As filed with the Securities and Exchange Commission
on July 30, 1999
Registration No. 333-80183
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
PRE-EFFECTIVE AMENDMENT NO.1
TO THE FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
JADE FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Pennsylvania 6035 To Be Requested
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classi- Identification
or organization) fication Code Number) Number)
213 West Street Road,
Feasterville, Pennsylvania 19053 (215) 322-9000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
John J. O'Connell, Chairman and Chief Executive Officer
JADE FINANCIAL CORP.
213 West Street Road
Feasterville, Pennsylvania 19053
(215) 322-9000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
Jeffrey P. Waldron, Esquire Martin L. Meyrowitz,
Stevens & Lee, P.C. Esquire
One Glenhardie Corporate Center Silver, Freedman & Taff, P.C.
1275 Drummers Lane 1100 New York Avenue, N.W.
P.O. Box 236 Washington, DC 20005
Wayne, Pennsylvania 19087 (202) 414-6100
(610) 964-1480
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement
becomes effective.
If any of the securities being registered on this Form are
being offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 check the following
box. [X]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
=================================================================
Proposed
Title of each maximum
class of offering Aggregate Amount of
securities to Amount to be price per offering registra-
be registered registered share price(1) tion fees
- -----------------------------------------------------------------
Common Stock, 2,476,936 $8.00 $19,815,488 $5,508.71(3)
$.01 par shares(2)
value per
share
=================================================================
(1) Estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(d) and based on
the maximum of the appraisal valuation range of IGA Federal
Savings (to be acquired by the registrant in connection with
this offering), as determined by an independent appraiser.
(2) Represents maximum number of shares to be issued in the
transactions contemplated by this Registration Statement,
including shares of common stock to be issued to the IGA
Charitable Foundation.
(3) The registrant paid a filing fee of $5,509 on June 8,
1999 in connection with the initial filing of this
Registration Statement.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
PROSPECTUS
[Logo]
Up to 2,397,031 Shares of Common Stock
JADE FINANCIAL CORP.
(Proposed Holding Company for IGA Federal Savings)
JADE FINANCIAL CORP. has been formed to own all of the
common stock of IGA Federal Savings. IGA is a federal savings
bank that is changing from the mutual to the stock form of
organization.
We propose to list the shares on the Nasdaq National Market
under the symbol "IGAF."
Terms of the Offering
Maximum
Minimum Maximum as adjusted
Per Share Price.......... $8.00 $8.00 $8.00
Number of Shares......... 1,540,625 2,084,375
2,397,031
Underwriting Commissions
and Other Expenses......
Net Proceeds to JADE FINANCIAL......
Net Proceeds Per Share....
JADE FINANCIAL has engaged Charles Webb & Company, a
Division of Keefe, Bruyette & Woods, Inc., a registered
broker-dealer, to consult with and advise JADE FINANCIAL in
connection with the sale of common stock in the offering.
Charles Webb & Company will assist, on a best efforts basis, in
the solicitation of orders to purchase common stock in the
offering. Charles Webb & Company is not obligated to purchase
any shares of common stock in the offering.
The Offering will terminate at ____ p.m., local time, on
__________, 1999, unless extended by JADE FINANCIAL for up to an
additional 45 days, or if approved by the Office of Thrift
Supervision, for an additional period after such 45-day
extension. JADE FINANCIAL is not required to give prospective
purchasers notice of any extension unless the expiration date is
later than __________, 1999, in which event prospective
purchasers will be given the right to increase, decrease,
confirm, or rescind their orders.
Persons interested in purchasing common stock must return
the accompanying order form to JADE FINANCIAL, together with full
payment for all common stock to be purchased at $8.00 per share,
or appropriate instructions authorizing withdrawals of such an
amount from existing deposit accounts at IGA. An executed order
form, once received by JADE FINANCIAL, may not be modified,
amended or rescinded without the consent of JADE FINANCIAL.
Purchase orders made by cash (if delivered in person to a branch
office), check or money order will earn interest at IGA's current
passbook rate from the date of receipt until completion or
termination of the offering. Payments authorized by withdrawal
from deposit accounts at IGA will continue to earn interest at
the contractual rate until the offering is completed or
terminated; these funds will be otherwise unavailable to the
depositor. No early withdrawal penalties will apply for funds
withdrawn from an account at IGA for the purpose of purchasing
common stock. If the offering is not completed by the expiration
date, all funds held will be returned promptly with interest and
all withdrawal authorizations will be terminated. All funds
received for the purchase of shares of common stock will be held
on a separate escrow account at IGA until completion or
termination of the offering.
Please refer to Risk Factors beginning on page ___ of this
document.
These securities are not deposits or accounts and are not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, the Office
of Thrift Supervision, nor any state securities regulator has
approved or disapproved these securities or determined if this
prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
For information on how to subscribe, call the Stock
Information Center at (___) ___-____.
CHARLES WEBB & COMPANY,
a Division of Keefe, Bruyette & Woods, Inc.
_________________________
The date of this Prospectus is August ___, 1999.
[MAP OF REGISTRANT'S MARKET AREA TO BE PRODUCED HERE]
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
The following are frequently asked questions. You
should read this entire prospectus, including "Risk Factors"
beginning on page __, and "the Conversion" beginning on page __,
for more information.
Q. HOW MANY SHARES OF STOCK ARE BEING OFFERED, AND AT WHAT
PRICE?
A. We are offering for sale up to 2,084,375 shares of common
stock at a subscription price of $8.00 per share. We must
sell at least 1,540,625 shares. If the appraised market
value of the common stock changes due to market or financial
conditions, then, without notice to you, we may be required
to sell up to 2,397,031 shares.
Q. WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING
WHETHER TO PURCHASE THE STOCK?
A. There are many important factors for you to consider before
making an investment decision. Therefore, you should read
this entire prospectus before making your investment
decision.
Q. WILL CASH DIVIDENDS BE PAID ON THE STOCK?
A. We intend to adopt a policy of paying cash dividends on the
common stock, starting after the first full calendar quarter
following completion of the conversion. We expect the
amount of the dividend to be between $0.16 and $0.24 per
year. This will provide an annual yield of 2% to 3% on the
initial $8.00 per share purchase price. Based on our
earnings history and expected earnings on the proceeds from
the conversion, we believe we will have the financial
ability to pay this dividend. Future dividends are not
guaranteed and will depend on our ability to pay them. See
"Our Policy Regarding Dividends" on page ___.
Q. WILL I BE ABLE TO SELL MY STOCK AFTER I PURCHASE IT?
A. We anticipate having our stock quoted on the Nasdaq National
Market System under the symbol "IGAF." There can be no
assurance that someone will want to buy your shares or that
you will be able to sell them for more money than you
originally paid. You should consider the possibility that
you may be unable to easily sell our stock. there may also
be a wide spread between the bid and asked price for our
stock.
Q. WILL MY STOCK BE COVERED BY DEPOSIT INSURANCE OR GUARANTEED
BY ANY GOVERNMENT AGENCY?
<PAGE 1>
A. No. Unlike insured deposit accounts at IGA Federal Savings,
our stock will not be insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
Q. WHEN IS THE DEADLINE TO SUBSCRIBE FOR STOCK?
A. We must receive a properly signed order form with the
required payment on or before ____ p.m., Philadelphia,
Pennsylvania Time, on _________, 1999.
Q. CAN THE OFFERING BE EXTENDED?
A. If we do not receive sufficient orders, we can extend the
offering beyond ___________, 1999. We must complete any
offering to general members of the public within 45 days
after the close of the subscription offering, unless we
receive regulatory approval to further extend the offering.
No single extension can exceed 90 days, and the extensions
may not go beyond _________, 2001.
Q. HOW DO I PURCHASE THE STOCK?
A. First, you should read this entire prospectus carefully.
Then, complete and return the enclosed stock order and
certification form, together with your payment.
Subscription orders may be delivered in person to our office
during regular banking hours, or by mail in the enclosed
envelope marked STOCK ORDER RETURN. Subscription orders
received after the subscription offering expiration date may
be held for participation in any community offering. If the
stock offering is not completed by __________, 1999 and is
not extended, then all funds will be returned promptly with
interest, and all withdrawal authorizations will be
canceled.
Q. CAN I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR
STOCK?
A. No. After we receive your order form and payment, you may
not cancel or modify your order. However, if we extend the
offering beyond ___________, 1999, you will be able to
change or cancel your order. If you cancel your order, you
will receive a prompt refund plus interest.
Q. HOW CAN I PAY FOR THE STOCK?
A. You have three options: (1) pay cash if it is delivered to
us in person; (2) send us a check or money order, or
(3) authorize a withdrawal form your deposit account at IGA
Federal Savings (without any penalty for early withdrawal).
Please do not send cash in the mail.
Q. WILL I RECEIVE INTEREST ON MY SUBSCRIPTION PAYMENT?
<PAGE 2>
A. Subscriptions payments will be placed in an interest-bearing
escrow account at IGA Federal Savings, and will earn
interest at our savings account rate. Depositors who elect
to pay by withdrawal will continue to receive interest on
their accounts until the funds are withdrawn.
Q. CAN I SUBSCRIBE FOR SHARES USING FUNDS IN MY INDIVIDUAL
RETIREMENT ACCOUNT ("IRA") AT IGA FEDERAL SAVINGS?
A. You cannot purchase stock with your existing IRA at IGA
Federal Savings. You may, however, establish a
self-directed IRA with an outside trustee to subscribe for
stock using your IRA funds. Please call our Stock
Information Center toll free at (888)___-____ to get more
information. Please understand that the transfer of IRA
funds takes time, so please make arrangements as soon as
possible.
Q. WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES OF STOCK TO FILL
ALL ORDERS?
A. If there is an oversubscription, then you may not receive
any or all of the shares you want to purchase.
Q. WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE
STOCK OFFERING?
A. For answers to other questions we encourage you to read this
prospectus. Questions may also be directed to our Stock
Information Center toll free at (888)___-____ Monday through
Friday, between the hours of ____ a.m. and ____ p.m. To
ensure that each person receives a prospectus at least 48
hours prior to the expiration date of ___________, 1999 in
accordance with federal law, no prospectus will be mailed
any later than five days prior to ___________, 1999 or hand
delivered any later than two days prior to ___________,
1999.
<PAGE 3>
PROSPECTUS SUMMARY
This summary highlights selected information from this
document and may not contain all the information that is
important to you. To understand the stock offering fully, you
should read this entire document carefully, including the
financial statements and the notes to the financial statements of
IGA.
The Company:
JADE FINANCIAL CORP.
213 West Street Road
Feasterville, Pennsylvania 19053
(215) 322-9000
JADE FINANCIAL CORP. is not an operating company and has not
engaged in any significant business to date. It was formed as a
Pennsylvania-chartered corporation to be the holding company for
IGA.
The Bank:
IGA Federal Savings
213 West Street Road
Feasterville, Pennsylvania 19053
(215) 322-9000
IGA Federal Savings originally was established in 1975 as
IGA Federal Credit Union. On July 1, 1998, we converted from a
credit union to IGA Federal Savings, a federal mutual savings
bank. We are now a community-oriented federal mutual savings
bank primarily serving customers in the Philadelphia metropolitan
area through five offices located in Philadelphia, Bucks, Chester
and Delaware Counties, Pennsylvania. We provide financial
services to individuals, families and small businesses.
Historically, we have emphasized consumer loans, including home
equity, auto, credit card and personal loans, and one- to four-
family first mortgage loans. We also offer a variety of
commercial loan products.
The Stock Offering
JADE FINANCIAL is offering between 1,540,625 and
2,084,375 shares of common stock at $8.00 per share. As a result
of changes in market and financial conditions prior to completion
of the conversion or to fill the order of our employee stock
ownership plan we may increase the offering to 2,397,031 shares
with the approval of the Office of Thrift Supervision without
further notice to you. In that event, you may not change or
cancel any stock order previously delivered to us.
Charles Webb & Company, a division of Keefe, Bruyette &
Woods, Inc. will assist us in selling the stock. For further
<PAGE 4> information about Charles Webb & Company's role in the
offering, see "The Conversion -- Market Arrangements."
How We Determined The Offering Range and the $8.00 Price Per
Share
The independent appraisal by RP Financial, L.C., dated as
of July 23, 1999, established the offering range. The appraisal
was based both upon our financial condition and operations and
upon the effect of the additional capital we will raise in this
offering. RP Financial will update the appraisal before the
completion of the offering. Our board of directors set the
purchase price per share of the common stock at $8.00 to ensure
that there would be enough publicly held shares to meet the
listing requirements for the Nasdaq National Market.
After completion of the conversion and the stock
offering, each share of JADE FINANCIAL common stock, including
the shares given to the IGA Charitable Foundation, will have a
book value of $13.51, at the maximum of the offering range. This
means the price paid for each share sold in this offering will be
47.4% of the book value. This ratio is one important factor used
by the appraiser in determining the appraised value of IGA. Our
ratio is lower than our peer group of publicly traded thrift
institutions of 103.6%.
The following table compares our pro forma price to book
value ratio and price to earnings ratio upon completion of the
offering to a comparative group of 11 Mid-Atlantic thrifts.
Price to Book Price to
Value Ratio(1) Earnings Ratio(2)
JADE FINANCIAL 59.20% 22.15x
Comparative Group(3) 103.33% 16.95x
_______________
(1) Represents the ratio of the $8.00 offering price per
share of JADE FINANCIAL'S common stock to JADE
FINANCIAL'S pro forma book value per share at the
maximum of the offering range.
(2) Represents the ratio of the $8.00 offering price per
share of JADE FINANCIAL'S common stock to JADE
FINANCIAL'S pro forma earnings per share based on
annualized after tax reported earnings for the nine
months ended March 31, 1999.
(3) The comparative group consists of 11 Mid-Atlantic
region thrifts.
The above table shows that JADE FINANCIAL's pro forma
price to book value ratio of 59.20% at the maximum of the
<PAGE 5> offering range is 42.7% lower than the 103.33% average
price to book value ratio of the comparable group. The table
also shows that JADE FINANCIAL's pro forma price earnings ratio
of 22.15x at the maximum of the offering range is 30.68% higher
than the average 16.95x price to earnings ratio of the comparable
group.
Terms of the Offering
We are offering the shares of common stock to those with
subscription rights in the following order of priority:
(1) Depositors with us on March 31, 1998.
(2) The IGA employee stock ownership plan.
(3) Depositors with us on June 30, 1999.
(4) Other members of IGA on _________, 1999.
Shares of common stock not subscribed for in the
subscription offering will be offered to the general public in a
direct community offering and, if necessary, a public offering.
See pages _____ to _____.
Termination of the Offering
The subscription offering will end on September ___, 1999.
If all of the shares are not subscribed for in the subscription
offering and we do not get orders for the remaining shares by
October ___, 1999, we will either:
(1) promptly return any payment you made to us, with
interest, or cancel any withdrawal authorization you
gave us; or
(2) extend the offering, if allowed, and give you notice of
the extension and of your rights to cancel or change
your order. If we extend the offering and you do not
respond to the notice, then we will cancel your order
and return your payment, with interest, or cancel any
withdrawal authorization you gave us.
The offering must be completed by _______, 2001.
Use of the Proceeds Raised from the Sale of Common Stock
We intend to use the net proceeds received from the offering
as follows:
$ 8,337,500 - Used to buy all of the capital stock of IGA
which will retain and use such proceeds for
general corporate purposes.
$ 1,334,000 - Employee stock ownership plan loan. <PAGE 6>
$ 277,886 - Cash portion of $833,750 cash and stock
contribution to IGA Charitable
Foundation.
$ 5,780,500 - Retained by JADE FINANCIAL and initially
placed in short-term investments for general
corporate purposes.
$15,729,886 - Net proceeds from stock offering at the
maximum of the offering range.
The proceeds received by IGA will increase our capital and
will be available for expansion of our branch system and future
lending and investment, in addition to general corporate
purposes.
Dividends
We intend to adopt a policy of paying cash dividends on
the common stock, starting after the first full calendar quarter
following completion of the conversion. We expect the amount of
the dividend to be between $0.16 and $0.24 per year. This will
provide an annual yield of 2% to 3% on the initial $8.00 per
share purchase price. Based on our earnings history and expected
earnings on the proceeds from the conversion, we believe we will
have the financial ability to pay this dividend. Future
dividends are not guaranteed and will depend on our ability to
pay them. See "Our Policy Regarding Dividends" on page ___.
Market for the Common Stock
JADE FINANCIAL has applied to have its common stock
quoted on the Nasdaq National Market System under the symbol
"IGAF." We cannot predict whether a liquid trading market in
shares of JADE FINANCIAL's common stock will develop. Persons
purchasing shares may not be able to sell their shares when they
desire if a liquid trading market does not develop or sell them
at a price equal to or above $8.00 per share even if a liquid
trading market develops.
We Intend to Contribute a Total of $833,750 in Cash and Stock to
a New Charitable Foundation
To continue our long-standing commitment to our local
community, we intend to establish the IGA Charitable Foundation,
and to fund the foundation with cash and shares of our common
stock with a total value equal to 5% of the shares sold in this
offering. Based on the maximum amount of shares offered, we will
issue an additional 69,483 shares to the foundation, worth
$555,864, and make a cash contribution of $277,886. We plan for
the foundation to support charitable causes in our primary market
areas. Charitable contributions by IGA totaled $12,500 in 1996,
$11,000 in 1997 and $16,000 in 1998. If we do establish the
foundation, then the value of the common stock will be lower than
if the offering was completed without the foundation. For a
<PAGE 7> further discussion of the financial impact of the
foundation, see "Risk Factors -- The establishment of IGA
Charitable Foundation will reduce our earnings," "Pro Forma Data"
and "Comparison of Valuation and Pro Forma Information With No
Foundation."
Payment for Shares
You may pay for your subscriptions:
(1) by personal check, official bank check or money order;
(2) by authorizing us to withdraw money from your deposit
account(s) maintained at IGA; or
(3) in cash, if delivered in person at any full-service
banking office of IGA, although we request that you
exchange cash for a check with any of our tellers.
Stock Information Center
If you have any questions regarding the offering or our
change in structure, please call the Stock Information Center at
(_____) _________.
Transfer of Subscription Rights is not Permitted
Subscription rights are not allowed to be transferred and we
will act to ensure that you do not transfer your subscription
rights. We will not accept any stock orders that we believe
involve the transfer of subscription rights.
Important Risks in Owning JADE FINANCIAL CORP.'s Common Stock.
Before you decide to purchase stock in the offering, you
should read the "Risk Factors" section on pages __ - __ of this
document, in addition to the other sections of this prospectus.
The common stock is subject to investment risk, including the
possible loss of principal invested.
Benefits to Management from the Offering
We intend to establish the IGA employee stock ownership
plan which will purchase 8% of the shares sold in this offering.
A loan from JADE FINANCIAL to the plan, funded by a portion of
the proceeds from this offering, will be used to purchase these
shares. If shares are not available for purchase by the employee
stock ownership plan in the subscription offering, then, if the
Office of Thrift Supervision approves, the plan will purchase the
shares in the open market. The employee stock ownership plan
will provide a retirement benefit to all employees eligible to
participate in the plan.
We also intend to adopt a stock option plan and a
restricted stock plan for the benefit of directors, officers and
<PAGE 8> employees, subject to shareholder approval. Under
Office of Thrift Supervision regulations these plans cannot be
submitted to shareholders for approval sooner than six months
after completion of the conversion. If shareholders adopt a
restricted stock plan, directors, officers and employees will be
awarded stock at no cost to them. As a result, both the employee
stock ownership plan and the restricted stock plan will increase
the voting control of management without a cash outlay.
The following table presents the total value of the shares
of common stock, at the maximum of the offering range, which
would be acquired by the employee stock ownership plan and the
total value of all shares available for award and issuance when
we grant awards under the restricted stock plan. The table
assumes that the value of the shares is the same as the sales
price of the shares in the offering. The table does not include
a value for the options because the price paid for the option
shares will be equal to the fair market value of the common stock
on the day that the options are granted. As a result, financial
gains can be realized under an option only if the market price of
the common stock increases.
Percentage of
Estimated Shares Sold
Value of Shares in the Offering
Employee Stock Ownership Plan. $1,334,000 8.0%
Restricted Stock Awards....... 667,000 4.0
Stock Options................. -- 10.0
Total....................... $2,001,000 22.0%
For a further discussion of benefits to management, see
"Management."
<PAGE 9>
RISK FACTORS
In addition to the other information in this document, you
should consider carefully the following risk factors in
evaluating an investment in the common stock.
Our Return on Equity Will Decrease and Our Expenses Will Increase
After Conversion
The proceeds we receive from the sale of our common stock,
will increase our equity substantially. We expect our expenses
to increase because we are now subject to federal income tax and
because of costs associated with our employee stock ownership
plan, our restricted stock plan, and being a public company.
Because of the increases in our equity and expense, our return on
equity will decrease as compared to our performance in previous
years and compared to our regional and national peers. A lower
return on equity could hurt our stock price. See "How We Intend
to Use the Proceeds" and "Pro Forma Data."
Our Increased Emphasis on Originating Commercial Real Estate
Loans and Commercial Business Loans Exposes Us to a Greater Risk
of Financial Loss
Consistent with our effort to be a full-service community
bank, IGA has increased its efforts to originate commercial real
estate loans and commercial business loans. Both involve a
higher degree of risk than single-family residential lending due
to a variety of factors, including generally larger loan
balances, the dependency on successful operation of a project, or
the income stream of a borrower for repayment, and greater
oversight efforts compared to mortgage loans. Commercial real
estate loans often do not require full amortization of the loan
over their term, and require successfully developing and/or
selling the property. Commercial business loans often involve
collateral in the form of intangible assets and/or inventory
which is subject to market obsolescence. Each of these risks can
be heightened by economic conditions that might adversely impact
the borrowers' ability to repay the loans, including such events
as an economic recession, an increase in interest rates or an
increase in the rate of inflation.
Rising Interest Rates May Hurt Our Profits
Our ability to make a profit largely depends on our net
interest income. Net interest income is the difference between
what we earn on loans and investments and what we pay on deposits
and borrowings. The rates we earn on our assets and pay on our
liabilities are generally established for a contractual period of
time. We, like many savings institutions, have liabilities that
generally have shorter contractual maturities than our assets.
This imbalance can create significant earnings volatility,
because market interest rates change over time. In a period of
rising interest rates, the interest income earned on our assets
<PAGE 10> may not increase as rapidly as the interest paid on our
liabilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset/Liability
Management" and "Business of IGA."
Changes in interest rates can also affect the average life
of loans and mortgage-backed and related securities. A reduction
in interest rates results in increased prepayments of loans and
mortgage-backed and related securities, as borrowers refinance
their debt in order to reduce their borrowing cost. This causes
reinvestment risk. This means that we may not be able to
reinvest prepayments at rates which are comparable to the rates
we earned on the prepaid loans or securities.
The Creation of the Charitable Foundation Will Reduce Your
Ownership and Voting Interest and Our Earnings
The contribution of cash and a number of shares with a
total value equal to 5% of the shares of JADE FINANCIAL sold in
the offering is subject to the approval of our members at the
special meeting of members called to vote upon the conversion.
The stock contribution to the foundation means that your
ownership and voting interest in JADE FINANCIAL will be reduced
by 3.23%. The contribution to the foundation will be recorded as
an expense and will decrease our earnings in the quarter and year
recorded.
If our Computer Systems Do Not Properly Work on January 1, 2000,
our Business Operations Will be Disrupted
If our computer systems and the computer systems operated
by our third party vendors do not properly work on January 1,
2000, then we could experience a disruption in our business
operations. As a result, our financial condition and results of
operations could be adversely affected. In addition, if we are
not adequately prepared for the January 1, 2000 date change, then
regulators may take action against us. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000 Issues."
The Amount of Common Stock We Will Control, Our Articles of
Incorporation and Bylaws and State and Federal Statutory
Provisions Could Discourage Hostile Acquisitions of Control
Our board of directors and executive officers intend to
purchase approximately 7.95% of our common stock at the maximum
of the offering range. These purchases, together with the
purchase of 8% of the shares by the employee stock ownership
plan, as well as the potential acquisition of common stock
through the proposed stock option plan and restricted stock plan
will result in significant inside ownership of JADE FINANCIAL.
This inside ownership and provisions in our articles of
incorporation and bylaws contain may have the effect of
discouraging a sale of JADE FINANCIAL, a proxy contest for
control of JADE FINANCIAL, the assumption of control of JADE
<PAGE 11> FINANCIAL by a holder of a large block of common stock
and the removal of JADE FINANCIAL's management, all of which
certain shareholders might think are in their best interests.
These provisions include, among other things:
- the classification of the terms of the members of
the Board of Directors;
- an 80% shareholder vote requirement for the
approval of any merger or consolidation of JADE
FINANCIAL into any entity that directly or
indirectly owns 5% or more of JADE FINANCIAL's
voting stock if such transaction is not approved
in advance by at least 66-2/3% of the members of
JADE FINANCIAL's board of directors;
- supermajority shareholder vote requirements for
the approval of certain amendments to JADE
FINANCIAL's articles of incorporation and
bylaws;
- a prohibition on any holder of common stock voting
more than 10% of the outstanding common stock;
- elimination of cumulative voting by shareholders
in the election of directors;
- restrictions on the acquisition of our equity
securities; and
- the issuance of 5,000,000 shares of preferred
stock that could be issued without shareholder
approval on terms or in circumstances that could
deter a future takeover attempt.
In addition, the Pennsylvania Business Corporation Law
provides for certain restrictions on acquisition of JADE
FINANCIAL, and federal laws contain restrictions on acquisitions
of control of savings and loan holding companies such as JADE
FINANCIAL.
Our Common Stock Has Never Been Publicly Traded
There has not bee a public market for our common stock.
We cannot predict the extent to which a trading market will
develop or how liquid that market might become. The price at
which the common stock is being sold in the offering may not be
indicative of prices that will prevail in the trading market.
<PAGE 12>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
In 1998, IGA changed its fiscal year from a period ending
June 30 to a period ending December 31. Accordingly, the summary
information presented below under "Selected Financial Condition
Data" and "Selected Operations Data" for, and as of the end of,
each of the years ended June 30 and the six moths ended
December 31, 1998 is derived from IGA's audited financial
statements. The summary information presented below under those
headings for, and as of the end of, the six months ended
December 31, 1997 and each of the three month periods ended
March 31, 1999 and 1998 is unaudited but, in the opinion of
management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial
condition and results of operations for such periods have been
included. The following information is only a summary and you
should read it in conjunction with our financial statements and
notes beginning on page F-1.
<TABLE>
<CAPTION>
At March 31, At December 31, At June 30,
1999 1998 1998 1997 1998 1997 1996 1995 1994
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets $177,470 $159,637 $171,091 $152,759 $159,852 $164,752 $159,463 $156,231 $146,964
Cash and cash equivalents 18,113 17,763 18,351 18,941 12,981 16,587 1,561 1,375 1,173
Loans receivable, net 105,320 96,186 102,900 97,885 98,096 100,371 94,671 83,958 76,451
Mortgage-backed securities;
Held-to-maturity 5,594 10,598 6,635 11,895 9,071 14,320 16,535 9,745 10,500
Available-for-sale 15,529 15,641 10,176 11,223 14,267 13,724 19,198 13,157 15,092
Investment securities:
Held-to-maturity 0 500 0 500 500 7,731 7,115 29,229 19,498
Available-for-sale 28,240 14,480 28,726 8,920 19,340 7,199 15,411 14,258 19,519
Deposits 161,429 143,911 154,888 137,223 143,934 149,846 145,818 144,016 136,771
Equity 15,096 15,074 15,276 14,991 15,080 14,246 12,918 11,624 9,756
</TABLE>
<PAGE 13>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Year Ended At June 30,
March 31, December 31,
1999 1998 1998 1997 1998 1997 1996 1995 1994
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Operations Data:
Total interest income $ 2,942 $ 2,821 $ 5,789 $ 5,880 $11,476 $11,660 $11,799 $11,236 $10,361
Total interest expense 1,325 1,310 2,762 2,805 5,475 5,655 5,705 4,954 4,163
Net interest income 1,617 1,511 3,027 3,075 6,001 6,005 6,094 6,282 6,198
Provision for loan losses 135 376 300 397 1,038 847 355 330 270
Net interest income after
provision for
loan losses 1,482 1,135 2,727 2,678 4,963 5,158 5,739 5,952 5,928
Service fees 125 51 338 294 887 767 248 257 317
Gain (loss) on sales of
investment securities 0 0 198 26 0 (7) 11 (70) 122
Other non-interest income 99 51 268 139 71 91 147 112 251
Total non-interest income 224 102 804 459 958 851 406 299 690
Total non-interest expense 1,518 1,200 3,119 2,567 5,258 4,983 4,659 4,508 4,325
Income tax expense 58 0 146 0 0 0 0 0 0
Net income $ 130 $ 37 $ 266 $ 570 $ 663 $ 1,026 $ 1,486 $ 1,743 $ 2,293
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE 14>
<TABLE>
<CAPTION>
At March 31, At December 31, Year Ended At June 30,
1999 1998 1998 1997 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Financial and Other Data:
Performance Ratios:
Return on assets (ratio of net
income to average total
assets)(1) 0.30% 0.09% 0.32% 0.72% 0.42% 0.64% 0.94% 1.17% 1.59%
Return on equity (ratio of net
income to average equity)(1) 3.41% 0.97% 3.46% 7.61% 4.52% 7.55% 12.11% 16.30% 25.71%
Interest rate spread 3.84% 3.76% 3.74% 3.82% 3.66% 3.64% 3.77% 4.22% 4.33%
Net interest margin 3.97% 4.01% 3.90% 4.06% 3.93% 3.86% 3.99% 4.37% 4.44%
Operating expenses to average
total assets(1) 3.64% 3.07% 3.95% 2.96% 3.33% 3.10% 2.96% 3.04% 3.00%
Average interest-earning assets
to average interest-bearing
liabilities 103.77% 107.40% 104.13% 106.64% 107.58% 106.17% 105.71% 104.36% 103.63%
Asset Quality Ratios:
Non-performing assets to total
assets at end of period 0.11% 0.20% 0.10% 0.64% 0.14% 0.49% 0.34% 0.30% 0.22%
Allowance for loan losses to
non-performing assets 549.75% 227.30% 631.76% 106.87% 419.47% 124.69% 101.45% 192.63% 268.81%
Allowance for loan losses to
gross loans receivable 1.05% 0.76% 1.03% 1.05% 0.96% 0.99% 0.59% 1.08% 1.14%
Capital Ratios:
Equity to total assets at end
of period 8.51% 9.44% 8.93% 9.81% 9.43% 8.65% 8.10% 7.44% 6.64%
Average equity to average assets 8.79% 9.75% 9.30% 9.50% 9.29% 8.45% 7.79% 7.21% 6.18%
Other Data:
Number of full service offices 5 5 5 5 5 5 5 5 5
<FN>
(1) Annualized where applicable.
</TABLE>
<PAGE 15>
RECENT DEVELOPMENTS
The selected financial and operating data presented
below at June 30, 1999 and for the six months ended June 30, 1999
and 1998 are unaudited. In the opinion of management, all
adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation have been included. The
results of operations and other data for the six months ended
June 30, 1999 are not necessarily indicative of the results of
operations for the fiscal year ending December 31, 1999.
June 30, December 31,
1999 1998
(In Thousands)
Selected Financial Condition Data:
Total assets ................................... $179,121 $171,091
Cash and cash equivalents ...................... 9,554 18,351
Loans receivable, net .......................... 108,083 102,900
Securities purchased under agreement to resell.. 0 0
Investment securities:
Available-for-sale ........................... 41,974 28,726
Held-to-maturity ............................. 0 0
Mortgage related securities:
Available-for-sale, at market value .......... 10,243 10,176
Held-to-maturity ............................. 5,129 6,635
Deposits ....................................... 159,654 154,888
Equity ......................................... 14,263 15,276
For the Six Months Ended
June 30,
1999 1998
(In Thousands)
Selected Operations Data:
Total interest income .......................... $5,961 $5,596
Total interest expense ......................... 2,643 2,670
Net interest income .......................... 3,318 2,926
Provision for loan losses ...................... 270 641
Net interest income after provision ............
for loan losses ............................ 3,048 2,285
Service fees ................................... 279 593
Other non-interest income ...................... 245 (94)
Total non-interest income .................... 524 499
Total non-interest expense ..................... 3,072 2,691
Income tax expense ............................. 163 0
Net income ..................................... $ 337 $ 93
<PAGE 16>
<PAGE>
For the Six Months Ended
June 30,
1999 1998
(In Thousands)
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on average assets ..................... 0.38% 0.12%
Return on average equity ..................... 4.53% 1.24%
Interest rate spread information:
Average during period ...................... 3.85% 3.64%
End of period .............................. 3.92% 3.34%
Net interest margin .......................... 3.81% 3.80%
Ratio of operating expense to average
total assets ............................... 3.51% 3.74%
Ratio of average interest-earning assets
to average interest-bearing liabilities .... 104.66% 107.58%
Asset Quality Ratios:
Non-performing assets to total assets at
end of period .............................. 0.08% 0.14%
Non-performing loans to total loans .......... 0.13% 0.23%
Allowance for loan losses to
non-performing loans ....................... 838.15% 419.47%
Allowance for loan losses to loans
receivable, net ............................ 1.08% 0.96%
Capital Ratios:
Equity to total assets at end of period ...... 8.94% 9.43%
Average equity to average assets ............. 8.49% 9.29%
Other Data:
Number of full service offices ............... 5 5
<PAGE 17>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RECENT FINANCIAL INFORMATION
Comparison of Financial Condition at June 30, 1999 and
December 31, 1998.
At June 30, 1999, our total assets amounted to $179.1
million compared to total assets of $171.1 million at
December 31, 1998. The $8.0 million, or 4.68%, increase in total
assets was due primarily to a $13.2 million increase in
securities available for sale and a $5.2 million increase in net
loans. We funded this increase in interest-earnings assets
primarily by decreasing short-term investments in cash and cash
equivalents by $8.8 million and increasing deposits. Our
deposits amounted to $159.7 million at June 30, 1999 compared to
$154.9 million at December 31, 1998. Our total equity decreased
by $1.0 million, or 6.54%, to $14.3 million at June 30, 1999
compared to $15.3 million at December 31, 1998. The decrease in
total equity was entirely due to a decrease in the fair market
value of securities available for sale that was only partially
offset by the profitable operations of IGA.
Comparison of Operating Results For the Six Months Ended June 30,
1999 and June 30, 1998
Net Income. Net income amounted to $337,000 for the six
months ended June 30, 1999 compared to $93,000 for the six months
ended June 30, 1998. The $244,000 increase in net income during
the first six months of 1999 was due primarily to an increase in
net interest income due to higher levels of interest-earning
assets and a decrease in the provision for loan losses that was
partially offset by a decrease in non-interest income of
$211,000.
Interest Income and Interest Expense. Net interest income
increased by $392,000, or 13.40%, for the six months ended
June 30, 1999 compared to the same period in 1998. The increase
in net interest income was due to a $365,000 increase in interest
income and a decrease of $27,000 in interest expense. The
increase in interest income reflects our effort to redeploy funds
from short-term overnight deposits at banks to higher yielding
securities available for sale as well as increased loan activity,
particularly with respect to higher yielding commercial loans.
The decrease in interest expense resulted form a reduction in
rates paid on interest-bearing liabilities. Our interest rate
spread increased to 3.85% for the first six months of 1999 from
3.64% for the comparable prior year period.
Provision for Loan Losses. Our provision for loan losses
was $270,000 for the six months ended June 30, 1999 compared to
$641,000 for the six months ended June 30, 1998. This $371,000
decrease was a result of the higher than normal provision in 1998
that was designed to conform reserve practices to the more
stringent criteria utilized by our savings bank peers compared to
<PAGE 18> the criteria we formerly used as a credit union. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." At June 30, 1999, our total
non-performing loans amounted to $139,000. Our allowance for
loan losses amounted to $1.2 million at June 30, 1999,
representing 1.08% of total loans and 838.13% of non-performing
loans at such date.
Non-interest Income. Non-interest income increased by
$25,000, or 5.0%, to $524,000 for the six months ended June 30,
1999 compared to $499,000 for the same period in 1998. This
increase principally resulted from increased income from our
debit card product.
Non-interest Expense. Non-interest expense amounted to $3.1
million for the six months ended June 30, 1999 compared to $2.7
million for the six months ended June 30, 1998. The $400,000, or
14.86%, increase in non-interest expense during the 1999 period
primarily reflects the increased number of employees during the
1999 period and an increased level of expenses associated with
operating as a federal savings bank following our conversion from
a federal credit union.
Income Taxes. IGA's income tax expense amounted to $163,000
for the six months ended June 30, 1999. For the comparable
period in 1998, IGA paid no federal income tax because, as a
credit union, we were exempt from federal income tax.
Capital Ratios. At June 30, 1999, our tangible and core
capital amounted to $16.0 million, or 8.85% of adjusted total
assets of $180.9 million, and our risk-based capital amounted to
$17.2 million or 16.69% of adjusted risk-weighted assets of
$103.0 million.
JADE FINANCIAL CORP.
JADE FINANCIAL was incorporated under the laws of the
Commonwealth of Pennsylvania at IGA's direction for the purpose
of acquiring all of the capital stock of IGA issued in connection
with the conversion. JADE FINANCIAL has received OTS approval to
acquire control of IGA. Prior to the conversion, JADE FINANCIAL
has not engaged in any material operations. Upon completion of
the conversion, JADE FINANCIAL will have no significant assets
other than all of the outstanding capital stock of IGA, a note
payable from the employee stock ownership plan and 50% of the net
proceeds of the conversion less the amount loaned to the employee
stock ownership plan and the amount contributed to the
foundation. JADE FINANCIAL's principal business will be managing
the operations of IGA.
The holding company structure will permit us to expand the
financial services currently offered through IGA, although there
are no definitive plans or arrangements for such expansion at
present. As a holding company, we will have greater flexibility
to diversify our business activities through existing or newly
<PAGE 19> formed subsidiaries or through acquisition or merger
with other financial institutions. At the present time, however,
we do not have any plans, agreements, arrangements or
understandings with respect to any such acquisitions or mergers.
JADE FINANCIAL's executive offices are located at 213 West
Street Road, Feasterville, Pennsylvania 19053, and its main
telephone number is (215) 322-9000.
IGA FEDERAL SAVINGS
We are a community-oriented federal mutual savings bank. We
currently operate through five offices:
- Our main office located in Feasterville, Bucks
County;
- 23rd and Market Streets in Center City,
Philadelphia (the branch is located in the PECO
headquarters building);
- Grays Ferry in Southwest Philadelphia;
- Chesterbrook in Chester County; and
- Media in Delaware County.
Our market area consists of the Philadelphia metropolitan area,
although we have a number of out-of-market customers who are
retirees or employees of PECO or its affiliates who are located
at out-of-market facilities. At March 31, 1999, we had total
assets of $177.47 million, deposits of $161.43 million and total
equity of $15.09 million.
We are primarily engaged in the business of attracting
retail deposits from the general public and originating consumer
loans, including home equity, auto, credit card and personal
loans and one- to four-family first mortgage loans on owner-
occupied residences in our market area. We also offer a variety
of commercial loan products.
At March 31, 1999, our gross loan portfolio totaled
$106.44 million, consisting principally of $62.81 million in
consumer loans, including home equity loans, and $40.74 million
of first mortgage loans. We also had on that date $28.24 million
of investment securities and $21.12 million of mortgage-backed
securities.
IGA is subject to examination and regulation by the Office
of Thrift Supervision and its savings deposits are insured up to
applicable limits by the FDIC. IGA is a member of, and owns
capital stock in, the Federal Home Loan Bank of Pittsburgh, which
is one of 12 regional banks in the Federal Home Loan Bank System.
See "Regulation -- Regulation of IGA." <PAGE 20>
HOW WE INTEND TO USE THE PROCEEDS
The actual net proceeds from the sale of the common stock
cannot be determined until the conversion is completed. We
presently anticipate, however, that the net proceeds will be
between $11.63 million and $15.73 million, or up to
$18.09 million if the estimated value is increased by 15%. See
"Pro Forma Data" and "The Conversion -- How We Determined Our
Price and Number of Shares to be Issued in the Stock Offering"
for the assumptions used to arrive at these amounts.
JADE FINANCIAL will contribute approximately 50% of the net
proceeds received from the sale of the common stock in exchange
for all of the common stock of IGA issued in the conversion. The
proceeds IGA receives in exchange for the common stock of IGA
will become part of IGA's general funds for use in our business
and will be used to support our existing operations. We
anticipate initially investing these proceeds in short-term
assets similar to those currently in our portfolio. Thereafter,
we will redirect the net proceeds to the origination of loans,
the purchase of investment and mortgage-backed securities, and
the possible expansion of our branch system, subject to market
conditions.
Furthermore, JADE FINANCIAL also intends to lend a
portion of the net proceeds to the employee stock ownership plan
to fund the employee stock ownership plan's purchase of 8% of the
common stock. Based upon the initial purchase price of $8.00 per
share, the dollar amount of the employee stock ownership plan
loan would range from $986,000 to $1.33 million, or up to
$1.53 million if the estimated value is increased by 15%. The
interest rate to be charged by JADE FINANCIAL on the employee
stock ownership plan loan will be based upon the IRS prescribed
applicable federal rate at the time of origination. It is
anticipated that the employee stock ownership plan will repay the
loan through periodic tax-deductible contributions from IGA over
a ten-year period.
The remainder of the net proceeds will be retained by JADE
FINANCIAL. Initially the remaining proceeds will be invested in
short-term investments similar to those currently in IGA's
portfolio. These funds would be available for general corporate
purposes that may include:
- the payment of dividends;
- expansion of operations through acquisitions of other
financial service organizations and diversification
into other related or unrelated businesses;
- investment purposes; and
- contribution of additional capital into IGA when and if
appropriate.
<PAGE 21>
See "Regulation -- Holding Company Regulation" for a discussion
of Office of Thrift Supervision activity restrictions.
Currently, there are no specific plans being considered for the
expansion of the business of JADE FINANCIAL.
JADE FINANCIAL also may use a portion of the proceeds to
fund a restricted stock plan equal to 4% of the number of shares
sold in the conversion. This plan would be subject to
shareholder approval which cannot be sought sooner than six
months after the conversion. Compensation expense related to the
restricted stock plan will be recognized as share awards made
under the plan vest. See "Pro Forma Data." Following
shareholder approval of the restricted stock plan, the plan will
be funded either with shares purchased in the open market or with
authorized but unissued shares. Based upon the initial purchase
price of $8.00 per share, the amount required to fund the
restricted stock plan through open-market purchases would range
from $493,000 to $667,000, or up to $767,000 if the estimated
value is increased by 15%. In the event that the price of the
common stock increases above the initial $8.00 per share purchase
price following completion of the offering, the amount necessary
to fund the restricted stock plan would also increase.
Following the six-month anniversary of the completion of the
conversion, to the extent permitted by the Office of Thrift
Supervision and based upon then existing facts and circumstances,
JADE FINANCIAL's board of directors may determine to repurchase
shares of common stock, subject to any applicable statutory and
regulatory requirements. Such facts and circumstances may
include but not be limited to:
- market and economic factors such as the price at which
the stock is trading in the market, the volume of
trading, the attractiveness of other investment
alternatives based on the rate of return and risk
involved in the investment, the ability to increase the
book value and/or earnings per share of the remaining
outstanding shares, and an improvement in JADE
FINANCIAL's return on equity;
- the avoidance of dilution to shareholders by not
having to issue additional shares to cover the exercise
of stock options or to fund employee stock benefit
plans; and
- any other circumstances in which repurchases would be
in the best interests of JADE FINANCIAL.
Any stock repurchases will be subject to the determination of
JADE FINANCIAL's board of directors that IGA will be capitalized
in excess of all applicable regulatory requirements after any
such repurchases.
OUR POLICY REGARDING DIVIDENDS
<PAGE 22>
We intend to adopt a policy of paying cash dividends on
the common stock. The Board of Directors intends to declare
quarterly dividends, commencing after the first full calendar
quarter following completion of the conversion of between $0.16
and $0.24 per year. This equals an annual yield of 2% to 3% on
the initial $8.00 per share purchase price. Dividends, when and
if paid, will be subject to determination and declaration by our
board of directors at its discretion, which will take into
account our consolidated financial condition and results of
operations, tax considerations, industry standards, economic
conditions, regulatory restrictions, general business practices
and other factors. We will not make a distribution as a tax-free
return of capital. No assurances can be given that dividends
will be declared.
We do not presently anticipate that we will conduct
significant operations independent of those of IGA for some time
following the conversion. Therefore, we do not expect to have
any significant source of income other than earnings on the net
proceeds from the conversion retained by JADE FINANCIAL and
dividends from IGA, if any. Consequently, our ability to pay
cash dividends to our shareholders will be dependent upon these
retained proceeds, income generated from these retained
proceeds, and the ability of IGA to pay dividends to JADE
FINANCIAL.
IGA, like all savings institutions regulated by the Office
of Thrift Supervision, is subject to certain restrictions on
capital distributions, including the payment of dividends, based
on its net income, its capital in excess of the regulatory
capital requirements, and the amount of regulatory capital
required for the liquidation account to be established in
connection with the conversion. See "How We Are Regulated -
Limitations on Dividends and Other Capital Distributions" and
Other Capital Distributions" and "-- Federal and State Taxation."
At March 31, 1999, IGA had available $4.14 million which could be
distributed pursuant to Office of Thrift Supervision regulations.
JADE FINANCIAL will also be subject to substantially the
same regulatory restrictions on the payment of dividends to
shareholders. JADE FINANCIAL also is subject to the Pennsylvania
Business Corporation Law which permits dividends or distributions
to be paid as long as the corporation will be able to pay its
debts in the ordinary course of business after making the
dividend or distribution.
MARKET FOR THE COMMON STOCK
We have never issued common stock to the public.
Consequently, there is no established market for the common
stock. The common stock has been approved for quotation on the
Nasdaq National Market under the symbol "IGAF" upon completion of
the conversion. The development of a public market having the
desirable characteristics of depth, liquidity and orderliness,
however, depends upon the presence in the marketplace of a
<PAGE 23> sufficient number of willing buyers and sellers at any
given time, over which neither JADE FINANCIAL, IGA nor any market
maker has any control. Accordingly, there can be no assurance
that an established and liquid market for the common stock will
develop, or if one develops, that it will continue. Furthermore,
there can be no assurance that purchasers will be able to resell
their shares of common stock at or above the price they paid for
such common stock. Purchasers of common stock should consider
the potentially illiquid and long-term nature of their
investment.
CAPITALIZATION
The following table sets forth the historical
capitalization, including deposits, of IGA at March 31, 1999, and
the pro forma consolidated capitalization of JADE FINANCIAL based
on the sale of the common stock at the minimum, midpoint, maximum
and the adjusted maximum of the estimated valuation range and the
assumptions set forth under "Pro Forma Data" below.
<PAGE 24>
CAPITALIZATION
<TABLE>
<CAPTION>
Company Pro Forma
Based upon sale at $8.00 per share
IGA Adjusted
Existing Minimum Midpoint Maximum Maximum
Capitalization Shares Shares Shares Shares
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1)................. $161,429 $161,429 $161,429 $161,429 $161,429
Shareholders' Equity:
common stock ($0.01 par
value) authorized -
10,000,000 shares; to be
outstanding (as shown)(2) -- 16 19 22 25
Additional paid-in
capital................. -- 11,611 13,660 15,709 18,065
Shares issued to the
foundation(3)........... -- 411 483 556 639
Retained earnings......... 15,690 15,690 15,690 15,690 15,690
Net unrealized loss on
securities available
for sale................ (594) (594) (594) (594) (594)
Less:
Foundation contribution
expense, net of tax
benefit(4).............. -- (201) (237) (273) (313)
common stock acquired by
ESOP(5)................. -- (986) (1,160) (1,334) (1,534)
common stock acquired by
restricted stock
plan(6)................. -- (493) (580) (667) (767)
Total Shareholders' _______ ________ ________ ________ ________
Equity.................... $ 15,096 $ 25,453 $ 27,281 $ 29,109 $ 31,210
</TABLE>
____________
(1) No effect has been given to withdrawals from deposit
accounts for the purpose of purchasing common stock in the
conversion. Any such withdrawals will reduce pro forma
deposits by the amount of such withdrawals.
(2) Reflects the issuance of the shares of common stock to be
sold in the offering, including the issuance of additional
shares of common stock to the foundation. Does not reflect
the issuance of shares of common stock pursuant to the
proposed stock option plan.
(3) Reflects shares contributed to the foundation at an
assumed value of $8.00 per share.
(4) Represents the tax effect of the contribution of common
stock to the foundation based on a 34% tax rate. The
realization of the tax benefit is limited annually to 10% of
JADE FINANCIAL's annual taxable income, subject to the
<PAGE 25> ability of JADE FINANCIAL to carry forward any
unused portion of the deduction for five years following the
year in which the contribution is made.
(5) Assumes that 8% of the shares issued in the conversion will
be purchased by the employee stock ownership plan. The
funds used to acquire the employee stock ownership plan
shares will be borrowed from JADE FINANCIAL. The amount to
be borrowed by the employee stock ownership plan is
reflected as a reduction of shareholders' equity. See
"Management -- Benefit Plans -- Employee Stock Ownership
Plan" and "-- Other Stock Benefit Plans."
(6) JADE FINANCIAL intends to adopt the restricted stock plan
and to submit such plan to shareholders at an annual or
special meeting of shareholders held at least six months
following the completion of the conversion. If the plan is
approved by shareholders, JADE FINANCIAL intends to
contribute sufficient funds to the restricted stock plan to
enable the plan to purchase a number of shares of common
stock equal to 4.0% of the common stock sold in the
offerings. Assumes that shareholder approval has been
obtained and that the shares have been purchased in the open
market at the purchase price. However, in the event JADE
FINANCIAL issues authorized but unissued shares of common
stock to the restricted stock plan in the amount of 4.0% of
the common stock sold in the offerings, the voting interests
of existing shareholders would be diluted approximately
3.8%. The shares are reflected as a reduction of
shareholders' equity. See "Pro Forma Data" and
"Management - Benefits - Other Stock Benefit Plans."
IGA
EXCEEDS ALL REGULATORY CAPITAL REQUIREMENTS
At March 31, 1999, IGA exceeded all of the regulatory
capital requirements applicable to it. The following table sets
forth the historical regulatory capital of IGA at March 31, 1999
and the pro forma regulatory capital of IGA after giving effect
to the stock issuance, based upon the sale of the number of
shares shown in the table. The pro forma regulatory capital
amounts reflect the receipt by IGA of 50% of the net stock
issuance proceeds, minus expenses. The pro forma risk-based
capital amounts assume the investment of the net proceeds
received by IGA in assets which have a risk-weight of 20% under
applicable regulations, as if such net proceeds had been received
and so applied at March 31, 1999.
<TABLE>
<CAPTION>
Pro Forma at March 31, 1999
1,540,625 1,812,500 2,084,375 2,397,031
Historical Shares Sold at Shares Sold at Shares Sold at Shares Sold at
at March 31, 1999 Minimum Midpoint Maximum Adjusted Maximum
Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<PAGE 26>
Capital and Retained
Earnings Under
Generally Accepted
Accounting Principles $15,096 8.51% $19,743 10.78% $20,562 11.17% $21,382 11.55% $22,325 11.99%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Tangible Capital
Capital level....... $15,496 8.71% $20,143 10.98% $20,962 11.36% $21,782 11.74% $22,725 12.18%
Requirement......... 2,668 1.50% 2,752 1.50% 2,767 1.50% 2,782 1.50% 2,799 1.50%
Excess.............. $12,828 7.21% $17,390 9.48% $18,195 9.86% $19,000 10.24% $19,926 10.68%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Core Capital
Capital level....... $15,496 8.71% $20,143 10.98% $20,962 11.36% $21,782 11.74% $22,725 12.18%
Requirement......... 5,336 3.00% 5,505 3.00% 5,535 3.00% 5,565 3.00% 5,599 3.00%
Excess.............. $10,160 5.71% $14,638 7.98% $15,428 8.36% $16,218 8.74% $17,127 9.18%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Risk-Based Capital
Capital level....... $16,612 16.58% $21,259 20.99% $22,078 21.75% $22,898 22.52% $23,841 23.39%
Requirement......... 8,013 8.00% 8,103 8.00% 8,119 8.00% 8,135 8.00% 8,153 8.00%
Excess.............. $ 8,599 8.58% $13,155 12.99% $13,959 13.75% $14,763 14.52% $15,688 15.39%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
____________
(1) Tangible and core capital figures are determined as a
percentage of total adjusted assets; risk-based capital
figures are determined as a percentage of risk-weighted
assets.
