<PAGE>
As filed with the Securities and Exchange Commission on March 20, 1996
Registration No. 33 -
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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INDEPENDENCE BANCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2483513
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Lake Street
Ramsey, New Jersey 07446
(201) 825-1000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Kevin J. Killian, Executive Vice President
1100 Lake Street
Ramsey, New Jersey 07446
(201) 825-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
Lawrence R. Wiseman, Esquire Charles C. Zall, Esquire
Blank Rome Comisky & McCauley Saul, Ewing Remick & Saul
1200 Four Penn Center Plaza 3800 Centre Square West
Philadelphia, PA 19103 Philadelphia, PA 19102
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Amount Proposed Maximum Proposed Maximum Amount of
Title of Securities to be Offering Price Aggregate Offering Registration
to be Registered Registered(1)(2) Per Share(3) Price(3) Fee(2)
===================================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, $1.667 par value...... 1,553,750 shares $13.50 $20,975,625 $7,233
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</TABLE>
(1) The Registration Statement relates to the shares of Common Stock
issuable upon conversion of shares of the Registrant's Series A 9%
Cumulative Convertible Preferred Stock outstanding on the date hereof
and the exercise of the attached Common Stock Purchase Rights, the
shares of Common Stock issuable to the Purchaser in respect of such
Preferred Stock and Common Stock Purchase Rights not converted or
exercised, and the possible reoffering of such shares of Common Stock
by the Purchaser as described in the Prospectus.
(2) Pursuant to Rule 429 under the Securities Act of 1933, also includes
776,875 shares of Common Stock previously registered (No. 33-48002) for
which a fee of $2,331 was previously paid.
(3) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c).
<PAGE>
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
which forms part of this Registration Statement also relates to the Common Stock
issuable upon exercise of the Common Stock Purchase Rights previously registered
on the Registrant's earlier Registration Statement on Form S-1 (File No.
33-48002).
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.
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<PAGE>
RED HERRING
Subject to Completion, dated [ ], 1996
PROSPECTUS
INDEPENDENCE BANCORP, INC.
[ ] Shares of Common Stock
This Prospectus covers (i) the issuance of a maximum of [ ] shares of
Common Stock, $1.667 par value (the "Common Stock"), of Independence Bancorp,
Inc. (the "Company") reserved for issuance upon conversion of the Company's
Series A 9% Cumulative Convertible Preferred Stock ("Series A Preferred Stock")
into Common Stock or the issuance of such Common Stock pursuant to the standby
arrangements described herein and the reoffering of any Common Stock issued
pursuant to such standby arrangements and (ii) the issuance of a maximum of [ ]
shares of Common Stock, reserved for issuance upon exercise of rights (the
"Common Stock Purchase Rights") to purchase one share of Common Stock for $9.60
per share (subject to adjustment in certain events) until the earlier to occur
of October 30, 1997 or the conversion or redemption of the Series A Preferred
Stock to which such Common Stock Purchase Right is attached or, at the request
of the Company, the issuance of such Common Stock pursuant to the standby
arrangements described herein and the reoffering of any Common Stock issued
pursuant to such standby arrangement. The Common Stock Purchase Rights are not
transferable separately from the Series A Preferred Stock.
The Company has called [ ] of the Series A Preferred Stock for
redemption on [ ], 1996 (the "Redemption Date") at a redemption price of $8.30,
together with accumulated and unpaid dividends thereon of $[ ] from [ ], 199[ ]
to the Redemption Date, for a total redemption price of $[ ] for each share of
Series A Preferred Stock (the "Redemption Price"). No dividends will accrue on
the Series A Preferred Stock from and after the Redemption Date. Prior to the
close of business on the Redemption Date, the Series A Preferred Stock may be
converted at a conversion ratio of one share of Common Stock for each share of
Series A Preferred Stock, and prior to the earlier of the Redemption Date or the
date the underlying Series A Preferred Stock is converted, the Common Stock
Purchase Right attached thereto may be exercised for $9.60 per share to purchase
one share of Common Stock. Holders who convert their Series A Preferred Stock
into Common Stock will not be entitled to receive dividends accrued since [ ],
199[ ]. Any Series A Preferred Stock called and not surrendered for conversion
by the close of business on the Redemption Date will be redeemed and any Common
Stock Purchase Right attached to Series A Preferred Stock which has been called
for redemption which has not been exercised prior to the Redemption Date shall
be null and void. As long as the price of the Common Stock is higher than $[ ]
per share, holders of Series A Preferred Stock will, upon conversion, receive
Common Stock with a market value greater than the amount of cash receivable upon
redemption of the Series A Preferred Stock. The Common Stock is traded on the
NASDAQ National Market under the symbol IBNJ. The closing sale price of the
Common Stock on [ ], 199[ ], as reported on the NASDAQ National Market, was $[ ]
per share.
<PAGE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS
OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
BANK INSURANCE FUND, SAVINGS ASSOCIATION INSURANCE FUND
OR ANY OTHER GOVERNMENTAL AGENCY.
---------------------
The Company has made standby arrangements with Janney Montgomery Scott
Inc. (the "Purchaser") pursuant to which the Purchaser has agreed, subject to
certain conditions, to purchase from the Company such number of shares of Common
Stock which, in the aggregate, would have been issuable (i) upon conversion of
Series A Preferred Stock called for redemption which either have been
surrendered for redemption or have not been surrendered for conversion prior to
the close of business on the Redemption Date, and (ii) upon exercise of the
Common Stock Purchase Rights attached to the Series A Preferred Stock which have
been called for redemption, have not been exercised and which expire on the
Redemption Date. The standby arrangement provides for a negotiated per share
purchase price based on prevailing market conditions at the time of sale for all
shares of Common Stock sold pursuant to the standby arrangement from which the
Company will receive the gross proceeds of all such sales of Common Stock by the
Purchaser pursuant to the standby arrangement less an 8% discount. The Purchaser
may also acquire Series A Preferred Stock in the open market or otherwise prior
to the Redemption Date, and has agreed to convert into Common Stock all shares
of Series A Preferred Stock so purchased (and exercise all related Common Stock
Purchase Rights) and all Series A Preferred Stock (and all related Common Stock
Purchase Rights) it otherwise beneficially owns. See "Standby and Other
Arrangements" for a further description of the Purchaser's compensation
arrangements.
Prior to or after the Redemption Date, the Purchaser may offer to the
public shares of Common Stock, including shares acquired through the purchase
and conversion of the Series A Preferred Stock (and the exercise of the related
Common Stock Purchase Rights) at prices set from time to time by the Purchaser.
Each such price when set will not exceed the greater of the last sale or current
asked price of the Common Stock as reported in the NASDAQ National Market plus
the amount of any concession to dealers, and an offering price on any calendar
day will not be increased more than once during such day. The Purchaser may thus
realize profits or losses independent of the compensation referred to under
"Standby and Other Arrangements." The Purchaser may also make sales to dealers
at prices which represent concessions from the prices at which such shares are
then being offered to the public. The amount of such concessions is to be
determined from time to time by the Purchaser. Any Common Stock so offered is
offered subject to prior sale, when, as and if received by the Purchaser and
subject to its right to reject orders in whole or in part.
INVESTORS ARE URGED TO READ AND CONSIDER CAREFULLY
THE INFORMATION SET FORTH UNDER "RISK FACTORS."
Janney Montgomery Scott Inc.
The date of this Prospectus is [ ], 1996.
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<PAGE>
IN CONNECTION WITH THIS OFFERING, THE PURCHASER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN
CONNECTION WITH THIS OFFERING, THE PURCHASER AND ITS AFFILIATES MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE EXCHANGE ACT. (SEE "STANDBY AND
OTHER ARRANGEMENTS") DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH
PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR
OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMPANY'S COMMON STOCK
PURSUANT TO EXEMPTIONS FROM RULES 10b-6, 10b-7, AND 10b-8 UNDER THE EXCHANGE
ACT.
AVAILABLE INFORMATION
As permitted by the rules and regulations of the Securities and
Exchange Commission (the "Commission"), this Prospectus omits certain
information contained in the Registration Statement on Form S-3 filed by the
Company with the Commission under the Securities Act of 1933, as amended, of
which this Prospectus is a part. For such information, reference is made to the
Registration Statement and the exhibits thereto. Statements made in this
Prospectus as to the contents of any contract, agreement or other document are
not necessarily complete; with respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement or incorporated by
reference therein, reference is made to such contract, agreement or other
document for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, DC 20549; and at the Commission's New
York Regional Office, Seven World Trade Center, 13th Floor, New York, New York
10048; and Chicago Regional Office, Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60621; and copies of such material can be
obtained from the Public Reference Section of the Commission, Washington, DC
20549 at prescribed rates. The Common Stock of the Company is listed on the
NASDAQ National Market and such reports, proxy statements and other information
can also be inspected at the offices of NASDAQ Operations, 1735 K Street, N.W.,
Washington, DC 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and portions of documents filed by the Company
with the Commission are hereby incorporated by reference into this Prospectus
and made a part hereof: (i) the Annual Report on Form 10-K for the year ended
December 31, 1994; and (ii) the Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1995, June 30, 1995 and September 30, 1995.
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<PAGE>
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Common Stock offered hereby shall be
deemed to be incorporated by reference in this Prospectus and to be part of this
Prospectus from the date of filing of such documents. Any statement contained
herein or in any document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part of this
Prospectus, except as so modified or superseded.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all of
the information that has been incorporated by reference in this Prospectus (not
including exhibits to such information unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates). Written or oral requests for such copies should be directed to
Independence Bancorp, Inc., 1100 Lake Street, Ramsey, New Jersey 07446,
Attention: Kevin J. Killian, Executive Vice President; (201) 825-1000.
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[ADD MAP HERE]
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PROSPECTUS SUMMARY
The information set forth below is qualified in its entirety by the
detailed information and financial statements appearing elsewhere in this
Prospectus. References to the "Company" in this Prospectus shall, unless the
context otherwise requires, include the Company and the Bank.
The Company
Independence Bancorp, Inc. ("Bancorp" or the "Company") is a one-bank
holding company headquartered in Ramsey, New Jersey. At December 31, 1995, on a
consolidated basis, the Company had total assets of approximately $325.2
million, total deposits of approximately $304.3 million, and total stockholders'
equity of approximately $18.6 million.
The Company has one bank subsidiary, Independence Bank of New Jersey
("Independence" or the "Bank"), which is a New Jersey chartered commercial bank
subject to regulation by the New Jersey Department of Banking (the "Department")
and, because its deposits are federally insured by the Bank Insurance Fund
("BIF"), the Federal Deposit Insurance Corporation ("FDIC"). The Bank currently
accounts for substantially all of the total assets and the net income of the
Company.
The Bank is an independent community bank which seeks to provide
personal attention and professional financial assistance to its customers. The
Bank is a locally managed, owned and oriented financial institution.
The Bank is a member of the Commerce Network (the "Network") and has
the exclusive right to use the "Yes Bank" logo within its primary service area.
The Network is a group of five community banks with over 70 branch banking
offices throughout New Jersey and Southeastern Pennsylvania that provides
certain marketing support and technical support services to its members which
allows them to take advantage of the Network's size.
The Bank engages in a full service commercial and retail banking
business from seven offices in Bergen County, New Jersey and one office in
Passaic County, New Jersey. These commercial and retail banking services are
provided by the Bank primarily to consumers and small to mid-size companies
within its primary service area (i.e., Bergen and Passaic Counties, New Jersey).
Lending services are focused on commercial real estate, commercial and consumer
lending to local borrowers. The Bank's lending and investing activities are
funded principally by deposits gathered through its retail branch offices.
The Bank has focused its strategy for growth primarily on the further
development of its community-based retail banking network. The objective of this
corporate strategy is to build earnings growth potential for the future as the
retail branch office network matures. The Bank's branch concept will use a
prototype or standardized branch office building, convenient locations and
active marketing, all designed to attract retail deposits. Using this prototype
branch concept, the Bank plans to open a number of new branch offices in the
next five years.
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<PAGE>
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The Bank's retail approach to banking emphasizes a combination of
long-term customer relationships, quick responses to customer needs, active
marketing, convenient locations, free personal checking with no minimum balance
requirements and free business checking for customers maintaining a minimum
balance of $1,000 and extended hours of operation (including Saturday and
Sunday). The Bank's retail approach to banking has produced low cost deposits
and has resulted in a high concentration of demand and savings deposits due to
convenience and service rather than rate. As of December 31, 1995, 77.9% of the
Bank's total deposits represented demand and savings deposits, while 22.1%
represented time deposits. Financial highlights of the Bank include the
following:
o Profitability. The Bank's net income has improved from $1.2
million for the year ended December 31, 1993 to $3.0 million for
the year ended December 31, 1995. This performance has resulted
in an increase in return on average assets (ROA) from .49% in
1993 to 1.01% in 1995. Return on average common equity (ROE)
increased from 8.77% for the year ended December 31, 1993 to
18.39% for the year ended December 31, 1995. Net interest margin
increased from 5.11% to 5.26% over this same time period.
o Asset Quality. The nonperforming assets as a percentage of total
assets ratio was 0.93% at December 31, 1995. The allowance for
possible loan losses to nonperforming loans ratio was 156.72% at
December 31, 1995 and the net charge-offs to average loan ratios
was 0.36% at December 31, 1995.
o Deposit, Loan and Asset Growth. The Bank's deposits have grown
from $244.7 million at December 31, 1993 to $304.3 million at
December 31, 1995, a compound annual increase greater than 11%.
This deposit growth has fueled the Bank's loan growth from $121.6
million at December 31, 1993 to $139.8 million at December 31,
1995. Total assets over that period have increased to $325.2
million or a compound annual increase of 12%, from $260.9
million.
The Company maintains its executive offices at 1100 Lake Street,
Ramsey, New Jersey 07446; telephone 201-825-1000.
A potential investor should be aware of certain considerations that
could have an adverse effect on the Company. For a discussion of these issues
see "INVESTMENT RISKS."
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<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered.......................... [ ] shares of Common Stock, par value $1.667
per share, to be used in connection with the call for
redemption of [ ]% of the Company's Series A
Preferred Stock and the attached Common Stock
Purchase Rights and the related Standby Purchase
Agreement. See "Alternatives Available to Holders of
Series A Preferred Stock" and "Standby and Other
Arrangements."
Common Stock Issued After the
Offering.................................. [ ] shares(1).
Estimated Net Proceeds to the
Company................................... $[ ] . See "Use of Proceeds."(2)
Use of Proceeds............................... For general corporate purposes, including the funding of the
redemption of the Series A Preferred Stock not tendered for
conversion and providing additional equity capital to the
Company's bank subsidiary for use as working capital.
NASDAQ National Market
Symbol.................................... IBNJ.
Cash Dividends................................ Cash dividends are currently paid quarterly on the
Common Stock at the annual rate of $0.25 per share.
Conversion of Series A Preferred The Company's ESOP, which owns 187,387 shares of
Stock and exercise of Common Series A Preferred Stock, has indicated it will convert
Stock Purchase Rights by the all [ ] shares of Series A Preferred Stock called
Company's ESOP and by the for redemption and exercise all [ ] Common
Company's Directors and Stock Purchase Rights attached to the shares of Series
Executive Officers........................ A Preferred Stock called for redemption. Additionally,
the directors and executive officers of the Company have
indicated their intention to convert a total of [ ], which
represents substantially all of the shares of Series A Preferred
Stock owned by them which are called for redemption and exercise
a total of [ ], which represents substantially all of the Common
Stock Purchase Rights attached to the shares of Series A
Preferred Stock called for redemption.
</TABLE>
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(1) Includes [ ] shares of Common Stock held in treasury. Does not include [ ]
shares of Common Stock issuable upon the conversion of the Series A
Preferred Stock not called for redemption and the exercise of the Common
Stock Purchase Rights attached thereto. See "Description of Capital Stock."
(2) Assumes exercise of [ ]% of the Common Stock Purchase Rights at $9.60 and
the sale of [ ] shares of Common Stock by the Purchaser at current market
value. No assurance can be given as to the price of Common Stock sold by
the Purchaser. See "Standby and Other Arrangements."
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<PAGE>
ALTERNATIVES AVAILABLE TO HOLDERS OF
SERIES A PREFERRED STOCK
The Company has called for redemption at the close of business on [ ],
1996 (the "Redemption Date"), [ ] of the Company's outstanding Series A
Preferred Stock. Pursuant to the terms of the Series A Preferred Stock, holders
of the Series A Preferred Stock will be entitled to receive upon redemption a
total redemption price of $[ ] (the "Redemption Price") for each share of Series
A Preferred Stock which equals the redemption price of $8.30 plus accrued
dividends of $[ ] from [ ], 199[ ].
Payment of the Redemption Price will be made by the Transfer Agent, on
and after the Redemption Date, upon receipt of the Series A Preferred Stock so
redeemed. On and after the Redemption Date, dividends will cease to accrue and
holders of Series A Preferred Stock will not have any rights as such holders
other than the right to receive $[ ] per share of Series A Preferred Stock upon
surrender for redemption. As a result of the foregoing call for redemption, the
Common Stock Purchase Rights attached to the shares of Series A Preferred Stock
called for redemption will expire on the earlier of the date the Series A
Preferred Stock is converted or the Redemption Date, after which time such
Common Stock Purchase Rights will be null and void.
