-----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, TzquqH2QaFJFaFKIH8gj7WAXbCxa61VG4Kkrz7UDPUvdG472L8REmJ/zANbt1YVc gGtmbL9TcNkP8+cKmIApNw== 0000755933-99-000014.txt : 19990816 0000755933-99-000014.hdr.sgml : 19990816 ACCESSION NUMBER: 0000755933-99-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99686929 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 06/30/99 Interchange Financial Services Corporation - --------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------------------------------------------------- (dollars in thousands)
June 30, December 31, 1999 1998 -------------- -------------- (unaudited) Assets Cash and due from banks $ 18,943 $ 20,109 Federal funds sold 2,800 23,175 -------------- -------------- Total cash and cash equivalents 21,743 43,284 -------------- -------------- Securities held to maturity at amortized cost (estimated market value of $47,101 and $54,761 at June 30, 1999 and December 31, 1998, respectively) 47,410 54,159 -------------- -------------- Securities available for sale at estimated market value (amortized cost of $106,348 and $93,872 at June 30, 1999 and December 31, 1998, respectively) 106,224 95,771 -------------- -------------- Loans 502,649 478,717 Less: Allowance for loan losses 5,498 5,645 -------------- -------------- Net loans 497,151 473,072 -------------- -------------- Premises and equipment, net 9,625 9,871 Foreclosed real estate - 84 Accrued interest receivable and other assets 8,693 9,123 ============== ============== Total assets $690,846 $685,364 ============== ============== Liabilities Deposits Non-interest bearing $106,128 $107,408 Interest bearing 497,708 491,324 -------------- -------------- Total deposits 603,836 598,732 -------------- -------------- Securities sold under agreements to repurchase 7,250 8,780 Short-term borrowings 9,710 9,768 Accrued interest payable and other liabilities 6,294 5,712 -------------- -------------- Total liabilities 627,090 622,992 -------------- -------------- Commitments and contingent liabilities Stockholders' equity: Common stock, without par value; 15,000,000 shares authorized; 7,179,076 and 7,200,133 shares issued and outstanding at June 30, 1999 and December 31, 1998, respectively 5,397 5,397 Capital surplus 21,304 21,256 Retained earnings 38,516 35,482 Accumulated other comprehensive income (loss) (85) 1,192 -------------- -------------- 65,132 63,327 Less: Treasury stock 1,376 955 -------------- -------------- Total stockholders' equity 63,756 62,372 ============== ============== Total liabilities and stockholders' equity $690,846 $685,364 ============== ============== - --------------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
Interchange Financial Services Corporation - ------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF INCOME - ------------------------------------------------------------------------------------------------------------------------------ (dollars in thousands, except per share data) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------- -------------------------- 1999 1998 1999 1998 ------------ ----------- ------------ ------------ Interest income Interest and fees on loans $9,851 $9,702 $19,358 $19,150 Interest on federal funds sold 195 422 414 803 Interest on interest bearing deposits - 25 - 49 Interest and dividends on securities Taxable interest income 2,034 2,004 3,978 3,982 Interest income exempt from federal income taxes 88 21 197 50 Dividends 60 68 131 131 ------------ ----------- ------------ ------------ Total interest income 12,228 12,242 24,078 24,165 ------------ ----------- ------------ ------------ Interest expense Interest on deposits 4,351 4,657 8,626 9,217 Interest on short-term borrowings 229 250 466 458 Interest on long-term borrowings - 147 - 294 ------------ ----------- ------------ ------------ Total interest expense 4,580 5,054 9,092 9,969 ------------ ----------- ------------ ------------ Net interest income 7,648 7,188 14,986 14,196 Provision for loan losses 300 212 600 431 ------------ ----------- ------------ ------------ Net interest income after provision for loan losses 7,348 6,976 14,386 13,765 ------------ ----------- ------------ ------------ Noninterest income Service fees on deposit accounts 571 650 1,141 1,274 Net gain on sale of securities 329 - 856 - Other 621 235 872 568 ------------ ----------- ------------ ------------ Total noninterest income 1,521 885 2,869 1,842 ------------ ----------- ------------ ------------ Noninterest expenses Salaries and benefits 2,569 2,243 5,109 4,727 Net occupancy 671 572 1,330 1,136 Furniture and equipment 256 253 507 511 Advertising and promotion 273 236 519 435 Federal Deposit Insurance Corporation assessment 20 19 40 37 Acquisition - 1,278 - 1,389 Other 1,319 1,022 2,529 2,066 ------------ ----------- ------------ ------------ Total noninterest expenses 5,108 5,623 10,034 10,301 ------------ ----------- ------------ ------------ Income before income taxes 3,761 2,238 7,221 5,306 Income taxes 1,283 811 2,457 1,901 ------------ ----------- ------------ ------------ Net income $ 2,478 $ 1,427 $ 4,764 $ 3,405 ============ =========== ============ ============ Basic earnings per common share $0.34 $0.20 $0.66 $0.47 ============ =========== ============ ============ Diluted earnings per common share $0.34 $0.20 $0.66 $0.47 ============ =========== ============ ============ - ------------------------------------------------------------------------------------------------------------------------------ See notes to consolidated financial statements
Interchange Financial Services Corporation - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ (dollars in thousands, except share data) (unaudited)