PRO FORMA DATA
The following tables set forth the historical and pro forma
consolidated income, shareholders' equity and other data of JADE
FINANCIAL after giving effect to the conversion at or for the
three month period ended March 31, 1999 and the six month period
ended December 31, 1998. Unaudited pro forma consolidated income
and related data have been calculated assuming:
- common stock had been sold at the beginning of such
period, and yielded net proceeds to JADE FINANCIAL as
indicated,
- an amount equal to 5% of the dollar value of shares
sold in the conversion were donated to the foundation
and this donation was comprised of 2/3 shares of stock
and 1/3 cash,
- 50% of such net proceeds were retained by JADE
FINANCIAL and the remainder were used to purchase all
of the stock of IGA, and
- such net proceeds, less the cash contributed to the
foundation and the amounts necessary to fund the
employee stock ownership plan and restricted stock plan
were invested at 4.70% and 4.52% at the beginning of
each of the periods ended March 31, 1999 and
December 31, 1998, respectively. <PAGE 27>
The foregoing yields approximate the yields on the one-year U.S.
Treasury bill at the applicable period end, net of tax. The use
of the treasury rate is viewed to be more relevant than the use
of an arithmetic average of the weighted average yield earned by
IGA on its interest-earning assets and the weighted average rate
paid on its interest-bearing liabilities during such periods.
The pro forma after-tax yields for JADE FINANCIAL that is used to
tax-effect historical earnings and the earnings on estimated net
proceeds is based on a combined federal and state effective tax
rate of 34% for the period.
In calculating the fees to be paid as part of the
offering, the table assumes that expenses equal 4% of the
offering. Actual conversion expenses may be more or less than
those estimated because the fees paid to Charles Webb & Company
and other brokers will depend upon the categories of purchasers,
the purchase price and market conditions and other factors.
The shareholders' equity and related data presented herein
are not intended to represent the fair market value of the common
stock, the current value of assets or liabilities or the amounts,
if any, that would be available for distribution to shareholders
in the event of liquidation. For additional information
regarding the liquidation account, see "The Conversion - Effects
of Conversion on Depositors and Borrowers of IGA -- Liquidation."
The pro forma income and related data derived from the
assumptions set forth above should not be considered indicative
of the actual results of operations of JADE FINANCIAL for the
period and the assumptions regarding investment yields should not
be considered indicative of the actual yields expected to be
achieved during any future period. Such pro forma data may be
materially affected by a change in the number of shares to be
issued in the conversion and other factors.
The following tables assume that the common stock
contribution to the foundation is approved as part of the
conversion and therefore gives effect to the issuance of
authorized but unissued shares of the common stock to the
foundation concurrently with the completion of the conversion.
Historical and pro forma per share amounts have been
calculated by dividing historical and pro forma amounts by the
indicated number of shares of common stock, as adjusted to give
effect to the shares purchased by the employee stock ownership
plan and the effect of the issuance of shares to the foundation.
See Notes 1 and 4 to the tables below. No effect has been given
in the pro forma shareholders' equity calculations for the
assumed earnings on the net proceeds. As discussed under "How We
Intend to Use the Proceeds," JADE FINANCIAL intends to make a
loan to fund the purchase of 8.0% of the common stock by the
employee stock ownership plan and intends to retain 50% of the
net proceeds from the offering.
No effect has been given in the tables to the issuance of
additional shares of common stock pursuant to the proposed stock
<PAGE 28> option plan. See "Management - Benefits - Other Stock
Benefit Plans." The table below gives effect to the restricted
stock plan which is expected to be adopted by JADE FINANCIAL
following the reorganization and presented along with the stock
option plan to shareholders for approval at an annual or special
meeting of shareholders to be held at least six months following
the completion of the conversion. If the restricted stock plan
is approved by shareholders, the restricted stock plan intends to
acquire an amount of common stock equal to 4.0% of the shares of
common stock sold in the offering, either through open market
purchases or from authorized but unissued shares of common stock,
if permissible. The table below assumes that shareholder
approval has been obtained, as to which there can be no
assurance, and that the shares acquired by the restricted stock
plan are purchased in the open market at the purchase price. No
effect has been given to JADE FINANCIAL's results of operations
after the reorganization, the market price of the common stock
after the reorganization or a less than 4.0% purchase by the
restricted stock plan.
<PAGE 29>
<TABLE>
<CAPTION>
At or for the Three Months Ended March 31, 1999
1,540,625 1,812,500 2,084,375 2,397,031
shares at shares at shares at shares at
$8.00 $8.00 $8.00 $8.00
Per Share Per Share Per Share Per Share
(Dollars in thousands,
except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds............................ $ 12,325 $ 14,500 $ 16,675 $ 19,176
Plus: shares issued to the foundation(1). 411 483 556 639
Pro forma market capitalization........... $ 12,736 $ 14,983 $ 17,231 $ 19,815
Gross proceeds............................ 12,325 14,500 16,675 19,176
Less expenses............................. 493 580 667 767
Less cash contributions to foundation..... 205 242 278 320
Estimated net proceeds.................. 11,627 13,678 15,730 18,090
Less ESOP funded by JADE FINANCIAL........ (986) (1,160) (1,334) (1,534)
Less restricted stock plan shares......... (493) (580) (667) (767)
Estimated investable net proceeds(2).... 10,148 11,938 13,729 15,788
Net income:
Historical earnings..................... $ 130 $ 130 $ 130 $ 130
Pro forma earnings on net proceeds(3)... 79 93 106 122
Pro forma ESOP adjustment(4)............ (16) (19) (22) (25)
Restricted stock plan(5)................ (16) (19) (22) (25)
Pro forma net income (6).............. $ 177 $ 185 $ 192 $ 202
Net income per share:
Historical earnings..................... $ 0.09 $ 0.07 $ 0.06 $ 0.06
Pro forma earnings on net proceeds...... 0.05 0.05 0.05 0.05
Pro forma ESOP adjustment(4)............ (0.01) (0.01) (0.01) (0.01)
Restricted stock plan(5)................ (0.01) (0.01) (0.01) (0.01)
Pro forma earnings per share(6)....... $ 0.12 $ 0.10 $ 0.09 $ 0.09
Ratio of offering price to pro forma net
annualized income per share............. 16.67 20.00 22.22 22.22
Number of shares used in calculating
pro forma earnings per share.......... 1,471,810 1,731,541 1,991,272 2,289,963
Estimated net proceeds.................... 11,627 13,678 15,730 18,090
Shareholders' equity:
Historical.............................. 15,096 15,096 15,096 15,096
Plus shares issued to foundation........ 411 483 556 639
Less contribution to foundation......... (411) (483) (556) (639)
Plus tax benefit of stock
contribution.......................... 210 246 283 326
Less: common stock acquired by
ESOP(4)........................ (986) (1,160) (1,334) (1,534)
common stock acquired by
restricted stock plan(5)....... (493) (580) (667) (767)
Pro forma shareholders' equity........ $ 25,453 $ 27,281 $ 29,109 $ 31,210
Shareholders' equity per share:
Historical.............................. $ 9.48 $ 8.06 $ 7.01 $ 6.09
Pro forma increase due to the sale
of common stock in the conversion..... 7.30 7.30 7.30 7.30
Plus shares issued to foundation........ 0.26 0.26 0.26 0.26
Less contribution to foundation......... (0.26) (0.26) (0.26) (0.26)
Plus tax benefit of stock contribution.. 0.13 0.13 0.13 0.13
Less: common stock acquired by ESOP(4). (0.62) (0.62) (0.62) (0.62)
<PAGE 30>
common stock acquired by
restricted stock plan(5)....... (0.31) (0.31) (0.31) (0.31)
Pro forma shareholders' equity
per share........................... $ 15.98 $ 14.56 $ 13.51 $ 12.59
Offering price as a percentage of pro
forma shareholders' equity per share..... 50.06% 54.95% 59.22% 63.54%
Number of shares (including foundation
shares) used to calculate shareholders
equity per share........................ 1,591,979 1,872,916 2,153,854 2,476,932
_________________________
</TABLE>
<PAGE 31>
<TABLE>
<CAPTION>
At or for the Six Months Ended December 31, 1998
1,540,625 1,812,500 2,084,375 2,397,031
shares at shares at shares at shares at
$8.00 $8.00 $8.00 $8.00
Per Share Per Share Per Share Per Share
(Dollars in thousands,
except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds............................ $ 12,325 $ 14,500 $ 16,675 $ 19,176
Plus: shares issued to the foundation(1). 411 483 556 639
Pro forma market capitalization........... $ 12,736 $ 14,983 $ 17,231 $ 19,815
Gross proceeds............................ 12,325 14,500 16,675 19,176
Less expenses............................. 493 580 667 767
Less cash contributions to foundation..... 205 342 278 320
Estimated net proceeds.................. 11,627 13,678 15,730 18,090
Less ESOP funded by JADE FINANCIAL........ (986) (1,160) (1,334) (1,534)
Less restricted stock plan shares......... (493) (580) (667) (767)
Estimated investable net proceeds(2).... 10,148 11,938 13,729 15,788
Net income:
Historical earnings..................... $ 266 $ 266 $ 266 $ 266
Pro forma earnings on net proceeds(3)... 152 178 205 236
Pro forma ESOP adjustment(4)............ (33) (39) (44) (51)
Restricted stock plan(5)................ (33) (39) (44) (51)
Pro forma net income (6).............. $ 353 $ 367 $ 383 $ 401
Net income per share:
Historical earnings..................... $ 0.18 $ 0.15 $ 0.13 $ 0.12
Pro forma earnings on net proceeds...... 0.10 0.10 0.10 0.10
Pro forma ESOP adjustment(4)............ (0.02) (0.02) (0.02) (0.02)
Restricted stock plan(5)................ (0.02) (0.02) (0.02) (0.02)
Pro forma earnings per share(6)....... $ 0.24 $ 0.21 $ 0.19 $ 0.18
Ratio of offering price to pro forma net
annualized income per share............. 16.67 19.05 21.05 22.22
Number of shares used in calculating
pro forma earnings per share.......... 1,474,891 1,735,166 1,995,444 2,294,757
Estimated net proceeds.................... 11,627 13,678 15,730 18,090
Shareholders' equity:
Historical.............................. 15,276 15,276 15,276 15,276
Plus shares issued to foundation........ 411 483 556 639
Less contribution to foundation......... (411) (483) (556) (639)
Plus tax benefit of stock
contribution.......................... 210 246 283 326
Less: common stock acquired by
ESOP(4)........................ (986) (1,160) (1,334) (1,534)
common stock acquired by
restricted stock plan(5)....... (493) (580) (667) (767)
Pro forma shareholders' equity........ $ 25,633 $ 27,461 $ 29,289 $ 31,390
Shareholders' equity per share:
Historical.............................. $ 9.60 $ 8.16 $ 7.09 $ 6.17
Pro forma increase due to the sale
of common stock in the conversion..... 7.30 7.30 7.30 7.30
Plus shares issued to foundation........ 0.26 0.26 0.26 0.26
Less contribution to foundation......... (0.26) (0.26) (0.26) (0.26)
Plus tax benefit of stock contribution.. 0.13 0.13 0.13 0.13
Less: common stock acquired by ESOP(4). (0.62) (0.62) (0.62) (0.62)
common stock acquired by <PAGE 32>
restricted stock plan(5)....... (0.31) (0.31) (0.31) (0.31)
Pro forma shareholders' equity
per share........................... $ 16.10 $ 14.66 $ 13.59 $ 12.67
Offering price as a percentage of pro
forma shareholders' equity per share..... 49.69% 54.57% 58.87% 63.14%
Number of shares (including foundation
shares) used to calculate shareholders
equity per share........................ 1,591,979 1,872,916 2,153,854 2,476,932
_________________________
</TABLE>
_________________________
(1) Subject to member approval, JADE FINANCIAL intends to
contribute to the foundation within 12 months following
the completion of the conversion an amount equal to 5%
of the dollar value of shares sold in the offering,
two-thirds of which will be shares of JADE FINANCIAL's
common stock and one-third of which will be cash. See
"The Conversion -- Stock Contribution to the Charitable
Foundation." The contributed shares will be donated or
sold for nominal consideration, accordingly, they will
not add to the gross proceeds. Such shares are,
however, issued and outstanding and therefore add to
JADE FINANCIAL's market capitalization. The amount of
the common stock contributed to the foundation will be
accrued as an expense in the fiscal quarter in which
the conversion is completed. The pro forma earnings
data does not reflect such non-recurring accrual. Both
the historical and pro forma per share data assume that
the common stock contribution to the foundation is
made.
(2) Reflects a reduction to net proceeds for the cost of the
employee stock ownership plan and the restricted stock plan
(assuming shareholder ratification is received) which it is
assumed will be funded from the net proceeds retained by
JADE FINANCIAL.
(3) No effect has been given to withdrawals from savings
accounts for the purpose of purchasing common stock in the
conversion. For purposes of calculating pro forma net
income, proceeds attributable to purchases by the employee
stock ownership plan and restricted stock plan, that will be
funded by JADE FINANCIAL have been deducted from net
proceeds.
(4) It is assumed that 8% of the shares of common stock issued
in the conversion will be purchased by the employee
ownership plan. The funds used to acquire such shares will
be borrowed by the employee stock ownership plan from JADE
FINANCIAL. IGA intends to make contributions to the
employee stock ownership plan in amounts at least equal to
the principal and interest requirements necessary to pay the
debt. IGA's payment of the employee stock ownership plan
<PAGE 33> debt will offset the interest paid by IGA.
Accordingly, the only expense to JADE FINANCIAL on a
consolidated basis will be related to the allocations of
earned employee stock ownership plan shares which will be
based on the number of shares committed to be released to
participants for the year at the average market value of the
shares during the year tax-effected at 34%. The amount of
employee stock ownership plan debt is reflected as a
reduction of shareholders' equity. In the event that the
employee stock ownership plan were to receive a loan from an
independent third party, both employee stock ownership plan
expense and earnings on the proceeds retained by JADE
FINANCIAL would be expected to increase. For purposes of
calculating earnings per share, unallocated, employee stock
ownership plan shares are not considered to be outstanding.
In addition, the employee stock ownership plan shares
committed to be released at the end of the year are assumed
to be outstanding at the beginning of the year.
(5) Adjustments to both book value and net earnings have
been made to give effect to the proposed open market
purchase (based upon an assumed purchase price of $8.00
per share) following conversion by the restricted stock
plan (assuming shareholder ratification of such plan is
received) of an amount of shares equal to 4% of the
shares of common stock issued in the conversion for the
benefit of directors and officers. It is assumed that
the sale of the shares to the restricted stock plan
occurred at the beginning of the period. Funds used by
the restricted stock plan to purchase the shares will
be contributed to the restricted stock plan by JADE
FINANCIAL if the restricted stock plan is ratified by
shareholders following the conversion. Therefore, this
funding is assumed to reduce the proceeds available for
reinvestment. For financial accounting purposes, the
amount of the contribution will be recorded as a
compensation expense (although not an actual
expenditure of funds) over the period of vesting.
These grants are expected to vest in equal annual
installments over a period of years following
shareholder ratification of the restricted stock plan.
In the event the restricted stock plan is unable to
purchase a sufficient number of shares of common stock
to fund the restricted stock plan, JADE FINANCIAL may
issue authorized but unissued shares of common stock to
fund the remaining balance. In the event the
restricted stock plan is funded by the issuance of
authorized but unissued shares in an amount equal to 4%
of the shares sold in the conversion, the interests of
existing shareholders would be diluted up to
approximately 3.8%.
In the event that the restricted stock plan is funded
through authorized but unissued shares, for the three months
ended March 31, 1999, pro forma net income per share would
<PAGE 34> be $0.13, $0.11, $0.11 and $0.10, respectively,
and pro forma shareholders' equity per share would be
$15.69, $14.32, $13.31 and $12.43, respectively, in each
case at the minimum, midpoint, maximum and adjusted maximum
of the estimated valuation range. In the event that the
restricted stock plan is funded through authorized but
unissued shares, for the six months ended December 31, 1998,
pro forma net income per share would be $0.26, $0.23, $0.21
and $0.19, respectively, and pro forma shareholders' equity
per share would be $15.80, $14.41, $13.39 and $12.50,
respectively, in each case at the minimum, midpoint, maximum
and adjusted maximum of the estimated valuation range.
(6) No effect has been given to the shares to be reserved
for issuance under the proposed stock option plan which
is expected to be adopted by JADE FINANCIAL following
the conversion, subject to shareholder approval. In
the event the stock option plan is funded by the
issuance of authorized but unissued shares in an amount
equal to 10% of the shares sold in the conversion, at
$8.00 per share, the interests of existing shareholders
would be diluted as follows:
- pro forma net income per share for the three months
ended March 31, 1999 would be $0.11, $0.10, $0.09, and
$0.08, respectively, and pro forma shareholders' equity
per share would be $15.29, $13.99, $13.03 and $12.20,
respectively, in each case at the minimum, maximum and
adjusted maximum of the estimated valuation range.
- pro forma net income per share for the six months ended
December 31, 1999 would be $0.22, $0.20, $0.18 and
$0.16, respectively, and pro forma shareholders' equity
per share would be $15.39, $14.08, $13.11 and $12.26,
respectively, in each case at the minimum, maximum and
adjusted maximum of the estimated valuation range.
In the alternative, JADE FINANCIAL may purchase shares in
the open market to fund the stock option plan following
shareholder approval of such plan. To the extent the entire
10% of the shares to be reserved for issuance under the
stock option plan is funded through open market purchases at
the purchase price of $8.00 per share, proceeds available
for reinvestment would be reduced by $1.23 million,
$1.45 million, $1.67 million and $1.92 million at the
minimum, midpoint, maximum and adjusted maximum of the
estimated valuation range. See "Management -- Benefit
Plans -- Other Stock Benefit Plans."
<PAGE 35>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH NO FOUNDATION
In the event that the common stock contribution to the
foundation is not made, RP Financial has estimated that the
amount of common stock offered for sale in the conversion would
increase by approximately $750,000 and that the overall market
capitalization would increase by $267,000, all at the midpoint of
the estimated valuation range. Under such circumstances,
pro forma shareholders' equity at March 31, 1999 of JADE
FINANCIAL would be approximately $27.91 million, at the midpoint,
which is approximately $625,000 greater than the pro forma
shareholders' equity of JADE FINANCIAL would be if the common
stock contribution is made to the foundation. In preparing this
estimate, it has been assumed that the pro forma price to book
value ratio would be approximately the same under both the
current appraisal and the estimate of the value of JADE FINANCIAL
without the common stock contribution to the foundation at the
midpoint of the estimated valuation range. Further, assuming the
midpoint of the estimated valuation range, pro forma
shareholders' equity per share and pro forma earnings per share
would be substantially the same with the common stock
contribution as without such contribution. In this regard, pro
forma shareholders' equity and pro forma net income per share at
and for the period ended March 31, 1999 would be $14.64 and
$0.11, respectively, at the midpoint of the estimate, assuming no
common stock contribution. The pro forma price to book value
ratio and the pro forma price to earnings ratio at and for the
period ended March 31, 1999 are 54.64% and 18.18x, respectively,
at the midpoint of the estimate, assuming no common stock
contribution, and are 54.95% and 20.00x, respectively, with the
common stock contribution. This estimate by RP Financial is
solely for purposes of providing members with sufficient
information with which to make an informed decision on the common
stock contribution. There is no assurance that in the event the
common stock contribution is not approved at the special meeting
of members that the appraisal prepared at that time would
conclude that the pro forma market value of JADE FINANCIAL would
be the same as that estimated herein.
For comparative purposes only, set forth below are certain
pricing ratios and financial data and ratios, with and without a
foundation at the minimum, midpoint, maximum and adjusted maximum
of the estimated valuation range, assuming the conversion was
completed at March 31, 1999.
<TABLE>
<CAPTION>
At the Maximum
At the Minimum At the Midpoint At the Maximum As Adjusted
With Stock No Stock With Stock No Stock With Stock No Stock With Stock No Stock
Contribution Contribution Contribution Contribution Contribution Contribution Contribution Contribution
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering
amount.................... $ 12,325 $ 12,963 $ 14,500 $ 15,250 $ 16,675 $ 17,538 $ 19,176 $ 20,168
Pro forma market <PAGE 36>
capitalization............ 12,736 12,963 14,983 15,250 17,231 17,538 19,815 20,168
Total assets............... 187,827 188,358 189,655 190,280 191,483 192,201 193,584 194,411
Total liabilities.......... 162,374 162,374 162,374 162,374 162,374 162,374 162,374 162,374
Pro forma shareholders'
equity.................... 25,453 25,984 27,281 27,906 29,109 29,827 31,210 32,037
Pro forma consolidated
net earnings.............. 175 178 183 187 190 196 200 205
Pro forma shareholders'
equity per share.......... 15.98 16.04 14.56 14.64 13.51 13.61 12.59 12.71
Pro forma consolidated
net earnings per
share..................... 0.12 0.13 0.10 0.11 0.09 0.10 0.09 0.10
Pro forma pricing ratios:
Offering price as a
percentage of pro
forma shareholders'
equity per share......... 50.06% 49.88% 54.95% 54.64% 59.22% 58.78% 63.54% 62.94%
Offering price to pro
forma net earnings
per share................ 16.67 15.38 20.00 18.18 22.22 20.00 22.22 20.00
Offering price to assets.. 6.78% 6.88% 7.90% 8.01% 9.00% 9.12% 10.24% 10.37%
Pro forma financial ratios:
Return on assets.......... 0.37% 0.38% 0.39% 0.39% 0.40% 0.41% 0.41% 0.42%
Return on shareholders'
equity................... 2.75% 2.74% 2.68% 2.68% 2.61% 2.63% 2.56% 2.56%
Shareholders' equity
to assets................ 13.55% 13.80% 14.38% 14.67% 15.20% 15.52% 16.12% 16.48%
</TABLE>
<PAGE 37>
THE CONVERSION
The board of directors of IGA and the Office of Thrift
Supervision have approved the plan of conversion. The Office of
Thrift Supervision approval is subject to approval of the plan of
conversion by IGA's members, and subject to the satisfaction of
certain other conditions imposed by the Office of Thrift
Supervision. The Office of Thrift Supervision approval does not
constitute a recommendation or endorsement of the plan of
conversion.
General
On May 26, 1999, IGA adopted a plan of conversion, pursuant
to which IGA proposes converting from a federally chartered
mutual savings institution to a federally chartered stock savings
institution. IGA will be a wholly owned subsidiary of JADE
FINANCIAL immediately after the conversion. The conversion will
include adoption of the proposed federal stock charter and
bylaws, which will authorize IGA to issue capital stock. Under
the plan, IGA's common stock will be sold to JADE FINANCIAL and
JADE FINANCIAL's common stock is being offered to IGA's eligible
depositors and other members and then to the public. The
conversion will be accounted for at historical cost in a manner
similar to a pooling of interests. The Office of Thrift
Supervision has approved JADE FINANCIAL's application to become a
savings and loan holding company and to acquire all of IGA's
common stock to be issued in the conversion.
JADE FINANCIAL's common stock is first being offered in a
subscription offering to holders of subscription rights. To the
extent shares of common stock remain available after the
subscription offering, shares of JADE FINANCIAL's common stock
may be offered in a community offering and/or a syndicated
community offering on a best efforts basis through Charles Webb &
Company in a manner designed to promote a wide distribution of
the shares. The community offering and the syndicated community
offering, if any, may commence with, at any time during, or as
soon as practicable after the subscription offering. If there
are any unsold shares of common stock after the subscription
offering, community offering and syndicated community offering,
JADE FINANCIAL may offer the remaining shares in a public
offering conducted on a best efforts basis by Charles Webb &
Company. JADE FINANCIAL has the right, in its sole discretion,
to accept or reject, in whole or in part, any orders to purchase
shares of the common stock received in the community offering,
the syndicated community offering and the public offering. See
"- Offering of common stock."
Subscriptions for shares of common stock will be subject to
the maximum and minimum purchase limitations set forth in the
plan of conversion.
<PAGE 38>
The completion of the offering is subject to market
conditions and other factors beyond JADE FINANCIAL's control. No
assurance can be given as to the length of time JADE FINANCIAL
will need to complete the sale of common stock being offered in
the conversion following approval of the plan of conversion at
the meeting of IGA's members. If delays are experienced,
significant changes may occur in the estimated valuation range
with corresponding changes in the offering price and the net
proceeds to be realized by JADE FINANCIAL from the sale of the
shares. In the event the conversion is terminated, IGA will
charge all conversion expenses against current income and any
funds collected by IGA in the offering will be promptly returned,
with interest, to each subscriber.
Our Reasons for the Corporate Change
As a mutual institution, IGA has no authority to issue
shares of capital stock and consequently has no access to market
sources of equity capital. Only by generating and retaining
earnings from year to year is IGA able to increase its capital
position.
As a stock corporation upon completion of the conversion,
IGA will be organized in the form used by commercial banks, most
major corporations and a majority of savings institutions. The
ability to raise new equity capital through the issuance and sale
of IGA or JADE FINANCIAL's capital stock will allow IGA the
flexibility to increase its capital position more rapidly than by
accumulating earnings and at times deemed advantageous by the
board of directors of IGA. It will also support future growth
and expanded operations, including increased lending and
investment activities, as business and regulatory needs require.
The ability to attract new capital also will help IGA address the
needs of the communities it serves and enhance its ability to
make acquisitions or expand into new businesses. The acquisition
alternatives available to IGA are quite limited as a mutual
institution, because of a requirement in Office of Thrift
Supervision regulations that the surviving institution in a
merger involving a mutual institution generally must be in mutual
form. After the conversion, IGA will have increased ability to
merge with other stock institutions and we may acquire control of
other stock savings associations and retain the acquired
institution as our separate subsidiary. Finally, the ability to
issue capital stock will enable us to establish stock
compensation plans for directors, officers and employees, giving
them equity interests in JADE FINANCIAL and greater incentive to
improve IGA's performance. For a description of the stock
compensation plans which will be adopted by us in connection with
the conversion, see "Management -- Benefit Plans."
After considering the advantages and disadvantages of the
conversion, as well as applicable fiduciary duties and
alternative transactions, the board of directors of IGA
unanimously approved the conversion as being in the best
interests of IGA and equitable to its account holders. <PAGE 39>
Effects of the Conversion
General. The conversion will have no effect on IGA's
present business of accepting deposits and investing its funds in
loans and other investments permitted by law. The conversion
will not result in any change in the existing services provided
to depositors and borrowers, or in existing offices, management
and staff. IGA will continue to be subject to regulation,
supervision and examination by the Office of Thrift Supervision
and the FDIC.
Deposits and Loans. Each holder of a deposit account in IGA
at the time of the conversion will continue as an account holder
in IGA after the conversion, and the conversion will not affect
the deposit balance, interest rate or other terms of such
accounts. Each account will be insured by the FDIC to the same
extent as before the conversion. Depositors in IGA will continue
to hold their existing certificates, passbooks and other evidence
of their accounts. The conversion will not affect the loan terms
of any borrower from IGA. The amount, interest rate, maturity,
security for and obligations under each loan will remain as they
existed prior to the conversion.
Continuity. During the conversion and stock issuance
process, the normal business of IGA of accepting deposits and
making loans will continue without interruption. Following
completion of the conversion, IGA will continue to be subject to
regulation by the Office of Thrift Supervision, and FDIC
insurance of accounts will continue without interruption. After
the conversion, IGA will continue to provide services for
depositors and borrowers under current policies and by its
present management and staff.
The board of directors presently serving IGA will serve as
the board of directors of IGA after the conversion. The initial
members of the board of directors of JADE FINANCIAL will consist
of five individuals currently serving on the board of directors
of IGA. After the conversion, the voting shareholders of JADE
FINANCIAL will elect approximately one-third of JADE FINANCIAL's
directors annually, and the directors of IGA will be elected
annually by JADE FINANCIAL's board of directors. All current
officers of IGA will retain their positions with IGA. See
"Management -- Management of JADE FINANCIAL."
Voting Rights. Currently, depositors and certain borrowers
of IGA have voting rights to elect IGA's directors and control
IGA's affairs. After the conversion, JADE FINANCIAL will be the
sole shareholder of IGA and, therefore, possess exclusive voting
rights with respect to IGA. JADE FINANCIAL's shareholders will
be entitled to vote on any matters to be considered by JADE
FINANCIAL's shareholders. See "Description of Capital Stock of
JADE FINANCIAL."
Depositors' Rights if IGA Liquidates. There are currently
no plans to liquidate IGA or JADE FINANCIAL before or after
<PAGE 40> completion of the conversion. However, in the event
IGA liquidates before or after the conversion, deposit account
holders would be entitled to the benefits of FDIC insurance up to
applicable limits. In addition, liquidation rights before or
after conversion would be as follows:
- Liquidation Rights in IGA Before Conversion. In
the event IGA is liquidated before the conversion,
each deposit account holder would receive his or
her pro rata share of any assets of IGA remaining
after payment of claims of all creditors
(including the claims of all depositors in the
amount of the withdrawal value of their accounts).
Such holder's pro rata share of such remaining
assets, if any, would be in the same proportion of
such assets as the balance in his or her deposit
account was to the aggregate balance in all
deposit accounts at IGA at the time of
liquidation.
- Liquidation Rights in IGA After Conversion. In
the event IGA is liquidated after the conversion,
each deposit account holder would have a claim in
the amount of the balance in his or her deposit
account plus accrued interest. A deposit account
holder would have no interest in the assets of
IGA.
Under the plan of conversion, IGA is required to
establish a "liquidation account" upon completion
of the conversion for the benefit of eligible
account holders (i.e., eligible depositors at
March 31, 1998) and supplemental account holders
(i.e., eligible depositors at June 30, 1999). In
the event IGA is liquidated after the conversion,
each eligible account holder and supplemental
eligible account holder that maintains his or her
deposit account with IGA would be entitled a pro
rata distribution from the liquidation account.
However, if the amount in an eligible account
holder's or supplemental eligible account holder's
deposit account on December 31, 1998 and any
December 31 thereafter is less than the lesser of
(a) the deposit balance in such account on any
prior December 31, or (b) the deposit balance in
such account on the respective qualifying dates
(i.e., March 31, 1998 for eligible account holders
and June 30, 1999 for supplement eligible account
holders), then the interest in this special
liquidation account would be reduced at that time
by an amount proportionate to any such reduction,
and the interest would cease to exist if such
deposit account was closed. The interest in the
special liquidation account will never be
increased despite any increase in the related
<PAGE 41> deposit account after the respective
qualifying dates.
Any assets remaining after the above liquidation
rights of eligible account holders and
supplemental eligible account holders are
satisfied would be distributed to JADE FINANCIAL
as the sole shareholder of IGA.
Other than for payment of certain expenses incident to the
conversion, none of IGA's assets will be distributed in the
conversion. IGA is a member of the Federal Home Loan Bank of
Pittsburgh and IGA's deposit accounts will continue to be insured
by the FDIC. IGA's affairs will continue to be directed by IGA's
existing Board of Directors and management.
Tax Effects of the Conversion and JADE FINANCIAL's Stock
Offering. IGA has received an opinion from Stevens & Lee, P.C.,
Wayne, Pennsylvania, as to the material federal income tax
consequences of the conversion and the stock offering to IGA and
JADE FINANCIAL, and as to the generally applicable material
federal income tax consequences of the conversion and stock
offering to IGA account holders and to persons who purchase
common stock in the offering. Stevens & Lee's complete opinion
has been filed as an exhibit to the Registration Statement JADE
FINANCIAL filed with the SEC with respect to the common stock
offered hereby.
The opinion provides that, among other things, for federal
income tax purposes:
- IGA's adoption of a charter in stock form, known as the
conversion, will qualify as a tax-free reorganization
under Section 368(a)(1)(F) of the Internal Revenue Code
of 1986, as amended;
- No gain or loss will be recognized by IGA solely as a
result of its conversion from mutual to stock form;
- No gain or loss will be recognized by IGA's account
holders upon the issuance to them of accounts in IGA,
in stock form, immediately after the conversion, in the
same dollar amounts and on the same terms and
conditions as their accounts at IGA, in mutual form,
immediately prior to the conversion;
- The tax basis of each account holder's interest in the
liquidation account received in the conversion will be
equal to the value, if any, of that interest on the
date and at the time of the conversion;
- The tax basis of the common stock purchased in the
conversion will be equal to the amount paid therefor;
increased, in the case of common stock acquired
<PAGE 42> pursuant to the exercise of subscription
rights, by the fair market value, if any, of such
subscription rights;
- The holding period of the common stock purchased
pursuant to the exercise of subscription rights will
commence upon the exercise of such holder's
subscription rights and, in all other cases, the
holding period of purchased common stock will commence
on the day following the date of such purchase; and
- Gain or loss will be recognized by account holders upon
the receipt of an interest in the liquidation account
and the receipt of subscription rights in the
conversion, to the extent such holder's interest in the
liquidation account and subscription rights are deemed
to have value, as discussed below.
The opinion of Stevens & Lee is based in part upon, and
subject to the continuing validity in all material respects
through the date of the conversion of, various representations of
IGA as to certain factual matters, and upon certain assumptions
and qualifications, including the assumption that the conversion
is completed in the manner and according to the terms provided in
the plan of conversion. This opinion is also based upon the
Internal Revenue Code, regulations now in effect or proposed
thereunder, current administrative rulings and practice and
judicial authority, all of which are subject to change, which
change may be made with retroactive effect. Unlike private
letter rulings received from the IRS, an opinion of counsel is
not binding upon the IRS, and there can be no assurance that the
IRS will not take a position contrary to the positions reflected
in such opinion, or that such opinion will be upheld by the
courts if challenged by the IRS.
Stevens & Lee has advised IGA that an interest in a
liquidation account has been treated by the IRS, in a series of
private letter rulings which may not be used or cited as
precedent, as having nominal, if any, fair market value and,
therefore, it is likely that the interests in the liquidation
account established by IGA as part of the conversion will also be
treated as having nominal, if any, fair market value.
Accordingly, it is likely that depositors of IGA who receive an
interest in the liquidation account established by IGA pursuant
to the conversion will not recognize any gain or loss upon
receipt of such interest.
Stevens & Lee has also advised IGA that the federal income
tax treatment of the receipt, exercise and lapse of subscription
rights pursuant to the offering is uncertain, and that several
private letter rulings issued by the IRS that have addressed the
tax effects of the receipt, exercise and lapse of subscription
rights, in comparable transactions, have been in conflict. For
instance, the IRS adopted the position in one private ruling that
subscription rights will be deemed to have been received to the
<PAGE 43> extent of the sum of the minimum pro rata distribution
of such rights, plus the rights actually exercised in excess of
such pro rata distribution, and that gain must be recognized to
the extent of the combined fair market value of the pro rata
distribution of subscription rights plus the subscription rights
actually exercised. While the issues are not free from doubt,
persons who do not exercise their subscription rights under this
analysis would recognize gain upon receipt of rights equal to the
fair market value of such rights, regardless of exercise, and
these persons should recognize a corresponding loss upon the
expiration of unexercised rights that may be allowable to offset
the gain recognized on unexercised rights; although, the loss may
not be of the same character as the gain. Under another IRS
private letter ruling, subscription rights were deemed to have
been received only to the extent actually exercised. This
private letter ruling required that gain be recognized only if
the holder of such rights exercised such rights, and that no loss
would be recognized if such rights were allowed to expire
unexercised. There is no authority that clearly resolves this
conflict on the tax effects of the receipt, exercise and lapse of
subscriptions rights. However, based upon express provisions of
the Internal Revenue Code and in the absence of controlling
authority, Stevens & Lee has provided in its opinion that gain
should be recognized upon the receipt, rather than the exercise,
of subscription rights. This gain should be capital gain if the
unexercised subscription rights were a capital asset in the hands
of the account holder. While the issue is not free from doubt,
account holders should be allowed to recognize a loss upon the
lapse of unexercised subscription rights, which would be
deductible as a capital loss if the unexercised subscription
rights were a capital asset in the hands of the account holder.
Notwithstanding the foregoing and the uncertainty of the law
governing the tax effects of the receipt, exercise and lapse of
subscription rights, the actual tax consequences or tax effects
to account holders will depend upon the value of the subscription
rights, as discussed below.
IGA has also obtained an opinion from Stockton Bates &
Company, P.C., Philadelphia, Pennsylvania, that IGA will
recognize no gain or loss for purposes of the Pennsylvania mutual
thrift institutions tax solely as a result of the conversion;
although, certain accounting adjustments may be required as a
result of the conversion and offering transactions that may
result in certain adjustments which will create some items of
taxable income and expense.
IGA and JADE FINANCIAL have received a letter from RP
Financial, stating its belief that the subscription rights do not
have any value, based on the fact that these rights are acquired
by the recipients without cost, are nontransferable and of short
duration, and give the recipients the right only to purchase the
common stock at a price equal to its estimated fair market value,
which will be the same price as the purchase price for the
unsubscribed shares of common stock. Unlike private letter
rulings, the letter of RP Financial is not binding on the IRS,
<PAGE 44> and the IRS could disagree with conclusions reached in
the letter. In the event of any disagreement, there can be no
assurance that the IRS would not prevail in a judicial or
administrative proceeding. If the subscription rights are deemed
to have a fair market value, the receipt of such rights will be
taxable to eligible account holders, supplemental eligible
account holders, and other persons who receive subscription
rights, even though such persons would have received no cash from
which to pay taxes on such taxable income. IGA could also be
required to recognize gain on the distribution of such
subscription rights in an amount equal to their aggregate fair
market value if IGA is treated as distributing the subscription
rights to persons who participate in the offering. Eligible
account holders, supplemental eligible account holders and other
members are encouraged to consult with their own tax advisors as
to the tax consequences in the event that the subscription rights
are deemed to have a fair market value. Because the fair market
value, if any, of the subscription rights issued in the
conversion depends primarily upon the existence of certain facts
rather than the resolution of legal issues, Stevens & Lee has
neither adopted the opinion of RP financial as its own nor
incorporated the opinion of RP Financial in its tax opinion
issued in connection with the conversion.
The Federal income tax discussion set forth above does not
purport to consider all aspects of Federal income taxation which
may be relevant to each eligible account holder, supplemental
eligible account holder and other members entitled to special
treatment under the Internal Revenue Code, such as trusts,
individual retirement accounts, other employment benefit plans,
insurance companies, and eligible account holders, supplemental
eligible account holders and other members who are not citizens
or residents of the United States. Due to the individual nature
of tax consequences, each eligible account holder, supplemental
eligible account holder and other member is urged to consult his
or her own tax and financial advisor as to the effect of such
Federal income tax consequences on his or her own particular
facts and circumstances, including the receipt, exercise and
lapse of subscription rights, and also as to any state, local,
foreign or other tax consequences arising out of the conversion.
Charitable Foundation
General. Continuing IGA's commitment to the communities
that it serves, the plan of conversion provides that IGA and JADE
FINANCIAL will establish the foundation, which will be
incorporated under Pennsylvania law as a non-stock corporation.
JADE FINANCIAL will fund the foundation with cash and common
stock in an amount up to 5.0% of the total value of shares of
common stock sold in the conversion. IGA believes that the
foundation will improve the long-term value of IGA's community
banking franchise by increasing IGA's visibility and reputation
in the communities that it serves.
<PAGE 45>
Purpose of the Foundation. The purpose of the foundation is
to provide funding to support charitable purposes including,
community development grants, affordable housing activities,
nonprofit community groups and other charitable purposes within
the communities served by IGA. Traditionally, IGA has emphasized
community lending and community development activities within the
communities that it serves. The foundation is being formed as a
complement to IGA's existing community activities. IGA believes
that the foundation will enable IGA and JADE FINANCIAL to assist
their local communities in areas beyond community development and
lending.
The boards of directors of IGA and JADE FINANCIAL believe
the establishment of a charitable foundation is consistent with
IGA's commitment to community service. The boards of directors
also believe that the funding of the foundation with common stock
of JADE FINANCIAL is a means of enabling the communities served
by IGA to share in the growth and success of JADE FINANCIAL long
after the completion of the conversion. The establishment of the
foundation will also enable IGA and JADE FINANCIAL to develop a
unified charitable donation strategy. IGA, however, does not
expect the contribution to the foundation to take the place of
IGA's traditional community charitable activities. In this
respect, subsequent to the conversion, IGA may continue to make
contributions to other charitable organizations and/or it may
make additional contributions to the foundation.
Structure of the Foundation. The foundation will be
incorporated under Pennsylvania law as a non-stock corporation.
The authority for the affairs of the foundation is vested in its
board of directors. Under Office of Thrift Supervision
guidelines, for at least the initial five years of the
foundation's existence (i) at least one director of the
foundation must be a director of IGA and (ii) at least one
director of the foundation must be an independent director from
the local community, preferably with grant-making experience with
a local foundation. Pursuant to the foundation's bylaws, the
foundation's initial board of directors will be comprised of
three members of JADE FINANCIAL and IGA's boards of directors
(Messrs. John J. O'Connell, Mario L. Incollingo, Jr. and
Edward D. McBride) and two other individuals chosen in light of
their commitment and service to charitable and community
purposes. The other persons expected to serve as directors of
the foundation are and Pennsylvania State Representative John M.
Perzel and either Pennsylvania State Senator Vincent J. Fumo or
Mr. Anthony DiSandro.
There are no plans to change the size of the foundation's
board of directors during the one-year period after completion of
the conversion. Although all of the foundation's initial
directors were selected by us, future foundation directors may be
nominated and elected only by the foundation's directors. As a
result, the board of directors is self-perpetuating. The board
of directors may be expanded following the conversion to include
additional IGA directors and other community members as
<PAGE 46> directors, but it is currently anticipated that at
least a majority of the foundation's board of directors will
consist of persons who are the current or former directors of
IGA.
No determination has been made as to what, if any,
compensation the foundation directors will receive. The
certificate of incorporation of the foundation provides that the
corporation is organized exclusively for charitable purposes,
including community development, as set forth in
Section 501(c)(3) of the Internal Revenue Code. The foundation's
certificate of incorporation also provides that no part of the
net earnings of the foundation will inure to the benefit of, or
be distributable to its directors, officers or members. No
award, grant or distribution will be made by the foundation to
any director, officer or employee of JADE FINANCIAL or IGA or any
affiliate thereof. In addition, any of these persons, to the
extent that they serve as an officer, directors or employee of
the foundation will be subject to the conflict of interest
regulations of the Office of Thrift Supervision. In addition, it
is anticipated that the foundation will adopt a conflicts of
interest policy to protect against inappropriate insider
benefits.
The board of directors of the foundation will be responsible
for establishing the policies of the foundation with respect to
grants or donations by the foundation, consistent with the
purposes for which the foundation was established. Although no
formal policy governing foundation grants exists at this time,
the foundation's board of directors will adopt such a policy upon
establishment of the foundation. Directors of the foundation
will at all times be bound by their fiduciary duty to advance the
foundation's charitable goals, to protect the assets of the
foundation and to act in a manner consistent with the charitable
purposes for which the foundation is established. The directors
of the foundation will also be responsible for directing the
activities of the foundation, including the management of the
common stock of JADE FINANCIAL held by the foundation. However,
it is expected that as a condition to receiving the approval of
the Office of Thrift Supervision to IGA's conversion, the
foundation will be required to commit to the Office of Thrift
Supervision that all shares of common stock held by the
foundation will be voted in the same ratio as all other shares
of JADE FINANCIAL's common stock on all proposals considered by
shareholders of JADE FINANCIAL; provided, however, that,
consistent with this expected condition, the Office of Thrift
Supervision would waive this voting restriction under certain
circumstances if compliance with the voting restriction would:
- cause a violation of the law of the Commonwealth of
Pennsylvania and the Office of Thrift Supervision
determines that federal law would not preempt the
application of the laws of Pennsylvania to the
foundation;
<PAGE 47>
- cause the foundation to lose its tax-exempt status, or
cause the IRS to deny the foundation's request for a
determination that it is an exempt organization or
otherwise have a material and adverse tax consequence
on the foundation; or
- cause the foundation to be subject to an excise tax
under Section 4941 of the Internal Revenue Code.
In order for the Office of Thrift Supervision to waive such
voting restriction, JADE FINANCIAL's or the foundation's legal
counsel would be required to render an opinion satisfactory to
the Office of Thrift Supervision that compliance with the voting
requirement would have the effect described above. Under those
circumstances, the Office of Thrift Supervision would grant a
waiver of the voting restriction upon submission of such legal
opinion(s) by JADE FINANCIAL or the foundation that are
satisfactory to the Office of Thrift Supervision. In the event
that the Office of Thrift Supervision were to waive the voting
requirement, the trustees would direct the voting of the common
stock held by the foundation.
The foundation's place of business is expected to initially
be located at IGA's executive offices. The foundation will
utilize the employees of IGA and will pay IGA for the value of
these services. The board of directors of the foundation will
appoint any officers as may be necessary to manage the operations
of the foundation. In this regard, it is expected that IGA will
be required to provide the Office of Thrift Supervision with a
commitment that, to the extent applicable, IGA will comply with
the affiliate restrictions set forth in Sections 23A and 23B of
the Federal Reserve Act with respect to any transactions between
IGA and the foundation.
JADE FINANCIAL intends to capitalize the foundation with
an amount of cash and common stock equal to 5% of the value of
shares of common stock sold in the conversion, 33.33% in cash and
66.67% in common stock, which would have a total market value of
$616,250 to $833,750 ($958,813 at the maximum, as adjusted),
based on the purchase price of $8.00 pre share. The initial
directors of the foundation and their affiliates intend to
purchase subject to availability, an aggregate of _______ shares
of common stock. The shares of common stock to be acquired by
the foundation, when combined with the proposed purchases of
shares of common stock by the foundation directors and their
affiliates will total ________ shares or ____% of the total
number of shares of common stock to be issued and outstanding
(assuming the issuance of _____ million shares of common stock)
after completion of the conversion.
The foundation will receive working capital from any
dividends that may be paid on the common stock in the future, and
subject to applicable federal and state laws, loans
collateralized by the common stock or from the proceeds of the
sale of any of the common stock in the open market from time to
<PAGE 48> time as may be permitted to provide the foundation with
additional liquidity. As a private foundation under
Section 501(c)(3) of the Internal Revenue Code, the foundation
will be required to distribute annually in grants or donations, a
minimum of 5% of the average fair market value of its net
investment assets. Failure to distribute this minimum return
will require substantial federal taxes to be paid. Upon
completion of the conversion and the contribution of shares of
common stock to the foundation, JADE FINANCIAL would have
1,591,982 shares, 1,872,920 shares, 2,153,858 shares and
2,476,936 shares issued and outstanding based on the minimum,
midpoint, maximum and maximum, as adjusted, of the estimated
offering range.
Tax Considerations. IGA believes that an organization
created for the above purposes will qualify as an organization
exempt from taxation under Section 501(c)(3) of the Internal
Revenue Code, and will likely be classified as a private
foundation. A private foundation typically receives its support
from one person or one corporation whereas a public charity
receives its support from the public. The foundation will submit
an application to the IRS to be recognized as an exempt
organization. If the foundation files such an application within
15 months from the date of its organization, and if the IRS
approves the application, the effective date of the foundation's
status as a Section 501(c)(3) organization will be retroactive to
the date of its organization. Stevens & Lee, however, has not
rendered any advice on the condition to the contribution to be
agreed to by the foundation which requires that all shares of
common stock held by the foundation must be voted in the same
ratio as all other outstanding shares of common stock on all
proposals considered by shareholders of JADE FINANCIAL.
Consistent with this condition, in the event that JADE FINANCIAL
or the foundation receives an opinion of its legal counsel that
compliance with this voting restriction would have the effect of
causing the foundation to lose its tax-exempt status or otherwise
have a material and adverse tax consequence on the foundation, or
subject the foundation to an excise tax for "self-dealing" under
Section 4941 of the Internal Revenue Code, the Office of Thrift
Supervision will waive such voting restriction upon submission by
JADE FINANCIAL or the foundation of a legal opinion to that
effect satisfactory to the Office of Thrift Supervision. See "--
Regulatory Conditions Imposed on the Foundation."
A legal opinion of the Office of Thrift Supervision which
addresses the establishment of charitable foundations by savings
associations opines that as a general rule funds contributed to a
charitable foundation should not exceed the deductible limitation
set forth in the Internal Revenue Code, and if an association's
contributions exceed the deductible limit, such action must be
justified by the board of directors. In addition, under
Pennsylvania law, JADE FINANCIAL is authorized by statute to make
charitable contributions and case law has recognized the benefits
of such contributions to a Pennsylvania corporation. In this
regard, Pennsylvania case law provides that a charitable gift
<PAGE 49> must merely be within reasonable limits as to amount
and purpose to be valid. Under the Internal Revenue Code, JADE
FINANCIAL may deduct up to 10% of its taxable income in any one
year and any contributions made by JADE FINANCIAL in excess of
the deductible amount will be deductible for federal tax purposes
over each of the five succeeding taxable years. We believe that
the conversion presents a unique opportunity to make the stock
contribution given the substantial amount of additional capital
being raised in the conversion. In making such a determination,
we considered the dilutive impact of the stock contribution on
the conversion appraisal. See "Comparison of Valuation and Pro
Forma Information with No Stock Contribution." Based on such
considerations, we believe that the stock contribution to the
foundation in excess of the 10% annual limitation is justified
given our capital position and earnings, the substantial
additional capital being raised in the conversion and the
potential benefits of the foundation to our community. In this
regard, assuming the sale of the common stock at the midpoint of
the estimated valuation range, at March 31, 1999, JADE FINANCIAL
would have pro forma shareholders' equity of $27.28 million and
our pro forma tangible, core and risk-based capital ratios would
be 11.36%, 11.36% and 21.75%, respectively. See "Regulatory
Capital Compliance," "Capitalization," and "Comparison of
Valuation and Pro Forma Information with No Stock Contribution."
Thus, the amount of the stock contribution will not adversely
impact our financial condition, and we therefore believe that the
amount of the charitable contribution is reasonable given the and
our pro forma capital positions. As such, we believe that the
stock contribution does not raise safety and soundness
concerns.
We have received an opinion of Stevens & Lee that JADE
FINANCIAL's contribution of its own stock to the foundation will
be deductible subject to a limitation based on 10% of JADE
FINANCIAL's annual taxable income. JADE FINANCIAL, however,
would be able to carry forward any unused portion of the
deduction for five years following the year in which the
contribution is made for federal and Pennsylvania tax purposes.
JADE FINANCIAL currently estimates that substantially all of
the stock contribution should be deductible. However, no
assurances can be made that JADE FINANCIAL will have sufficient
pre-tax income over the periods following the year in which the
contributions are made to utilize fully the carryover related to
the excess contribution.
In cases of willful, flagrant or repeated acts or
failures to act which result in violations of the IRS rules
governing private foundations, a private foundation's status as a
private foundation may be involuntarily terminated by the IRS.
In such event, the managers of a private foundation could be
liable for excise taxes based on such violations and the private
foundation could be liable for a termination tax under the
Internal Revenue Code. The foundation's articles of
incorporation provide that it shall have a perpetual existence.
<PAGE 50> In the event, however, the foundation were subsequently
dissolved as a result of a loss of its tax exempt status, the
foundation would be required under the Internal Revenue Code and
its articles of incorporation to distribute any assets remaining
in the foundation at that time for one or more exempt purposes
within the meaning of Section 501(c)(3) of the Internal Revenue
Code, or to distribute such assets to the federal government, or
to a state or local government, for a public purpose.
In general, the income of a private foundation is exempt
from federal and state taxation. However, investment income,
such as interest, dividends and capital gains, will be subject to
a federal excise tax of 2.0%. The foundation will be required to
make an annual filing with the IRS within four and one-half
months after the close of the foundation's taxable year to
maintain its tax-exempt status. The foundation will also be
required to publish a notice that the annual information return
will be available for public inspection for a period of 180 days
after the date of such public notice. The information return for
a private foundation must include, among other things, an
itemized list of all grants made or approved, showing the amount
of each grant, the recipient, any relationship between a grant
recipient and the foundation's managers, and a concise statement
of the purpose of each grant.
Regulatory Conditions Imposed on the Foundation.