The following alternatives are available with respect to holders of
Series A Preferred Stock:
(1) Convert the Series A Preferred Stock at a conversion ratio
of one share of Common Stock for each share of Series A Preferred
Stock. On [ ], 1996, the closing sale price of the Common Stock, as
reported on the NASDAQ National Market was $[ ] per share. THE
CONVERSION RIGHT EXPIRES AT THE CLOSE OF BUSINESS (5:00 P.M. NEW YORK
CITY TIME) ON THE REDEMPTION DATE, [ ], 1996; or
Based on the above-stated last sale price of the Common Stock
on [ ], 1996, the market value of the Common Stock into which each
share of Series A Preferred Stock is convertible is approximately $[ ],
or considerably higher than the amount to be received upon redemption.
Such value is, of course, subject to change depending on the market
price of the Common Stock. SO LONG AS THE MARKET PRICE OF THE COMMON
STOCK IS HIGHER THAN $[ ] PER SHARE, A HOLDER WHO CONVERTS HIS SERIES A
PREFERRED STOCK WILL RECEIVE COMMON STOCK WITH A MARKET VALUE GREATER
THAN THE AMOUNT OF CASH RECEIVABLE UPON REDEMPTION OF THE SERIES A
PREFERRED STOCK.
(2) Exercise the Common Stock Purchase Right at an exercise
price of $9.60 per share of Common Stock. On [ ], 1996, the closing
sale price of the Common Stock, as reported on the NASDAQ National
Market was $[ ] per share. THE EXERCISE RIGHT EXPIRES AT THE CLOSE OF
BUSINESS (5:00 P.M., NEW YORK CITY TIME) ON THE REDEMPTION DATE, [ ],
1996; or
Based on the above-stated sale price of the Common Stock on [
], 1996, the market value of the Common Stock purchasable upon the
exercise of the Common Stock Purchase Right is approximately $[ ], or
considerably higher than the amount to be paid upon exercise. Such
value is, of course, subject to change depending on the market price of
the Common Stock. SO LONG AS THE MARKET PRICE OF THE COMMON STOCK IS
HIGHER THAN $[ ] PER SHARE, A HOLDER WHO EXERCISES HIS COMMON STOCK
PURCHASE RIGHTS WILL RECEIVE COMMON STOCK WITH A MARKET VALUE GREATER
THAN THE AMOUNT PAID UPON EXERCISE OF THE COMMON STOCK PURCHASE RIGHT.
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(3) Sell the Series A Preferred Stock (which includes the
Common Stock Purchase Rights attached thereto) in the open market.
Holders of Series A Preferred Stock should consult with their own
advisers regarding if and when they should sell their Series A
Preferred Stock and the tax consequences thereof.
(4) Accept the Redemption Price of $[ ] for each share of
Series A Preferred Stock called for redemption.
(5) Do not exercise the Common Stock Purchase Right.
SERIES A PREFERRED STOCK NOT RECEIVED FOR CONVERSION PRIOR TO
THE CLOSE OF BUSINESS ON [ ], 1996 WILL BE REDEEMED AS SET
FORTH ABOVE.
COMMON STOCK PURCHASE RIGHTS NOT EXERCISED PRIOR TO THE
CONVERSION OR REDEMPTION OF THE SERIES A PREFERRED STOCK TO WHICH
THEY ARE ATTACHED WILL BE NULL AND VOID.
Anyone with questions or needing assistance concerning the various
options available with respect to the Series A Preferred Stock called for
redemption should call (201) 825-1000 and ask to speak to Kevin J. Killian,
Executive Vice President, or call the Transfer Agent, [ ], at [ ] and ask to
speak to [ ] about the various options.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information of the
Company for each of the years in the five years ended December 31, 1995 has been
derived from the Company's consolidated financial statements.
Such selected consolidated financial information should be read in conjunction
with the Company's consolidated financial statements as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995 and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
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1995 1994 1993 1992 1991
------------ ----------- ----------- ----------- -----------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income .......................... $ 20,711 $ 17,073 $ 16,471 $ 17,238 $ 19,139
Interest expense ......................... 6,122 4,610 4,764 6,554 10,252
------------ ----------- ----------- ----------- -----------
Net interest income ...................... 14,589 12,463 11,707 10,684 8,887
Provision for possible loan losses ....... 559 1,014 2,635 2,697 10,162
------------ ----------- ----------- ----------- -----------
Net interest income (loss) after
provision for possible loan losses .. 14,030 11,449 9,072 7,987 (1,275)
Non-interest income ...................... 2,131 2,057 3,333 2,606 3,988
Non-interest expense ..................... 11,800 11,000 10,912 9,590 8,652
------------ ----------- ----------- ----------- -----------
Income (loss) before income taxes ........ 4,361 2,506 1,493 1,003 (5,939)
Income tax provision (benefit) ........... 1,311 823 284 -- (1,875)
------------ ----------- ----------- ----------- -----------
Net income (loss) ........................ $ 3,050 $ 1,683 $ 1,209 $ 1,003 $ (4,064)
============ =========== =========== =========== ===========
Common Share Data:
Net income (loss) (primary) .............. $ 1.79 $ .95 $ .50 $ .68 $ (3.14)
Net income (loss) (fully diluted) ........ 1.43 .87 .50 .68 (3.14)
Cash dividends declared .................. .075 -- -- -- .15
Book value (year end) (fully diluted) .... 8.72 7.97 7.17 6.68 6.65
Average common shares outstanding
(fully diluted) ..................... 2,127,188 1,933,570 1,305,668 1,305,668 1,294,381
Common shares outstanding (at end of year) 1,312,748 1,308,328 1,305,668 1,305,668 1,305,668
Balance Sheet Data (at year end):
Total assets ............................. $ 325,187 $ 283,251 $ 260,935 $ 247,161 $ 236,870
Total loans, net ......................... 139,800 127,828 121,652 129,346 117,735
Securities ............................... 136,663 115,869 91,203 66,955 55,348
Total deposits ........................... 304,346 265,432 244,683 231,596 227,190
Stockholders' equity ..................... 18,627 15,412 14,169 13,458 8,606
</TABLE>
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<TABLE>
<CAPTION>
Year Ended December 31,
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1995 1994 1993 1992 1991
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating Ratios:
Return on average assets ................. 1.01% .63% .49% .43% (1.75)%
Return on average common equity .......... 18.39 11.37 8.77 10.33 (41.54)
Net interest margin ...................... 5.26 5.06 5.11 5.00 4.31
Dividend payout .......................... 4.19 -- -- -- --
Asset Quality Ratios:
Allowance for possible loan losses
to total loans ...................... 1.89% 2.02% 2.01% 2.56% 2.63%
Allowance for possible loan losses to
non-performing loans ................ 156.72 77.04 44.56 32.19 24.32
Non-performing loans to total loans ...... 1.21 2.62 4.51 5.92 9.97
Non-performing assets as a percentage
of total assets ..................... 0.93 1.64 2.72 4.41 5.81
Net charge-offs to average loans ......... 0.36 0.70 2.71 1.93 7.90
Capital Ratios:
Average equity to average assets ......... 5.52% 5.50% 5.55% 4.13% 4.21%
Leverage capital ......................... 5.76 5.46 5.31 5.28 3.63
Tier I capital to risk-adjusted assets ... 10.70 10.23 9.27 8.24 6.08
Total capital to risk-adjusted assets .... 11.95 11.71 10.97 10.02 7.59
</TABLE>
-12-
<PAGE>
RISK FACTORS
Investors are urged to read and consider carefully the information set
forth below as well as the other information set forth in this Prospectus.
Market for Common Stock
The Common Stock trades on the NASDAQ National Market under the symbol
"IBNJ", however there has been only limited trading in the Common Stock. It is
not expected that an active market for the Common Stock will develop in the
foreseeable future. See "Price Range of Common Stock." Investors in the shares
of Common Stock must, therefore, be prepared to assume the risk of their
investment for an indefinite period of time.
Cash Dividends
The Company's Board of Directors resumed payment of cash dividends on
the Common Stock in the second quarter of 1995. The payment of dividends, among
other things, will depend upon the earnings, capital requirements, and financial
condition of the Bank. Accordingly, investors cannot rely on any cash dividends
to recover the cost of their investment. See "Dividends".
Stock Not an Insured Deposit
Investments in the Common Stock are not deposits insured against loss
by the FDIC or any other entity.
Economic Conditions and Related Uncertainties
Banking is affected, directly and indirectly, by local, domestic, and
international economic and political conditions, and by government monetary and
fiscal policies. Conditions such as inflation, recession, unemployment, volatile
interest rates, tight money supply, scarce natural resources, real estate
values, international conflicts and other factors beyond the Company's control,
may adversely affect the potential profitability of the Bank. Any future rise in
interest rates, while increasing the income yield on the Bank's earning assets,
may adversely affect loan demand and the cost of funds and, consequently, the
profitability of the Bank. Any future decreases in interest rates may adversely
affect the Bank's profitability because such decreases may reduce the amounts
which the Bank may earn on its assets. Economic downturns could result in the
delinquency of outstanding loans. Management does not expect any one particular
factor to affect the Bank's results of operations. However, a continued
downtrend in several areas, including real estate, construction and consumer
spending, could have an adverse impact on the Bank's profitability.
Effect of Interest Rates on the Bank and the Company
The operations of financial institutions such as the Bank are dependent
to a large degree on net interest income which is the difference between
interest income from loans and investments and interest expense on deposits and
borrowings. An institution's net interest income is significantly affected by
market rates of interest which in turn are affected by prevailing economic
conditions, by the fiscal and monetary policies of the federal government and by
-13-
<PAGE>
the policies of various regulatory agencies. At December 31, 1995 total interest
earning assets maturing or repricing within one year were less than total
interest bearing liabilities maturing or repricing during the same time period
by $74.37 million, representing a negative cumulative one year gap of 22.84%.
Like all financial institutions, the Bank's balance sheet is affected by
fluctuations in interest rates. While gap analysis is a general indicator of the
potential effect that changing interest rates may have on net interest income,
the gap itself does not present a complete picture of interest rate sensitivity.
First, changes in the general level of interest rates do not affect all
categories of assets and liabilities equally or simultaneously. Second,
assumptions must be made to construct a gap table. Money-market deposits, for
example, which have no contractual maturity, are assigned a repricing interval
of 90 days. Management can influence the actual repricing of the deposits
independent of the gap assumption. Third, the gap table represents a one-day
position and cannot incorporate a changing mix of assets and liabilities over
time as interest rates change. Volatility in interest rates can also result in
disintermediation, which is the flow of funds away from financial institutions
into direct investments, such as US Government and corporate securities and
other investment vehicles, including mutual funds, which, because of the absence
of federal insurance premiums and reserve requirements, generally pay higher
rates of return than financial institutions. The Company does not feel that
changes in interest rates would have a material impact on operations. At
December 31, 1995, the net unrealized gain on the Bank's held to maturity
securities portfolio was $29,000. See "Management's Discussion of Financial
Condition and Results of Operations."
Allowance for Possible Loan Losses
The Bank has established an allowance for possible loan losses which
management believes to be adequate to offset potential losses currently inherent
in the Bank's existing loans. However, there is no precise method of predicting
loan losses. There can be no assurance that any future declines in real estate
market conditions, general economic conditions or changes in regulatory policies
will not require the Bank to increase its allowance for possible loan losses.
Community Reinvestment Act Rating
During 1994 and 1995, the Bank received a "needs to improve" rating
from the Federal Deposit Insurance Corporation ("FDIC") under the Community
Reinvestment Act ("CRA"). An institution's CRA rating is considered by
regulators in determining whether to grant charters, branches and other deposit
facilities, relocations, mergers, consolidations and acquisitions. Performance
less than satisfactory may be the basis for denying an application. Continued
"needs to improve" ratings could have an effect upon the ability of the Bank to
expand in the future. The Bank's current plans call for the opening of a number
of new branch offices in the next five years. The Bank has taken steps to
improve its performance under the CRA. See "Supervision and Regulation."
Competition
Vigorous competition exists in all major areas in which the Company and
the Bank presently engage in business. The Company and the Bank face competition
from various financial and non-financial businesses. In addition, the Bank faces
intense competition in local and national markets from other banking and
financial institutions. Many of these competitors have substantially greater
resources and capital than do the Company and the Bank. In addition, many of the
Bank's competitors have higher legal lending limits than does the Bank.
-14-
<PAGE>
Particularly intense competition exists for sources of funds including savings
and retail time deposits and for loans, deposits and other services that the
Bank offers. See "Business."
Principal Stockholders
Prior to the commencement of the Redemption of the Series A Preferred
Stock, the directors and officers of the Bank, together with members of their
immediate families and/or entities which they control, beneficially owned
approximately [ ]% of the outstanding shares of Common Stock and [ ]% of the
outstanding shares of Series A Preferred Stock. See "Principal Stockholders."
Accounting Standards
The operations of the Company are affected by accounting standards
issued by the Financial Accounting Standards Board ("FASB") which the Company is
required to adopt. The adoption of such standards can have the effect of
reducing the Company's earnings and capital. Information on current FASB
standards that affect the Bank can be found in the Notes to Financial Statements
contained in this Prospectus.
Limitation of Officers' and Directors' Liabilities under New Jersey Law
Pursuant to the Company's Certificate of Incorporation, as authorized
under applicable New Jersey law, directors of the Company are not liable for
monetary damages for breach of fiduciary duty, except in connection with a
breach of the duty of loyalty, for acts or omissions not in good faith or which
involve a knowing violation of law, for dividend payments or stock repurchases
illegal under New Jersey law or for any transaction in which a director has
derived an improper personal benefit. The Company's Bylaws provide that the
Company must indemnify its officers and directors to the fullest extent
permitted by law for all expenses incurred in settlement of actions against such
persons in connection with their service to the Company.
Federal and State Regulation
The operations of the Company and the Bank are heavily regulated and
will be affected by present and future legislation and by the policies
established from time to time by various federal and state regulatory
authorities. In particular, the monetary policies of the FRB have had a
significant effect on the operating results of banks in the past, and are
expected to continue to do so in the future. Among the instruments of monetary
policy used by the FRB to implement its objectives are changes in the discount
rate charged on bank borrowings and changes in the reserve requirements on bank
deposits. It is not possible to predict what changes, if any, will be made to
existing federal and state legislation or the effect that such changes may have
on the future business and earnings prospects of the Company. During the past
several years, significant legislative attention has been focused on the
regulation and deregulation of the financial services industry. Non-bank
financial institutions, such as securities brokerage firms, insurance companies
and money market funds, have been permitted to engage in activities which
compete directly with traditional bank business. As a New Jersey chartered
commercial bank which is not a member of the Federal Reserve System, the Bank is
subject to the regulation, supervision, control and examination by the FDIC and
the New Jersey Department of Banking. See "Government Supervision and
Regulation."
-15-
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock to
the Purchaser pursuant to the agreement described herein under "Standby and
Other Arrangements" are estimated to be approximately $[ ] million. The Company
intends to use the net proceeds for general corporate purposes including the
funding of the redemption of the Series A Preferred Stock not tendered for
conversion and providing additional equity capital to the Company's bank
subsidiary for use as working capital. Pending such uses, the net proceeds are
anticipated to be invested in short-term interest-bearing investments.
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of the Company (i) as of December 31, 1995 and (ii) as of
December 31, 1995, as adjusted to give effect to the conversion or redemption of
the Series A Preferred Stock and the sale of the Common Stock to the Purchaser
pursuant to the agreement described herein under "Standby and Other
Arrangements."
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------
Actual As Adjusted
-------------- -------------
(in thousands)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, no par value, 1,000,000 shares authorized Series A 9%
Cumulative Convertible Preferred Stock, stated value $1.00; authorized
776,875 shares and 776,875 shares issued and outstanding (liquidating
preference: $8.00 per share totaling $6,215,000) ..................... $ 777
Series B Non-Convertible Preferred Stock, stated value $1.00;
authorized 217,500 shares and no shares issued and outstanding
(no liquidation preference)(1) ....................................... --
Common Stock, par value $1.667 per share;
authorized 5,000,000 shares and 1,312,748
shares outstanding ............................................... 2,189
Additional Paid-In Capital ........................................... 12,970
Retained earnings .................................................... 3,594
Net unrealized holding gain on securities
available for sale, net of income taxes .......................... 291
Unearned ESOP Preferred Stock ........................................ (1,194)
--------
Total stockholders' equity ....................................... $ 18,627
========
Capital Ratios:
Leverage capital ..................................................... 5.76% [ ]%
Tier 1 capital to risk adjusted assets ............................... 10.70 [ ]%
Total capital to risk adjusted assets ................................ 11.95 [ ]%
</TABLE>
- --------------
(1) See "Description of Securities - Series B Non-Convertible Preferred Stock."