Accumulated Other Comprehensive Retained Comprehensive Common Capital Treasury Income Earnings Income Stock Surplus Stock Total ----------- --------- ------------ --------- ---------- --------- --------- Balance at January 1, 1998 $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 gains on debt securities 91 Unrealized losses securities transferred from held to maturity to available for sale - Acquisition (40) Unrealized lossess on equity securities (369) ----------- Other comprehensive loss (318) (318) (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 70 162 232 Exercise of 44,680 option shares (330) 556 226 --------- ------------ --------- ---------- --------- ------- Balance at June 30, 1998 31,718 867 5,396 21,291 (988) 58,284 Comprehensive income Net Income $5,204 5,204 5,204 Other comprehensive income, net of taxes Unrealized gains on debt securities 116 Unrealized gains securities transferred from held to maturity to available for sale - Acquisition 23 Unrealized gains on equity securities 712 Less: gains on disposition of equity securities (526) ----------- Other comprehensive income 325 325 325 ----------- =========== Comprehensive income $5,529 =========== Dividends on common stock (1,440) (1,440) Fractional shares on 3 for 2 stock split and merger shares - Forfeiture of bonus stock (49) (49) Exercised 13,789 option shares 1 (35) 82 48 --------- ------------ --------- ---------- --------- ------- Balance at December 31, 1998 35,482 1,192 5,397 21,256 (955) 62,372 Comprehensive income Net Income $4,764 4,764 4,764 Other comprehensive income, net of taxes Unrealized losses on debt securities (764) Less: gains on disposition of securities (excludes equities) (90) Unrealized gains securities transferred from held to maturity to available to sale - Acquisition 23 Unrealized loss on equity securities (18) Less: gains on disposition of equity securities (428) ----------- Other comprehensive loss (1,277) (1,277) (1,277) ----------- =========== Comprehensive income $3,487 =========== Dividends on common stock (1,730) (1,730) Issued 14,489 shares of common stock in connection with Executive Compensation Plan 62 184 246 Exercised 2,954 option shares (14) 37 23 Buy-back of stock (642) (642) ========= ============ ========= ========== ========= ======== Balance at June 30, 1999 $38,516 $ (85) $5,397 $21,304 $(1,376) $63,756 ========= ============ ========= ========== ========= ======== - ------------------------------------------------------------------------------------------------------------------------------------ All share data has been adjusted for the effects of the 3 for 2 stock split issued on April 17, 1998 to shareholders of record on March 20, 1998.
INTERCHANGE FINANCIAL SERVICES CORPORATION - ------------------------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, - ------------------------------------------------------------------------------------------------------------ (dollars in thousands) (unaudited)
1999 1998 ----------- ----------- Cash flows from operating activities Net income $ 4,764 $ 3,405 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 775 671 Amortization of securities premiums 447 454 Accretion of securities discounts (84) (91) Amortization of premiums in connection with acquisition 156 222 Provision for loan losses 600 431 Net gain on sale of securities (856) - Net gain on sale of foreclosed real estate (36) - Net loss on disposal of fixed assets 2 - Decrease (increase) in operating assets Accrued interest receivable 260 (252) Other 11 1,405 (Decrease) increase in operating liabilities Accrued interest payable (81) 138 Other 662 (1,027) ----------- ----------- Cash provided by operating activities 6,620 5,356 ----------- ----------- Cash flows from investing activities (Payments for) proceeds from Net originations of loans (15,459) (22,415) Purchase of loans (13,522) (3,626) Sale of loans - 409 Purchase of term federal funds - (7,500) Repayment of term federal funds 5,000 - Purchase of securities available for sale (47,530) (10,546) Maturities of securities available for sale 7,116 5,717 Sale of securities available for sale 25,590 - Sale of foreclosed real estate 121 - Purchase of securities held to maturity (6,226) (11,716) Maturities of securities held to maturity 13,811 10,574 Sale of securities held to maturity 2,003 - Purchase of fixed assets (480) (916) Sale of fixed assets 2 4 ----------- ----------- Cash used in investing activities (29,574) (40,015) ----------- ----------- Cash flows from financing activities Proceeds from (payments for) Deposits in excess of withdrawals 5,104 35,108 Securities sold under agreements to repurchase and other borrowings 6,250 8,020 Retirement of securities sold under agreement to repurchase and other borrowings (7,838) (2,652) Dividends (1,730) (1,385) Common stock issued from treasury 246 226 Treasury stock acquired (642) - Exercise of option shares 23 227 ----------- ----------- Cash provided by financing activities 1,413 39,544 ----------- ----------- (Decrease) increase in cash and cash equivalents (21,541) 4,885 Cash and cash equivalents, beginning of year 43,284 36,583 =========== =========== Cash and cash equivalents, end of year $21,743 $41,468 =========== =========== Supplemental disclosure of cash flow information: Cash paid for: Interest $9,173 $9,826 Income taxes 1,663 2,826 Supplemental disclosure of non-cash investing activities: Decrease - market valuation of securities available for sale 2,023 541 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, 1999 (Unaudited) 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, 1998. The consolidated financial data for the six months ended June 30, 1999 and 1998, 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 restated to include the consolidated accounts of Jersey for all periods presented prior to the date of acquisition. 