-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P9l/FyXFDqXbflamYBlDEk/I12GJAsPKZYNxYCe5bVpVbgDfXMEhpJHSmXVSJlua kQSJ9420NTKbjeYvLjlNIA== 0000755933-98-000018.txt : 19980814 0000755933-98-000018.hdr.sgml : 19980814 ACCESSION NUMBER: 0000755933-98-000018 CONFORMED SUBMISSION TYPE: 10-Q CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERCHANGE FINANCIAL SERVICES CORP /NJ/ CENTRAL INDEX KEY: 0000755933 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 222553159 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10518 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: PARK 80 WEST PLAZA TWO STREET 2: ATTN INTERCHANGE STATE BANK CITY: SADDLE BROOK STATE: NJ ZIP: 07662 BUSINESS PHONE: 2017032265 MAIL ADDRESS: STREET 1: PARK 80 WEST STREET 2: PLAZA II CITY: SADDLE BROOK STATE: NJ ZIP: 07663 FORMER COMPANY: FORMER CONFORMED NAME: INTERCHANGER STATE BANK DATE OF NAME CHANGE: 19870416 FORMER COMPANY: FORMER CONFORMED NAME: INTERCHANGE FINANCIAL SERVICES CORP DATE OF NAME CHANGE: 19861209 10-Q 1 FORM 10-Q 2ND QTR INTERCHANGE FINANCIAL SERVICES CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands)
JUNE 30, December 31, 1998 1997 --------------- -------------- ASSETS Cash and due from banks $ 18,265 $ 19,215 Interest bearing demand deposits 1,003 1,968 Federal funds sold 22,200 15,400 --------------- -------------- Total cash and cash equivalents 41,468 36,583 --------------- -------------- Investment securities at amortized cost (approximate market value of $52,121 and $60,834) 51,622 60,442 Securities available for sale at estimated market value (amortized cost of $88,068 and $73,640) 89,441 75,556 Loans 471,085 438,273 Less: Allowance for loan losses 5,342 5,231 --------------- -------------- Net loans 465,743 433,042 --------------- -------------- Premises and equipment, net 9,831 9,548 Accrued interest receivable and other assets 8,687 9,879 --------------- -------------- TOTAL ASSETS $666,792 $625,050 =============== ============== LIABILITIES Deposits Noninterest bearing $ 100,819 $ 95,437 Interest bearing 475,055 445,329 --------------- -------------- Total deposits 575,874 540,766 Securities sold under agreements to repurchase 18,450 13,027 Accrued interest payable and other liabilities 4,359 5,248 Long-term borrowings 9,824 9,879 --------------- -------------- TOTAL LIABILITIES 608,507 568,920 --------------- -------------- COMMITMENTS AND CONTINGENT LIABILITIES - - STOCKHOLDERS' EQUITY Common stock 5,397 5,396 Capital surplus 21,291 21,557 Retained earnings 31,718 29,698 Acumulated Other Comprehensive Income 867 1,185 --------------- -------------- 59,273 57,836 Less: Treasury Stock (77,302 and 134,025 common shares) 988 1,706 --------------- -------------- Total stockholders' equity 58,285 56,130 --------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $666,792 $625,050 =============== ============== - ----------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements
INTERCHANGE FINANCIAL SERVICES CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share data)
Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 1998 1997 1998 1997 ------------- ----------- ------------ ------------ INTEREST INCOME Interest and fees on loans $9,731 $8,679 $19,210 $17,151 Interest on federal funds sold 423 264 803 386 Interest on interest bearing deposits 25 19 49 39 Interest and dividends on securities Taxable interest income 2,004 2,167 3,982 4,302 Interest income exempt from federal income taxes 21 8 50 24 Dividends 68 55 131 114 ------------- ----------- ------------ ------------ TOTAL INTEREST INCOME 12,272 11,192 24,225 22,016 ------------- ----------- ------------ ------------ INTEREST EXPENSE Interest on deposits 4,655 4,305 9,213 8,310 Interest on short-term borrowings 249 167 457 365 Interest on long-term borrowings 147 150 294 298 ------------- ----------- ------------ ------------ TOTAL INTEREST EXPENSE 5,051 4,622 9,964 8,973 ------------- ----------- ------------ ------------ NET INTEREST INCOME 7,221 6,570 14,261 13,043 Provision for loan losses 212 517 431 1,137 ------------- ----------- ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,009 6,053 13,830 11,906 ------------- ----------- ------------ ------------ NONINTEREST INCOME Service fees on deposit accounts 649 492 1,274 945 Net