-16-
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is listed for quotation on the NASDAQ
National Market under the symbol IBNJ. Trading in the Common Stock has been
limited. The following table sets forth the range of the high and low sales
prices for the Common Stock for each quarter in 1995 and the fourth quarter of
1994 and the range of high and low bid prices for the Common Stock for the first
three quarters of 1994. The high and low bid prices reflect inter-dealer
quotations, without retail mark-up, mark-down or commissions and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Dividends
Year Quarter High Low Paid
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 First (thru [ ], 1996) $[ ] $[ ] $0.0625
1995 Fourth................................... 14.50 12.50 $ 0.025
Third.................................... 14.25 12.25 $ 0.025
Second................................... 13.25 9.50 $ 0.025
First.................................... 10.50 8.50 --
1994 Fourth................................... 10.50 8.75 --
Third.................................... 8.25 8.00 --
Second................................... 8.25 7.50 --
First.................................... 8.25 7.25 --
</TABLE>
On [ ], 1996, the last reported sale price of the Common Stock, as
reported on the NASDAQ National Market, was $[ ] per share.
As of December 31, 1995, there were 1,312,748 shares of the Company's
Common Stock outstanding and approximately 610 holders of record of such stock.
DIVIDENDS
The Company paid cash dividends on its Common Stock of $0.075 per share
in 1995. Prior thereto, the Company had not paid cash dividends on its Common
Stock since 1991. The Company paid a cash dividend of $0.0625 per share on its
Common Stock in the first quarter of 1996. The Company currently intends to pay
cash dividends on its Common Stock on a quarterly basis in the foreseeable
future. However, because the ability to pay cash dividends depends upon a number
of factors including those stated below, there can be no assurance that cash
dividends will be paid in the future. Future cash or stock dividends will be
subject to determination and declaration by the Board of Directors, which will
consider the earnings, financial condition and capital needs of the Company and
the Bank and the restrictions discussed herein.
-17-
<PAGE>
Subject to such preferences, limitations and relative rights as may be
fixed for any series of preferred stock that may be issued, including the Series
A Preferred Stock which will be outstanding after this Offering, the holders of
the Common Stock are entitled to receive dividends when, as and if declared by
the Board of Directors out of funds legally available therefor. Under the New
Jersey Business Corporation Act, the Company may not pay cash dividends if,
after giving effect thereto, either (i) the Company would be unable to pay its
debts as they become due in the usual course of its business; or (ii) the
Company's total assets would be less than its total liabilities.
Funds for the payment of cash dividends by the Company on its Common
Stock and preferred stock, including the Series A Preferred Stock which will be
outstanding after this Offering, are obtained solely from dividends paid to the
Company by the Bank. Accordingly, restrictions on the Bank's ability to pay cash
dividends directly affect the payment of cash dividends by the Company. The Bank
is subject to certain limitations on the amount of cash dividends that it may
pay by the New Jersey Banking Act of 1948, as amended (the "Banking Act"). Under
the Banking Act, no dividends may be paid by the Bank unless, following the
payment of the dividend, the capital stock of the Bank is unimpaired and either
(i) the Bank will have a surplus of not less than 50% of its capital stock, or
(ii) the payment of the dividend will not reduce the surplus of the Bank.
Under the Financial Institutions Supervisory Act, the FDIC has the
authority to prohibit a state-chartered bank from engaging in conduct which, in
the FDIC's opinion, consists of an unsafe or unsound banking practice. Under
certain circumstances, the FDIC could claim that the payment of a dividend or
other distribution by a bank to its sole shareholder constitutes an unsafe or
unsound practice.
The FRB has requested that it be notified by the Company at least 30
days prior to the Company's declaration of dividends with respect to common
shares now or in the future outstanding. Such notice is required to include an
analysis of the impact of payment of any common dividends on the Company's
capital position and loan loss reserve needs. It is possible that upon review of
the Company's analysis the Federal Reserve Board may limit or prohibit the
payment by the Company of cash dividends with respect to the Common Stock.
However, management believes that the Federal Reserve Board is not likely to
take any action to limit the payment of cash dividends on the Common Stock.
-18-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL REVIEW
This financial review presents management's discussion and analysis of results
of operations and financial condition. It should be read in conjunction with the
audited consolidated financial statements and the accompanying notes appearing
in this report.
OVERVIEW
Independence Bancorp's (the "Company") performance for 1995 was highlighted by
continued progress in earnings growth, record levels in deposits, loans and
assets and improved asset quality. This was the fourth consecutive year of
improved earnings and net income exceeded the previous high achieved in 1989.
For the first time in four years a common stock cash dividend was paid.
Net income for 1995 was $3.1 million, an increase of 81.2% compared to the $1.7
million recorded in 1994. The results for 1994 rose 39.2% over the $1.2 million
recorded in 1993. Fully diluted earnings per common share were $1.43 for 1995 as
compared to $.87 for 1994, and $.50 for 1993. Earnings were enhanced by the loan
and securities growth experienced during the year. Return on average assets
("ROA") was 1.01% in 1995 as compared to .63% in 1994 and .49% in 1993, while
the return on average equity ("ROE") was 18.39% in 1995, which compared to
11.37% in 1994 and 8.77% in 1993.
Continued progress in asset quality was reflected by the decline in
non-performing assets. During 1995, non-performing loans, including impaired
loans, and other real estate ("ORE") declined 34.9%, or $1.6 million, to $3.0
million, or .93% of total assets. The comparable figures for December 31, 1994
and 1993 were $4.6 million, or 1.64% and $7.1 million, or 2.72%, respectively.
Consolidated assets at year end 1995 amounted to $325.2 million, representing an
increase of 14.8% over 1994. Loans, net of unearned fees, amounted to $142.5
million, or 43.8% of total assets, at December 31, 1995 as compared to $130.5
million, or 46.1% of total assets, at year end 1994. Total securities, including
securities available for sale, increased to $136.7 million and accounted for
42.0% of total assets as compared to 40.9% last year. Time deposits increased by
$13.7 million, or 25.6%, to $67.2 million at year end. Demand deposits, both
non-interest and interest bearing, and savings deposits grew by $25.2 million,
or 11.9%, over 1994 to $237.1 million.
At December 31, 1995, the Company's Tier I capital was 10.70% and Total capital
was 11.95% as compared to 10.23% and 11.71%, respectively, at December 31, 1994.
The leverage ratio at year end 1995 was 5.76%, as compared to 5.46% for the
prior year. At December 31, 1995, Independence Bank of New Jersey's (the "Bank")
Tier I, Total capital and leverage capital ratios were 11.29%, 12.54% and 6.10%,
respectively.
-19-
<PAGE>
RESULTS OF OPERATION
SUMMARY
Net income before preferred dividends for the year ended December 31, 1995 was
$3.1 million, or $1.43 fully diluted per common share compared to $1.7 million,
or $.87 fully diluted per common share, in 1994 and $1.2 million, or $.50 per
fully diluted common share in 1993. Earnings performance for 1995 reflected
gains in net interest income, an increase in non-interest income and a decrease
in the provision for possible loan losses. These positive factors were partially
offset by an increase in non-interest expense. For the year ended December 31,
1995, net interest income rose $2.1 million, or 16.8%, over the prior year as a
result of growth in earning assets, particularly securities, as well as
increased non-interest bearing demand deposits. The provision for possible loan
losses decreased $455 thousand as a result of the declining level of
non-performing loans. Non-interest expenses increased $800 thousand reflecting
increases in salaries and benefits, advertising, and stationary and supplies
expense.
Net interest income in 1994 rose 6.5% over the prior year as a result of an
increase in non-interest bearing demand deposits and the favorable impact of
lower non-performing loans on earning assets. The loan loss provision decreased
$1.6 million as a result of the declining levels of non-performing loans. These
factors were partially offset by the $1.3 million decrease in non-interest
income and the $539 thousand increase in the provision for income taxes.
NET INTEREST INCOME
Tax equivalent net interest income increased $2.2 million in 1995 or 17.6%,
compared to increases of 6.8% in 1994 and 9.3% in 1993. The net interest margin
was 5.26% in 1995 versus 5.06% in 1994 and 5.11% in 1993. The increase in 1995
was primarily due to the increase in earning assets and slightly wider interest
rate spreads, coupled with a 22.8% increase in non-interest bearing liabilities.
The table on pages 7 and 8 provides the components of average assets and
liabilities together with their respective yields. The table on page 6 provides
a reconciliation of the changes in net interest income attributable to
variations in balances and yields.
Average earning assets increased $31.8 million in 1995 compared to an increase
of $17.8 million in 1994. Average earning assets comprise 92.1% of total assets,
compared to 92.2% in 1994 and 92.4% in 1993.
Average loans increased $11.2 million or 8.9% in 1995 compared to a decrease of
4.2% in 1994. Loans grew throughout 1995, and showed a marked increase in the
fourth quarter. At year end, loans outstanding had grown 9.2% overall from year
end 1994 levels. The Company's securities portfolio (securities held to maturity
and securities available for sale) increased on average $16.3 million or 14.9%
in 1995 compared to an increase of 32.5% in 1994.
-20-
<PAGE>
Average interest bearing liabilities increased $19.9 million or 10.2% in 1995,
compared to an increase of 6.0% in 1994 and 1.2% in 1993. The ratio of average
non-interest bearing deposits to interest bearing liabilities was 32.0% for
1995, compared to 28.7% for 1994 and 25.6% for 1993. The increase in
non-interest bearing deposits comes from the Company's expanded customer base
and its ability to attract and retain these type of deposits.
The Company's net interest rate spread increased 4 basis points during 1995 to
4.61%, following a decrease of 4 basis points in 1994 to 4.57% and an increase
of 21 basis points in 1993 to 4.61%. Yields on earning assets increased 53 basis
points during 1995 to 7.45% compared to a decrease of 27 basis points in 1994 to
6.92% and 86 basis points in 1993 to 7.19%.
The rates paid on interest bearing liabilities increased 49 basis points during
1995 to 2.84% compared to a decrease of 23 basis points in 1994 to 2.35% and a
decrease of 100 basis points in 1993 to 2.58%. In 1995, the Company continued to
benefit from the ratio of non-interest demand and low cost deposits to total
earning assets, without significantly increasing deposit rates.
In 1994, the net interest margin benefited from a substantial increase in the
ratio of non-interest demand and low cost deposits to total earning assets,
reducing overall funding costs during the year. However, earning asset growth
was primarily in securities- from 40% of earning assets in 1993 to 47% in 1994-
which reduced the yield on earning assets in 1994.
-21-
<PAGE>
<TABLE>
<CAPTION>
1995 vs. 1994 1994 vs. 1993
Increase (Decrease) Increase (Decrease)
Due to Changes in (1): Due to Changes in (1):
-------------------------------- -------------------------------------
(In thousands) Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income
Securities:
Taxable....................... $ 815 $ 293 $1,108 $1,518 $ (598) $ 920
Tax-exempt.................... 120 (7) 113 -- 2 2
Federal funds sold................ 281 184 465 (105) 152 47
Loans:
Commercial.................... (156) 523 367 (707) 42 (665)
Real estate................... 995 70 1,065 340 (47) 293
Installment................... 160 363 523 (141) 172 31
Tax-exempt.................... (6) 3 (3) 40 (17) 23
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income..................... 2,155 1,520 3,675 852 (237) 615
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense
Deposits:
NOW accounts.................. 70 58 128 207 (226) (19)
Money-market.................. 86 75 161 (80) (10) (90)
Savings deposits.............. (46) (21) (67) 347 (306) 41
Time deposits................. 536 762 1,298 (207) (2) (209)
Long-term debt - ESOP Loan.... (10) 2 (8) 123 -- 123
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense.................... 636 876 1,512 390 (544) (154)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase.............................. $1,519 $ 644 $2,163 $ 462 $ 307 $769
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) Changes due to both volume and rate have been allocated to volume or rate
changes in proportion to the absolute dollar amounts of the change of each.
-22-
<PAGE>
- ------------------------------------------------------------------------------
AVERAGE STATEMENTS OF CONDITION WITH
RESULTANT INTEREST AND AVERAGE RATES
- ------------------------------------------------------------------------------
The following table reflects the components of the Company's net
interest income, setting forth, for the year ends presented herein, (1) average
assets, liabilities and stockholders' equity, (2) interest income earned on
interest earning assets and interest expense paid on interest bearing
liabilities, (3) average yields earned on interest earning assets and average
rates paid on interest bearing liabilities, and (4) the Company's net yield on
interest earning assets (i.e., net interest income divided by average interest
earning assets). Rates are computed on a tax-equivalent basis.
<TABLE>
<CAPTION>
1995
---------------------------------------------------------
Average Average
(In thousands) Balance Interest Yield
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Interest earning assets:
Securities:
Taxable................................. $123,719 $ 7,120 5.76%
Tax-exempt.............................. 2,087 126 6.12
Deposits with banks......................... 4,230 245 5.79
Federal funds sold.......................... 12,757 755 5.84
Loans:(1)
Commercial.............................. 28,085 2,672 9.51
Real estate............................. 73,813 6,437 8.72
Installment............................. 33,484 3,318 9.91
Tax-exempt.............................. 949 122 12.86
- -----------------------------------------------------------------------------------------------------------
Total interest earning assets................... 279,124 20,795 7.45
- -----------------------------------------------------------------------------------------------------------
Non-interest earning assets:
Cash and due from banks..................... 17,128
Other assets................................ 9,758
Allowance for possible loans losses............. (2,796)
- -----------------------------------------------------------------------------------------------------------
Total assets.................................... $303,214
- -----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Interest bearing liabilities:
NOW accounts................................ $ 48,525 $ 823 1.70
Money-market................................ 40,222 940 2.34
Savings deposits............................ 65,076 1,384 2.13
Time deposits............................... 60,844 2,860 4.70
Long-term debt - ESOP Loan.................. 1,246 115 9.23
- -----------------------------------------------------------------------------------------------------------
Total interest bearing liabilities.............. 215,913 6,122 2.84
- -----------------------------------------------------------------------------------------------------------
Non-interest bearing liabilities:
Demand deposits............................. 69,070
Other liabilities........................... 1,646
Stockholders' equity............................ 16,585
- -----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity...... $303,214
- -----------------------------------------------------------------------------------------------------------
Net interest income................................................ $ 14,673
- -----------------------------------------------------------------------------------------------------------
Net interest spread................................................ 4.61%
- -----------------------------------------------------------------------------------------------------------
Total cost of funds................................................ 2.19%
- -----------------------------------------------------------------------------------------------------------
Net interest margin................................................ 5.26%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- -----------
(1) Non-accrual loans are included in the daily average loan amounts
outstanding. Fees are included in loan interest. Loans and total interest
earnings assets are net of unearned income.
-23-
<PAGE>
<TABLE>
<CAPTION>
1994 1993
- ------------------------------------------------------- ----------------------------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
- ------------------ ---------------- --------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$109,341 $ 6,012 5.50% $ 82,533 $ 5,092 6.17%
133 13 9.91 100 11 10.61
5,464 208 3.81 8,164 244 2.99
7,298 290 3.92 8,174 243 2.93
30,021 2,305 7.68 38,012 2,970 7.81
62,377 5,372 8.61 58,473 5,079 8.69
31,733 2,795 8.81 33,384 2,764 8.28
998 125 12.54 746 102 13.68
- ----------------------------------------------------------------------------------------------------------------
247,365 17,120 6.92 229,586 16,505 7.19
- ----------------------------------------------------------------------------------------------------------------
14,231 12,475
9,283 9,425
(2,588) (3,029)
- ----------------------------------------------------------------------------------------------------------------
$268,291 $248,457
- ----------------------------------------------------------------------------------------------------------------
$ 44,184 $ 695 1.57% $ 38,302 $ 714 1.87%
36,359 779 2.14 37,018 869 2.35
67,083 1,451 2.16 57,950 1,410 2.43
47,067 1,562 3.32 51,733 1,771 3.42
1,355 123 9.08 -- -- --
- ----------------------------------------------------------------------------------------------------------------
196,048 4,610 2.35 185,003 4,764 2.58
- ----------------------------------------------------------------------------------------------------------------
56,231 47,295
1,212 2,391
14,800 13,768
- ----------------------------------------------------------------------------------------------------------------
$269,291 $248,457
- ----------------------------------------------------------------------------------------------------------------
$ 12,510 $ 11,741
- ----------------------------------------------------------------------------------------------------------------
4.57% 4.61%
- ----------------------------------------------------------------------------------------------------------------
1.86% 2.08%
- ----------------------------------------------------------------------------------------------------------------
5.06% 5.11%
</TABLE>
-24-
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES
The Company maintains an allowance for possible loan losses at a level
considered by management to be adequate to cover the inherent risk of loss
associated with its loan portfolio. The allowance for possible loan losses is
based on estimates, and ultimate losses may vary from the current estimates.
Management reviews the loan portfolio and evaluates credit risk on a quarterly
basis. Such review takes into consideration the financial condition of the
borrowers, fair market value of the collateral, level of delinquency, historical
loss experience by portfolio, industry trends and the impact of local and
national economic conditions. If there are any significant changes to the
Company's estimate of the adequacy of the allowance, they are reflected in
operations during the period in which they become known. For a future discussion
see "Asset Quality and Risk Elements."
