EXHIBIT 99.3
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except per share
data)
December 31,
-----------------
1993 1992
-------- --------
Assets
Cash and due from banks...................................... $ 3,100 $ 3,932
Interest-bearing deposits in other banks..................... 5,349 7,629
-------- --------
8,449 11,561
Investment securities (Note 2):
Available for sale (market value of $21,757 and $5,082)..... 21,757 4,977
Held to maturity (market value of $151 and $5,559).......... 151 5,521
Mortgage-backed securities (Note 2):
Available for sale (market value of $115,821 and $14,171)... 115,821 13,387
Held to maturity (market value of $28,355 and $107,672)..... 28,345 107,550
Held in trading account..................................... 3,551 --
Loans receivable--net (includes loans available for sale of
$32,759 and $20,738, respectively) (Notes 3 and 4)......... 155,444 151,786
Real estate acquired by foreclosure--net (Note 4)............ 1,490 4,569
Federal Home Loan Bank (FHLB) stock.......................... 5,056 2,775
Accrued interest receivable.................................. 2,147 2,079
Office properties and equipment--net (Note 5)................ 2,655 2,819
Mortgage servicing purchased--net of accumulated amortization
of $9,503 and $7,228, respectively (Note 16)................ 7,342 7,838
Prepaid expenses and other assets............................ 3,590 5,582
-------- --------
Total Assets............................................. $355,798 $320,444
======== ========
Liabilities and Stockholders' Equity
Liabilities
Deposits (Note 9):
Savings accounts............................................ $ 55,290 $ 52,472
Savings certificates........................................ 107,728 120,128
NOW deposits and money market demand accounts............... 53,188 49,562
-------- --------
216,206 222,162
Advances by borrowers for taxes and insurance................ 1,204 781
Other borrowed funds (Note 10)............................... 19,378 18,090
Accrued expenses and other liabilities 2,430 2,550
FHLB advances (Note 11)...................................... 89,000 52,500
-------- --------
Total Liabilities........................................ 328,218 296,083
-------- --------
Stockholders' Equity
Preferred stock 5,000,000 shares authorized.................. -- --
Common stock, $1 par value; 15,000,000 shares authorized
1,943,790 and 1,940,150 issued & outstanding................ 1,944 1,940
Additional paid-in capital................................... 15,065 15,042
Unrealized gains on Investment and Mortgage-backed securities
available for sale--net of applicable income taxes.......... 122 --
Retained earnings--substantially restricted (Note 8)......... 10,449 7,379
-------- --------
Total Stockholders' Equity............................... 27,580 24,361
-------- --------
Total Liabilities and Stockholders' Equity............... $355,798 $320,444
======== ========
See Accompanying Notes to Consolidated Financial Statements
F-1
CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except for per share data)
Year Ended December 31,
------------------------
1993 1992 1991
------- ------- -------
Interest Income:
Mortgage loans...................................... $10,045 $10,741 $12,440
Other loans......................................... 3,319 4,141 4,469
Mortgage-backed securities.......................... 7,682 7,310 5,731
Interest and dividends on investment securities..... 1,456 920 1,437
Other interest income............................... 101 170 210
------- ------- -------
Total Interest Income............................ 22,603 23,282 24,287
------- ------- -------
Interest Expense:
Deposits (Note 9)................................... 8,111 10,216 13,582
FHLB advances....................................... 3,522 2,060 1,871
Other borrowings.................................... 529 502 471
------- ------- -------
Total Interest Expense........................... 12,162 12,778 15,924
------- ------- -------
Net Interest Income.............................. 10,441 10,504 8,363
Provision for Loan Losses (Note 3)................... 1,102 2,505 867
------- ------- -------
Net Interest Income After Provision for Loan
losses.......................................... 9,339 7,999 7,496
------- ------- -------
Other Operating Income:
Mortgage servicing income and other loan service
fees (net of amortization of cost of purchased
mortgage servicing rights of $2,275, $2,383,
and $1,425)........................................ 2,390 2,288 2,414
Gains and other income--real estate owned........... 1,143 166 90
Net gains on sale of loans.......................... 1,370 1,311 1,281
Gain (loss) on sale of securities (Note 2).......... 811 742 (107)
Other............................................... 868 739 726
------- ------- -------
Total Other Operating Income..................... 6,582 5,246 4,404
------- ------- -------
Other Operating Expenses:
Salaries and employee benefits...................... 5,387 5,083 4,899
Occupancy and equipment............................. 1,150 1,186 1,186
Provision for losses and other related charges--
REAL estate owned.................................. 22 3,305 1,497
FDIC insurance premium.............................. 571 513 470
Merger costs........................................ 413 -- --
Gain on termination of pension plan................. -- (122) (642)
Other............................................... 3,457 3,048 2,768
------- ------- -------
Total Other Operating Expenses................... 11,000 13,013 10,178
------- ------- -------
Income Before Provision for (Benefit From) Income
Taxes and Cumulative Effect of Change in Accounting
Principle........................................... 4,921 232 1,722
Provision for (Benefit From) Income Taxes (Note 7)... 1,560 (677) 110
------- ------- -------
Income Before Cumulative Effect of Change in
Accounting Principle................................ 3,361 909 1,612
Cumulative Effect at January 1, 1992, of Change in
Accounting for Income Taxes (Note 7)................ -- 1,673 --
------- ------- -------
Net Income....................................... $ 3,361 $ 2,582 $ 1,612
======= ======= =======
Net Income Per Share:
Income before cumulative effect of change in
accounting principle............................... $ 1.73 $ 0.47 $ 0.83
Cumulative effect of change in accounting for income
taxes.............................................. -- 0.86 --
------- ------- -------
Net Income........................................... $ 1.73 $ 1.33 $ 0.83
======= ======= =======
See Accompanying Notes to Consolidated Financial Statements
F-2
CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands)
Year Ended December 31,
----------------------------
1993 1992 1991
-------- -------- --------
Cash Flows From Operating Activities:
Net income....................................... $ 3,361 $ 2,582 $ 1,612
-------- -------- --------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................... 2,681 2,803 1,903
Amortization of investment premiums and
discounts...................................... 1,296 583 275
Provision for loan losses....................... 1,102 2,505 867
Provision for losses--real estate owned......... -- 2,375 1,414
Direct write down of investment securities...... 17 194 107
Net (gains) losses on sale of investment and
mortgage-backed securities..................... (811) (742) 107
Net gains on sale of loans available for sale... (1,370) (1,311) (1,281)
Changes in interest payable..................... (167) (601) (82)
Changes in interest receivable.................. (68) 293 113
Changes in prepaid and other assets............. 1,973 (2,890) 478
Changes in accrued liabilities.................. 47 323 41
Net change in loans available for sale.......... (10,651) ( 9,796) (1,781)
Net change in investments held in trading
account........................................ (3,787) -- --
-------- -------- --------
Total Adjustments............................ (9,738) (6,264) 2,161
-------- -------- --------
Net Cash Provided (Used) by Operating Activities. (6,377) (3,682) 3,773
-------- -------- --------
Cash Flows From Investing Activities:
Proceeds from sales of investment and mortgage-
backed securities held to maturity............. 11,821 32,220 9,916
Proceeds from principal reductions of investment
and mortgage-backed securities held to
maturity....................................... 37,459 21,854 3,063
Purchase of investment and mortgage-backed
securities held to maturity.................... (74,990) (92,503) (39,479)
Proceeds from sales of investment and mortgage-
backed securities available for sale........... 50,959 25,416 16,298
Proceeds from principal reductions of investment
and mortgage-backed securities available
for sale....................................... 11,837 2,981 38
Purchase of investment and mortgage-backed
securities available for sale.................. (71,991) (22,816) (16,336)
Net principal collected on loans................ 5,931 16,025 10,944
Purchase of properties and equipment............ (241) (572) (151)
Proceeds from sale of fixed assets and real
estate acquired through foreclosure............ 4,427 3,322 1,269
Net change in FHLB stock........................ (2,281) (997) --
Net acquisition of mortgage servicing rights.... (1,779) (595) (2,087)
-------- -------- --------
Net Cash Used By Investing Activities............ (28,848) (15,665) (16,525)
-------- -------- --------
F-3
CONSOLIDATED STATEMENTS OF CASH FLOW--Continued (In thousands)
Year Ended December 31,
----------------------------
1993 1992 1991
-------- -------- --------
Cash Flows From Financing Activities:
Net change in deposits.......................... $ (5,956) $ (1,424) $ 8,292
Net change in borrowers' advances............... 423 (1) (13)
Proceeds from FHLB advances..................... 225,118 94,105 73,900
Repayment of FHLB advances...................... (188,618) (70,605) (71,447)
Net change in other borrowed funds.............. 1,288 2,442 2,749
Proceeds from issuance of Common Stock.......... 27 -- --
Dividends paid on Common Stock.................. (291) -- --
Unrealized appreciation of investments available
for sale....................................... 122 -- --
-------- -------- --------
Net Cash Provided by Financing Activities........ 32,113 24,517 13,481
-------- -------- --------
Net Change in Cash and Cash Equivalents.......... (3,112) 5,170 729
Cash and Cash Equivalents--Beginning of Year..... 11,561 6,391 5,662
-------- -------- --------
Cash and Cash Equivalents--End of Year........... $ 8,449 $ 11,561 $ 6,391
======== ======== ========
Supplemental Disclosures of Non-Cash Activities:
Loans transferred to real estate owned and
in-substance foreclosures...................... $ 1,840 $ 4,079 $ 3,526
Loans charged-off............................... 2,450 1,828 2,353
Interest paid................................... 12,329 13,378 16,006
Income taxes paid............................... 265 113 116
Investment and mortgage-backed securities
transferred to available for sale.............. 109,401 24,034 --
See Accompanying Notes to Consolidated Financial Statements
F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)
Unrealized
Gain on Total
Additional Securities Stock-
Common Paid-In Available Retained Holders'
Stock Capital for Sale Earnings Equity
------ ---------- ---------- -------- --------
Balance, December 31, 1990...... $1,940 $15,042 $ -- $ 3,185 $20,167
Net Income...................... -- -- -- 1,612 1,612
------ ------- ---- ------- -------
Balance, December 31, 1991...... 1,940 15,042 -- 4,797 21,779
Net Income...................... -- -- -- 2,582 2,582
------ ------- ---- ------- -------
Balance, December 31, 1992...... 1,940 15,042 -- 7,379 24,361
Net Income...................... -- -- -- 3,361 3,361
Common Stock Cash Dividends..... -- -- -- (291) (291)
Stock Options Exercised......... 4 23 -- -- 27
Unrealized gains on investment
and mortgaged-backed
securities, net of income tax
effect......................... -- -- 122 -- 122
------ ------- ---- ------- -------
Balance, December 31, 1993...... $1,944 $15,065 $122 $10,449 $27,580
====== ======= ==== ======= =======
See Accompanying Notes to Consolidated Financial Statements
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1992, and 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies followed by Johnstown Savings Bank
(JSB) conform with generally accepted accounting principles. The following is a
description of significant policies:
a. Principles of consolidation:
The consolidated financial statements include the accounts of JSB and its
wholly-owned subsidiaries, SB Realty, Inc., and Standard Mortgage
Corporation of Georgia, Inc. (SMC), a wholly-owned subsidiary of SB Realty,
Inc. All significant intercompany transactions and accounts are eliminated
in consolidation.
b. Investment and mortgage-backed securities:
Investment securities and mortgage-backed securities (MBS) categorized as
held-to-maturity are carried at historical cost adjusted for amortization of
purchase premiums and accretion of purchase discounts computed by the
interest method. Prior to December 31, 1993, investment securities and MBS
categorized as available-for-sale were carried at the lower of amortized
historical cost or market values, with unrealized aggregate holding period
losses charged to current operations.
In May 1993, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"),
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No.
115 requires that investments be classified into three categories: (1)
Securities held-to-maturity, reported at amortized historical cost; (2)
securities available-for-sale, reported at fair value; and (3) trading
securities, reported at fair value. Unrealized holding gains and losses for
trading securities are included in earnings while unrealized holding gains
and losses for securities available-for-sale are reported, net of taxes, as
a separate component of equity.
Effective December 31, 1993, JSB adopted SFAS No. 115. JSB reclassified
$109.4 million of investment securities and MBS to the available-for-sale
category during 1993.
Market values are determined on an aggregate basis using quoted market
prices at the financial statement date. Realized gains or losses on
securities sold are calculated on the adjusted cost of the securities sold.
Management determines the appropriate classification of securities at the
time of purchase. If management has the intent and JSB has the ability at
the time of purchase to hold securities until maturity or on a long-term
basis, they are classified as held-to-maturity. Securities to be held for
indefinite periods of time are classified as available-for-sale. Securities
categorized as available-for-sale include securities that management intends
to use as part of its asset/liability management strategy and may be sold to
effectively manage interest-rate risk exposure, prepayment risk, and other
factors (such as liquidity requirements).
The amortization rate for purchase premiums and the accretion rate for
purchase discounts on investments and MBS can be materially affected by
changes in (1) general interest rates; (2) prepayment characteristics for
certain types of securities; and (3) changes in specific prepayment rates
for securities within JSB's portfolio. While management believes it uses the
best available information to make estimations of these factors in income
calculations, future adjustments to interest income may be necessary if
circumstances differ substantially from the assumptions used in making the
estimation.
c. Provision for losses:
Provisions for estimated losses on loans and real estate owned are charged
to earnings in an amount that results in an allowance sufficient, in
management's judgment, to cover anticipated losses based on management's
evaluation of portfolio risk, past and expected future loss experience and
economic conditions.
F-6
Real estate acquired by foreclosure (including loans classified as in-
substance foreclosed) in connection with loan settlements is stated at the
lower of estimated fair value less estimated disposition costs, or the
carrying amount of the loan. A reserve for real estate acquired is
maintained on a property by property basis to recognize estimated potential
declines in value that might occur between appraisal dates. Provisions for
potential decrease in fair value, and net direct operating expense
attributable to these assets are included in operating expenses.
In-substance foreclosures are reflected in real estate acquired by
foreclosure when the borrower has minimal equity in the property; JSB
expects repayment of the loan to come only from the operation or sale of the
property; and the borrower either has abandoned control of the property or
is unlikely to rebuild equity or otherwise meet the terms of the loan
obligation in the foreseeable future.
While management believes it uses the best information available to make
evaluations of allowances, future adjustments of the allowances for loans
and real estate acquired through foreclosure may be necessary if
circumstances differ substantially from the assumptions used in making the
evaluations. In addition, loan classifications and loss reserves, as
determined by management, are subject to periodic examination by regulatory
agencies. Management cannot predict with certainty whether future regulatory
examinations will require any changes in JSB's loan classifications or loan
loss reserves.
In May 1993, the FASB released SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". SFAS No. 114 defines the term "impaired loan" and
indicates the method used to measure the impairment. The measurement of
impairment may be based on (1) the present value of the expected future cash
flows of the impaired loan discounted at the loan's original effective
interest rate; (2) the observable market price of the impaired loan; or (3)
the fair value of the collateral of a collateral dependent loan. SFAS No.
114 is effective for fiscal years beginning after December 15, 1994 and is
not expected to be material to JSB.
d. Income taxes:
In 1992, the FASB issued SFAS No. 109, "Accounting for Income Taxes". SFAS
No. 109 requires a change from the deferred method of accounting for income
taxes of Accounting Principles Board (APB) Opinion 11 to the asset and
liability method of accounting for income taxes. Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
Effective January 1, 1992, JSB elected to adopt SFAS No. 109, "Accounting
for Income Taxes." The cumulative effect of this change in accounting
principle at January 1, 1992, was $1.7 million, or $0.86 per share, and is
reported in the 1992 Consolidated Statements of Operations. Prior years'
financial statements have not been restated to apply the provisions of SFAS
No. 109.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1991 and prior years, deferred income taxes were recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable in the year
of the calculation. Under the deferred method, deferred taxes were not
adjusted for subsequent changes in tax rates.
e. Depreciation and amortization:
Depreciation on all buildings and equipment is computed primarily by the
straight-line method. Depreciable lives are based on estimated economic
useful lives of the office properties and equipment.