Establishment of the foundation is expected to be subject to the
following conditions being agreed to by the foundation in writing
as a condition to receiving the Office of Thrift Supervision's
approval for the conversion:
1. the foundation will be subject to examination by the
Office of Thrift Supervision;
2. the foundation must comply with supervisory directives
imposed by the Office of Thrift Supervision;
3. the foundation will operate in accordance with written
policies adopted by its board of directors, including a
conflict of interest policy;
4. any shares of common stock held by the foundation must
be voted in the same ratio as all other shares of
common stock voting on all proposals considered by
shareholders of JADE FINANCIAL; provided, however, that
consistent with the condition, the Office of Thrift
Supervision would waive this voting restriction under
certain circumstances of compliance with the voting
restriction would:
- cause a violation of the law of the Commonwealth
of Pennsylvania and the Office of Thrift
Supervision determines that federal law would not
preempt the application of the laws of
Pennsylvania to the foundation; <PAGE 51>
- cause the foundation to lose its tax-exempt status
or otherwise have a material and adverse tax
consequence on the foundation; or
- cause the foundation to be subject to an excise
tax under Section 4941 of the Internal Revenue
Code; and
5. any shares of common stock subsequently purchased by
the foundation will be aggregated with any shares
repurchased by JADE FINANCIAL or IGA for purposes of
calculating the number of shares which may be
repurchased during the three-year period subsequent to
conversion.
6. under Office of Thrift Supervision guidelines, for at
least the initial five years of the foundation's
existence (i) at least one director of the foundation
must be a director of IGA and (ii) at least one
director of the foundation must be an independent
director from the local community, preferably with
grant-making experience with a local foundation.
In order for the Office of Thrift Supervision to waive the voting
restriction, JADE FINANCIAL's or the foundation's legal counsel
would be required to give an opinion satisfactory to the Office
of Thrift Supervision. While there is no current intention for
JADE FINANCIAL or the foundation to seek a waiver from the Office
of Thrift Supervision from these restrictions, there can be no
assurances that a legal opinion addressing these issues could be
given, or if given, that the Office of Thrift Supervision would
grant an unconditional waiver of the voting restriction. If the
voting restriction is waived or becomes unenforceable, the Office
of Thrift Supervision may either impose a condition that provides
a certain portion of the members of the foundation's board of
directors shall be persons who are not directors, officers or
employees of JADE FINANCIAL, IGA or any affiliate or impose other
conditions relating to control of the foundation's common stock
as are determined by the Office of Thrift Supervision to be
appropriate at the time. In no event would the voting
restriction survive the sale of shares of the common stock held
by the foundation.
Various Office of Thrift Supervision regulations may be
deemed to apply to the foundation including regulations
regarding:
- transactions with affiliates;
- conflicts of interest;
- capital distributions; and
- repurchases of capital stock within the three-year
period subsequent to the stock issuance.
<PAGE 52>
JADE FINANCIAL and IGA anticipate that the foundation's affairs
will be conducted in a manner consistent with the Office of
Thrift Supervision's conflict of interest regulations. IGA has
provided information to the Office of Thrift Supervision
demonstrating that the initial contribution of common stock to
the foundation would be within the amount which IGA would be
permitted to make as a capital distribution assuming such
contribution is deemed to have been made by IGA.
How We Determined Our Price and the Number of Shares to be Issued
in the Stock Offering
The plan of conversion and federal regulations require that
the purchase price of the common stock must be based on the
appraised pro forma market value of IGA and JADE FINANCIAL, as
determined on the basis of an independent valuation. IGA has
retained RP Financial to make this valuation. For its services
in making this appraisal, RP Financial's fees and out-of-pocket
expenses are estimated to be $_______. IGA has agreed to
indemnify RP Financial and any employees of IGA who act for or on
behalf of RP Financial in connection with the appraisal against
any and all loss, cost, damage, claim, liability or expense of
any kind, including claims under federal and state securities
laws, arising out of any misstatement or untrue statement of a
material fact or an omission to state a material fact in the
information supplied by IGA to RP financial, unless RP Financial
is determined to be negligent or otherwise at fault.
An appraisal has been made by RP Financial in reliance upon
the information contained in this prospectus, including IGA's
financial statements. RP Financial also considered the following
factors, among others:
- the present and projected operating results and
financial condition of IGA and JADE FINANCIAL and
the economic and demographic conditions in IGA's
existing marketing areas;
- certain historical, financial and another
information relating to IGA; a comparative
evaluation of the operating and financial
statistics of IGA with those of other similarly
situated publicly traded savings and loan holding
companies;
- the aggregate size of the offering of the common
stock;
- the impact of the conversion on IGA's net worth
and earnings potential;
- the proposed dividend policy of IGA and JADE
FINANCIAL; and
<PAGE 53>
- the trading market for securities of comparable
institutions and general conditions in the market
for such securities.
In its review of the appraisal provided by RP Financial, IGA's
board of directors reviewed the methodologies and the
appropriateness of the assumptions used by RP Financial in
addition to the factors listed above, and the board of directors
believes that these assumptions were reasonable.
On the basis of the foregoing, RP Financial has advised
IGA and JADE FINANCIAL that in RP Financial's opinion, dated
July 23, 1999, the estimated pro forma market value of the common
stock on a fully converted basis, assuming a contribution to a
charitable foundation in an amount equal to 5.0% of the shares
sold, ranged from a minimum of $12.33 million to a maximum of
$16.68 million with a midpoint of $14.50 million. The boards of
directors of IGA and JADE FINANCIAL determined that the common
stock should be sold at $8.00 per share. Based on the estimated
valuation range and the purchase price, the number of shares of
common stock that we will issue, not including shares to be
issued to the foundation, will range from between 1,540,625
shares to 2,084,375 shares, with a midpoint of 1,812,500 shares.
The estimated valuation range may be amended with the approval of
the Office of Thrift Supervision, if required, or if necessitated
by subsequent developments in the financial condition of IGA and
JADE FINANCIAL or market conditions generally, or to fill the
order of our tax-qualified employee plans. In the event the
estimated valuation range is updated to amend the value of the
common stock below the current minimum estimated valuation range
of $12.33 million or above the current maximum of the estimated
valuation range of $16.68 million, the new appraisal will be
filed with the Office of Thrift Supervision and the SEC.
Based upon current market and financial conditions and
recent practices and policies of the Office of Thrift
Supervision, in the event we receive orders for common stock in
excess of $16.68 million (the maximum of the estimated valuation
range) and up to $19.18 million (the maximum of the estimated
valuation range, as adjusted by 15%), we may be required by the
Office of Thrift Supervision to accept all such orders. No
assurances, however, can be made that we will receive orders for
common stock in excess of the maximum of the estimated valuation
range or that, if such orders are received, that all such orders
will be accepted because our final valuation and number of shares
to be issued are subject to the receipt of an updated appraisal
from RP Financial which reflects such an increase in the
valuation and the approval of such increase by the Office of
Thrift Supervision. In addition, an increase in the number of
shares above 2,084,375 shares will first be used, if necessary,
to fill the order of our employee stock ownership plan. There is
no obligation or understanding on the part of management to take
and/or pay for any shares in order to complete the
conversion.
<PAGE 54>
RP Financial's valuation is not intended, and must not be
construed, as a recommendation of any kind as to the advisability
of purchasing these shares. RP Financial did not independently
verify the consolidated financial statements and other
information provided by IGA, nor did RP Financial value
independently the assets or liabilities of IGA. The valuation
considers IGA as a going concern and should not be considered as
an indication of the liquidation value of IGA. Moreover, because
this valuation is necessarily based upon estimates and
projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons
purchasing common stock in the offering will thereafter be able
to sell such shares at prices at or above the purchase price or
in the range of the valuation described above.
Prior to the completion of the conversion the maximum of
the estimated valuation range may be increased up to 15% and the
number of shares of common stock may be increased to 2,397,031
shares to reflect changes in market and financial conditions or
to fill the order of our tax-qualified employee plans, without
the resolicitation of subscribers. See "-- Limitations on Stock
Purchases" as to the method of distribution and allocation of
additional shares that may be issued in the event of an increase
in the estimated valuation range to fill unfilled orders in the
subscription offering.
No sale of shares of common stock in the conversion may be
consummated unless prior to such completion RP Financial confirms
that nothing of a material nature has occurred which, taking into
account all relevant factors, would cause it to conclude that the
aggregate value of the common stock to be issued is materially
incompatible with the estimate of the aggregate consolidated pro
forma market value of IGA and JADE FINANCIAL. If this
confirmation is not received, we may cancel the offering, extend
the offering and establish a new estimated valuation range and/or
estimated price range, extend, reopen or hold a new offering or
take any other action the Office of Thrift Supervision may
permit.
Depending upon market or financial conditions following the
start of the subscription offering, the total number of shares of
common stock may be increased or decreased without a
resolicitation of subscribers, provided that the product of the
total number of shares times the purchase price is not below the
minimum or more than 15% above the maximum of the estimated
valuation range. In the event market or financial conditions
change so as to cause the aggregate purchase price of the shares
to be below the minimum of the estimated valuation range or more
than 15% above the maximum of such range, purchasers will be
resolicited and be permitted to continue their orders, in which
case they will need to reconfirm their subscriptions prior to the
expiration of the resolicitation valuation or their subscription
funds will be promptly refunded with interest at IGA's passbook
rate of interest, or be permitted to modify or rescind their
subscriptions. Any change in the estimated valuation range must
<PAGE 55> be approved by the Office of Thrift Supervision. If
the number of shares of common stock issued in the conversion is
increased due to an increase of up to 15% in the estimated
valuation range to reflect changes in market or financial
conditions or to fill the order of our tax-qualified employee
plans, persons who subscribed for the maximum number of shares
will be given the opportunity to subscribe for the adjusted
maximum number of shares. See "-- Limitations on Stock
Purchases."
An increase in the number of shares of common stock as a
result of an increase in the estimated pro forma market value
would decrease both a subscriber's ownership interest and our pro
forma net income and shareholders' equity on a per share basis
while increasing pro forma net income and shareholders' equity on
an aggregate basis. A decrease in the number of shares of common
stock would increase both a subscriber's ownership interest and
our pro forma net income and shareholders' equity on a per share
basis while decreasing pro forma net income and shareholders'
equity on an aggregate basis. See "Risk Factors - Our Board of
Directors, Management and Employee Plans May Have Voting Control
of JADE FINANCIAL" and "Pro Forma Data."
Copies of the appraisal report of RP Financial, including
any amendments, and the detailed report of the appraiser setting
forth the method and assumptions for the appraisal are available
for inspection at the main office of IGA and the other locations
specified under "Additional Information."
Subscription Offering and Subscription Rights
Under the plan of conversion, rights to subscribe for the
purchase of common stock have been granted to the following
persons in the following order of descending priority:
- depositors of IGA as of the close of business on
March 31, 1998 ("Eligible Account Holders"),
- Tax-qualified employee plans ("Tax-Qualified
Employee Plans"),
- depositors of IGA as of the close of business on
June 30, 1999 ("Supplemental Eligible Account
Holders"), and
- members of IGA as of the close of business on
July 31, 1999 other than Eligible Account Holders
or Supplemental Eligible Account Holders ("Other
Members").
All subscriptions received will be subject to the availability of
common stock after satisfaction of all subscriptions of all
persons having prior rights in the subscription offering and to
the maximum and minimum purchase limitations set forth in the
<PAGE 56> plan of conversion and as described below under "--
Limitations on Stock Purchases."
Preference Category No. 1: Eligible Account Holders. Each
Eligible Account Holder shall receive, without payment, first
priority, nontransferable subscription rights to subscribe for
shares of common stock in an amount equal to the greater of:
(1) $300,000 of common stock;
(2) one-tenth of one percent of the total offering of
shares of common stock in the subscription offering; or
(3) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of
shares of common stock offered in the subscription
offering by a fraction, of which the numerator is the
amount of the qualifying deposits of the Eligible
Account Holder and the denominator is the total amount
of qualifying deposits of all Eligible Account Holders
in IGA in each case as of the close of business on
March 31, 1998 (the "Eligibility Record Date"), subject
to the overall purchase limitations.
See "-- Limitations on Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated among subscribing
Eligible Account Holders so as to permit each such Eligible
Account Holder, to the extent possible, to purchase a number of
shares sufficient to make his total allocation equal to the
lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining after each subscribing Eligible
Account Holder has been allocated the lesser of the number of
shares subscribed for or 100 shares will be allocated among the
subscribing Eligible Account Holders pro rata whose subscriptions
remain unfilled in the proportion that the amounts of their
respective qualifying deposits of all subscribing Eligible
Account Holders whose subscriptions remained unfulfilled.
Subscription Rights of Eligible Account Holders will be
subordinated to the priority rights of IGA and JADE FINANCIAL's
employee stock ownership plan to purchase shares in excess of the
maximum of the estimated valuation range.
To ensure proper allocation of stock, each Eligible Account
Holder must list on his subscription order form all accounts in
which he has an ownership interest. Failure to list an account
could result in fewer shares being allocated than if all accounts
had been disclosed. The subscription rights of Eligible Account
Holders who are also directors of officers of IGA and their
associates will be subordinated to the subscription rights of
other Eligible Account Holders to the extent attributable to
increased deposits in the year preceding March 31, 1998.
<PAGE 57>
Preference Category No. 2: Tax-Qualified Employee Plans.
Each Tax-Qualified Employee Plan, including the employee stock
ownership plan, shall be entitled to receive, without payment
therefor, second priority, nontransferable subscription rights to
purchase up to 10% of the common stock, provided that
individually or in the aggregate such plans (other than that
portion of such plans which is self-directed) shall not purchase
more than 10% of the shares of common stock, including any
increase in the number of shares of common stock after the date
hereof as a result of an increase in the maximum of the estimated
valuation range of the total number of shares of common stock to
be issued in the conversion. The employee stock ownership plan
intends to purchase 8.0% of the shares of common stock sold in
the offering, or 123,250 shares and 166,750 shares based on the
minimum and maximum of the estimated valuation range
respectively. Shares of common stock purchased by any individual
participant in a Tax Qualified Employee Plan using funds therein
pursuant to the exercise of subscription rights granted to such
participant in his individual capacity as an Eligible Account
Holder and/or Supplemental Eligible Account Holder and/or
purchases by such participant in the community offering shall not
be deemed to be purchases by a Tax-Qualified Employee Plan for
purposes of calculating the maximum amount of common stock that
Tax-Qualified Employee Plans may purchase if the individual
participant controls or directs the investment authority.
Subscription rights received pursuant to this Category shall be
subordinated to all rights received by Eligible Account Holders
to purchase shares pursuant to Category No. 1; provided, however,
that notwithstanding any other provision of the plan of
conversion to the contrary, the Tax-Qualified Employee Plans
shall have a first priority subscription right to the extent that
the total number of shares of common stock sold in the offering
exceeds the maximum of the estimated valuation range as set forth
in this prospectus. In the event that the total number of shares
offered in the offering is increased to an amount greater than
the number of shares representing the maximum of the estimated
valuation range, the employee stock ownership plan will have a
priority right to purchase any such shares exceeding the maximum
of the estimated valuation range up to an aggregate of 8% of the
common stock sold in the offering. See "Limitations on Stock
Purchases" and "Management - Benefit Plans -- Employee Stock
Ownership Plan."
Preference Category No. 3: Supplemental Eligible Account
Holders. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by Eligible Account
Holders and the Tax-Qualified Employee Plans, each Supplemental
Eligible Account Holder shall be entitled to receive, without
payment therefor, third priority, nontransferable subscription
rights to subscribe for shares of common stock in an amount equal
to the greater of:
(1) $300,000 shares of common stock (or such maximum
purchase limitation as may be established for the
<PAGE 58> community offering and/or syndicated
community offering or public offering);
(2) one-tenth of one percent of the total offering of
shares of common stock in the subscription
offering; or
(3) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total
number of shares of common stock offered in the
subscription offering by a fraction, of which the
numerator is the amount of the qualifying deposits
of the Supplemental Eligible Account Holder and
the denominator of which is the total amount of
qualifying deposits of all Supplemental Eligible
Account Holders in IGA in each case on the close
of business on June 30, 1999 (the "Supplemental
Eligibility Record Date"), subject to the overall
purchase limitations.
See "-- Limitations on Stock Purchases.
If there are not sufficient shares available to satisfy all
subscriptions of all Supplemental Eligible Account Holders,
available shares first will be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each such
Supplemental Eligible Account Holder, to the extent possible, to
purchase a number of shares sufficient to make his total
allocation (including the number of shares, if any, allocated in
accordance with Category No. 1) equal to the lesser of the number
of shares subscribed for or 100 shares. Thereafter, any shares
remaining available will be allocated among the Supplemental
Eligible Account Holders pro rata whose subscriptions remain
unfilled in the proportion that the amounts of their respective
qualifying deposits bear to the total amount of qualifying
deposits of all subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled.
Preference Category No. 4: Other Members. To the extent
that there are sufficient shares remaining after satisfaction of
subscriptions by Eligible Account Holders, the Tax-Qualified
Employee Plans and Supplemental Eligible Account Holders, each
Other Member shall receive, without payment therefor, fourth
priority, nontransferable subscription rights to subscribe for
shares of common stock, up to the greater of $300,000 of common
stock (or such maximum purchase limitation as may be established
for the community offering and/or syndicated community offering
or public offering) or one-tenth of one percent of the total
offering of shares of common stock in the subscription offering,
subject to the overall purchase limitations. See "-- Limitations
on Stock Purchases."
In the event the Other Members subscribe for a number of
shares which, when added to the shares subscribed for by Eligible
Account Holders, the Tax-Qualified Employee Plans and <PAGE 59>
Supplemental Eligible Account Holders, is in excess of the total
number of shares of common stock offered in the offering, shares
shall be allocated so as to permit each such Other Member, to the
extent possible, to purchase a number of shares which will make
his or her total allocation equal to the lesser of the number of
shares subscribed for or 100 shares. Any shares remaining will
be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied on an equal number of shares
basis per order until all orders have been filled or the
remaining shares have been allocated.
Expiration Date for the Subscription Offering. The
subscription offering will expire at noon, Philadelphia,
Pennsylvania time, on _______, 1999 (the "Subscription Expiration
Date"), unless extended for up to 45 days or for such additional
periods by JADE FINANCIAL and IGA as may be approved by the
Office of Thrift Supervision. The subscription offering may not
be extended beyond _________, 2001. Subscription rights which
have not been exercised prior to the Subscription Expiration Date
(unless extended) will become void.
JADE FINANCIAL and IGA will not execute orders for the
purchase of common stock until at least the minimum number of
shares of common stock, 1,540,625 shares, have been subscribed
for or otherwise sold. If all shares have not been subscribed
for or sold within 45 days after the Subscription Expiration
Date, unless this period is extended with the consent of the
Office of Thrift Supervision, all funds delivered to IGA pursuant
to this subscription offering will be returned promptly to the
subscribers with interest at IGA's passbook rate and all
withdrawal authorizations will be canceled. If an extension
beyond the 45-day period following the Subscription Expiration
Date is granted, JADE FINANCIAL and IGA will notify subscribers
of the extension of time and of any rights of subscribers to
modify or rescind their subscriptions.
Community Offering
To the extent that shares remain available for purchase
after satisfaction of all subscriptions of Eligible Account
Holders, the Tax-Qualified Employee Plans, Supplemental Eligible
Account Holders and Other Members, JADE FINANCIAL and IGA
anticipate that they will offer shares pursuant to the plan of
conversion in a community offering to certain members of the
general public, with preference given to natural persons residing
in counties in Pennsylvania in which IGA has a branch office.
These natural persons are referred to as Preferred Offerees.
No persons, together with an associate or group of persons
acting in concert with such persons, may subscribe for or
purchase in the community offering more than the greater of
(i) $300,000 of common stock or (ii) one-tenth of 1% of the total
offering of shares in the subscription offering, provided,
however, that this amount may be increased to 5% of the total
offering of shares in the subscription offering, subject to any
<PAGE 60> required regulatory approval but without the further
approval of IGA's members.
The opportunity to subscribe for shares of common stock in
the community offering will be subject to the right of JADE
FINANCIAL and IGA in their sole discretion, to accept or reject
any such orders in whole or in part from any person either at the
time of receipt of an order or as soon as practicable following
completion of the community offering. The community offering, if
any, will commence concurrently with, during or promptly after
the subscription offering, and must be completed within 45 days
after the completion of the subscription offering, unless
extended by JADE FINANCIAL and IGA with any required regulatory
approval.
Available shares first will be allocated among Preferred
Offerees whose orders are accepted, so as to permit each such
Preferred Subscriber, to the extent possible, to purchase a
number of shares sufficient to make his total allocation equal to
the lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining will be allocated among the
Preferred Offerees whose subscriptions remain unsatisfied on an
equal number of shares basis per order until all orders have been
filled or the remaining shares have been allocated. If there are
any shares remaining after all subscriptions by Preferred
Offerees have been satisfied, such remaining shares shall be
allocated to other members of the general public who purchase in
the community offering applying the same allocation described
above for Preferred Offerees.
Syndicated Community Offering
To the extent that shares remain available for purchase
after satisfaction of all subscriptions in the subscription
offering and the community offering, JADE FINANCIAL and IGA
anticipate that they will offer shares pursuant to the plan of
conversion to members of the general public in a syndicated
community offering (i.e., an offering by JADE FINANCIAL and IGA
conducted through a syndicate of broker/dealers).
No persons, together with an associate or group of
persons acting in concert with such persons, may subscribe for or
purchase in the syndicated community offering more than $300,000
of common stock; provided, however, that this amount may be
increased to 5% of the total offering of shares in the
subscription offering, subject to any required regulatory
approval but without the further approval of IGA's members;
provided further that orders for common stock in the syndicated
community offering shall first be filled to a maximum of 2% of
the total number of shares of common stock sold in the conversion
and thereafter any remaining shares shall be allocated on an
equal number of shares basis per order until all orders have been
filled.
<PAGE 61>
The opportunity to subscribe for shares of common stock in
the syndicated community offering will be subject to the right of
JADE FINANCIAL and IGA, in their sole discretion, to accept or
reject any such orders in whole or in part from any person either
at the time of receipt of an order or as soon as practicable
following completion of the syndicated community offering. The
syndicated community offering, if any, will commence concurrently
with, during or promptly after the subscription and/or community
offering, and must be completed within 45 days after the
completion of the subscription offering, unless extended by JADE
FINANCIAL and IGA with any required regulatory approval.
Public Offering
As a final step in the offerings, the plan of conversion
provides that, if feasible, all shares of common stock not
purchased in the subscription and community offerings may be
offered for sale to the general public in a public offering
through Charles Webb & Company. We call this the public
offering. It is expected that the public offering will commence
as soon as practicable after termination of the subscription
offering and the community offerings, if any. JADE FINANCIAL and
IGA, in their sole discretion, have the right to reject orders in
whole or in part received in the public offering. Neither
Charles Webb & Company nor any registered broker-dealer shall
have any obligation to take or purchase any shares of common
stock in the public offering; however, Charles Webb & company has
agreed to use its best efforts in the sale of shares in the
public offering.
The price at which common stock is sold in the public
offering will be the same price at which shares are offered and
sold in the subscription and community offerings.
Charles Webb & Company may enter into agreements with
broker-dealers to assist in the sale of the shares in the public
offering, although no such agreements exist as of the date of
this prospectus. No orders may be placed or filled by or for a
selected dealer during the subscription offering. After the
close of the subscription offering, Charles Webb & Company will
instruct selected dealers as to the number of shares to be
allocated to each selected dealer. Only after the close of the
subscription offering and upon allocation of shares to selected
dealers may selected dealers take orders from their customers.
During the subscription offering, community offering, and
syndicated community offering, selected dealers may only solicit
indications of interest from their customers to place orders with
JADE FINANCIAL as of a certain order date for the purchase of
shares of JADE FINANCIAL common stock. When, and if, Charles
Webb & Company and IGA believe that enough indications of
interest and orders have not been received in the subscription
offering, community offering and syndicated community offering to
consummate the conversion, Charles Webb & Company will request,
as of the order date, selected dealers to submit orders to
purchase shares for which they have previously received
<PAGE 62> indications of interest from their customers. Selected
dealers will send confirmations of the orders to such customers
on the next business day after the order date. Selected dealers
will debit the accounts of their customers on the "Settlement
Date" which date will be three business days from the order date.
Customers who authorize selected dealers to debit their brokerage
accounts are required to have the funds for payment in their
account on but not before the Settlement Date. On the Settlement
Date, selected dealers will deposit funds to the account
established by IGA for each selected dealer. Each customer's
funds forwarded to IGA, along with all other accounts held in the
same title, will be insured by the FDIC up to $100,000 in
accordance with applicable FDIC regulations. After payment has
been received by IGA from selected dealers, funds will earn
interest at IGA's passbook rate until the completion or
termination of the conversion. Funds will be promptly returned,
with interest, in the event conversion is not consummated as
described above.
Persons Who are Not Permitted to Participate in the Offering
JADE FINANCIAL and IGA will make reasonable efforts to
comply with the securities laws of all states in the United
States in which persons entitled to subscribe for stock pursuant
to the plan of conversion reside. However, JADE FINANCIAL and
IGA are not required to offer stock in the subscription offering
to any person who resides in a foreign country or resides in a
state of the United States with respect to which:
- the number of persons otherwise eligible to subscribe
for shares under the plan of conversion who reside in
such jurisdiction is small;
- the granting of subscription rights or the offer or
sale of shares of common stock to such persons would
require any of JADE FINANCIAL and IGA or their
officers, directors or employees, under the laws of
such jurisdiction to register as a broker, dealer,
salesman or selling agent or to register or otherwise
qualify its securities for sale in such jurisdiction or
to qualify as a foreign corporation or file a consent
to service of process in such jurisdiction; and
- such registration, qualification or filing in the
judgment of JADE FINANCIAL and IGA would be
impracticable or unduly burdensome for reasons of cost
or otherwise.
Where the number of persons eligible to subscribe for shares in
one state is small, JADE FINANCIAL and IGA will base their
decision as to whether or not to offer the common stock in that
state on a number of factors, including but not limited to the
size of accounts held by account holders in the state, the cost
of registering or qualifying the shares or the need to register
<PAGE 63> their officers, directors or employees as brokers,
dealers or salesmen.
Limitations on Stock Purchases
The plan of conversion includes the following limitations on
the number of shares of JADE FINANCIAL common stock which may be
purchased in the offering:
(1) No fewer than 25 shares of common stock may be
purchased, to the extent shares are available;
(2) Except for the Tax-Qualified Employee Plans and certain
Eligible Account Holders and Supplemental Eligible
Account Holders whose subscription rights are based
upon the amount of their deposits, the maximum number
of shares of our common stock subscribed for or
purchased in all categories of the offering by any
person, together with associates of and groups of
persons acting in concert with such persons, shall not
exceed 2.5% of the common stock offered in the
offering; and
(3) No more than 22% of the total number of shares offered
for sale in the subscription offering may be purchased
by directors, officers and employees of IGA in the
fifth priority category in the subscription offering.
No more than 32% of the total number of shares offered
for sale in the offering may be purchased by directors
and officers of IGA and their associates in the
aggregate, excluding purchases by the Tax-Qualified
Employee Plans.
Subject to any required regulatory approval and the
requirements of applicable laws and regulations, but without
further approval of the members of IGA, the boards of directors
of JADE FINANCIAL and IGA may increase or decrease the individual
purchase limitations to a percentage which does not exceed 5% or
fall below .10% of the total offering of shares in the
subscription offering and increase the aggregate purchase
limitation to a percentage which does not exceed 5% of the total
shares offered in the conversion.
The term "associate" when used to indicate a relationship
with any person means:
- any corporation or organization (other than IGA, JADE
FINANCIAL or a majority-owned subsidiary of any of IGA)
of which such person is a director, officer or partner
or is directly or indirectly the beneficial owner of
10% or more of any class of equity securities;
- any trust or other estate in which such person has a
substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary
<PAGE 64> capacity; provided, however, that Tax-
Qualified or Non-Tax Qualified Employee Plans of JADE
FINANCIAL or IGA in which such person has a substantial
beneficial interest or serves as trustee or in a
similar fiduciary capacity shall not be deemed to be an
associate of such person;
- any relative or spouse of such person, or any relative
of such spouse, who has the same home as such person or
who is a director or officer of IGA, JADE FINANCIAL or
any subsidiary of IGA or JADE FINANCIAL; and
- any person acting in concert with any of the persons or
entities specified above;
The term "acting in concert" is defined to mean knowing
participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to
an express agreement, or a combination or pooling of voting or
other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise. A
person or company which acts in concert with another person or
company shall also be deemed to be acting in concert with any
person or company who is also acting in concert with that other
party, expect that the Tax-Qualified Employee Plans will not be
deemed to be acting in concert with its trustee or a person who
serves in a similar capacity solely for the purpose of
determining whether stock held by the trustee and stock held by
each plan will be aggregated. The determination of whether a
group is acting in concert shall be made solely by the board of
directors of IGA or officers delegated by such board of directors
and may be based on any evidence upon which such board or
delegatee chooses to rely.
Marketing Arrangements
JADE FINANCIAL and IGA have retained Charles Webb & Company
to consult with and to advise IGA, and to assist JADE FINANCIAL,
on a best efforts basis, in the distribution of the shares of
common stock in the distribution of the shares of common stock in
the offering. The services that Charles Webb & Company will
provide include, but are not limited to:
- training the employees of IGA who will perform
certain ministerial functions in the offering
regarding the mechanics and regulatory
requirements of the stock offering process;
- managing the stock information centers by
assisting interested stock subscribers and by
keeping records of all stock orders;
- preparing marketing materials; and
<PAGE 65>
- assisting in the solicitation of proxies from
IGA's members for use at the special meeting.
For its services, Charles Webb & Company has received a
management fee of $25,000 and will receive a success fee of 1.4%
of the aggregate purchase price of the shares of our common stock
sold in the offering, excluding shares purchased by the Tax-
Qualified Employee Plans, and officers, directors and employees
of IGA and members of their immediate families as well as shares
issued to the foundation. The success fee paid to Charles Webb &
Company will be reduced by the amount of the management fee. In
the event that selected dealers are used to assist in the sale of
shares of our common stock in the offering, these dealers will be
paid a fee of up to 5.5% of the total purchase price of the
shares sold by such dealers. IGA has agreed to indemnify Charles
Webb & Company against certain claims or liabilities, including
certain liabilities under the Securities Act of 1933, as amended,
and will contribute to payments Charles Webb & Company may be
required to make in connection with any such claims or
liabilities.
Sales of shares of our common stock will be made by
registered representatives affiliated with Charles Webb & Company
or by the broker-dealers managed by Charles Webb & Company.
Charles Webb & Company has undertaken that the shares of our
common stock will be sold in a manner which will ensure that the
distribution standards of the Nasdaq Stock Market will be met. A
stock information center will be established at the main office
of IGA in Feasterville, Pennsylvania. We will rely on Rule 3a4-1
of the Securities Exchange Act of 1934, as amended, and sales of
our common stock will be conducted within the requirements of
this Rule, so as to permit officers, directors and employees to
participate in the sale of our common stock in those states where
the law permits. No officer, director or employee of IGA or JADE
FINANCIAL will be compensated directly or indirectly by the
payment of commissions or other remuneration in connection with
his or her participation in the sale of common stock.
Procedure for Purchasing Shares in the Subscription Offering
To ensure that each purchaser receives a prospectus at least
48 hours before the Subscription Expiration Date (unless
extended) in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, as amended, no prospectus will be mailed
any later than five days prior to such date or hand delivered any
later than two days prior to such date. Execution of the order
form will confirm receipt or delivery in accordance with
Rule 15c2-8. Order forms will only be distribution with a
prospectus.
To purchase shares in the Subscription Offering, an executed
order form with the required payment for each share subscribed
for, or with appropriate authorization for withdrawal from a
deposit account at IGA, which may be given by completing the
appropriate blanks in the order form, must be received by IGA by
<PAGE 66> noon, Philadelphia, Pennsylvania time, on or before the
Subscription Expiration Date, unless extended. In addition, JADE
FINANCIAL and IGA will require a prospective purchaser to execute
a certification in the form required by applicable Office of
Thrift Supervision regulations in connection with any sale of
common stock. Order forms which are not received by this time or
are executed defectively or ar received without full payment or
appropriate withdrawal instructions are not required to be
accepted. In addition, IGA will not accept orders submitted on
photocopied or facsimilied order forms nor order forms
unaccompanied by an executed certification form. IGA has the
right to waive or permit the correction of incomplete or
improperly executed forms, but does not represent that it will do
so. Once received, an executed order form may not be modified,
amended or rescinded without the consent of IGA, unless the
conversion has not been completed within 45 days after the end of
the subscription offering, or this period has been extended.
In order to ensure that Eligible Account Holders, Tax-
Qualified Employee Plans, Supplemental Eligible Account Holders
and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the
Eligibility Record Date (March 31, 1998) or the Supplemental
Eligibility Record Date (June 30, 1999) and depositors and
certain borrowers as of the close of business on the voting
record date (July 31, 1999) must list all accounts on the stock
order form giving all names in each account and the account
numbers.
Payment for subscriptions may be made:
- by check or money order;
- by authorization of withdrawal from deposit
accounts maintained with IGA (including a
certificate of deposit); or
- in cash, if delivered in person at any full-
service banking office of IGA, although we request
that you exchange cash for a check with any of our
tellers.
IGA, in its sole discretion, may also elect to receive payments
by wire transfer. Interest will be paid on payments made by
cash, check or money order at our then-current passbook yield
from the date payment is received until completion of the
offering. If payment is made by authorization of withdrawal from
deposit accounts, the funds authorized to be withdrawn from a
deposit account will continue to accrue interest at the
contractual rate, but may not be used by the subscriber until all
of our common stock has been sold or the plan of conversion is
terminated, whichever is earlier.
If a subscriber authorizes IGA to withdraw the amount of the
purchase price from his deposit account, IGA will do so as of the
<PAGE 67> effective date of the conversion. IGA will waive any
applicable penalties for early withdrawal from certificate
accounts.
In the event of an unfilled amount of any subscription
order, IGA will make an appropriate refund or cancel an
appropriate portion of the related withdrawal authorization,
after completion of the offering. If for any reason the offering
is not consummated, purchasers will have refunded to them all
payments made, with interest, and all withdrawal authorizations
will be canceled in the case of subscription payments authorized
from accounts at IGA.
If any Tax-Qualified Employee Plans or Non-Tax-Qualified
Employee Plans subscribe for shares during the subscription
offering, these plans will not be required to pay for the shares
subscribed for at the time they subscribe, but rather, may pay
for shares of common stock subscribed for at the purchase price
upon completion of the subscription offering, community offering
and syndicated community offering, if all shares are sold, or
upon completion of the public offering if shares remain to be
sold in such offering. In the event that, after the completion
of the subscription offering the amount of shares to be issued is
increased above the maximum of the estimated valuation range
included in this prospectus, the Tax-Qualified Employee and Non-
Tax-Qualified Employee Plans will be entitled to increase their
subscriptions by a percentage increase in the amount of shares to
be issued above the maximum of the estimated valuation range
provided that such subscription will continue to be subject to
applicable purchase limits and stock allocation procedures.
Owners of self-directed IRAs may use the assets of such IRAs
to purchase shares of our common stock in the subscription
offering, community offering and syndicated community offering.
ERISA provisions and IRS regulations require that officers,
directors and 10% shareholders who use self-directed IRA funds to
purchase shares of common stock in the offering make such
purchases for the exclusive benefit of the IRAs. IRAs maintained
at IGA are not self-directed IRAs and any interested parties
wishing to use IRA funds for stock purchases are advised to
contact the stock information center at (_________) for
additional information.
The records of IGA will be deemed to control with respect to
all matters related to the existence of subscription rights
and/or one's ability to purchase shares of common stock in the
subscription offering.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the Office of
Thrift Supervision, no person with subscription rights may
transfer or enter into any agreement or understanding to transfer
the legal or beneficial ownership of the subscription rights
issued under the plan of conversion or the shares of common stock
<PAGE 68> to be issued upon their exercise. Such rights may be
exercised only by the person to whom they are granted and only
for such person's account. Each person exercising such
subscription rights will be required to certify that the person
is purchase shares solely for the person's own account and that
such person has no agreement or understanding regarding the sale
or transfer of such shares. Federal regulations also prohibit
any person from offering or making an announcement of an offer or
intent to make an offer to purchase such subscription rights or
shares of common stock prior to the completion of the conversion.
IGA will refer to the Office of Thrift Supervision any
situations that it believes may involve a transfer of
subscription rights and will not honor orders believed by it to
involve the transfer of such rights.
Delivery of Certificates
Certificates representing common stock issued in the
offering will be mailed by our transfer agent to the persons
entitled thereto at the addresses of such persons appearing on
the stock order form as soon as practicable following completion
of the conversion. Any certificates claimed by persons legally
entitled to them or otherwise disposed of in accordance with
applicable law. Until certificates for common stock are
available and delivered to subscribers, they may not be able to
sell the shares of common stock for which they have subscribed,
even though trading of the common stock may have commenced.
Required Approvals
Various approvals of the Office of Thrift Supervision are
required in order to consummate the conversion. The Office of
Thrift Supervision has approved the plan of conversion, subject
to approval by IGA's members and other standard conditions. JADE
FINANCIAL's holding company application is currently pending with
the Office of Thrift Supervision.
We are required to make certain filings with state
securities regulatory authorities in connection with the issuance
of our common stock in the offering.
Judicial Review
Any person hurt by a final action of the Office of Thrift
Supervision which approves, with or without conditions, or
disapproves a plan of conversion may obtain review of this action
by filing in the court of appeals of the United States for the
circuit in which the principal office or residence of the person
is located, or in the United States Court of Appeals for the
District of Columbia, a written petition asking that the final
action of the Office of Thrift Supervision be modified,
terminated or set aside. This petition must be filed within
30 days after the publication of notice of final action in the
Federal Register, or 30 days after the mailing by the applicant
<PAGE 69> of the notice to members as provided for in 12 C.F.R.
Section 563b.6(c), whichever is later. The further procedure for
review is as follows: A copy of the petition is promptly
transmitted to the Office of Thrift Supervision by the clerk of
the court and then the Office of Thrift Supervision files in the
court the record in the proceeding, as provided in Section 2112
of Title 28 of the United States Code. Upon the filing of the
petition, the court has jurisdiction, which upon the filing of
the record is exclusive, to affirm, modify, terminate, or set
aside in whole or in part, the final action of the Office of
Thrift Supervision. Review of these proceedings is as provided
in Chapter 7 of Title 5 of the United States Code. The judgment
and decree of the court is final, except that they are subject to
review by the Supreme Court upon certiorari as provided in
Section 1254 of Title 28 of the United States Code.
Restrictions on Purchase or Transfer of Shares After the
Conversion
Common stock received in the conversion by persons who are
not "affiliates" of JADE FINANCIAL may be resold without
registration.
Shares received by affiliates of JADE FINANCIAL (primarily
the directors, officers and principal shareholders of JADE
FINANCIAL) will be subject to the resale restrictions of Rule 144
under the Securities Act of 1933, as amended. Rule 144 generally
requires that there be publicly available certain information
concerning JADE FINANCIAL, and that sales thereunder be made in
routine brokerage transactions or through a market maker. If the
conditions of Rule 144 are satisfied, each affiliate (or group of
persons acting in concert with one or more affiliates) is
entitled to sell in the public market, without registration, in
any three-month period, a number of shares which does not exceed
the greater of (i) 1% of the number of outstanding shares of
common stock, or (ii) if the stock is admitted to trading on a
national securities exchange or reported through the automated
quotation system of a registered securities bank, the average
weekly reported volume of trading during the four weeks preceding
the sale.
In addition, all shares of common stock purchased in
connection with the conversion by a director or an executive
officer of JADE FINANCIAL and IGA will be subject to a
restriction that the shares not be sold for a period of one year
following the conversion except in the event of the death of the
director or officer or pursuant to a merger of similar
transaction approved by the Office of Thrift Supervision. Each
certificate for restricted shares will bear a legend giving
notice of this restriction on transfer, and instructions will be
issued to the effect that any transfer within such time period of
any certificate or record ownership of the shares other than as
provided above is a violation of the restriction. Any shares of
common stock issued at a later date within this one year period
<PAGE 70> as a stock dividend, stock split or otherwise with
respect to the restricted stock will be subject to the same
restrictions.
Purchases of our common stock of JADE FINANCIAL by
directors, executive officers and their associates during the
three-year period following completion of the conversion may be
made only through a broker or dealer registered with the SEC,
except with the prior written approval of the Office of Thrift
Supervision. This restriction does not apply, however, to
negotiated transactions involving more than 1% of our outstanding
common stock or to certain purchases of stock pursuant to an
employee stock benefit plan.
Pursuant to Office of Thrift Supervision regulations, JADE
FINANCIAL will generally be prohibited from repurchasing any
shares of the common stock for a period of three years following
the conversion other than pursuant to (a) an offer to all
shareholders on a pro rata basis which is approved by the Office
of Thrift Supervision or (b) the repurchase of qualifying shares
of a director, if any.
The above limitations are subject to Office of Thrift
Supervision policies which generally provide that JADE FINANCIAL
may repurchase its capital stock provided:
- no repurchases occur within the first six months
following the conversion;
- repurchases during the second six months following
the conversion do not exceed 5% of its outstanding
capital stock (subject to certain exceptions) and
repurchases prior to the third anniversary of the
conversion do not exceed 25% of its outstanding
capital stock;
- repurchases prior to the third anniversary of the
conversion are part of an open-market stock
repurchase program;
- if the repurchases do not cause IGA to become
undercapitalized; and
- IGA provides to the Regional Director of the
Office of Thrift Supervision no later than 10 days
prior to the commencement of a repurchase program
written notice containing a full description of
the program to be undertaken and such program is
not disapproved by the Regional Director.
The Office of Thrift Supervision may permit stock repurchases in
excess of such amounts prior to the third anniversary of the
conversion if exceptional circumstances are shown to exist.
Risk of Delay in Completion of the Offering <PAGE 71>
The completion of the sale of all unsubscribed shares of
common stock in the offering will be dependent, in part, upon
IGA's operating results and market conditions at the time of the
offering. Under the plan of conversion, all shares of common
stock offered in the conversion must be sold within a period
ending 24 months from the date of the special meeting. While
JADE FINANCIAL and IGA anticipate completing the sale of shares
offered in the conversion within this period, if JADE FINANCIAL
and IGA's Boards of Directors are of the opinion that economic
conditions generally or the market for publicly traded thrift
institution stocks make undesirable a sale of the common stock,
then the offering may be delayed until such conditions improve.
If the offering is extended beyond __________________, 1999, all
subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned with
interest. There can be no assurance that the offering will not
be extended as set forth above.
A material delay in the completion of the sale of all
unsubscribed shares in the offering or otherwise may result in a
significant increase in the costs of completing the conversion.
Significant changes in our operations and financial condition,
the aggregate market value of the shares to be issued in the
conversion and general market conditions may occur during such
material delay. In the event the conversion is not consummated
within 24 months after the date of the special meeting, IGA would
charge accrued conversion costs to then current period
operations.
Approval, Interpretation, Amendment and Termination
All interpretations of the plan of conversion, as well as
the completeness and validity of order forms and stock order and
account withdrawal authorizations, will be made by JADE FINANCIAL
and IGA and will be final, subject to the authority of the Office
of Thrift Supervision and the requirements of applicable law.
The plan of conversion provides that, if deemed necessary or
desirable by the Boards of Directors of IGA and JADE FINANCIAL,
the plan of conversion may be substantively amended by the Boards
of Directors of IGA and JADE FINANCIAL, as a result of comments
from regulatory authorities or otherwise, at any time with the
concurrence of the Office of Thrift Supervision. In the event
the plan of conversion is substantially amended, other than a
change in the maximum purchase limits set forth herein, we intend
to notify subscribers of the change and to refund subscription
funds with interest unless subscribers affirmatively elect to
increase, decrease or maintain their subscriptions. The plan of
conversion will terminate if the sale of all shares is not
completed within 24 months after the date of the special meeting.
The plan of conversion may be terminated by IGA's Board of
Directors at any time prior to the special meeting, and at any
time following such special meeting with the concurrence of the
Office of Thrift Supervision.
PROPOSED PURCHASES BY MANAGEMENT <PAGE 72>
The following table sets forth, for each of IGA's directors
and for all of the directors and senior officers as a group, the
proposed purchases of common stock, assuming sufficient shares
are available to satisfy their subscriptions. The amounts
include shares that may be purchased through individual
retirement accounts and by associates.
<TABLE>
<CAPTION>
At the Minimum At the Maximum
of the Estimated of the Estimated
Offering Range Offering Range
As a Percent As a Percent
Number of of Shares of Shares
Name Amount Shares Offered Offered
<S> <C> <C> <C> <C>
Robert E. Adelsberger $ 50,000 6,250 0.41% 0.30%
Dorothy M. Bourlier 100,000 12,500 0.81 0.60
Thomas P. Calabrese 20,000 2,500 0.16 0.12
William L. Harm 100,000 12,500 0.81 0.60
Mario L. Incollingo, Jr. 200,000 25,000 1.62 1.20
Edward D. McBride 80,000 10,000 0.65 0.48
Francis J. Moran 75,000 9,375 0.61 0.45
John J. O'Connell 300,000 37,500 2.43 1.80
Clyde A. Warden 300,000 37,500 2.43 1.80
Dennis P. Wesley 100,000 12,500 0.81 0.60
All directors and
senior officers as
a group (10 persons) $1,325,000 165,625 10.75% 7.95%
</TABLE>
___________________
<PAGE 73>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF IGA
General
JADE FINANCIAL has only recently been formed and,
accordingly, has no results of operations. As a result, this
discussion relates to IGA. We are primarily engaged in the
business of attracting deposits from the general public and
originating consumer loans, including home equity, auto, credit
card and personal loans, and residential real estate loans
secured by first mortgages on owner-occupied, one- to four-family
residences in our market area. IGA originates a limited amount
of commercial loans. IGA also invests in investment and mortgage
related securities.
Our net income is dependent primarily on our net interest
income, which is the difference between interest earned on loans
and investments and the interest paid on our deposits and
borrowings. IGA's interest rate spread is also affected by
regulatory, economic and competitive factors that influence
interest rates, loan demand and deposit flows. Our net income is
also affected by the generation of non-interest income, which
primarily consists of fees and service charges. In addition, net
income is affected by the level of operating expenses and
provisions for loan losses.
The operations of financial institutions, including IGA, are
significantly affected by prevailing economic conditions,
competition and regulatory policies, and the monetary and fiscal
policies of the U.S. Government. Lending activities are
influenced by the demand for, and supply of housing, competition
among lenders, the level of interest rates and the availability
of funds. Deposit flows and costs of funds are influenced by
prevailing market rates of interest primarily on competing
investments, account maturities and the levels of personal income
and savings in our market area.
This analysis of our financial condition and results of
operations should be read in conjunction with the consolidated
financial statements and the other financial data found elsewhere
in this Prospectus. Prior to June 30, 1998, IGA's fiscal year
ended on June 30. After the fiscal year ended June 30, 1998, IGA
changed its fiscal year to end on December 31. Therefore, the
discussion covers IGA's financial condition and results of
operation for the three month periods ended March 31, 1999 and
1998, the six month transition period ended December 31, 1998,
and the six month comparative period ended December 31, 1997 as
well as each of its fiscal years in the two-year period ended
June 30, 1998.
Business Strategy
<PAGE 74>
Our strategy is to be an independent, consumer oriented
financial institution that provides retail loan and deposit
products to individuals and small businesses. Highlights of this
strategy include the following:
-- Consumer Lending - Historically we have concentrated on
the origination of consumer loans as our primary loan
product, including home equity, automobile, credit card
and personal loans. At March 31, 1999, consumer loans
totalled $62.81 million, or 59.01% of our loan
portfolio.
-- Home Mortgage Lending - In recent years, residential
first mortgage loans have become an increasingly
important component of our lending activities. We
expect this trend to continue. At March 31, 1999,
residential first mortgage loans totalled $40.74
million, or 38.28% of our loan portfolio.
-- Commercial Real Estate and Commercial Business Loans -
We plan to selectively increase our commercial real
estate and commercial business lending with a focus on
small and medium-sized borrowers. We have hired an
experienced commercial lender to manage our expansion
in this area. We will fund this product expansion with
locally gathered deposits. We believe a cautious and
prudent expansion in these areas will diversify our
loan portfolio and increase the average yield of our
interest earning assets. However, we recognize that
commercial real estate and commercial business loans
both involve a higher degree of risk than single-family
residential lending due to a variety of factors,
including generally larger loan balances, the
dependency on successful operation of a project, or the
income stream of a borrower for repayment, and greater
oversight efforts compared to mortgage loans. At
March 31, 1999, we had $2.1 million in commercial real
estate loans and $760,000 in commercial business
loans.
-- Expanded Customer Base - Prior to June 30, 1998, under
our federal credit union charter, we were limited in
the customers that we could service. The cornerstone
of our strategy as a saving bank is to maintain our
base of customers who were credit union members and
expand our customer base by marketing to the
communities served by our branches. We believe we have
maintained our original customer base. In addition,
since June 30, 1998 we have entered into more than
1,901 loan or deposit relationships.
Comparison of Results of Operations for the Three Months Ended
March 31, 1999 and March 31, 1998.
<PAGE 75>
The table that follows is called an average balance sheet.
This table provides an analysis of our net interest income for
the three-month periods ended March 31, 1999 and March 31, 1998
setting forth:
- our average assets, liabilities, and equity,
- our interest income earned on interest-earning assets
and interest expense paid on interest-bearing
liabilities,
- our average yields earned on interest-earning assets
and average rates paid on interest-bearing liabilities,
- our interest rate spread (the difference between the
average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities), and
- our net interest margin assets (net interest income as
a percentage of average total interest earning assets).
For purposes of this table, loan balances include non-
accrual loans and interest income on loans includes
loan fees or amortization of such fees which have been
deferred as well as interest recorded on non-accrual
loans as cash is received once the principal has been
fully paid.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $105,990 $ 2,154 8.13% $ 97,150 $ 2,137 8.80%
Investments 57,002 788 5.53% 53,719(2) 684 5.09%
Total earning assets 162,992 2,942 7.20% 150,869 2,821 7.48%
Non-interest earning assets 10,366 5,496
Total assets $173,358 $156,365
======== ========
Interest-bearing liabilities:
Savings deposits $ 70,861 $ 377 2.13% $ 66,426 $ 432 2.60%
NOW accounts 10,167 0 0.00% 8,894 0 0.00%
Money market accounts 10,144 77 3.04% 8,470 80 3.78%
Certificates of deposit 65,899 871 5.29% 56,685 798 5.63%
Total interest-bearing
liabilities 157,071 1,325 3.36% 140,475 1,310 3.72%
Non-interest bearing
liabilities 1,043 651
Total liabilities 158,114 141,126
Equity 15,244 15,239
Total liabilities and
equity $173,358 $156,365
======== ========
Net interest-earning assets $ 5,921 $ 10,394
======== ========
Net interest spread(3) $ 1,617 3.84% $ 1,511 3.76%
======= ==== ======= ====
Net interest margin(4) 3.97% 4.01%
==== ====
Ratio of average interest- <PAGE 76>
earning assets to average
interest-bearing liabilities 103.77% 107.40%
======== ========
</TABLE>
(1) Average loan balances include non-accrual loans and loans
held for resale.
(2) Includes interest-earning deposits with the National Credit
Union Administration Share Insurance Fund.
(3) Represents the difference between the average yield on
interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Represents net interest earnings divided by average
interest-earning assets.
The following table presents the weighted average yields
earned on loans, investments and other interest-earning assets,
and the weighted average rates paid on savings deposits and
borrowings and the resultant interest rate spreads at the date
indicated.
At March 31, 1999
Weighted average yield on:
Loans receivable 8.05%
Investments 5.85%
Total earning assets 7.29%
Weighted average rate paid on:
Savings deposits 2.24%
NOW accounts 0%
Money market accounts 3.13%
Certificates of deposit 5.22%
Total interest-bearing
liabilities 3.40%
Net interest spread 3.89%
Net interest margin 3.65%
Net Income.
Our net income for the three months ended March 31, 1999,
was $130,000, an increase of 251.35% over the $37,000 we earned
for the three months ended March 31, 1998. The increase resulted
from higher interest and noninterest income in the three months
ended March 31, 1999 and a higher provision for loan losses in
the three months ended March 31, 1998. These changes were
partially offset by higher noninterest expense in the three
months ended March 31, 1999 compared to the same period in 1998.
<PAGE 77>
Net Interest Income.
Net interest income for the three months ended March 31,
1999 was $1.62 million as compared to $1.51 million for the three
months ended March 31, 1998. This increase of $106,000, or
7.02%, resulted from an increase in the average balance of
interest earning assets as well as an increase in the difference
between the rate we earned on our interest earning assets and the
rate we paid on interest bearing liabilities.