The provision for possible loan losses was $559 thousand for 1995 as compared to
$1.0 million for 1994 and $2.6 million for 1993. This reduction was due
principally to the decline in non-performing loans arising primarily from
improved economic conditions and real estate values in the Company's market
area.
NON-INTEREST INCOME
Various types of non-interest income, such as service charges on deposit
accounts and other service charges, commissions and fees are generated through
the Company's core business operations. Total non-interest income amounted to
$2.1 million in 1995 which approximates 1994. Total non-interest income in 1994,
including securities gains, decreased $1.2 million, or 36.4%, from 1993. The
decrease in non-interest income in 1994 reflects the adoption of the Free
Personal Checking Program that was instituted during early 1994.
The following table presents the components of non-interest income for the years
ended December 31, 1995, 1994, and 1993.
<TABLE>
<CAPTION>
For the Year Ended Percent
December 31 Increase (Decrease)
- -----------------------------------------------------------------------------------------
(In thousands) 1995 1994 1993 1995 vs 1994 1994 vs 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-interest income
Service charges on deposit
Accounts ................ $1,299 $1,154 $1,409 12.6 % (18.1)%
Securities gains .......... -- -- 472 * *
Gain on sale of loans ..... 25 3 603 733.3 (99.5)
Safe deposit rental income 103 107 114 (3.7) (6.1)
Other commissions and fees 213 207 194 2.9 6.7
Other ..................... 491 586 541 (16.2) 8.3
- -----------------------------------------------------------------------------------------
$2,131 $2,057 $3,333 3.6 % (38.3)%
=========================================================================================
</TABLE>
* Percentage change not revelant.
<PAGE>
Service charges on deposit accounts increased $145 thousand, or 12.6% to $1.3
million in 1995. This growth was primarily attributable to the growth in
deposits experienced during 1995. Service charges on deposit accounts represents
61.0%, 56.1% and 49.2% of total non-interest income, not including securities
gains, for the three years ended December 31, 1995.
Other income totaled $832 thousand in 1995 as compared with $903 thousand for
1994. The decrease in 1995 in other income is attributable to the gains on sale
of ORE that occurred in 1994 which were partially offset by the increases in
automated teller network fees and check printing income. Other income in 1994
decreased 37.8% from 1993. The decrease in 1994 is attributable to the one-time
gain on the sale of fixed rate mortgage loans that occurred in 1993.
During 1995 and 1994 there were no sales of securities. Net gains on securities
transactions in 1993 amounted to $472 thousand. The gains in 1993 were
recognized as certain government mortgage-backed securities were sold to reduce
prepayment risk resulting from the declining interest rate environment and heavy
refinancing activity.
NON-INTEREST EXPENSE
Non-interest expense totaled $11.8 million for 1995, $800 thousand or 7.3%,
above the 1994 level. This compared to an increase in 1994 of $88 thousand, or
.8%, over 1993.
Non-interest expense categories for the years ended December 31, 1995, 1994 and
1993 are shown in the table below.
<TABLE>
<CAPTION>
For the Year Ended Percent
December 31 Increase (Decrease)
- ------------------------------------------------------------------------------------------------------
(In thousands) 1995 1994 1993 1995 vs 1994 1994 vs 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-interest expense
Salaries and employee
benefits ............... $5,481 $4,900 $4,628 11.9 % 5.9 %
Occupancy ................. 1,499 1,452 1,396 3.2 4.0
Equipment ................. 1,041 892 788 16.7 13.2
Foreclosed real estate
expense ................ 425 491 625 (13.4) (21.4)
FDIC insurance assessment . 339 643 644 (47.3) .2
Legal fees(a) ............. 259 360 502 (28.1) (28.3)
Audit and regulatory
expenses ............... 104 221 379 (52.9) (41.7)
Credit reports ............ 195 172 298 13.4 (42.3)
Other ..................... 2,457 1,869 1,652 31.5 13.1
- ------------------------------------------------------------------------------------------------------
$11,800 $11,000 $10,912 7.3 % .8 %
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Bank paid a total of $119, $135 and $192 in legal fees to a law firm of
which a director is a partner during the years ended December 31, 1995,
1994, and 1993, respectively.
<PAGE>
The largest component of non-interest expense is salaries and employee benefits
which accounted for 46.4% of total non-interest expense in 1995 as compared to
44.5% and 42.4% in 1994 and 1993, respectively. Salaries and employee benefits
expense totaled $5.5 million, in 1995 as compared with $4.9 million in 1994. The
$581 thousand, or 11.9% increase, compared to an 5.9% increase in 1994. These
increases are due primarily to staffing increases relative to the Company's
growth, normal wage increases and increases in the cost of employee benefits,
primarily the Employee Stock Ownership Plan. Total full-time equivalent
employees at December 31, 1995 were 182, compared to 161 at December 31, 1994,
an increase of 13.0%. This compares to full-time equivalent employees of 150 at
December 31, 1993.
Occupancy expenses were $1.5 million for 1995, an increase of 3.2% over 1994.
This increase was attributed to normal increases in the operating expenses of
the Company's facilities. The increase in 1994 over 1993 was primarily due to
increased levels of rents and additional maintenance costs, primarily snow
removal in the first quarter of 1994. Equipment expenses in 1995 amounted to
$1.0 million, an increase of $149 thousand, or 16.7% over 1994. The increase was
principally due to additional lease and maintenance costs associated with new
equipment required to support the data processing conversion and the branch
automation project completed in the third quarter of 1994. Also reflected in
1995 is the installation of two new on-site automated teller machines and
related costs.
FDIC insurance of $339 thousand for the year ended December 31, 1995, decreased
$304 thousand or 47.3% compared to $643 thousand for the year ended December 31,
1994. During 1995, the Company received the most favorable risk classification
for purposes of determining the annual deposit insurance assessment rate, which
resulted in a refund of $170 thousand from the FDIC for excess premium payments
made during 1995. Although the Company's deposits increased in 1995, the overall
rate charged by the FDIC decreased 82.6%. Insurance premiums in 1994 remained at
the same level as 1993 as the decrease in the overall rate charged by the FDIC
more than offset the increase in the Company's deposits.
Foreclosed real estate expense, which results from costs of holding and
operating other real estate in addition to valuation reserves, were $425
thousand for 1995, down $66 thousand, or 13.4% from 1994 due to a reduction in
the number of ORE properties. In 1994, these costs were $491 thousand as
compared to $625 thousand in 1993. A provision of $230 thousand to increase
valuation reserves was recorded in 1995, compared to $277 thousand in 1994
Other expenses, which include legal fees, audit and regulatory expenses, loan
related expenses and advertising were $3.0 million in 1995, an increase of $393
thousand, or 15.0% from 1994. Other expenses for 1994 were $2.6 million, or 7.4%
lower than that of 1993. This increase in 1995 was the result of higher
advertising costs, stationery and supplies expense and loan related expenses.
These increases were offset by lower legal fees and lower audit and regulatory
charges. The decrease in 1994 was the result of lower legal fees and lower audit
and regulatory costs offset by higher stationery and supplies expense and
advertising costs.
<PAGE>
INCOME TAXES
The provision for income taxes increased $488 thousand in 1995 to $1.3 million,
as compared to $823 thousand in 1994 and $284 thousand in 1993. These increases
were primarily attributable to the Company's improved earnings.
Effective January 1, 1992, the Company began accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS 109). This standard requires, among other things,
recognition of future tax benefits, measured by enacted tax rates, attributable
to temporary differences between financial statement and the income tax basis of
assets and liabilities and net operating loss carryforwards, to the extent that
realization of such benefits is more likely than not.
The Company has a future tax liability attributable to temporary differences of
$153 thousand.
FINANCIAL CONDITION
Total average assets increased $34.9 million, or 13.0%, to $303.2 million in
1995, while total assets reached $325.2 million at year end, an increase of
14.8% from the 1994 balance. Average interest earning assets, which represented
92.1% of total average assets, increased $31.8 million, or 12.8%, from 1994 to
$279.1 million in 1995. Specifically, average total securities, including
short-term investments, increased $20.5 million, or 16.8%, over 1994. Average
loan balances increased by 8.9% or $11.2 million during 1995. The majority of
this growth was in the real estate portfolio.
SECURITIES
The Company maintains a securities portfolio to fund increases in loans or
decreases in deposits. The portfolio is comprised of securities that the Company
believes will suit its needs and perform reasonably well under various interest
rate scenarios. The Company's securities portfolio is comprised primarily of
U.S. government and federal agency securities. These securities are of high
quality and are extremely liquid.
The Company's securities portfolio consists of securities classified as held to
maturity and available for sale. The Company designates securities upon purchase
into one of the two categories. At December 31, 1995, securities classified as
held to maturity totaled $90.3 million and represented securities that the
Company has the positive intent and ability to hold to maturity. Available for
sale securities totaled $46.4 million and represented securities that the
Company may sell to meet liquidity needs or in response to significant changes
in interest rates or prepayment risks. The Company took advantage of the
one-time opportunity to transfer securities out of the held to maturity category
without penalty. The Company transferred $40.7 million of securities that had
been previously classified as held to maturity to available for sale in December
1995. These consisted of $32.7 million in U.S. Treasury securities and $8.0
million of obligations of other U.S. government agencies.
<PAGE>
At December 31, 1995, the securities portfolio, including available for sale,
totaled $136.7 million, an increase of 17.9% from year end 1994. On average, the
securities portfolio increased 14.9% in 1995 and 32.3% in 1994. Average
securities represented 45.1%, 44.3% and 36.0% of earning assets for 1995, 1994
and 1993, respectively.
At December 31, 1995, the Company had net unrealized gains in the held to
maturity securities portfolio of $29 thousand as compared to net unrealized
losses of $8.1 million at December 31, 1994.
The following table presents selected securities categories as of December 31,
1995, reflecting the maturity distribution and weighted average yield, on a
fully taxable-equivalent basis, of the Company's held to maturity securities.
<TABLE>
<CAPTION>
After 1 Year After 5 Years
Within but Within but Within
(In thousands) 1 Year 5 Years 10 Years After 10 Years Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities:
Book value ............. $ -- $ 23,496 $ -- $ -- $ 23,496
- ------------------------------------------------------------------------------------------------------------
Weighted Average Yield -- % 5.11% -- % -- % 5.11%
- ------------------------------------------------------------------------------------------------------------
Obligations of other U.S.
Government agencies:
Book value ............. 1,106 41,800 5,107 13,480 61,493
- ------------------------------------------------------------------------------------------------------------
Weighted Average Yield. 7.00% 6.22% 6.04% 6.88% 6.36%
- ------------------------------------------------------------------------------------------------------------
Obligations of states and
political subdivisions:
Book value ............. 5,008 200 100 -- 5,308
- ------------------------------------------------------------------------------------------------------------
Weighted Average Yield.. 3.77% 6.13% 5.2% -- % 3.89%
- ------------------------------------------------------------------------------------------------------------
Total securities:
Book value .............. $ 6,114 $ 65,496 $ 5,207 $ 13,480 $ 90,297
- ------------------------------------------------------------------------------------------------------------
Weighted Average Yield.. 4.35% 5.82% 6.03% 6.88% 5.89%
=============================================================================================================
</TABLE>
The following table presents available for sale securities as of December 31,
1995 and the maturity distribution and weighted average yield, on a fully
taxable-equivalent basis.
<PAGE>
<TABLE>
<CAPTION>
After 1 Year After 5 Years
Within but Within but Within
(In thousands) 1 Year 5 Years 10 Years After 10 Years Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Treasury securities:
Book value ................ $ 12,745 $ 17,174 $ 4,177 $ -- $ 34,096
- ----------------------------------------------------------------------------------------------------
Weighted Average Yield ..... 5.67% 5.74% 6.04% --% 5.75%
- ----------------------------------------------------------------------------------------------------
Obligations of other U.S.
Government agencies:
Book value ................ -- 7,125 4,093 55 11,273
- ----------------------------------------------------------------------------------------------------
Weighted Average Yield ..... --% 7.15% 6.10% 8.50% 6.77%
- ----------------------------------------------------------------------------------------------------
Equity Securities:
Book value ................ -- -- -- 997 997
- ----------------------------------------------------------------------------------------------------
Weighted Average Yield ..... --% --% --% 6.00% 6.00%
- ----------------------------------------------------------------------------------------------------
Total Securities:
Book value ................ $ 12,745 $ 24,299 $ 8,270 $ 1,052 $ 46,366
- ----------------------------------------------------------------------------------------------------
Weighted Average Yield ..... 5.67% 6.15% 6.06% 6.13% 6.01%
- ----------------------------------------------------------------------------------------------------
</TABLE>
LOANS
The loan portfolio totaled $142.5 million at December 31, 1995, an increase of
9.2% from December 31, 1994. This follows a 5.1% increase in 1994. Average total
loans for the year were $136.3 million, representing a 8.9% increase from 1994,
compared to a 4.2% average decrease experienced in 1994.
The following table shows the classification of loans by major category, at
December 31, for each of the past five years:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial .................... $ 26,592 $ 27,109 $ 32,839 $ 44,566 $ 55,026
Real estate: Construction ..... 5,777 2,750 3,885 884 734
Commercial.............. 44,360 39,803 34,463 28,656 23,829
Residential............. 29,378 28,205 20,466 24,523 10,437
Installment ................... 36,387 32,591 32,491 34,117 30,893
- --------------------------------------------------------------------------------------
Total ...................... $142,494 $130,458 $124,144 $132,746 $120,919
- --------------------------------------------------------------------------------------
</TABLE>
Commercial loans are made to companies located within the Company's market area
for working capital and other short-term needs and term loans for the
acquisition of assets. Commercial loans decreased by $517 thousand, or 1.9% for
the year and represented 18.7% of the total loan portfolio. This follows a
decrease of $5.7 million, or 17.4%, in 1994 from 1993. Construction loans are
primarily made to local developers. Construction loans are primarily made on
single family structures which are generally under contract before being built.
Advances under loans are closely monitored and made after inspection by officers
of the Company. Construction loans increased $3.0 million or 110.1% in 1995 from
1994. The growth in construction loans was due to the increased activity in the
Company's market area. Construction loans decreased by $1.1 million in 1994 from
1993. The decline in the portfolio in 1994 was the result of completed projects
going to permanent financing.
<PAGE>
Commercial mortgage loans are made to local property owners and are written
using strict underwriting standards. Commercial mortgage loans increased in 1995
by $4.5 million, or 11.4%, from 1994 and comprise 31.1% of the Company's total
loan portfolio. Commercial mortgages increased from 1993 to 1994 by $5.3
million, or 15.5%. The commercial mortgage portfolio is primarily owner occupied
properties.
At December 31, 1995, residential loans totaled $29.4 million, or 20.6% of the
Company's total loan portfolio. Residential loans are predominately secured by
one to four family properties in the Company's primary market area. Residential
loans increased by $1.2 million, or 4.2%, from 1994 to 1995 primarily as a
result of the Company adding to its adjustable rate portfolio. Adjustable rate
loans are generally retained in the portfolio. Residential loans increased by
$7.7 million, or 37.8%, from 1993 to 1994. In order to maintain interest rate
risk at levels in line with the Company's internal requirements, loans may be
periodically sold into the secondary market. This allows the Company to keep its
portfolio mixed between fixed rate and variable rate loans, as well as
maintaining a shorter maturity of its portfolio.
Installment loans at December 31, 1995 increased $3.8 million, or 11.6%, from
December 31, 1994. The increase was due to the increase of $4.7 million in fixed
rate home equity loans. Installment loans increased slightly at December 31,
1994 from December, 1993. The increase was due to the increase of $1.4 million
in fixed rate home equity loans offset by the decrease of $887 thousand and $361
thousand in the adjustable rate home equity portfolio and the credit card
portfolio, respectively.
The following table summarizes the maturities of certain loan categories at
December 31, 1995:
<TABLE>
<CAPTION>
Due in Due in Due in
One Year One to Over Five
(In thousands) or Less Five Years Years Total
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Commercial....................... $ 1,859 $ 4,824 $ 19,909 $ 26,592
Real estate:
Construction................. 5,777 -- -- 5,777
Commercial................... 1,297 21,481 21,582 44,360
Residential.................. 8,569 12,760 8,049 29,378
Installment...................... 2,006 4,309 30,072 36,387
- ------------------------------------------------------------------------------------------------------
Total.................... $19,508 $43,374 $79,612 $142,494
- ------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
Included above in loans due after one year are adjustable rate loans of $51,803
and fixed rate loans of $71,183.
<PAGE>
Loan concentrations are considered to exist when there are amounts loaned to
separate borrowers engaged in similar activities which would cause them to be
similarly impacted by economic or other conditions. At December 31, 1995 and
1994, there were no concentrations of loans exceeding 10% of total loans which
are not otherwise disclosed as a category on the Company's financial statements.