F-7
Improvements to leased banking premises are being amortized over the period
including the original lease term plus the first option term, where
applicable.
Cost in excess of fair market value of assets acquired with the acquisition
of SMC is being amortized over 25 years by the straight-line method. The net
unamortized amount at December 31, 1993, is $416,000.
Purchased mortgage servicing rights associated with loan servicing acquired
in the secondary mortgage market are capitalized. The purchased mortgage
servicing rights are amortized as an adjustment of future servicing income
using a method that approximates the interest method over the life of the
related loans, adjusted for estimated prepayments.
The amount capitalized upon the purchase of mortgage servicing rights is
equal to the price paid to unaffiliated sellers.
f. Loan origination and mortgage servicing:
For loans retained in JSB's portfolio, loan origination and commitment fees,
as well as certain direct loan origination and commitment costs, are
deferred and recognized as an adjustment to yield over the lives of the
related loans. Deferred fees and costs are netted against outstanding loan
balances. Accretion is suspended for loans classified as non-accrual.
Service fees are recognized as income when the related mortgage loan
payments are collected. Origination fees in excess of direct origination
cost are initially deferred and are recognized as income at the time of the
sale of loans to permanent investors.
The amortization rate for origination fees in excess of cost can be
materially affected by changes in: (1) general interest rates; (2)
prepayment characteristics for certain types of loans; or (3) specific
prepayment rates for loans within JSB's portfolio. While management believes
it uses the best information available to make estimations of these factors
in income calculations, future adjustments to income may be necessary if
circumstances differ substantially from the assumptions used in making the
estimation.
g. Mortgage loans available for sale:
Mortgage loans available for sale to investors are carried at the lower of
cost or estimated market value determined on an aggregate basis. Market
values are determined using sales commitments to permanent investors or
current market rates for loans of similar quality and type. Net unrealized
losses are recognized in a valuation allowance by charges to income.
h. Net income per share:
Income per share for the year ended December 31, 1993, was computed using
the weighted number of common shares outstanding of 1,940,160. For the years
ended December 31, 1992 and 1991, the weighted number of common shares was
1,940,150. The common equivalent shares discussed in Note 6 have not been
included in the computations since their inclusion currently does not result
in an earnings per share dilution of more than 3%.
i. Presentation of cash flows:
For purposes of reporting cash flows, JSB considers cash and due from banks
and interest-bearing deposits in other banks to be cash and cash
equivalents.
j. Reclassifications:
Items previously reported have been reclassified to conform with the current
year classifications.
F-8
NOTE 2: INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-
backed securities consist of the following (in thousands):
December 31, 1993 December 31, 1992
----------------------------------------- -----------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
Investment Securities:
Available for sale:
Corporate bonds....... $ 1,415 $ 29 $ -- $ 1,444 $ 2,992 $105 $ -- $ 3,097
U.S. government
obligations.......... -- -- -- -- 1,985 -- -- 1,985
U.S. government
agencies............. 7,000 -- 120 6,880 -- -- -- --
Municipal bonds....... 13,364 128 59 13,433 -- -- -- --
-------- ---- ---- -------- -------- ---- ---- --------
$ 21,779 $157 $179 $ 21,757 $ 4,977 $105 $ -- $ 5,082
======== ==== ==== ======== ======== ==== ==== ========
Held to maturity:
Corporate bonds....... $ 22 $ -- $ -- $ 22 $ 891 $ 4 $ 3 $ 892
Other bonds and
investments.......... 30 -- -- 30 30 -- 1 29
Marketable equity
securities........... 99 -- -- 99 100 -- -- 100
U.S. government
agencies............. -- -- -- -- 4,500 38 -- 4,538
-------- ---- ---- -------- -------- ---- ---- --------
$ 151 $ -- $ -- $ 151 $ 5,521 $ 42 $ 4 $ 5,559
======== ==== ==== ======== ======== ==== ==== ========
Mortgage-backed
Securities:
Available for sale:
Mortgage-backed
securities........... $ 34,600 $474 $ 35 $ 35,039 $ 9,970 $784 $ -- $ 10,754
Collateralized
mortgage
obligations.......... 81,015 339 572 80,782 3,417 -- -- 3,417
-------- ---- ---- -------- -------- ---- ---- --------
$115,615 $813 $607 $115,821 $ 13,387 $784 $ -- $ 14,171
======== ==== ==== ======== ======== ==== ==== ========
Held to maturity:
Mortgage-backed
securities........... $ -- $ -- $ -- $ -- $ 24,895 $231 $ -- $ 25,126
Collateralized
mortgage
obligations.......... 16,646 76 94 16,628 69,187 333 469 69,051
Other mortgage-backed. 11,699 37 9 11,727 13,468 40 13 13,495
-------- ---- ---- -------- -------- ---- ---- --------
$ 28,345 $113 $103 $ 28,355 $107,550 $604 $482 $107,672
======== ==== ==== ======== ======== ==== ==== ========
Held in trading
account:
Mortgage-backed
securities........... $ 3,787 $ -- $236 $ 3,551 $ -- $ -- $ -- $ --
======== ==== ==== ======== ======== ==== ==== ========
F-9
The amortized cost and estimated market value of investment and mortgage-
backed securities at December 31, 1993, by contractual maturity, are shown
below. Expected and actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
At December 31, 1993, investment and mortgage-backed securities mature as
follows (in thousands):
Investment Mortgage-backed
Securities Securities
------------------- -------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- --------- ---------
Available for sale:
Due in one year or less............... $ 250 $ 251 $ 3,559 $ 3,561
Due after one year through five years. 764 786 16,546 16,552
Due after five years through ten
years................................ 11,158 11,082 27,037 27,047
Due after ten years................... 9,607 9,638 68,473 68,661
------- ------- -------- --------
$21,779 $21,757 $115,615 $115,821
======= ======= ======== ========
Held to maturity:
Due in one year or less............... $ -- $ -- $ 450 $ 450
Due after one year through five years. 5 5 2,099 2,099
Due after five years through ten
years................................ 25 25 3,454 3,455
Due after ten years................... 121 121 22,342 22,351
------- ------- -------- --------
$ 151 $ 151 $ 28,345 $ 28,355
======= ======= ======== ========
Held in trading account:
Due in one year or less............... $ 45 $ 42
Due after one year through five years. 238 223
Due after five years through ten
years................................ 483 453
Due after ten years................... 3,021 2,833
-------- --------
$ 3,787 $ 3,551
======== ========
Cash proceeds, gross gains and gross losses on the sale of investment and
mortgage- backed securities consist of the following for the years ended (in
thousands):
December 31, 1993 December 31, 1992 December 31, 1991
---------------------- ---------------------- ---------------------
Cash Gross Gross Cash Gross Gross Cash Gross Gross
Proceeds Gains Losses Proceeds Gains Losses Proceeds Gains Losses
-------- ------ ------ -------- ------ ------ -------- ----- ------
Marketable equity
security funds......... $ -- $ -- $ -- $ -- $ -- $ -- $ 178 $ 4 $ 15
Investment securities:
Available for sale..... 24,724 134 3 6,107 24 22 6,402 21 --
Held to maturity....... 828 4 2 8,275 229 8 5,936 11 169
Mortgage-backed
securities:
Available for sale..... 26,235 785 25 19,309 258 123 9,896 104 --
Held to maturity....... 10,993 142 39 23,945 777 200 3,980 44 --
Held in trading
account............... 987 17 -- -- -- -- -- -- --
------- ------ ---- ------- ------ ---- ------- ---- ----
$63,767 $1,082 $ 69 $57,636 $1,288 $353 $26,392 $184 $184
======= ====== ==== ======= ====== ==== ======= ==== ====
During 1992, loss on investments includes $159,000 on securities deemed to be
other than temporarily impaired. This write-down resulted in a charge to
operations for the difference between the current market value of specific
investments and their historical cost. A valuation allowance to carry
securities available for sale at lower of cost or market value at December 31,
1992, also resulted in a $35,000 unrealized loss charged to operations.