gain on sale of loans - - - 1,067 Other 235 1,014 568 1,180 ------------- ----------- ------------ ------------ TOTAL NONINTEREST INCOME 884 1,506 1,842 3,192 ------------- ----------- ------------ ------------ NONINTEREST EXPENSES Salaries and benefits 2,244 2,234 4,727 4,425 Net occupancy 572 533 1,136 1,080 Furniture and equipment 252 221 510 411 Advertising and promotion 213 222 390 386 Federal Deposit Insurance Corporation assessment 19 17 37 22 Foreclosed real estate expense, net - (3) - 5 Acquisition 1,278 - 1,389 - Other 1,078 1,217 2,177 2,365 ------------- ----------- ------------ ------------ TOTAL NONINTEREST EXPENSES 5,656 4,441 10,366 8,694 ------------- ----------- ------------ ------------ Income before income taxes 2,237 3,118 5,306 6,404 Income taxes 810 1,095 1,901 2,247 ------------- ----------- ------------ ------------ NET INCOME $ 1,427 $ 2,023 $ 3,405 $ 4,157 ============= =========== ============ ============ BASIC EARNINGS PER COMMON SHARE $0.20 $0.28 $0.47 $0.58 ============= =========== ============ ============ DILUTED EARNINGS PER COMMON SHARE $0.20 $0.28 $0.47 $0.57 ============= =========== ============ ============ - ------------------------------------------------------------------------------------------------------------------------------------ See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands)
Accumulated Other Comprehensive Retained Comprehensive Common Capital Treasury Income Earnings Income/(Loss) Stock Surplus Stock Total ---------- -------- ------------- ------- -------- -------- ------- Balance at January 1, 1997 $24,157 $256 $5,285 $20,350 - $50,048 Comprehensive income Net Income $4,157 4,157 4,157 Other comprehensive income, net of taxes Unrealized losses on securities (264) 264 264 ---------- Other comprehensive income (264) ---------- Comprehensive income $3,893 ========== Dividends on common stock (1,201) (1,201) Fractional shares on 3 for 2 stock split (3) (3) Issued 12,822 shares of common stock in connection with Executive Compensation Plan (1) 9 159 168 Exercised 27,440 option shares (1) 20 143 163 Purchased 12,200 shares in exchange for option shares (1) (163) (163) Issued 9,024 common shares under Dividend Reinvestment Plan 6 62 68 Issued 229,562 shares of common stock in merger with Washington Interchange Corporation (1) 170 2,765 2,935 Acquired 187,283 shares of common stock held by Washington Interchange Corporation (1) (2,394) (2,394) Retired 187,283 shares of common stock held by Washington Interchange Corporation (1) (138) (2,256) 2,394 - Purchased 121,826 shares of common stock (1) (1,543) (1,543) ---------- -------- ------------- ------- -------- -------- -------- Balance at June 30, 1997 27,113 520 5,352 21,220 (1,706) 52,499 Comprehensive income Net Income $3,768 3,768 3,768 Other comprehensive income, net of taxes Unrealized gains on securities 665 665 665 ---------- Other comprehensive income 665 ========== Comprehensive income $4,433 ========== Dividends on common stock (1,183) (1,183) Exercised 23,225 option shares (1) 18 97 115 Exercised $23,100 options 17 137 154 Issued 11,480 common shares under Dividend Reinvestment Plan 9 103 112 -------- ------------- ------- -------- -------- -------- Balance at December 31, 1997 29,698 1,185 5,396 21,557 (1,706) 56,130 Comprehensive income Net Income $3,405 3,405 3,405 Other comprehensive income, net of taxes Unrealized losses on securities (278) (278) (278) Unrealized losses securities transferred from held to maturity to available to sale (40) (40) (40) ---------- Other comprehensive income (318) ---------- Comprehensive income $3,087 ========== Dividends on common stock (1,385) (1,385) Fractional shares on 3 for 2 stock split and merger shares (6) (6) Issued 12,769 shares of common stock in connection with Executive Compensation Plan (1) 70 162 232 Exercise of 44,680 option shares (1) 1 (330) 556 227 ------- ------------- ------- -------- -------- -------- Balance at June 30, 1998 $31,718 $867 $5,397 $21,291 $(988) $58,285 ======== ============= ======= ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------------------------ (1) Adjusted for the effects of the 3 for 2 stock split issued on April 17, 1998 to shareholders of record on March 20, 1998 See notes to consolidated financial statements.