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 month periods ended June 30, 1999 and 1998, and should be read in conjunction with the consolidated financial statements and notes thereto included in Item 1 hereof. 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 restated to include the consolidated accounts of Jersey for all periods presented prior to the date of acquisition. Forward Looking Information In addition to discussing historical information, we discuss certain matters in this report regarding the financial condition, results of operations and business of the Company which are not historical facts, but which are "forward looking statements." These "forward looking statements" include, but are not limited to, estimates of capital expenditures relating to the Year 2000 issue, costs of remediation and testing, the timetable for implementing the remediation and testing phases of Year 2000 planning, the possible impact of third parties' Year 2000 issues on the Company, management's assessment of contingencies and possible scenarios in its Year 2000 planning. The "forward looking statements" in this report involve risks and uncertainties and reflect what we currently anticipate will happen in each case. What actually happens could differ materially from what we currently anticipate will happen due to a variety of factors, including, among others, (i) increased competitive pressures among financial services companies; (ii) changes in the interest rate environment; (iii) general economic conditions, internationally, nationally, or in the State of New Jersey; and (iv) legislation or regulatory requirements or changes adversely affecting the business of the Company. We are not promising to make any public announcement when we think "forward looking statements" in this document are no longer accurate, whether as a result of new information, what actually happens in the future or for any other reason. THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 Earnings Summary For the second quarter of 1999, the Company reported net income of $2.5 million or $0.34 diluted earnings per common share, as compared with $1.4 million or $0.20 diluted earnings per common share for the same period in 1998, an increase of $1.1 million or 73.7%. The increase was due, in part, to a $483 thousand improvement in net interest income, on a tax equivalent basis, resulting largely from a 6.8% growth in average loans outstanding for the second quarter of 1999 as compared to the same period in 1998. In addition, net income was positively affected by improved noninterest income, which increased $637 thousand or 72.1% as compared to the same period in 1998 due mostly to gains from the sale of securities. Earnings during the quarter also benefited from a decrease of $515 thousand or 9.2% in noninterest expenses as compared to the same period in 1998. The decrease was principally due to $1.3 million of merger related charges incurred in 1998 related to the Jersey acquisition, which charges did not recur in 1999. 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 $483 thousand to $7.7 million for the quarter ended June 30, 1999 as compared to the same quarter of 1998. The increase in net interest income is due to higher levels of interest earning assets, particularly loans, coupled with a decrease in interest expense resulting from a favorable shift in the composition of deposits ("mix") and lower short-term market interest rates. For the quarter ended June 30, 1999, average loans increased $31.0 million or 6.8% over the same period in 1998, which facilitated a growth in average earning assets of $28.5 million or 4.5%. The loan growth was funded largely by a $34.1 million or 6.0% growth in average deposits for the second quarter 1999 as compared to the same period in 1998. During the comparative period, average non-interest bearing and interest-bearing demand deposits increased $10.1 million or 10.9% and $24.0 million or 5.1%, respectively, while higher yielding certificates of deposits greater than $100 thousand remained relatively unchanged. The favorable change in the retail deposit mix combined with lower short-term market interest rates served to reduce the yield on total deposits, resulting in a favorable impact on net interest income. For the second quarter of 1999, the yield on total deposits was 2.9 % as compared to 3.3% for the same quarter in 1998. The benefit derived from the lower funding cost was partly offset by a decline in yields on average interest earning assets, particularly loans. For the quarter ended June 30, 1999, the yield on average interest earning assets was 7.48% as compared to 7.83% for the same period in 1998. Non-interest Income For the quarter ended June 30, 1999, non-interest income amounted to $1.5 million, an increase of $637 thousand or 72.1% as compared to the same period in 1998. The increase was principally due to the recognition of $329 thousand of gains (pre-tax) from the sale of debt and equity securities. The Company sold the equity securities to eliminate the market-risk exposure following the announcement by the issuing company that it had agreed to merge with another organization. The debt securities were sold as part of a limited portfolio restructuring aimed at improving the risk/reward characteristics of the securities portfolio. In addition, noninterest income was positively affected by the recognition of $284 thousand of income arising from the early pay-off of a commercial loan purchased at a discount. These gains were partially offset by a decrease in service fees on deposit accounts of $78 thousand or 12.0% for the second quarter of 1999 compared to the same period in 1998. Non-interest Expenses For the quarter ended June 30, 1999, non-interest expenses amounted to $5.1 million, a decrease of $515 thousand or 9.2% as compared