ASSET QUALITY AND RISK ELEMENTS
Lending is one of the most important functions performed by the Company and by
its very nature, it is the most risky, complicated and profitable part of the
Company's business. A separate risk management function monitors risk
assessment, credit file maintenance and overall financial condition of
borrowers. Additionally, efforts are made to limit concentrations of credit
within the loan portfolio so as to minimize the impact of a downturn in any one
economic sector.
Management realizes that some degree of risk must be expected in the normal
course of lending activities. Reserves are maintained to absorb such potential
loan losses. The allowance for possible loan losses and related provision are a
statement of management's evaluation of the credit portfolio and economic
climate.
Statements of Financial Accounting Standards (SFAS) No. 114 and No. 118,
"Accounting by Creditors for Impairment of a Loan," were adopted effective
January 1, 1995. These new statements require that an impaired loan that is
within the scope of this statement be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
at the loan's observable market price, or if the loan is collateral dependent,
based on the fair value of the collateral. A loan is impaired when, based on
current information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. As of December 31, 1995, impaired loans totaled $1.7 million.
Non-performing assets include non-accrual loans, impaired loans and other real
estate (ORE). Loans which are past due in excess of 90 days as to the collection
of principal or interest constitute non-accrual loans, except that loans which
are contractually past due by more than 90 days may continue on an accrual basis
if the loan is sufficiently collateralized and is in the process of being
collected. ORE is acquired though foreclosure on loans secured by land or real
estate. ORE is reported at the lower of carrying value or fair market value as
determined by appraisal on the date of acquisition less costs to dispose.
Non-performing assets were $3.0 million and $4.6 million at December 31, 1995
and 1994, respectively, and amounted to .93% and 1.64% of total assets for each
of these periods, respectively. This total risk element is at the lowest level
in the last six years. Non-accrual loans totaled $1.6 million and $2.6 million,
at December 31, 1995 and December 31, 1994, respectively. Impaired loans not
included in non-accrual totaled $146 thousand at December 31, 1995 compared to
$792 thousand at December 31, 1994. ORE amounted to $1.3 million at December 31,
1995, an increase of $79 thousand or 6.5% from ORE of $1.2 million at December
31, 1994. All costs associated with the holding and maintaining of ORE
properties are expensed as incurred. The decrease in non-performing assets is
the result of loans returned to accrual status, payoffs, payments and
charge-offs.
<PAGE>
The following table sets forth summary data related to the allowance for
possible loan losses, the provision for possible loan losses and charge-off
experience for the past five years:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
(In thousands) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans, net of unearned income, (at end of year)........ $142,494 $130,458 $124,144 $132,746 $120,919
- ------------------------------------------------------------------------------------------------------------
Average loans outstanding ............................. $136,331 $125,129 $130,615 $128,727 $129,894
- ------------------------------------------------------------------------------------------------------------
Balance of allowance for possible loan losses
at beginning of year ................................ $2,630 $2,492 $3,400 $3,184 $3,278
Loans charged-off:
Commercial .......................................... 658 1,040 2,974 993 7,303
Commercial lease financing .......................... -- 32 190 1,464 1,375
Real estate-construction ............................ -- -- -- -- 174
Real estate-commercial .............................. -- 1 -- 131 --
Real estate-residential ............................. 77 11 41 12 146
Installment ......................................... 191 152 804 794 1,640
- ------------------------------------------------------------------------------------------------------------
Total loans charged-off......................... 926 1,236 4,009 3,394 10,638
- ------------------------------------------------------------------------------------------------------------
Recoveries of loans:
Commercial .......................................... 323 146 177 659 285
Commercial lease financing .......................... 9 66 155 150 57
Real estate-commercial .............................. -- 1 1 16 3
Real estate-residential ............................. -- -- 20 --- ---
Installment ......................................... 99 147 113 88 37
- ------------------------------------------------------------------------------------------------------------
Total recoveries ............................... 431 360 466 913 382
- ------------------------------------------------------------------------------------------------------------
Net loans charged-off ................................. 495 876 3,543 2,481 10,256
Provision charged to expense .......................... 559 1,014 2,635 2,697 10,162
- ------------------------------------------------------------------------------------------------------------
Balance at end of year ................................ $2,694 $2,630 $2,492 $3,400 $3,184
- ------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses to total
loans outstanding (at end of year)................... 1.89% 2.02% 2.01% 2.56% 2.63%
- ------------------------------------------------------------------------------------------------------------
Net loans charged-off to average loans outstanding..... .36% .70% 2.71% 1.93% 7.90%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the allocation of the allowance for possible loan
losses by category of loans and the percentage of loans in each category to
total loans. The allocation is based upon management's review of the portfolio
as well as historical trends and current loan growth.
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------------------------------------------------
% of % of % of % of % of
Amount Loans to Amount Loans to Amount Loans to Amount Loans to Amount Loans to
of Total of Total of Total of Total of Total
(In thousands) Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial ................... $942 18.3% $1,291 20.3% $1,214 24.7% $1,946 30.7% $1,501 39.7%
Commercial lease financing.... 9 .3 8 .6 25 1.3 56 2.6 699 5.8
Real estate-construction...... 138 2.5 152 2.1 39 3.2 7 .6 27 .5
Real estate-commercial........ 1,019 32.7 691 30.3 680 27.7 587 21.7 317 19.7
Real estate-residential....... 235 20.6 191 21.7 157 16.5 218 18.3 160 8.4
Installment .................. 351 25.6 297 25.0 377 26.6 586 26.1 480 25.9
----------------------------------------------------------------------------------------------------------------------------------
Total ...................... $2,694 100.0% $2,630 100.0% $2,492 100.0% $3,400 100.0% $3,184 100.0%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The allowance for possible loan losses at year end 1995 was $2.7 million, an
increase of $64 thousand as compared to year end 1994. The allowance at December
31, 1995 represents 1.89% of total loans outstanding as compared to 2.02% at
December 31, 1994. At December 31, 1995 and 1994, the allowance for possible
loan losses represented 156.7% and 77.0% of total non-performing loans,
respectively.
The Company is continually analyzing its loan portfolio in order to identify
early risk elements that require managements attention. The loan portfolio is
subject to review by lending management, the Company's internal loan review
staff, the Company's independent public accountants and various regulatory
agencies. The Company believes that its low level of risk elements are a
reflection of the Company's strict underwriting discipline and its practice of
early problem recognition and resolution.
As of December 31, 1995, a commercial mortgage in the amount of $1.6 million was
classified as a potential problem loan. This is a loan which management has
information which indicates that the borrower may not be able to comply with
current payment terms. Although there is some question about the borrowers
ability to comply with current loan payment terms, minimal losses, if any, are
anticipated.
Net loan charge-offs were $495 thousand for the year ended December 31, 1995 as
compared with $876 thousand for the year ended December 31, 1994. The ratio of
net charge-offs to average loans amounted to .36% for 1995 as compared with .70%
in 1994.
DEPOSITS
The Company's deposit base is its primary source of funds. The Company offers a
broad range of deposit products, including non-interest bearing demand deposits,
NOW accounts, savings accounts, money-market accounts and certificates of
deposit. The Company remains a deposit-driven financial institution with
emphasis on core deposit accumulation and retention as a basis for sound growth
and profitability.
The December 31, 1995 total deposit balance of $304.3 million represents an
increase of $38.9 million, or 14.7%, from the December 31, 1994 balance of
$265.4 million. This increase was primarily the result of the $26.7 million
increase in demand deposits, both non-interest bearing and interest bearing, and
the $13.7 million increase in time deposits partially offset by the $1.5 million
decrease in savings deposits. The Company believes that its record of sustaining
core deposit growth is reflective of the Company's retail approach to banking
which emphasizes a combination of free checking accounts, convenient branch
locations, extended hours of operation, quality service and active marketing.
<PAGE>
The following is a breakdown of the maturity of certificates of deposits of
$100,000 or more as of December 31, 1995 and 1994, respectively:
(In thousands) 1995 1994
-----------------------------------------------
3 months or less ........ $11,422 $5,010
3 to 6 months ........... 511 587
6 to 12 months .......... 720 232
Over 12 months .......... 425 218
-----------------------------------------------
Total ............ $13,078 $6,047
-----------------------------------------------
INTEREST RATE SENSITIVITY
Interest rate sensitivity and the repricing characteristics of assets and
liabilities are managed by the Company's Asset/Liability Committee. The
principal objective of the Committee is to maximize net interest income within
acceptable levels of risk established by policy. The Committee attempts to
maintain stable net interest margins by generally matching the volume of assets
and liabilities maturing, or subject to repricing, and by adjusting rates in
relation to market conditions to influence volumes and spreads.
The following table shows the gap position of the Company at December 31, 1995:
<TABLE>
<CAPTION>
Due Between
Due Within 91 Days and Due After Non-Interest
(In thousands) 90 Days One Year One Year Bearing Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loans ........................ $59,565 $12,059 $69,151 $1,719 $142,494
Short-term investments............ 18,631 -- -- -- 18,631
Securities ....................... 3,641 16,316 116,706 -- 136,663
Non-interest bearing assets....... -- -- -- 27,399 27,399
- --------------------------------------------------------------------------------------------------------
Total assets.................... $81,837 $28,375 $185,857 $29,118 $325,187
- --------------------------------------------------------------------------------------------------------
Interest bearing deposits......... $168,606 $15,876 $38,987 $ -- $223,469
Other liabilities ................ -- -- -- 83,091 83,091
Stockholders' equity.............. -- -- -- 18,627 18,627
- --------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity .......... $168,606 $15,876 $38,987 $101,718 $325,187
- --------------------------------------------------------------------------------------------------------
Period gap ....................... ($86,769) $12,499 $146,870 ($72,600)
- --------------------------------------------------------------------------------------------------------
Cumulative gap ................... (86,769) (74,270) 72,600
- --------------------------------------------------------------------------------------------------------
Period gap to total assets........ (26.68)% 3.84% 45.16%
Cumulative gap to total assets.... (26.68)% (22.84)% 22.32%
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The difference between the volume of assets and liabilities that reprice in a
given period is the interest sensitivity gap. A "positive" gap results when more
assets than liabilities mature or are repriced in a given time frame.
Conversely, a "negative" gap results when there are more liabilities than assets
maturing or being repriced during a given period of time. The smaller the gap,
the less the effect of market volatility on net interest income. Asset/liability
management is the utilization of this information to develop strategies to
allocate funds to certain types of assets and to offer different liability
products to achieve a certain asset/liability balance in order to produce
desired profit margins.
As depicted in the table above, sensitivity to interest rate fluctuations is
measured in a number of time frames. At December 31, 1995, rate sensitive
liabilities exceeded rate sensitive assets at the 90 day interval and resulted
in a negative gap of $86.8 million. Rate sensitive assets exceeded rate
sensitive liabilities at the 91 to 365 day interval by $12.5 million. The total
cumulative negative gap repricing within 365 days is $74.3 million. As the
Company is liability sensitive, the Company's net interest margin would be
negatively affected in a rising rate environment as liabilities reprice more
quickly than assets. Management has identified numerous strategies, including a
redeployment of asset maturities and cash flows to insulate net interest income
from the effects of changes in interest rates.
These gap positions are monitored as part of the committee process. This
activity includes periodic forecasts of future business activity which are
applied to various interest rate environments in a simulation process. The use
of these financial modeling techniques assists management in its continuing
efforts to achieve stable earnings growth in an ever-changing interest rate
environment.
While gap analysis is a general indicator of the potential effect that changing
interest rates may have on net interest income, the gap itself does not present
a complete picture of interest rate sensitivity. First, changes in the general
level of interest rates do not affect all categories of assets and liabilities
equally or simultaneously. Second, assumptions must be made to construct a gap
table. Money-market deposits, for example, which have no contractual maturity,
are assigned a repricing interval of 90 days. Management can influence the
actual repricing of the deposits independent of the gap assumption. Third, the
gap table represents a one-day position and cannot incorporate a changing mix of
assets and liabilities over time as interest rates change.
For this reason, the Company primarily uses simulation techniques to project
future net interest income streams, incorporating the current "gap" position,
the forecasted balance sheet mix and the market rates and bank products under a
variety of interest rate scenarios.
LIQUIDITY
Liquidity measures the ability to satisfy current and future cash flow needs as
they become due. Maintaining a level of liquid funds through asset/liability
management seeks to ensure that these needs are met at a reasonable cost. On the
asset side, liquid funds are maintained in the form of cash and due from banks,
federal funds sold and unpledged short-term securities and securities available
for sale. At December 31, 1995, these assets amounted to $85.3 million as
compared to $34.2 million for the same period in 1994. This represents 26.2% and
12.1% of total assets at December 31, 1995 and 1994, respectively.
<PAGE>
The primary source of liquidity is the Company's ability to attract new deposits
and retain deposit obligations as they mature. The Company utilizes its branch
network to access retail customers who provide a highly stable source of core
funds. These funds are comprised of demand deposits, savings accounts and
certificates of deposit. Core deposits averaged $283.7 million and $250.9
million for 1995 and 1994, respectively, representing an increase of $32.8
million, or 13.1%. The Company remains a deposit-driven financial institution
with emphasis on core deposit accumulation and retention as a basis for sound
growth and profitability. The Company believes that its record of sustaining
core deposit growth is reflective of the Company's retail approach to banking
which emphasizes a combination of free personal checking accounts, convenient
branch locations, extended hours of operation, quality service and active
marketing. Historically, the overall liquidity of the Company has been enhanced
by the significant amount of core deposits.
CAPITAL RESOURCES
A significant measure of the strength of a financial institution is a strong
capital base which can expand in close proportion to asset growth. It is the
capital base which provides the primary risk insurance to depositors. Also, it
is an important consideration to federal regulators, analysts of the Company's
common stock, as well as others in the marketplace.
The Federal Reserve Board and the FDIC have issued risk-based capital guidelines
for U.S. banking organizations. The objective of these efforts was to provide a
more uniform capital framework that is sensitive to differences in risk profiles
among banking companies.
The guidelines define a two-tier framework. Tier I capital consists of common
stockholders' equity and qualifying perpetual preferred stock, less goodwill,
while total Tier I and Tier II capital consists of Tier I capital and the
allowance for possible loan losses up to 1.25% of risk-weighted assets.
The table below presents in summary form the risk-based and leverage capital
ratios of the Company and the Bank as of December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
-------------------------------- --------------------------------
Company Bank Company Bank
- ---------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Risk-Based Capital Ratios
Tier I Capital:
Actual ....................... 10.70% 11.29% 10.23% 11.30%
Regulatory Minimum Requirement 4.00% 4.00% 4.00% 4.00%
Combined Tier I and Tier II Capital:
Actual ....................... 11.95% 12.54% 11.71% 12.55%
Regulatory Minimum Requirement 8.00% 8.00% 8.00% 8.00%
Leverage Ratios
Actual ....................... 5.76% 6.10% 5.46% 6.02%
Regulatory Minimum Requirement 4.00% to 5.00% 4.00% to 5.00% 4.00% to 5.00% 4.00% to 5.00%
- ---------------------------------------------------------------------- --------------------------------
</TABLE>
<PAGE>
BUSINESS
General
Independence Bancorp, Inc. (the "Company") is a New Jersey business
corporation which is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "Holding Company Act"). As a bank holding
company, the Company's operations are confined to the ownership and operation of
banks and activities deemed by the Federal Reserve Board to be closely related
to banking to be a proper incident thereto. The Company incorporated on November
10, 1983 for the purpose of acquiring Independence Bank of New Jersey (the
"Bank") and thereby enabling the Company to operate within the bank holding
company structure. On June 28, 1984 the Company acquired 100 percent of the
outstanding shares of the Bank.
Except as otherwise indicated, all references herein to the Company
include the Bank.
The principal activities of the Company are the owning and supervising
of the Bank, which engages in a general banking business from seven offices
located in Bergen County, New Jersey and one office in Passaic County, New
Jersey. The day-to-day affairs of the Bank are managed by the Bank's officers
and directors. The Company's principal executive offices are located at 1100
Lake Street, Ramsey, New Jersey 07446.
The Bank
The Bank is an independent community bank which seeks to provide
personal attention and professional financial assistance to its customers. The
Bank is a locally managed, owned and oriented financial institution.
The Bank is a member of the Commerce Network (the "Network") and has
the exclusive right to use the "Yes Bank" logo within its primary service area.
The Network provides certain marketing and support services to the Bank. The
Network is a group of five community banks with over 70 branch banking offices
throughout New Jersey and southeastern Pennsylvania that provides certain
marketing support services and technical support services to its members which
allows them to take advantage of the Network's size.
The Bank provides a broad range of retail and commercial banking
services for consumers and small and mid-sized companies through branch offices
in Ramsey, Allendale, Ridgewood, Mahwah, Montvale, Park Ridge, Hackensack and
Hawthorne, New Jersey. The Bank's lending and investment activities are funded
principally by retail deposits gathered through its retail branch office
network. The Bank is not a member of the Federal Reserve System. The Bank's
deposits are insured by the Bank Insurance Fund ("BIF") of the Federal Deposit
Insurance Corporation (the "FDIC") to the maximum extent permitted by law. As of
December 31, 1995, the Bank had total assets of approximately $325.7 million,
total deposits of approximately $304.5 million and total stockholders' equity of
approximately $19.6 million.