INTERCHANGE FINANCIAL SERVICES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the six months ended June 30, ------------------------------ 1998 1997 ------------------------------ Cash flows from operating activities Net income $ 3,405 $ 4,157 Non-cash items included in earnings Depreciation and amortization of fixed assets 671 541 Amortization of securities premiums 454 485 Accretion of securities discounts (91) (51) Amortization of premiums in connection with acquisition 222 222 Provision for loan losses 431 1,137 Net gain on sale of loans - (1,067) Net gain on sale of foreclosed real estate - (6) Increase in carrying value of loans available for sale - 2 Decrease (increase) in operating assets Net repayment of loans available for sale - 13 Accrued interest receivable (252) 300 Other 1,405 (147) Increase (decrease) in operating liabilities Accrued interest payable 138 218 Other (1,027) (391) ------------ ---------- Cash provided by operating activities 5,356 5,413 ------------ ---------- Cash flows from investing activities (Payments for) proceeds from Net originations of loans (22,415) (25,133) Purchase of loans (3,626) - Purchase of term federal funds (7,500) - Sale of loans 409 5,945 Purchase of securities available for sale (10,546) (12,361) Maturities of securities available for sale 5,717 2,112 Sale of foreclosed real estate - 616 Purchase of investment securities (11,716) (14,806) Maturities of investment securities 10,574 26,408 Washington Interchange Merger - 37 Purchase of fixed assets (916) (1,123) Sale of fixed assets 4 13 ------------ ---------- Cash used in investing activities (40,015) (18,292) ------------ ---------- Cash flows from financing activities Proceeds from (payments for) Deposits more than withdrawals 35,108 28,592 Securities sold under agreements to repurchase 8,020 1,750 Retirement of other borrowings (55) (5,251) Retirement of securities sold under agreement to repurchase (2,597) (1,000) Dividends (1,385) (1,201) Common stock issued 226 236 Treasury stock - (1,543) Exercise of option shares from Treasury 227 - ------------ ---------- Cash provided by financing activities 39,544 21,583 ------------ ---------- Increase in cash and cash equivalents 4,885 8,704 Cash and cash equivalents, beginning of year 36,583 33,189 ============ ========== Cash and cash equivalents, end of period $41,468 $41,893 ============ ========== Supplemental disclosure of cash flow information: Cash paid for: Interest $9,826 $8,755 Income taxes 2,826 2,549 Supplemental disclosure of non-cash investing activities: Decrease (increase) - market valuation of securities available for sale $541 $ (269) Amortization of valuation allowance - securities transferred from available for sale to held to maturity - 5 Securities transferred from held to maturity to available for sale 8,187 - - ------------------------------------------------------------------------------------------------------ See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles and in accordance with the rules and regulations of the Securities and Exchange Commission. Pursuant to such rules and regulations certain information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and schedules thereto included in the annual report on Form 10-K of Interchange Financial Services Corporation (the "Company") for the year ended December 31, 1997. The consolidated financial data for the six months ended June 30, 1998 and 1997, are unaudited but reflect all adjustments consisting of only normal recurring adjustments which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the interim periods. The results of operations for interim periods are not necessarily indicative of results to be expected for any other period or the full year. Effective May 31, 1998, the Company acquired The Jersey Bank for Savings ("Jersey"). The acquisition has been accounted for under the pooling-of-interests method of accounting, accordingly, the financial statements have been retroactively restated to include the consolidated accounts of Jersey for all periods presented. The transaction resulted in the issuance of 780,198 shares of the Company's common stock. 2. Earnings Per Common Share Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per common share is similar to the computation of basic earnings per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. 3. Legal Proceedings The Company is a party to routine litigation involving various aspects of its business, none of which, in the opinion of management and its legal counsel, is expected to have a material adverse impact on the consolidated financial condition, results of operations or liquidity of the Company. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is an analysis of the consolidated financial condition and results of operations of the Company for the three and six months ended June 30, 1998 and 1997, and should be read in conjunction with the consolidated financial statements and notes thereto included in Item 1 hereof. The Company issued a 3 for 2 stock split on April 17, 1998 to shareholders of record on March 20, 1998. All per share and share data have been retroactively restated to include the effects of the split for all periods presented. Effective May 31, 1998, the Company acquired The Jersey Bank for Savings ("Jersey"). The acquisition has been accounted for under the pooling of interests method of accounting, accordingly the financial statements have been retroactively restated to include the consolidated accounts of Jersey for all periods presented. THREE MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 Earnings Summary Net income for the three months ended June 30, 1998, was $1.4 million or $.20 diluted earnings per common share, as compared to $2.0 million or $.28 diluted earnings per common share for the same period a year ago. Excluding the nonrecurring Jersey merger related charge of $824 thousand, net of tax, the Company reported net income of $2.3 million, an increase of $228 thousand or 11.3% from the prior comparable period. Diluted earnings per common share, excluding the merger related charge, were $.31, an increase of 10.7% over the prior comparable period. RESULTS OF OPERATIONS Net Interest Income Net interest income is the most significant source of the Company's operating income. Net interest income on a tax equivalent basis increased $654 thousand to $7.2 million for the quarter ended June 30, 1998 as compared to the same quarter of 1997. The increase in net interest income is principally due to higher levels of interest earning assets and increased loan production. The loan growth was funded largely by the growth in deposit liabilities. Average interest earning assets increased $73.0 million or 13.2% to $626.9 million for the quarter ended June 30, 1998, over the same period in 1997. The growth was mainly the result of an increase in loan volume, particularly, commercial mortgages, home equity loans and consumer auto leases. For the second quarter of 1998, average loans increased $64.2 million or 16.3% over the same period in 1997. The average yield on loans was negatively impacted by a decline in market rates and increased competitive factors. However, the increased loan volume contributed to a $1.1 million growth in loan income that offset the decline in yield. The growth in loan income was instrumental to the growth in net interest income. For the quarter ended June 30, 1998, average interest bearing deposits grew $40.4 million or 9.3% and noninterest bearing demand deposits grew $13.4 million or 16.9%. The total growth in average deposits amounted to 10.5%. Despite the strong growth in deposits, the Company's annualized cost of deposits decreased 7 basis points over the second quarter of 1997. Noninterest Income For the quarter ended June 30, 1998, noninterest income amounted to $884 thousand, a decrease of $622 thousand as compared to the same period in 1997. The decrease was principally due to a nonrecurring gain of $775 thousand recognized in the second quarter of 1997 from the payoff of a commercial loan that was acquired at a discount. Adjusting for the nonrecurring item, noninterest income increased $153 thousand and was largely the result of a $157 thousand increase in service charges on deposits. The higher levels of service charges on deposits can be attributed to the growth of the deposit base. Noninterest Expenses For the quarter ended June 30, 1998, noninterest expenses amounted to $5.7 million, an increase of $1.2 million as compared to the same period in 1997. The increase was due to one time merger related charges of $1.3 million arising from the merger with The Jersey Bank for Savings. One of the Company's goals is to control expenses in order to maximize earnings and shareholder value. Generally, the efficiency ratio is one method utilized to measure a bank's operating expenses. The efficiency ratio is gross operating expenses, excluding the amortization of intangibles, the merger related expenses and net expenses of foreclosed real estate, expressed as a percentage of net interest income (on a fully taxable equivalent basis) and other noninterest income, excluding gains. Generally, the lower the efficiency ratio the more effective the Company is in utilizing its resources to produce income. The Company's efficiency ratio for the quarter ended June 30, 1998, was 52.7% as compared to 59.4% for the same period in 1997. The improvement was mostly attributable to the growth in net interest income and noninterest income. The