F-10
NOTE 3: LOANS RECEIVABLE
Loans receivable consist of the following (in thousands):
December 31,
-----------------
1993 1992
-------- --------
Mortgage loans:
1-4 family.................................................. $ 47,387 $ 50,719
Multi-family................................................ 8,535 8,677
Commercial.................................................. 34,259 37,002
Real estate construction.................................... 3,099 --
Residential mortgage loans available for sale............... 32,759 20,738
-------- --------
126,039 117,136
Consumer loans............................................... 27,473 32,004
Commercial business loans.................................... 5,494 6,860
Indirect financing leases.................................... 6 99
-------- --------
159,012 156,099
Less:
Allowance for loan losses................................... 3,083 4,056
Deferred loan fees.......................................... 448 281
Loans in process and other deductions....................... 37 (24)
-------- --------
$155,444 $151,786
======== ========
JSB was servicing loans for others with balances of $926.9 million, and
$603.7 million at December 31, 1993 and 1992, respectively. Changes in the
allowance for loan losses were as follows (in thousands):
Year Ended December 31,
-----------------------
1993 1992 1991
------- ------- -------
Balance at beginning of period.......................... $4,056 $2,987 $3,889
------- ------- -------
Charge-offs:
Residential real estate loans.......................... 1 -- 10
Commercial real estate loans........................... 2,194 1,709 1,791
Consumer loans......................................... 193 111 169
Commercial business loans.............................. 62 8 383
------- ------- -------
Total loans charged off............................... 2,450 1,828 2,353
Less: Recoveries...................................... 375 392 584
------- ------- -------
Net charge-offs..................................... 2,075 1,436 1,769
------- ------- -------
Provision for loan losses:
Residential real estate loans.......................... 9 40 30
Commercial real estate loans........................... 950 2,430 811
Consumer loans......................................... 117 20 15
Commercial business loans.............................. 26 15 11
------- ------- -------
Total provisions for losses charged to operations....... 1,102 2,505 867
------- ------- -------
Balance at end of period................................ $3,083 $4,056 $2,987
======= ======= =======
F-11
NOTE 4: NON-PERFORMING ASSETS
Non-performing assets are comprised of (1) loans which are contractually past
due 90 days or more as to interest or principal payments and loans which have
been placed on non-accrual status; (2) troubled debt restructurings; and (3)
real estate acquired through foreclosure and in-substance foreclosed loans. It
is JSB's policy not to accrue interest on loans which are 90 days or more past
due.
The following table presents information concerning non-performing assets (in
thousands):
December 31,
----------------------
1993 1992 1991
------ ------- -------
Non-accrual loans....................................... $ 588 $ 3,094 $ 5,869
Troubled debt restructurings............................ 2,315 3,080 3,389
Real estate acquired through foreclosure and
in-substance foreclosures (net)........................ 1,490 4,569 6,177
------ ------- -------
Total non-performing assets............................. $4,393 $10,743 $15,435
====== ======= =======
The gross interest that would have been recorded if non-accrual loans had
been current in accordance with their terms would have been approximately
$145,000, $405,000, and $397,000 for the years ended December 31, 1993, 1992,
and 1991, respectively. Interest income on restructured loans under their
original terms would have been approximately $324,000, $387,000, and $409,000,
for the years ended December 31, 1993, 1992, and 1991, respectively. Interest
income actually recorded on restructured loans under their modified terms was
approximately $126,000, $270,000, and $335,000, for the years ended December
31, 1993,1992, and 1991. The Bank is not committed to lend additional funds to
borrowers whose loans are classified as non-performing.
Real estate acquired through foreclosure and in-substance foreclosures are
summarized as follows (in thousands):
December 31,
--------------------
1993 1992 1991
------ ------ ------
Carrying Value............................................. $1,730 $6,628 $7,400
Less: Reserve for losses................................... 240 2,059 1,223
------ ------ ------
Net real estate acquired through foreclosure............... $1,490 $4,569 $6,177
====== ====== ======
Changes in the reserve for losses on real estate acquired through foreclosure
are as follows (in thousands):
Year Ended December 31,
-------------------------
1993 1992 1991
------- ------- -------
Balance, beginning of year........................... $ 2,059 $ 1,223 $ 1,293
Provision charged to operations...................... -- 2,375 1,414
Losses recognized.................................... (2,457) (1,784) (2,069)
Recovery............................................. 638 245 585
------- ------- -------
Balance, end of year................................. $ 240 $ 2,059 $ 1,223
======= ======= =======
Operating expenses, net of revenue collected, relating to real estate owned
was $22,000 and $764,000 for 1993 and 1992, respectively, and is included in
the Consolidated Statements of Operations. During 1991, these revenues and
expenses were reserved for and accordingly, are included in the changes in the
reserve for losses on real estate acquired through foreclosure.
F-12
NOTE 5: OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment valued at cost are summarized by major
classifications as follows (in thousands):
December 31,
----------------
1993 1992
------- -------
Land.......................................................... $ 432 $ 432
Buildings..................................................... 2,496 2,496
Leasehold improvements........................................ 476 432
Furniture and equipment....................................... 2,790 2,731
------- -------
6,194 6,091
Accumulated depreciation and amortization..................... (3,539) (3,272)
------- -------
$ 2,655 $ 2,819
======= =======
Depreciation and amortization included in occupancy and equipment expense for
the years ended December 31, 1993, 1992 and 1991 amounted to $402,000,
$355,000, and $407,000, respectively.
NOTE 6: EMPLOYEE BENEFITS
Pension Plans
On November 1, 1991, JSB adopted a defined contribution employee retirement
plan that covers substantially all employees of JSB and its subsidiaries. The
defined contribution plan was adopted in accordance with the provisions of
section 401(k) of the Internal Revenue Code (IRC). The defined contribution
plan provides for monthly employer payments that match each participating
employee's voluntary contribution to the employee's individual tax-deferred
retirement account. The employer matching rate is 100% of the employee's
contribution up to 6% of the employee's compensation, subject to certain
individual and aggregate limits as specified in the IRC.
On December 1, 1991, JSB terminated its qualified non-contributory defined
benefit employee retirement plan which previously covered all full-time
employees who had attained a minimum age requirement and met a required period
of service. The reversal of current and prior period pension accruals resulted
in the recognition of a plan curtailment gain of $642,000 reflected in the 1991
Statement of Operations.
During 1992, JSB received permission from the Pension Benefit Guarantee
Corporation and the Internal Revenue Service to satisfy the terminated plan's
liabilities through qualified distributions of the plan's assets. Plan assets,
net of required supplementary employee distributions and federal excise taxes,
exceeded plan liabilities on the final distribution date. Accordingly, JSB
recognized a termination gain of $122,000, reflected in the 1992 Statement of
Operations.
Pension expense charged to operations and included in Salary and Employee
Benefits expense for the years ended December 31, 1993, 1992, and 1991, was
$177,000, $169,000, and $255,000, respectively.
Deferred Compensation Agreements
JSB has entered into deferred compensation agreements with certain officers
whereby if the respective officer is still employed by JSB on the date he
becomes 65, he may retire and, commencing on the date of such retirement, JSB
will pay deferred compensation for services rendered prior to retirement. Such
deferred compensation will be in predetermined amounts, payable in equal
monthly installments over the remaining life of the respective executive
officer. The accrued liability for the deferred compensation agreements at
December 31, 1993, is approximately $194,000.
F-13
Stock Option Plan
The Board of Directors and stockholders approved a qualified employee stock
option plan under which JSB has reserved a total of 194,015 shares of its
common stock for the granting of options to key employees. The ability of the
employee to exercise such options is conditioned upon the employee's continued
employment on the exercise date.
Currently, 26,000 stock options issued at the time JSB converted to stock
form on October 29, 1986 remain outstanding. These options are currently
exercisable at the initial public offering price of $9.50 per share and expire
on April 23, 1997.