Interest income increased to $2.94 million for the three
months ended March 31, 1999, from $2.82 million for the three
months ended March 31, 1998. This increase of $121,000, or
4.29%, resulted from an increase in average interest earning
assets of $12.12 million, or 8.03%, to $162.99 million for the
three month period ended March 31, 1999 from $150.87 million for
the same period in 1998. This increase in average
interest-earned assets is a direct result of our ability to serve
additional customers under our savings bank charter. This
increase was partially offset by a decrease of 28 basis points in
the average yield on interest earnings assets to 7.20% in the
1999 period from 7.48% in the comparable 1998 period due to
decreasing interest rates in 1998. The yield on average net
loans, decreased to 8.13% for the three-month period ended
March 31, 1999 from 8.80% for the comparable 1998 period but the
balance of average loans increased $8.84 million, or 9.10%, over
the same comparable periods. Interest income from investment
securities increased $103,000 in the three months ended March 31,
1999 compared to the same period in 1998. This increase resulted
from a 44 basis point increase in the average yield earned on
investment securities from 5.09% in 1998 to 5.53% in 1999 and an
increase in the average balance of investment securities of
$3.28 million, or 6.11%, from $53.72 million in 1998 to
$57.00 million in 1999.
For the three months ended March 31, 1999, interest expense
increased $16,000, or 1.53%, to $1.33 million compared to
$1.31 million for the three months ended March 31, 1998. The
small increase in interest expense between the comparable three-
month periods in 1999 and 1998 was due to an increase of
$16.59 million, or 11.81%, in the average balance of deposits
from $140.48 million in 1998 to $157.07 million in 1999 which was
almost completely offset by a 36 basis point decline in the
average rate paid on deposits from 3.72% in 1998 to 3.36% in
1999.
Provision for Loan Losses.
The provision for loan losses decreased from $376,000 for
the three months ended March 31, 1998 to $135,000 for the three
months ended March 31, 1999. The decrease in provision for loan
losses represents a return to a more normalized amount in 1999
<PAGE 78> compared to 1998 when the provision was
uncharacteristically high. The high provision for the three
months ended March 31, 1998 was part of a process during the
first half of 1998 in which we conformed our allowance for loan
losses policy to the more stringent practices of other savings
institutions compared to those of credit unions.
As a credit union, in accordance with guidance provided
by our regulator, the National Credit Union Administration, we
sought to maintain an allowance for loan losses that approximated
our five year average loan charge-off experience which was 56
basis points of total loans. In anticipation of becoming a
savings bank at the beginning of the third quarter of 1998, and
in response to regulatory guidance from the Office of Thrift
Supervision, we changed our charge-off methodology and the manner
in which we determined our allowance for loan losses. We adopted
a policy of charging-off consumer loans that were 90 days or more
delinquent regardless of the existence of an agreement with the
borrower on a repayment schedule. As a result, during the first
six months of 1998 we charged-off approximately $350,000 of
consumer loans consisting principally of unsecured personal
loans. This absorbed a significant portion of our then existing
allowance. In addition, we changed the manner in which we
determine our allowance so that it now consists of a component
determined based on our assessment of risk inherent in our
general loan portfolio and a component based upon our review of
identified loans classified as special mention, substandard and
doubtful under our loan classification system. The amount of the
allowance we determine based on our assessment of risk inherent
in our general loan portfolio varies by type of loan, but, on a
blended basis, it is between 90 and 100 basis points. This
significantly exceeded the amount of the allowance we established
using our credit union methodology. The combination of the
increased charge-offs and the change in reserve methodology
resulted in a materially higher provision in both in the quarter
ended March 31, 1998 and the fiscal year ended June 30, 1998. We
believe our current reserve methodology, which accounts for
general risk inherent in the loan portfolio and specific risks
associated with identified loans, is superior to our prior method
that was based exclusively on historical loss experience. See
"Description of IGA -- Allowance and Provision for Loan Losses"
for a discussion of how management determines the provision for
loan losses.
Noninterest Income.
Noninterest income was $224,000 for the three months ended
March 31, 1999 compared to $102,000 for the three months ended
March 31, 1998. This 119.61% increase resulted primarily from an
increase in service charges and ATM interchange income from
higher ATM usage.
Noninterest Expense.
<PAGE 79>
Total noninterest expense increased $320,000, or 26.67%, to
$1.52 million for the three months ended March 31, 1999 from
$1.20 million for the three months ended March 31, 1998. This
increase was primarily attributable to increased compensation and
employee benefits expenses of $92,000 associated with normal
salary and benefit increases and an increased lending staff, and
an increase in bank and ATM charges of $161,000 due to increased
usage. We expect noninterest expense to increase in future
periods because of increased staffing need as we continue to
expand our lending and credit administration staff, and costs
associated with our status as a public company.
Income Taxes.
Prior to July 1, 1998, IGA was a tax-exempt entity.
Therefore no income taxes were paid for the three months ended
March 31, 1998. For the three months ended March 31, 1999, we
accrued income tax expense of $58,000.
Comparison of Results of Operations for the Six Months Ended
December 31, 1998 and December 31, 1997.
The following table is our average balance sheet for the
six-month periods ended December 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
Six Months Ended December 31,
1998 1997
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $100,915 $ 4,275 8.47% $ 99,837 $ 4,511 9.04%
Investments 54,501 1,514 5.56% 51,725(2) 1,369 5.29%
Total earning assets 155,416 5,789 7.44% 151,562 5,880 7.76%
Non-interest earning assets 10,026 6,001
Total assets $165,442 $157,563
======== ========
Interest-bearing liabilities:
Savings deposits $ 68,852 $ 8342 2.42% $ 71,405 $ 1,090 3.05%
NOW accounts 9,277 0 0.00% 8,462 0 0.00%
Money market accounts 9,038 160 3.54% 8,138 157 3.86%
Certificates of deposit 62,082 1,767 5.69% 54,119 1,558 5.76%
Total interest-bearing
liabilities 149,249 2,761 3.70% 142,124 2,805 3.94%
Non-interest bearing
liabilities 799 467
Total liabilities 150,048 142,591
Equity 15,394 14,972
Total liabilities and
equity $165,442 $157,563
======== ========
Net interest-earning assets $ 6,167 $ 9,438
======== ========
Net interest spread(3) $ 3,028 3.74% $ 3,075 3.82%
======= ==== ======= ====
Net interest margin(4) 3.90% 4.06%
==== ==== <PAGE 80>
Ratio of average interest-
earning assets to average
interest-bearing liabilities 104.13% 106.64%
======== ========
</TABLE>
(1) Average loan balances include non-accrual loans and loans
held for resale.
(2) Includes interest-earning deposits with the National Credit
Union Administration Share Insurance Fund.
(3) Represents the difference between the average yield on
interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Represents net interest earnings divided by average
interest-earning assets.
Net Income.
Our net income for the six months ended December 31, 1998,
was $266,000, a decrease of 53.33% from the $570,000 we earned
for the six months ended December 31, 1997. The decrease
resulted principally from one-time expenses associated with our
charter conversion and the fact that the six-month period ended
December 31, 1997 did not contain any provision for income taxes
because, as a credit union, IGA was exempt from income tax.
Net Interest Income.
Net interest income for the six months ended December 31,
1998 was $3.03 million as compared to $3.08 million for the six
months ended December 31, 1997. This negligible decrease of
$50,000 resulted from an increase in average interest-earning
assets that was more than offset by a 16 basis point decrease in
the net interest margin.
Interest income decreased to $5.79 million for the six
months ended December 31, 1998 from $5.88 million for the six
months ended December 31, 1997. This decrease of $91,000, or
1.53%, resulted from a decline of thirty-two basis points in the
average yield on interest earning assets to 7.44% in the six
months ended December 31, 1998 from 7.76% for the same period in
1997. This decrease in average yield on interest earning assets
reflected both declining interest rates in 1998 and a conscious
shift in emphasis by management from higher-yielding consumer
loans to secured residential real estate loans. This shift in
loan origination emphasis resulted principally from our
conversion to a savings bank charter. The decline in average
yield was partially offset by an increase in average interest
earning assets of $7.88 million, or 5.00%, to $165.44 million in
the six months ended December 31, 1998 from $157.56 million for
the same period in 1997 and reflects our ability during the 1998
period to attract new customers under our new charter. The yield
on average net loans decreased to 8.47% in the 1998 period from
<PAGE 81> 9.04% in the comparable 1997 period and the balance of
average loans increased $1.08 million or 9.04% over the same
comparable periods. Interest income from investment securities
increased $145,000, or 10.59%, from $1.37 million in the six
months ended December 31, 1997 to $1.51 million in for the same
period 1998. This increase resulted from a 27 basis point
increase in the average yield earned on investment securities
from 5.29% to 5.56% and an increase in the average balance of
investment securities of $2.78 million, or 5.37%, from
$51.72 million in the 1997 period to $54.50 million in the 1998
period.
For the six months ended December 31, 1998, interest
expense decreased $44,000, or 1.57%, to $2.76 million compared to
$2.81 million for the six months ended December 31, 1997. The
decrease in interest expense between 1998 and 1997 was due
entirely to a decrease in the average rate paid on deposits.
This average rate declined to 3.70% in 1998 from 3.94% in 1997
due to declining interest rates generally. Over the same period
the average balance of deposits increased $7.13 million, or
5.01%, to $149.25 million in the 1998 period compared to
$142.12 million in the 1997 period due to our ability to attract
new customers under our new charter.
Provision for Loan Losses.
The provision for loan losses decreased from $397,000 for
the six months ended December 31, 1997 to $300,000 for the six
months ended December 31, 1998. The decrease occurred primarily
because the provision in 1997 was historically high and reflected
a restoration of the allowance after 1996 charge-offs related to
an increase in personal bankruptcies of members. These
bankruptcies occurred after a significant reduction in force by
PECO and the resulting charge-off of unsecured personal loans
made to PECO members. IGA estimates that at that time
approximately 75% to 80% of its borrowers were PECO employees.
While this percentage has declined, PECO employees are still a
material part of IGA's customer base.
Noninterest Income.
Noninterest income was $804,000 for the six months ended
December 31, 1998 compared to $459,000 for the six months ended
December 31, 1997. This $345,000, or 75.16%, increase resulted
primarily from a $173,000 increase in fees in 1998 compared to
1997 and a $172,000 increase in securities gains.
Noninterest Expense.
Total noninterest expense increased $550,000 to
$3.12 million for the six months ended December 31, 1998 from
$2.57 million for the six months ended December 31, 1997. This
increase was primarily attributable to one-time expenses
associated with our charter conversion.
<PAGE 82>
Income Taxes.
Prior to July 1, 1998, IGA was a tax-exempt entity.
Therefore no income taxes were paid for the six months ended
December 31, 1997. For the six months ended December 31, 1998,
IGA accrued income tax expense of $146,000.
Comparison of Results of Operations for the Fiscal Years Ended
June 30, 1998 and 1997.
The following table is our average balance sheet for the
years ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Year Ended June 30,
1998 1997
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $ 99,342 $ 8,734 8.79% $ 99,634 $ 8,651 8.68%
Investments(2) 53,456 2,742 5.13% 55,749 3,009 5.40%
Total earning assets 152,798 11,476 7.51% 155,383 11,660 7.50%
Non-interest earning assets 5,007 5,391
Total assets $157,805 $160,774
======== ========
Interest-bearing liabilities:
Savings deposits $ 63,361 $ 1,682 2.65% $ 62,097 $ 1,640 2.64%
NOW accounts 8,661 0 0.00% 8,585 0 0.00%
Money market accounts 8,298 316 3.81% 8,316 300 3.61%
Certificates of deposit 61,713 3,477 5.63% 67,354 3,715 5.52%
Total interest-bearing
liabilities 142,033 5,475 3.85% 146,352 5,655 3.86%
Non-interest bearing
liabilities 1,109 840
Total liabilities 143,142 147,192
Equity 14,663 13,582
Total liabilities and
equity $157,805 $160,774
======== ========
Net interest-earning assets $ 10,765 $ 9,031
======== ========
Net interest spread(3) $ 6,001 3.66% $ 6,005 3.64%
======= ==== ======= ====
Net interest margin(4) 3.93% 3.86%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 107.58% 106.17%
======== ========
</TABLE>
(1) Average loan balances include non-accrual loans and loans
held for resale.
(2) Includes interest-earning deposits with the National Credit
Union Administration Share Insurance Fund.
<PAGE 83>
(3) Represents the difference between the average yield on
interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Represents net interest earnings divided by average
interest-earning assets.
Net interest income is affected by the volume of interest-
earning assets and the yield from interest-earning assets and by
the volume of interest-bearing liabilities and the rates paid on
interest-bearing liabilities. The following table presents the
dollar amount of changes in income and expense attributable to
changes in volume and the dollar amount attributable to changes
in rate.
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended December 31, Year Ended June 30,
1999 vs. 1998 1998 vs. 1997 1998 vs. 1997
Increase (decrease) due to Total Increase (decrease) due to Total Increase (decrease) due to Total
Rate/ Increase Rate/ Increase Rate/ Increase
Rate Volume Volume (Decrease) Rate Volume Volume (Decrease) Rate Volume Volume (Decrease)
(In Thousands) (In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $(534) $763 $(184) $ 45 $(563) $ 97 $230 $(236) $ 218 $ (26) $ 0 $ 192
Investments(2) 230 168 (295) 103 136 147 (138) 145 (148) (124) 6 (266)
Total earning assets (304) 931 (479) 148 (427) 244 92 (91) 70 (150) 6 (74)
Interest-bearing liabilities:
Savings deposits (311) 115 142 (54) (450) (78) 272 (256) 8 33 1 42
NOW accounts 0 0 0 0 0 0 0 0 0 0 0 0
Money market accounts (63) 63 (3) (3) (26) 35 (6) 3 17 (1) 0 16
Certificates of deposit (195) 519 (251) 73 (35) 458 (214) 209 80 (311) (7) (238)
Total interest-bearing
liabilities (569) 697 (312) 16 $(511) 415 52 $ (44) 105 (279) (6) (180)
Change In
net interest income $265 $234 $(367) $132 $ 84 $(171) $ 40 $ (47) $ (35) $ 129 $ 12 $ 106
==== ==== ====== ==== ===== ===== ===== ====== ===== ===== ===== =====
</TABLE>
(1) Includes non-accrual loans and loans held for resale.
(2) Includes interest-earning deposits and investment and
mortgage-backed securities.
Net Income.
Our net income for the year ended June 30, 1998, was
$663,000, a decrease of 35.63% from the $1.03 million we earned
for the year ended June 30, 1997. The decrease resulted from
flat net interest income, a higher provision for loan losses and
higher noninterest expense in 1998 compared to 1997 that was only
partially offset by higher noninterest income. Prospective
investors should be aware that our net income for these periods
do not contain any provision for income taxes because, as a
credit union, IGA was exempt from income tax. Accordingly, on a
tax-adjusted basis, net income would have been materially less.
<PAGE 84>
Net Interest Income.
Net interest income for the fiscal year ended June 30, 1998
was $6.00 million as compared to $6.01 million for the fiscal
year ended June 30, 1997.
Interest income decreased to $11.48 million for the fiscal
year ended June 30, 1998 from $11.66 million for the fiscal year
ended June 30, 1997. This decrease of $184,000, or 1.58%,
resulted from a decline in average interest earning assets of
$2.58 million, or 1.66%, to $152.80 million in 1998 from
$155.38 million in 1997 and is evidence of our inability to grow
under our credit union charter because of stagnant membership
growth. This decline was partially offset by an increase of one
basis point in the average yield on interest earning assets to
7.51% in 1998 from 7.50% in 1997. The yield on average net
loans, increased to 8.79% in 1998 from 8.68% in 1997 and the
balance of average loans decreased $292,000 or 0.29% over the
same period. Interest income from investment securities
decreased $270,000, or 8.97% from $3.01 million in 1997 to
$2.74 million in 1998. This decrease resulted from a 27 basis
point decrease in the average yield earned on investment
securities from 5.40% in 1997 to 5.13% in 1998 and a decrease in
the average balance of investment securities of $2.29 million, or
4.11%, from $55.75 million in 1997 to $53.46 million in 1998.
For the fiscal year ended June 30 1998, interest expense
decreased $180,000, or 3.18%, to $5.48 million compared to
$5.66 million for the fiscal year ended June 30, 1997. The
decrease in interest expense between 1998 and 1997 was due almost
entirely to a decrease of $4.32 million, or 2.95%, in the average
balance of deposits from $146.35 million in 1997 to $142.03
million in 1998 and again reflects stagnant growth under our
credit union charter. During this period the average rate paid
on deposits declined only one basis point to 3.85% in 1998 from
3.86% in 1997.
Provision for Loan Losses.
The provision for loan losses increased from $847,000 for
the fiscal year ended June 30, 1997 to $1.04 million for the
fiscal year ended June 30, 1998. As previously described, the
increase in provision for loan losses occurred principally in the
six months ended June 30, 1998 and was designed to conform the
policies for establishing IGA's allowance for loan losses to the
more stringent practices of savings institutions compared to
those of credit unions. The provision in 1997 also was
historically high and reflected a restoration of the allowance
after 1996 charge-offs related to an increase in personal
bankruptcies of members. These occurred after a significant
reduction in force by PECO and the resulting charge-off of
unsecured personal loans. See "Description of IGA -- Allowance
and Provision for Possible Loan Losses" for a discussion of how
management determines the provision for possible loan losses.
<PAGE 85>
Noninterest Income.
Noninterest income was $958,000 for the fiscal year ended
June 30, 1998 compared to $851,000 for the fiscal year ended
June 30, 1997. This 12.57% increase resulted primarily from an
increase in ATM interchange income over the same period.
Noninterest Expense.
Total noninterest expense increased $280,000 to
$5.26 million for the fiscal year ended June 30, 1998 from
$4.98 million for the fiscal year ended June 30, 1997. This
increase was primarily attributable to increased compensation and
employee benefits expenses of $99,000 associated with normal
salary and benefit increases and an increased lending staff, an
increase in bank and ATM charges of $131,000 due to higher
utilization. Management expects noninterest expense to increase
in future periods because of increased staffing needs, including
the chairman becoming a full time employee, and costs associated
with the Company's status as a public company.
Income Taxes.
Prior to July 1, 1998 IGA was a tax-exempt entity, therefore
no income taxes were paid in prior periods. However, IGA
estimates that if we had been taxable for the fiscal years ended
June 30, 1998 and 1997, we would have paid state and federal
income taxes of $279,000 and $586,000, respectively, resulting in
net income after taxes of approximately $384,000 and $440,000,
respectively.
Financial Condition
March 31, 1999 Compared to December 31, 1998
Our total assets increased 3.73% from $171.09 million at
December 31, 1998 to $177.47 million at March 31, 1999. During
the same period, net loans increased by 2.35% from
$102.90 million to $105.32 million while investment and mortgage
backed securities increased by 8.39% from $45.54 million to
$49.36 million. This increase in securities represents a
continuation of our policy, started in 1997, to initially
decrease and then maintain the amount of funds we hold in
interest bearing deposits at other banks to an amount we believe
sufficient to meet our liquidity needs. We redeployed those
funds and new funds received into higher yielding investment and
mortgage-backed securities.
Cash and cash equivalents, which include cash due from
banks, interest-bearing deposits in other financial institutions,
and federal funds sold, are all liquid funds. In a reflection of
our decision to deploy new funds into higher-yielding assets and
maintain short-term investments principally for liquidity
purposes, the aggregate amount in these three categories remained
essentially unchanged, decreasing by only $238,000 to <PAGE 86>
$18.11 million at March 31, 1999 from $18.35 million at
December 31, 1998. Prepaid expenses and other assets increased
by $164,000, from $593,000 at December 31, 1998 to $757,000 at
March 31, 1999.
Total liabilities increased by $6.55 million, or 4.20%, from
$155.82 million at December 31, 1998 to $162.37 million at
March 31, 1999. During this period, deposits increased by 4.22%
from $154.89 million at year-end 1998 to $161.43 at March 31,
1999. Within deposit categories the largest increase occurred in
savings accounts which increased from $90.07 million to
$95.12 million, or 5.6%, while time deposits only increased from
$64.82 million to $66.31, or 2.30%.
Retained earnings increased $140,000, or 0.90%, to
$15.70 million at March 31, 1999 from $15.56 million at
December 31, 1998. The increase in retained earnings is solely
attributable to earnings. The change in net unrealized
depreciation on investment and mortgage-backed securities
available for sale was ($310,000) from ($284,000) at December 31,
1998 to ($594,000) at March 31, 1999. This increase was caused
by the general increase in interest rates during the period.
December 31, 1998 Compared to June 30, 1998
Our total assets increased 7.03% from $159.85 million at
June 30, 1998 to $171.09 million at December 31, 1998. During
the same period, net loans increased by 4.89% from $98.10 million
to $102.90 million and investment and mortgage-backed securities
increased by 5.47% to $45.54 million from $43.18 million. Cash
and cash equivalents increased by $5.37 million to $18.35 million
at December 31, 1998 from $12.98 million at June 30, 1998. Total
deposits increased by $10.96 million, or 7.61%, from
$143.93 million at June 30, 1998 to $154.89 million at
December 31, 1998. This increase in deposits and cash and cash
equivalents reflects the influx of deposits that has occurred
since our conversion from a credit union to a savings bank and is
directly attributable to our ability to attract new customers who
were not credit union members.
Retained earnings increased $20,000, or 1.33%, to
$15.28 million at December 31, 1998 from $15.08 million at
June 30, 1998. The increase in retained earnings is attributable
to earnings. The change in net unrealized depreciation on
investment and mortgage-backed securities available for sale was
($70,000) from ($214,000) at June 30, 1998 to ($284,000) at
December 31, 1998.
June 30, 1998 Compared to June 30, 1997
Our total assets decreased 2.97% from $164.75 million at
June 30, 1997 to $159.85 million at June 30, 1998. During the
same period, net loans decreased by 2.29% to $98.10 million and
investment and mortgage-backed securities increased by 22.51% to
$43.18 million. The increase in securities was due to our
<PAGE 87> decision to invest funds previously held in interest
bearing deposits in other financial institutions into higher
yielding available for sale investment and mortgage-backed
securities. Cash due from banks, interest-bearing deposits in
other financial institutions, and federal funds sold are all
liquid funds. The aggregate amount in these three categories
decreased by $3.61 million to $12.98 million at June 30, 1998
from $16.59 million at June 30, 1997 reflecting the previously
mentioned shift to available for sale investment and mortgage-
backed securities. Equipment and leasehold improvements, net of
accumulated depreciation, increased from $1.69 million at year-
end 1997 to $1.88 million at year-end 1998. The increase of
$190,000 was mainly attributable to costs associated with the new
Chesterbrook branch site. Prepaid expenses and other assets
increased by $198,000, from $743,000 at June 30, 1997 to $941,000
at June 30, 1998.
Total liabilities decreased by $5.74 million, or 3.81%, from
$150.51 million at June 30, 1997 to $144.77 million at June 30,
1998. During this period, deposits decreased by 3.95% from
$149.85 million at year-end 1997 to $143.93 at year-end 1998.
The deposit mix changed considerably during 1998 because
approximately $13.00 million in savings account deposits held in
a retirement account administered by PECO were withdrawn and
transferred to higher yield investments at other financial
institutions. As a result, savings accounts decreased from
$80.23 million at June 30, 1997 to $68.26 million at June 30,
1998. The decrease in savings accounts was partially offset by a
$1.15 million increase in NOW accounts and a $5.18 million
increase in certificates of deposit.
Retained earnings increased $660,000, or 4.51%, to $15.29
million at June 30, 1998 from $14.63 million at June 30, 1997.
The increase in retained earnings is solely attributable to
earnings. The change in net unrealized depreciation on
investment and mortgage-backed securities available for sale was
$170,000 from ($385,000) at June 30, 1997 to ($215,000) at
June 30, 1998. This increase was caused by the general decrease
in interest rates during the period. When interest rates fall,
the fair market value of debt securities generally increases,
thereby increasing equity.
Asset Quality
Non-performing assets decreased from $806,000 at June 30,
1997 to $203,000 at March 31, 1999 because a number of credit
card and unsecured personal loans were charged off. Many of
these loans were to individuals that declared personal bankruptcy
that resulted, in part, from PECO Energy layoffs of our members.
Because of this increase in bankruptcies, we tightened our credit
standards and implemented credit scoring criteria for these types
of loans. As a percentage of total assets, non-performing assets
decreased from 0.49% at June 30, 1997 to 0.11% at March 31, 1999.
Non-performing assets are comprised of non-accrual loans,
accruing loans that are 90 days or more past due which are
<PAGE 88> insured for credit loss, foreclosed real estate (assets
acquire in foreclosures), and restructured loans. It is our
policy to classify a loan, other than a loan insured for credit
loss, as non-accrual after the loan becomes 90 days past due for
either principal or interest.
The balance in the allowance for loan losses was
$1.12 million or 1.06% of total loans at March 31, 1999, compared
to $1.01 million, or 1.00% of total loans at June 30, 1997. The
ratio of the allowance for loan losses to non-performing loans
was 549.75% at March 31, 1999, 631.76% at December 31, 1998,
419.47% at June 30, 1998 and 124.69% at June 30, 1997.
As a financial institution which assumes lending and
credit risk as a principal element of its business, we anticipate
that credit losses will be experienced in the normal course of
business. Accordingly, we make a quarterly determination as to
an appropriate provision from earnings necessary to maintain an
allowance for loan losses that is adequate for probable and
reasonably estimated losses. The amount charged against earnings
is based upon several factors including, at a minimum, each of
the following:
- a continuing review of delinquent, classified and non-
accrual loans, large loans, and overall portfolio
quality. This continuous review assesses the risk
characteristics of both individual loans and the total
loan portfolio;
- analytical review of loan charge-off experience,
delinquency rates and other relevant historical and
peer statistical ratios;
- our judgment with respect to local and general economic
conditions and their impact on the existing loan
portfolio;
- regular examinations and reviews of the loan portfolio
by our regulators.
When it is determined that the prospect for recovery of the
principal of a loan has significantly diminished, that portion of
the loan is immediately charged against the allowance account.
Subsequent recoveries, if any, are credited to the allowance
account. In addition, non-accrual and large delinquent loans are
reviewed monthly to determine potential losses.
We believe the allowance for loan losses was adequate to
cover risks inherent in our loan portfolio at March 31, 1999.
However, there can be no assurance that we will not have to
increase our provision for loan losses in the future as a result
of changes in economic conditions or for other reasons. Any such
increase could adversely affect our results of operations.
Liquidity <PAGE 89>
Pursuant to federal regulations, financial institutions must
maintain liquidity to meet day-to-day requirements of depositor
and borrower customers, take advantage of market opportunities,
and provide a cushion against unforeseen needs. Liquidity needs
can be met by either reducing assets or increasing liabilities.
Sources of asset liquidity are provided by investments in
U.S. Government and agency securities, time deposits with banks
and federal funds sold. These assets totaled $18.11 million at
March 31, 1999, compared to $18.35 million at December 31, 1998,
$12.98 million at June 30, 1998 and $16.59 million at June 30,
1997. Maturing and prepayment of loans as well as the monthly
cash flow associated with certain mortgage-backed securities are
other sources of asset liquidity.
Sources of liability liquidity are provided by attracting
deposits with competitive rates, using repurchase agreements,
buying federal funds or utilizing the facilities of the Federal
Home Loan Bank System. We historically have relied exclusively
on deposits. However, we expect that the influx of capital from
the conversion will cause us to begin to borrow funds in order to
increase earning assets and achieve an acceptable return on
equity for our shareholders.
We believe that IGA maintains and has maintained sufficient
short-term and liquid assets (including securities available-for-
sale) to meet liquidity requirements of its operations.
Market Risk Analysis
Qualitative Analysis
As stated above, we derive our income primarily from the
excess of interest collected over interest paid. The rates of
interest we earn on assets and pay on liabilities generally are
established contractually for a period of time. Market interest
rates change over time. Accordingly, our results of operations,
like those of many financial institutions, are affected by
changes in interest rates and the interest rate sensitivity of
our assets and liabilities.
In an attempt to manage our exposure to changes in interest
rates and comply with applicable regulations, we monitor IGA's
interest rate risk. In monitoring interest rate risk, we
continually analyze and manage assets and liabilities based on
their payment streams and interest rates, the timing of their
maturities, and their sensitivity to actual or potential changes
in market interest rate.
An asset or liability is interest-rate sensitive within a
specific time period if it will mature or reprice within that
time period. If our assets mature or reprice more rapidly or to
a greater extent than our liabilities, then net portfolio value
and net interest income would tend to increase during periods of
rising interest rates and decrease during periods of falling
interest rates. Conversely, if our assets mature or reprice more
<PAGE 90> slowly or to a lesser extent than our liabilities, then
net portfolio value and net interest income would tend to
increase during periods of rising interest rates and decrease
during periods of rising interest rates and increase during
periods of falling interest rates. Our policy has been to
address the interest rate risk inherent in the historical savings
institution business of originating long-term loans funded by
short-term deposits by maintaining sufficient liquid assets for
material and prolonged changes in interest rates.
Management regularly reviews our asset and liability
position including our interest rate risk and trends, liquidity
and capital ratios and related regulatory requirements. In
addition, management reviews simulations of the effect of changes
in interest rates on IGA's capital, net interest income and net
income.
Quantitative Analysis
Net Portfolio Value
In order to encourage savings associations to reduce their
interest rate risk, the Office of Thrift Supervision adopted a
rule incorporating an interest rate risk ("IRR") component into
the risk-based capital rules. The IRR component is a dollar
amount that will be deducted from total capital for the purpose
of calculating an institution's risk-based capital requirement
and is measured in terms of the sensitivity of its net portfolio
value ("NPV") to changes in interest rates. NPV is the
difference between incoming and outgoing discounted cash flows
from assets, liabilities, and off-balance sheet contracts. An
institution's IRR is measured by the change to its NPV as result
of a hypothetical 200 basis point ("bp") change in market
interest rates. A resulting change in NPV of more than 2% of the
estimated present value of total assets ("PV") will require the
institution to deduct from its capital 50% of that excess change.
Based on IGA's asset size and risk-based capital, we have been
informed by the Office of Thrift Supervision that IGA is exempted
from this rule. Nevertheless, the following table presents an
estimate of the change in our NPV at March 31, 1999 as calculated
by our personnel, based on quarterly financial information.
<TABLE>
<CAPTION>
Net Portfolio Value NPV as % of PV of Assets
Change
in Rates $ Amount $ Change % Change NPV Ratio % Change
- -------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
+300 bp 12,496 -4,656 -27% 7.19% -234 bp
+200 bp 14,026 -3,126 -18% 7.98% -155 bp
+100 bp 15,539 -1,612 -9% 8.74% -79 bp
0 bp 17,152 9.53%
- -100 bp 19,865 2,714 +16% 10.85% +131 bp
- -200 bp 22,859 5,707 +33% 12.24% +271 bp
- -300 bp 26,192 9,040 +53% 13.74% +420 bp
</TABLE> <PAGE 91>
In the above table, the first column on the left presents
the basis point increments of yield curve shifts. The second
column presents the overall dollar amount of NPV at each basis
point increment. The fifth column presents IGA's ratio of NPV to
total assets. The remaining columns present IGA's actual
position in dollar change and percentage change in NPV at each
basis point increment.
Were IGA subject to the IRR component at March 31, 1999, it
would not have been considered to have had a greater than normal
level of interest rate exposure and a deduction from capital
would not have been required. Although we have been advised by
the Office of Thrift Supervision that IGA is not subject to the
IRR component discussed above, it is still subject to interest
rate risk and, as can be seen above, rising interest rates will
reduce IGA's NPV. The Office of Thrift Supervision has the
authority to require otherwise exempt institutions to comply with
the rule concerning interest rate risk. See "Regulation -
Regulatory Capital Requirements."
Computations of prospective effects of hypothetical interest
rate changes are based on numerous assumptions, including
interest rates, loan prepayment rates, deposit decay rates, and
the market values of certain assets under the various interest
rate scenarios and should not be relied upon as indicative of
actual results. Certain shortcomings are inherent in the method
of analysis presented in the computation of NPV. Although
certain assets and liabilities may have similar maturities or
periods within which they reprice, they may react differently to
changes in market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other
types may lag behind changes in market rates. In the event of a
change in interest rates, prepayments and early withdrawal levels
could deviate significantly from those assumed in making the
calculations set forth above.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein
have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial
position and operating results in terms of historical dollars
without considering changes in the relative purchasing power of
money over time due to inflation. The primary impact of
inflation on our operations is reflected in increased operating
costs. Unlike most industrial companies, virtually all of the
assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than
does inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and
services.
<PAGE 92>
Year 2000 Issues
Year 2000 issues result from the inability of many computer
programs or computerized equipment to accurately calculate, store
or use a date after December 31, 1999 (the "Y2K Issue"). The
erroneous date can be interpreted in a number of different ways;
typically the year 2000 is interpreted as the year 1900.
Correctly identifying the year 2000 as a leap year may also be an
issue. These misidentifications could result in a system failure
or miscalculations causing disruptions of operations, including
among other things, a temporary inability to process
transactions, track important customer account information,
provide convenient access to this information or engage in normal
business operations.
IGA's board of directors and management have addressed the
Y2K issue by developing a Y2K Compliance Plan. This plan
involves five separate phases: awareness, assessment,
renovation, validation and implementation.
During 1997, IGA completed the assessment phase, identifying
each internal and external system that could potentially be
affected by the Y2K issue. Those systems include IGA's internal
data processing system as well as equipment such as bank alarms
that may contain microprocessors. For each such system, a
determination was made whether or not the system is Y2K
compliant. Those determinations involved obtaining Y2K compliant
certification from third-party processors and outside vendors.
As of December 31, 1998, IGA has completed its "awareness,"
"assessment," "renovation" and "validation" phases.
In November 1998, IGA conducted in-house testing of its data
processing system. IGA performed various banking transactions on
customers' accounts using the dates September 30, 1998,
January 1, 2000, January 30, 2000, January 31, 2000, February 29,
2000, September 9, 1999. All transactions were completed
successfully. IGA's data processing software vendor has
completed much of its Y2K testing but will continue testing and
renovation throughout 1999. IGA will be obligated to incur only
the hardware costs associated with implementing the changes
required by our vendor; hardware costs are not expected to be
material.
As of March 31, 1999, all other material outside vendors
have certified that they were Y2K compliant.
In certain cases, however, such as the potential loss of
electrical power or telecommunications services due to Y2K
problems, testing by IGA is either not practical or not possible.
In those cases, contingency plans are being designed that specify
how IGA will deal with each such potential situation. IGA has
developed a contingency plan that addresses failure of the data
processing service bureau system. IGA has determined that if the
service bureau system were to fail, IGA would implement manual
<PAGE 93> systems until the service bureau system could be
reestablished. IGA does not anticipate the potential use of
short-term manual systems would have a material impact upon the
operations of IGA.
In addition to expenses related to our own systems, we
could incur losses if loan payments are delayed due to year 2000
problems. In an effort to limit our risk of delayed loan
payments, we evaluate, during the loan origination process, the
year 2000 readiness of any commercial business or commercial real
estate borrower who borrows $250,000 or more. At June 30, 1999,
we had five commercial loans outstanding with principal balances
of more than $250,000 each and with an aggregate principal
balance of approximately $2.0 million. We have not conducted any
surveys or evaluations of other customers. We have been
communicating with our vendors and to assess their progress in
evaluating their systems and implementing any corrective measures
required by them to be prepared for the year 2000. To date, we
have not been advised by these vendors that they do not have
plans in place to address and correct the issues associated with
the year 2000 problem; however, no assurance can be given as to
the adequacy of such plans or to the timeliness of their
implementation.
As of June 30, 1999, we have spent $30,000 to address
year 2000 issues. We estimate we will incur an additional
$20,000 in connection with year 2000 issues.
Recent Accounting Pronouncements
FASB Statement on Stock-Based Compensation. In October
1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." Under SFAS No. 123,
an entity may elect to recognize stock-based compensation expense
based on the fair value of the awards, or they may elect to
account for stock-based compensation under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." If an entity elects
to account for stock-based compensation under APB No. 25, it is
not required to recognize expense based on the fair value of the
awards. However, the entity must disclose in the financial
statements the effects of SFAS No. 123, as if the recognition
provisions of SFAS No. 123 were adopted.
Currently, IGA does not provide stock-based compensation
to its employees. Upon completion of the conversion, subject to
stockholder approval, JADE FINANCIAL will establish certain
stock-based compensation plans. If established, we have
evaluated the alternatives available under the provisions of SFAS
No. 123 and currently expect that we will not adopt the
recognition provisions of the statement, but will provide the
required footnote disclosures. Therefore, we do not expect that
the adoption of SFAS No. 123 will have a material impact on our
financial position or results of operations.
<PAGE 94>
FASB Statement on Earnings Per Share. In February 1997,
the FASB issued SFAS No. 128, "Earnings Per Share." This
statement established standards for computing and presenting
earnings per share and applies to entities with publicly held
common stock or potential common stock. SFAS No. 128 simplifies
the standards for computing earnings per share previously found
in APB Opinion No. 15, "Earnings Per Share," and makes them more
comparable with international earnings per share standards.
IGA, as a mutual savings bank, does not have common stock
authorized, issued or outstanding and we do not calculate or
present earnings per share. Upon completion of the conversion,
we will calculate and present earnings per share in accordance
with SFAS No. 128.
FASB Statement on Reporting Comprehensive Income. In
June 1997, the FASB issued SFAS No. 130. SFAS No. 130 requires
classification of items of other comprehensive income by their
nature in the financial statements and the display of the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity
section of the statement of equity. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. IGA adopted
SFAS No. 130 on July 1, 1998. The adoption of this standard had
no material impact on IGA's consolidated financial
statements.
FASB Statement on Disclosure of Information about Capital
Structure. In February 1997, the FASB issued SFAS No. 129. SFAS
No. 129 incorporates the disclosure requirements of APB Opinion
No. 15, Earnings per Share, and makes them applicable to all
public and non-public entities that have issued securities
addressed by the Statement. APB Opinion No. 15 requires
disclosure of descriptive information about securities that is
not necessarily related to the computation of earnings per share.
This statement continues the previous requirements to disclose
certain information about an entity's capital structure found in
APB Opinions No. 10, Omnibus Opinion-1966, and No. 15, Earnings
per Share, and FASB Statement No. 47, Disclosure of Long-Term
Obligations, for entities that were subject to the requirements
of those standards. SFAS No. 129 eliminates the exemption of
non-public entities from certain disclosure requirements of
Opinion 15 as provided by FASB Statement No. 21, Suspension of
the Reporting of Earnings per Share and Segment Information by
Non-public Enterprises. It supersedes specific disclosure
requirements of Opinions No. 10 and No. 15 and FASB Statement
No. 47 and consolidates them in this Statement for ease of
retrieval and for greater visibility to non-public entities.
FASB No. 129 is effective for financial statements for periods
ending after December 15, 1997. SFAS No. 129 will be adopted by
JADE FINANCIAL in the initial period following consummation of
the offering. The adoption of this standard is not expected to
have a material impact on JADE FINANCIAL's consolidated financial
statements.
<PAGE 95>
FASB Statement on Disclosures about Segments of an
Enterprise and Related Information. In June 1997, the FASB
issued SFAS No. 131. SFAS No. 131 establishes standards for the
way public enterprises are to report information about operating
segments in annual financial statements and requires those
enterprises to report selected information about operating
segments in interim financial reports. SFAS No. 131 is effective
for financial statements for periods beginning after December 15,
1997. IGA adopted SFAS No. 131 on July 1, 1999. The adoption of
this standard had no material impact on IGA's consolidated
financial statements.
FASB Statement on Employers' Disclosures about Pensions
and Other Post-retirement Benefits. In February 1998, the FASB
issued SFAS No. 132. SFAS No. 132 revises employers' disclosures
about pension and other post-retirement benefit plans. SFAS
No. 132 does not change the measurement or recognition of those
plans and is effective for fiscal years beginning after
December 15, 1997. IGA adopted SFAS No. 132 on July 1, 1998.
The adoption of this standard had no material impact on IGA's
consolidated financial statements.
FASB Statement on Accounting for Derivative Instruments
and Hedging Activities. In June 1998, the FASB issued SFAS
No. 133. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments imbedded in other contracts (collectively
referred to as "derivatives") and for hedging activities. SFAS
No. 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated
as (i) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment,
(ii) a hedge of the exposure of variable cash flows of a
forecasted transaction, or (iii) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or
a foreign-currency-denominated forecasted transaction. The
accounting for changes in the fair value of a derivative (that
is, gains and losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. IGA has no activity subject to SFAS 133 and JADE
FINANCIAL is not expected to have any activity subject to
SAFS 133.
FASB Statement on Accounting for Mortgage-backed
Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise. In October 1998,
the FASB issued SFAS No. 134 which changes the way mortgage
banking firms account for certain securities and other interests
they retain after securitizing mortgage loans that were held for
sale. Under current practice, a bank that securitizes credit
card receivables has a choice in how it classifies any retained
<PAGE 96> securities based on its intent and ability to hold or
sell those investments. SFAS No. 134 gives mortgage banking
firms the opportunity to apply the same intent-based accounting
that is applied by other companies. SFAS No. 134 is effective
for the fiscal quarter beginning after December 15, 1998. IGA
adopted SFAS No. 134 on January 1, 1999. The adoption of SFAS
No. 134 had no material impact on IGA's financial condition or
results of operations.
BUSINESS OF JADE FINANCIAL
JADE FINANCIAL was organized at the direction of the Board
of Directors of IGA for the purpose of becoming a holding company
to own all of the outstanding capital stock of IGA. Upon
completion of the conversion, IGA will become a wholly-owned
subsidiary of JADE FINANCIAL. For additional information, see
"JADE FINANCIAL CORP."
Following the conversion, JADE FINANCIAL will be primarily
engaged in the business of directing, planning and coordinating
the business activities of IGA. In the future, JADE FINANCIAL
may become an operating company or acquire or organize other
operating subsidiaries, including other financial institutions,
though there are no current plans in this regard. Initially,
JADE FINANCIAL will not maintain offices separate from those of
IGA or employ any persons other than its officers who will not be
separately compensated for such service.
BUSINESS OF IGA
General
IGA originally was established in 1975 as IGA Federal Credit
Union. The credit union initially served the Independent Group
Association, a labor organization comprised of employees of PECO
Energy, Inc., the electric utility serving the Philadelphia
metropolitan area. Over time, IGA's membership grew to include
other employee groups. However, as a credit union, IGA was
legally restricted to serve only customers who shared a "common
bond" such as a common employer. However, members that were
employees of PECO or its affiliates (or retirees or family
members of PECO or its affiliates) continued to be a large
majority of IGA's members.
As a credit union, IGA did not experience membership growth
in recent years due to a reduction in the number of PECO
employees from approximately 12,500 to 6,500. Moreover, IGA
anticipated that membership would decline in the future due to
the nationwide consolidation of the electric utility industry and
the 1996 deregulation of the electric utility industry in
Pennsylvania. Therefore, after receiving the approval of the
National Credit Union Administration and IGA's members, on
July 1, 1998, IGA converted from a credit union to IGA Federal
Savings, a federal mutual savings association. IGA can now serve
<PAGE 97> the general public in our community, rather than being
limited to serving only distinct employee groups.
IGA is primarily engaged in the business of attracting
deposits from the general public and originating consumer loans,
including home equity, auto, credit card and personal loans, and
residential real estate loans, secured by first mortgages on
owner-occupied, one- to four-family residences in our market
area. IGA also originates a limited amount of commercial loans
and invests in investment and mortgage-related securities.
IGA's revenues are derived principally from interest on
mortgage loans, consumer loans and investment and mortgage-
related securities.
IGA offers a variety of deposit accounts having a wide
range of interest rates and terms, which generally include
passbook and statement savings accounts, money market deposit
accounts, NOW and non-interest bearing checking accounts and
certificates of deposit with varied terms ranging from 91 days to
60 months. IGA only solicits deposits in its market areas and it
has not accepted brokered deposits. Our deposits are insured by
the Savings Association Insurance Fund of the FDIC up to
applicable limits.
Market Areas
IGA currently operates, through:
- Its main office located in Feasterville, Bucks
County;
- 23rd and Market Streets in Center City,
Philadelphia in the PECO office building;
- Grays Ferry in Southwest Philadelphia;
- Chesterbrook in Chester County; and
- Media in Delaware County.
In addition, IGA participates in MAC, a regional automatic
teller machine network. IGA owns and operates three automatic
teller machines.
IGA's market area consists of certain portions of the
Philadelphia metropolitan area which is comprised of Philadelphia
and the surrounding Pennsylvania counties of Bucks, Chester,
Delaware and Montgomery. IGA also has a number of out-of-market
customers who are retirees or PECO employees at out-of-market
locations. IGA's five-county market area is included in the
Philadelphia Metropolitan Statistical Area. The Philadelphia
Metropolitan Statistical Area, which also includes three New
Jersey counties, is the nation's fourth largest metropolitan area
in terms of total population. Based on 1998 census data, the
<PAGE 98> Pennsylvania counties in the Philadelphia Metropolitan
Statistical Area had an estimated population of 3.7 million,
which is one-third of Pennsylvania's total population.
Future growth opportunities for IGA depend on several
different growth indicators in the market area, particularly the
future growth and stability of the regional economy, demographic
growth trends, and the nature and intensity of the competitive
environment. The population trends in Philadelphia and Delaware
counties are less favorable than the Philadelphia Metropolitan
Statistical Area averages, reflecting the urban flight typical of
most Northeastern United States urban areas. The surrounding
counties of Bucks, Montgomery and Chester, all of which are more
suburban than Philadelphia and Delaware Counties, have
experienced relatively strong positive population growth over the
past several years. Household growth trends in these areas have
paralleled the population growth trends since 1990, exhibiting
shrinkage in overall number of households in Philadelphia and
Delaware counties versus positive growth for Bucks, Montgomery
and Chester counties. In the near term future, the population
and household growth trends described above are forecasted to
continue following the same trends that were experienced over the
past several years. Although IGA's market in Philadelphia and
Delaware Counties has a shrinking population base, the remaining,
large population base will continue to provide access to lending
and deposit opportunities. The Bank's offices in the outlying
Bucks and Chester counties and the proximity of Montgomery County
also can be expected to provide lending and deposit growth
opportunities, especially in light of the population growth
trends in these counties.
Employment in IGA's market area is derived from a broad
base of employment sectors, including manufacturing, services,
wholesale/retail trade, state and local government,
transportation/utilities, finance, insurance, real estate, and
others.
Due to the large number of employers with a national or
multi-national scope of business in Philadelphia Metropolitan
Statistical Area, the regional economy is exposed to national and
global recessionary trends. The following table sets forth the
unemployment rates in the Untied States, Pennsylvania and IGA's
five-country market area for the periods indicated.
March 1998 March 1999
Region Unemployment Unemployment
United States 5.0% 4.4%
Pennsylvania 5.2% 4.8%
Bucks County 3.8% 3.6%
Montgomery County 3.4% 3.2%
Philadelphia County 6.2% 5.7%
Chester County 2.8% 2.6%
Delaware County 4.1% 3.7%
<PAGE 99>
Competition
IGA faces strong competition, both in originating
consumer, commercial business, commercial real estate and
residential real estate loans and in attracting deposits. The
Philadelphia Metropolitan Statistical Area has become a center
for financial services, and IGA competes with a number of very
large financial institutions that are either headquartered or
maintain offices in southeastern Pennsylvania. Some of the
larger commercial banks operating in our market area include
First Union National Bank, PNC Bank and Mellon Bank. IGA also
competes with a number of large thrifts who maintain branches in,
or are headquartered in, Southeastern Pennsylvania, including
Sovereign Bank, Commonwealth Bank, Firstrust Savings Bank, and
Beneficial Mutual Savings Bank. At June 30, 1998, there were
over 1,700 financial institution branches in our market area.
Competition in originating residential real estate loans comes
primarily from other savings institutions, commercial banks,
credit unions and mortgage bankers. Competition for commercial
business loans and commercial real estate loans comes primarily
from commercial banks and savings institutions. Other savings
institutions, commercial banks, credit unions and finance
companies provide vigorous competition in consumer lending.
IGA attracts all of its deposits through IGA's five
branch offices. Competition for those deposits is principally
from other savings institutions, commercial banks and credit
unions located in the same region, as well as mutual funds. IGA
competes for these deposits by offering a variety of deposit
accounts at competitive rates and superior service. From 1996 to
1998, deposit growth in Pennsylvania was positive for commercial
banks and savings institutions, with savings institutions
recording the highest rate of growth due primarily to the rapid
expansion of Sovereign Bank, a large regional thrift. During
this period, commercial banks continued to maintain approximately
78% of all deposits. Within IGA's five-county market area,
Philadelphia County recorded the highest growth in deposits from
1996 to 1998, along with growth in Chester and Bucks Counties,
minimal growth in Montgomery County, and deposit shrinkage in
Delaware County. Commercial banks have a majority of deposit
funds in IGA's market area.
Lending Activities
General.
IGA is primarily engaged in the business of attracting
deposits from the general public and originating consumer loans,
including home equity, auto, credit card and personal loans and
residential real estate loans, secured by first mortgages on
owner-occupied, one- to four-family residences in our market
areas. IGA also originates a limited amount of commercial loans.
<PAGE 100>
The following table sets forth the composition of IGA's loan
portfolio at March 31, 1999 and 1998, December 31, 1998 and 1997
(to reflect the recent change in IGA's fiscal year-end from
June 30 to December 31), and June 30, 1998 and 1997. For the
periods presented, there is no significant concentration of loans
in any one industry. No loans have been made to borrowers
outside the United States.
<TABLE>
<CAPTION>
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family $ 40,740 38.28% $ 32,529 33.58% $ 40,114 38.57% $ 30,627 30.96% $35,799 36.15% $ 31,429 31.02%
Commercial 2,131 2.00% 0 0.00 1,408 1.35% 0 0.00 256 0.26% 0 0.00%
Construction 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00
Total real estate loans 42,871 40.28% 32,529 33.58% 41,522 39.92% 30,627 30.96% 36,055 36.41% 31,429 31.02%
Consumer Loans:
Home equity 23,085 21.69% 23,707 24.47% 22,421 21.56% 24,505 24.77% 23,174 23.40% 24,154 23.84%
Automobile 20,762 19.51% 18,871 19.48% 18,746 18.03% 19,610 19.82% 18,844 19.03% 20,470 20.20%
Credit cards 9,870 9.27% 10,127 10.45% 10,920 10.50% 11,917 12.05% 10,269 10.37% 10,700 10.56%
Unsecured loans 5,462 5.13% 7,280 7.52% 6,329 6.09% 9,329 9.43% 6,577 6.64% 9,307 9.18%
Other 3,634 3.41% 4,160 4.29% 3,658 3.52% 2,742 2.77% 3,871 3.91% 5,264 5.20%
Commercial loans 760 0.71% 197 0.21% 400 0.38% 197 0.20% 237 0.24 0 0.00
Total consumer loans 63,573 59.72% 64,342 66.42% 62,474 60.08% 68,300 69.04% 62,972 63.59% 69,895 68.98%
Total loans 106,444 100.00% 96,871 100.00% 103,996 100.00% 98,927 100.00% 99,027 100.00% 101,324 100.00%
====== ====== ====== ====== ======
Less:
Deferred fees
and discounts (8) 56 (22) 0 17 52
Allowance for losses (1,116) (741) (1,074) (1,042) (948) (1,005)
Total loans
receivable, net $105,320 $ 96,186 $102,900 $ 97,885 $98,096 $100,371
======== ======== ======== ======== ======= ========
</TABLE>
<PAGE 101>
The following table shows the composition of IGA's loan
percentages portfolio by fixed- and adjustable-rate at March 31,
1999 and 1998, December 31, 1998 and 1997 (to reflect the recent
change in IGA's fiscal year-end from June 30 to December 31), and
June 30, 1998 and 1997.