improvement was partially offset by a growth in operating expenses resulting from the installation of a new mainframe computer and the addition of new equipment and the renovation of a branch. The national peer group average (published by SNL Securities) for the year 1997 was 60.4%. Income Taxes Income tax expense as a percentage of pre-tax income was 36.2% for the quarter ended June 30, 1998 as compared to 35.1% for the second quarter of 1997. The increase is attributable to an increase in the effective state income tax rate. SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 Earnings Summary Net income for the six months ended June 30, 1998, was $3.4 million or $.47 diluted earnings per common share, as compared to $4.2 million or $.57 diluted earnings per common share for the same period a year ago. Excluding the Jersey nonrecurring merger related charge of $896 thousand, net of tax, the Company reported net income of $4.3 million, an increase of $144 thousand or 3.5% from the prior comparable period. Diluted earnings per common share, excluding the merger related charge, were $.59, an increase of 3.5% over the prior comparable period. RESULTS OF OPERATIONS Net Interest Income Net interest income on a tax equivalent basis increased $1.2 million to $14.3 million for the six months ended June 30, 1998 as compared to the same period of 1997. The increase in net interest income is principally due to higher levels of interest earning assets and increased loan production. The loan growth was funded largely by the growth in deposit liabilities. Average interest earning assets increased $73.9 million or 13.6% to $618.8 million for the six months ended June 30, 1998, over the same period in 1997. The growth was mainly the result of an increase in loan volume, particularly, commercial mortgages, home equity loans and consumer auto leases. For the first six months of 1998, average loans increased $62.1 million or 15.9% over the same period in 1997. The average yield on loans was negatively impacted by a decline in market rates and increased competitive factors. However, the increased loan volume contributed to a $2.1 million growth in loan income that offset the decline in yield.The growth in loan income was instrumental to the growth in net interest income. For the six months ended June 30, 1998, average interest bearing deposits grew $42.7 million or 10.0% and noninterest bearing demand deposits grew $13.9 million or 18.1%. The total growth in average deposits amounted to 11.3%. Despite the strong growth in deposits, the Company's annualized cost of deposits remained marginally the same as it was, on an annualized basis, for the first six months of 1997. Noninterest Income For the six months ended June 30, 1998, noninterest income amounted to $1.8 million, a decrease of $1.4 million from the same period in 1997. The decrease was principally due to the recognition of nonrecurring gains in the first six months of 1997 of $1.1 million from the sale of commercial loans and of $775 thousand from the payoff of a commercial loan that was acquired at a discount. Adjusting for the nonrecurring items, noninterest income increased $492 thousand and was largely the result of a $329 thousand increase in service charges on deposits. The higher levels of service charges on deposits can be attributed to the growth of the deposit base. A gain of $53 thousand from the sale of reverse mortgage servicing also contributed to the increase in noninterest income. Noninterest Expenses For the six months ended June 30, 1998, noninterest expenses amounted to $10.4 million, an increase of $1.7 million as compared to the same period in 1997. The predominant factor for the increase was the one time merger related charges of $1.4 million resulting from the merger with The Jersey Bank for Savings. Increases in salaries and benefits, the largest component of noninterest expenses also contributed to the increase. Salaries and benefits expense increased $302 thousand mostly due to normal salary raises, promotions and increases in staff. At June 30, 1998, full-time equivalent staff was 191 as compared to 190 at June 30, 1997. Occupancy and equipment costs that increased $155 thousand from the same period in 1997 were also partly responsible for the increase. The increase in occupancy and equipment costs was mostly due to the installation of a new mainframe computer, the addition of new equipment and the renovation of a branch. The Company's efficiency ratio for the six months ended June 30, 1998, was 54.4% as compared to 58.8% for the same period in 1997. The improvement was mostly attributable to the growth in net interest income and noninterest income. The improvement was partially offset by a growth in operating expenses