On February 18, 1992, the Board of Directors granted 60,000 options to
purchase stock, of which 47,391 remain outstanding at December 31, 1993. These
options are exercisable on or after February 18, 1995, at $5.75 per share and
expire February 18, 2002.
On February 16, 1993, the Board of Directors granted 30,000 options to
purchase stock, of which 23,969 remain outstanding at December 31, 1993, These
options are exercisable on or after February 16, 1996, at $11.15 per share and
expire on February 16, 2003.
An additional 10,000 stock options were granted on July 20, 1993, all of
which remain outstanding at December 31, 1993. These options are exercisable on
or after July 20, 1996, at $11.15 per share and expire on July 20, 2003.
NOTE 7: INCOME TAXES
As discussed in Note 1, the Bank adopted SFAS No. 109 as of January 1, 1992;
and the cumulative effect of this change is reported in the 1992 Consolidated
Statements of Operations. Prior years financial statements have not been
restated to apply the provisions of SFAS No. 109.
The provision for (benefit from) income taxes in the consolidated income
statement consists of the following (in thousands):
Year Ended December 31,
-------------------------
1993 1992 1991
-------- ------- -------
Federal current....................................... $ 256 $ 57 $ 10
State current......................................... 326 53 83
Federal deferred...................................... 978 (787) (16)
State deferred........................................ -- -- 33
-------- ------- ------
Total............................................... $ 1,560 $ (677) $ 110
======== ======= ======
The following is a reconciliation between the federal statutory tax to JSB's
provision for (benefit from) income taxes (in thousands):
Year Ended December 31,
--------------------------
1993 1992 1991
-------- ------- -------
Statutory tax rate................................. 34% 34% 34%
======== ======= =======
Expense at statutory rate.......................... $ 1,673 $ 79 $ 585
Tax-exempt interest................................ (128) (62) (84)
Dividends received deduction....................... -- -- (1)
State income tax (net of federal income tax
benefit).......................................... 215 35 76
Net operating loss carryforward.................... (425) (796) (469)
Capital loss carryforward.......................... (82) -- --
Other.............................................. 307 67 3
-------- ------- -------
Total.............................................. $ 1,560 $ (677) $ 110
======== ======= =======
F-14
The significant components of deferred income tax expense for the years ended
December 31, 1993 and 1992, are as follows:
1993 1992
---- -------
Deferred income tax expense exclusive of the effect of NOL
carryforwards................................................... $553 $(1,583)
NOL carryforward................................................. 425 796
---- -------
$978 $ (787)
==== =======
In addition to the items included in the above table, an adjustment to equity
in the amount of $62,000 was recorded to reflect a deferred income tax
liability related to the recognition of unrealized gains on JSB's investment
and MBS available for sale.
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at December 31, are as follows
(in thousands):
1993 1992
---- ----
Tax effect of temporary differences:
Deferred income and expenses (net)........................... $ 198 $ 158
Reserve for loan losses...................................... 1,048 1,379
Reserve for losses--real estate acquired by foreclosure...... 82 700
Depreciation................................................. (69) (76)
Other........................................................ 212 385
------- -------
Total tax effect of temporary differences.................... 1,471 2,546
Tax effect of carryforwards:
Net operating loss carryforwards............................. -- 425
Capital loss carryforwards................................... 2,160 2,242
Tax credits and other carryforwards.......................... 132 69
------- -------
Total tax effect of temporary differences and carryfowards... 3,763 5,282
Valuation allowance.......................................... (2,344) (2,822)
------- -------
Total tax effect of deferred tax assets...................... $ 1,419 $ 2,460
======= =======
Under provisions of the Internal Revenue Code, JSB currently has available
approximately $6.4 million of capital loss carryforwards which expire December
31, 1995. JSB's utilization of capital loss carryfowards will be limited to
capital gains generated, if any, in future periods. As of December 31, 1993,
JSB had general business tax credit and minimum tax credit carryforwards of
approximately $132,000 for federal income tax purposes. The general business
tax credit carryforwards expire in 1994 through 2000.
JSB is subject to the Pennsylvania Mutual Thrift Tax which imposes a tax on
Pennsylvania-sourced earnings substantially in accordance with generally
accepted accounting principles. Such taxes were substantially eliminated in
1992 and 1991 by the use of available Pennsylvania net operating loss
carryforwards. All unused Pennsylvania loss carryforwards expired on December
31, 1992.
SMC is subject to the Georgia corporate net income tax. Georgia taxable
income is determined on a separate company basis. The consolidated income
statements reflect a provision of $44,000, $53,000 and $116,000 in 1993, 1992,
and 1991, respectively, for Georgia income tax.
F-15
NOTE 8: STOCKHOLDER'S EQUITY
In connection with JSB's conversion from a mutual to stock form of
organization in 1986, JSB established a liquidation account in an amount equal
to its net worth as of June 30, 1986. The liquidation account will be
maintained for the benefit of depositors as of the December 31, 1985,
eligibility record date who continue to maintain their deposit accounts in JSB
after conversion. In the event of a complete liquidation (and only in such an
event) each eligible depositor will be entitled to receive a liquidation
distribution from the liquidation account in the proportionate amount of the
then current adjusted balance for deposits then held, before any liquidation
distribution may be made with respect to the stockholders. Except for the
repurchase of stock and payment of dividends by JSB, the existence of the
liquidation account will not restrict the use or application of such capital.
At December 31, 1993, the amount remaining in this liquidation account was $1.4
million. JSB may not declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause JSB's capital to be reduced
below either the amount required for the liquidation account or the capital
requirements imposed by the Department and the FDIC.
NOTE 9: DEPOSITS
Savings certificate accounts mature as follows (in thousands):
December 31, 1993 December 31, 1992
-------------------- --------------------
Amount Percent Amount Percent
---------- --------- ---------- ---------
1-12 months........................... $ 73,550 68.3% $ 84,157 70.1%
13-24 months.......................... 14,417 13.4 18,192 15.1
25-36 months.......................... 9,451 8.8 8,559 7.1
37-48 months.......................... 3,066 2.8 3,555 3.0
Thereafter............................ 7,244 6.7 5,665 4.7
---------- ------- ---------- -------
Total............................... $ 107,728 100.0% $ 120,128 100.0%
========== ======= ========== =======
At December 31, 1993 and 1992, savings certificate accounts with balances of
$100,000 or more aggregated to $4.7 million and $2.8 million, respectively.