<TABLE>
<CAPTION>
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family $39,155 36.78% $30,220 31.20% $38,446 36.97% $28,067 28.37% $33,755 34.09% $ 28,675 28.30%
Commercial loans 2,131 2.00% 0 0.00% 1,408 1.35% 0 0.00% 256 0.26% -- --
Home equity 17,533 16.47% 16,962 17.51% 17,054 16.40% 17,528 17.72% 17,164 17.33% 16,818 16.60%
Automobile 20,762 19.51% 18,871 19.48% 18,746 18.03% 19,610 19.82% 18,844 19.03% 20,470 20.20%
Unsecured loans 5,462 5.13% 7,280 7.52% 6,329 6.09% 9,329 9.43% 6,577 6.64% 9,307 9.19%
Other 4,037 3.79% 4,035 4.17% 3,684 3.54% 2,594 2.62% 3,315 3.35% 4,466 4.41%
Total fixed-rate loans 89,080 83.69% 77,368 79.87% 85,667 82.38% 77,128 77.96% 79,911 80.70% 79,736 78.69%
Adjustable Rate Loans:
Real estate:
One- to four-family 1,585 1.49% 2,309 2.38% 1,668 1.60% 2,560 2.59% 2,044 2.06% 2,754 2.72%
Home equity 5,552 5.22% 6,745 6.96% 5,367 5.16% 6,977 7.05% 6,010 6.07% 7,336 7.24%
Credit cards 9,870 9.27% 10,127 10.45% 10,920 10.50% 11,917 12.05% 10,269 10.37% 10,700 10.56%
Other 357 0.34% 322 0.33% 374 0.36% 345 0.35% 793 0.80% 798 0.79%
Total adjustable-rate
loans 17,364 16.31% 19,503 20.13% 18,329 17.62% 21,799 22.04% 19,116 19.30% 21,588 21.31%
Total loans 106,444 100.00% 96,871 100.00% 103,996 100.00% 98,927 100.00% 99,027 100.00% 101,324 100.00%
====== ====== ====== ====== ====== ======
Less:
Deferred fees
and discounts (8) 56 (22) 0 17 52
Allowance for losses (1,116) (741) (1,074) (1,042) (948) (1,005)
Total loans
receivable, net $105,320 $96,186 $102,900 $97,885 $98,096 $100,371
======== ======= ======== ======= ======= ========
</TABLE>
<PAGE 102>
Maturities and Sensitivities of Loans to Changes in Interest
Rates
The following schedule illustrates the contractual maturity
of IGA's loan portfolio at March 31, 1999. Mortgages which have
adjustable or negotiable interest rates are shown as maturing in
the period during which the contract is due. The schedule does
not reflect the effects of possible prepayments or enforcement of
due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
One- to Four-Family Commercial Consumer Commercial Business Total
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Due During Year
Ending March 31,
2000(1) 1,824 7.64 - - 12,593 12.09 - - 14,410 11.53
2001 and 2002 3,989 7.17 - - 13,956 8.81 81 10.42 18,018 8.46
2003 to 2004 4,766 7.12 1,758 8.25 18,313 8.05 38 9.49 24,867 7.89
2005 to 2019 24,589 6.98 373 8.50 17,983 8.66 608 8.61 43,544 7.71
2020 and beyond 5,572 6.80 - - - - 33 9.85 5,605 6.82
__________________________
</TABLE>
(1) Includes demand loans, loans having no stated maturity and
overdraft loans.
The total amount of loans due after March 31, 1999 which
have predetermined interest rates is $89.08 million, while the
total amount of loans due after such date which have floating or
adjustable interest rates is $17.36 million.
Residential Mortgage Lending.
IGA originates substantially all of its mortgage loans
through its retail branch network. IGA generally underwrites
one- to four-family loans based on the applicant's employment,
credit history, and appraised value of the subject property.
Presently, IGA lends up to 95% of the lesser of the appraised
value or purchase price for one- to four-family residential
loans. For loans with a loan-to-value ratio in excess of 80%,
IGA requires the borrowers to obtain private mortgage insurance.
As a result, IGA has not experienced any material loss with
respect to residential mortgage loans having a loan-to-value
ratio of greater than 80%. All first mortgage loans require
title and hazard insurance, and flood insurance, if necessary, in
an amount not less than the value of the property improvements.
IGA also requires title insurance on properties securing mortgage
loans, in accordance with local practice. <PAGE 103>
In order to approve a property as security for a loan, IGA
requires a satisfactory appraisal by an approved independent
appraiser. Independent appraisers must abide by IGA's appraisal
policies and must be approved by IGA's Board of Directors.
IGA currently originates one- to four-family mortgage loans
on either a fixed or adjustable basis, as consumer demand
dictates. IGA's pricing strategy for mortgage loans includes
setting interest rates that are competitive with Fannie Mae and
Freddie Mac, other local financial institutions, and IGA's
internal needs. Adjustable rate mortgage ("ARM") loans are
offered with either a one-year or three-year term to the initial
repricing date. After the initial period, the interest rate for
each ARM loan generally adjusts annually for the remainder of the
term of the loan. IGA uses the United States Treasury Constant
Maturity Index to reprice ARM loans. For the three months ended
March 31, 1999 and 1998, IGA originated no one- to four-family
ARM loans, and $1.92 million and $3.15 million, respectively, of
one- to four-family fixed rate mortgage loans. For the six
months ended December 31, 1999 and 1998, IGA originated no one-
to four-family ARM loans, and $7.0 million and $5.54 million,
respectively, of one- to four-family fixed rate mortgage loans.
For the fiscal year ended June 30, 1998, IGA originated $229,000
of one- to four-family ARM loans and $13.57 million of one- to
four-family fixed-rate mortgage loans. For the fiscal year ended
June 30, 1997, IGA originated no one- to four-family ARM loans
and $3.93 million of one- to four-family fixed-rate mortgage
loans. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset and Liability
Management and Market Risk."
Fixed-rate loans secured by one- to four-family residences
have contractual maturities of up to 30 years, and are fully
amortizing, with payments due monthly. These loans normally
remain outstanding, however, for a substantially shorter period
of time because of refinancing and other prepayments. A
significant change in the current level of interest rates could
alter considerably the average life of a residential loan in
IGA's portfolio. IGA's one- to four-family loans are generally
not assumable, do not contain prepayment penalties and do not
permit negative amortization of principal. IGA's real estate
loans generally contain a "due on sale" clause allowing IGA to
declare the unpaid principal balance due and payable upon the
sale of the security property.
IGA's one- to four-family residential ARM loans are fully
amortizing loans with contractual maturities of up to 30 years,
with payments due monthly. IGA's ARM loans generally provide for
specified minimum and maximum interest rates, with a lifetime cap
and floor, and an annual adjustment on the interest rate over the
rate in effect on the date of origination. As a consequence of
using caps, the yield on these loans may not be as rate sensitive
as is our cost of funds. IGA's ARM loans are not convertible
into fixed-rate loans.
<PAGE 104>
In order to remain competitive in its market areas, IGA
currently originates ARM loans at initial rates below the fully
indexed rate, and qualifies borrowers based on this initial
discounted rate for IGA's three year ARMs and at 2% over the
initial rate for one-year ARMs.
ARM loans generally pose different credit risks than fixed-
rate loans, primarily because as interest rates rise, the
borrower's payment rises, increasing the potential for default.
IGA has not experienced difficulty with the payment history for
these loans. See "-Asset Quality --Non-Performing Assets" and "-
Asset Quality -- Delinquent Loans."
Mortgage loans must be approved by the Vice President of
Lending. Mortgage loans exceeding $250,000 must be approved by
the President.
At March 31, 1999, $40.74 million, or 38.27%, of IGA's total
loan portfolio consisted of residential mortgage loans. At that
date the fixed-rate one- to four-family mortgage loan portfolio
totaled $39.16 million, or 36.78% of our gross loan portfolio,
and IGA's one- to four-family ARM loan portfolio totaled $1.59
million, or 1.49% of its gross loan portfolio.
IGA also makes a limited number of construction loans to
individuals for the construction of their residences. These
loans generally have a construction phase of six to nine months
during which the borrower pays only interest on the loan. Upon
completion of the construction phase, the loan becomes a standard
one- to four-family mortgage loan. These loans are underwritten
using the same criteria as IGA's other one- to four-family
mortgage loans. All of these loans are secured by property
located within our market areas. At March 31, 1999, IGA had no
residential construction loans outstanding.
Although IGA is committed to expanding its residential
mortgage lending, the number of consumer loan originations still
significantly exceed residential first mortgage loans. To
facilitate liquidity and interest rate risk management, IGA on
occasion has sold fixed rate loans in the secondary mortgage
market. However, in order to increase its mortgage loan
portfolio, IGA is presently holding most new loans in its
portfolio. IGA services the loans it originates, including the
loans it sells in the secondary mortgage market. As of March 31,
1999, IGA serviced a portfolio consisting of $14.51 million of
residential mortgage loans owned by Fannie Mae, holders of Fannie
Mae mortgage-backed securities and other investors.
Commercial Loans
General. IGA recently took steps to expand its commercial
real estate and commercial business lending program by adopting a
commercial lending policy and hiring staff experienced in this
area. IGA believes there is significant opportunity in small
<PAGE 105> business lending due to the consolidation of financial
institutions in IGA's market area.
Multi-family and Commercial Real Estate Lending. IGA offers
a variety of multi-family and commercial real estate loans.
These loans are secured primarily by multi-family dwellings,
small retail establishments and small office buildings located in
IGA's market areas. IGA may, from time to time, participate in
commercial real estate construction loans with other lenders. At
March 31, 1999, multi-family and commercial real estate loans
totaled $2.13 million or 2.00% of IGA's gross loan portfolio.
IGA's loans secured by multi-family and commercial real
estate are originated with either a fixed or adjustable interest
rate. The interest rate on adjustable-rate loans is based on a
variety of indices, generally determined through negotiation with
the borrower. Loan-to-value ratios on IGA's multi-family and
commercial real estate loans typically do not exceed 80% of the
appraised value of the property securing the loan. These loans
typically require monthly payments and have maximum maturities of
25 years. While maximum maturities may extend to 30 years, loans
frequently have shorter maturities and may not be fully
amortizing, requiring balloon payments of unamortized principal
at maturity.
Loans secured by multi-family and commercial real estate are
granted based on the income producing potential of the property
and the financial strength of the borrower. The net operating
income, which is the income derived from the operation of the
property less all operating expenses, must be sufficient to cover
the payments related to the outstanding debt. IGA generally
require personal guarantees of the borrowers covering a portion
of the debt in addition to the security property as collateral
for such loans. IGA generally requires an assignment of rents or
leases in order to be assured that the cash flow from the project
will be used to repay the debt. Appraisals on properties
securing multi-family and commercial real estate loans are
performed by independent state certified fee appraisers approved
by the board of directors. See "--Loan Originations, Purchases,
Sales and Repayments."
IGA generally maintains a tax or insurance escrow account
for its loans secured by multi-family and commercial real estate.
In order to monitor the adequacy of cash flows on
income-producing properties of $1.0 million or more, the borrower
is notified annually to provide financial information including
rental rates and income, maintenance costs and an update of real
estate property tax payments, as well as personal financial
information.
Loans secured by multi-family and commercial real estate
properties are generally larger and involve a greater degree of
credit risk than one-to four-family residential mortgage loans.
Such loans typically involve large balances to single borrowers
or groups of related borrowers. Because payments on loans
<PAGE 106> secured by multi-family and commercial real estate
properties are often dependent on the successful operation or
management of the properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the
economy. If the cash flow from the project is reduced, or if
leases are not obtained or renewed, the borrower's ability to
repay the loan may be impaired. See "- Asset Quality --
Non-performing Loans."
Commercial Business Lending. IGA offers commercial business
loans in the form of lines of credit and fixed or adjustable rate
term loans. These loans are generally secured by commercial
assets, the borrower's personal guarantees and/or personal
assets. At March 31, 1999, commercial business loans totaled
$760,000 or .71% of our gross loan portfolio.
Commercial business loans typically require monthly payments
and have maximum maturities of ten years.
Consumer Loans.
General. IGA offers a variety of consumer loans, including
home equity loans, auto loans, credit card loans, unsecured
personal loans and loans secured by a deposit account. At
March 31, 1999, consumer loans accounted for $62.81 million or
59.72% of IGA's total loan portfolio. Of this amount,
approximately 23.09 million, or 21.69% consisted of home equity
loans, $20.76 million, or 19.61%, consisted of auto loans,
$9.87 million, or 9.27%, consisted of credit card loans and
$5.46 million or 5.13% consisted of unsecured personal loans.
Consumer loans generally have shorter terms to maturity,
which reduces IGA's exposure to changes in interest rates, and
carry higher rates of interest than do one- to four-family
residential mortgage loans. In addition, management believes
that offering consumer loan products helps to expand and create
stronger ties to our existing customer base by increasing the
number of customer relationships and providing cross-marketing
opportunities.
We do not originate any consumer loans on an indirect basis.
Indirect loans are contracts purchased from retailers of goods or
services which have extended credit to their customers.
The underwriting standards employed by IGA for consumer
loans include a determination of the applicant's payment history
on other debts and an assessment of the ability to meet existing
obligations and payments on the proposed loan. Although
creditworthiness of the applicant is a primary consideration,
with respect to any secured consumer loan the underwriting
process also includes a comparison of the value of the security
in relation to the proposed loan amount.
Home Equity. IGA originates home equity loans secured by
second mortgages on owner-occupied, one- to four-family
<PAGE 107> residences. These loans are originated as fixed-rate
loans with terms of from one to fifteen years or as adjustable
rate lines of credit. Second mortgage loans are generally
subject to a 80% combined loan-to-value ratio limitation,
including any other outstanding first mortgages or liens. Home
equity loans are underwritten based on the borrower's income and
equity in the home. As of March 31, 1999, we had $23.09 million
in home equity loans outstanding.
Auto Lending. IGA continues to grow its auto lending
portfolio through traditional car financing and with the addition
of the "Alt-Lease" program, which is a balloon term loan program
started by IGA as an alternative to leasing. IGA will finance up
to 100% of the purchase price of a new or used vehicle, subject
to valuations from official new and used car guides. All auto
loans are secured by title encumbrances. IGA requires that the
borrower maintain proper auto insurance coverage to protect the
collateral. Borrowers are fully underwritten for
creditworthiness.
Credit Cards. IGA has maintained an independent credit card
program for over 15 years as part of its mission to provide a
full range of financial services and products to customers. The
credit card program has been successfully introduced through
cross-selling opportunities within IGA. IGA's credit cards have
no annual fee and currently carry an annual percentage interest
rate equal to the prime rate plus 4.65% on outstanding credit
card balances. Management continues to consider expansion of the
program through marketing campaigns, pre-approval screenings,
direct mail and affinity relationships.
Consumer loans may entail greater risk than do one- to four-
family residential mortgage loans, particularly in the case of
unsecured consumer loans and consumer loans which are secured by
rapidly depreciable assets, such as automobiles.
Loan Originations, Sales and Repayments
IGA originates loans through referrals from real estate
brokers and builders, its marketing efforts, and its existing and
walk-in customers. While IGA originates both adjustable-rate and
fixed-rate loans, its ability to originate loans is dependent
upon the relative customer demand for loans in its market.
Demand is affected by local competition and the interest rate
environment. Competition from other lenders in our market area
limits, to a certain extent, the volume of loans IGA has been
able to originate and place in its portfolio. IGA sells a
limited amount of loans and, as a result, loans are originated
according to secondary market guidelines. Furthermore, during
the past few years, IGA, like many other financial institutions,
has experienced significant prepayments on loans and mortgage-
backed and related securities due to the sustained low interest
rate environment prevailing in the United States.
<PAGE 108>
In periods of economic uncertainty, the ability of financial
institutions, including IGA, to originate large dollar volumes of
loans may be substantially reduced or restricted, with a
resultant decrease in related interest income.
The following table shows the loan origination, sale and
repayment activities of IGA for the three months ended March 31,
1999 and 1998, the six-month transition periods ended
December 31, 1998 and 1997 to reflect the recent change in IGA's
fiscal year-end from June 30 to December 31, and the years ended
June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
March 31, December 31, Year Ended June 30,
1999 1998 1998 1997 1998 1997
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Originations by type:
Adjustable rate(1):
Real estate - one- to four-family $ 0 $ 0 $ 0 $ 0 $ 229 $ 0
Total adjustable rate 0 0 0 0 229 0
Fixed Rate:
Real estate - one- to four-family 1,916 3,148 7,000 5,539 13,574 3,927
Commercial 745 0 1,408 0 0 0
Consumer 7,876 4,536 12,656 10,372 20,379 31,869
Total fixed-rate 10,537 7,684 21,064 15,911 33,953 35,796
Total loans originated 10,537 7,684 21,064 15,911 34,182 35,796
Sales and Repayments:
Principal repayments (8,410) (9,807) (16,140) (18,224) (31,606) (27,566)
Loans sold 0 (298) 0 (4,576) (4,873) (2,073)
Increase (decrease) in other items, net 0 0 (77) 0 22 (457)
Net increase (decrease) $ 2,127 ($2,421) $ 4,847 ($6,889) ($2,275) $ 5,700
======= ======= ======= ======= ======= =======
</TABLE>
_______________
(1) For the three months ended March 31, 1999 and 1998, IGA also
originated home equity lines of credit under which borrowers
are permitted to borrow up to an aggregate of $504,000 and
$200,000, respectively.
Asset Quality
Delinquent Loans. Delinquent real estate loans are
comprised of loans that are 30 to 89 days past due and all other
loans that are 31-89 days past due. When a borrower fails to
make a payment on a loan on or before the default date, a late
charge notice is mailed 15 days after the due date. When the
loan is 30 days past due, IGA mails a delinquent notice to the
borrower. All delinquent accounts are reviewed by a collection
officer, who attempts to cause the delinquency to be cured by
contacting the borrower. If the loan becomes 60 days delinquent,
the collection officer will generally send a personal letter to
the borrower requesting payment of the delinquent amount in full,
or the establishment of an acceptable repayment plan to bring the
<PAGE 109> loan current within the next 90 days. If the account
becomes 90 days delinquent, and an acceptable repayment plan has
not been agreed upon, the collection officer will generally refer
the account to legal counsel, with instructions to prepare a
notice of intent to foreclose with respect to real estate loans
or to a collection agency with respect to other loans. The
notice of intent to foreclose allows the borrower up to 30 days
to bring the account current. During this 30-day period, the
collection officer may accept a written repayment plan from the
borrower which would bring the account current within the next 90
days. Once the loan becomes 120 days delinquent, and an
acceptable repayment plan has not been agreed upon, the
collection officer, after receiving approval from the appropriate
officer as designed by IGA's board of directors, will turn over
the account to IGA's counsel with instructions to initiate
foreclosure.
The following table sets forth IGA's loans delinquent 30-89
days by type, number, amount and percentage of type at March 31,
1999.
<TABLE>
<CAPTION>
Real Estate
Loans Delinquent for
30-89 Days
Percent of
Total Delinquent
Number Amount Loans
(Dollars in Thousands)
<S> <C> <C> <C>
Real Estate:
One- to four-family 3 $258 41.6%
construction 0 0 0.00%
commercial 0 0 0.00%
Total 3 258 41.6%
Non-Real Estate Loans Delinquent for 31-89 Days
Consumer:
Home equity 3 128 20.6%
Automobile 9 75 12.1%
Credit cards 27 63 10.1%
Unsecured loans 20 96 15.6%
Total 59 362 58.4%
</TABLE>
Nonperforming Assets. Non-performing assets are comprised
of non-accrual loans, accruing loans that are 90 days or more
past due which are insured for credit loss, foreclosed real
estate (assets acquire in foreclosures), and restructured loans.
It is IGA's policy to classify a loan, other than a loan insured
for credit loss, as non-accrual after the loan becomes 90 days
past due for either principal or interest. Accrual of interest
is discontinued for those loans which are 90 days or more
delinquent, or sooner if IGA believes, after considering economic
<PAGE 110> and business conditions and collection efforts, that
the borrower's financial condition is such that collection of
interest is doubtful. Upon discontinuance of interest accrual,
all unpaid accrued interest is reversed.
The following table sets forth the amounts and categories of
non-performing assets at March 31, 1999 and 1998, December 31,
1998 and 1997 (to reflect the recent change in IGA's fiscal year-
end from June 30 to December 31), and June 30, 1998 and 1997. At
all dates presented, IGA had no troubled debt restructurings
which involve forgiving a portion of interest or principal on any
loans or making loans at a rate materially less than that of
market rates.
<TABLE>
<CAPTION>
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family $ 47 $ 0 $ 16 $ 59 $ 16 $ 0
Home equity 65 201 64 233 110 294
Automobile 21 41 39 81 40 42
Credit cards 16 32 41 259 39 174
Unsecured loans 54 52 10 343 21 296
Other 0 0 0 0 0 0
Total 203 326 170 975 226 806
Accruing loans delinquent
90 days or more:
One- to four-family $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Home equity 0 0 0 0 0 0
Automobile 0 0 0 0 0 0
Credit cards 0 0 0 0 0 0
Unsecured loans 0 0 0 0 0 0
Other 0 0 0 0 0 0
Total 0 0 0 0 0 0
Foreclosed assets $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Renegotiated loans 0 0 0 0 0 0
Total non-performing assets $203 $326 $170 $975 $226 $806
Non-performing assets
as a percent of
total loans 0.19% 0.34% 0.16% 0.99% 0.23% 0.80%
Non-performing assets
as a percent of
total assets 0.11% 0.20% 0.10% 0.64% 0.14% 0.49%
</TABLE>
IGA has no other material loans which are classified under
applicable regulatory guidelines. With respect to all other
loans that were current with respect to principal and interest
<PAGE 111> payments at March 31, 1999, IGA, at present, does not
have serious doubt as to the ability of substantially all
borrowers to comply with present loan repayment terms. IGA does
not currently anticipate significant deterioration in the
economic conditions in our market area. If there is a material
deterioration in economic conditions, delinquencies may increase
which would adversely affect IGA's results of operations.
Allowance and Provision for Loan Losses
IGA makes a quarterly determination as to an appropriate
provision from earnings necessary to maintain an allowance for
loan losses that is adequate for probable and reasonably
estimated losses. The amount charged to earnings is based upon
several factors including a continuing review of delinquent,
classified and non-accrual loans, large loans, and overall
portfolio quality, regular examination and review of the loan
portfolio by regulatory authorities, analytical review of loan
charge-off experience, delinquency rates, other relevant
historical and peer statistical ratios and IGA's judgment with
respect to local and general economic conditions and their impact
on the existing loan portfolio. See "Management's Discussion of
Financial Condition and Results of Operations -- Comparison of
Results of Operations for the Three Months Ended March 31, 1999
and March 31, 19998" for a discussion of our change in reserve
methodology associated with our conversion from a credit union to
a savings bank.
Assessing the adequacy of the allowance for loan losses
is inherently subjective because it requires making material
estimates, including the amount and timing of future cash flows
expected to be received on impaired loans, that may be
susceptible to significant change. In the opinion of management,
the allowance when taken as a whole, is adequate to absorb
reasonable estimated loan losses inherent in IGA's loan
portfolios.
The following table presents the activity in the allowance
for loan losses for the three months ended March 31, 1999 and
1998, the six-month transition periods ended December 31, 1998
and 1997 to reflect the recent change in IGA's fiscal year-end
from June 30 to December 31, and the years ended June 30, 1998
and 1997.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended Year Ended
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $1,074 $1,042 $948 $1,005 $1,005 $ 558
Charge-offs:
Real estate 0 0 $ 27 10 36 0
<PAGE 112>
Credit cards 72 283 137 128 479 208
Other consumer loans 64 423 90 254 757 282
136 706 254 392 1,272 490
Recoveries:
Real estate 16 0 0 0 0 0
Credit cards 0 0 0 0 0 0
Other consumer loans 27 29 80 33 177 90
43 29 80 33 177 90
Net charge-offs (93) (677) (174) (359) (1,095) (400)
Provision for loan losses 135 $ 376 300 396 1,038 847
Balance at end of period $1,116 $ 741 $1,074 $1,042 $ 948 $1,005
Ratio of net charge-offs during the
period to average loans
outstanding during the period .09% .68% 0.17% .36% 1.10% 0.40%
Ratio of net charge-offs during
the period to average
non-performing assets 57.06% 245.29% 102.35% 36.82% 212.21% 59.00%
</TABLE>
The following table sets forth the distribution of IGA's
allowance for losses on loans at March 31, 1999 and 1998,
December 31, 1998 and 1997 (to reflect the recent change in IGA's
fiscal year-end from June 30 to December 31), and June 30, 1998
and 1997.
<PAGE 113>
<TABLE>
<CAPTION>
March 31,
1999 1998
Percent Percent
of Loans of Loans
Amount Loan in Each Amount Loan in Each
of Loan Amounts Category of Loan Amounts Category
Loss by to Total Loss by to Total
Allowance Category Loans Allowance Category Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One - to four-family $ 33 $ 40,740 38.27% $ 22 $32,529 33.58%
Home Equity 279 23,085 21.69% 185 23,707 24.47%
Automobile 56 20,762 19.51% 37 18,871 19.48%
Credit cards 279 9,870 9.27% 185 10,127 10.45%
Unsecured loans 246 5,462 5.13% 163 7,280 7.52%
Other 223 6,525 6.13% 223 4,357 4.50%
Unallocated 0 0 0.00% 0 0 0.00%
Total $1,116 $106,444 100.00% $ 741 $96,871 100.00%
====== ======== ====== ====== ======= ======
<CAPTION>
December 31
1998 1997
Percent Percent
of Loans of Loans
Amount Loan in Each Amount Loan in Each
of Loan Amounts Category of Loan Amounts Category
Loss by to Total Loss by to Total
Allowance Category Loans Allowance Category Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One - to four-family $ 32 $40,114 38.57% $ 31 $30,627 30.96%
Home Equity 269 22,421 21.56% 261 24,505 24.77%
Automobile 54 18,746 18.03% 52 19,610 19.82%
Credit cards 269 10,920 10.50% 261 11,917 12.05%
Unsecured loans 236 6,329 6.09% 229 9,329 9.43%
Other 214 5,465 5.26% 208 2,939 2.97%
Unallocated 0 - 0.00% 0 0 0.00%
Total $1,074 $103,995 100.00% $1,042 $98,927 100.00%
====== ======== ====== ====== ======= ======
<CAPTION>
June 30,
1998 1997
Percent Percent
of Loans of Loans
Amount Loan in Each Amount Loan in Each
of Loan Amounts Category of Loan Amounts Category
Loss by to Total Loss by to Total
Allowance Category Loans Allowance Category Loans
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One - to four-family $ 11 $35,799 36.15% $ 5 $ 31,429 31.02%
Home Equity 59 23,174 23.40% 198 24,154 23.84%
Automobile 26 18,844 19.03% 34 20,470 20.20%
Credit cards 69 10,269 10.37% 120 10,700 10.56%
Unsecured loans 35 6,577 6.64% 258 9,307 9.19%
Other 0 4,364 4.41% 0 5,264 5.20%
Unallocated 748 - 0.00% 390 - 0.00%
Total $948 $99,027 100.00% $1,005 $101,324 100.00%
==== ======= ====== ====== ======== ======
</TABLE>
<PAGE 114>
Investment Activities
IGA must maintain minimum levels of investments that qualify
as liquid assets under Office of Thrift Supervision regulations.
Liquidity may increase or decrease depending upon the
availability of funds and comparative yields on investments in
relation to the return on loans. Historically, IGA has
maintained liquid assets at levels above the minimum requirements
imposed by the Office of Thrift Supervision regulations and above
levels believed adequate to meet the requirements of normal
operations, including potential deposit outflows. Cash flow
projections are regularly reviewed and updated to assure that
adequate liquidity is maintained. At March 31, 1999, our
liquidity ratio (liquid assets as a percentage of net
withdrawable savings deposits and current borrowings) was 25%.
Federally chartered savings institutions have the authority
to invest in various types of liquid assets, including United
States Treasury obligations, securities of various federal
agencies, certain certificates of deposit of insured banks and
savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions,
federally chartered savings institutions may also invest their
assets in investment grade commercial paper and corporate debt
securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is
otherwise authorized to make directly. IGA generally invests in
the foregoing types of investments. See "How We Are Regulated --
IGA" for a discussion of additional restrictions on our
investment activities.
Mr. Mario Incollingo, IGA's President and Chief Executive
Officer, and Ms. Dorothy Bourlier, IGA's Senior Vice President
and Chief Financial Officer, are responsible for the management
of IGA's investment portfolio, subject to the direction and
guidance of the asset/liability committee of IGA's board of
directors. Such officers consider various factors when making
investment decisions, including the marketability, maturity and
tax consequences of the proposed investment. The maturity
structure of investments will be affected by various market
conditions, including the current and anticipated slope of the
yield curve, the level of interest rates, the trend of new
deposit inflows, and the anticipated demand for funds via deposit
withdrawals and loans.
The general objectives of IGA's investment portfolio are to:
- provide and maintain liquidity within the guidelines
prescribed by Office of Thrift Supervision regulations;
- provide liquidity when loan demand is high and to
assist in maintaining earnings when loan demand is low;
and
<PAGE 115>
- maximize earnings while satisfactorily managing risk,
including credit risk, reinvestment risk, liquidity
risk and interest rate risk. See "Management's
Discussion and Analysis of Financial Condition and
Results of Operations -- Asset/Liability Management."
IGA's securities portfolio consists primarily of obligations
of the U.S. Government and its agencies, including mortgage-
backed and related securities. At March 31, 1999, IGA had $50.20
million in investment securities, $43.77 million of which were
classified as available for sale.
IGA's mortgage-backed securities portfolio consists of
securities issued under government-sponsored agency programs. At
March 31, 1999, we held $21.12 million of mortgage-backed
securities, $5.59 million of which were classified as held to
maturity and $15.53 million of which were classified as available
for sale.
At March 31, 1999, IGA held collateralized mortgage
obligations ("CMOs") totalling $5.87 million, all of which were
secured by underlying collateral issued under government agency-
sponsored programs. CMOs are special types of pass-through debt
securities in which the stream of principal and interest payments
on the underlying mortgages or mortgage-backed securities is used
to create classes with different maturities and, in some cases,
amortization schedules, as well as a residual interest, with each
class possessing different risk characteristics.
IGA's policy is to purchase only CMOs that are in the first
or second repayment tranche (investment class) and are AAA rated.
The expected life of IGA's CMOs is typically under five years at
the time of purchase. Premiums associated with CMOs purchased
are not significant; therefore, the risk of significant yield
adjustments because of accelerated prepayments is limited. Yield
adjustments are encountered as interest rates rise or decline,
which in turn slows or increases prepayment rates and affects the
average lives of the CMOs. The purpose of IGA's CMO investment
strategy is to:
- assist in maintaining IGA's Qualified Thrift Lender
Status (see "How We Are Regulated -- Qualified Thrift
Lender");
- generate high cash flow to lessen liquidity and
reinvestment risk;
- preserve asset quality; and
- generate additional interest income.
At March 31, 1999, $2.84 million of CMOs were classified as held
to maturity and $3.03 million were classified as available for
sale. At March 31, 1999, IGA's CMOs did not qualify as high risk
<PAGE 116> mortgage securities as defined under Office of Thrift
Supervision regulations.
While mortgage-backed and mortgage-related securities (such
as CMOs) carry a reduced credit risk as compared to whole loans,
such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may
alter the prepayment rate of such mortgage loans and so affect
both the prepayment speed, and value, of such securities.
The following tables set forth the composition of IGA's
investment and mortgage-backed and related securities portfolio
at March 31, 1999 and 1998, December 31, 1998 and 1997 (to
reflect the recent change in IGA's fiscal year-end from June 30
to December 31), and June 30, 1998 and 1997. IGA's investment
securities portfolio at March 31, 1999, contained neither tax-
exempt securities nor securities of any issuer with an aggregate
book value in excess of 10% of IGA's retained earnings, excluding
those issued by the United States Government or its agencies.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1998 1997
Book % of Book % of Book % of Book % of
Value Total Value Total Value Total Value Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds $ 8,315 13.92% $ 11,060 19.36% $ 8,726 15.49 $ 8,402 17.66%
Securities held-to-maturity:
Interest-bearing deposits
in other financial institutions 1,234 2.07% 4,862 8.51% 1,237 2.20% 7,137 15.00%
Mortgage-backed securities(1) 5,594 9.36% 11,097 19.42% 6,634 11.78% 11,895 25.00%
FHLB Stock 834 1.40% 0 0.00% 834 1.48% 0 0.00%
Securities available-for-sale:
U.S. Government and agency
obligations $23,126 38.71% $14,480 25.34% $23,824 42.29% $ 8,920 18.75%
Municipal securities 5,114 8.56% 0 0.00% 4,902 8.70% 0 0.00%
Mortgage-backed securities(2) $15,529 25.98% 15,641 27.37% 10,176 18.06% 11,223 23.59%
Total investments and Federal funds $59,746 100.00% $57,140 100.00% $56,333 100.00% $47,577 100.00%
<CAPTION>
June 30,
1998 1997
Book % of Book % of
Value Total Value Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Federal funds $ 5,034 9.79% $15,714 26.78%
Securities held-to-maturity:
Interest-bearing deposits in
other financial institutions 3,205 6.24% 7,731 13.17%
Mortgage-backed securities(1) 9,570 18.61% 14,320 24.40%
Securities available-for-sale:
U.S. Government and agency
obligations 19,340 37.61% 7,199 12.27%
Mortgage-backed securities(2) 14,267 27.75% 13,724 23.38%
Total investments and Federal funds $51,416 100.00% $58,688 100.00%
======= ====== ======= ======
_______________ <PAGE 117>
</TABLE>
(1) At March 31, 1999 and 1998, mortgage-backed securities
included $2.84 million and $6.65 million of CMOs,
respectively. At December 31, 1998 and 1997, mortgage-
backed securities included $3.62 million and $7.62 million
of CMOs, respectively. At June 30, 1998 and 1997, mortgage-
backed securities included $5.49 million and $9.01 million
of CMOs, respectively.
(2) At March 31, 1999 and 1998, mortgage-backed securities
included $3.03 million and $4.33 million of CMOs,
respectively. At December 31, 1998 and 1997, mortgage-
backed securities included $3.08 million and $4.52 million
of CMOs, respectively. At June 30, 1998 and 1997, mortgage-
backed securities included $3.90 million and $5.01 million
of CMOs, respectively.
The following table sets forth the contractual maturities
and weighted average yield of IGA's investment securities at
March 31, 1999.
<TABLE>
<CAPTION> Less Than 1 to 5 5 to 10 Over 10
1 Year Years Years Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity:
U.S. government and agency
securities........................ $ 0 0 $ 0 0 $ 0 0 $ 0 0 $ 0 0
Other securities.................... 0 0 1,020 6.45% 148 6.00% 4,354 6.43% $ 5,522 6.42%
Total securities held-to-maturity. $ 5,522 6.42%
Securities available for sale:
U.S. government and agency
securities........................ $1,000 4.27% $ 6,503 5.81% $16,010 6.09% 0 0.00% $23,513 5.97%
Mortgage backed securities.......... 220 7.50% 7,948 6.99% 1,413 5.08% 1,601 5.39% 11,182 6.41%
Other securities.................... 0 0.00% 0 0.00% 9,169 5.24% 0 0.00% 9,169 5.24%
Total securities available
for sale........................ $1,220 4.85% $14,451 6.59% $26,592 5.74% $1,601 5.39% $43,769 5.94%
</TABLE>
Sources of Funds
General. IGA's sources of funds are deposits, payment of
principal and interest on loans, interest earned on or maturation
of other investment securities and short-term investments, and
funds provided from operations.
Deposits. IGA offers a variety of deposit accounts having a
wide range of interest rates and terms. IGA's deposits consist
of savings accounts, money market deposit accounts, NOW accounts
and certificate of deposit accounts currently ranging in terms
from 91 days to five years. IGA only solicits deposits from its
market area and does not use brokers to obtain deposits. IGA
primarily relies on competitive pricing policies, advertising and
customer service to attract and retain these deposits.
<PAGE 118>
The flow of deposits is influenced significantly by general
economic conditions, changes in money market and prevailing
interest rates, and competition.
IGA attracts deposits from new customers primarily by
offering a wide variety of services and accounts, competitive
interest rates and convenient service hours. IGA has become more
susceptible to short-term fluctuations in deposit flows, as
customers have become more interest rate conscious. IGA
endeavors to manage the pricing of its deposits in keeping with
its asset/liability management, liquidity and profitability
objectives. Based on IGA's experience, management believes that
IGA's savings and checking accounts are relatively stable sources
of funds. However, IGA's ability to attract and maintain
certificates of deposit and the rates paid on these deposits has
been and will continue to be significantly affected by market
conditions.
The following table sets forth the deposit flows at IGA for
the three months ended March 31, 1999 and 1998, the six-month
transition periods ended December 31, 1998 and 1997 to reflect
the recent change in IGA's fiscal year-end from June 30 to
December 31, and the years ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
March 31, December 31,
1999 1998 1998 1997
(In Thousands)
<S> <C> <C> <C> <C>
Beginning balance $154,888 $137,223 $143,934 $149,846
Net increase (decrease) before
interest credited 5,215 5,378 (8,192) (15,428)
Interest credited 1,326 1,309 2,762 2,805
Ending balance $161,429 $143,910 $154,888 $137,223
======== ======== ======== ========
Net increase $ 6,541 $ 6,687 $ 10,954 $(12,623)
======== ======== ======== ========
<CAPTION>
Year Ended June 30,
1998 1997
(In Thousands)
<S> <C> <C>
Beginning balance $149,846 $145,828
Net increase (decrease) before
interest credited (11,387) (1,627)
Interest credited 5,475 5,655
Ending balance $143,934 $149,846
Net increase $ (5,912) $ 4,028
</TABLE>
The following table sets forth the dollar amount of savings
deposits in the various types of deposit programs IGA offered at
<PAGE 119> March 31, 1999 and 1998, December 31, 1998 and 1997
(to reflect the recent change in IGA's fiscal year-end from
June 30 to December 31), and June 30, 1998 and 1997.
<TABLE>
<CAPTION>
March 31,
1999 1998
Percent Percent
Amount of Total Amount of Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Transaction Accounts:
Savings accounts $ 74,129 45.92% $ 69,032 47.97%
NOW accounts 10,746 6.66% 9,166 6.37%
Money market accounts 10,240 6.34% 8,560 5.95%
Total non-certificates 95,115 58.92% 86,758 60.29%
Certificates (by rate):
3.00 - 3.99% 2,736 1.69% 0 0.00%
4.00 - 4.99% 23,001 14.25% 2,015 1.40%
5.00 - 5.99% 31,113 19.27% 44,329 30.80%
6.00 - 6.99% 7,931 4.91% 9,354 6.50%
7.00 - 7.99% 1,533 0.95% 1,455 1.01%
Total certificates 66,314 41.08% 57,153 39.17%
Total Deposits $161,429 100.00% $143,911 100.00%
======== ====== ======== ======
<CAPTION>
December 31,
1998 1997
Percent Percent
Amount of Total Amount of Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Transaction Accounts:
Savings accounts $ 70,282 45.38% $ 63,790 46.49%
NOW accounts 10,526 6.80% 8,929 6.51%
Money market accounts 9,265 5.98% 9,581 6.98%
Total non-certificates 90,073 58.15% 82,300 59.98%
Certificates (by rate):
3.00 - 3.99% 1,622 1.05% O 0.00%
4.00 - 4.99% 11,171 7.21% 1,985 1.45%
5.00 - 5.99% 41,900 27.05% 42,609 31.05%
6.00 - 6.99% 8,608 5.56% 8,315 6.06%
7.00 - 7.99% 1,514 0.98% 2,014 1.47%
Total certificates 64,815 41.85% 54,923 40.02%
Total Deposits $154,888 100.00% $137,223 100.00%
======== ====== ======== ======
<CAPTION>
June 30,
1998 1997
Percent Percent
Amount of Total Amount of Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Transaction Accounts:
Savings accounts $ 68,268 47.43% $ 80,233 53.55%
NOW accounts 9,305 6.46% 8,162 5.45%
Money market accounts 8,311 5.78% 8,577 5.72%
Total non-certificates 85,884 59.67% 96,972 64.72%
Certificates (by rate):
4.00 - 4.99% 2,025 1.41% 2,771 1.85%
5.00 - 5.99% 44,850 31.16% 41,170 27.47%
6.00 - 6.99% 9,700 6.74% 7,243 4.83%
7.00 - 7.99% 1,475 1.02% 1,690 1.13% <PAGE 120>
Total certificates 58,050 40.33% 52,874 35.28%
Total Deposits $143,934 100.00% $149,846 100.00%
======== ====== ======== ======
</TABLE>
The following table shows rate and maturity information for IGA's
certificates of deposit as of March 31, 1999.
<TABLE>
<CAPTION>
Less Than 1 to 2 2 to 3 3 to 4 4 to 5
1 Year Years Years Years Years Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
3.00 - 3.99% $ 2,736 - - - - $ 2,736
4.00 - 4.99% 19,863 $ 3,028 $ 110 - - 23,001
5.00 - 5.99% 22,395 6,660 1,010 52 996 31,113
6.00 - 6.99% 1,649 4,781 253 574 674 7,931
7.00 - 7.99% 610 923 - - - 1,533
Total certificates
of deposit $47,253 $15,392 $1,373 $626 $1,670 $66,314
======= ======= ====== ==== ====== =======
</TABLE>
The following table presents the amount of our certificates
of deposit of $100,000 or more by the time remaining until
maturity at March 31, 1999.
Maturity Amount
(In Thousands)
Three months or less $4,638
3 to 6 months 526
6 to 12 months 897
Over 12 months 2,919
Total $8,980
======
Borrowings. IGA is a member of the Federal Home Loan Bank
of Pittsburgh. As a member of the Federal Home Loan Bank of
Pittsburgh, IGA is eligible to obtain advances from the Federal
Home Loan Bank of Pittsburgh upon the security of the Federal
Home Loan Bank of Pittsburgh common stock IGA owns, provided
certain standards related to creditworthiness have been met. See
"How We Are Regulated -- Federal Home Loan Bank System." Such
advances are made pursuant to several different credit programs,
each of which has its own interest rate and range of maturities.
Federal Home Loan Bank of Pittsburgh advances are generally
available to meet seasonal demand and other withdrawals of
deposit accounts and to expand lending, as well as to aid the
efforts of members to establish better asset and liability
management through the extension of maturities of liabilities.
IGA had no borrowings from the Federal Home Loan Bank of
Pittsburgh or under its line of credit during the three months
<PAGE 121> ended March 31, 1999 and 1998, the six-month
transition periods ended December 31, 1998 and 1997, or the years
ended June 30, 1998 and 1997.
Subsidiary Activities
As a federally chartered savings bank, IGA is permitted by
the Office of Thrift Supervision regulations to invest up to 2%
of its assets, or $3.5 million at March 31, 1999, in the stock
of, or unsecured loans to, service corporation subsidiaries. IGA
may invest an additional 1% of its assets in service corporations
where such additional funds are used for inner-city or community
development, purposes. IGA's only subsidiary is CUIGA Services
Corporation, a wholly-owned Pennsylvania corporation, which is
presently inactive.
Employees
At March 31, 1999, IGA had a total of 74 employees,
including 4 part-time employees. IGA's employees are not
represented by any collective bargaining group. Management
considers its employee relations to be good.
Properties
IGA conducts its business through IGA's branch offices. All
property is owned or leased by IGA. IGA believes that its
current facilities are adequate to meet the present and
foreseeable needs of IGA and JADE FINANCIAL. The total net book
value of IGA's premises and equipment (including land, building
and leasehold improvements and furniture, fixtures and equipment)
at March 31, 1999 was $1.88 million. See Note 2 of Notes to
Consolidated Financial Statements.
IGA owns the branch office located at 213 West Street Road,
Feasterville, Pennsylvania. This facility is approximately
23,000 square feet and also serves as IGA and JADE FINANCIAL's
executive offices. IGA also owns the branch office located at
1501 S. Newkirk Street, Philadelphia, Pennsylvania. This
facility is approximately 1,000 square feet.
IGA leases a space of approximately 1,000 square feet for
the branch office located at 606 East Baltimore Pike, Media,
Pennsylvania. IGA's annual lease expense in calendar year 1998
was $18,052. Effective August 1, 1999, IGA will move this branch
into an approximately 2,500 square feet space at 521 E. Baltimore
Pike, Media, pennsylvania. IGA will lease this space for a term
of 5 years at an annual lease expense of $45,000.
IGA leases a space of approximately 1,800 square feet for
the branch office located at 2301 Market Street, Philadelphia,
Pennsylvania. IGA's annual Lease expense in calendar year 1998
was $22,644, and will be $22,800 in calendar year 1999.
<PAGE 122>
IGA leases a space of approximately 1,800 square feet for
the branch office located at 500 Chesterbrook Boulevard, Wayne,
Pennsylvania. IGA's annual lease expense in calendar year 1998
was $27,127, and will be $34,000 in calendar year 1999. This
Lease has a five year term expiring on March 31, 2003.
Legal Proceedings
From time to time IGA is involved as plaintiff or defendant
in various legal actions arising in the normal course of
business. Presently, IGA is not involved as a defendant in any
legal proceedings.
MANAGEMENT
Management of JADE FINANCIAL
The Board of Directors of JADE FINANCIAL consists of John J.
O'Connell, Mario L. Incollingo, Jr., Edward D. McBride,
Francis J. Moran and Dennis P. Wesley, each of whom is also a
director of IGA. Each director of JADE FINANCIAL has served as
such since JADE FINANCIAL's incorporation in July 1998.
Directors of JADE FINANCIAL will serve staggered three-year terms
so that approximately one-third of the directors will be elected
at each annual meeting of shareholders. One class of directors,
consisting of Edward D. McBride, has a term of office expiring at
JADE FINANCIAL's first annual meeting of shareholders, a second
class, consisting of Mario L. Incollingo, Jr. and Francis J.
Moran, has a term of office expiring at JADE FINANCIAL's second
annual meeting of shareholders, and a third class, consisting of
John J. O'Connell and Dennis P. Wesley, has a term expiring at
JADE FINANCIAL's third annual meeting of shareholders. For
biographical information regarding each director of JADE
FINANCIAL, see "-- Management of IGA."
The following individuals are executive officers of JADE
FINANCIAL and hold the offices set forth below opposite their
names.
Executive Position Held with JADE FINANCIAL
John J. O'Connell Chairman of the Board and Chief
Executive Officer
Mario L. Incollingo, Jr. President and Chief Operating
Officer
Dorothy M. Bourlier Senior Vice President and Chief
Financial Officer
The executive officers of JADE FINANCIAL are elected
annually and hold office until their respective successors have
been elected and qualified or until death, resignation or removal
by the Board of Directors. Information concerning the principal
occupations, employment and compensation of the directors and
officers of JADE FINANCIAL is set forth under " - Management of
IGA." Directors of JADE FINANCIAL initially will not be
<PAGE 123> compensated by JADE FINANCIAL but will serve and be
compensated by IGA. JADE FINANCIAL may determine that such
compensation is appropriate in the future.
Management of IGA
Because IGA is a mutual savings association, its members
have elected its board of directors. Upon completion of the
conversion, the directors of IGA immediately prior to the
conversion, will continue to serve as directors of IGA after the
conversion. The board of directors of IGA after the conversion
will consist of nine directors divided into three classes, with
approximately one-third of the directors elected at each annual
meeting of shareholders. Because JADE FINANCIAL will own all the
issued and outstanding capital stock of IGA after the conversion,
the board of directors of JADE FINANCIAL will elect the directors
of IGA.
Each executive officer of IGA will continue as an executive
officer of IGA after the conversion. Officers of IGA are elected
annually by the board of directors of IGA.
The following table sets forth certain information regarding
the directors of JADE FINANCIAL and IGA.
<TABLE>
<CAPTION>
Term of
Position(s) Director Office
Name Age(1) Held with IGA(2) Since Expires
<S> <C> <C> <C> <C>
Robert E. Adelsberger 68 Director 1977 2001
Thomas P. Calabrese 56 Director 1976 2001
William L. Harm 48 Director 1984 2002
Mario L. Incollingo, Jr. 60 Director and 1998 2002
Chief
Executive
Officer
Edward D. McBride 48 Director 1981 2000
Frances J. Moran 59 Director 1998 2000
John J. O'Connell 63 Director and 1975 2000
Chairman of
the Board
Clyde A. Warden 57 Director 1980 2001
Dennis P. Wesley 46 Director, 1975 2002
Vice
Chairman
__________________
<FN>
(1) As of March 31, 1999
(2) Includes time as a director of IGA Federal Credit Union.
</TABLE>
The following table sets forth certain information regarding
the executive officers of IGA who are not directors of IGA.
Executive officers of IGA are elected annually by the board of
<PAGE 124> directors of IGA and serve at the pleasure of the
board of directors.
<TABLE>
<CAPTION>
Position(s)
Name Age(1) Held with IGA
<S> <C> <C>
Dorothy M. Bourlier 39 Senior Vice
President and
Chief Financial
Officer
</TABLE>
__________________
(1) As of March 31, 1999
The business experience of each director and executive
officer for at least the past five years is set forth below.
Robert E. Adelsberger. Mr. Adelsberger was a founding
member of IGA Federal Credit Union in 1975. In 1990,
Mr. Adelsberger retired from PECO Energy where he was employed as
a salesman for 38 years. Mr. Adelsberger volunteers his time to
the Abington memorial Hospital and the Germantown Meals on Wheels
program.
Thomas P. Calabrese. In 1995, Mr. Calabrese retired from
PECO Energy where he was employed as an Estimator/Designer of
Electrical Installation for 38 years.
William L. Harm. Mr. Harm has been employed since 1974 as
Senior Engineer of System Planning for PJM Interconnection, LLC
the electrical control center for the Mid-Atlantic states.
Mario L. Incollingo, Jr. Mr. Incollingo has served as
President and Chief Executive Office of IGA since 1992. In 1988,
Mr. Incollingo joined IGA as Vice President of Lending. Prior
thereto, he served as Executive Vice President of Pennsylvania
Savings Bank from 1985 to 1988. Mr. Incollingo is active in the
local community with memberships in the Feasterville
Businessmen's Association and Rotary Club. Mr. Incollingo serves
as Treasurer of the Playwicki Foundation, a local foundation
dedicated to preservation of the Playwicki Historic Farm.
Edward D. McBride. Mr. McBride has been employed since 1969
as the County Affairs Manager for Philadelphia County for PECO
Energy. Mr. McBride is Chairman of the Board of the Variety
Club, a Delaware Valley organization dedicated to assisting
handicapped children. He also is a member of the Executive Board
of the West Philadelphia Partnership, a community organization
dedicated to safety, education, and economic development; the
Executive Board of the Central Philadelphia Development
Corporation, whose goal is to improve quality of life and
economic development in the center city area; and the Board of
Directors of the Greater Northeast Chamber of Commerce.
<PAGE 125>
Francis J. Moran. Mr. Moran has worked as a self-employed
attorney since 1962. Mr. Moran has served as general counsel to
IGA since 1976.
John J. O'Connell. Mr. O'Connell was a founding member of
IGA Federal Credit Union in 1975. Mr. O'Connell was a registered
lobbyist and, until July 1, 1998, was employed as Manager of
State and Regional Governmental Affairs at PECO Energy.
Mr. O'Connell elected to accept early retirement from PECO
Energy, and as of July 1, 1998 he became the full-time Chairman
of the Board of IGA. Mr. O'Connell has been appointed by
Pennsylvania Governor Ridge to the Governor's Commission on
Economic Development through Labor Management Partnerships. He
also serves as Legislative Advisor to the American Cancer Society
of Southeastern Pennsylvania.
Clyde A. Warden. Since 1995, Mr. Warden has served as
President of Cable Management Consulting Associates, Inc., a
training company specializing in electrical cable. Mr. Warden
retired from PECO Energy in 1995 where he was employed as a
Safety Instructor for 28 years.
Dennis P. Wesley. Mr. Wesley was a founding member of IGA
Federal Credit Union in 1975. Since 1997, Mr. Wesley has been
employed by PECO Energy as Manager of Acquisition Integration.
From 1984 to 1997, Mr. Wesley was employed by PECO Energy as
Manager, Business Services, of the Limerick Generating Station.
Dorothy M. Bourlier. Ms. Bourlier has served as Senior Vice
President and Chief Financial Officer of IGA since 1993.
Ms. Bourlier has been employed by IGA since 1981.
Director Compensation
Prior to July 1, 1998, IGA was a credit union. Under
National Credit Union Administration regulations, directors
receive no compensation. Moreover, for a period of two years
after the conversion of a credit union, directors may not receive
any fees. Therefore, directors do not currently receive any
compensation for their service as directors of IGA.
Executive Compensation
The executive officers of JADE FINANCIAL have received no
compensation from JADE FINANCIAL since its formation. The
following table sets forth information regarding the compensation
of Mr. Incollingo, President and Chief Executive Officer of IGA
and Mr. John J. O'Connell, Chairman of the Board of IGA, for each
of the fiscal years ended December 31, 1998 and June 30, 1998 and
1997. The amounts below represent the aggregate compensation.
No other executive officer of IGA received compensation in excess
<PAGE 126> of $100,000 for the fiscal year ended December 31,
1998 or June 30, 1998.
<TABLE>
<CAPTION>
Summary Compensation Table(1)
Annual All Other
Compensation(2) Compensa-
Name and Principal Salary($) tion($)
Position Year (3)(4) Bonus($) (5)(6)(7)(8)
<S> <C> <C> <C> <C>
Mario L. Incollingo, Jr. December 31, 1998 $131,823 $ 20,000 $ 52,043
President and CEO June 30, 1998 78,453 10,000 52,099
June 30, 1997 75,304 9,500 52,733
John J. O'Connell December 31, 1998 $109,268 $ 20,000 $ 0
Chairman June 30, 1998 47,091 5,000 0
June 30, 1997 49,707 0 0
</TABLE>
(1) In 1998, IGA's fiscal year-end was changed from June 30 to
December 31. Accordingly, compensation for 1998 is
presented for the twelve-month period ended December 31,
1998 to reflect IGA's new fiscal year-end, and for the prior
fiscal years ended June 30, 1998 and 1997. Compensation
paid from January 1, 1998 through June 30, 1998 is included
in the compensation reported for the fiscal years ended
December 31, 1998 and June 30, 1998.
