, Inc. New Jersey Pipco/Spring Hill, Inc. New Jersey Pipco 205 Park, Inc. New Jersey Pipco Schoolhouse Estates, Inc. New Jersey Pipco Urban Restoration, Inc. New Jersey Pipco Windsong, Inc. New Jersey Pipco Parsippany, Inc. New Jersey Pipco 121-123 Grand Avenue, Inc. New Jersey Pipco Bright, Inc. New Jersey Pipco Oakland, Inc. New Jersey Pipco Raintree, Inc. New Jersey Pipco Underhill, Inc. New York Pipco MK, Inc. New Jersey Pipco Carlstadt, Inc. New Jersey Pipco Ewing, Inc. New Jersey Pipco 851 Boulevard, Inc. New Jersey Pipco Alpine, Inc. New Jersey Pipco Norte, Inc. New Jersey Alternative Financial Group, Inc. Pennsylvania PipHam Gardens, Inc. New York PipAshley, Inc. New Jersey Pipco Urban Renewal Corporation, Inc. New Jersey
2 Commonwealth Pipco Corp. Pennsylvania Pipco Hansen Land Corp. Pennsylvania PipCRA, Inc. New Jersey PipLandCo, Inc. New Jersey PipCondoCo, Inc. New Jersey PipWarehouseCo, Inc. New Jersey PipQuarryCo, Inc. New Jersey PipPomonaCo, Inc. New York Second PipLandCo, Inc. New Jersey Second PipCondoCo, Inc. New Jersey Houses-R-Pip, Inc. New Jersey PipGate Mill Properties, Ltd. New Jersey PipHyde Park, Limited New York FSB Investment Corp. New Jersey Franklin State Armored Corporation New Jersey Central Pipco, Inc. New Jersey Central Pipco Sanson, Inc. New Jersey Central Pipco Petrocella/Temes, Inc. New Jersey Central Pipco Spring Knolls, Inc. New Jersey Evergreen Cenpipco, Inc. New Jersey CenPipMaple, Inc. New Jersey CenPipPRD, Inc. New Jersey CenPipCho35, Inc. New Jersey Central Pipco Thom, Inc. New Jersey CenPipColt, Inc. New Jersey CenPipUnited, Inc. New Jersey ExeCenPip EM1, Inc. New Jersey MorCenPip EM2, Inc. New Jersey EmsCenPip EM3, Inc. New Jersey ProCentip Plains, Inc. New Jersey SayCenPipVille, Inc. New Jersey HalCenPip Tides, Inc. New Jersey VolCenPipChik, Inc. New Jersey StakCenPipWood, Inc. New Jersey Alternative Financial Group, Inc. New Jersey 34 Cen Pip Plaza, Inc. New Jersey BunnCenPip 202, Inc. New Jersey Central Residential Properties, Inc. New Jersey Madison CenPipRidge, Inc. New Jersey Clearbrook ProCenPip, Inc. Pennsylvania CenPipMatawan, Inc. New Jersey EIN Cen Pip Binder, Inc. New Jersey CenPipChowderPot, Inc. New Jersey South Pipco, Inc. New Jersey ManSoPip Management Corp. New Jersey PropSoPip Properties Corp. New Jersey DevSoPip Development Corp. New Jersey Aristone So Pip, Inc. New Jersey First Valley Corporation Pennsylvania First Valley Bank Pennsylvania Valbeth, Inc. Pennsylvania North-Val, Inc. Pennsylvania Lehigh Securities Corporation Pennsylvania
3 First Valley Capital Corporation Pennsylvania First Valprop, Inc. Delaware First North-Val, Inc. Pennsylvania Second North-Val, Inc. Pennsylvania Third North-Val, Inc. Pennsylvania Fourth North-Val, Inc. Pennsylvania Fifth North-Val, Inc. Pennsylvania Sixth North-Val, Inc. Pennsylvania Seventh North-Val, Inc. Pennsylvania Eighth North-Val, Inc. Pennsylvania Ninth North-Val, Inc. Pennsylvania HBP Financial Corp. Pennsylvania First Valley Financial Services, Inc. Pennsylvania First Valley Life Insurance Company Arizona First Valley Leasing, Inc. Pennsylvania Valprop, Inc. Pennsylvania FirstVal Properties, Inc. Pennsylvania UJB Credit Corporation Delaware Gibraltar Corporation of America New York United Jersey Leasing Company New Jersey United Jersey Mortgage Company New Jersey Asset Management Corp. New Jersey UJB Investor Services Co. New Jersey Rahway Avenue Urban Renewal Corporation New Jersey Trico Mortgage Company, Inc. New Jersey Securitization Subsidiary I, Inc. New Jersey Zumbadora Corporation New Jersey United Jersey Credit Life Insurance Company Arizona United Jersey Venture Capital, Inc. New Jersey India, Inc. Delaware United Jersey Financial Corp. New Jersey United Jersey Insurance Agency, Inc. New Jersey UJB Financial Service Corporation New Jersey CARTCO, Ltd. New Jersey UJB Commercial Corp. New Jersey
All listed subsidiaries in existence during 1994 are included in the consolidated financial statements in the UJB Financial 1994 Annual Report to Shareholders contained herein as Exhibit 13. As of 2/28/95 EX-23 21 INDEPENDENT AUDITORS CONSENT-KPMG PEAT MARWICK LLP 1 EXHIBIT (23) INDEPENDENT AUDITORS' CONSENT The Board of Directors UJB Financial Corp.: We consent to incorporation by reference in Registration Statement No. 2-78500 on Form S-8, Registration Statement No. 33-13930 on Form S-8, Registration Statement No. 33-19469 on Form S-8, Registration Statement No. 33-36209 on Form S-8, Registration Statement No. 33-38172 on Form S-8, Registration Statement No. 33-53870 on Form S-3, Registration Statement No. 33-58152 on Form S-3, Registration Statement No. 33-62972 on Form S-8, Registration Statement No. 33-54667 on Form S-8, and Registration Statement No. 33-58111 on Form S-4 of UJB Financial Corp. of our report dated January 18, 1995 relating to the consolidated balance sheets of UJB Financial Corp. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994, which report is incorporated by reference in the December 31, 1994 Annual Report on Form 10-K of UJB Financial Corp. The report of KPMG Peat Marwick LLP refers to changes in the method of accounting for certain investments and postemployment benefits in 1994 and a change in the method of accounting for income taxes in 1993. /s/ KPMG Peat Marwick LLP ------------------------- KPMG Peat Marwick LLP Short Hills, New Jersey March 28, 1995 EX-27 22 FINANCIAL DATA SCHEDULE
9 1000 12-MOS DEC-31-1994 DEC-31-1994 925421 18809 44875 33513 201215 4092988 3902439 9656574 214161 15429472 12567791 1333430 219237 204754 66006 0 30008 1008246 15429472 706049 253027 1897 960973 253353 344869 616104 84000 1888 505246 204193 131881 0 (1731) 130150 2.35 2.35 4.63 164909 5693 2738 34614 245987 96244 17370 214161 132026 0 82135 Allowance for loan losses at December 31, 1994 includes write downs of $36,952,000 on transfer to assets held for accelerated disposition.