to the same period in 1998. The decrease was principally due to $1.3 million of merger-related charges incurred in 1998 associated with the Jersey acquisition. The merger-related charges were not repeated in the second quarter of 1999. Excluding the merger-related charges, noninterest expenses, for the second quarter of 1999 increased $763 thousand or 17.6%. Salaries and benefits, the largest component of non-interest expenses, increased $326 thousand or 14.5% when compared to the same quarter in 1998 due to normal promotions, salary increases and the additions to staff associated with the new branch opening. At June 30, 1999, the number of full-time equivalent employees were 204 as compared to 192 at June 30, 1998. Occupancy expense increased $99 thousand, when compared to the same quarter in 1998 of which approximately $45 thousand can be attributed to the opening of a new branch in Paramus, New Jersey during the fourth quarter of 1998. Directors' expense increased $108 thousand and was attributable to the recognition of $119 thousand of cash surrender value from the Directors life insurance in the second quarter of 1998, which served to reduce the Directors' expense in that period. Furthermore, expenses associated with modifying computer systems to address the Year 2000 Issue totaled $27 thousand for the quarter ended June 30, 1999. There were no expenses related to the Year 2000 Issue during the same period in 1998. Income Taxes Income tax expense as a percentage of pre-tax income was 34.1% for the three months ended June 30, 1999 as compared to 36.2% for the second quarter of 1998. The decrease is attributable to the establishment of a Real Estate Investment Trust ("REIT") in the second half of 1998. The REIT, which manages certain real estate assets of the Company, was established in an effort to take advantage of certain tax benefits. SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 Earnings Summary For the six months ended June 30, 1999, the Company reported net income of $4.8 million or $0.66 diluted earnings per common share, as compared with $3.4 million or $0.47 diluted earnings per common share for the same period of 1998, an increase of $1.4 million or 39.9%. The increase was due, in part, to a $839 thousand improvement in net interest income, on a tax equivalent basis, resulting largely from a 6.7% growth in average loans outstanding for the first six months of 1999 as compared to the same period in 1998. In addition, net income was positively affected by improved non-interest income, which increased $1.0 million or 55.8% due mostly to gains from the sale of securities. Earnings also benefited from a decrease of $267 thousand or 2.6% in non-interest expenses. The decrease was principally due to $1.4 million of merger-related charges incurred in 1998 related to the Jersey acquisition, which did not recur in 1999. RESULTS OF OPERATIONS Net Interest Income Net interest income on a tax equivalent basis increased $839 thousand to $15.0 million for the six months ended June 30, 1999 as compared to the same quarter of 1998. The increase in net interest income is due to higher levels of interest earning assets, particularly loans, coupled with a decrease in interest expense resulting from a favorable shift in the composition of deposits ("mix") and lower short-term interest rates. For the six months ended June 30, 1999, average loans increased $30.2 million or 6.7% over the same period in 1998, which facilitated a growth in earning assets of $28.4 million or 4.4%. The loan growth was funded largely by a $34.6 million or 6.2% growth in average deposits for the six months of 1999 as compared to the same period in 1998. During the comparative period, average non-interest bearing and interest-bearing deposits increased $10.8 million or 12.0% and $23.8 million or 5.1%, respectively, while higher yielding certificates of deposits greater than $100 thousand decreased approximately $2.8 million on average. The favorable change in the retail deposit mix combined with lower short-term market interest rates served to reduce the yield on total deposits, resulting in a favorable impact on net interest income. For the six months ended June 30, 1999, the yield on total deposits was 2.9 % as compared to 3.3% for the same period in 1998. The benefit derived from the lower funding cost was partly offset by a decline in yields on average interest earning assets, particularly loans. For the six months ended June 30, 1999, the yield on average interest earning assets was 7.44% as compared to 7.83% for the same period in 1998. Non-interest Income For the six months ended June 30, 1999, non-interest income amounted to $2.9 million, an increase of $1.0 thousand or 55.8% as compared to the same period in 1998. The increase was principally due to the recognition of $856 thousand of gains (pre-tax) from the sale of debt and equity securities. The Company sold the equity securities to eliminate the market-risk exposure following the announcement by the issuing company that it had agreed to merge with another organization. The debt securities were sold as part of a limited portfolio restructuring aimed at improving the risk/reward characteristics of the securities portfolio. In addition, noninterest income was positively affected by the recognition of $284 thousand of income arising from the early pay-off of a commercial loan purchased at a discount. These gains were partially offset by a decrease in service fees on deposit accounts of $133 thousand or 10.4% for the six months ended June 30, 1999 compared to the same period in 1998. Non-interest Expenses For the six months ended June 30, 1999, non-interest expenses amounted to $10.0 million, a decrease of $267 thousand or 2.6% as compared to the same period in 1998. The decrease was