resulting from the installation of a new mainframe computer and the addition of new equipment and the renovation of a branch. The national peer group average (published by SNL Securities) for the year 1997 was 60.4%. Income Taxes Income tax expense as a percentage of pre-tax income was 35.8% for the six months ended June 30, 1998 as compared to 35.1% for the same period in 1997. The increase is attributable to an increase in the effective state income tax rate. FINANCIAL CONDITION At June 30, 1998, the Company's total assets increased $41.7 million or 6.7% to $666.8 million from $625.1 million at December 31, 1997. At June 30, 1998, cash and cash equivalents increased $4.9 million as compared to December 31, 1997. This is principally the result of operating activities (reflecting net income and changes in other assets) and financing activities (reflecting deposit and borrowing growth) providing cash more rapidly than investing activities (funding loan and investment growth) can utilize the cash. Securities During the second quarter, securities with a book value totaling $8.2 million, which had previously been classified by The Jersey Bank for Savings as held to maturity, were transferred to available for sale upon the consummation of the merger. The securities were reclassified to available for sale because they have a higher degree of interest rate sensitivity and do not conform to the Company's investment objectives or to its policy for managing interest rate risk. The transfer of such securities was done in conformance with Statement of Financial Accounting Standard No.115, "Accounting for Certain Investments in Debt and Equity Securities". At that date the market value of the securities was $8.1 million. Securities held to maturity and securities available for sale consist of the following: (in thousands)
June 30, 1998 ----------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------- ------------ ------------- -------------- Securities held to maturity Obligations of U.S. Treasury $ 20,026 $ 112 - $ 20,138 Mortgage-backed securities 22,709 210 $37 22,882 Obligations of U.S. Agencies 6,726 213 - 6,939 Obligations of states & political subdivisions 2,012 - - 2,012 Other debt securities 149 1 - 150 ------------- ------------ ------------- -------------- 51,622 536 37 52,121 ------------- ------------ ------------- -------------- Securities available for sale Obligations of U.S. Treasury 35,359 587 33 35,913 Mortgage-backed securities 41,563 367 98 41,832 Obligations of U.S. Agencies 6,461 124 3 6,582 Equity securities 4,685 429 - 5,114 ------------- ------------ ------------- -------------- 88,068 1,507 134 89,441 ------------- ------------ ------------- -------------- Total securities $139,690 $2,043 $171 $141,562 ============= ============ ============= ============== December 31, 1997 ----------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------- ------------ ------------- -------------- Securities held to maturity Obligations of U.S. Treasury $ 22,134 $ 122 - $ 22,256 Mortgage-backed securities 28,398 200 $ 96 28,502 Obligations of U.S. Agencies 6,711 166 - 6,877 Obligations of states & political subdivisions 3,049 - - 3,049 Other debt securities 150 - - 150 ------------- ------------ ------------- -------------- 60,442 488 96 60,834 ------------- ------------ ------------- -------------- Securities available for sale Obligations of U.S. Treasury 35,452 605 74 35,983 Mortgage-backed securities 26,871 308 30 27,149 Obligations of U.S. Agencies 6,954 71 12 7,013 Equity securities 4,363 1,048 - 5,411 ------------- ------------ ------------- -------------- 73,640 2,032 116 75,556 ------------- ------------ ------------- -------------- Total securities $134,082 $2,520 $212 $136,390 ============= ============ ============= ==============
At June 30, 1998, the contractual maturities of securities held to maturity and securities available for sale are as follows: (in thousands)
Securities Securities Held to Maturity Available for Sale ---------------------------- --------------------------- Amortized Market Amortized Market Cost Value Cost Value ------------ ------------ ------------ ------------ Within 1 year $14,065 $14,132 $ 7,196 $ 7,250 After 1 but within 5 years 13,436 13,578 37,443 38,097 After 5 but within 10 years 14,215 14,366 12,564 12,768 After 10 years 9,906 10,045 26,180 26,212 Equity securities - - 4,685 5,114 ------------ ------------ ------------ ------------ Total $51,622 $52,121 $88,068 $89,441 ============ ============ ============ ============
Loans At June 30, 1998, total loans increased $32.8 million or 7.5% to $471.1 million from $438.3 million at December 31, 1997. The following table reflects the composition of the loan portfolio at June