Accrued interest payable by category on deposits is as follows (in
thousands):
December 31,
------------------
1993 1992 1991
---- ------ ------
Savings accounts............................................ $103 $ 123 $ 171
Savings certificates........................................ 819 966 1,445
NOW deposits and Money Market Demand accounts............... -- -- 73
---- ------ ------
Total..................................................... $922 $1,089 $1,689
==== ====== ======
F-16
Interest expense by category of deposits is as follows (in thousands):
December 31,
----------------------
1993 1992 1991
------ ------- -------
Savings accounts........................................ $1,519 $ 1,706 $ 2,334
Savings certificates.................................... 5,275 7,172 9,573
NOW deposits and Money Market Demand accounts........... 1,317 1,338 1,675
------ ------- -------
Total................................................. $8,111 $10,216 $13,582
====== ======= =======
Deposits consist of the following major classifications (in thousands):
December 31, 1993 December 31, 1992
-------------------- --------------------
Amount Percent Amount Percent
---------- --------- ---------- ---------
Club accounts:
1993--2.40%........................ $ 326 0.1% $ -- --%
1992--3.00%........................ -- -- 331 0.1%
Passbook accounts:
1993--2.40%........................ 54,964 25.4 -- --
1992--3.00%........................ -- -- 52,141 23.5
---------- ------- ---------- -------
Savings Accounts.................. 55,290 25.5 52,472 23.6
---------- ------- ---------- -------
IRA and Keogh Certificates:
1993--3.00% to 5.50%............... 18,237 8.4 -- --
1992--3.00% to 6.10%............... -- -- 18,522 8.3
Certificate accounts:
Original maturity of six months or
less:
1993--2.65% to 3.00%.............. 24,791 11.5 -- --
1992--2.80% to 4.10%.............. -- -- 33,074 14.9
Original maturity of more than six
months:
1993--3.00% to 5.50%.............. 64,700 29.9 -- --
1992--3.10% to 6.10%.............. -- -- 68,532 30.9
---------- ------- ---------- -------
Savings Certificates............. 107,728 49.8 120,128 54.1
---------- ------- ---------- -------
NOW accounts:
1993--2.15%........................ 20,496 9.5 -- --
1992--3.11%........................ -- -- 24,107 10.9
Money market accounts:
(weekly adjustments)
1993--2.40% to 2.60%.............. 27,227 12.6 -- --
1992--3.00% to 3.30%.............. -- -- 20,692 9.3
Business checking:
Interest bearing
1993--2.15%....................... 1,508 0.7 -- --
1992--3.11%....................... -- -- 1,148 0.5
Non-interest bearing............... 3,957 1.9 3,615 1.6
---------- ------- ---------- -------
NOW and Money Market Demand
Accounts........................ 53,188 24.7 49,562 22.3
---------- ------- ---------- -------
Total Deposits................... $ 216,206 100.0% $ 222,162 100.0%
========== ======= ========== =======
Weighted average interest rates
paid for:
Savings............................ 2.74% 3.41%
======= =======
Savings certificates............... 4.66% 5.75%
======= =======
NOW and money market............... 2.57% 3.04%
======= =======
Total Deposits................... 3.69% 4.67%
======= =======
F-17
NOTE 10: OTHER BORROWED FUNDS
Other borrowed funds consist of the following:
December 31,
---------------
1993 1992
------- -------
(in thousands)
$8.0 million nonrevolving commercial loan commitment of which
the outstanding balance is payable in fixed monthly principal
installments of $111,000 through January 15, 1997. The
commercial loan bears interest at 3% on the used portion for
which a compensating balance is maintained and the prime rate
plus 1% for which no compensating balance is maintained. The
prime rate plus 1% was 7.0% at December 31, 1993 and 1992.... $ 4,111 $ 5,445
$25.0 million and $20.0 million mortgage warehouse line of
credit as of December 31, 1993 and 1992, respectively,
bearing interest at 1.625% on used portion for which a
compensating balance is maintained, and prime on used portion
for which no compensating balance is maintained. The prime
rate was 6.0% at December 31, 1993 and 1992. The line expires
July 1, 1994................................................. 15,161 12,464
Other......................................................... 106 181
------- -------
Total....................................................... $19,378 $18,090
======= =======
The two credit arrangements described above are cross-collateralized, secured
by SMC's mortgage inventory, servicing rights and commitments.
Compensating balances held by the lender are used in determining the interest
rates charged on the mortgage warehouse lines of credit and the commercial
loan. These balances, which are derived from customer escrow balances, amounts
of collections in transit on loans serviced and corporate cash balances, can
further decrease the interest rate charged on the lines of credit if the
compensating balance is maintained at a level greater than the used portion of
the line. Under the loan agreements, the effective rate of the nonrevolving
commercial loan and the mortgage warehouse line of credit can be decreased to a
minimum rate of 1.0%. These compensating balances averaged approximately $22.8
million and $21.6 million during 1993 and 1992, respectively. The use of these
balances resulted in an effective interest rate of 1.87% and 1.59% in 1993 and
1992, respectively.
F-18
NOTE 11: FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances consist of the following:
DECEMBER 31,
---------------
1993 1992
------- -------
(IN THOUSANDS)
$11.0 million and $3.0 million variable rate advances, maturing
December 16, 1994, and January 2, 1995, respectively, secured
by 100% of FHLB stock owned by JSB, funds on deposit at the
FHLB and up to 90% of the fair market value of JSB's mortgage-
backed securities portfolio. The advances can be repaid
without penalty. The average rate of these advances was 3.83%
in 1993....................................................... $14,000 $14,000
$34.1 million line of credit commitment maturing August 5,
1994, bearing interest at the variable rate posted by FHLB at
the date of the drawdown. The commitment is secured by 100% of
FHLB stock owned by JSB, funds on deposit at the FHLB and up
to 90% of the fair market value of the Bank's mortgage-backed
securities portfolio. The average rate of this commitment was
3.30% in 1993................................................. 24,500 21,000
Fixed-term advances bearing interest from 4.12% to 5.71% and
maturing at periods from one to four years, secured by 100% of
FHLB stock owned by the Bank, funds on deposit at the FHLB and
up to 90% of the fair market value of JSB's mortgage-backed
securities portfolio.......................................... 6,500 6,500
Fixed-term advances bearing interest from 3.77% to 8.05% and
maturing at periods from one to ten years, secured by various
investment securities and unencumbered first mortgage loans
equal to 120% of JSB's advances, subject to prepayment
penalties..................................................... 34,000 11,000
Repurchase agreements, bearing interest at 3.49%, maturing
January 28, 1994, secured by government agency and mortgage-
backed securities with a book value of $11.6 million, and an
approximate market value of $11.5 million..................... 10,000 --
------- -------
$89,000 $52,500
======= =======
Federal Home Loan Bank advances mature as follows (in thousands):
YEAR RATE AMOUNT DUE
---- ----- ----------
1994 3.83% $54,000
1995 5.04% 9,000
1996 6.31% 7,000
1997 5.61% 2,750
1998 5.69% 3,750
1999 6.09% 1,250
2000 6.15% 3,750
2001 6.49% 1,250
2002 6.59% 2,500
2003 6.61% 3,750
-------
$89,000
=======
NOTE 12: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CREDIT RISK
JSB is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financial needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These
F-19
financial instruments include commitments to extend credit, letters of credit,
consumer and commercial lines of credit, fixed and variable rate mortgage loan
commitments and commitments to purchase securities. Those instruments involve,
to varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the statement of financial position. The contract or
notional amounts of those instruments reflect the extent of JSB's involvement
in particular classes of financial instruments.
JSB has exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit. JSB uses
the same credit policies in making commitments and conditional obligations as
it does for on-balance-sheet instruments. Accordingly, the amount and type of
collateral obtained by JSB is based upon industry practice and JSB's credit
assessment of the customer.
The following table sets forth the dollar amount of financial instruments
whose contract amounts represent credit-risk and commitments outstanding, not
otherwise reflected on the balance sheet, as of December 31 (in thousands):
CONTRACT OR
NOTIONAL AMOUNT
---------------
1993 1992
------- -------
Financial instruments whose contract amount represents
credit risk:
Unused portion of open-end consumer lines............... $14,248 $13,433
Unused portion of commercial lines...................... 479 533
Letters of credit--commercial........................... 15 --
------- -------
$14,742 $13,966
======= =======
Commitments outstanding to purchase or originate:
Adjustable-rate mortgage loans secured by 1-4 family
dwellings............................................... $ 5,180 $ 1,370
Fixed-rate mortgage loans secured by 1-4 family
dwellings............................................... 31,615 10,045
Fixed-rate mortgage loans secured by commercial real
estate.................................................. 4,944 --
Fixed-rate investment and mortgage-backed securities..... 4,750 3,790
------- -------
$46,489 $15,205
======= =======
Commitments to sell fixed-rate mortgage loans available
for sale................................................. $31,586 $20,625
======= =======
Market risk arises if interest rates, at the time a fixed-rate commitment is
funded, have moved adversely subsequent to the extension of the commitment. JSB
believes the market risk associated with consumer loan commitments is minimal.
Commitments to fund residential mortgages and to purchase mortgage-backed
securities carry market risks similar to the risks associated with similar
assets currently reported on JSB's balance-sheet. Since a portion of JSB's
commitments to extend credit are expected to expire without being drawn upon,
the total contractual amounts do not necessarily represent future cash
requirements.
Financial institutions, such as JSB, generate profits primarily through
lending and investing activities. The risk of loss from lending and investing
activities includes the possibility that a loss may occur from the failure of
another party to perform according to the terms of the loan or investment
agreement. This possibility of loss is known as credit risk.
Credit risk is increased by lending and/or investing activities that
concentrate a financial institution's earning assets in such a way as to expose
the institution to a material loss from any single occurrence or group of
related occurrences. Diversifying the institution's assets to prevent
concentrations is one way in which the financial institution can reduce
potential losses due to credit risk.