principally due to $1.4 million of merger-related charges incurred in 1998 associated with the Jersey acquisition that did not recur in 1999. Excluding the merger-related charges, non-interest expenses for the six months ended June 30, 1999 increased $1.1 million or 12.6% as compared to the same period in 1998. Salaries and benefits, the largest component of non-interest expenses, increased $382 thousand or 8.1% when compared to the same period in 1998 due to normal promotions, salary increases and the additions to staff associated with the new branch opening. At June 30, 1999, full-time equivalent staff was 204 as compared to 192 at June 30, 1998. Occupancy expense increased $194 thousand when compared to the same period in 1998 of which approximately $90 thousand of the increase can be attributed to the opening of a new branch in Paramus, New Jersey during the fourth quarter of 1998. Directors' expense increased $263 thousand and was attributable to the recognition of $238 thousand of cash surrender value from the Directors life insurance during the first six months of 1998, which served to reduce the Directors' expense in that period. Furthermore, expenses associated with modifying computer systems to address the Year 2000 Issue totaled $84 thousand for the six months ended June 30, 1999. There were no expenses related to the Year 2000 Issue during the same period in 1998. Income Taxes Income tax expense as a percentage of pre-tax income was 34.0% for the six months ended June 30, 1999 as compared to 35.8% for the same period in 1998. The decrease is attributable to the establishment of a REIT in the second half of 1998. The REIT, which manages certain real estate assets of the Company, was established in an effort to take advantage of certain tax benefits. FINANCIAL CONDITION At June 30, 1999, the Company's total assets were $690.8 million, an increase of $5.5 million or .8% from $685.4 million at December 31, 1998. At June 30, 1999, cash and cash equivalents decreased $21.5 million as compared to December 31, 1998. The decrease in cash is principally the result of investing activities (funding loans and investment growth) utilizing cash more rapidly than financing activities (reflecting mostly changes in deposits and borrowings) and operating activities (reflecting net income and changes in other assets) can provide it. This can be seen more completely on the accompanying Consolidated Statements of Cash Flows. Securities Securities held to maturity and securities available for sale consist of the following: (dollars in thousands)
------------------------------------------------------------------- June 30, 1999 ------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value --------------- -------------- -------------- -------------- Securities held to maturity Obligations of U.S. Treasury $9,995 $24 $ 2 $ 10,017 Mortgage-backed securities 19,280 94 160 19,214 Obligations of U.S. agencies 7,989 42 39 7,992 Obligations of states & political subdivisions 10,022 - 269 9,753 Other debt securities 124 1 - 125 --------------- -------------- -------------- -------------- 47,410 161 470 47,101 --------------- -------------- -------------- -------------- Securities available for sale Obligations of U.S. Treasury 6,022 161 - 6,183 Mortgage-backed securities 72,253 215 465 72,003 Obligations of U.S. agencies 21,152 122 47 21,227 Obligations of states & political subdivisions 3,149 - 110 3,039 Equity securities 3,772 - - 3,772 --------------- -------------- -------------- -------------- 106,348 498 622 106,224 --------------- -------------- -------------- -------------- Total securities $153,758 $659 $1,092 $153,325 =============== ============== ============== ============== ------------------------------------------------------------------- December 31, 1998 ------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value --------------- -------------- -------------- -------------- Securities held to maturity Obligations of U.S. Treasury $ 15,992 $ 180 - $ 16,172 Mortgage-backed securities 18,921 227 $ 23 19,125 Obligations of U.S. agencies 7,986 175 - 8,161 Obligations of states & political subdivisions 11,111 48 6 11,153 Other debt securities 149 1 - 150 --------------- -------------- -------------- -------------- 54,159 631 29 54,761 --------------- -------------- -------------- -------------- Securities available for sale Obligations of U.S. Treasury 33,264 777 - 34,041 Mortgage-backed securities 42,824 398 156 43,066 Obligations of U.S. agencies 13,687 190 53 13,824 Equity securities 4,097 743 - 4,840 --------------- -------------- -------------- -------------- 93,872 2,108 209 95,771 --------------- -------------- -------------- -------------- Total securities $148,031 $2,739 $238 $150,532 =============== ============== ============== ==============
At June 30, 1999, the contractual maturities of securities held to maturity and securities available for sale are as follows: (dollars in thousands)
Securities Securities Held to Maturity Available for Sale ------------------------------ --------------------------------- Amortized Market Amortized Market Cost Value Cost Value ------------- ------------- --------------- --------------- Within 1 year $11,688 $ 11,712 - - After 1 but within 5 years 11,492 11,484 $ 25,456 $ 25,627 After 5 but within 10 years 12,010 12,001 26,159 25,822 After 10 years 12,220 11,904 50,961 51,003 Equity securities - - 3,772 3,772 ------------- ------------- --------------- --------------- Total $47,410 $ 47,101 $ 106,348 $ 106,224 ============= ============= =============== ===============