The Bank has focused its strategy for growth primarily on the further
development of its community-based retail banking network. The objective of this
corporate strategy is to build earnings growth potential for the future as the
retail branch office network matures. The Bank's branch concept uses a prototype
or standardized branch office building, convenient locations and
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<PAGE>
active marketing, all designed to attract retail deposits. Using this prototype
branch concept, the Bank plans to open a number of new branch offices in the
next five years. The Bank's retail approach to banking emphasizes a combination
of long-term customer relationships, quick responses to customer needs, active
marketing, convenient locations, free checking for customers maintaining certain
minimum balances and extended hours of operation. The Bank has attempted to
locate its branches in the fastest growing communities within its primary
service area.
The Bank is not dependent on any one or more major customers.
Service Area
The Bank's primary service area includes Bergen and Passaic Counties,
New Jersey and more particularly the following cities located in these counties
where the Bank has branch offices: Ramsey, Allendale, Ridgewood, Mahwah,
Montvale, Park Ridge, Hackensack and Hawthorne. Retail deposits gathered through
these focused branching activities are used to support the Bank's lending
throughout Northern New Jersey.
Retail Banking Activities
The Bank provides a broad range of retail banking services and
products, including free personal checking accounts and savings programs,
negotiable orders of withdrawal ("NOW") accounts, money-market accounts,
certificates of deposit, secured and unsecured loans, consumer loan programs
(including installment loans for home improvement and the purchase of consumer
goods and automobiles), home equity and Visa/MasterCard revolving lines of
credit, overdraft checking, mortgage loans, safe deposit facilities, wire
transfers, automated teller facilities, money orders and holiday club accounts.
Commercial Banking Activities
The Bank offers a broad range of commercial banking services, including
free business checking accounts (subject to a $1,000 minimum balance), night
depository facilities, wire transfers, money-market accounts, certificates of
deposit, short-term loans for seasonal or working capital purposes, term loans
for fixed assets and expansion purposes, revolving credit plans and other
commercial loans to fit the needs of its customers. The Bank also finances the
construction of business properties and makes real estate mortgage loans on
completed buildings. Where the needs of the customer exceed the Bank's lending
limit for any one customer (approximately $3.3 million at December 31, 1995),
the Bank may participate with other banks in making a loan.
Competition
The Bank's service area is characterized by intense competition for
banking business among bank holding companies and commercial banks, thrift
institutions and other financial institutions. The Bank actively competes with
such banks and financial institutions for local retail and commercial accounts.
The Bank also is subject to competition from other major banking and financial
institutions outside its service area, many of which are substantially larger
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<PAGE>
and have greater financial resources than the Bank. Other competitors, including
credit unions, consumer finance companies, insurance companies and money-market
mutual funds, compete with certain lending and deposit gathering services
offered by the Bank.
Other institutions may have the ability to finance wide-ranging
advertising campaigns, and to allocate investment assets to regions of highest
yield and demand. Many institutions offer services such as trust services and
international banking which the Bank does not directly offer (but which the Bank
may offer indirectly through other institutions). Many institutions, by virtue
of their greater total capital, can have substantially higher lending limits
than the Bank.
In commercial transactions, the Bank's legal lending limit to a single
borrower (approximately $3.3 million as of December 31, 1995) permits it to
compete effectively for the business of smaller businesses. However, this legal
lending limit is considerably lower than that of various competing institutions
and thus may act as a constraint on the Bank's effectiveness in competing for
financings in excess of these limits.
In consumer transactions, the Bank believes that it is able to compete
effectively with larger financial institutions because it offers longer hours of
operation, personalized service and competitive interest rates on savings and
time accounts with low minimum deposit requirements.
In order to compete more effectively with other financial institutions
both within and beyond its primary service area, the Bank uses, to the fullest
extent possible, the flexibility which independent status permits. This includes
an emphasis on specialized services for the small business person and
professional contacts by the Bank's officers, directors and employees, and the
greatest possible efforts to understand fully the financial situation of
relatively small borrowers. The size of such borrowers, in management's opinion,
often inhibits close attention to their needs by larger institutions. The Bank
may seek to arrange for loans in excess of its lending limit on a participation
basis with other financial institutions in order to more fully to service
customers whose loan demands exceed the Bank's lending limit.
The Bank endeavors to be competitive with all competing financial
institutions in its primary service area with respect to interest rates paid on
time and saving deposits, its overdraft charges on deposit accounts, and
interest rates charged on loans.
National Monetary Policy
In addition to being affected by general economic conditions, the
earnings and growth of the Bank and the Company are affected by the policies of
the regulatory agencies, including the Board of Governors of the Federal Reserve
System ("FRB") and FDIC. An important function of the FRB is to regulate the
money supply and credit conditions. Among the instruments used to implement
these objectives are open market operations in United States Government
securities, setting the discount rate and changes in reserve requirements
against bank deposits. These instruments are used in varying combinations to
influence overall growth of bank loans, investments and deposits and their use
may also affect interest rates charged on loans or paid on deposits. The
monetary policies and regulations of the FRB have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future. The effects of such policies upon the future
business, earnings and growth of the Company and the Bank cannot be predicted.
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<PAGE>
Employees
As of December 31, 1995, the Company, including the Bank, had
approximately 182 full-time equivalent employees of whom 41 were part-time. The
Company considers its relationships with its employees to be good.
Legal Proceedings
Neither the Company, the Bank nor any of their properties is subject to
any legal proceedings other than routine and non-material litigation incidental
to its business which primarily consists of collection proceedings in which the
Bank is seeking to enforce obligations due it.
SUPERVISION AND REGULATION
The banking industry is highly regulated. Statutory and regulatory
controls increase the cost of doing business. The operations of the Bank are
subject to requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, and limitations on the types
of investments that may be made and the types of services which can be offered.
Various consumer laws and regulations also affect the operations of the Bank.
The Company
The Company is registered as a "bank holding company" under the Holding
Company Act and is, therefore, subject to regulation by the FRB.
Under the Holding Company Act, the Company is required to obtain the
prior approval of the FRB before it can merge or consolidate with any other bank
holding company or acquire all or substantially all of the assets of any bank
that is not already majority owned by it or acquire direct or indirect ownership
or control of any voting shares of any bank that is not already majority owned
by it, if after such acquisition it would directly or indirectly own or control
more than 5% of the voting stock of such bank. See "Recent Legislation."
The Company is generally prohibited under the Holding Company Act from
engaging in, or acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company engaged in nonbanking activities unless
the FRB, by order or regulation, has found such activities to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. In making such determination, the FRB considers whether the performance
of these activities by a bank holding company can reasonably be expected to
produce benefits to the public which outweigh the possible adverse effects. The
FRB has by regulation determined that certain activities are closely related to
banking within the meaning of the Holding Company Act. These activities include,
among others, operating a mortgage, finance, credit card or factoring company;
performing certain data processing operations; providing investment and
financial advice, acting as an insurance agent for certain types of
credit-related life insurance; leasing personal property on a full payout,
non-operating basis; and certain stock brokerage and investment advisory
services.
-41-
<PAGE>
Under the policy of the FRB with respect to bank holding company
operations, a bank holding company is deemed to serve as a source of financial
strength to its subsidiary depository institutions and to commit resources to
support such institutions in circumstances where it might not do so absent such
policy. Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("1991 Banking Law"), a bank holding company is required to guarantee that any
"undercapitalized" (as such term is defined in the statute) insured depository
institution subsidiary will comply with the terms of any capital restoration
plan filed by such subsidiary with its appropriate federal banking agency to the
lesser of (i) an amount equal to 5% of the institution's total assets at the
time the institution became undercapitalized, or (ii) the amount which is
necessary (or would have been necessary) to bring the institution into
compliance with all capital standards as of the time the institution failed to
comply with such capital restoration plan.
In addition, under the Holding Company Act, the Company is required to
file periodic reports of its operations with, and is subject to examination by,
the FRB.
The Company is also under the jurisdiction of the Securities and
Exchange Commission and various state securities commissions for matters related
to the offering and sale of its securities, and is subject to the Securities and
Exchange Commission's rules and regulations relating to periodic reporting,
reporting to shareholders, proxy solicitation and insider trading.
The Company, as an affiliate of the Bank within the meaning of the
Federal Reserve Act, is subject to certain restrictions under the Federal
Reserve Act regarding, among other things, extensions of credit to it by the
Bank and the use of the stock or other securities of the Company as collateral
for loans by the Bank to any borrower. Further, under the Federal Reserve Act
and the FRB regulations, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with
extensions of credit or provisions of property or services. These so-called
"anti-tie-in provisions" generally provide that a bank may not extend credit,
lease or sell property or furnish any service or fix or vary the consideration
for any of the foregoing (or obtain the same from), to a customer on the
condition or requirement that the customer provide some additional credit,
property or service to the bank, the bank's holding company or any other
subsidiary of the bank's holding company, or on the condition or requirement
that the customer not obtain other credit, property or services from a
competitor of the bank, the bank's holding company or any subsidiary of the
bank's holding company.
The Bank
The Bank, as a state-chartered commercial bank, is subject to the New
Jersey Banking Act of 1948, as amended. The Bank is also subject to the
supervision of, and to regular examination by, the New Jersey Department of
Banking ("Department") and the FDIC and is required to furnish periodic reports
to each agency. Although the Bank is not a member of the Federal Reserve System,
it is still subject to substantial regulation by the FRB. The approval of the
Department is necessary for the establishment of any additional branch offices
by any state bank, subject to applicable state law restrictions. Under present
New Jersey Law, the Bank may operate offices at any location in New Jersey
approved by the Department. See "Recent Legislation."
The aspects of the lending and deposits business of the Bank which is
regulated by the above mentioned agencies include, among others, personal
lending and mortgage lending. The operations of the Bank are also subject to
numerous Federal, state and local laws and regulations which set forth specific
restrictions and procedural requirements with respect to the extension of
credit, credit practices, the disclosure of credit terms and discrimination in
credit transactions.
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<PAGE>
State-chartered banks are prohibited from engaging as principals in
activities that are not permitted for national banks, unless: (i) the FDIC
determines the activity would pose no significant risk to the appropriate
deposit insurance fund, and (ii) the bank is, and continues to be, in compliance
with all applicable capital standards. The Bank currently does not engage as
principal in activities not permitted for national banks.
The Bank, as an institution, the deposits of which are insured by the
BIF of the FDIC, is subject to an insurance assessment imposed by the FDIC. The
insurance assessment paid by BIF- insured institutions is determined under a
risk-based assessment system. Under this system, banks pay a semi-annual
assessment at a rate which is based upon the assessment risk classification
assigned to the bank by the FDIC. In determining the assessment risk
classification, the FDIC assigns each bank to one of the three capital groups
and within each capital group to one of the three supervisory subgroups.
Depending upon the assessment risk classification assigned to a bank, the
semi-annual assessments paid by banks range from 0.00% of an institution's
average assessment base for banks assigned to the highest capital group and
highest supervisory subgroup to 0.31% for banks assigned to the lowest capital
group and lowest supervisory subgroup. Banks are notified of the assessment risk
classification by the first day of the month preceding each semi-annual period.
The Bank's current assessment rate is 0.00%.
Under the Community Reinvestment Act, as amended ("CRA"), as
implemented by FDIC regulations, a bank has a continuing and affirmative
obligation consistent with its safe and sound operation to help meet the credit
needs of its entire community, including low- and moderate- income
neighborhoods. CRA 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 CRA. CRA requires the FDIC to assess
an institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution. The CRA requires public disclosure of an institution's CRA rating
and requires that the FDIC provide a written evaluation of an institution's CRA
performance utilizing a four-tiered descriptive rating system. An institution's
CRA rating is considered in determining whether to grant charters, branches and
other deposit facilities, relocations, mergers, consolidations and acquisitions.
Performance less than satisfactory may be the basis for denying an application.
In 1994 and 1995, the Bank received a "needs to improve" rating, which is the
rating immediately below "satisfactory." A continued "needs to improve" rating
could have an effect on the ability of the Bank to expand in the future. The
Company has taken steps to improve the Bank's performance under CRA including
strengthening its ongoing commitment to small business lending and expanding its
commitment to specialized lending to low- and moderate-income areas within the
Company's market areas. While the Company believes that its efforts will be
successful in raising the Bank's CRA rating, there can be no assurances that the
Company's efforts will be successful and that the rating will improve.
Capital Requirements
Effective December 31, 1992, risk-based capital standards issued by
bank regulatory authorities in the United States were fully implemented. These
capital standards attempt to relate a banking company's capital to the risk
profile of its assets and provide the basis for which all banking companies and
banks are evaluated in terms of capital adequacy. The risk-based capital
standards require all banking organizations to meet a minimum ratio of total
capital to risk weighted assets of 8.00% (including certain off-balance sheet
activities, such as standby letters of credit) of which at least 4.00% is
required to be in the form of Tier I capital.
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<PAGE>
A banking organization's qualifying total capital consists of two
components: Tier I capital (core capital) and Tier II capital (supplementary
capital). At least 50% of a banking organization's total regulatory capital must
consist of Tier I capital. Tier I capital is an amount equal to the sum of (i)
common stockholders' equity (including adjustments for any surplus or deficit);
(ii) non-cumulative perpetual preferred stock (plus, for bank holding companies,
cumulative perpetual preferred stock in an amount up to 25% of Tier I capital);
and (iii) the company's minority interest in the equity account of consolidated
subsidiaries, less certain goodwill items.
Tier II capital may consist of a limited amount of subordinated debt
and intermediate-term preferred stock, certain hybrid capital instruments and
other debt securities, perpetual preferred stock and a limited amount of the
allowance for possible loan losses.
Under the risk-weighted capital guidelines, balance sheet assets and
certain off-balance sheet items, such as standby letter of credit, are assigned
to one of four risk-weight categories (0%, 20%, 50% or 100%) according to the
nature of the assets and their collateral or the identity of any obligor or
guarantor. For example, cash is assigned to the 0% risk category, while loans
secured by one-to-four family residences are assigned to the 50% risk category.
The aggregated amount of such assets and off-balance sheet items in each risk
category is adjusted by the risk-weight assigned to that category to determine
weighted values, which are added together to determine the total risk- weighted
assets for the banking organization. Accordingly, an asset, such as a commercial
loan, which is assigned to a 100% risk category is included in risk-weighted
assets at its nominal face value, whereas a loan secured by a single-family
mortgage is included at only 50% of its nominal face value.
Under regulations issued by the FRB, bank holding companies, including
the Company, are required to maintain 3% minimum leverage capital ratio (Tier I
capital, less intangible assets, to total average assets) plus an additional
capital cushion of 100 to 200 basis points (1 - 2%). In order for an institution
to operate at or near the minimum leverage requirements of 3%, the FRB expects
that such institution would have well-diversified risk, no undue interest rate
risk exposure, excellent asset quality, high liquidity and good earnings. In
general, the bank holding company would have to be considered a strong banking
organization, rated in the highest category under the bank holding company
rating system and have no significant plans for expansion. Higher capital ratios
of up to 5% will generally be required if all the above characteristics are not
exhibited, or if the institution is undertaking expansion, seeking to engage in
new activities, or otherwise faces unusual or abnormal risks.
The FDIC adopted a similar rule for insured non-member banks, such as
the Bank, in March 1991. Pursuant to the rule, the FDIC is not precluded from
requiring a bank to maintain a higher capital level based on the institution's
particular risk profile. The FDIC rule provides that institutions not in
compliance with the regulation are expected to be operating in compliance with a
capital plan or agreement with the regulator. If they do not do so, they are
deemed to be engaging in an unsafe and unsound practice and may be subject to
enforcement action. Enforcement actions could include a capital directive, a
cease and desist order, civil monetary penalties, removal and prohibition orders
against institution-affiliated parties, the establishment of restrictions on the
Bank's operations, and appointment of a conservator or receiver. Failure to
maintain capital of at least 2% of assets constitutes an unsafe and unsound
condition justifying termination of FDIC insurance.
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<PAGE>
The 1991 Banking Law requires each federal Banking agency including the
Board of Governors of the FRB to revise its risk-based capital standards to
ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional activities, as
well as reflect the actual performance and expected risk of loss on multi-family
mortgages. All of the bank regulatory agencies recently issued a final rule that
amends their capital guidelines for interest rate risk and requires such
agencies to consider in their evaluation of a bank's capital adequacy the
exposure of a bank's capital and economic value to changes in interest rates.
This final rule does not establish an explicit supervisory threshold. The
agencies intend, at a subsequent date, to incorporate explicit minimum
requirements for interest rate risk into their risk based capital standards and
have proposed a supervisory model to be used together with bank internal models
to gather data and hopefully propose at a later date explicit minimum
requirements. This law also requires each federal Banking agency, including the
FRB, to specify, by regulation, the levels at which an insured institution would
be considered "well-capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," or "critically undercapitalized." At December
31, 1995, the Bank and the Company each met the regulatory definition of a
"well-capitalized" financial institution, i.e., a leverage capital ratio
exceeding 5%, and a Tier I risk-based capital ratio exceeding 6%, and a total
risk-based capital ratio exceeding 10%.