(2) As a mutual institution, IGA does not have any stock
compensation plans. JADE FINANCIAL intends to adopt stock
compensation plans following the conversion, subject to
shareholder approval. See "-- Benefit Plans."
(3) Includes amounts which were deferred pursuant to IGA's
401(k) plan. Under the 401(k) plan, employees who elect to
participate may elect to have earnings reduced and to cause
the amount of such reduction to be contributed to the 401(k)
plan's related trust in an amount up to 15% of earnings.
Any employee who has completed 1 year of service and
attained the age of 21 is eligible to participate in the
401(k) plan.
(4) IGA provided other benefits to Messrs. Incollingo and
O'Connell in connection with their employment. The value of
such personal benefits, which is not directly related to job
performance, is not included in the table above because the
value of such benefits does not exceed the lesser of $50,000
or 10% of the salary and bonus paid to them.
(5) Includes $0, $937, and $3,083 accrued by IGA for the benefit
of Mr. Incollingo under IGA's defined contribution pension
plan in fiscal years ended December 31, 1998, June 30, 1998,
and 1997, respectively. Mr. O'Connell did not participate
<PAGE 127> in IGA's defined contribution pension plan in the
reported periods.
(6) Includes $3,549, $2,668 and $1,156 contributed by IGA under
IGA's 401(k) plan for the benefit of Mr. Incollingo in
fiscal years ended December 31, 1998 and June 30, 1998 and
1997, respectively. IGA makes a matching contribution equal
to 100% of the employee's salary reduction up to a maximum
of 3% of the employee's salary. Mr. O'Connell did not
participate in IGA's 401(k) in the reported periods.
(7) Includes $36,494 of insurance premiums paid by IGA in each
of the years in the three fiscal years ended December 31,
1998 and June 30, 1998 and 1997 with respect to a split
dollar term life insurance policy.
(8) Includes $12,000 of deferred compensation paid by IGA in
each of the years in the three fiscal years ended
December 31, 1998 and June 30, 1998 and 1997 under a
deferred compensation agreement for Mr. Incollingo.
Benefits
General. IGA currently provides health and welfare benefits
to its employees, including hospitalization, major medical,
dental, life and disability insurance, subject to certain
deductibles and copayments by employees.
IGA Federal Savings 401(k) Plan. IGA maintains the IGA
Federal Savings 401(k) Plan which is a qualified, tax-exempt
profit sharing plan with a cash-or-deferred feature under
Section 401(k) of the Internal Revenue Code. All employees who
have attained age 21 and have completed one year of employment
are eligible to participate. Assets of the 401(k) Plan are
managed by the 401(k) Plan's trustees. John J. O'Connell,
Edward D. McBride and Clyde A. Warden presently serve as trustees
to the 401(k) Plan.
Under the 401(k) Plan, participants are permitted to make
pre-tax salary reduction contributions to the plan equal to a
percentage of up to 15 % of compensation. "Compensation"
includes total compensation (including salary reduction
contributions made under the 401(k) Plan sponsored by IGA), but
does not include compensation in excess of the Internal Revenue
Code Section 401(a)(17) limits (presently $160,000). IGA may
also annually make a discretionary profit sharing contribution to
the 401(k) Plan.
All employee contributions and profit sharing contributions
to the 401(k) plan and earnings thereon are fully and immediately
vested.
Plan benefits will be paid to each participant as a joint
and survivor or single life annuity. In addition, a participant
may, under certain circumstances, elect a lump sum or period
<PAGE 128> certain payment upon normal retirement, death or
disability, or after termination of employment. During the years
ended December 31, 1998 and June 30, 1998 and 1997, IGA made
matching contributions of $2,668 and $1,156, respectively, to the
account of Mr. Incollingo.
Employee Stock Ownership Plan and Trust. JADE FINANCIAL
has established the employee stock ownership plan for eligible
employees of JADE FINANCIAL and IGA. The employee stock
ownership plan is a tax-qualified plan subject to the
requirements of the Internal Revenue Code. Employees with a
12-month period of employment with JADE FINANCIAL or IGA during
which they worked at least 1,000 hours and who have attained
age 21 are eligible to participate. The employee stock ownership
plan will borrow funds from JADE FINANCIAL and use the funds to
purchase up to 8% of the common stock of JADE FINANCIAL to be
issued in the conversion, or 110,500 shares and 149,500 shares at
the minimum and maximum of the estimated valuation range. If
there are insufficient shares available in the conversion to
satisfy the employee stock ownership plan's purchase order, then,
with Office of Thrift Supervision approval, the employee stock
ownership plan may, following the conversion, purchase shares of
common stock in the open market.
The common stock purchased by the employee stock ownership
plan will serve as collateral for the employee stock ownership
plan loan to the employee stock ownership plan. The loan will be
repaid principally from IGA's contributions to the employee stock
ownership plan over a period of up to ten years. Shares
purchased by the employee stock ownership plan will be held in a
suspense account for allocation among participants as the loan is
repaid. Shares released from the suspense account in an amount
proportional to the repayment of the loan to the employee stock
ownership plan will be allocated among participants on the basis
of compensation in the year of allocation, up to an annual
adjusted maximum level of compensation (currently $160,000).
Benefits under the employee stock ownership plan generally
become 100% vested after the third year of service or upon normal
retirement (as defined in the employee stock ownership plan),
disability or death of the participant. If a participant
terminates employment for any other reason prior to fully
vesting, his nonvested account balance will be forfeited.
Forfeitures will be reallocated among remaining participating
employees in the same proportion as contributions. Benefits may
be payable upon death, retirement, early retirement, disability
or separation from service. JADE FINANCIAL's contributions to
the employee stock ownership plan will not be fixed, so benefits
payable under the employee stock ownership plan cannot be
estimated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Impact of New
Accounting Standards."
A committee appointed by the Board of Directors will
administer the employee stock ownership plan. An unrelated
<PAGE 129> corporate trustee for the employee stock ownership
plan will be appointed prior to the completion of the conversion.
The employee stock ownership plan committee may instruct the
trustee regarding investment of funds contributed to the employee
stock ownership plan. The employee stock ownership plan trustee
must vote all allocated shares held in the employee stock
ownership plan in accordance with the instructions of the
participating employees, and unallocated shares and shares held
in the suspense account in a manner calculated to most accurately
reflect the instructions the employee stock ownership plan
trustee has received from participants regarding the allocated
stock, subject to and in accordance with the fiduciary duties
under ERISA owed by the employee stock ownership plan trustee to
the employee stock ownership plan participants. If no shares are
allocated to participants' accounts at the time common stock of
JADE FINANCIAL is to be voted or if no direction is received by
the trustee from a participant with respect to allocated shares,
the trustee will vote the shares of common stock in its
discretion.
GAAP requires that any third party borrowing by the employee
stock ownership plan be reflected as a liability on JADE
FINANCIAL's statement of financial condition. Since the employee
stock ownership plan is borrowing from JADE FINANCIAL, such
obligation is not treated as a liability, but will be excluded
from shareholders' equity. If the employee stock ownership plan
purchases newly issued shares from JADE FINANCIAL, total
shareholders' equity would neither increase nor decrease, but per
share shareholders' equity and per share net earnings would
decrease as the newly issued shares are allocated to the employee
stock ownership plan participants.
The employee stock ownership plan will be subject to the
requirements of ERISA, and the regulations of the IRS and the
Department of Labor thereunder.
Stock Compensation Plan. The Board of Directors of JADE
FINANCIAL intends to approve a stock compensation plan prior to
the 2000 annual meeting of shareholders of JADE FINANCIAL; and,
at such meeting, the Board intends to seek shareholder approval
of the stock compensation plan. The stock compensation plan
cannot be presented to the shareholders for approval until at
least six months after completion of the conversion. Certain
directors, officers and employees of JADE FINANCIAL will be
eligible to participate in the stock compensation plan. The
stock compensation plan will authorize the grant of stock
options, stock appreciation rights and restricted stock awards
equal to up to 10% of the number of shares of common stock sold
in the conversion. Pursuant to the stock compensation plan, a
committee of the Board, upon recommendation of the Chief
Executive Officer and subject to ratification by the
disinterested members of the Board, may make grants of options to
purchase common stock intended to qualify as incentive stock
options under Internal Revenue Code Section 422, options that do
not so qualify and are referred to as nonqualified or <PAGE 130>
compensatory stock options, stock appreciation rights and
restricted stock awards. No stock options, stock appreciation
rights or restricted stock awards will be granted under the stock
compensation plan until July 1, 2000.
The purpose of the stock compensation plan is to provide
additional incentive to directors and employees of JADE FINANCIAL
by facilitating their ownership of stock. The stock compensation
plan will have a term of ten years from the date of its approval
by JADE FINANCIAL shareholders (unless the plan is earlier
terminated by the Board of Directors of JADE FINANCIAL) after
which no awards may be made. Pursuant to the stock compensation
plan, a number of shares equal to 10% of the shares of common
stock that are issued in the conversion would be reserved for
future issuance by JADE FINANCIAL, in the form of newly-issued or
treasury shares, upon exercise of stock options or stock
appreciation rights, or the grant of restricted stock. If
options, stock appreciation rights, and restricted stock should
expire, become unexercisable or be forfeited for any reason
without having been exercised or without becoming vested in full,
the shares of common stock will, unless the stock compensation
plan has been terminated, be available for the grant of
additional stock options, stock appreciation rights and
restricted stock awards under the stock compensation plan.
The stock compensation plan will be administered by a
committee of at least three directors of JADE FINANCIAL who are
designated by the Board of Directors and who are "non-employee
directors" within the meaning of the federal securities laws.
The compensation committee will select the directors, officers
and employees for participation, the number of shares to be
granted or awarded, and the terms and conditions attached to such
shares (provided that any discretion exercised by the
compensation committee must be consistent with the terms of the
stock compensation plan).
It is intended that options granted under the stock
compensation plan will constitute both incentive stock options
(options that afford favorable tax treatment to recipients upon
compliance with certain restrictions pursuant to Section 422 of
the Internal Revenue Code, and that do not result in tax
deductions to the Company unless participants fail to comply with
Section 422 of the Internal Revenue Code) and options that do not
so qualify. The stock compensation plan permits the compensation
committee to impose transfer restrictions, such as a right of
first refusal, on the common stock that optionees may purchase.
It is possible that the compensation committee will impose
transfer restrictions on shares subject to options granted on the
stock compensation plan's effective date. No option shall be
exercisable after the expiration of ten years from the date it is
granted; provided, however, that in the case of any employee who
owns more than 10% of the outstanding common stock at the time an
incentive stock option is granted, the option price for the
incentive stock option shall not be less than 110% of the price
at which the common stock is sold in the offering, and the
<PAGE 131> incentive stock option shall not be exercisable after
the expiration of five years from the date it is granted. An
otherwise unexpired option, unless otherwise determined by the
compensation committee, shall cease to be exercisable upon an
employee's termination of employment for "just cause" (as defined
in the compensation plan), the date three months after an
employee terminates service for a reason other than just cause,
death, or disability, the date one year after an employee
terminates service due to disability, or the date two years after
termination of such service due to the employee's death. Options
granted to non-employee directors will automatically expire one
year after termination of service on the Board of Directors (two
years in the event of death). Options granted at the time of the
implementation of the stock compensation plan are expected to be
exercisable six months after the date such options are granted.
A stock appreciation right may be granted in tandem with all
or any part of any option or without any relationship to any
option. Whether or not a stock appreciation right is granted in
tandem with an option, exercise of the stock appreciation right
will entitle the optionee to receive, as the compensation
committee prescribes in the grant, all or a percentage of the
excess of the then fair market value of the shares of common
stock subject to the stock appreciation right at the time of its
exercise, over the aggregate exercise price of the shares subject
to the stock appreciation right. Payment to the optionee may be
made in cash or shares of common stock, as determined by the
compensation committee.
Restricted stock is common stock which is nontransferable
and forfeitable until a grantee's interest vests. Nevertheless,
the grantee is entitled to vote the restricted stock and to
receive dividends and other distributions made with respect to
the restricted stock. To the extent that a grantee becomes
vested in his restricted stock at any time during the restriction
period (as defined in the stock compensation plan) and has
satisfied applicable income tax withholding obligations, JADE
FINANCIAL may deliver unrestricted shares of common stock to the
grantee. Vesting of restricted stock may be accelerated at the
discretion of the compensation committee. At the end of the
restriction period, the grantee will forfeit to JADE FINANCIAL
any shares of restricted stock as to which he did not earn a
vested interest during the restriction period.
JADE FINANCIAL will receive no monetary consideration for
the grants under the stock compensation plan, and will receive no
monetary consideration other than the option exercise price for
each share issued to optionees upon the exercise of options. The
option exercise price may be paid in cash or common stock. The
exercise of options and stock appreciation rights and the
conditions under which restricted stock vests will be subject to
such terms and conditions established by the compensation
committee as are set forth in a written agreement between the
compensation committee and the optionee (to be entered into at
the date of grant). <PAGE 132>
Although directors and officers of JADE FINANCIAL generally
would be prohibited under the federal securities laws from
profiting from certain purchases and sales of shares of common
stock within any six-month period, they generally will not be
prohibited by such laws from exercising options and immediately
selling the shares they receive. As a result, JADE FINANCIAL
directors and officers generally will be permitted to benefit in
the event the market price for the shares exceeds the exercise
price of their options, without being subject to loss in the
event the market price falls below the exercise price.
Notwithstanding the provisions of any option, stock
appreciation right or restricted stock award that provides for
its exercise or vesting in installments, all shares of restricted
stock shall become fully vested upon a "change in control" (as
defined in the stock compensation plan) and, for a period of 60
days beginning on the date of such change in control, all options
and stock appreciation rights shall be immediately exercisable
and fully vested. In the event of a change in control, the
compensation committee may permit the holders of exercisable
options to surrender their options in exchange for cash in an
amount equal to the excess of the fair market value of the common
stock subject to the options over their exercise price. Stock
options, stock appreciation rights and restricted stock awards
are not assignable or transferable except by will or the laws of
descent and distribution, or pursuant to the terms of a
"qualified domestic relations order" (within the meaning of
Section 414(p) of the Code and the regulations and rulings
thereunder).
The initial grant of options under the stock compensation
plan is expected to take place on the date of the receipt of
shareholder and regulatory approval of the stock compensation
plan, and the option exercise price would be the fair market
value of the common stock on the date of grant. No decisions
concerning the number of options to be granted to any director or
officer have been made at this time. No stock appreciation
rights or restricted stock awards are expected to be granted when
the stock compensation plan becomes effective, and no Awards
would be made prior to the receipt of shareholder approval of the
stock compensation plan.
The exercise price of the incentive stock options and
nonqualified options granted under the stock option plan will be
at least equal to the fair market value of the common stock at
the date the option is awarded. Options will generally be
exercisable only after a period of employment from the date of
grant specified in the option agreement. Except in the case of
retirement, death, permanent total disability or termination
deemed to be "at the convenience of JADE FINANCIAL," the option
holder must be employed at the time of exercise. Options may be
exercised within limited times specified in the stock option plan
following termination of employment as a result of death,
permanent and total disability or at the convenience of JADE
<PAGE 133> FINANCIAL (as determined in the sole discretion of the
stock option committee).
Options will expire on the date specified in the option
agreement entered into at the time of the award, unless the
holder is earlier terminated, dies, retires, becomes totally and
permanently disabled or ceases to be employed by JADE FINANCIAL.
In no event will the term of an incentive stock option extend
beyond ten years from the grant date (five years if held by a 10%
or greater shareholder of JADE FINANCIAL). The term of a
nonqualified stock option must expire not later than ten years
and one month from the grant date.
The number of shares subject to unexercised options and
exercise prices on outstanding options will be adjusted in the
event of certain capital changes such as stock splits, stock
dividends and reclassifications. Because the exercise of options
may result in the issuance of authorized but unissued shares of
common stock, such exercise may have a dilutive effect on the
common stock holdings of existing shareholders.
Under current federal income tax law, an option holder will
not recognize taxable income upon grant or exercise of any
incentive stock option, provided that such shares are not
disposed of by such option holder within two years after the date
of grant or within one year after the date of exercise. No
compensation deduction may be taken by JADE FINANCIAL as a result
of the grant or exercise of incentive stock options. In the case
of a nonqualified stock option, an option holder will be deemed
to receive ordinary income upon exercise of the stock option in
an amount equal to the difference between the exercise price and
the fair market value of the common stock purchased by exercising
the option on the date of exercise. The amount of any ordinary
income recognized by an option holder upon the exercise of a
nonqualified stock option or due to a disposition of common stock
acquired upon the exercise of an incentive stock option prior to
the expiration of two years from the date the incentive option
was granted or one year from the date the common stock was so
acquired will be a deductible compensation expense for tax
purposes for JADE FINANCIAL.
Management Recognition Plan. JADE FINANCIAL intends to
establish a management recognition plan as a method of providing
senior officers of JADE FINANCIAL with a proprietary interest in
JADE FINANCIAL and to reward such persons for their service and
encourage such persons to remain in the service of JADE
FINANCIAL. Pursuant to the management recognition plan, the
board of directors will award certain senior officers of JADE
FINANCIAL with "plan share awards" representing the right to earn
shares of common stock over a period of five years from the date
of the plan share award. Each year, participants in the
management recognition plan will earn (become vested in) 20% of
the common stock represented by each plan share award.
<PAGE 134>
No awards will be granted under the management recognition
plan until July 1, 2000, subject to shareholder approval of this
plan. The board of directors intends to present the management
recognition plan for shareholder approval at the 2000 annual
meeting of shareholders of JADE FINANCIAL. The management
recognition plan cannot be presented to the shareholders for
approval until six months after completion of the conversion.
Unless an officer is terminated for cause (as defined in the
management recognition plan), awards will continue to vest
according to the vesting schedule following termination of
employment or service or if JADE FINANCIAL is involved in a
business combination. Termination of employment by a participant
for reasons other than retirement, death or disability
constitutes a revocation of the participant's plan share award.
When a participant's shares become vested in accordance with
the management recognition plan, the participant will recognize
income equal to the fair market value of the common stock so
vested at that time, unless the participant has made an
irrevocable election to be taxed on the shares of common stock
awarded to him in the year of the award. The amount of
compensation income recognized by a participant will be a
deductible expense of JADE FINANCIAL for Federal income tax
purposes.
When shares become vested and are actually distributed in
accordance with the management recognition plan, participants
will also receive amounts equal to any accrued dividends with
respect thereto. Prior to vesting, recipients of awards under
the management recognition plan may vote the shares of common
stock allocated to them. The management recognition plan
committee will vote shares as to which no instructions are
received and any unallocated shares in the same proportion as
allocated shares for which instructions are given are voted.
JADE FINANCIAL intends to contribute sufficient funds so
that the management recognition plan's trustee can purchase a
number of shares of common stock equal to up to 4% of the common
stock issued in the conversion. The management recognition plan
may purchase such shares from authorized but unissued shares of
JADE FINANCIAL, treasury shares or in the open market. In the
event that the management recognition plan acquires shares of
common stock from authorized but unissued shares, existing
shareholders will experience dilution of their ownership
interest.
Certain Transactions
Loans to directors and executive officers are made in the
ordinary course of business and on the same terms and conditions
as those of comparable transactions with the general public
prevailing at the time, in accordance with our underwriting
guidelines, and do not involve more than the normal risk of
collectibility or present other unfavorable features. <PAGE 135>
All loans we make to our directors and executive officers
are subject to the Office of Thrift Supervision regulations
restricting loan and other transactions with affiliated persons
of IGA. Loans to all directors and executive officers and their
associates totaled approximately $1.12 million at March 31, 1999,
which was 7.42% of our equity at that date. All loans to
directors and executive officers were performing in accordance
with their terms at March 31, 1999.
HOW WE ARE REGULATED
Set forth below is a brief description of certain laws
and regulations which are applicable to IGA and JADE FINANCIAL.
The description of these laws and regulations, as well as
descriptions of laws and regulations contained elsewhere herein,
does not purport to be complete and is qualified in its entirety
by reference to the applicable laws and regulations.
Legislation is introduced from time to time in the
United States Congress that may affect the operations of IGA and
JADE FINANCIAL. In addition, the regulations governing IGA and
JADE FINANCIAL may be amended from time to time by the Office of
Thrift Supervision. Any such legislation or regulatory changes
in the future could adversely affect IGA or JADE FINANCIAL. No
assurance can be given as to whether or in what form any such
changes may occur.
General
IGA, as a federally chartered savings institution, is
subject to federal regulation and oversight by the Office of
Thrift supervision extending to all aspects of its operations.
IGA also is subject to regulation and examination by the FDIC,
which insures the deposits of IGA to the maximum extent permitted
by law, and requirements established by the Federal Reserve
Board. Federally chartered savings institutions are required to
file periodic reports with the Office of Thrift Supervision and
are subject to periodic examinations by the Office of Thrift
Supervision and the FDIC. The investment and lending authority
of savings institutions are prescribed by federal laws and
regulations, and such institutions are prohibited from engaging
in any activities not permitted by such laws and regulations.
Such regulation and supervision primarily is intended for the
protection of depositors and not for the purpose of protecting
shareholders. This regulatory oversight will continue to apply
to IGA following the conversion.
The Office of Thrift Supervision regularly examines IGA
and prepares reports for the consideration of IGA's board of
directors on any deficiencies that it may find in IGA's
operations. The FDIC also has the authority to examine IGA in
its role as the administrator of the Savings Association
Insurance Fund. IGA's relationship with its depositors and
borrowers also is regulated to a great extent by both federal and
state laws, especially in such matters as the ownership of
<PAGE 136> savings accounts and the form and content of IGA's
mortgage requirements. Any change in such regulations, whether
by the FDIC, Office of Thrift Supervision or Congress, could have
a material adverse impact on IGA or JADE FINANCIAL and their
operations.
JADE FINANCIAL
Upon completion of the conversion, JADE FINANCIAL will
become a unitary savings and loan holding company. As such, JADE
FINANCIAL will be required to register with and be subject to
Office of Thrift Supervision examination and supervision as well
as certain reporting requirements.
In addition, the Office of Thrift Supervision has
enforcement authority over JADE FINANCIAL which also permits the
Office of Thrift Supervision to restrict or prohibit activities
that are determined to be a serious risk to the subsidiary
savings bank.
As a unitary savings and loan holding company, JADE
FINANCIAL generally is not subject to activity restrictions. If
JADE FINANCIAL acquires control of another savings bank as a
separate subsidiary, it would become a multiple savings and loan
holding company, and the activities of JADE FINANCIAL and any of
its subsidiaries (other than IGA or any other Savings Association
Insurance Fund - insured savings bank) would become subject to
activity restrictions by the Office of Thrift Supervision.
If IGA fails the qualified thrift lender test, JADE
FINANCIAL must obtain the approval of the Office of Thrift
Supervision prior to continuing after such failure, directly or
through its other subsidiaries, any business activity other than
those approved for multiple savings and loan holding companies or
their subsidiaries. In addition, within one year of such
failure, JADE FINANCIAL must register as, and will become subject
to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited
than are the activities authorized for a unitary or multiple
savings and loan holding company. See "--Qualified Thrift Lender
Test."
JADE FINANCIAL must obtain approval from the Office of
Thrift Supervision before acquiring control of any other Savings
Association Insurance Fund-insured association. Such
acquisitions are generally prohibited if they result in a
multiple savings and loan holding company controlling savings
banks in more than one state. However, such interstate
acquisitions are permitted based on specific state authorization
or in a supervisory acquisition of a failing savings bank.
IGA
The Office of Thrift Supervision has extensive
authority over the operations of savings institutions. As part
<PAGE 137> of this authority, IGA is required to file periodic
reports with the Office of Thrift Supervision and is subject to
periodic examinations by the Office of Thrift Supervision and the
FDIC. The last regular Office of Thrift Supervision examination
of IGA was as of May 1999. Under agency scheduling guidelines,
it is likely that another examination will be initiated within 12
to 18 months after the most recent examination. When these
examinations are conducted by the Office of Thrift Supervision
and the FDIC, the examiners may require IGA to provide for higher
general or specific loan lose reserves. All savings institutions
are subject to a semi-annual assessment, based upon the savings
institution's total assets, to fund the operations of the Office
of Thrift Supervision. IGA was not required to pay an assessment
to the Office of Thrift Supervision in 1998. The Office of
Thrift Supervision assessment for the six month period ended
June 30, 1999 was $21,252.
The Office of Thrift Supervision also has extensive
enforcement authority over all savings institutions and their
holding companies, including JADE FINANCIAL. This enforcement
authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions. In general, these
enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. Other actions or
inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with the Office of Thrift
Supervision. Except under certain circumstances, public
disclosure of final enforcement actions by the Office of Thrift
Supervision is required.
In addition, the investment, lending and branching
authority of IGA is prescribed by federal laws and IGA is
prohibited from engaging in any activities not permitted by such
laws. For instance, no savings institution may invest in non-
investment grade corporate debt securities. In addition, the
permissible level of investment by federal institutions in loans
secured by non-residential real property may not exceed 400% of
total capital, except with approval of the Office of Thrift
Supervision. Federal savings institutions are also generally
authorized to branch nationwide. IGA is in compliance with the
noted restrictions.
IGA's general permissible lending limit for loans-to-
one-borrower is equal to 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable
collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At March 31, 1999, IGA's
lending limit under this restriction was $2.52 million. IGA is
in compliance with the loans-to-one-borrower limitation.
The Office of Thrift Supervision has adopted guidelines
establishing safety and soundness standards on such matters as
loan underwriting and documentation, asset quality, earnings
standards, internal controls and audit systems, interest rate
<PAGE 138> risk exposure and compensation and other employee
benefits. Any institution which fails to comply with these
standards must submit a compliance plan.
Insurance of Accounts and Regulation by the FDIC
IGA is a member of the Savings Association Insurance
Fund, which is administered by the FDIC. Deposits are insured up
to the applicable limits by the FDIC and such insurance is backed
by the full faith and credit of the United States Government. As
insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of, and to require reporting
by, FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the
Savings Association Insurance Fund or Bank Insurance Fund. The
FDIC also has the authority to initiate enforcement actions
against savings institutions, after giving the Office of Thrift
Supervision an opportunity to take such action, and may terminate
the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed
through a risk-based system under which all insured depository
institutions are placed into one of nine categories and assessed
insurance premiums based upon their level of capital and
supervisory evaluation. Under the system, institutions
classified as well capitalized (i.e., a core capital ratio of at
least 5%, a ratio of Tier 1 or core capital to risk-weighted
assets ("Tier 1 risk-based capital") of at least 6% and a risk-
based capital ratio of at least 10%) and considered healthy pay
the lowest premium while institutions that are less than
adequately capitalized (i.e., core or Tier 1 risk-based capital
ratios of less than 4% or a risk-based capital ratio of less than
8%) and considered of substantial supervisory concern pay the
highest premium. Risk classification of all insured institutions
is made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on
a semi-annual basis, if it determines that the reserve ratio of
the Savings Association Insurance Fund will be less than the
designated reserve ratio of 1.25% of Savings Association
Insurance Fund insured deposits. In setting these increased
assessments, the FDIC must seek to restore the reserve ratio to
that designated reserve level, or such higher reserve ratio as
established by the FDIC. The FDIC may also impose special
assessments on Savings Association Insurance Fund members to
repay amounts borrowed from the United States Treasury or for any
other reason deemed necessary by the FDIC. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," for an explanation on the special Savings
Association Insurance Fund assessment amount paid by IGA.
<PAGE 139>
Effective January 1, 1999, the premium schedule for
Bank Insurance Fund and Savings Association Insurance Fund
insured institutions ranged from 0 to 27 basis points. IGA is in
the category of institutions that pay no deposit insurance
premiums. However, all insured institutions are required to pay
a Financing Corporation assessment, in order to fund the interest
on bonds issued to resolve thrift failures in the 1980s. The
current rate for Savings Association Assurance Fund insured
institutions is 6.1 basis points for each $100 in domestic
deposits, while Bank Insurance Fund insured institutions pay an
assessment equal to 1.22 basis points for each $100 in domestic
deposits. After January 1, 2000, Savings Association Insurance
Fund and Bank Insurance Fund insured institutions will be the
same. These assessments, which may be revised based upon the
level of Bank Insurance Fund and Savings Association Insurance
Fund deposits, will continue until the bonds mature in the year
2017.
Regulatory Capital Requirements
Federally insured savings institutions, such as IGA,
are required to maintain a minimum level of regulatory capital.
The Office of Thrift Supervision has established capital
standards, including a tangible capital requirement, a leverage
ratio, or core capital, requirement and a risk-based capital
requirement applicable to such savings institutions. These
capital requirements must be generally as stringent as the
comparable capital requirements for national banks. The Office
of Thrift Supervision is also authorized to impose capital
requirements in excess of these standards on individual
institutions on a case-by-case basis.
The capital regulations require tangible capital of at
least 1.5% of adjusted total assets, as defined by regulation.
Tangible capital generally includes common shareholders' equity
and retained income, and certain noncumulative perpetual
preferred stock and related income. In addition, all intangible
assets, other than a limited amount of purchased mortgage
servicing rights, must be deducted from tangible capital for
calculating compliance with the requirement. At March 31, 1999,
IGA did not have any intangible assets.
At March 31, 1999, IGA had tangible capital of $15.50
million, or 8.71% of adjusted total assets, which is
approximately $12.83 million above the minimum requirement of
1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal
to at least 3% of adjusted total assets. Core capital generally
consists of tangible capital plus certain intangible assets,
including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action
provisions discussed below, however, a savings institution must
maintain a core capital ratio of at least 4% to be considered
adequately capitalized unless its supervisory condition is such
<PAGE 140> to allow it to maintain a 3% ratio. At March 31,
1999, IGA had no intangibles which were subject to these tests.
At March 31, 1999, IGA had core capital equal to $15.50
million, or 8.71% of adjusted total assets, which is $10.16
million above the minimum leverage ratio requirement of 3% as in
effect on that date.
The Office of Thrift Supervision risk-based requirement
requires savings institutions to have total capital of at least
8.0% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital.
Supplementary capital consists of certain permanent and maturing
capital instruments that do not qualify as core capital and
general valuation loan and lease loss allowances up to a maximum
of 1.25% of risk-weighted assets. Supplementary capital may be
used to satisfy the risk-based requirement only to the extent of
core capital. The Office of Thrift Supervision is also
authorized to require a savings institution to maintain an
additional amount of total capital to account for concentration
of credit risk and the risk of non-traditional activities. At
March 31, 1999, IGA had $1.12 million of general loan loss
reserves, which was less than 1.25% maximum of risk-weighted
assets permitted.
In determining the amount of risk-weighted assets, all
assets, including certain off-balance sheet items, will be
multiplied by a risk weight, ranging from O% to 100%, based on
the risk inherent in the type of asset. For example, the Office
of Thrift Supervision has assigned a risk weight of 50% for
prudently underwritten permanent one- to four-family first lien
mortgage loans not more than 90 days delinquent and having a loan
to value ratio of not more than 80% at origination unless insured
to such ratio by an insurer approved by the Fannie Mae or Freddie
Mac.
On March 31, 1999, IGA had total risk-based capital of
$16.61 million (including $15.50 million in core capital and
$1.11 million in supplementary capital) and risk-weighted assets
of $100.17 million; or total capital of 16.58% of risk-weighted
assets. This amount was $8.60 million above the 8.0% requirement
in effect on that date.
The Office of Thrift Supervision and the FDIC are
authorized and, under certain circumstances required, to take
certain actions against savings institutions that fail to meet
their capital requirements. The Office of Thrift Supervision is
generally required to take action to restrict the activities of
"undercapitalized institution," which is an institution with less
than either a 4% core capital ratio, a 4% Tier 1 risked-based
capital ratio or an 8.0% risk-based capital ratio. Any such
institution must submit a capital restoration plan and until
such plan is approved by the Office of Thrift Supervision may not
increase its assets, acquire another institution, establish a
branch or engage in any new activities, and generally may not
<PAGE 141> make capital distributions. The Office of Thrift
Supervision is authorized to impose the additional restrictions
that are applicable to significantly undercapitalized
institutions.
As a condition to the approval of the capital
restoration plan, any company controlling an undercapitalized
institution must agree that it will enter into a limited capital
maintenance guarantee with respect to the institution's
achievement of its capital requirements.
Any savings institution that fails to comply with its
capital plan or has Tier 1 risk-based or core capital ratios of
less than 3% or a risk-based capital ratio of less than 6% and is
considered "significantly undercapitalized" must be made subject
to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and
include a forced merger or acquisition of the institution. An
institution that becomes "critically undercapitalized" because it
has a tangible capital ratio of 2% or less is subject to further
mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized institutions. In
addition, the Office of Thrift Supervision must appoint a
receiver, or conservator with the concurrence of the FDIC, for a
savings institution, with certain limited exceptions, within 90
days after it becomes critically undercapitalized. Any
undercapitalized institution is also subject to the general
enforcement authority of the Office of Thrift Supervision and the
FDIC, including the appointment of a conservator or a receiver.
The Office of Thrift Supervision is also generally
authorized to reclassify an institution into a lower capital
category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or
is in an unsafe or unsound condition.
The imposition by the Office of Thrift Supervision or
the FDIC of any of these measures on IGA may have a substantial
adverse effect on its operations and profitability.
Limitations on Dividends and Other Capital Distributions
Office of Thrift Supervision regulations impose various
restrictions on savings institutions with respect to their
ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account.
A savings institution may make a capital distribution
without prior notice to the Office of Thrift Supervision, unless
it is a subsidiary of a holding company, provided that it has a
regulatory rating in the two top categories, is not of
supervisory concern, and would remain adequately capitalized, as
defined in the Office of Thrift Supervision prompt corrective
<PAGE 142> action regulations, following the proposed
distribution, and the aggregate distribution in any calendar year
is less than the net income for that year to date, plus the
retained earnings for the prior two years. As IGA will be a
subsidiary of a holding company, it will need to give thirty days
prior notice to the Office of Thrift Supervision before making
any dividend. Savings institutions that would remain adequately
capitalized following the proposed distribution but do not meet
the other noted requirements must notify the Office of Thrift
Supervision 30 days prior to declaring a capital distribution. A
savings institution may not make a capital distribution without
prior approval of the Office of Thrift Supervision and the FDIC
if it is undercapitalized before, or as a result of, such a
distribution. The Office of Thrift Supervision may object to a
capital distribution if it would constitute an unsafe or unsound
practice.
Liquidity
All savings institutions, including IGA, are required
to maintain an average daily balance of liquid assets equal to a
certain percentage of the average daily balance of its liquidity
base during the preceding calendar quarter or a percentage of the
amount of its liquidity base at the end of the preceding quarter.
For a discussion of what IGA includes in liquid assets, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Commitments." This liquid
asset ratio requirement may vary from time to time between 4% and
10% depending upon economic conditions and savings flows of all
savings institutions. At the present time, the minimum liquid
asset ratio is 4%.
Penalties may be imposed upon institutions for
violations of the liquid asset ratio requirement. At March 31,
1999, IGA was in compliance with the requirement, with an overall
liquid asset ratio of 25%.
Qualified Thrift Lender Test
All savings institutions, including IGA, are required
to meet a qualified thrift lender test to avoid certain
restrictions on their operations. This test requires a savings
institution to have at least 65% of its portfolio assets, as
defined by regulation, in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling
basis. As an alternative, the savings institution may maintain
60% of its assets in those assets specified in
Section 7701(a)(19) of the Internal Revenue Code. Under either
test, such assets primarily consist of residential housing
related loans and investments. At March 31, 1999, IGA met the
test and has always met the test since its effectiveness.
Any savings institution that fails to meet the
qualified thrift lender test must convert to a national bank
charter, unless it requalifies as a qualified thrift lender and
<PAGE 143> thereafter remains a qualified thrift lender. If an
institution does not requalify and converts to a national bank
charter, it must remain Savings Association Insurance Fund
insured until the FDIC permits it to transfer to the Bank
Insurance Fund. If such an institution has not yet requalified
or converted to a national bank, its new investments and
activities are limited to those permissible for both a savings
institution and a national bank, and it is limited to national
bank branching rights in its home state. In addition, the
institution is immediately ineligible to receive any new Federal
Home Loan Bank borrowings and is subject to national bank limits
for payment of dividends. If such an institution has not
requalified or converted to a national bank within three years
after the failure, it must divest itself of all investments and
cease all activities not permissible for a national bank. In
addition, it must repay promptly any outstanding Federal Home
Loan Bank borrowings, which may result in prepayment penalties.
If any institution that fails the qualified thrift lender test is
controlled by a holding company, then within one year after the
failure, the holding company must register as a bank holding
company and become subject to all restrictions on bank holding
companies. See "--JADE FINANCIAL."
Community Reinvestment Act
Under the Community Reinvestment Act, every FDIC
insured institution has a continuing and affirmative obligation
consistent with safe and sound banking practices to help meet the
credit needs of its entire community, including low and moderate
income neighborhoods. The Community Reinvestment Act does not
establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to
develop the types of products and services that it believes are
best suited to its particular Community, consistent with the
Community Reinvestment Act. The Community Reinvestment Act
requires the Office of Thrift Supervision, in connection with the
examination of IGA, to assess the institution's record of meeting
the credit needs of its community and to take such record into
account in its evaluation of certain applications, such as a
merger or the establishment of a branch, by IGA. An
unsatisfactory rating may be used as the basis for the denial of
an application by the Office of Thrift Supervision. Due to the
heightened attention being given to the Community Reinvestment
Act in the past few years, IGA may be required to devote
additional funds for investment and lending in its local
community. IGA was examined for Community Reinvestment Act
compliance in May 1999, and received a rating of _______________.
Transactions with Affiliates
Generally, transactions between a savings institution
or its subsidiaries and its affiliates are required to be on
terms as favorable to the institution as transactions with non-
affiliates. In addition, certain of these transactions, such as
loans to an affiliate, are restricted to a percentage of the
<PAGE 144> institution's capital. Affiliates of IGA include JADE
FINANCIAL and any company which is under common control with IGA.
In addition, a savings institution may not lend to any affiliate
engaged in activities not permissible for a bank holding company
or acquire the securities of most affiliates. The Office of
Thrift Supervision has the discretion to treat subsidiaries of
savings institutions as affiliates on a case by case basis.
Certain transactions with directors, officers or
controlling persons are also subject to conflict of interest
regulations enforced by the Office of Thrift Supervision. These
conflict of interest regulations and other statutes also impose
restrictions on loans to such persons and their related
interests. Among other things, such loans must generally be made
on terms substantially the same as for loans to unaffiliated
individual.
Federal Securities Law
The stock of JADE FINANCIAL will be registered with the
SEC under the Securities Exchange Act of 1934, as amended. JADE
FINANCIAL will be subject to the information, proxy solicitation,
insider trading restrictions and other requirements of the SEC
under the Securities Exchange Act of 1934.
JADE FINANCIAL stock held by persons who are affiliates
of JADE FINANCIAL may not be resold without registration or
unless sold in accordance with certain resale restrictions.
Affiliates are generally considered to be officers, directors and
principal shareholders. If JADE FINANCIAL meets specified
current public information requirements, each affiliate of JADE
FINANCIAL is able to sell in the public market, without
registration, a limited number of shares in any three-month
period.
Federal Reserve System
The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at
specified levels against their transaction accounts, primarily
checking, NOW and Super NOW checking accounts. At March 31,
1999, IGA was in compliance with these reserve requirements. The
balances maintained to meet the reserve requirements imposed by
the Federal Reserve Board may be used to satisfy liquidity
requirements that may be imposed by the office of Thrift
Supervision. See "--Liquidity."
Savings institutions are authorized to borrow from the
Federal Reserve Bank "discount window," but Federal Reserve Board
regulations require institutions to exhaust other reasonable
alternative sources of funds, including Federal Home Loan Bank
borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
<PAGE 145>
IGA is a member of the Federal Home Loan Bank of
Pittsburgh which is one of 12 regional Federal Home Loan Banks,
that administers the home financing credit function of savings
institutions. Each Federal Home Loan Bank serves as a reserve or
central bank for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of
consolidated obligations of the Federal Home loan Bank System.
It makes loans or advances to members in accordance with policies
and procedures, established by the board of directors of the
Federal Home Loan Bank, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the Federal
Home Loan Bank are required to be fully secured by sufficient
collateral as determined by the Federal Home Loan Bank. in
addition, all long-term advances are required to provide funds
for residential home financing.
As a member, IGA is required to purchase and maintain
stock in the Federal Home Loan Bank of Pittsburgh. For the
calendar year ended December 31, 1998, IGA had an average
outstanding balance of $833,500 in Federal Home Loan Bank stock,
which-was in compliance with this requirement. In the past
calendar year such dividends have averaged 6.50%.
Under federal law the Federal Home Loan Banks are
required to provide funds for the resolution of troubled savings
institutions and to contribute to low- and moderately-priced
housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-
income housing projects. These contributions have affected
adversely the level of Federal Home Loan Bank dividends paid and
could continue to do so in the future. These contributions could
also have an adverse effect on the value of Federal Home Loan
Bank stock in the future. A reduction in value of IGA's Federal
Home Loan Bank stock may result in a corresponding reduction in
IGA's capital.
For the calendar year ended December 31, 1998,
dividends paid by the Federal Home Loan Bank of Pittsburgh to IGA
totaled $21,225.
TAXATION
Federal Taxation
General. JADE FINANCIAL and IGA will be subject to federal
income taxation in the same general manner as other corporations
with some exceptions discussed below. The following discussion
of federal taxation is intended only to summarize certain
pertinent federal income tax matters and is not a comprehensive
description of the tax rules applicable to JADE FINANCIAL or IGA.
IGA was not subject to federal income tax prior to July 1, 1998.
Following the conversion, JADE FINANCIAL anticipates that it
will file a consolidated federal income tax return with IGA,
commencing with the first taxable year after completion of the
<PAGE 146> conversion. Accordingly, it is anticipated that any
cash distributions made by JADE FINANCIAL to its shareholders
would be considered to be taxable dividends and not as a non-
taxable return of capital to shareholders for federal and state
tax purposes.
Method of Accounting. For federal income tax purposes, IGA
currently reports its income and expenses on the accrual method
of accounting and uses a calendar year for filing its federal
income tax return.
Bad Debt Reserves. As a result of the Small Business Job
Protection Act, savings associations must now use the specific
charge-off method in computing bad debt deductions.
Minimum Tax. The Internal Revenue Code imposes an
alternative minimum tax at a rate of 20% on a base of regular
taxable income plus certain tax preferences, called alternative
minimum taxable income. The alternative minimum tax is payable
to the extent such alternative minimum taxable income is in
excess of an exemption amount. Net operating losses can offset
no more than 90% of alternative minimum taxable income. Certain
payments of alternative minimum tax may be used as credits
against regular tax liabilities in future years. IGA has not
been subject to the alternative minimum tax nor does IGA have any
such amounts available as credits for carryover.
Net Operating Loss Carryovers. A financial institution may
carryback net operating losses to the preceding two taxable years
and forward to the succeeding 20 taxable years. This provision
applies to losses incurred in taxable years beginning after
August 6, 1997. For losses incurred in the taxable years prior
to August 6, 1997, the carryback period was three years and the
carryforward period was 15 years. At March 31, 1999, IGA had no
net operating loss carryforwards for federal income tax purposes.
Corporation Dividends-Received Deduction. JADE FINANCIAL
may eliminate from its income dividends received from IGA as a
wholly-owned subsidiary of JADE FINANCIAL if, as expected, it
elects to file a consolidated return with IGA.
State Taxation
JADE FINANCIAL will be subject to Pennsylvania's mutual
thrift institutions tax, which is generally levied upon "taxable
net income" from all sources, as determined in accordance with
generally accepted accounting principles, at the rate of 11.5%.
"taxable net income" is net income after apportionment and any
deduction for net operating loss carryover. Income or loss from
(i) U.S. obligations, which by federal law are exempt from state
and local taxation, and (ii) Pennsylvania obligations that by
state law are exempt from taxation by Pennsylvania, are excluded
from "taxable net income."
RESTRICTIONS ON ACQUISITION <PAGE 147>
OF JADE FINANCIAL AND IGA
The principal federal regulatory restrictions which
affect the ability of any person, firm or entity to acquire JADE
FINANCIAL, IGA or their respective capital stock are described
below. Also discussed are certain provisions of Pennsylvania's
Business Corporation Law and JADE FINANCIAL's articles of
incorporation and bylaws which may be deemed to affect the
ability of a person, firm or entity to acquire JADE FINANCIAL.
Federal Law
The Change in Bank Control Act provides that no person,
acting directly or indirectly or through or in concert with one
or more other persons, may acquire control of a savings
institution unless the Office of Thrift Supervision has been
given 60 days prior written notice. The Home Owners Loan Act
provides that no company may acquire "control" of a savings
institution without the prior approval of the Office of Thrift
Supervision. Any company that acquires such control becomes a
savings and loan holding company subject to registration,
examination and regulation by the Office of Thrift Supervision.
Pursuant to federal regulations, control of a savings institution
is conclusively deemed to have been acquired by, among other
things, the acquisition of more than 25% of any class of voting
stock of the institution or the ability to control the election
of a majority of the directors of an institution. Moreover,
control is presumed to have been acquired, subject to rebuttal,
upon the acquisition of more than 10% of any class of voting
stock, or of more than 25% of any class of stock of a savings
institution, where certain enumerated "control factors" are also
present in the acquisition. The Office of Thrift Supervision may
prohibit an acquisition of control if:
- it would result in a monopoly or substantially
lessen competition;
- the financial condition of the acquiring person
might jeopardize the financial stability of the
institution; or
- the competence, experience or integrity of the
acquiring person indicates that it would not be in
the interest of the depositors or of the public to
permit the acquisition of control by such person.
These restrictions do not apply to the acquisition of a savings
institution's capital stock by one or more tax-qualified employee
stock benefit plans, provided that the plans do not have
beneficial ownership of more than 25% of any class of equity
security of the savings institution.
For a period of three years following completion of the
conversion, Office of Thrift Supervision regulations generally
prohibit any person from acquiring or making an offer to acquire
<PAGE 148> beneficial ownership of more than 10% of the stock of
JADE FINANCIAL or IGA without Office of Thrift Supervision
approval.
Pennsylvania Law
Chapter 25 of the Pennsylvania Business Corporation Law
contains certain "anti-takeover" provisions which apply to a
"registered corporation," unless the registered corporation
elects not to be governed by such provisions. The Company will
be a "registered corporation" within the meaning of Chapter 25 of
the Pennsylvania Business Corporation Law because the common
stock of JADE FINANCIAL is entitled to vote generally in the
election of directors and will be registered under the Securities
Exchange Act of 1934, as amended. The relevant provisions are
contained in Subchapters 25E through 25H of the Pennsylvania
Business Corporation Law.
Subchapter 25E of the Pennsylvania Business Corporation Law
(relating to control transactions) provides that if any person or
group acquires 20% or more of the voting power of a covered
corporation, the remaining shareholders may demand from such
person or group the fair value of their shares, including a
proportionate amount of any control premium.
Subchapter 25F of the Pennsylvania Business Corporation Law
(relating to business combinations) delays for five years and
imposes conditions upon "business combinations" between an
"interested shareholder" and the corporation. The term "business
combination" is defined broadly to include various transactions
utilizing a corporation's assets for purchase price amortization
or refinancing purposes. For this purpose, an "interested
shareholder" is defined generally as the beneficial owner of at
least 20% of a corporation's voting shares.
Subchapter 25G of the Pennsylvania Business Corporation Law
(relating to control-share acquisitions) prevents a person who
has acquired 20% or more of the voting power of a covered
corporation from voting such shares unless the "disinterested"
shareholders approve such voting rights. Failure to obtain such
approval exposes the owner to the risk of a forced sale of the
shares to the issuer.
Subchapter 25H of the Pennsylvania Business Corporation Law
(relating to disgorgement) applies in the event that (i) any
person or group publicly discloses that the person or group may
acquire control of the corporation or (ii) a person or group
acquires (or publicly discloses an offer or intent to acquire)
20% or more of the voting power of the corporation and, in either
case, sells shares within 18 months thereafter. Any profits from
sales of equity securities of the corporation by, the person or
group during such 18-month period belong to the corporation if
the securities that were sold were acquired during the 18-month
period or within 24 months prior thereto.
<PAGE 149>
Subchapter 25I of the Pennsylvania Business Corporation Law
(relating to severance payments) provides for a minimum severance
payment to certain employees terminated within two years of the
approval of a control-share acquisition under Subchapter 25G of
the Pennsylvania Business Corporation Law. Subchapter 25J of the
Pennsylvania Business Corporation Law (relating to labor
contracts) prohibits, in connection with a control-share
acquisition under Subchapter 25G of the Pennsylvania Business
Corporation Law, the abrogation of certain labor contracts, if
any, prior to their stated date of expiration.
JADE FINANCIAL has elected not to "opt out" of coverage
under Subchapter 25 of the Pennsylvania Business Corporation Law,
and therefore, the foregoing provisions of Subchapter 25 of the
Pennsylvania Business Corporation Law will be applicable to JADE
FINANCIAL. Subchapters 25E through 25H of the Pennsylvania
Business Corporation Law contain a wide variety of transactional
and status exemptions, exclusions and safe harbors.
Articles of Incorporation and Bylaws of JADE FINANCIAL
The following discussion is a summary of certain provisions
of JADE FINANCIAL's articles of incorporation and bylaws that
relate to corporate governance. The description is necessarily
general and qualified by reference to the articles of
incorporation and bylaws.
Directors. Certain provisions of JADE FINANCIAL's articles
of incorporation and bylaws will impede changes in majority
control of JADE FINANCIAL's board of directors. JADE FINANCIAL's
articles of incorporation provide that the board of directors of
JADE FINANCIAL will be divided into three classes, with directors
in each class elected for three-year staggered terms except for
the initial directors. Thus, assuming a Board of three directors
or more, it would take two annual elections to replace a majority
of JADE FINANCIAL's Board.
JADE FINANCIAL's bylaws provide that any vacancy occurring
in the board of directors, including a vacancy created by an
increase in the number of directors, shall be filled for the
remainder of the unexpired term by a majority vote of the
directors then in office. In addition, the bylaws impose certain
notice and information requirements in connection with the
nomination by shareholders of candidates for election to JADE
FINANCIAL's board of directors or the proposal by shareholders of
business to be acted upon at an annual meeting of shareholders.
The articles of incorporation provide that a director may
only be removed by shareholders for cause and upon the
affirmative vote of at least a majority of the votes cast by
shareholders.
Restrictions on Call of Special Meetings. JADE FINANCIAL's
articles of incorporation provide that a special meeting of
shareholders may be called only pursuant to a resolution of JADE
<PAGE 150> FINANCIAL's board of directors and for only such
business as directed by the board of directors. Shareholders are
not authorized to call a special meeting.
Absence of Cumulative Voting. JADE FINANCIAL's articles of
incorporation does not provide for cumulative voting rights in
the election of directors.
Authorization of Preferred Stock. The articles of
incorporation of JADE FINANCIAL authorizes 5,000,000 shares of
preferred stock, $.01 par value. JADE FINANCIAL is authorized to
issue preferred stock from time to time in one or more series
subject to applicable provisions of law, and JADE FINANCIAL's
board of directors is authorized to fix the designations, powers,
preferences and relative participating, optional and other
special rights of such shares, including voting rights (which
could be multiple or as a separate class) and conversion rights.
In the event of a proposed merger, tender offer or other attempt
to gain control of JADE FINANCIAL that the board of directors
does not approve, it might be possible for the board of directors
to authorize the issuance of a series of preferred stock with
rights and preferences that would impede the completion of such a
transaction. If JADE FINANCIAL issued any preferred stock which
disparately reduced the voting rights of the common stock within
the meaning of Rule 19c-4 under the Exchange Act of 1934, as
amended, the common stock could be required to be delisted from
the Nasdaq Stock Market. An effect of the possible issuance of
preferred stock, therefore, may be to deter a future takeover
attempt. The board of directors has no present plans or
understandings for the issuance of any preferred stock and does
not intend to issue any preferred stock except on terms which the
board deems to be in the best interests of JADE FINANCIAL and its
shareholders.