JSB manages its credit risk by establishing and implementing strategies
appropriate to the characteristics of borrowers, collateral pledged and
geographic locations. Diversification of risk, within each of these areas is a
primary objective of JSB.
F-20
At December 31, 1993, JSB's assets were deployed primarily in four principal
types of investments: (1) investment securities and MBS; (2) residential real
estate loans; (3) commercial and multi-family residential real estate loans;
and (4) consumer loans.
Investment securities and MBS. Other than investment securities and MBS
issued or backed by the U.S. Government or a U.S. Government-sponsored
enterprise, JSB has no significant concentration of any single issuer in its
MBS and investment portfolios.
Residential real estate loans. At December 31, 1993, JSB had $80.1 million in
residential mortgages, including loans available for sale. The collateral
properties for approximately $58.6 million of these loans, and a substantial
majority of JSB's mortgage loan commitments at December 31, 1993, were
concentrated primarily in western Pennsylvania. Loans and commitments of this
type are issued to an inherently diverse group of borrowers and JSB has no
significant concentration of loans to one borrower. In addition, JSB's
underwriting standards and internal control procedures are designed to
minimize, as far as possible, credit risk associated with residential mortgage
lending and the possible risks associated with concentrations of such loans in
a geographic area of limited size.
Commercial and multi-family residential loans. At December 31, 1993, JSB had
$42.8 million of commercial and multi-family residential loans, the majority of
which are located outside the state of Pennsylvania. At December 31, 1993,
$11.2 million, $4.1 million, and $5.6 million of multi-family residential and
commercial real estate loans were secured by properties located in Texas,
Colorado, and Georgia, respectively. Since 1989, JSB has not actively sought to
originate commercial real estate loans outside of western Pennsylvania. JSB's
underwriting standards and internal control procedures are designed to
minimize, as far as possible, credit risks associated with commercial real
estate lending within western Pennsylvania.
Consumer loans. At December 31, 1993, JSB had $27.5 million in consumer
loans. Substantially all of JSB's consumer loan portfolio is secured (where
applicable) by assets located in or around JSB's general market area. In
addition, substantially all of JSB's off-balance-sheet commitments to extend
consumer loan credit involve customers within JSB's general market area.
Consumer loans generally have shorter terms and higher interest rates than
other types of retail loans, such as residential mortgages, because of the type
and nature of the collateral and, in certain cases, the absence of collateral.
Such loans are issued to an inherently diverse group of borrowers and JSB has
no significant concentration of loans to one borrower. JSB's underwriting
standards and internal control procedures are designed to minimize, as far as
possible, credit risk associated with concentrations of such loans in a
geographic area of limited size.
NOTE 13: STANDARD MORTGAGE CORPORATION OF GEORGIA
SMC is a mortgage banking company located in Atlanta, Georgia. It originates
and sells loans primarily in the Atlanta metropolitan area. SMC also acquires
rights to service mortgage loans from unaffiliated third parties throughout the
United States. During 1993, 1992, and 1991, SMC acquired the rights to service
approximately $147.0 million, $84.0 million, and $239.3 million of mortgage
loans at a cost of approximately $1.8 million, $595,000, and $2.1 million,
respectively.
SMC was servicing loans for others of $908.9 million, $840.5 million and $829
million at December 31, 1993, 1992, and 1991, respectively.
For the years ended December 31, 1993 and 1992, SMC paid JSB $42,000 and
$180,000, respectively, in management and other fees to compensate JSB for
direct and indirect expenditures JSB incurred on behalf of SMC during the year.
In addition, $238,000 and $302,000 for charges in-lieu of federal income taxes
were assessed by JSB to SMC during 1993 and 1992, respectively. The charge to
SMC represents 34% of SMC's federally taxable net income and was made under the
provisions of a tax-sharing agreement between the two entities.
F-21
The following are condensed statements of financial condition for 1993 and
1992, and condensed statements of operations for SMC for 1993, 1992, and 1991:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
December 31,
---------------
1993 1992
------- -------
(in thousands)
Assets:
Cash and cash equivalents..................................... $ 840 $ 1,526
Loans available for sale...................................... 16,648 13,830
Mortgage servicing purchased, net............................. 7,342 7,838
Other assets.................................................. 2,796 2,646
------- -------
Total Assets................................................. $27,626 $25,840
======= =======
Liabilities:
Accounts payable.............................................. $ 2,159 $ 2,176
Borrowings from unaffiliated lender........................... 19,272 17,909
------- -------
Total Liabilities............................................ 21,431 20,085
Stockholder's Equity........................................... 6,195 5,755
------- -------
Total Liabilities and Stockholder's Equity................... $27,626 $25,840
======= =======
CONDENSED STATEMENTS OF OPERATIONS
Year Ended December 31,
-----------------------
1993 1992 1991
------- ------- -------
(in thousands)
Income:
Servicing fee income................................... $ 4,302 $ 4,360 $ 3,650
Gain on sale of mortgage loans......................... 1,019 1,068 1,110
Interest earned........................................ 1,463 1,301 916
Miscellaneous.......................................... 246 225 157
------- ------- -------
Total Income.......................................... 7,030 6,954 5,833
------- ------- -------
Expenses:
Amortization of cost of purchased servicing rights..... 2,275 2,383 1,425
Interest expense:
Paid to affiliate..................................... 135 -- --
Paid to others........................................ 523 491 452
Other operating expenses............................... 3,374 3,162 2,427
------- ------- -------
Total Expenses....................................... 6,307 6,036 4,304
------- ------- -------
Income before taxes..................................... 723 918 1,529
Income tax expense...................................... 283 354 636
------- ------- -------
Net Income.............................................. $ 440 $ 564 $ 893
======= ======= =======
F-22
NOTE 14: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Three Months Ended
---------------------------------------------
March 31, June 30, September 30, December 31,
1993 1993 1993 1993
--------- -------- ------------- ------------
(In thousands except per share data)
Interest income.................. $5,699 $5,659 $5,463 $ 5,782
Interest expense................. 2,947 3,120 3,062 3,033
------ ------ ------ -------
Net interest income.............. 2,752 2,539 2,401 2,749
Provision for loan losses........ 760 180 72 90
Other operating income........... 1,578 1,198 1,767 2,039
Other operating expenses......... 2,579 2,590 3,092 2,739
------ ------ ------ -------
Net income before taxes.......... 991 967 1,004 1,959
Provision (benefit) for income
taxes........................... 272 240 202 846
------ ------ ------ -------
Net income....................... $ 719 $ 727 $ 802 $ 1,113
====== ====== ====== =======
Net income per share............. $ 0.37 $ 0.37 $ 0.41 $ 0.58
====== ====== ====== =======
Three Months Ended
---------------------------------------------
March 31, June 30, September 30, December 31,
1992 1992 1992 1992
--------- -------- ------------- ------------
(In thousands except per share data)
Interest income.................. $6,076 $5,777 $5,637 $ 5,792
Interest expense................. 3,466 3,208 2,993 3,111
------ ------ ------ -------
Net interest income.............. 2,610 2,569 2,644 2,681
Provision for loan losses........ 365 430 280 1,430
Other operating income........... 806 1,982 1,245 1,047
Other operating expenses......... 2,481 3,465 2,857 4,044
------ ------ ------ -------
Net income (loss) before taxes
and cumulative effect of change
in accounting principle......... 570 656 752 (1,746)
Provision (benefit) for income
taxes (1)....................... 77 (350) 129 (533)
Cumulative effect of change in
accounting for income taxes..... 1,673 -- -- --
------ ------ ------ -------
Net income (loss)................ $2,166 $1,006 $ 623 $(1,213)
====== ====== ====== =======
Net income (loss) per share...... $ 1.12 $ 0.52 $ 0.32 $ (0.63)
====== ====== ====== =======
- --------
(1) Amounts have been restated to reflect the change in accounting principle
discussed in Notes 1 and 7.