June 30, December 31, 1998 1997 _____________ _______________ Amounts of loans by type (in thousands) Real estate-mortgage Commercial $146,776 $134,972 1-4 family residential First liens 83,590 73,275 Junior liens 16,336 16,795 Available for sale - - Home equity 144,087 143,177 Commercial and financial 58,060 51,574 Real estate-construction 1,694 4,229 Installment Credit cards and related plans 2,118 2,415 Other 1,423 1,736 Lease financing 9,502 10,101 Term Fed Funds 7,500 - =============== ================ Total $471,085 $438,273 =============== ================
At June 30, 1998, total deposits increased $35.1 million or 6.5% to $575.9 million from $540.8 million at December 31, 1997. The growth was principally in interest and noninterest bearing demand deposits, which grew $23.6 million and $5.4 million, respectively. Time deposits grew $2.7 million and represent 29.6% of all deposits at June 30, 1998, as compared to 31.1% at December 31, 1997. Nonperforming Assets Nonperforming assets are comprised of nonaccrual loans, restructured loans and foreclosed real estate. At June 30, 1998, nonperforming assets amounted to $1.8 million, a decrease of $1.0 million from $2.8 million at June 30, 1997. The sale of $409 thousand of nonperforming loans comprised part of the decrease. The ratio of nonperforming assets to total loans and foreclosed real estate decreased to 0.38% at June 30, 1998 from 0.69% at June 30, 1997. At June 30, 1998, nonperforming assets decreased $291 thousand from $2.1 million at December 31, 1997. For the second quarter of 1998, the ratio of nonperforming assets to total loans and foreclosed real estate decreased 10 basis points from 0.48% at December 31, 1997. Provision for Loan Losses and Loan Loss Experience The provision for loan losses represents management's determination of the amount necessary to bring the allowance for loan losses to a level that management considers adequate to reflect the risk of future losses inherent in the Company's loan portfolio. In its evaluation of the adequacy of the allowance for loan losses, management considers past loan loss experience, changes in the composition of performing and nonperforming loans, the condition of borrowers facing financial pressure, the relationship of the current level of the allowance to the credit portfolio and to nonperforming loans and existing economic conditions. However, the process of determining the adequacy of the allowance is necessarily judgmental and subject to changes in external conditions. Accordingly, there can be no assurance that existing levels of the allowance will ultimately prove adequate to cover actual loan losses. The allowance for loan losses was $5.3 million at June 30, 1998, and $5.2 million at December 31, 1997, representing 297.5% and 250.7% of nonperforming loans at those dates, respectively. In the second quarter of 1998, the Company's provision for loan losses was $212 thousand, a decrease of $305 thousand from the same period a year ago. In the second quarter of 1997, the provision for loan losses was higher since, during that period, the Company's loan growth and focus was largely in commercial lending. Such growth and concentration can change the characteristics and potentially increase the inherent credit risk of the Company's loan portfolio. Accordingly, during the second quarter of 1997, the Company revised the risk allocation percentages applied to commercial loans used in computing the allowance for loan losses to capture such risk. This resulted in the increase in the provision for loan losses during the period ended, June 30, 1997. Capital Adequacy The Company's and the Bank's capital amounts and ratios are as follows: (dollars in thousands)
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------------------------- ------------------------ ----------------------- Amount Ratio Amount Ratio Amount Ratio ------------ ----------- ------------ ---------- ----------- ----------- As of June 30, 1998: Total Capital (to Risk Weighted Assets): The Company $62,104 14.35 % $34,626 8.00 % N/A N/A The Bank 60,252 13.98 34,479 8.00 43,098 10.00% Tier 1 Capital (to Risk Weighted Assets): The Company 56,761 13.11 $17,313 4.00 N/A N/A The Bank 54,909 12.74 17,239 4.00 25,859 6.00 Tier 1 Capital (to Average Assets): The Company 56,761 8.65 19,679 3.00 N/A N/A The Bank 54,909 8.40 19,599 3.00 32,665 5.00 As of December 31, 1997: Total Capital (to Risk Weighted Assets): The Company $59,185 14.51 % 32,631 8.00 % N/A N/A The Bank 57,335 14.12 32,485 8.00 40,606 10.00% Tier 1 Capital (to Risk Weighted Assets): The Company 54,166 13.28 16,316 4.00 N/A N/A The Bank 52,338 12.89 16,242 4.00 24,364 6.00 Tier 1 Capital (to Average Assets): The Company 54,166 8.79 18,482 3.00 N/A N/A The Bank 52,338 8.53 18,403 3.00 30,672 5.00