Recent Legislation
On September 29, 1994, the President signed into law the "Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994" (the "Interstate Act").
Among other things, the Interstate Act permits bank holding companies to acquire
banks in any state one year after enactment. Beginning June 1, 1997, a bank may
merge with a bank in another state so long as both states have not opted out of
interstate branching between the date of enactment of the Interstate Act and May
31, 1997. States may enact laws opting out of interstate branching before June
1, 1997, subject to certain conditions. States may also enact laws permitting
interstate merger transactions before June 1, 1997 and host states may impose
conditions on a branch resulting from an interest merger transaction that occurs
before June 1, 1997, if the conditions do not discriminate against out-of-state
banks, are not preempted by Federal law and do not apply or require performance
after May 31, 1997. Interstate acquisitions and mergers would both be subject,
in general, to certain concentration limits and state entry rules relating to
the age of the bank.
Under the Interstate Act, the Federal Deposit Insurance Act is amended
to permit the responsible Federal regulatory agency to approve the acquisition
of a branch of an insured bank by an out-of-state bank or bank holding company
without the acquisition of the entire bank or the establishment of a "de novo"
branch only if the law of the state in which the branch is located permits
out-of-state banks to acquire a branch of a bank without acquiring the bank or
permits out-of-state banks to establish "de novo" branches.
New Jersey currently has legislation pending opting-in early to
interstate bank mergers and allowing out-of-state banks and bank holding
companies to branch in New Jersey by the acquisition of a branch without the
acquisition of the entire bank and by the establishment of a "de novo" branch.
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<PAGE>
On September 23, 1994, the President signed into law the "Riegle
Community Development and Regulatory Improvement Act of 1994" (the "Development
Act"). Among other things, the Development Act establishes a $382 million fund
(the "Fund") to promote economic development and credit availability in
underserved communities by providing financial and technical assistance to
community development financial institutions ("CDFIs").
CDFIs include banks, savings associations and bank holding companies
which have a primary mission of promoting community development. Institutions
receiving monies from the Fund will be required to provide matching funds dollar
for dollar. Under the Fund, a CDFI may receive up to $5 million over a
three-year period, with affiliates in other states not presently served eligible
to receive up to an additional $3.75 million over three years.
One third of the Fund will be used to finance the Bank Enterprise Act,
an existing (but previously unfunded) incentive program designed to encourage
depository institutions to increase funding in distressed neighborhoods.
In addition to the above, the Development Act contains provisions
relating to, among others, small business capital formation, small business loan
securitization, consumer protection for "reverse mortgages," paperwork reduction
and reform of the national flood insurance program.
The foregoing is a summary and general description of certain
provisions of each of the Interstate Act and the Development Act and does not
purport to be complete. Many of the provisions of each will be implemented
through the adoption of regulations by the various Federal banking agencies.
Moreover, many of the significant provisions of the legislation have not yet
become effective. As of the date hereof, the Company is continuing to study the
legislation and regulations relating to the legislation but cannot yet assess
its impact on the Company.
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<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
executive officers and directors of the Company and the Bank. The directors each
serve for a one year term and until their successors are elected and qualified.
Except for Mr. Bosma who became a director in 1991, each of the directors of the
Company has served in such capacity since the formation of the Company in 1984.
Each director of the Company is also a director of the Bank. Officers of the
Company and the Bank serve at the discretion of their respective Boards of
Directors.
<TABLE>
<CAPTION>
Age as of Position with the Company
Name December 31, 1995 and/or Bank
- ------------------- ----------------- -------------------------
<S> <C> <C>
James R. Napolitano 53 Chairman of the Board and
Principal Executive Officer of
the Company and Bank
A. Roger Bosma 53 President of the Company and
Bank; Chief Credit Officer of
the Bank; Director of the
Company and Bank
Joseph LoScalzo 61 Director of the Company and
Bank
Esko J. Koskinen 71 Director of the Company and
Bank
William F. Dator 52 Director of the Company and
Bank
Julius J. Franchini 60 Director of the Company and
Bank
Robert F. Frasco 63 Director of the Company and
Bank
Robert O. Hagman 70 Director of the Company and
Bank
Joseph A. Haynes 53 Director of the Company and
Bank
Kevin J. Killian 39 Executive Vice President,
Chief Financial Officer and
Secretary of the Company and
the Bank
Patrick W. Thaller 52 Executive Vice President and
Chief Lending Officer of the
Bank
</TABLE>
-47-
<PAGE>
Except as noted below, each of the directors and officers of the
Company and Bank has had the same principal occupation or employment for at
least the past five years.
Mr. Napolitano has been Chairman of the Board of the Company since 1984
and Bank since 1975. In April, 1991 in his capacity as Chairman of the Board,
Mr. Napolitano assumed executive officer responsibilities at the Company and
Bank. In July 1995, Mr. Napolitano assumed the Principal Executive Officer's
function of the Company and the Bank. In addition to his duties at the Company
and Bank, he continues to have a limited law practice with the law firm of
Napolitano & Napolitano, Esquire, Ramsey, New Jersey, of which he is a partner.
Mr. Bosma has served as President of the Company and Bank since March
18, 1991, Chief Executive Officer of the Company and Bank from March 18, 1991 to
July, 1995 and Chief Credit Officer of the Bank since July 1995. Prior thereto,
he served as a Senior Vice President of Credit at First Fidelity Bancorp
responsible for establishing credit policy and credit training since 1985.
Mr. LoScalzo is President of LoScalzo Builders, Ltd., Allendale, New
Jersey.
Mr. Koskinen is President of Greenway Construction Co., Inc., Montvale,
New Jersey.
Mr. Dator is Partner of The Dator Commercial Agency, Inc. (Real
Estate), Mahwah, New Jersey.
Mr. Franchini is President of Lynn Chevrolet, Inc., Kearny, New Jersey
and President of Franchini Chevrolet, Inc., Garfield, New Jersey.
Mr. Frasco is President of Frasco Enterprises (Real Estate), Mahwah,
New Jersey.
Mr. Hagman is a Partner of CSA Equipment Company, Floral Park, New
Jersey.
Mr. Haynes is a Registered Representative of Smith Barney, Paramus, New
Jersey.
Mr. Killian joined the Company and Bank in March, 1992. Prior to that
time for more than five years, he was employed in various positions by First
Fidelity Bank, N.A., including Assistant Vice President - Budget Manager, Vice
President - Division Controller and Vice President Corporate Budget Manager.
Mr. Thaller joined the Bank in July, 1995. Prior to that time for more
than five years, he was employed in various positions by the Bank of New York,
N.A. and its predecessor, National Community Bank of New Jersey, including
President, Northeast Region and Senior Officer of Banking Group and Executive
Vice President.
-48-
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus with respect to the beneficial ownership of the Company Common Stock
and/or Series A Preferred Stock by (i) the persons known by the Company to be
beneficial owners of more than five percent of its Common Stock and/or Series A
Preferred Stock, (ii) by each director of the Company, and (iii) by all
directors and executive officers of the Company, as a group. Except as otherwise
noted, each beneficial owner listed has sole investment and voting power with
respect to the Common Stock and/or Series A Preferred Stock. See "Description of
Securities - Series B Non-Convertible Preferred Stock" for a description of the
Company securities beneficially owned by Commerce Bancorp, Inc.
<TABLE>
<CAPTION>
Common Stock Series A Preferred Stock
---------------------- --------------------
Shares Shares
Beneficially Percent Beneficially Percent
Name and Address of Beneficial Owner Owned (A) of Class Owned (A) of Class
------------------------------------ ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Independence Employee Stock Ownership Plan
1100 Lake Street
Ramsey, NJ 07446................................. 374,774 (b) 22.2 187,387 24.1
Robert F. and Linda Frasco
53 Indianfield Court
Mahwah, NJ 07430................................ 110,299 (c) 8.1 22,500 2.9
Julius J. Franchini
461 Kearny Avenue
Kearny, NJ 07032................................ 92,714 (d) 6.9 8,900 1.1
Thomas E. and Barbara L. Napolitano
18 Lancaster Court
Ramsey, NJ 07446................................ 76,256 (e) 5.7 12,500 1.6
James R. and Catherine Napolitano
754 Barnstable Lane
Franklin Lakes, NJ 07417........................ 68,788 (f) 5.2 7,834 1.0
A. Roger Bosma.................................... 13,760 (g) 1.0 1,650 *
Joseph LoScalzo................................... 49,407 (h) 3.7 7,710 1.0
Esko J. Koskinen.................................. 58,009 (i) 4.3 9,300 1.2
William F. Dator.................................. 10,043 (j) * -- --
Robert O. Hagman.................................. 25,667 (k) 1.9 7,000 *
Joseph A. Haynes.................................. 28,315 (l) 2.1 6,250 *
All directors and executive officers of
the Company as a group (12 persons).............. 463,916 (m) 30.8 72,144 9.3
</TABLE>
- --------
*less than 1%
(a) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in
the regulations of the Securities and Exchange Commission and,
accordingly, may include securities owned by or for, among others, the
wife and/or minor children of the individual and any other relative who
has the same home as such individual, as well as other securities as to
which the individual has or shares voting or investment power or has
the right to acquire within 60 days after the date of this Prospectus.
Beneficial ownership may be disclaimed as to certain of the securities.
-49-
<PAGE>
(b) Includes 187,387 shares of Common Stock which can be acquired upon the
conversion of the Series A Preferred Stock and 187,387 shares which can
be acquired upon the exercise of the Common Stock Purchase Rights
included with the Series A Preferred Stock.
(c) Includes 22,500 shares which could be acquired upon the conversion of
the Series A Preferred Stock and 22,500 shares which could be acquired
upon the exercise of the Common Stock Purchase Rights included with the
Series A Preferred Stock. Includes 4,025 shares which could be acquired
upon the exercise of options granted under the 1990 Stock Option Plan
for Non-Employee Directors, as amended (the "1990 Plan").
(d) Includes 8,900 shares which could be acquired upon the conversion of
the Series A Preferred Stock and 8,900 shares which could be acquired
upon the exercise of the Common Stock Purchase Rights included with the
Series A Preferred Stock. Includes 4,025 shares which may be acquired
upon the exercise of options granted under the 1990 Plan.
(e) Includes 12,500 shares which could be acquired upon conversion of the
Series A Preferred Stock and 12,500 shares which could be acquired upon
the exercise of the Common Stock Purchase Rights included with the
Series A Preferred Stock.
(f) Includes 39,195 shares held jointly by Mr. Napolitano and his wife.
Includes 6,326 shares held by Mr. Napolitano's wife and children.
Includes 2,386 shares which could be acquired upon the conversion of
the Series A Preferred Stock and 2,386 shares which could be acquired
upon the exercise of the Common Stock Purchase Rights included with the
Series A Preferred Stock. Includes 5,448 shares held by Mr.
Napolitano's wife which can be acquired upon the conversion of the
Series A Preferred Stock and 5,448 shares which could be acquired upon
the exercise of the Common Stock Purchase Rights included with the
Series A Preferred Stock. Does not include 79,200 shares held by
relatives of Mr. Napolitano as to which he disclaims beneficial
ownership. Includes 525 shares which may be acquired upon the exercise
of options granted under the 1990 Plan. Includes 3,500 shares which may
be acquired upon the exercise of options granted under the 1986 Stock
Option Plan.
(g) Includes 1,000 shares which could be acquired upon the conversion of
the Series A Preferred Stock and 1,000 shares which could be acquired
upon the exercise of the Common Stock Purchase Right included with the
Series A Preferred Stock. Includes 650 shares held by Mr. Bosma's wife
and children which can be acquired upon the conversion of the Series A
Preferred Stock and 650 shares which could be acquired upon the
exercise of the Common Stock Purchase Rights included with the Series A
Preferred Stock. Includes 10,250 shares which may be acquired upon the
exercise of options granted under the 1986 Stock Option Plan.
(h) Excludes 2,714 shares held by or on behalf of Mr. LoScalzo's children
as to which he disclaims beneficial ownership. Includes 4,025 shares
which may be acquired upon the exercise of options granted under the
1990 Plan. Includes 7,085 shares which could be acquired upon the
conversion of the Series A Preferred Stock and 7,085 shares which could
be acquired upon the exercise of the Common Stock Purchase Rights
included with the Series A Preferred Stock. Includes 625 shares held by
Mr. LoScalzo's wife which can be acquired upon the conversion of the
Series A Preferred stock and 625 shares which could be acquired upon
the exercise of the Common Stock Purchase Rights included with the
Series A Preferred Stock.
(i) Includes 34,308 shares held by Greenway Construction Profit Sharing
Plan of which Mr. Koskinen is a trustee. Includes 7,000 shares held by
Greenway Construction Profit Sharing Plan which could be acquired upon
the conversion of the Series A Preferred Stock and 7,000 shares which
-50-
<PAGE>
could be acquired upon the exercise of the Common Stock Purchase Rights
included with the Series A Preferred Stock. Includes an additional
1,550 shares which could be acquired upon the conversion of the Series
A Preferred Stock and 1,550 which could be acquired upon the exercise
of the Common Stock Purchase Rights included with the Series A
Preferred Stock. Includes 750 shares held by Mr. Koskinen's wife which
could be acquired upon the conversion of the Series A Preferred Stock
and 750 shares which could be acquired upon the exercise of the Common
Stock Purchase Rights included with the Series A Preferred Stock. Does
not include 5,201 shares held by relatives of Mr. Koskinen as to which
he disclaims beneficial ownership. Includes 4,025 shares which may be
acquired upon the exercise of options granted under the 1990 Plan.
(j) Includes 393 shares which are held by Mr. Dator's wife as custodian for
Mr. Dator's children. Excludes 921 shares held by Mr. Dator's children.
Mr. Dator disclaims beneficial ownership with respect to these shares.
Includes 4,025 shares which may be acquired upon the exercise of
options granted under the 1990 Plan.
(k) Includes 7,000 shares which could be acquired upon the conversion of
the Series A Preferred stock and 7,000 shares which could be acquired
upon the exercise of the Common Stock Purchase Rights included with the
Series A Preferred Stock. Includes 4,025 shares which may be acquired
upon the exercise of options granted under the 1990 Plan.
(l) Excludes 53 shares held by the son of Mr. Haynes. Mr. Haynes disclaims
beneficial ownership with respect to these shares. Includes 6,250
shares which could be acquired upon the conversion of the Series A
Preferred Stock and 6,250 shares which could be acquired upon the
exercise of the Common Stock Purchase Rights included with the Series A
Preferred Stock. Includes 4,025 shares which may be acquired upon the
exercise of options granted under the 1990 Plan.
(m) Includes 72,144 shares which could be acquired upon the conversion of
the Series A Preferred Stock and 72,144 shares which could be acquired
upon the exercise of the Common Stock Purchase Rights included with the
Series A Preferred Stock. Includes 18,625 shares which may be acquired
upon the exercise of options granted under the 1986 Stock Option Plan.
Includes 28,700 shares which may be acquired upon the exercise of
options granted under the 1990 Plan.
-51-
<PAGE>
DESCRIPTION OF SECURITIES
The following statements are summaries of certain provisions of the
Company's capital stock and are qualified in their entirety by reference to the
complete text of the Company's Certificate of Incorporation, as amended (the
"Certificate"), a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Company is authorized to issue 5,000,000 shares of Common Stock,
par value $1.667 per share, and 1,000,000 shares of Preferred Stock, without par
value.
Under the Certificate, the Board of Directors is authorized, without
further stockholder action, to provide for the issuance of the Preferred Stock
in one or more classes or series within any class or classes, with such
designations, preferences, qualifications, limitations and special or relative
rights, if any, as may be designated by the Board of Directors. The authority of
the Board of Directors includes, but is not limited to, the determination or
fixing of the following with respect to shares of each class or any series
thereof: (i) the voting rights and powers, if any, (ii) the rates and times at
which, and the terms and conditions on which, dividends, if any, will be paid,
and any dividend preferences or rights of cumulation, (iii) whether shares shall
be convertible or exchangeable, and, if so, the terms and provisions thereof,
(iv) whether shares shall be redeemable, and, if so, the terms and conditions
thereof, and (v) the rights and preferences (if any) upon the voluntary or
involuntary dissolution, liquidation or winding up of the Company.
Series A Preferred Stock
Pursuant to its authority under the Certificate, the Board of Directors
of the Company has authorized the issuance of 776,875 shares of the Series A
Preferred Stock, all of which is issued and outstanding.
Dividends. Holders of the Series A Preferred Stock are entitled to
cumulative dividends accruing from the date of issue, when, as and if declared
by the Board of Directors out of funds legally available therefor, at the annual
rate of $0.72 per share. For information regarding certain restrictions on the
payment of dividends, see "Dividends." Subject to change by the Board of
Directors, dividends are payable quarterly on the thirtieth day of January,
April, July, and October, to holders of record as they appear on the record
books of the Company on the last day of the month preceding the month in which
the dividend is payable. If all accrued dividends on the Series A Preferred
Stock have not been paid or set apart for payment, (i) no dividends or other
distributions may be paid or set apart for payment on the Common Stock or any
other class of capital stock ranking on parity with or junior to the Series A
Preferred Stock as to dividends or other distributions, (ii) the Company is
prohibited from repurchasing, redeeming or otherwise acquiring Common Stock or
any other class of capital stock ranking on parity with or junior to the Series
A Preferred Stock as to dividends and other distributions, and (iii) the Company
is prohibited from issuing any preferred stock which ranks senior to or on
parity with the Series A Preferred Stock.