F-23
NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table represents the carrying amount and the estimated fair
value of JSB's financial instruments at December 31, 1993 (in thousands):
Recorded Weighted Repricing Estimated
Book Average or Maturity Discount Fair
Notes Balance Yield Range in years Rates used Value
----- -------- -------- -------------- ------------ ---------
FINANCIAL ASSETS
Cash and Due from Banks. $ 8,449 -- -- -- $ 8,449
Investment and mortgage-
backed securities:
Available for sale.... 137,578 -- -- -- 137,586
Held to maturity...... 28,496 -- -- -- 28,506
Held in trading
accounts............. 3,551 -- -- -- 3,551
Loans receivable:
Residential mortgage
loans, 1-4 family.... -A- 47,136 7.22% 0 to 20+ 3.97 to 6.72% 48,463
Residential mortgage
loans available for
sale................. 32,759 7.24 15 to 20+ -- 32,991
Commercial & multi-
family loans......... 42,660 9.41 0 to 10 8.82 42,877
Commercial business
loans and leases..... 5,426 7.38 0 to 20 7.06 5,459
Consumer loans........ -B- 26,874 9.77 0 to 10 7.83 to 8.35 28,055
Non-accrual loans
(net)................ 589 -- ** -- 589
FHLB stock.............. 5,056 ** ** ** 5,056
Accrued interest
receivable............. 2,147 ** ** ** 2,147
FINANCIAL LIABILITIES:
Certificates of deposit. 73,554 3.89 0 to 1 -- 73,554
Certificates of deposit. 34,173 5.58 1 to 15 4.89 35,103
Checking, MMDA & savings
accounts............... -C- 108,478 2.29 ** -- 108,478
Accrued interest
payable................ 922 ** ** ** 922
FHLB advances........... 89,000 4.59 0 to 10 3.19 to 8.34 89,352
Other borrowed funds.... -D- 19,378 1.87 0 to 5 3.19 19,230
- --------
**--Not meaningful.
A The carrying amount consists of approximately $34.8 million in adjustable-
rate and $12.3 million in fixed-rate residential mortgage loans. The
discount rate used to determine fair value was selected based on loans of
similar type, repricing schedule (where applicable) and remaining maturity.
B The carrying amount includes approximately $5.6 million in credit card
receivables. The fair market value of credit card receivables was determined
using quoted prices offered in an active secondary market.
C SFAS No. 107 defines the estimated fair value of deposits with no stated
maturity, such as demand deposits, savings, NOW and money market demand
accounts, to be equal to the amount payable on demand (i.e., their carrying
amounts).
D Other borrowed funds include $15.2 million of advances subject to daily
repricing. SFAS No. 107 defines the estimated fair value of borrowed funds
repricing within 90 days as equal to the carrying value.
F-24
The estimation methods, approaches and significant assumptions used in
determining the fair market values of each category of financial instrument are
as follows:
Cash and Due From Banks
The recorded book balance approximates fair value due to the due on demand
nature of these financial instruments.
Investment and Mortgage-backed Securities
Investment and mortgage-backed securities, of the type held by JSB, are
actively traded in a secondary market and have been valued using quoted market
prices.
Loans Receivable
For certain homogeneous categories of loans, such as residential mortgages
and credit card receivables, fair market value is estimated by using quoted
market prices for similar loans or securities backed by similar loans, adjusted
for differences in loan characteristics, if any. The fair value of other types
of loans is estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and maturities.
Fair market values for residential mortgages available for sale are
determined using sales commitments to permanent investors or current market
rate for loans of similar quality.
Non-performing Loans
Estimated fair market value represents the net realizable value of the loan
collateral including an allowance for credit risk based upon JSB's historical
credit loss experience and disposition costs for similar assets. Fair market
value is based upon either appraisals obtained from independent sources or upon
JSB's determination of fair market value based upon the capitalization of
current and estimated future cash flows from the collateral property.
FHLB Stock
FHLB stock is not actively traded on a secondary market. FHLB stock is held
exclusively by financial institutions that are members of the Federal Home Loan
Bank system. The stock is generally redeemable at par. Accordingly, the fair
market value of the FHLB stock approximates the carrying value.
Accrued Interest Receivable
The fair market value of accrued interest receivable approximates the
carrying value.
Deposit Liabilities
SFAS No. 107 defines the estimated fair value of deposits with no stated
maturity, which includes demand deposits and money market and other savings
accounts, to be equal to the amount payable on demand. Although market premiums
paid for depository institutions reflect an additional value for these low-cost
deposits, SFAS No. 107 prohibits adjusting fair value for any value expected to
be derived from retaining those deposits for a future period of time or from
the benefit that results from ability to fund interest-earning assets with
these deposit liabilities. The fair value of fixed-maturity deposits is
estimated by discounting the future cash flows using the current market rates
offered in active secondary markets for advances with similar terms and
remaining maturities.
F-25
Accrued Interest Payable
The fair market value of accrued interest payable approximates the carrying
value.
Other Borrowings and FHLB Advances
The fair market value of other borrowed funds and advances is estimated by
discounting the future cash flows using the current market rates offered in
active secondary markets for debt with similar terms and remaining maturities.
Off-Balance-Sheet Financial Instruments
JSB's off-balance-sheet financial instruments are primarily commitments to
extend credit, commitments to fund residential mortgages and commitments to
purchase MBS. The commitments to fund residential mortgages and to purchase MBS
were made proximate to December 31, 1993, at the prevailing market rates and/or
prices. Accordingly, the committed funding amount for residential mortgages and
the committed purchase price for MBS approximates the fair market value of
those financial instruments at December 31, 1993. Commitments to extend credit
generally are not sold or traded, and estimated fair values are not readily
available. For a further discussion of JSB's off-balance-sheet financial
instruments, see Note 12, Financial Instruments with Off-Balance-Sheet and
Credit Risk.
NOTE 16: PURCHASED MORTGAGE SERVICING RIGHTS
At December 31, 1993, SMC serviced $908.9 million in loans for others.
Servicing rights are acquired through both purchases and loan origination
activities. Direct acquisition expenses for purchased servicing rights are
capitalized and amortized over the estimated economic life of the related
servicing asset. The following is an analysis of the changes in purchased
mortgage loan servicing rights asset balances for the years ended 1993, 1992
and 1991 (in thousands):
1993 1992 1991
------- ------- -------
Beginning Balance.................................... $ 7,838 $ 9,626 $ 8,964
Purchases............................................ 1,779 595 2,535
Amortization......................................... (2,275) (2,383) (1,425)
Sales................................................ -- -- (448)
------- ------- -------
Ending Balance....................................... $ 7,342 $ 7,838 $ 9,626
======= ======= =======
NOTE 17: LEASE COMMITMENTS
At December 31, 1993, JSB had entered into four operating lease agreements
for office and branch facility space which will expire at various times from
December 1995 to December 2014. JSB recognized $212,000, $153,000 and $140,000
of rent expense in 1993, 1992 and 1991, respectively. The minimum lease
payments for the years subsequent to 1993 are as follows (in thousands):
1994.................... $ 256
1995.................... 287
1996.................... 272
1997.................... 274
1998.................... 254
1999 and thereafter..... 325
------
Total................... $1,668
======
F-26
NOTE 18: ACQUISITION BY USBANCORP, INC.
On January 18, 1994, Johnstown Savings Bank and USBANCORP, Inc. (USBANCORP)
jointly announced that they had reached agreement on revised terms to the
definitive agreement pursuant to which JSB would merge with United States
National Bank in Johnstown, one of USBANCORP's banking subsidiaries. The
definitive agreement was signed by the parties on November 10, 1993.
JSB has the right to terminate the amended agreement in the event that the
average closing price of USBANCORP common stock for the ten trading days
immediately preceding the closing is less than $20.50 per share. USBANCORP
common stock is traded on the NASDAQ National Market System.
At the time the amendment was signed by the parties, financial advisors for
each party provided a written opinion to the Boards of Directors of JSB and
USBANCORP that the revised merger consideration set forth in the amendment is
fair from a financial point of view to USBANCORP and the stockholders of JSB.
The transaction is subject to regulatory approvals and to the approvals of
the stockholders of JSB and USBANCORP.
F-27