Limitation on Voting Rights. JADE FINANCIAL's articles of
incorporation provide that in no event shall any record owner of
any outstanding common stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in
excess of 10% of the then outstanding shares of common stock (the
"Limit"), be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. This limitation would not
inhibit any person from soliciting (or voting) proxies from other
beneficial owners for more than 10% of the common stock or from
voting such proxies. Beneficial ownership is to be determined
pursuant to Rule 13d-3 of the General Rules and Regulations of
the Exchange Act of 1934, as amended, and includes shares
beneficially owned by any affiliate of such person, shares which
such person or his affiliates (as defined in the articles of
incorporation) have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person
and his affiliates have or share investment or voting power, but
shall not include shares beneficially owned by directors,
officers and employees of JADE FINANCIAL or IGA. This provision
will be enforced by the board of directors to limit the voting
rights of persons beneficially owning more than 10% of the stock
<PAGE 151> and thus could be utilized in a proxy contest or other
solicitation to defeat a proposal that is desired by a majority
of the shareholders.
Procedures for Certain Business Combinations. JADE
FINANCIAL's articles of incorporation require that certain
business combinations (including transactions initiated by
management) between JADE FINANCIAL (or any majority-owned
subsidiary thereof) and a 5% or more shareholder be approved by
at least 80% of the total number of outstanding voting shares,
voting as a single class, if the transaction is not approved, in
advance, by board of directors.
It should be noted that, since the board or directors and
management (10 persons) intend to purchase approximately $1.33
million of the shares offered in the conversion and may control
the voting of additional shares through the employee stock
ownership plan and proposed restricted stock plan and stock
option plan, the board and management may be able to block the
approval of combinations requiring an 80% vote even where a
majority of the shareholders vote to approve such combinations.
Amendment to Articles of Incorporation and Bylaws.
Amendments to JADE FINANCIAL's articles of incorporation must be
approved by JADE FINANCIAL's board of directors and also by a
majority of the outstanding shares of JADE FINANCIAL's voting
stock, provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain
provisions (i.e., provisions relating to number, classification,
election and removal of directors; amendment of bylaws; call of
special shareholder meetings; offers to acquire and acquisitions
of control; director liability; certain business combinations;
power of indemnification and amendments to provisions relating to
the foregoing in the articles of incorporation).
The bylaws may be amended by the board of directors, subject
to the right of shareholders to change such action by the
affirmative vote of at least 66-2/3% of the total votes eligible
to be voted at a duly constituted meeting of shareholders;
provided, however, that bylaw provisions relating to limitations
on directors' liabilities and indemnification may not be amended
to increase exposure to liability for directors or to decrease
indemnification of directors and officers except by the
affirmative vote of 66-2/3% of the board of directors or by the
affirmative vote of shareholders entitled to cast at least 80% of
the votes all shareholders are entitled to cast.
Purpose and Takeover Defensive Effects of JADE FINANCIAL's
Articles of Incorporation and Bylaws. We believe that the
provisions described above are prudent and will reduce JADE
FINANCIAL's vulnerability to takeover attempts and certain other
transactions which have not been negotiated with and approved by
its board of directors. These provisions will also assist us in
the orderly deployment of the conversion proceeds into productive
assets during the initial period after the conversion. We
<PAGE 152> believe these provisions are in the best interest of
JADE FINANCIAL and IGA and JADE FINANCIAL's shareholders. In our
judgment, JADE FINANCIAL's board will be in the best position to
determine the true value of JADE FINANCIAL and to negotiate more
effectively for what may be in the best interests of its
shareholders. Accordingly, we believe that it is in the best
interests of JADE FINANCIAL and its shareholders to encourage
potential acquirors to negotiate directly with the board of
directors of JADE FINANCIAL and that these provisions will
encourage such negotiations and discourage hostile takeover
attempts. It is also our view that these provisions should not
discourage persons from proposing a merger or other transaction
at prices reflective of the true value of JADE FINANCIAL and
which is in the best interests of all shareholders.
Attempts to take over financial institutions and their
holding companies have recently become increasingly common.
Takeover attempts which have not been negotiated with and
approved by the board of directors present to shareholders the
risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated
and approved by the board of directors, on the other hand, can be
carefully planned and undertaken at an opportune time in order to
obtain maximum value for JADE FINANCIAL and its shareholders,
with due consideration given to matters such as the management
and business of the acquiring corporation and maximum strategic
development of JADE FINANCIAL's assets.
An unsolicited takeover proposal can seriously disrupt the
business and management of a corporation and cause it great
expense. Although a tender offer or other takeover attempt may
be made at a price substantially above then current market
prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result,
shareholders may be presented with the alternative of partially
liquidating their investment at a time that may be
disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objectives may not
be similar to those of the remaining shareholders. The
concentration of control, which could result from a tender offer
or other takeover attempt, could also deprive JADE FINANCIAL's
remaining shareholders of the benefits of certain protective
provisions of the Exchange Act of 1934, as amended, if the number
of beneficial owners becomes less than the 300 required for
Exchange Act registration.
Despite our belief as to the benefits to shareholders of
these provisions of JADE FINANCIAL's articles of incorporation
and bylaws, these provisions may also have the effect of
discouraging a future takeover attempt which would not be
approved by JADE FINANCIAL's board, but pursuant to which
shareholders may receive a substantial premium for their shares
over then current market prices. As a result, shareholders who
might desire to participate in such a transaction may not have
any opportunity to do so. Such provisions will also render the
<PAGE 153> removal of JADE FINANCIAL's board of directors and of
management more difficult. JADE FINANCIAL will enforce the
voting limitation provisions of the articles of incorporation in
proxy solicitations and accordingly could utilize these
provisions to defeat proposals that are favored by a majority of
the shareholders. We, however, have concluded that the potential
benefits outweigh the possible disadvantages.
DESCRIPTION OF CAPITAL STOCK OF JADE FINANCIAL
General
JADE FINANCIAL is authorized to issue 10,000,000 shares
of common stock, par value $.01 per share, and 5,000,000 shares
of preferred stock, having such par value as the board of
directors of JADE FINANCIAL shall fix and determine. JADE
FINANCIAL is offering for sale between 1,540,625 and 2,084,375
shares. Inclusive of shares contributed to the foundation, JADE
FINANCIAL currently expects to issue between 1,591,982 and
2,153,858 shares (or, as permitted by the plan of conversion, in
the event the employee stock ownership plan purchases shares in
excess of the maximum of the estimated valuation range in order
to satisfy its 8% subscription, up to 2,476,936 shares), subject
to adjustment, of the common stock and no shares of preferred
stock in the conversion. JADE FINANCIAL has reserved for future
issuance under the stock option plan, the employee stock
ownership plan and management recognition plan an amount of
authorized but unissued shares of common stock equal to 10% of
the shares to be issued in the conversion.
Common Stock
Voting Rights
Each share of the common stock will have the same relative
rights and will be identical in all respects with every other
share of the common stock. The holders of the common stock will
possess exclusive voting rights in JADE FINANCIAL, except to the
extent that shares of preferred stock issued in the future may
have voting rights, if any. Each holder of shares of the common
stock will be entitled to one vote for each share held of record
on all matters submitted to a vote of holders of shares of the
common stock. Holders of common stock will not be entitled to
cumulate their votes for election of directors.
Dividends
We may, from time to time, declare dividends to the holders
of common stock, who will be entitled to share equally in any
such dividends. For additional information as to cash dividends,
see "Dividend Policy."
Liquidation
<PAGE 154>
In the event of any liquidation, dissolution or winding up
of any or all of IGA, JADE FINANCIAL, as holder of all of the
capital stock of IGA, would be entitled to receive all assets of
IGA after payment of all debts and liabilities of IGA and after
distribution of the balance in the liquidation account to
Eligible Account Holders and Supplemental Eligible Account
Holders. In the event of a liquidation, dissolution or winding
up of JADE FINANCIAL, each holder of shares of common stock would
be entitled to receive, after payment of all debts and
liabilities of JADE FINANCIAL, a pro rata portion of all assets
of JADE FINANCIAL available for distribution to holders of common
stock. If any preferred stock is issued, the holders thereof may
have a priority in liquidation or dissolution over the holders of
the common stock.
Other Characteristics
Holders of the common stock will not have preemptive rights
with respect to any additional shares of common stock that may be
issued. The common stock is not subject to call for redemption,
and the outstanding shares of common stock, when issued and upon
receipt by JADE FINANCIAL of the full purchase price therefor,
will be fully paid and nonassessable.
Preferred Stock
None of the 5,000,000 authorized shares of preferred stock
of JADE FINANCIAL will be issued in the conversion. After the
conversion is completed, the board of directors of JADE FINANCIAL
will be authorized, without shareholder approval, to issue
preferred stock and to fix and state voting powers, designations,
preferences or other special rights of such shares and the
qualifications, limitations and restrictions thereof. The
preferred stock may rank prior to the common stock as to dividend
rights or liquidation preferences, or both, and may have full or
limited voting rights. The board of directors has no present
intention to issue any of the preferred stock. Should the board
of directors of JADE FINANCIAL subsequently issue preferred
stock, no holder of any such stock shall have any preemptive
right to subscribe for or purchase any stock or any other
securities of JADE FINANCIAL other than such, if any, as the
board of directors, in its sole discretion, may determine and at
such price or prices and upon such other terms as the board of
directors, in its sole discretion, may fix.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for JADE FINANCIAL's
common stock is Registrar & Transfer Company.
EXPERTS
The financial statements of IGA as of December 31, 1998 and
for the six months ended December 31, 1998, as of June 30, 1998
and 1997 and for each of the three years in the period ended
<PAGE 155> June 30, 1998 included in this prospectus have been
audited by Stockton Bates & Company, P.C., independent auditors,
as stated in their report appearing herein and elsewhere in the
registration statement, and have been so included in reliance
upon the report of such firm given upon their authority as
experts in accounting and auditing.
RP Financial has consented to the publication herein of the
summary of its report to IGA setting forth its opinion as to the
estimated pro forma market value of the common stock upon
conversion and its letter with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the common stock and the federal income
tax consequences of the conversion will be passed upon for IGA by
Stevens & Lee, P.C., Wayne, Pennsylvania, special counsel to IGA
and JADE FINANCIAL. The Pennsylvania income tax consequences of
the conversion will be passed upon by Stockton Bates & Company,
P.C., Philadelphia, Pennsylvania. The federal income tax
consequences of the deductibility of a contribution of JADE
FINANCIAL common stock to the private foundation, and
applicability of the self-dealing rules to such contribution will
be passed upon for IGA by Stevens & Lee, P.C. Certain legal
matters will be passed upon for Charles Webb & Company by Silver,
Freedman & Taff, L.L.P., Washington, D.C.
ADDITIONAL INFORMATION
JADE FINANCIAL has filed with the SEC a Registration
Statement under the Securities Act of 1933, as amended, with
respect to the common stock offered hereby. As permitted by the
rules and regulations of the SEC, this prospectus does not
contain all the information set forth in the Registration
Statement. Such information, including the Appraisal Report
which is an exhibit to the Registration Statement, can be
examined without charge at the public reference facilities of the
SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at
prescribed rates. In addition, the SEC maintains a web site
(http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the SEC, including JADE FINANCIAL. The
statements contained in this prospectus as to the contents of any
contract or other document filed as an exhibit to the
Registration Statement are, of necessity, brief descriptions
thereof and are not necessarily complete; each such statement is
qualified by reference to such contract or document.
JADE FINANCIAL has filed an Application for conversion with
the Office of Thrift Supervision. This prospectus omits certain
information contained in the Application. The Application may be
examined at the principal office of the Office of Thrift
Supervision, 1700 G Street, N.W., Washington, D.C. 20552 and at
the Central Regional Office of the Office of Thrift Supervision
<PAGE 156> located at 200 West Madison Street, Suite 1300,
Chicago, Illinois 60606.
JADE FINANCIAL will register its common stock with the SEC
under Section 12 of the Securities Exchange Act of 1934, as
amended, and, upon such registration JADE FINANCIAL and the
holders of its stock will become subject to the proxy
solicitation rules, reporting requirements and restrictions on
stock purchases and sales by directors, officers and greater than
10% shareholders, the annual and periodic reporting and certain
other requirements of the Securities Exchange Act of 1934. Under
the plan of conversion, JADE FINANCIAL has undertaken that it
will not terminate such registration for a period of at least
three years following the conversion.
A copy of the plan of conversion and the articles of
incorporation and bylaws of JADE FINANCIAL and IGA are available
without charge from IGA. Requests for such information should be
directed to: Shareholder Relations, IGA Federal Savings, 213
West Street Road, Feasterville, Pennsylvania 19053.
<PAGE 157>
IGA FEDERAL SAVINGS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report ............................. F-2
Consolidated Statements of Financial Condition
at March 31, 1999 (Unaudited), December 31, 1998 and
June 30, 1998 ............................................ F-3
Consolidated Statements of Income for the
Three Months Ended March 31, 1999 and 1998 (Unaudited),
for the Six Months Ended December 31, 1998 and 1997
(Unaudited) and for the Years Ended June 30, 1998
and 1997 ................................................. F-4
Consolidated Statements of Equity for the Three Months
Ended March 31, 1999 and 1998 (Unaudited), for the Six
Months Ended December 31, 1998 and 1997 (Unaudited)
and for the Years Ended June 30, 1998 and 1997 ........... F-5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 (Unaudited),
for the Six Months Ended December 31, 1998
and for the Years Ended June 30, 1998 and 1997 ........... F-7
Notes to Consolidated Financial Statements ............... F-11
All schedules are omitted because the required information
is not applicable or is included in the Consolidated Financial
Statements and related Notes.
The financial statements of JADE FINANCIAL have been omitted
because JADE FINANCIAL has not yet issued any stock, has no
assets, no liabilities and has not conducted any business other
than that of an organizational nature.
<PAGE F-1>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
IGA Federal Savings Bank
213 West Street Road
Feasterville, Pennsylvania 19053
We have audited the accompanying consolidated statements of
financial condition of IGA Federal Savings Bank and Subsidiary as
of December 31, 1998 and June 30, 1998 and the related
consolidated statements of income, equity and cash flows for the
six months ended December 31, 1998 and the years ended June 30,
1998 and 1997. These consolidated financial statements are the
responsibility of the Savings Bank's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of IGA Federal Savings Bank and Subsidiary as
of December 31, 1998 and June 30, 1998 and the results of their
operations and their cash flows for the six months ended
December 31, 1998, and the two years ended June 30, 1998 and 1997
in conformity with generally accepted accounting principles.
/s/ Stockton Bates, LLP
Certified Public Accountants
Philadelphia, Pennsylvania
March 18, 1999
May 26, 1999 with respect to (Note 18)
<PAGE F-2>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Financial Condition
<TABLE>
<CAPTION>
March 31, December 31, June 30,
1999 1998 1998
Unaudited
(Dollars in Thousands)
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and due from banks $ 8,564 $ 8,388 $ 4,742
Interest bearing deposits in other
financial institutions 1,234 1,237 3,205
Federal funds 8,315 8,726 5,034
Restricted cash 0 0 760
Total cash and cash equivalents 18,113 18,351 13,741
Investment securities,
available-for-sale, 28,240 28,726 19,340
Mortgage-backed securities
available-for-sale 15,529 10,176 14,267
Investment securities held-to-maturity
(fair value of $499) - - 499
Mortgage-backed securities
held-to-maturity (fair value of
$5,521, $6,541 and $8,950) 5,594 6,635 9,071
Loans receivable, net 105,320 102,900 98,096
Property, equipment and leasehold
improvements, net of accumulated
depreciation 1,879 1,962 1,883
Federal home loan bank stock, at cost 834 834
Accrued interest receivable 964 646 695
Share insurance fund 29 1,319
Reorganization costs, net 194 195 144
Deferred tax asset, net 46 44
Prepaid expenses and other assets 757 593 797
TOTAL ASSETS $177,470 $171,091 $159,852
LIABILITIES AND EQUITY
LIABILITIES:
Deposits $161,429 $154,888 $143,934
Advances from borrowers for taxes 574 521 571
Accounts payable and accrued expenses 371 406 267
Total liabilities 162,374 155,815 144,772
EQUITY:
Commitments and contingencies (Note 16)
Retained earnings, (See Notes 11 and 12) 15,690 15,560 15,294
Accumulated other comprehensive income ( 594) ( 284) ( 214)
Total Equity 15,096 15,276 15,080
Total Liabilities and Equity $177,470 $171,091 $159,852
</TABLE>
See Accompanying Notes
<PAGE F-3>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, December 31,
1999 1998 1998 1997
Unaudited Unaudited
(Dollars in Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $2,154 $2,137 $4,275 $4,510
Investments and mortgage-backed
securities 645 489 1,210 842
Interest-earning deposits 15 22 51 56
Federal funds 128 173 253 472
Total interest income 2,942 2,821 5,789 5,880
INTEREST EXPENSE:
Interest on deposits 1,325 1,310 2,762 2,805
Net interest income 1,617 1,511 3,027 3,075
PROVISION FOR LOAN LOSSES 135 376 300 397
Net interest income after pro-
vision for loan losses 1,482 1,135 2,727 2,678
NONINTEREST INCOME:
Loan fees 13 22 80 58
Service charges 112 29 258 236
Other income 99 51 268 139
Gain on securities 198 26
Total noninterest income 224 102 804 459
NONINTEREST EXPENSES:
Compensation and employee benefits 733 656 1,496 1,328
Office and occupancy costs 507 391 817 677
Printing and postage 15 15 28 26
Loan servicing 44 43 77 87
Professional fees 43 30 312 64
Bank and MAC charges 126 32 264 253
Advertising, marketing and promotions 42 22 102 112
Insurance expenses 8 11 23 20
Other 0 0 0 0
Total noninterest expenses 1,518 1,200 3,119 2,567
INCOME BEFORE PROVISION FOR INCOME TAXES 188 37 412 570
Provision for federal and state income
taxes: (See Note 1 - Income Taxes)
Current 60 N/A 190 N/A
Deferred ( 2) N/A ( 44) N/A
Total income tax provision 58 N/A 146 N/A
NET INCOME $ 130 $ 37 $ 266 $ 570
</TABLE>
See Accompanying Notes
<PAGE F-4>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Income
Year Ended
June 30,
1998 1997
(Dollars in Thousands)
INTEREST INCOME:
Interest on loans $ 8,734 $ 8,651
Investments and mortgage-backed
securities 2,002 2,595
Interest-earning deposits 430 364
Federal funds 310 50
Total interest income 11,476 11,660
INTEREST EXPENSE:
Interest on deposits 5,475 5,655
Net interest income 6,001 6,005
PROVISION FOR LOAN LOSSES 1,038 847
Net interest income after provision
for loan losses 4,963 5,158
NONINTEREST INCOME:
Loan fees 295 251
Service charges 592 509
Other income 71 91
Total noninterest income 958 851
NONINTEREST EXPENSES:
Compensation and employee benefits 2,612 2,513
Office and occupancy costs 942 842
Printing and postage 246 241
Loan servicing 183 167
Professional fees 165 143
Bank and MAC charges 642 626
Advertising, marketing and promotions 104 145
Insurance expenses 155 123
Other 209 183
Total noninterest expenses 5,258 4,983
INCOME BEFORE PROVISION FOR INCOME TAXES
Provision for federal and state
income taxes:
(See Note 1 - Income Taxes)
Current N/A N/A
Deferred N/A N/A
Total income tax provision N/A N/A
NET INCOME $ 663 $ 1,026
See Accompanying Notes
<PAGE F-5>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Equity
<TABLE>
<CAPTION>
Restricted, Accumulated
Regular Unrestricted Other
Reserve Undivided Comprehensive Total Comprehensive
Fund Earnings Income Equity Income
<S> <C> <C> <C> <C>
BALANCE, June 30, 1996 $ 3,925 $ 9,680 $ (687) $ 12,918 $ -
Transfers to reflect provision
for loan losses (847) 847
Transfers to regular reserve
fund in accordance with Section
116 of the Federal Credit Union Act 602 (602)
Net income 1,026 1,026 1,026
Change in unrealized loss on
investment and mortgage-backed
securities available-for-sale,
net of taxes 302 302 302
BALANCE, June 30, 1997 3,680 10,951 (385) 14,246 1,328
Transfers to reflect provision
for loan losses (1,038) 1,038
Transfers to regular reserve fund in
accordance with Section 116 of the
Federal Credit Union Act 604 (604)
Net income 663 663 663
Change in unrealized loss on
investment and mortgage-backed
securities available-for-sale,
net of taxes 171 171 171
BALANCE, June 30, 1998 3,246 12,048 (214) 15,080 834
Transfers of balance on 7/1/98
when Credit Union converted
to Savings Bank (3,246) 3,246
Net income 266 266 266
Change in unrealized loss on
investment and mortgage-backed
securities available-for-sale,
net of taxes (70) (70) (70)
BALANCE, December 31, 1998 15,560 (284) 15,276 196
Net income (unaudited) 130 130 130
Change in unrealized loss on
investment and mortgage-backed
securities available-for-sale,
net of taxes (unaudited) (310) (310) (310)
BALANCE, March 31, 1999 $ $15,690 $ (594) $15,096 (180)
(UNAUDITED)
</TABLE>
See Accompanying Notes
<PAGE F-6>
<PAGE>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, December 31,
1999 1998 1998 1997
Unaudited Unaudited
(Dollars in Thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 130 $ 37 $ 266 $ 570
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization of premiums
on investments and mortgage-
backed securities 44 31 82 73
Depreciation and amortization 97 85 134 93
Discount on first mortgage sales 1
(Gain) loss on sale of investment
securities (198) (26)
Gain on sale/disposal of asset 7
Provision for losses on loans 135 376 300 397
Change in operating assets and
liabilities:
Increase in deferred taxes (2) (44)
(Increase) decrease in accrued
interest receivable (318) (59) 49 41
Increase in prepaid expenses and
other assets (165) (16) (204) (46)
Increase (decrease) in accounts
payable and accrued expenses (35) 68 139 (24)
Net cash provided by (used in)
operating activities (114) 523 524 1,085
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities,
available-for-sale (7,128) (8,105) (42,810) (2,253)
Purchase of FHLB Stock (834)
Sales of investment securities,
available-for-sale 27,000
Mortgage-backed security purchases,
available-for-sale (2,547) (3,013) (502)
Mortgage-backed security maturities
and principal repayments,
available-for-sale 103 - 3,632 1,907
Mortgage-backed security maturities
and principal repayments,
held-to-maturity 962 868 2,907 1,902
Maturities and principal repayments
of investment securities,
available-for-sale 4,297 1,000 7,278 1,500
(Increase) decrease in total loans
receivable, net (2,420) 1,699 (4,804) 2,486
Capital expenditures (14) (242) (478) (109)
(Increase) decrease in Share
Insurance Fund 29 (635) 1,291 713
<PAGE F-7>
Net cash provided by (used in)
investing activities (6,718) (8,428) (6,818) 5,644
</TABLE> <PAGE F-8>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, December 31,
1999 1998 1998 1997
Unaudited Unaudited
(Dollars in Thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net 6,541 6,688 10,954 (12,623)
Net increase (decrease) in advances
for borrowers' taxes and insurance 53 39 (50) 92
Net cash provided by (used in)
financing activities 6,594 6,727 10,904 (12,531)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 238 (1,178) 4,610 (5,802)
Cash and cash equivalents, beginning
of period 18,351 18,941 13,741 24,743
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 18,113 $17,763 $ 18,351 $ 18,941
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest on deposits $ 1,325 $ 1,310 $ 2,762 $ 2,805
Income taxes paid 177 0 91 0
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Increase (decrease) in unrealized
loss on investment mortgage-backed
securities available-for-sale, net
of taxes $ 310 $ 46 $ 69 $ 173
</TABLE>
See Accompanying Notes
<PAGE F-9>
IGA Federal Savings Bank And Subsidiary
Consolidated Statement Of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Year Ended June 30,
1998 1997
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 663 $ 1,026
Adjustments to reconcile net income to
net provided by in operating
activities:
Amortization of premiums on
investments and mortgage-backed
securities 90 330
Depreciation and amortization 334 282
Write-down and expenses of real
estate owned 9
Loss on sale of investment
securities 7
(Premium) discount on first mortgage
sales 19 (4)
(Gain) loss on sale/disposal of
asset 17 (5)
Provision for losses on loans 1,038 847
Change in operating assets and
liabilities:
(Increase) decrease in accrued
interest receivable (135) 142
Increase in prepaid expenses and
other assets (197) (272)
Increase (decrease) in accounts
payable and accrued expenses 59 (104)
Net cash provided by operating
activities 1,897 2,249
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities,
available-for-sale (15,500) (6,000)
Sales of investment securities,
available-for-sale 11,143
Mortgage-backed security purchases,
available-for-sale (5,776)
Mortgage-backed security sales,
available-for-sale 1,853
Mortgage-backed security maturities
and principal repayments,
available-for-sale 4,875 3,696
Mortgage-backed security maturities
and principal repayments,
held-to-maturity 4,668 2,168
<PAGE F-10>
Maturities and principal repayments of
investment securities, available-
for-sale 3,881 3,005
Increase in total loans receivable,
net (3,848) (8,620)
Proceeds from sale of real estate
owned net of expenses 203
Proceeds from sale of loans 4,854 2,078
Proceeds from sale of equipment 50 22
Capital expenditures (590) (301)
Increase in Share Insurance Fund 78 9
Net cash provided by (used in)
investing activities (7,105) 9,053
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net (5,912) 4,028
Net increase in advances for
borrowers' taxes and insurance 119 37
Net cash provided by (used in)
financing activities (5,793) 4,065
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (11,001) 15,367
Cash and cash equivalents, beginning
of year 24,742 9,375
CASH AND CASH EQUIVALENTS, END OF YEAR $ 13,741 $24,742
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest
on deposits $ 5,475 $ 5,655
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Loans transferred to real estate owned $ 247 $ -
Increase (decrease) in unrealized loss
on investment mortgage-backed
securities available-for-sale, net
of taxes $ (171) $ 302
See Accompanying Notes
<PAGE F-11>
IGA Federal Savings Bank And Subsidiary
Notes To Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Organization:
IGA Federal Savings Bank & Subsidiary (the "Bank") is
organized as a federal mutual savings bank primarily serving
customers in the Southeastern Pennsylvania, counties of
Philadelphia, Bucks, Chester and Delaware. The Bank,
through its five branches provide financial services to
individuals, families and small business. Historically the
Bank has emphasized the origination of consumer loans,
including auto, credit card and personal loans, and real
estate loans, including home equity loans and one-to-four
family first mortgage loans, the Bank is also starting to
offer a variety of commercial loan products.
IGA Federal Savings originally was established in 1975
as IGA Federal Credit Union. The Bank on July 1, 1998
converted from a credit union to IGA Federal Savings, a
federal mutual savings bank.
The Bank competes with other banking and financing
institutions in its primary market. Commercial banks,
savings banks, savings and loan associations, mortgage
bankers and brokers, credit unions and money market funds
actively compete for deposits and loans in the Bank's market
area. Such institutions, as well as consumer finance,
mutual funds, insurance companies, and brokerage and
investment banking firms, may be considered competitors of
the Bank with respect to one or more of the services it
renders.
Principles of Presentation:
The consolidated financial statements include the
accounts of IGA and its wholly-owned subsidiary, CUIGA
Services Corporation, d/b/a Members Edge, a Pennsylvania
corporation established to provide credit life and credit
disability insurance to IGA. All significant intercompany
accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial
statements have been prepared in accordance with the
requirements for presentation of interim financial
statements and, therefore, do not include all information
and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in
conformity with generally accepted accounting principals.
In the opinion of management, all adjustments consisting
only of normal recurring adjustments that are necessary for
<PAGE F-12> a fair presentation for interim periods
presented have been reflected.
Year 2000 Issue:
Year 2000 issues result from the inability of many
computer programs or computerized equipment to accurately
calculate, store or use a date after December 31, 1999 (the
"Y2K Issue"). The erroneous date can be interpreted in a
number of different ways; typically the year 2000 is
interpreted as the year 1900. Correctly identifying the
year 2000 as a leap year may be an issue. These
misidentifications could result in a system failure or
miscalculations causing disruptions of operations, including
among other things, a temporary inability to process
transactions, track important customer account information,
provide convenient access to this information or engage in
normal business operations.
The Bank's Board of Directors and management have
addressed the Y2K issue by developing a Y2K Compliance Plan.
This plan involves four separate phases: awareness,
assessment, renovation, validation and implementation.
During 1997, the Bank completed the systems assessment
phase, identifying each internal and external system that
could potentially be affected by the Y2K issue. Those
systems include alarms, etc, that may contain
microprocessors. For each such system, a determination was
made whether or not the system is Y2K compliant. Those
determinations involved obtaining Y2K compliant
certification from third-party processors and outside
vendors.
As of December 31, 1998, the Bank has completed its
"awareness", "assessment", "renovation" and "validation"
phases.
On November 11-13, 1998 the Bank conducted in-house
testing of their present Aftech data processing system. The
Bank performed various banking transactions on customers'
accounts using the dates September 30, 1998, January 1,
2000, January 30, 2000, January 31, 2000, February 29, 2000,
September 9, 1999. All transactions were completed
successfully. Aftech representatives have completed much of
its Y2K testing but will continue testing throughout 1999.
The Bank will be obligated to incur only the hardware costs
associated with implementing the changes required by Aftech;
however, hardware costs are not expected to be material.
As of March 31, 1999, all other material outside
vendors have certified that they were Y2K compliant.
In certain cases, however, such as the potential loss
of electrical power or telecommunications services due to
<PAGE F-13> Y2K problems, testing by the Bank is either not
practical or not possible. In those cases, contingency
plans are being designed that specify how the Bank will deal
with each such potential situation. The Bank has developed
a contingency plan which will address failure of the data
processing bureau system. The Bank has determined that is
the service bureau system were to fail, the Bank would
implement manual systems until such systems could be
reestablished. The Bank does not anticipate the potential
use of short-term manual systems would have a material
impact upon the operations of the Bank. Aftech also has
developed their own contingency plan.
To the extent the Bank systems are not fully Year 2000
compliant, there can be no assurance that potential system
interruptions would not have a materially adverse effect on
the Bank's business, financial condition, results of
operations and business prospects. Further, any Year 2000
failure on part of the Bank customers could result in
additional expense or loss to the Bank.
Cash and Cash Equivalents:
Cash and cash equivalents include unrestricted cash on
hand, demand deposits maintained in depository institutions,
other readily convertible investments with original
contractual terms to maturity of three months or less and
restricted cash.
Restricted Cash:
At June 30, 1998 Federal regulations require IGA, at
the time a Credit Union, to set aside specified amounts of
cash as reserves against transaction and time deposits. The
reserve funds were held in a noninterest-bearing account
with Mid-Atlantic Corporate Credit Union.
Securities:
The Bank divides its securities portfolio into two
segments: (a) held-to-maturity and (b) available-for-sale.
Securities in the held-to-maturity category are accounted
for at cost, adjusted for amortization of premiums and
accretion of discounts, using the level yield method, based
on the Bank's intent and ability to hold the securities
until maturity. Marketable securities included in the
available-for-sale category are accounted for at fair value,
with unrealized gains or losses, net of taxes, being
reflected as adjustments to equity. The fair value of
marketable securities available-for-sale is determined from
publicly quoted market prices. Securities available for
sale which are not readily marketable, which include Federal
Home Loan Bank of Pittsburgh stock, are carried at cost
which approximates fair value.
<PAGE F-14>
At the time of purchase, the Bank makes a determination
of whether or not it will hold the securities to maturity,
based upon an evaluation of the probability of future
events. Securities, which the Bank believes may be involved
in interest rate risk, liquidity, or other asset/liability
management decisions, which might reasonably result in such
securities not being held-to-maturity, are classified as
available-for-sale. If securities are sold, a gain or loss
is determined by specific identification method and is
reflected in the operating results in the period the trade
occurs.
Loans and Allowance for Loan Losses:
Loans that IGA has the intent and ability to hold for
the foreseeable future or until maturity or payoff are
stated at the amount of unpaid principal, reduced by
deferred loan fees and an allowance for loan losses and
increased by deferred loan origination costs. Interest on
loans is recognized over the term of the loan and is
calculated using the simple-interest method on principal
amounts outstanding. The allowance for loan losses is
established through a provision for loan losses charged to
expenses. Loans are charged against the allowance for
possible loan loss when management believes that the
collectibility of the principal is unlikely. The allowance
is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of
loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality,
review of specific problem loans and current economic
conditions that may affect the borrower's ability to pay.
Accrual of interest is discontinued for those loans
which are 90 days or more delinquent, or sooner if
management believes, after considering economic and business
conditions and collection efforts, that the borrower's
financial condition is such that the collection of interest
is doubtful. When a loan is placed on non-accrual, all
uncollected interest is charged off.
Loan Origination Fees and Loan Origination Costs:
Loan origination fees received in excess of loan
origination costs are deferred and amortized over the
contract lives of the loans, using a method which is similar
to the level yield method. In the event that the related
loans are sold, such deferred fees are recognized as income
in the period of sale. Deferred origination costs relating
to consumer loans are amortized over the estimated life of
the consumer loan portfolio.
Property, Equipment and Leasehold Improvements: <PAGE F-15>
Land is carried at cost. Property, equipment and
leasehold improvements are stated at cost less accumulated
depreciation and amortization. Depreciation is computed
based on cost using the straight-line method over estimated
useful lives of 35 years for buildings and improvements,
2-15 years for office furniture, equipment and leasehold
improvements and 3 years for transportation equipment.
Improvements to leased property are amortized over the
lesser of the life of the lease or life of the improvements.
Maintenance and repairs of property, equipment and
leasehold improvements are charged to operations and major
improvements are capitalized. Upon retirement, sale or
other disposition of property, equipment and leasehold
improvements, the cost and accumulated depreciation and
amortization are eliminated from the accounts and gain or
loss is included in operations.
Financial Statement Presentation:
Certain items in prior years financial statements have
been reclassified to conform with the presentation in these
consolidated financial statements. These classifications
did not effect previously reported net income or retained
earnings.
Advertising:
Advertising costs are charged to operations when
incurred and amounted to $42,000 and $22,000 for the three
months ended March 31, 1999 and 1998 (unaudited),
respectively, and $102,000 and $112,000 for the 6 months
ended December 31, 1998 and 1997 (unaudited), respectively,
and $104,000 and $145,000 for the years ended June 30, 1998
and 1997, respectively.
Reorganization Costs:
On April 24, 1998, the IGA Board of Directors approved
a resolution to convert to a Federal Mutual Savings
Association. Costs incurred with this conversion were
capitalized and will be amortized over 5 years using the
straight-line method beginning January 1, 1999.
Use of Estimates:
The preparation of financial estimates in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
The principal estimate that is susceptible to
significant change in the near term relates to the allowance
<PAGE F-16> for loan losses. The evaluation of the adequacy
of the allowance for loan losses includes an analysis of the
individual loans and overall risk characteristics and size
of the different loan portfolios, and takes into
consideration current economic and market condition, the
capability of specific borrowers to pay specific loan
obligations, as well as current loan collateral values.
However, actual losses on specific loans, which also are
encompassed in the analysis, may vary from estimated losses.
Mortgage Servicing Rights:
The Bank recognizes mortgage servicing rights as
assets, regardless of how such assets were acquired.
Impairment of mortgage servicing rights is assessed based
upon a fair market valuation of those rights on a
disaggregated basis. Impairment, if any, is recognized in
the statement of operations. There has been no impairment
reflected in the mortgage servicing rights. Mortgage
servicing rights are included in other assets and
amortization of mortgage servicing rights is netted against
service fee income.
Cash Deposited in Financial Institutions:
IGA maintains cash balances at other financial
institutions. Accounts at these financial institutions are
insured by the Federal Deposit Insurance Corporation up to
one hundred thousand dollars. In the normal course of
business, IGA has deposits at its correspondent banks that
exceed the FDIC insured balance. IGA annually evaluates the
creditworthiness of these correspondent banks.
Effect of New Accounting Standards:
Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income, is effective for
the Bank for the period beginning July 1, 1998, and
establishes reporting and display of comprehensive income in
the financial statements. Comprehensive income represents
net earnings and certain amounts reported directly in
stockholders' equity, such as the net unrealized gain or
loss on available-for-sale securities. The Bank adopted
SFAS No. 130 effective June 30, 1998.
SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, will be effective for the Bank for years
beginning July 1, 1999. The Bank currently has no activity
subject to SFAS No. 133.
In October 1998, the FASB issued SFAS No. 134,
Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held-for-Sale by a Mortgage
Banking Enterprise. SFAS No. 134 changes the way mortgage
banking firms account for certain securities and other
<PAGE F-17> interests they retain after securitizing
mortgage loans that were held for sale. Under current
practice, a bank that securitizes credit card receivables
has a choice in how it classifies any retained securities
based on its intent and ability to hold or sell those
investments. SFAS No. 134 gives the mortgage banking firms
the opportunity to apply the same intent-based accounting
that is applied by other companies. SFAS No. 134 is
effective for the fiscal quarter beginning after
December 15, 1998. Management of the Bank anticipates that
the implementation of SFAS No. 134 will not have a material
impact on the Bank's financial condition or results of
operations.
Loans Available-For-Sale:
Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or market
calculated on an aggregate basis with any unrealized losses
reflected in the statement of operations. There were no
loans available-for-sale.
Income Taxes:
The Bank utilizes the asset and liability method of
accounting for income taxes. Under the asset and liability
method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to difference
between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect on
deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
Additionally, the recognition of net deferred tax assets is
based upon the likelihood of realization of tax benefits in
the future. A valuation allowance would be provided for
deferred tax assets which are determined more than likely
not to be realized.
Prior to July 1, 1998 IGA Credit Union was exempt, by
statute, from federal and state income taxes.
CUIGA Services Corporation, (The Company), d/b/a
Member's Edge, a wholly-owned subsidiary of IGA, is subject
to federal and state income taxes. At December 31, 1998,
net operating loss carryforwards approximately $85,374 are
available for federal income tax purposes. These
carryforwards are available to offset future federal taxable
income of the Company and expire in varying amounts between
December 31, 2003 and June 30, 2013.
The Company incurred a net loss of $2,600 for the three
month period ended March 31, 1999, a $4,114 net loss for the
six month period ended December 31, 1998 and a $7,275 net
loss for the year ended June 30, 1998. <PAGE F-18>
2. INVESTMENTS AND MORTGAGE-BACKED SECURITIES:
The following is a summary of the Bank's investment in
available-for-sale and held-to-maturity securities as of
March 31, 1999.
<PAGE F-19>
Available-for-Sale
March 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands) - Unaudited
Investment Securities:
Debt:
FHLB Notes $18,012 $ 1 $(287) $17,726
FHLMC 500 (2) 498
FNMA
Federal Farm Credit 5,000 (98) 4,902
Municipals 5,157 (43) 5,114
28,669 1 (430) 28,240
Mortgage-backed
Securities:
Collateralized
mortgage
obligations 3,105 - (72) 3,033
FHLMC 926 (7) 919
GNMA 2,547 2,547
Small Business
Administration 4,137 (44) 4,093
FNMA 4,979 (42) 4,937
15,694 (165) 15,529
Total available-
for-sale
Securities 44,363 1 (595) 43,769
<PAGE F-20>
<PAGE>
Held-to-Maturity
March 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands) - Unaudited
Mortgage-backed
Securities:
Collateralized mortgage
obligations 2,840 (1) 2,839
FNMA 475 (6) 469
GNMA 2,279 (66) 2,213
Total Held-to-
Maturity
Securities 5,594 (73) 5,521
TOTAL INVESTMENTS
AND MORTGAGE-
BACKED
SECURITIES $49,957 $ 1 $(668) $49,290
The following is a summary of the Bank's investment in
available-for-sale and held-to-maturity securities:
Available-for-Sale
December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands)
Investment
Securities:
Debt:
FHLB Notes $14,924 $11 $(125) $14,810
FHLMC 500 (4) 496
Federal Farm Credit 6,000 1 (25) 5,976
Small Business
Administration 2,568 (26) 2,542
Municipals 4,908 (6) 4,902
28,900 12 (186) 28,726
Mortgage-backed
Securities:
Collateralized mortgage
obligations 3,148 (68) 3,080
FHLMC 1,277 (6) 1,271
FNMA 5,861 (36) 5,825
10,286 (110) 10,176
Total available-
for-sale
Securities 39,186 12 (296) 38,902
<PAGE F-21>
<PAGE>
Held-to-Maturity
December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands)
Investment Securities:
Mortgage-backed
Securities:
Collateralized
mortgage
obligations $ 3,617 $ 1 $ - $ 3,618
FNMA 538 (2) 536
GNMA 2,480 (93) 2,387
Total Held-to-
Maturity
Securities 6,635 1 (95) 6,541
TOTAL INVESTMENTS
AND MORTGAGE-
BACKED
SECURITIES $45,821 $13 $(391) $45,443
<PAGE F-22>
The following is a summary of the investment in
available-for-sale and held-to-maturity securities as of
June 30, 1998:
Available-for-Sale
June 30, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands)
Investment Securities:
Debt:
FHLB Notes $ 8,504 $ 3 $ (23) $ 8,484
SLMA 998 1 999
FHLMC 4,000 (25) 3,975
FNMA 2,501 2 (5) 2,498
Federal Farm Credit 1,501 1,501
Small Business
Administration 1,892 (9) 1,883
19,396 6 (62) 19,340
Mortgage-backed
Securities:
Collateralized
mortgage
obligations 4,032 3 (137) 3,898
FHLMC 2,614 2 (6) 2,610
FNMA 7,779 10 (30) 7,759
14,425 15 (173) 14,267
Total available-
for-sale
securities 33,821 21 (235) 33,607
<PAGE F-23>
Held-to-Maturity
June 30, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in Thousands) - Unaudited
Investment Securities:
Debt:
FNMA $ 499 $ - $ (1) $ 498
Mortgage-backed
Securities:
Collateralized
mortgage
obligations 5,487 (35) 5,452
FNMA 613 (6) 607
GNMA 2,971 (80) 2,891
Total Held-to-
Maturity
Securities 9,570 (122) 9,448
TOTAL INVESTMENTS
AND MORTGAGE-
BACKED
SECURITIES $43,391 $21 $(357) $43,055
The amortized cost and estimated market values of
securities at March 31, 1999 by contractual maturities are
as follows. Expected maturities will differ from
contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or
prepayment penalties.
All collateralized mortgage obligations are backed by
FNMA or FHLMC mortgages,
Estimated
Amortized Market
Cost Value
Unaudited
(Dollars in Thousands)
March 31, 1999:
Due less than one year $ 1,000 $ 986
Due after one year through five years 3,500 3,474
Due after five years through ten years 19,854 19,512
Due after ten years 4,315 4,268
28,669 28,240
Mortgage-backed securities 21,288 21,050
$49,957 $49,290
Proceeds from sales and maturities of securities
available-for-sale during the year ended March 31, 1999
<PAGE F-24> totaled $6,420,000. Of the proceeds, $96,000
were from maturities, $3,500,000 were from security call
options, and $2,824,000 were from principal repayments. No
gains or losses were realized from those transactions.
The amortized cost and market value of securities at
December 31, 1998 by contractual maturities, are as follows:
Estimated
Amortized Market
Cost Value
(Dollars in Thousands)
December 31, 1998:
Due less than one year $ 500 $ 496
Due after one year through five years 9,492 9,463
Due after five years through ten years 15,678 15,540
Due after ten years 3,230 3,227
28,900 28,726
Mortgage-backed securities 16,921 16,717
$45,821 $45,443
Proceeds from sales and maturities of securities
available-for-sale during the six months ended December 31,
1998 totaled $34,277,935 of the proceeds, $-0- were from
maturities, $1,500,000 were from security call options, and
$3,326,316 were from principal repayments. No gains or
losses were realized from those transactions.
The amortized cost and estimated market values of
securities at June 30, 1998 by contractual maturities are as
follows. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized Market
Cost Value
(Dollars in Thousands)
June 30, 1998:
Due less than one year $ 1,996 $ 1,990
Due after one year through five years 13,002 12,977
Due after five years through ten years 3,006 2,988
Due after ten years 1,892 1,883
19,896 19,838
Mortgage-backed securities 23,496 23,217
$43,392 $43,055
Proceeds from sales and maturities of securities
available-for-sale during the year ended June 30, 1998
totaled $8,756,044. Of the proceeds, $1,500,000 were from
maturities, $2,500,000 were from security call options, and
<PAGE F-25> $4,756,044 were from principal repayments. No
gains or losses were realized from those transactions.
<PAGE F-26>
3. LOANS RECEIVABLE:
Loans receivable consist of the following:
March 31, December 31, June 30,
1999 1998 1998
(Dollars in Thousands)
Unaudited
Real Estate Loans:
One-to-four family $ 40,740 $ 40,114 $ 35,799
Commercial 2,131 1,408 256
42,871 41,522 36,055
Consumer Loans:
Automobile 20,762 18,746 18,844
Signature loans 5,462 6,329 6,577
Credit card loans 9,870 10,920 10,269
Home equity loans 23,085 22,421 23,174
Other 3,634 3,658 3,871
62,813 62,474 62,735
Commercial Loans 760 400 237
106,444 103,996 99,027
Less allowance for
loan losses (1,116) (1,074) (948)
Less deferred loan costs,
net (8) (22) 17
$105,320 $102,900 $ 98,096
Loans receivable at March 31, 1999, December 31, 1998
and June 30, 1998 includes $88,079,822, $85,667,043 and
$79,910,631 of fixed rate loans and $17,363,601, $18,329,158
and $19,116,366 of adjustable rate loans, respectively.
<PAGE F-27>
A summary of loan maturities at March 31, 1999 is as
follows:
Commer- Consumer
One to cial and
Four Real Home Commercial Total
Family Estate Equity Business Loans
(Dollars in Thousands - Unaudited)
Amounts due:
Non-accrual $ 47 $ - $ 65 $ 91 $ 203
Within one year 1,737 203 12,307 14,247
After one year:
1 to 3 years 3,738 2,213 11,643 17,594
4 to 5 years 4,350 1,758 4,711 14,202 25,021
6 to 10 years 15,760 373 8,348 2,074 26,555
Over 10 years 15,108 7,545 171 22,824
Total due after
one year 38,956 2,131 22,817 28,090 91,994
TOTAL AMOUNTS
DUE $40,740 $2,131 $23,085 $40,488 $106,444
A summary of loan maturities at December 31, 1998 is as
follows:
Commer- Consumer
One to cial and
Four Real Home Commercial Total
Family Estate Equity Business Loans
(Dollars in Thousands)
Amounts due:
Non-accrual $ - $ - $ 64 $ 90 $ 154
Within one year 2,375 190 13,573 16,138
After one year:
1 to 3 years 3,738 2,335 11,299 17,372
4 to 5 years 4,350 4,192 12,972 21,514
6 to 11 years 15,760 635 8,924 2,449 27,818
Over 11 years 13,891 373 6,716 20 21,000
Total due after
one year 37,739 1,008 22,167 26,790 87,704
TOTAL AMOUNTS DUE $40,114 $1,008 $22,421 $40,453 $103,996
<PAGE F-28>
<PAGE>
A summary of loan maturities at June 30, 1998 is as
follows:
Commer- Consumer
One to cial and
Four Real Home Commercial Total
Family Estate Equity Business Loans
(Dollars in Thousands)
Amounts due:
Non-accrual $ - $ - $ 109 $ 100 $ 209
Within one year 1,623 6 3,054 13,615 18,298
After one year:
1 to 3 years 4,001 13 5,911 17,707 27,631
4 to 5 years 4,853 14 4,260 7,818 16,946
6 to 11 years 17,362 60 6,405 474 24,301
Over 11 years 7,960 163 3,435 84 11,642
Total due after
one year 34,176 250 20,011 26,083 80,520
TOTAL AMOUNTS DUE $35,799 $ 256 $23,174 $39,798 $ 99,027
A summary of changes in the allowance for loan losses
is as follows:
<TABLE>
<CAPTION>
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
(Unaudited) (Unaudited)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $1,074 $1,042 $ 948 $1,005 $1,005 $ 558
Provision charged to
operation 135 376 300 397 1,038 847
Recoveries of amounts
charged off and other 43 29 80 32 178 90
1,252 1,447 1,328 1,434 2,221 1,495
Amounts charged off (136) (706) ( 254) (392) (1,273) (490)
BALANCE, END OF PERIOD $1,116 $ 741 $ 1,074 $1,042 $ 948 $1,005
</TABLE>
The provision for loan losses charged to expense is
based upon past loan and loss experience and an evaluation
of inherent losses in the current loan portfolio, including
the evaluation of impaired loans under SFAS Nos. 114 and
118. A loan is considered to be impaired when, based upon
current information and events, it is probable that IGA will
be unable to collect all amounts due according to the
contractual terms of the loan. IGA discontinues the accrual
of interest on all impaired loans. As of March 31, 1999,
December 31, 1998 and June 30, 1998, 100% of the impaired
loan balance was measured for impairment based on the fair
value of the loans' collateral. Impairment losses are
included in the provision for loan losses. SFAS Nos. 114
and 118 do not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for
<PAGE F-29> impairment, except for those loans restructured
under a trouble debt restructuring. Loans collectively
evaluated for impairment include consumer loans and
residential real estate loans. At March 31, 1999
(unaudited), December 31, 1998 and June 30, 1998, the Bank's
impaired loans consisted of smaller loans and residential
real estate loans.
Loans on which the accrual of interest has been
discontinued amounted to $203,309, $170,835 and $225,790 at
March 31, 1999 (unaudited), December 31, 1998 and June 30,
1998, respectively. If interest on those loans had been
accrued, accrued interest would have increased by $2,743,
$2,988 and $2,307 at March 31, 1999, December 31, 1998 and
June 30, 1998, respectively. The amount by which income
would have increased by for the periods ended December 31,
1998 and 1997 had interest been accrued is immaterial.
Certain directors and officers of IGA have loans with
IGA. Such loans were made in the ordinary course of
business and do not represent more than a normal risk of
collection. Loans to officers and directors amounted to
$1,119,777, $1,203,636 and $1,080,195 at March 31, 1999
(unaudited), December 31, 1998 and June 30, 1998,
respectively. During the period ended March 31, 1999,
December 31, 1998 and June 30, 1998, loans of $-0-, $62,000
and $178,709, respectively, were disbursed to executive
officers and board of directors, while principal repayments
of $84,231, $86,529 and $104,703 were received in those
years, respectively.
4. LOAN SERVICING:
Mortgage loans serviced for others are not included in
the accompanying statement of financial condition. The
unpaid principal balances of these loans are summarized as
follows:
Mortgage Loan Servicing Portfolios:
<TABLE>
<CAPTION>
At March 31, At December 31, At June 30,
1999 1998 1998 1997 1998 1997
(Unaudited) (Unaudited)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal National
Mortgage Association $13,850 $15,586 $14,025 $15,975 $15,131 $11,150
First Nationwide 489 535 514 589 644 603
Total $14,339 $16,121 $14,539 $16,564 $15,775 $11,753
</TABLE>
Custodial escrow balances maintained in connection with
the foregoing loan servicing portfolio totaled $208,683 and
$216,570 as of March 31, 1999 and 1998, respectively,
$200,000 and $207,548 as of December 31, 1998 and 1997,
<PAGE F-30> respectively, and $279,817 and $203,916 as of
June 30, 1998 and 1997, respectively. <PAGE F-31>
5. ACCRUED INTEREST RECEIVABLE:
A summary of accrued interest receivable is as follows:
March 31, December 31, June 30,
1999 1998 1998
Unaudited (Dollars in Thousands)
Loans $ 356 $ 325 $ 322
Mortgage-backed securities 136 119 121
Investment securities 472 202 252
$ 964 $ 646 $ 695
6. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET:
The major classes of property, equipment and leasehold
improvements and the total accumulated depreciation and
amortization are as follows:
March 31, December 31, June 30,
1999 1998 1998
Unaudited (Dollars in Thousands)
Land $ 150 $ 150 $ 150
Buildings and improvements 1,920 1,726 1,726
Office furniture, equipment
and leasehold improvements 1,673 1,661 1,384
Transportation equipment 99 99 99
3,842 3,636 3,359
Less accumulated depreciation
and Amortization 1,771 1,674 1,476
$2,071 $1,962 $1,883
7. DEPOSITS:
Deposits at March 31, 1999, December 31, 1998 and
June 30, 1998 are summarized as follows:
<PAGE F-32>
<TABLE>
<CAPTION>
Weighted
Average March 31, December 31, June 30,
Interest 1999 1998 1998
Rate Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C>
Types of Deposits:
Savings accounts:
1999 2.70% $ 74,129 45.92%
1998 2.82 $ 70,281 45.38%
1998 2.82 $ 68,268 47.36%
Checking accounts:
1999 0.0 10,746 6.66
1998 0.0 10,526 6.80
1998 0.0 9,305 6.59
Money market accounts:
1999 3.11 10,240 6.34
1998 3.85 9,265 5.98
1998 3.85 8,311 5.77
95,115 58.92 90,072 58.15 85,884 59.72
Certificate of deposit:
3.00-3.99%
1999 3.79 2,736 1.70
1998 3.83 1,622 1.05
1998 0.0
4.00-4.99%
1999 4.73 23,001 14.25
1998 4.71 11,171 7.21
1998 4.27 2,025 1.41
5.00-5.99%
1999 5.58 31,113 19.27
1998 5.59 41,900 27.05
1998 5.59 44,850 31.12
6.00-6.99%
1999 6.22 7,931 4.91
1998 6.21 8,608 5.56
1998 6.29 9,700 6.73
7.00-7.99%
1999 7.17 1,533 .95
1998 7.17 1,515 .98
1998 7.17 1,475 1.02
Total of certificate
of deposit 66,314 41.08 64,816 41.85 58,050 40.28
TOTAL DEPOSITS $161,429 100.00% $154,888 100.00% $143,934 100.00%
</TABLE>
<PAGE F-33>
Certificates of deposit have scheduled maturities as
follows:
<TABLE>
<CAPTION>
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
(Unaudited) (Unaudited)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Within one year $47,255 $43,307 $46,456 $41,401 $43,710 $38,694
One year through two years 15,402 11,430 13,218 7,055 8,431 9,697
Three years 2,207 1,249 2,953 4,779 4,743 2,431
Over three years 1,450 1,166 2,189 1,689 1,166 2,052
$66,314 $57,152 $64,816 $54,924 $58,050 $52,874
</TABLE>
Interest expense on deposits is comprised of the
following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Year Ended
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
(Unaudited) (Unaudited)
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Savings accounts $ 378 $ 432 $ 834 $ 841 $1,976 $2,579
Money market accounts 77 80 160 157 316 300
Certificates of deposit 870 798 768 1,807 3,183 2,776
$ 1,325 $1,310 $2,762 $2,805 $5,475 $5,655
</TABLE>
The aggregate amount of certificates of deposit
accounts exceeding $100,000 was approximately $7,980,000,
$7,964,000 and $4,440,160 at March 31, 1999 (unaudited),
December 31, 1998 and June 30, 1998, respectively, and are
not federally insured.