Liquidity Liquidity is the ability to provide sufficient resources to meet all financial obligations and finance prospective business opportunities. Liquidity levels over any given period of time are a product of the Company's operating, financing and investing activities. The extent of such activities is often shaped by such external factors as competition for deposits and demand for loans. Financing for the Company's loans and investments is derived primarily from deposits, along with interest and principal payments on loans and investments. At June 30, 1998, total deposits amounted to $575.9 million, an increase of $35.1 million or 6.5% from December 31, 1997. In addition, the Company supplemented the more traditional funding sources with borrowings from the Federal Home Loan Bank of New York ("FHLB") and with securities sold under agreements to repurchase ("REPOS"). At June 30, 1998, advances from the FHLB and REPOS amounted to $9.8 million and $18.5 million, respectively, as compared to $9.9 million and $13.0 million, respectively, at December 31, 1997. In the second quarter of 1998, loan production continued to be the Company's principal investing activity. Net loans at June 30, 1998 amounted to $465.7 million, compared to $433.0 million at the end of 1997, an increase of $32.7 million or 7.6%. The Company's most liquid assets are cash and cash equivalents and federal funds sold. At June 30, 1998, the total of such assets amounted to $41.5 million or 6.2% of total assets, compared to $36.6 million or 5.9% of total assets at year-end 1997. Another significant liquidity source is the Company's available-for-sale ("AFS") securities. At June 30, 1998, AFS securities amounted to $89.4 million or 63.4% of total securities, compared to $75.6 million or 55.6% of total securities at year-end 1997. In addition to the aforementioned sources of liquidity, the Company has available various other sources of liquidity, including federal funds purchased from other banks and the Federal Reserve discount window. The Bank also has a $51.0 million line of credit available through its membership in the Federal Home Loan Bank of New York. Management believes that the Company's sources of funds are sufficient to meet its funding requirements. PART II OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Form 10-K filed for the year ended December 31, 1997. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are furnished herewith: Exhibit No. 11 Statement Re: Computation of Per Share Earnings 27 Financial Data Schedule (b) Form 8-K filed June 12, 1998 announcing the completion of the acquisition of the Jersey Bank for Savings by merger. (c) 3 (a) Certificate of Incorporation and Amendments thereto are incorporated herein by reference to Form S-4, Registration Statement No. 333-50065. Exhibits 3 filed April 27, 1998 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Interchange Financial Services Corporation By: /s/ Anthony Labozzetta ______________________________ Anthony Labozzetta Executive Vice President & CFO EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Exhibit 11. Computation re earnings per share
-------------------------------------------------------- -------------------------------------------------- Three Months Ended, Six Months Ended, -------------------------------------------------------- -------------------------------------------------- June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997 --------------------------- --------------------------- ------------------------- ----------------------- Weighted Per Weighted Per Weighted Per Weighted Per Average Share Average Share Average Share Average Share Income Shares Amount Income Shares Amount Income Shares Amount Income Shares Amount --------- --------- ------- -------- -------- ------- ------- --------- ------ ------- ------- ------- Basic Earnings per Common Share Income available to common shareholders $1,427 7,193 $0.20 $2,023 7,218 $0.28 $3,405 7,180 $0.47 $4,157 7,174 $0.58 ======= ======== ====== ======= Effect of Dilutive Shares Options issued to management - 70 - 74 - 70 - 74 --------- ---------- ------- -------- ------- --------- ------- ------- Diluted Earnings per Common Share $1,427 7,263 $0.20 $2,023 7,292 $0.28 $3,405 7,250 $0.47 $4,157 7,248 $0.57 ========= ========= ======== ======= ======== ======== ======= ========= ====== ======= ======== =======
EX-27 3
9 1,000 6-Mos Dec-31-1998 Jun-30-1998 18,265 1,003 22,200 0 89,441 51,622 52,121 471,085 5,342 666,792 575,874 18,450 4,359 9,824 5,397 0 0 52,888 666,792 19,210 4,163 852 24,225 9,213 9,964 14,261 431 0 10,366 5,306 3,405 0 0 3,405 0.47 0.47 4.49 1,238 3 558 0 5,231 373 53 5,342 5,342 0 972
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