During the second quarter of 1999, the Company performed a limited securities portfolio restructuring aimed at improving the risk/reward characteristics of the securities portfolio. Available-for-sale ("AFS") securities with a book value of $24.2 million were sold. Gains of $143 thousand and losses of $4 thousand were recognized from the sale. One held-to-maturity ("HTM") security with a book value of $2.0 million was sold. A gain of $3 thousand was recognized from the sale. The HTM security had a remaining maturity of less than two months, therefore, it is considered as a "maturity" for purposes of classification of securities under Statement of Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities. Loans Total loans amounted to $502.6 million and $478.7 million at June 30, 1999 and December 31, 1998, respectively. Total loans at December 31, 1998, included $5.0 million of term federal funds sold, which for accounting purposes were classified as a loan. Excluding the term federal funds sold, total loans at June 30, 1999 increased $28.9 million or 6.1% as compared to December 31, 1998. The following table reflects the composition of the loan portfolio:
--------------- ---------------- June 30, December 31, 1999 1998 --------------- ---------------- Amount of loans by type (dollars in thousands) Real estate-mortgage Commercial $160,155 $148,875 1-4 family residential First liens 109,030 89,852 Junior liens 11,438 14,322 Home equity 143,909 142,781 Commercial and financial 63,557 64,067 Real estate-construction 1,840 974 Installment Credit cards and related plans 1,944 2,033 Other 2,022 1,200 Lease financing 8,754 9,613 Term Fed Funds - 5,000 =============== ================ Total $502,649 $478,717 =============== ================
Deposits At June 30, 1999, total deposits increased $5.1 million or 0.9% to $603.8 million from $598.7 million at December 31, 1998. The growth was principally in interest bearing demand deposits, which grew $3.5 million or 1.8%. Time deposits grew $2.6 million and represent 28.7% of all deposits at June 30, 1999, as compared to 28.5% at December 31, 1998. Nonperforming Assets Nonperforming assets are comprised of nonaccrual loans, restructured loans and foreclosed real estate. At June 30, 1999, nonperforming assets totalled to $2.2 million, an increase of $413 thousand or 23.0% from $1.8 million at June 30, 1998. The ratio of nonperforming assets to total loans and foreclosed real estate increased to 0.44% at June 30, 1999 from 0.38% at June 30, 1998. At June 30, 1999, nonperforming assets increased $399 thousand or 22.0% from $1.8 million at December 31, 1998. The ratio of nonperforming assets to total loans and foreclosed real estate increased to 0.44% at June 30, 1999 from 0.38% at December 31, 1998. The increase in nonperforming assets consisted almost entirely of one commercial loan amounting to $1.2 million, which was placed on nonaccrual status during the first quarter of 1999. $600 thousand of this commercial loan was charged-off in the second quarter of 1999. 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 subjective 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 $5.5 million at June 30, 1999, and $5.6 million at December 31, 1998, representing 248.9% and 300.2% of nonperforming loans at those dates, respectively. In the second quarter of 1999, the Company's provision for loan losses was $300 thousand, an increase of $88 thousand from the same period a year ago. The increase was largely due to continued loan growth and an increase in nonperforming loans. Market Risk The Company's primary source of market risk exposure arises from changes in market interest rates ("interest rate risk"). The Company's success is largely dependent upon its ability to manage interest rate risk. Interest rate risk can be defined as the exposure of the Company's net interest income to adverse movements in interest rates. Although the Company manages other risks, as in credit and liquidity risk, in the normal course of its business, management considers interest rate risk to be its most significant market risk and could potentially have the largest material effect on the Company's financial condition. The primary objective of the asset/liability management process is to measure the effect of changing interest rates on net interest income and economic value of equity and adjust the balance sheet (if necessary) to minimize the inherent risk and maximize income. The Company's exposure to market risk and interest rate risk is reviewed on a quarterly basis by the Asset/Liability Committee. Tools used by management to evaluate risk include an asset/liability simulation model. At June 30, 1999, the Company simulated the effects on net interest income given an instantaneous and parallel shift in the yield curve of 200 basis points in either direction. At June 30, 1999, the Company was within policy limits established by the Board of Directors for changes in net interest income and future economic value. The Company does not have any material exposure to foreign currency exchange rate risk or commodity price risk. The Company did not enter into any market rate sensitive instruments for trading purposes nor did it engage in any hedging transactions utilizing derivative financial instruments during the six months ended June 30, 1999. The Company is, however, party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These instruments, which include commitments to extend credit and standby letters of credit involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statement of financial condition. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates and may require collateral from the borrower if deemed necessary by the Company. Standby letters of credit are conditional commitments issued by the Company's subsidiary bank to guarantee the performance of a customer to a third party up to a stipulated amount and with specified terms and conditions. Commitments to extend credit and standby letters of credit are not recorded on the Company's consolidated balance sheet until the instrument is exercised. 