8. FEDERAL HOME LOAN BANK STOCK:
The Bank is a member of the Federal Home Loan Bank
System. As a member, the Bank maintains an investment in
the capital stock of the Federal Home Loan Bank of
Pittsburgh in an amount not less than 1% of its outstanding
home loans or 1/20 of its outstanding notes payable, if any,
to the Federal Home Loan Bank of Pittsburgh, whichever is
greater, as calculated December 31 of each year.
9. INCOME TAX MATTERS:
The Bank and it's wholly-owned subsidiary file a
consolidated federal income tax return and separate state
return for the six month period ending December 31, 1998.
Prior to this period the Bank was a Credit Union and exempt
from taxes by statute.
The provision for income taxes for the three month
period ended March 31, 1999 (unaudited) and six month period
ended December 31, 1998 consisted of the following:
<PAGE F-34>
Currently Payable:
(Dollars in Thousands)
March 31, December 31,
1999 1998
Federal $ 60 $170
State 20
Deferred 2 (44)
TOTAL $ 58 $146
The reconciliation between the actual provision for
federal and state income taxes and the amount of income
taxes which would have been provided at statutory rates is
as follows:
<TABLE>
<CAPTION>
Percentage Percentage
March 31, of December 31, of
1999 Pretax Income 1998 Pretax Income
(unaudited)
<S> <C> <C> <C> <C>
Expected income tax expense at
federal tax rate $ 64 34% $141 34%
Travel and entertainment 6 3.2% 3 0.7%
Exempt interest (16) 8.5% (14) (3.4%)
State tax 0% 13 3.2%
Other differences, net 4 2.1% 3 0.7%
$ 58 30.8% $146 35.2%
</TABLE>
Deferred taxes are included in the accompanying
statement of financial condition as of March 31, 1999
(unaudited) and December 31, 1998 for the estimated future
tax effect of differences between the financial statement
and federal income tax basis of assets and liabilities given
the provisions of currently enacted tax laws.
The net deferred tax asset (liability) consists of the
following components:
March 31, December 31,
1999 1998
Unaudited
Deferred Tax Asset:
(Dollars in Thousands)
Deferred compensation $ 3 $ 2
Allowance for loan loss 43 42
DEFERRED TAX ASSET $46 $44
The realizability of deferred tax assets is dependent
upon a variety of factors, including the generation of
future taxable income, the existence of taxes paid and
<PAGE F-35> recoverable, the reversal of deferred tax
liabilities and tax planning strategies. Based upon these
and other factors, management believes it is more likely
than not that the Bank will realize the benefits of these
deferred tax assets. The tax effect from the unrealized
loss on securities available-for-sale has been offset by a
valuation allowance.
10. DIFFERENCE BETWEEN FEDERAL DEPOSITORY INSURANCE CORPORATION
CALL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS:
An adjustment has been made to the accounts which is
reflected in the consolidated financial statements but is
not reflected in the Bank's Federal Depository Insurance
Corporation Call Report. The adjustment and its effect on
equity are as follows:
March 31, December 31,
1999 1998
(Dollars in Thousands)
Equity per the Bank's
Federal Depository Insurance $14,977 $15,377
Corporation Call Report
Decrease in federal income tax
provision set up as deferred asset 44
Overaccrual of Federal and State
Income Tax net of deferral tax asset 119
Adjustment made to financial statement
for professional fees relating to
offering as of June 30, 1998 that
never materialized, subsequently
recorded by Bank 145
$15,096 $15,276
11. REGULATORY MATTERS:
The Bank is subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary
actions by regulators that if undertaken, could have a
direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-
balance sheet items as calculated under accounting
practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
<PAGE F-36>
Quantitative measures established by regulation to
ensure capital adequacy require the Bank to maintain certain
minimum amounts and ratios (set forth in the table below).
Management believes that the Bank meets, as of March 31,
1999, all capital adequacy requirements to which it is
subject.
As of March 2, 1998, the most recent notification from
the OTS categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain
minimum ratios as set forth in the table. There are no
conditions or events since that notification that management
believes have changed the institution's category.
The Bank's actual capital amounts and ratios are
presented in the following table.
<TABLE>
<CAPTION>
To be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Capital Purposes Account Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999 (Unaudited):
Tangible capital
(to tangible assets) $15,496 8.7% $2,668 1.5% N/A N/A
Core Capital
(to adjusted tangible assets) 15,496 8.7 5,336 3.0 8,893 5.0
Tier I Capital
(to risk-weighted assets) 15,496 15.5 4,006 4.0 6,010 6.0
Risk-based capital
(to risk-weighted assets) 16,612 16.6 8,013 8.0 10,117 10.0
As of December 31, 1998:
Tangible capital
(to tangible assets) 15,365 8.9 2,567 1.5 N/A N/A
Core Capital
(to adjusted tangible assets) 15,365 8.9 5,135 3.0 8,559 5.0
Tier I Capital
(to risk-weighted assets) 15,365 15.7 3,911 4.0 5,867 6.0
Risk-based capital
(to risk-weighted assets) 16,439 16.8 7,822 8.0 9,778 10.0
</TABLE>
The following summary reconciles the Bank's equity
capital as reflected in the accompanying financial statements as
of March 31, 1999 with related amounts reported to the OTS:
Tangible Core Risk Based
(Dollars in Thousands)
<PAGE F-37>
Equity capital per $15,096 $15,096 $15,096
financial statements
Unrealized gains on
available-for-sale
securities, net of tax 594 594 594
Goodwill and other
tangible assets ( 192) ( 192) ( 192)
Allowance for loan
losses 1,116
Other ( 119) ( 119) ( 119)
Regulatory Equity Capital $15,379 $15,379 $16,495
12. RETAINED EARNINGS: (June 30, 1998)
Regular Reserve Fund:
As provided under Section 116 of the Federal Credit
Union Act (Act as of June 26, 1934, as amended March 1993)
IGA maintained a regular reserve fund. Transfers to this
fund, in accordance with regulations must be not less than
10% of the current year's gross income (as defined in the
Act) until the reserve, including allowance for loan losses,
aggregates 4% of total outstanding loans and risk assets;
thereafter, transfers shall be not less than 5% of gross
income until the reserve, including allowance for loan
losses, aggregates 6% of total outstanding loans and risk
assets, at which time transfers may be discontinued as long
as the established minimum reserve requirements are met.
Reserve transfers are not charged against the annual
earnings of IGA and are not related to amounts of losses
actually anticipated. Amounts transferred to this fund are
not available for the payment of dividends or loans to
customers.
On July 1, 1998, when IGA converted from a credit union
to a federal mutual savings bank the restricted regular reserve
fund required under Section 116 of the Federal Credit Union Act
was transferred to unrestricted undivided earnings.
13. LEASE COMMITMENTS:
IGA rents various equipment and office space under
various lease agreements. Lease expense for these leases
for the three months ended March 31, 1999 and 1998
(unaudited), $12,041 and $11,621, respectively, six months
December 31, 1998 and 1997 are $20,916 and $23,135,
<PAGE F-38> respectively and June 30, 1998 and 1997 $63,912
and $65,480, respectively.
Minimum annual rentals are as follows:
1999 $26,866
2000 27,939
2001 29,056
2002 30,224
2003 23,342
14. RETIREMENT PLANS:
IGA sponsors the following retirement plans:
Pension Plans:
IGA has a profit-sharing plan and a 401(k) plan. Both
plans cover all employees who are 21 years of age and have
completed at least 1,000 hours of service during the plan
year and are employed on the last day of the plan year. IGA
contributes a discretionary amount to the profit-sharing
plan based on year-to-date income at December 31. IGA
matches up to 100% of the first 3% of salary elected to be
deferred by the employees under the 401(k) pension plan.
IGA contributions to the above plans amounted to:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Year Ended
March 31, December 31, June 30,
1999 1998 1998 1997 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
401(k) plan $12,996 $11,858 $29,472 $31,488 $56,779 $19,313
Profit sharing plan - - - 21,028 34,707 59,729
Total contribution $12,996 $11,858 $29,472 $52,516 $91,486 $79,042
</TABLE>
Supplemental Deferred Compensation Plans:
IGA adopted a nonqualified deferred compensation plan
for the benefit of one of its officers. This plan requires
IGA to pay $12,000 into this plan annually beginning in
1995. The deferred compensation accounts are shown as both
assets and liabilities on IGA's financial statements. The
balance of the deferred compensation arrangement was $67,239
as of March 31, 1999 (unaudited), $64,239 as of December 31,
1998 and $58,239 as of June 30, 1998. Deferred compensation
was $3,000 for period ended March 31, 1999 and 1998
(unaudited), $6,000 for December 31, 1998 and $6,000 for
December 31, 1997 (unaudited). Total contribution for the
years ended June 30, 1998 and 1997 was $12,000. The plan is
fully funded.
<PAGE F-39>
IGA also has a life insurance policy on one of its
officers that provides for annuity payments to the insured
party upon retirement. Upon death of the insured party, IGA
will receive refund of all premiums paid and the insured
party's designated beneficiary will receive the remainder of
the policy's face value. If the policy is canceled, IGA
will receive the policy's cash surrender value only. IGA
shows the cash surrender value of this policy as an asset in
its financial statements. At March 31, 1999, the cash
surrender value was $188,715 and is included in other assets
on the balance sheet.
15. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK:
IGA grants mortgage and consumer loans primarily to
customers in Southeastern Pennsylvania. Although, IGA has a
diversified loan portfolio, a substantial portion of its
customers' ability to honor their contracts is dependent
upon the local economy. IGA's net investment in loans is
subject to a significant concentration of credit risk given
that the investment is primarily within a specific
geographic area.
As of March 31, 1999 (unaudited), December 31, 1998 and
June 30, 1998, IGA had a net investment of $105,320,000,
$102,900,000 and $98,096,000 requirements in loans
receivable. These loans possess an inherent credit risk
given the uncertainty regarding the borrower's compliance
with the terms of the loan agreement. To reduce credit
risk, the loans are secured by varying forms of collateral,
including first mortgages on real estate, liens on personal
property, share accounts, etc. It is generally IGA policy
to file liens on titled property taken as collateral on
loans. In the event of default, IGA's policy is to
foreclose or repossess collateral on which it has filed
liens.
In the event that any borrower completely failed to
comply with the terms of the loan agreement and the related
collateral proved worthless, IGA would incur a loss equal to
the loan balance.
16. COMMITMENTS AND CONTINGENCIES:
Loan Commitments and Contingencies:
In the normal course of business, IGA makes various
commitments and incurs certain contingent liabilities which
are not reflected in the accompanying consolidated financial
statements. These commitments and contingent liabilities
include commitments to extend credit and open-end credit
available. At March 31, 1999 (unaudited), December 31, 1998
and June 30, 1998, open-end loan commitments not utilized,
and approved but unfunded loan commitments totaled
approximately $21,436,156, $19,876,892 and $21,431,476,
<PAGE F-40> respectively. As of March 31, 1999, there were
no other off-balance sheet commitments or contingencies that
would have a material impact on IGA. All loan commitments
and contingencies have variable rates that range from 8.75%
to 13.15%.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments"
requires the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not
recognized in the statement of financial position.
A financial instrument is defined as cash, evidence of
an ownership interest in an entity, or a contract that both
imposes on one entity a contractual obligation (1) to
deliver cash or another financial instrument to a second
entity or (2) to exchange other financial instruments on
potentially unfavorable terms with the second entity and,
conveys to that second entity a contractual right to receive
(1) cash or another financial instrument from the first
entity or (2) to exchange other financial instruments on
potentially favorable terms with the first entity.
The fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced
sale or liquidation. Quoted market prices should be used
when available, if not available management's best estimate
of fair value may be based on quoted market price of
financial instruments with similar characteristics or on
valuation techniques, such as using the present value of
estimated future cash flows using a discount rate
commensurate with the corresponding risk associated with
those cash flows. These techniques are significantly
affected by the assumptions used, including the discount
rate and estimates of future cash flows and future economic
conditions. In that regard, the fair value estimates cannot
be substantiated by comparison to independent markets and,
in many cases, could not be realized in immediate settlement
of the instrument. In addition, these estimates are only
indicative of individual financial instruments' values and
should not be considered an indication of the fair value of
IGA as a whole. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from
its disclosure requirements.
The following table represents the carrying value and
fair market value of financial instruments as of March 31,
1999 (unaudited):
Carrying Fair
Amount Value
(Dollars in Thousands)
<PAGE F-41>
Assets:
Cash and cash equivalents $ 18,114 $ 18,114
Investments securities available-for-
sale 28,240 28,240
Mortgage-backed securities available-
for-sale 15,529 15,529
Mortgage-backed securities held-to-
maturity 5,594 5,521
Loans receivable - net 105,320 105,320
FHLB Stock 834 834
Liabilities:
NOW, Savings and Money Market accounts 95,113 95,113
Certificate of deposits 66,316 66,316
The following table represents the carrying value and
fair market value of financial instruments as of
December 31, 1998:
Carrying Fair
Amount Value
(Dollars in Thousands)
Assets:
Cash and cash equivalents $ 18,351 $ 18,351
Investments securities available-
for-sale 28,726 28,726
Mortgage-backed securities available-
for-sale 10,176 10,176
Investment securities held-to-maturity
Mortgage-backed securities held-to-
maturity 6,635 6,541
Loans receivable - net 102,900 102,900
FHLB stock 834 834
Liabilities:
NOW, Savings and Money Market accounts 90,072 90,072
Certificate of deposits 64,816 64,816
The following table represents the carrying value and
fair market value of financial instruments as of June 30,
1998:
Carrying Fair
Amount Value
(Dollars in Thousands)
Assets:
Cash and cash equivalents $ 13,741 $ 13,741
Investments securities available-
for-sale 19,340 19,340
Mortgage-backed securities available-
for-sale 14,267 14,267
Investment securities held-to-maturity 499 498
Mortgage-backed securities held-to- <PAGE F-42>
maturity 9,071 8,950
Loans receivable - net 98,096 98,096
Share Insurance Fund 1,320 1,320
Liabilities:
NOW, Savings and Money Market accounts 85,884 85,884
Certificate of deposits 58,050 58,050
The following methods and assumptions, where practical
to implement as noted, were used by IGA in estimating its
fair value for those assets.
Cash and Cash Equivalents:
The carrying amounts reported in the statement of
financial condition for cash and cash equivalents
approximate the fair value for those assets.
Investment Securities:
The fair value for investments are based on quoted
market prices.
Mortgage-backed Securities:
The fair value of mortgage-backed securities issued by
quasi-governmental agencies is based on quoted market
prices.
Loans Receivable:
The fair value of real estate, consumer and commercial
loans approximates the carrying amount. The carrying amount
is adjusted for the estimated future loan losses through a
valuation allowance. IGA has not determined the fair values
of its loans due to it not being practical to make such
estimates based on varying interest rates and maturities
involved and the excessive cost that would be incurred.
IGA's real estate loan portfolio was $42,871,013 at
March 31, 1999 (unaudited), $41,522,000 at December 31, 1998
and $36,055,000 at June 30, 1998, respectively with rates
ranging from 5.50% to 10.50% and maturities through 30
years. IGA's consumer loan portfolio was $62,813,041 at
March 31, 1999 (unaudited), $62,074,001 at December 31, 1998
and $62,735,006 at June 30, 1998, respectively, with rates
ranging from 4.00% to 13.90% with maturities through 10
years. IGA's commercial loan portfolio was $760,370,
$400,000, and $237,000 at March 31, 1999, December 31, 1998
and June 30, 1998, respectively with rate of 7.0% to 13.5%
and maturities through one year to 10 years and monthly
repayment terms.
Deposits:
<PAGE F-43>
The fair value of deposits with no stated maturity,
such as NOW accounts, savings accounts and money market
accounts, is equal to the amount payable on demand as of
March 31, 1999, December 31, 1998 and June 30, 1998. Time
deposits were $66,314,000 at March 31, 1999, and $64,816,000
at December 31, 1998 and $58,050,000 at June 30, 1998 with
rates ranging from 3.00% to 8.00%.
18. SUBSEQUENT EVENT:
On May 26, 1999, IGA Federal Savings adopted a Plan of
Conversion pursuant to which the Bank will convert from a
federal mutual savings bank to a federal stock savings bank.
Under the Plan, the Bank will issue all of its capital stock
to a newly-formed Pennsylvania corporation called JADE
FINANCIAL CORP. JADE FINANCIAL CORP. will purchase the
stock of the Bank with a portion of the proceeds it receives
from an offering of its common stock to the Bank's members,
an employee stock ownership plan formed for the benefit of
bank employees, and the public. Consummation of the Plan of
Conversion is subject to the approval of the Office of
Thrift Supervision and a majority of all votes eligible to
be cast by members of the Bank at a special meeting of
members.
The Plan of Conversion provides that when the
conversion is completed, a "liquidation account" will be
established in an amount equal to the total equity of the
Bank as of the latest practicable date prior to the
Conversion. The liquidation account is established to
provide a limited priority claim to the assets of the Bank
to "eligible account holders" and "supplemental eligible
account holders," as defined in the Plan, who continue to
maintain such eligible accounts at the Bank after the
Conversion. In the unlikely event of a complete liquidation
of the Bank, and only in such event, each eligible account
holder and supplemental eligible account holder would
receive a liquidation distribution, prior to any payment to
the holder of the Bank's common stock. This distribution
would be based upon each eligible account holder's and
supplemental account holder's proportionate share of the
then total remaining qualifying deposits.
Direct costs of the Conversion will be deferred and
will reduce the proceeds of the offering. If the Conversion
is not completed, all costs would be charged to expense.
There were no Conversion costs as of March 31, 1999.
The Bank may not declare or pay a cash dividend on, or
repurchase any of, its capital stock if the effect thereof
would cause the regulatory capital of the Bank to be reduced
below the amount required for the liquidation account. Any
dividend declared or paid on, or repurchase of, the Bank's
capital stock shall be made, in compliance with <PAGE F-44>
Section 563.134 of the Regulations Applicable to All Savings
Banks, or any successor thereto.
As part of the Conversion, JADE FINANCIAL CORP. and the
Bank intend to establish a charitable foundation that will
qualify as an exempt organization under Section 501(c)(3) of
the Code (the "Foundation"). To fund the Foundation, JADE
FINANCIAL CORP. will contribute, immediately subsequent to
the conversion, an amount of cash and Common Stock of JADE
FINANCIAL CORP. equal, in the aggregate, to 5% of the dollar
value of shares sold in the Conversion. The amount of
Common Stock to be contributed to the Foundation will not
exceed 3.33% of the number of shares of JADE FINANCIAL CORP.
Common Stock issued in the conversion.
<PAGE F-45>
[Back Cover of Prospectus]
No person has been authorized to give any information or to make
any representation other than as contained in this prospectus in
connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon
as having been authorized by JADE FINANCIAL CORP., IGA Federal
Savings, or Charles Webb & Company. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any of the securities offered hereby to any person in any
jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom
it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this prospectus nor any
sale hereunder shall under any circumstances create any
implication that there has been no change in the affairs of JADE
FINANCIAL CORP. or IGA Federal Savings since any of the dates as
of which information is furnished herein or since the date
hereof.
__________________
TABLE OF CONTENTS
Page
Questions and Answers about the Stock Offering.............
Prospectus Summary.........................................
Selected Consolidated Financial Information................
Risk Factors...............................................
IGA Federal Savings........................................
JADE FINANCIAL CORP........................................
Use of Proceeds............................................
Dividends..................................................
Market for the common stock................................
Pro Forma Data.............................................
Comparison of Valuation and Pro Forma Information With
No Stock Contribution....................................
Pro Forma Regulatory Capital Analysis......................
Capitalization.............................................
The Conversion.............................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................
Business of JADE
FINANCIAL...........................................
Business of IGA............................................
Management ................................................
How We are Regulated.......................................
Taxation...................................................
Restrictions on Acquisitions of JADE FINANCIAL and
IGA...............
Description of Capital Stock of JADE
FINANCIAL.......................
Transfer Agent and Registrar...............................
Experts....................................................
Legal and Tax Opinions.....................................
Additional Information.....................................
<PAGE F-46>
Index to Consolidated Financial Statements................. F-1
Until __________________, 1999 (25 days after the date of
this prospectus, all dealers effecting transactions in the
registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus. This is
in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE F-47>
UP TO
2,397,031 SHARES
(Anticipated Maximum)
JADE FINANCIAL CORP.
(Proposed Holding Company for
IGA Federal Savings)
Common Stock
____________
PROSPECTUS
____________
CHARLES WEBB & COMPANY,
A Division of Keefe, Bruyette & Woods, Inc.
__________________, 1999
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expense of Issuance and Distribution.
The Company anticipates the following expenses:
SEC registration fee.......................... $ 5,509
OTS filing fees............................... $ 8,500
Printing, postage, and mailing*............... $ 75,000
Legal fees and expenses*...................... $180,000
Accounting fees and expenses*................. $ 75,000
Appraisal fees and expenses................... $ 35,000
Blue sky filing fees and expenses (including
counsel fees)*.............................. $ 5,000
Transfer and conversion agent fees and
expenses*................................... $ 10,000
Miscellaneous*................................ $ 21,491(1)
Total.................................... $415,500
___________________
*Estimated
(1) In addition to the foregoing expenses, Charles Webb &
Company, a Division of Keefe, Bruyette & Woods, Inc. will
receive fees based on the number of shares of common stock
sold in the conversion, plus expenses. Based upon the
assumptions and the information set forth under "Pro Forma
Data" and "The Conversion -- Marketing Arrangements" in the
prospectus, it is estimated that such fees will amount to
approximately $137,746, $165,760, $193,774 and $225,990 in
the event that 1,232,500 shares, 1,450,000 shares, 1,667,500
shares and 1,917,625 shares of common stock are sold in the
conversion, respectively.
Item 14. Indemnification of Directors and Officers.
Pennsylvania law provides that a Pennsylvania corporation
may indemnify directors, officers, employees, and agents of the
corporation against liabilities they may incur in such capacities
for any action taken or any failure to act, whether or not the
corporation would have the power to indemnify the person under
any provision of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful
misconduct. Pennsylvania law also permits the adoption of a
bylaw amendment, approved by shareholders, providing for the
elimination of a director's liability for monetary damages for
any action taken or any failure to taken any action unless
(1) the director has breached or failed to perform the duties of
his/her office; and (2) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness.
<PAGE II-1>
The bylaws of JADE FINANCIAL provide for (1) indemnification
of directors, officers, employees, and agents of JADE FINANCIAL
and its subsidiaries; and (2) the elimination of a director's
liability for monetary damages, each to the fullest extent
permitted by Pennsylvania law.
Directors and officers are also insured against certain
liabilities for their actions as such by an insurance policy
obtained by JADE FINANCIAL.
Item 15. Recent Sales of Unregistered Securities.
Not applicable.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits: See Exhibit Index filed as part of this
Registration Statement.
(b) Financial Statement Schedules: All schedules have been
omitted as not applicable or not required under the rules of
Regulation S-X.
Item 17. Undertakings.
(a) Rule 415 Offering: The undersigned registrant hereby
undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement: (i) to include any prospectus required
by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any fact or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and (iii) to include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any
material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) Request for acceleration of effective date: Insofar as
indemnification for liabilities arising under the Securities Act
<PAGE II-2> of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the bylaws of
the registrant, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE II-3>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Feasterville, Commonwealth of
Pennsylvania, on July 28, 1999.
JADE FINANCIAL CORP.
By /s/ John J. O'Connell
John J. O'Connell
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Capacity Date
/s/ John J. O'Connel Director and Chairman July 28, 1999
John J. O'Connell of the Board Chief
Executive Officer
(Principal Executive
Officer)
/s/ Mario L. Incollingo, Jr. Director, President July 28, 1999
Mario L. Incollingo, Jr. and Chief Operating
Officer
/s/ Edward D. McBride Director July 28, 1999
Edward D. McBride
/s/ Francis J. Moran Director July 28, 1999
Francis J. Moran
____________________________ Director July 28, 1999
Dennis P. Wesley
/s/ Dorothy M. Bourlier Senior Vice President July 28, 1999
Dorothy M. Bourlier and Chief Financial
Officer (Principal
Financial and
Accounting Officer)
<PAGE II-4>
EXHIBIT INDEX
Number Title
1.1 Form of Agency Agreement with Charles Webb & Company, a
Division of Keefe, Bruyette & Woods, Inc.*
2.1 Plan of Conversion*
3.1 Articles of Incorporation of JADE FINANCIAL CORP.*
3.2 Bylaws of JADE FINANCIAL CORP.*
4.1 Form of certificate evidencing shares of JADE FINANCIAL
CORP.
5.1 Opinion of Stevens & Lee Re: Legality*
8.1 Revised Opinion of Stevens & Lee Re: Federal Tax
Matters
8.2 Opinion of Stevens & Lee Re: Charitable Foundation*
8.3 Opinion of Stockton Bates & Company, P.C. Re:
Pennsylvania Tax Matters
8.4 Letter of RP Financial, L.C. Re: Subscription Rights*
10.1 JADE FINANCIAL CORP. - Management Recognition Plan*
10.2 JADE FINANCIAL CORP. - Stock Compensation Plan*(C)
10.3 JADE FINANCIAL CORP. - Employee Stock Ownership
Plan*(C)
23.1 Consent of Stockton Bates & Company, P.C.
23.2 Consent of Stevens & Lee (contained in Exhibit 5.1)*
23.3 Consent of Stevens & Lee (contained in Exhibit 8.1)
23.4 Consent of Stevens & Lee (contained in Exhibit 8.2)*
23.5 Consent of Stockton Bates & Company, P.C. (contained in
Exhibit 8.3)
23.6 Consent of RP Financial, L.C.*
24.1 Power of Attorney*
27.1 Financial Data Schedule*
27.2 Financial Data Schedule*
27.3 Financial Data Schedule* <PAGE II-5>
27.4 Financial Data Schedule
99.1 Appraisal of IGA Federal Savings by RP Financial, L.C.
(P)
99.1(i) Amended Appraisal of IGA Federal Savings by RP
Financial, L.C. (P)
99.2 Subscription Order Form and Instructions*
99.3 Form of Proxy and Proxy Statement of IGA Federal
Savings*
99.4 Form of marketing letters
- ---------------
* Previously filed.
(C) Compensatory Plan.
(P) Filed in paper format pursuant to continuing hardship
exemption.
<PAGE II-6>
Exhibit 4.1
SPECIMEN COMMON STOCK CERTIFICATE
[FRONT]
JADE FINANCIAL CORP.
Number ______ Shares _______
ORGANIZED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE COMMONWEALTH OF CUSIP 469882 10 4
PENNSYLVANIA
This Certifies that _____________________ is the registered
holder of
FULLY PAID AND NON-NON ASSESSABLE SHARES OF THE COMMON STOCK OF
JADE FINANCIAL CORP.
Transferable only on the books of the Corporation by the holder
hereof, in person or by an attorney, upon surrender of this
certificate properly endorsed.
This certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Corporation has caused this
certificate to be executed by its duly authorized officers and
has caused its seal to be affixed hereto at Feasterville,
Pennsylvania.
Dated:
_________________________ ___________________________________
Secretary President
Countersigned and Registered:
___________________________________
Transfer Agent and Registrar,
By
Authorized Officer
[Corporate Seal]
<PAGE 1>
[BACK]
JADE FINANCIAL CORP.
The Corporation will furnish to any shareholder, upon
request and without charge, a full or summary statement of the
designations, preferences, limitations and relative rights of the
shares of each class authorized to be issued, the variations in
the relative rights and preferences between shares of each series
of preferred or special class of shares so far as the same have
been fixed and determined, and the authority of the Board of
Directors of the Corporation to fix and determine the relative
rights and preferences of subsequent series of such preferred or
special classes.
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or
regulations.
TEN COMM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIF MIN ACT - Custodian
(Cust) (Minor)
under Uniform Gifts to Minor's
Act__________________________
(State)
Additional abbreviations may also be used though not in the above
list.
For Value Received, ______ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________________________________________
_________________________________________________________________
(Please Print or Typewrite Name and Address, including Zip Code,
of Assignee)
_________________________________________________________________
_________________________________________________________________
___________________________________________________________shares
of the common stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
_______________________________________________________,
Attorney, to transfer the said stock on the books of the within
<PAGE 2> named Corporation with full power of substitution in the
premises.
Dated:________________________
______________________________________________________
NOTICE: The signature to this Assignment must correspond
with the name as written upon the face of the
Certificate in every particular, without
alteration or enlargement or any change
whatsoever.
<PAGE 3>
Exhibit 8.1
July 30, 1999
Board of Directors
IGA Federal Savings
213 West Street Road
Feasterville, Pennsylvania 19053
Board of Directors
JADE FINANCIAL CORP.
213 West Street Road
Feasterville, Pennsylvania 19053
Re: IGA Federal Savings
Plan of Conversion
Gentlemen:
You have requested our opinion as to certain federal income
tax consequences of the transactions contemplated by the Plan of
Conversion adopted by the Board of Directors of IGA Federal
Savings (the "Bank") on May 26, 1998, as thereafter rescinded,
restated and adopted by the Bank on May 26, 1999 (the "Plan"),
pursuant to which: (i) the Bank caused JADE FINANCIAL CORP.
("JADE") to be incorporated as a Pennsylvania-chartered
corporation, and the Board of Directors of JADE adopted the Plan;
and (ii) upon consummation of the transactions contemplated by
the Plan, (A) the Bank will adopt a new charter in stock form
(the "Conversion"), and thereby convert from a federally-
chartered mutual savings institution to a federally-chartered
stock savings institution (the "Stock Bank"), (B) JADE will offer
and sell shares of its common stock (the "Conversion Stock") to
certain participants in a subscription offering and, possibly, to
members of the public in a community offering or public offering,
and (C) JADE will use the proceeds of the sales of the Conversion
Stock to purchase and acquire all of the capital stock of the
Stock Bank, so that the Stock Bank will become a wholly-owned
subsidiary of JADE.
You have requested our opinion pursuant to Section 23 of the
Plan. Except as otherwise expressly provided herein, when begun
with a capital letter, terms which are used in this opinion or in
Exhibit "A" to this opinion, and which are defined in the Plan,
shall have the meanings given to such terms in the Plan.
In connection with our opinion, we have examined and are
familiar with originals or copies, certified or otherwise
identified to our satisfaction, of the Plan and all exhibits
thereto, the articles of incorporation or charter and bylaws of
the Bank, the Stock Bank and JADE, the Registration Statement on
Form SB-2 filed by JADE with the Securities and Exchange
Commission in connection with the offering of Conversion Stock,
<PAGE 1> the officer's certificates, dated the date hereof,
delivered to us by the Bank and JADE, and such other documents as
we have deemed necessary or appropriate for the opinions set
forth below. In our examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and
the authenticity of all such documents. As to any facts material
to the opinions set forth below, we have relied upon the
foregoing documents and instruments, the assumptions set forth in
Exhibit "A" hereto, and upon statements and representations of
officers and other representatives of the Bank and JADE,
including certain written representations of the management of
the Bank and JADE annexed hereto. The opinions set forth below
are conditioned on the initial and continuing accuracy of the
facts, information, assumptions and representations contained in
the aforesaid documents and instruments or otherwise referred to
above.
In preparing our opinion, we have considered applicable
provisions of the Code, the Treasury regulations now in effect or
proposed under the Code, current interpretive rulings and
practice of the Internal Revenue Service, judicial authority and
such other authorities as we have deemed relevant, all of which
are subject to change, which change may be made with retroactive
effect.
Based solely upon the foregoing and upon the assumptions set
forth or referred to herein, and subject to the qualifications
and caveats set forth herein, we are of the opinion that, under
present law, for federal income tax purposes:
1. The Bank's adoption of a charter in stock form, known
as the Conversion, will qualify as a tax-free reorganization
under Section 368(a)(1)(F) of the Code;
2. No gain or loss will be recognized by the Bank solely
as a result of the Conversion;
3. No gain or loss will be recognized by the Bank's
account holders upon the issuance to them of accounts in the
Stock Bank immediately after the Conversion, in the same dollar
amounts and on the same terms and conditions as their accounts in
the Bank immediately prior to the Conversion;
4. The initial tax basis of each account holder's interest
in the liquidation account in the Stock Bank will be equal to the
value, if any, of such interest on the date and at the time of
the Conversion;
5. The initial tax basis of the Conversion Stock purchased
in the Offerings will be equal to the amount paid therefor;
increased, in the case of Conversion Stock purchased pursuant to
the exercise of subscription rights, by the fair market value, if
any, of such subscription rights;
<PAGE 2>
6. The holding period of the Conversion Stock purchased
pursuant to the exercise of subscription rights will commence
upon the exercise of such holder's subscription rights and, in
all other cases, the holding period of purchased Conversion Stock
will commence on the date following the date of such purchase;
and
7. Account holders will recognize gain upon the receipt of
(a) an interest in the liquidation account in the Stock Bank, and
(b) subscription rights in the Subscription Offering, to the
extent such holder's interest in the liquidation account to be
established by the Stock Bank and subscription rights are deemed
to have value.
Notwithstanding the opinions set forth hereinabove, we call
to your attention that the federal income tax consequences of the
receipt, exercise and lapse of subscription rights are uncertain,
and that the Internal Revenue Service has issued private letter
rulings in transactions that are similar to the Conversion and
the Offerings, which rulings may not be used or cited as
precedent, in which the Internal Revenue Service has taken
positions concerning the tax effects of the receipt, exercise and
lapse of subscription rights that appear to be inconsistent or in
conflict. Nevertheless, based upon the Code and the Treasury
regulations, in the absence of persuasive or controlling
authority, we believe that: (a) account holders should recognize
gain on the receipt of subscription rights, to the extent such
rights are deemed to have value; (b) such gain, if any, should be
capital gain if or to the extent such rights were a capital asset
in the hands of the account holder; (c) account holders should be
allowed to recognize a loss upon and with respect to the lapse of
unexercised subscription rights; and (d) while the issue is not
free from doubt, such loss should be a capital loss if or to the
extent such rights were a capital asset in the hands of the
account holder. It is also possible that the Internal Revenue
Service could assert, and the courts could agree, that the Bank
or the Stock Bank should be (y) treated as distributing the
subscription rights to participants in the Subscription Offering,
and (z) required to recognize gain on the distribution of such
rights to the extent, if any, such rights are deemed to have
value.
We call to your attention the fact that certain portions of
this opinion relating to the federal income tax consequences to
certain participants in the Subscription Offering may not be
applicable to persons who receive subscription rights as
compensation or to foreign persons or persons who, because of
their circumstances or status, are subject to special federal
income tax treatment. Moreover, the opinions expressed herein
are conditioned on our assumption that neither the facts and
assumptions relating to the Plan and the transactions
contemplated by the Plan, nor the applicable federal law, will
change between the date hereof and the consummation of such
transactions.
<PAGE 3>
Except as set forth above, we express no other opinion as to
the tax consequences of the Plan or the transactions thereunder,
or to any person under federal, state, local or foreign laws.
We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us under the
heading "LEGAL AND TAX OPINIONS" in the related Prospectus. In
giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
STEVENS & LEE
/s/ Stevens & Lee
<PAGE 4>
Exhibit "A" to Opinion of Counsel
ASSUMPTIONS
1. Neither the Stock Bank nor JADE has any plan or
intention to redeem or otherwise reacquire the stock to be issued
by either of them in the proposed transactions. Neither the
Conversion Stock nor the stock of the Stock Bank will be callable
or subject to a put option.
2. Immediately following consummation of the proposed
transactions, the Stock Bank will possess the same assets and
liabilities as were hold by the Bank immediately before the
transactions, except for those assets used to pay expenses
incurred in connection with the Conversion plus the capital
contributed by JADE. Assets used to pay expenses of the
Conversion (without reference to the expenses, if any, incurred
with respect to the distribution by JADE of the subscription
rights and the Community Offering) and all distributions (except
for regular, normal interest payments made by the Bank
immediately preceding the Conversion) will, in the aggregate,
constitute less than 1% of the net assets of the Bank, and any
such expenses and distributions paid by the Stock Bank will be
paid from the proceeds of the sale of shares of the Stock Bank to
JADE.
3. The Stock Bank has no plan or intention to sell or
otherwise dispose of any of its assets after the Conversion other
than in the ordinary course of its business. Following the
Conversion, the Stock Bank will continue the primary historic
business conducted by the Bank prior to the Conversion.
4. The Bank is not insolvent or under the jurisdiction of
a bankruptcy or similar court, or in receivership, foreclosure or
any similar proceeding in a federal or state court.
5. Conversion Stock purchased pursuant to the Subscription
Offering by Participants who are employees or independent
contractors of the Bank, where the purchase is made in the
Participant's status as an Eligible Account Holder or (if
applicable) Supplemental Eligible Account Holder or Other Member,
will not be issued at a discount from the price paid by any other
Participant or as compensation. Any compensation to be paid to
such employees (including the stock options, stock bonus awards
and payments under employment arrangements) will be for services
actually rendered and will be commensurate with the compensation
that would be paid to third parties bargaining at arm's length
for similar services.
6. The aggregate fair market value of the "Qualifying
Deposits" (as defined in Section 2.34 in the Plan of Conversion)
held by Eligible Account Holders and (if applicable) Supplemental
Eligible Account Holders as of the close of business on the
Eligibility Record Date and (if applicable) the Supplemental
<PAGE 5> Eligibility Record Date will equal or exceed 99% of the
aggregate fair market value of all savings accounts (including
those accounts of less than $50) in the Bank as of the close of
business on such dates.
7. No cash or property will be given to Eligible
Account Holders and (if applicable) Supplemental Eligible Account
Holders or others in lieu of (a) subscription rights or (b) an
interest in the liquidation account established by the Stock
Bank.
8. At the time of the proposed transactions, the fair
market value of the assets of the Bank on a going concern basis
will exceed the sum of the Bank's liabilities plus the amount of
liabilities to which such assets are subject.
9. The liabilities of the Bank assumed by the Stock
Bank plus the liabilities, if any, to which the transferred
assets are subject were incurred by the Bank in the ordinary
course of its business and are associated with the assets
transferred. There is no intercorporate indebtedness existing
between JADE and the Bank which was issued, acquired or will be
settled at a discount.
10. There is no plan or intention for the Stock Bank
to be liquidated or merged with another corporation following the
proposed transaction. JADE has no plan or intention to dispose
of any of the stock of the Stock Bank to be acquired pursuant to
the proposed transactions.
11. The Bank's Eligible Account Holders and (if
applicable) Supplemental Eligible Account Holders will pay the
expenses of the transaction solely attributable to them, if any.
The Bank (or the Stock Bank) and JADE will each pay its own
expenses of the transaction.
12. The Eligible Account Holders' and (if applicable)
the Supplemental Eligible Account Holders' proprietary interest
in the Bank arises solely by virtue of the fact that they are
account holders in the Bank.
13. The fair market value of the Stock Bank's savings
accounts and the interests in the liquidation account of Eligible
Account Holders and (if applicable) Supplemental Eligible Account
Holders after the Conversion will, in each instance, be equal to
the fair market value of the Bank's savings accounts and the
interests in the net worth of the Bank of each such Eligible
Account Holder and (if applicable) each such Supplemental
Eligible Account Holder prior to the Conversion.
14. JADE will receive pursuant to the Plan shares of
the Stock Bank and will own 100% of the outstanding stock of the
Stock Bank. The Stock Bank has no plan or intention to issue
additional shares of its stock following the transaction.
<PAGE 6>
15. The Bank currently utilizes the specific charge
off method for bad debts and, following the Conversion, the Stock
Bank will continue to utilize the specific charge off method for
bad debts.
16. The transactions contemplated by the Plan do not
involve a receivership, foreclosure or similar proceeding before
a federal or state agency.
<PAGE 7>
EXHIBIT 8.3
July 28, 1999
To the Board of Directors
IGA Federal Savings Bank
213 West Street Road
Feasterville, Pennsylvania 19053
Re: IGA Federal Savings Bank Tax Opinion
In accordance with your Plan of Conversion, IGA Federal
Savings Bank requires an opinion as to the tax consequences under
Pennsylvania law of the proposed reorganization and stock
issuance.
This letter is to advise you that in our opinion the
conversion of IGA Federal Savings Bank and Jade Financial Corp.
and the stock issuance of IGA Federal Savings Bank does not
create a taxable event.
The justification for our opinion is based on our conclusion
that the conversion and issuance of stock under GAAP (generally
accepted accounting principles) does not result in income.
Therefore, under Mutual Thrift Institution Tax regulations
which is based on GAAP income, no tax is due.
We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us under the
heading "LEGAL AND TAX OPINIONS" in the related Prospectus. In
giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ Stockton Bates, LLP
Certified Public Accountants
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the
Registration Statement of Jade Financial Corp. on Form SB-2 of
our report, dated March 18, 1999, (May 26, 1999 with respect to
Note 18) on our audits of the consolidated financial statements
of IGA Federal Savings Bank and Subsidiary as of December 31,
1998 and June 30, 1998 and for the six months then ended
December 31, 1998 and years ended June 30, 1998 and 1997.
We also consent to the reference to our firm under the
caption "Experts".
/s/ Stockton Bates, LLP
Certified Public Accountants
Philadelphia, Pennsylvania
July 30, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,710
<INT-BEARING-DEPOSITS> 268
<FED-FUNDS-SOLD> 744
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,217
<INVESTMENTS-CARRYING> 5,129
<INVESTMENTS-MARKET> 5,047
<LOANS> 109,249
<ALLOWANCE> (1,165)
<TOTAL-ASSETS> 179,121
<DEPOSITS> 159,654
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 2,204
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 14,263
<TOTAL-LIABILITIES-AND-EQUITY> 179,121
<INTEREST-LOAN> 4,309
<INTEREST-INVEST> 1,652
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,961
<INTEREST-DEPOSIT> 2,643
<INTEREST-EXPENSE> 2,646
<INTEREST-INCOME-NET> 3,315
<LOAN-LOSSES> 270
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,069
<INCOME-PRETAX> 500
<INCOME-PRE-EXTRAORDINARY> 500
<EXTRAORDINARY> 163
<CHANGES> 0
<NET-INCOME> 337
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.92
<LOANS-NON> 139
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 648
<ALLOWANCE-OPEN> (1,074)
<CHARGE-OFFS> 245
<RECOVERIES> 66
<ALLOWANCE-CLOSE> (1,165)
<ALLOWANCE-DOMESTIC> (1,165)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
Exhibit 99.4
September ___ ,1999
Dear Member:
We are pleased to announce that IGA Federal Savings ("IGA")
is converting from a federal mutual savings bank to a federal
capital stock savings bank and will become a wholly-owned
subsidiary of a new holding company, Jade Financial Corp. ("Jade
Financial"). In connection with the conversion, Jade Financial
is offering shares of its common stock in a subscription offering
pursuant to a Plan of Conversion.
Unfortunately, Jade Financial is unable to either offer or
sell its common stock to you because the small number of eligible
subscribers in your jurisdiction makes registration or
qualification of the common stock under the securities laws of
your jurisdiction impractical, for reasons of cost or otherwise.
Accordingly, this letter should not be considered an offer to
sell or a solicitation of an offer to buy the common stock of
Jade Financial.
However, as a member of IGA you have the right to vote on
the Plan of Conversion at the Special Meeting of Members to be
held on __________________, 1999. Therefore, enclosed is a Proxy
Card, a Proxy Statement (which includes the Notice of the Special
Meeting) and a Prospectus (which contains information
incorporated into the Proxy Statement), including a complete
discussion of the offering and a return envelope for your Proxy
Card.
I invite you to attend the Special Meeting on
______________, 1999. However, whether or not you are able to
attend, please complete the enclosed Proxy Card and return it in
the enclosed envelope to ensure your vote is counted at the
Special Meeting.
Sincerely,
Mario L. Incollingo, Jr.
President and Chief Executive
Officer
<PAGE 1>
September ___, 1999
Dear Member:
We are pleased to announce that IGA Federal Savings ("IGA")
is converting from a federal mutual savings bank to a federal
capital stock savings bank and will become a wholly-owned
subsidiary of a new holding company, Jade Financial Corp. ("Jade
Financial"). In connection with the conversion, Jade Financial
is offering shares of its common stock in a subscription offering
pursuant to a Plan of Conversion.
To accomplish the conversion, we need your participation in
an important vote. Enclosed is a proxy statement describing the
Plan of Conversion and your voting and subscription rights. The
Plan has been approved by the Office of Thrift Supervision and
now must be approved by you. YOUR VOTE IS VERY IMPORTANT.
Enclosed, as part of the material, is your proxy card which
is located behind the window of your mailing envelope. This
proxy card needs to be signed and returned to us prior to the
Special Meeting to be held on __________________, 1999. Please
take a moment to sign all of the enclosed proxy cards and return
them to us in the postage-paid envelope provided. FAILURE TO
VOTE HAS THE SAME EFFECT AS VOTING AGAINST THE PLAN.
The Board of Directors believes the conversion will offer a
number of advantages such as an opportunity for depositors and
certain borrowers of IGA to become shareholders. Please
remember:
Your accounts at IGA will continue to be insured up to
the maximum legal limit by the Federal Deposit
Insurance Corporation ("FDIC").
There will be no change in the balance, interest rate,
or maturity of any deposit accounts because of the
conversion.
Members have a right, but no obligation, to buy Jade
Financial common stock and may do so without a
commission or fee before it is offered to the general
public.
<PAGE 2>
Like all stock, shares of Jade Financial common stock
issued in this offering will not be insured by the
FDIC.
Enclosed is a prospectus containing a complete discussion of
the stock offering. We urge you to read this material carefully.
If you are interested in purchasing Jade Financial common stock,
your enclosed Stock Order and Certification Form and payment for
the shares must be received by IGA prior to 12:00 Noon, EST, on
September ___, 1999.
If you have additional questions regarding the stock
offering, please call us at (_____) _____-_________, Monday from
10:00 am to 4:00 pm and Tuesday through Friday from 8:00 am to
4:00 pm, EST, or stop by the Stock Information Center located at
213 West Street in Feasterville.
Sincerely,
Mario L. Incollingo, Jr.
President and Chief Executive
Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND, OR ANY OTHER GOVERNMENT AGENCY.
<PAGE 3>
[CHARLES WEBB & COMPANY LETTERHEAD]
To Members and Friends of IGA Federal Savings
Charles Webb & Company, a division of Keefe, Bruyette & Woods,
Inc., a member of the National Association of Securities Dealers,
Inc. ("NASD"), is assisting IGA Federal Savings ("IGA") in its
conversion from a federal mutual savings bank to a federal
capital stock savings bank which will become a wholly-owned
subsidiary of a new holding company, Jade Financial Corp. ("Jade
Financial"). In connection with the conversion, Jade Financial
is offering shares of its common stock in a subscription offering
pursuant to a Plan of Conversion. At the request of Jade
Financial, we are enclosing materials explaining this process and
your options, including an opportunity to invest in shares of
Jade Financial common stock, which is being offered to customers
through 12:00 Noon, EST, on September _____, 1999. Please read
carefully the enclosed offering materials, including the
Prospectus, for a complete discussion of the stock offering.
Jade Financial has asked us to forward these documents to you in
accordance with certain requirements of the securities laws in
your state.
Should you have any questions, please call us at (_____)
_________, Monday from 10:00 am to 4:00 pm and Tuesday through
Friday from 8:00 am to 4:00 pm, EST, or stop by the Stock
Information Center located at 213 West Street in Feasterville.
Very truly yours,
Charles Webb & Company
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND, OR ANY GOVERNMENT AGENCY.
<PAGE 4>
September __, 1999
Dear Friend:
We are pleased to announce that IGA Federal Savings ("IGA")
is converting from a federal mutual savings bank to a federal
capital stock savings bank and will become a wholly-owned
subsidiary of a new holding company, Jade Financial Corp. ("Jade
Financial"). In connection with the conversion, Jade Financial
is offering shares of its common stock in a subscription offering
pursuant to a Plan of Conversion.
Because of your subscription rights as a former member of
IGA, we are sending you the following materials which describe
the stock offering.
PROSPECTUS: This document provides detailed information
about IGA's operations and the proposed stock offering.
STOCK ORDER AND CERTIFICATION FORM: This form is used to
purchase Jade Financial common stock by returning it with
your payment in the enclosed business reply envelope. The
deadline for ordering common stock is 12:00 Noon, EST, on
September ___, 1999.
As a former depositor of IGA, you have the opportunity to
buy stock directly from Jade Financial Corp. in the conversion
without a commission or a fee. If you have additional questions
regarding the stock offering, please call us at (_____) _____-
_________, Monday from 10:00 am to 4:00 pm and Tuesday through
Friday from 8:00 am to 4:00 pm, EST, or stop by the Stock
Information Center located at 213 West Street in Feasterville.
Sincerely,
Mario L. Incollingo, Jr.
President and Chief Executive
Officer
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND, OR ANY OTHER GOVERNMENT AGENCY.
<PAGE 5>
September ___, 1999
Dear Prospective Investor:
We are pleased to announce that IGA Federal Savings ("IGA")
is converting from a federal mutual savings bank to a federal
capital stock savings bank and will become a wholly-owned
subsidiary of a new holding company, Jade Financial Corp. ("Jade
Financial"). In connection with the conversion, Jade Financial
is offering shares of its common stock in a subscription offering
pursuant to a Plan of Conversion.
We have enclosed the following materials that will help you
learn more about the merits of Jade Financial common stock as an
investment. Please read and review the materials carefully.
PROSPECTUS: This document provides detailed
information about IGA's operations and a complete
discussion on the proposed stock offering.
STOCK ORDER AND CERTIFICATION FORM: This form is used
to purchase Jade Financial common stock by returning it
with your payment in the enclosed business reply
envelope. The deadline for ordering common stock is
12:00 Noon, EST, on September ___, 1999.
We invite you and other local community members to become
charter shareholders of Jade Financial. Through this offering
you have the opportunity to buy stock directly from Jade
Financial without a commission or a fee. The Board of Directors
and Senior Management of IGA fully support the stock offering.
If you have additional questions regarding the stock
offering, please call us at (_____) _____-_________, Monday from
10:00 am to 4:00 pm and Tuesday through Friday from 8:00 am to
4:00 pm, EST, or stop by the Stock Information Center located at
213 West Street in Feasterville.
Sincerely,
Mario L. Incollingo, Jr.
President and Chief Executive
Officer
<PAGE 6>
THE SHARES OF COMMON STOCK BEING OFFERED ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND, OR ANY OTHER GOVERNMENT AGENCY.
<PAGE 7>