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, 1999: Total Capital (to Risk Weighted Assets): The Company $68,866 15.21 % $36,219 8.00 % N/A N/A The Bank 68,156 15.06 36,214 8.00 $45,268 10.00% Tier 1 Capital (to Risk Weighted Assets): The Company 63,368 14.00 18,109 4.00 N/A N/A The Bank 62,658 13.84 18,107 4.00 27,161 6.00 Tier 1 Capital (to Average Assets): The Company 63,368 9.36 20,321 3.00 N/A N/A The Bank 62,658 9.17 20,501 3.00 34,168 5.00 As of December 31, 1998: Total Capital (to Risk Weighted Assets): The Company $66,474 15.12 % $35,149 8.00 % N/A N/A The Bank 63,777 14.59 34,976 8.00 $43,721 10.00% Tier 1 Capital (to Risk Weighted Assets): The Company 60,646 13.80 17,575 4.00 N/A N/A The Bank 58,312 13.34 17,488 4.00 26,232 6.00 Tier 1 Capital (to Average Assets): The Company 60,646 9.08 20,041 3.00 N/A N/A The Bank 58,312 8.76 19,979 3.00 33,299 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 are 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, 1999, total deposits amounted to $603.8 million, an increase of $5.1 million or 0.9% from December 31, 1998. 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, 1999, advances from the FHLB and REPOS amounted to $9.7 million and $7.2 million, respectively, as compared to $9.8 million and $8.8 million, respectively, at December 31, 1998. In 1999, despite heightened competition for loans and increased loan prepayments, loan production continued to be the Company's principal investing activity. Net loans at June 30, 1999 amounted to $497.1 million, an increase of $24.1 million or 5.1%, from $473.1 million at December 31, 1998. Net loans at December 31, 1998, included $5.0 million in term federal funds which matured during the second quarter of 1999. Adjusting for the matured term federal funds, net loans increased $29.1 million at June 30, 1999 as compared to December 31, 1998. The Company's most liquid assets are cash and due from banks and federal funds sold. At June 30, 1999, the total of such assets amounted to $21.7 million or 3.1% of total assets, compared to $43.3 million or 6.3% of total assets at year-end 1998. The decline was primarily due to a decrease of $20.4 million in federal funds sold, which were used to fund the growth in loans and investments. Another significant liquidity source is the Company's available-for-sale ("AFS") securities. At June 30, 1999, AFS securities amounted to $106.2 million or 69.1% of total securities, compared to $95.8 million or 63.9% of total securities at year-end 1998. 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 Company's subsidiary bank also has a $57.8 million line of credit available through its membership in the FHLB. Management believes that the Company's sources of funds are sufficient to meet its funding requirements. Preparation for the Year 2000 Many of the world's computers and software applications were designed to read years in a two-digit format. Thus, many of the world's information systems and/or computer programs may not have the ability to recognize four digit date code fields and, accordingly, may not have the ability to distinguish a year that begins with "20" instead of the familiar "19". If not corrected, this problem will render many computer applications incapable of interpreting dates beyond the year 1999, which could significantly disrupt business. This issue is referred to herein as the "Year 2000 issue". A company's exposure to uncertainties and costs associated with the Year 2000 issue depends on a number of factors, including software, hardware, the industry in which it operates, and other entities with which it electronically interacts. The Company has developed and adopted a Year 2000 Compliance Plan (the "Plan") and has established a Year 2000 Compliance Committee (the "Committee") to address the Year 2000 issues and prepare the Company for the new millennium. As recommended by the Federal Financial Institutions Examination Council, the Plan encompasses the following phases: Awareness, Assessment, Renovation, Validation and Implementation. These phases will enable the Company to identify risks, develop an action plan, and perform adequate testing and complete certification that its processing systems will be Year 2000 ready. In the Awareness phase, the Company defined the Year 2000 issues, informed management and staff and obtained executive level support and funding. In addition, the Company compiled a comprehensive list of items that may be affected by the Year 2000 compliance issues. Such items include facilities and related non-information technology systems (embedded technology), computer systems, hardware, and services and products provided by third parties. In the Assessment phase, the Company evaluated the items identified in the Awareness phase to assess whether the items will function properly with the century date change. The items were ranked in the order that they will need to be remediated based on their mission critical nature and the potential impact to the Company. The Renovation phase included an analysis of the items that are affected by Year 2000, the identification of problem areas and the repair of non-compliant items. The Validation (testing) phase included a thorough testing and verification of systems, databases and utilities, including present and forward date testing which consists of simulating data conditions in the Year 2000. The Implementation phase consists of placing all the systems, databases and utilities that have been renovated into production. As of June 30, 1999, the Company has completed all of the phases of the Plan with respect to its mission critical applications. The Company expects to continue testing date-sensitive applications throughout the remainder of the year. A small number of tasks remain that are not considered mission critical, and the Company expects to complete them in the third quarter of 1999. The Company continues to survey and communicate with counterparties, intermediaries and vendors ("Third Parties") with whom it has important financial and operational relationships to determine the extent to which they are vulnerable to Year 2000 issues and what impact, if any, their efforts will have on the Company's business and operations. In the event that a Third Party's system will not be year 2000 compliant, the Company will assess the potential risk and, to the extent it is feasible, transfer its business to an alternate vendor. As of June 30, 1999, the Company has received sufficient information from its Third Parties to conclude that they are in the Renovation, Validation and Implementation phases of their respective plans. However, as of June 30, 1999, the Company has not yet received conclusive information from all Third Parties related to the Renovation, Validation and Implementation phases to predict the outcome of their efforts. There are many risks associated with the Year 2000 issue, including the possible failure of the Company's computer and non-financial technology systems. Such failures could have a material adverse effect on the Company and may cause system malfunctions, incorrect or incomplete transaction processing resulting in the inability to reconcile accounting books and records. In addition, even if the Company successfully remediates its Year 2000 issues, it can be adversely affected by failures of Third Parties with which the Company has financial or operational relationships to remediate their own Year 2000 issues. The failure of Third Parties to remediate their Year 2000 issues in a timely manner could result in a material financial risk to the Company. Such risks include business interruption or shutdown, financial loss, regulatory actions and legal liability. The Company has developed a Year 2000 specific contingency plan as part of its overall Plan in an effort to mitigate Year 2000 risk. Based on current information, the Company does not anticipate that the overall costs related to the implementation of the Plan to be material in any single year. The Company estimates that the total external cost of implementing its Plan will amount to approximately $170 thousand. The Year 2000 costs include all activities undertaken on Year 2000 related matters, including, but not limited to, renovation, validation, third party review and contingency planning. However, costs for compensation and benefits of the Company's internal employees have not yet been determined. The cost of Year 2000 compliance and the estimated date of completion of necessary modifications are based on the Company's best estimates, which were derived from various assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those anticipated. Through the first six months of 1999, the Company has expended approximately $84 thousand on the Year 2000 project. All Year 2000 costs are expensed in the period incurred. PART II - OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Note 3 of the Company's Consolidated Financial Statements of this Form 10-Q. Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders was held on April 22, 1999. (b) Each of the persons named in the Proxy Statement as a nominee for Director was elected and the selection of Deloitte & Touche, LLP as the Company's independent auditors for 1999 was ratified. The following are the voting results on each of these matters: Against or For Withheld Abstentions ___ ________ ___________ (1) ELECTION OF DIRECTORS: Anthony S. Abbate 5,592,192 55,486 0 Anthony R. Coscia 5,591,592 56,085 0 John J. Eccleston 5,588,787 58,891 0 Richard A. Gilsenan 5,582,058 65,620 0 Eleanore S. Nissley 5,591,524 56,153 0 (2) Ratification of the selection of the selection of Deloitte & Touche, LLP as the Company's independent auditors for 1999. 5,535,262 12,024 100,392 Item 5. Other Information None 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) The Company filed a Current Report on Form 8-K, dated June 3, 1999, covering Item 5 - Other Events - regarding the adoption of a Stock Repurchase Plan to repurchase up to 10% of the Company's outstanding common stock. 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 (Duly Authorized Officer and Principal Financial and Accounting Officer) Dated: August 13, 1999 EX-11 2 COMPUTATION RE: EARNINGS PER SHARE Exhibit 11. Computation Re: Earnings Per Share (dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------------------------------- Three Months Ended, Six Months Ended, --------------------------------------------------------------------------------------------------------- June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 ------------------------ ----------------------- ----------------------- ------------------------------- 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 $2,478 7,212 $0.34 $1,427 7,193 $0.20 $4,764 7,209 $0.66 $3,405 7,180 $0.47 ======= ====== ======= ======= Effect of Dilutive Shares Options issued to management - 33 - 70 - 35 - 70 ------- ------ -------- ---- ------- ----- ------- ------ Diluted Earnings per Common Share $2,478 7,245 $0.34 $1,427 7,263 $0.20 $4,764 7,244 $0.66 $3,405 7,250 $0.47 ======= ====== ========= ======= ====== ======== ====== ======= ======== ======= =========== =======
EX-27 3
9 1,000 6-Mos Dec-31-1999 Jun-30-1999 18,943 0 2,800 0 106,224 47,410 47,101 502,649 5,498 690,846 603,836 16,960 6,294 0 5,397 0 0 58,359 690,846 19,358 4306 414 24,078 8,626 9,092 14,986 600 856 10,034 7,221 7,221 0 0 4,764 0.66 0.66 4.64 1,698 0 435 0 5,645 765 18 5,498 5,498 0 1,037
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