Liquidation. In the event of any liquidation, dissolution or winding up
of the affairs of the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Company, the
holders of the Series A Preferred Stock are entitled to receive, out of the
assets of the Company legally available for distribution to its shareholders,
-52-
<PAGE>
the amount of $8.00 in cash for each share of the Series A Preferred Stock, plus
an amount equal to all dividends accrued and unpaid on each such share up to the
date fixed for distribution, before any distribution may be made to the holders
of the Company's Common Stock or any other class of capital stock ranking junior
to the Series A Preferred Stock as to dividends or other distributions. If,
after payment or provision for payment of the debts and other liabilities of the
Company, the remaining net assets of the Company are not sufficient to pay the
holders of the Series A Preferred Stock and preferred stock of all other series
ranking on parity with the Series A Preferred Stock as to dividends and other
distributions the full amounts of their respective preferences, the holders of
the Series A Preferred Stock and preferred stock of all such other series would
share ratably in any distribution of assets.
Redemption. The Series A Preferred Stock is redeemable in whole or in
part, at the option of the Company, at the following redemption prices per share
during the following periods:
If Redeemed in the
12-Month Period Then the Redemption
Beginning October 31, Price Shall Be
---------------------- -------------------
1995 $ 8.30
1996 and thereafter $ 8.00
plus in each case any accumulated and unpaid dividends to the date fixed for
redemption.
If less than all of the outstanding shares of the Series A Preferred
Stock are to be redeemed, redemption may be by lot, pro rata or any other means
which the Board of Directors of the Company determines to be equitable. All
rights of the holders of the Series A Preferred Stock called for redemption
shall cease on the date fixed for redemption (or, except for any rights of
conversion, on any prior date on which the redemption price plus accumulated and
unpaid dividends are deposited in trust).
Notice of redemption must be mailed at least 30 days but not more than
60 days prior to the redemption date to each holder of shares of the Series A
Preferred Stock to be redeemed at their respective addresses as shown on the
record books of the Company.
The Series A Preferred Stock is not subject to any mandatory
redemption, sinking fund or other similar provisions.
Conversion. At any time prior to redemption, shares of the Series A
Preferred Stock are convertible at the option of the holders thereof into Common
Stock at the conversion rate of one share of Common Stock for each share of the
Series A Preferred Stock, except that, with respect to shares of the Series A
Preferred Stock called for redemption, the right to convert shall cease at the
close of business on the redemption date. No payment or adjustment on account of
dividends accrued or in arrears will be made on the shares of the Series A
Preferred Stock surrendered for conversion.
-53-
<PAGE>
The conversion rate is subject to adjustment in the event of payment of
a dividend in shares of capital stock of the Company, any subdivision or
combination of the Common Stock or a reclassification of the Common Stock. The
conversion rate also will be adjusted in case of any issuance of rights to
holders of Common Stock to subscribe for shares of Common Stock at less than
current market price or any distribution to holders of Common Stock of evidences
of indebtedness or assets.
No fractional shares will be issued on conversion, but if such
conversion results in a fraction, a cash adjustment will be paid.
Voting Rights. Except under the limited circumstances described below
and as required by applicable law, the Series A Preferred Stock has no voting
rights.
If there is a default in the payment of full dividends on the Series A
Preferred Stock for six non-consecutive quarterly dividend periods or four
consecutive quarterly dividend periods, the holders of the Series A Preferred
Stock will be entitled to notice of all meetings of the Company and to full
voting rights (together with the holders of Common Stock but not as a separate
class unless otherwise required by law) at all meetings and on all matters, and
each holder of shares of the Series A Preferred Stock will be entitled to one
vote for all full shares of Common Stock into which the aggregate number of
shares of Series A Preferred Stock held are convertible as of the record date
for such vote. All such voting rights will terminate when all defaults in such
dividends have been cured and the dividend for the then current quarterly
dividend period has been paid or declared and set apart for payment.
If any amendment to the Company's Certificate would amend, alter or
repeal any of the preferences, special rights or powers of the Series A
Preferred Stock, authorize any reclassification of the Series A Preferred Stock,
or create any class of stock having a dividend payment or liquidation payment
preference equal or superior to the Series A Preferred Stock, then the
affirmative vote of the holders of two-thirds of all outstanding shares of the
Series A Preferred Stock, voting as a separate class, would be required for its
adoption.
Common Stock Purchase Rights. Each full share of Series A Preferred
Stock entitles the holder thereof to purchase, upon exercise thereof, one fully
paid and nonassessable share of Common Stock for $9.60 per share until the
earlier to occur of 5:00 P.M., New York time, on October 31, 1997, the
redemption of the Series A Preferred Stock or the conversion of the Series A
Preferred Stock, when such rights will expire. The Common Stock Purchase Rights
exercise price and the number and type of shares to be issued on exercise
thereof are subject to adjustments under certain circumstances including the
payment of a dividend in shares of capital stock of the Company, any subdivision
or combination of the Common Stock, a reclassification of the Common Stock and
in the event the Company issues additional shares of common stock at a price
below the then current exercise price.
The Common Stock Purchase Rights are evidenced only by a legend on the
Series A Preferred Stock certificate. The Common Stock Purchase Rights may be
combined, exchanged or transferred upon the records of the Company only with the
Series A Preferred Stock and the Common Stock Purchase Rights may not be split
up, combined, exchanged or transferred separately upon the records of the
Company.
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<PAGE>
The Common Stock Purchase Rights may be exercised by surrendering the
Series A Preferred Stock certificate at the offices of the Company (or if the
Company has a transfer agent, the offices of the Company's transfer agent)
together with written notice to the Company (or the Company's transfer agent)
that the holder elects to exercise the rights, the number of shares of Common
Stock desired to be purchased and the applicable rights purchase price.
Fractional shares of the Company's Common Stock will not be issued upon
the exercise of the Common Stock Purchase Rights but cash will be paid in lieu
of fractional shares.
Other. The holders of the Series A Preferred Stock are not entitled to
any preemptive rights. Shares of the Series A Preferred Stock redeemed or
converted shall be deemed to be authorized and unissued shares of preferred
stock.
Series B Non-Convertible Preferred Stock
Pursuant to its authority under the Certificate, the Board of Directors
of the Company has authorized the issuance of 217,500 shares of the Series B
Non-Convertible Preferred Stock ("Series B Preferred Stock"), none of which is
issued and outstanding. Commerce Bancorp, Inc. owns 30,000 shares of Series A
Preferred Stock and 187,500 Stock Purchase Warrants ("Warrants") which expire on
October 31, 1997 and prior thereto are exercisable at $9.60 per share (subject
to adjustment under certain circumstances). The Warrants and Common Stock
Purchase Rights attached to the Series A Preferred Stock owned by Commerce are
exercisable only into shares of the Series B Preferred Stock. Commerce Bancorp,
Inc. also beneficially owns [ ] shares of Common Stock.
Dividends. Holders of the Series B Preferred Stock are entitled to
non-preferential dividends, when, as and if declared by the Board of Directors
out of funds legally available therefor, at the same rate as are declared and
paid to holders of the Company's Common Stock. For information regarding certain
restrictions on the payment of dividends, see "Dividends." Dividends on each
share of Series B Preferred Stock outstanding shall not be cumulative. Dividends
(whether in cash, stock or otherwise) shall not be declared and paid on the
Company's Common Stock without the declaration and payment of equivalent
dividends on the Series B Preferred Stock. Holders of the Series B Preferred
Stock shall be entitled to participate in any dividends or other distributions
(whether in cash, stock or otherwise) declared and paid on or with respect to
any Common Stock ratably with any Common Stock.
Liquidation. In the event of any liquidation, dissolution or winding up
of the affairs of the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Company, and
subject to the rights of the holders of any stock of the Company ranking senior
to the Series B Preferred Stock in respect of distributions upon liquidation,
dissolution or winding up of the Company, such as the Series A Preferred Stock,
the holders of the outstanding Series B Preferred Stock shall be entitled to
receive and share ratably with any distribution of assets to be made to the
holders of any Common Stock.
Voting Rights. Except under the limited circumstances described below
and as required by applicable law, the Series B Preferred Stock has no voting
rights.
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<PAGE>
If any amendment to the Company's Certificate would amend, alter or
repeal any of the preferences, special rights or powers of the Series B
Preferred Stock or authorize any reclassification of the Series B Preferred
Stock then the affirmative vote of the holders of two-thirds of all outstanding
shares of the Series B Preferred Stock, voting as a separate class, would be
required for its adoption.
Ranking. The Series B Preferred Stock shall rank junior to the Series A
Preferred Stock and on parity with the Company's Common Stock as to the payment
of dividends and the distribution of assets on liquidation, dissolution and
winding up of the Company, and, unless otherwise provided in the Certificate of
Incorporation of the Company, as amended, or a Certificate of Designations
relating to a subsequent series of preferred stock of the Company, the Series B
Preferred Stock shall rank junior to all other series of the Company's preferred
stock, as to the payment of dividends and the distribution of assets on
liquidation, dissolution or winding up.
Other. The holders of the Series B Preferred Stock are not entitled to
any preemptive rights. The shares of Series B Preferred Stock shall not be
redeemable or convertible.
Common Stock
Voting Rights. Holders of Common Stock are entitled to one vote for
each share held and have no cumulative voting rights for the election of
directors.
Dividends. Subject to such preferences, limitations and relative rights
as may be fixed for any series of preferred stock that may be issued, including
the Series A Preferred Stock, holders of Common Stock are entitled to receive
such dividends, when, as and if declared by the Board of Directors out of funds
legally available therefor. For information regarding certain restrictions on
the payment of dividends, see "Dividends."
Liquidation. In the event of liquidation, after payment or provision
for payment of all debts and liabilities and subject to the rights of any series
of preferred stock which may be outstanding, including the Series A Preferred
Stock, holders of Common Stock would share pro rata in all assets distributable
to shareholders in respect of shares held by them.
Other. Holders of Common Stock have no preemptive rights. The shares of
Common Stock issuable upon conversion of the Series A Preferred Stock and the
exercise of the Common Stock Purchase Rights will, when issued, be validly
issued, fully paid and non-assessable.
Transfer Agent
The transfer agent, conversion agent or registrar for the Series A
Preferred Stock and the transfer agent and registrar for the Common Stock
issuable upon conversion of the Series A Preferred Stock and issuable upon the
exercise of the Common Stock Purchase Rights is The First National Bank of
Boston.
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<PAGE>
"Anti-Takeover" Provisions and Management Implications
The Certificate contains certain provisions which may be deemed to be
"anti-takeover" in nature in that such provisions may deter, discourage or make
more difficult the assumption of control of the Company by another corporation
or person through a tender offer, merger, proxy contest or similar transaction
or series of transactions.
One of these provisions relates to the ability of the Company to issue
up to 5,000,000 shares of Common Stock (of which 1,312,748 are presently
outstanding) and up to 1,000,000 shares of preferred stock (of which 776,875 are
presently outstanding) with such rights, preferences and limitations as the
Board of Directors may determine. These additional shares of Common Stock and
preferred stock were authorized for the purpose of providing the Company's Board
of Directors with as much flexibility as possible to issue additional shares,
without further shareholder approval, for proper corporate purposes including
financing, acquisitions, stock dividends, stock splits, employee incentive
plans, and other similar purposes. However, these additional shares may also be
used by the Board of Directors (if consistent with its fiduciary
responsibilities) to deter future attempts to gain control over the Company.
A second provision requires the affirmative vote of 80% of the
outstanding shares of capital stock of the Company issued and entitled to vote
to approve any merger or consolidation of the Company or any sale or lease of
substantially all of the Company's assets, unless the transaction is approved by
the Board of Directors.
The overall effect of the foregoing provisions may be to deter a future
tender offer. Shareholders may view any such offer to be in their best interests
should any offer include a substantial premium over the market price of the
Common Stock at that time. In addition, these provisions may have the effect of
assisting the Company's management to retain its position and place it in a
better position to resist changes that the shareholders may want to make if
dissatisfied with the conduct of the Company's business. The Board of Directors
of the Company does not presently know of a third party that plans to make an
offer to acquire the Company through a tender offer, merger or purchase of
substantially all of the assets of the Company.
-57-
<PAGE>
REDEMPTION OF SERIES A PREFERRED STOCK
The Company has called for redemption at the close of business on [ ],
1996 (the "Redemption Date"), [ ] of the Company's outstanding Series A
Preferred Stock. Pursuant to the terms of the Series A Preferred Stock, holders
of the Series A Preferred Stock will be entitled to receive upon redemption a
total redemption price of $[ ] (the "Redemption Price") for each share of Series
A Preferred Stock which equals the redemption price of $8.30 plus accrued
dividends of $[ ] from [ ], 199[ ].
Payment of the Redemption Price will be made by the Transfer Agent, on
and after the Redemption Date, upon receipt of the Series A Preferred Stock so
redeemed. On and after the Redemption Date, dividends will cease to accrue and
holders of Series A Preferred Stock will not have any rights as such holders
other than the right to receive $[ ] per share of Series A Preferred Stock upon
surrender for redemption. As a result of the foregoing call for redemption, the
Common Stock Purchase Rights attached to the shares of Series A Preferred Stock
called for redemption will expire on the earlier of the date the Series A
Preferred Stock is converted or the Redemption Date, after which time such
Common Stock Purchase Rights will be null and void.
The following alternatives are available with respect to holders of
Series A Preferred Stock:
(1) Convert the Series A Preferred Stock at a conversion ratio
of one share of Common Stock for each share of Series A Preferred
Stock. On [ ], 1996, the closing sale price of the Common Stock, as
reported on the NASDAQ National Market was $[ ] per share. Upon
conversion of the Series A Preferred Stock, no payment or adjustment
will be made in respect of accrued dividends. THE CONVERSION RIGHT
EXPIRES AT THE CLOSE OF BUSINESS (5:00 P.M. NEW YORK CITY TIME) ON THE
REDEMPTION DATE, [ ], 1996; or
Based on the above-stated last sale price of the Common Stock
on [ ], 1996, the market value of the Common Stock into which each
share of Series A Preferred Stock is convertible is approximately $[ ],
or considerably higher than the amount to be received upon redemption.
Such value is, of course, subject to change depending on the market
price of the Common Stock. SO LONG AS THE MARKET PRICE OF THE COMMON
STOCK IS HIGHER THAN $[ ] PER SHARE, A HOLDER WHO CONVERTS HIS SERIES A
PREFERRED STOCK WILL RECEIVE COMMON STOCK WITH A MARKET VALUE GREATER
THAN THE AMOUNT OF CASH RECEIVABLE UPON REDEMPTION OF THE SERIES A
PREFERRED STOCK.
(2) Exercise the Common Stock Purchase Right at an exercise
price of $9.60 per share of Common Stock. On [ ], 1996, the closing
sale price of the Common Stock, as reported on the NASDAQ National
Market was $[ ] per share. THE EXERCISE RIGHT EXPIRES AT THE CLOSE OF
BUSINESS (5:00 P.M., NEW YORK CITY TIME) ON THE REDEMPTION DATE, [ ],
1996; or
-58-
<PAGE>
Based on the above-stated sale price of the Common Stock on
[ ], 1996, the market value of the Common Stock purchasable upon the
exercise of the Common Stock Purchase Right is approximately $[ ], or
considerably higher than the amount to be paid upon exercise. Such
value is, of course, subject to change depending on the market price of
the Common Stock. SO LONG AS THE MARKET PRICE OF THE COMMON STOCK IS
HIGHER THAN $[ ] PER SHARE, A HOLDER WHO EXERCISES HIS COMMON STOCK
PURCHASE RIGHTS WILL RECEIVE COMMON STOCK WITH A MARKET VALUE GREATER
THAN THE AMOUNT PAID UPON EXERCISE OF THE COMMON STOCK PURCHASE RIGHT.
(3) Sell the Series A Preferred Stock (which includes the
Common Stock Purchase Rights attached thereto) in the open market.
Holders of Series A Preferred Stock should consult with their own
advisers regarding if and when they should sell their Series A
Preferred Stock and the tax consequences thereof.
(4) Accept the Redemption Price of $[ ] for each share of
Series A Preferred Stock called for redemption.
(5) Do not exercise the Common Stock Purchase Right.
SERIES A PREFERRED STOCK NOT RECEIVED FOR CONVERSION PRIOR TO THE CLOSE
OF BUSINESS ON [ ], 1996 WILL BE REDEEMED AS SET FORTH ABOVE.
COMMON STOCK PURCHASE RIGHTS NOT EXERCISED PRIOR TO THE CONVERSION OR
REDEMPTION OF THE SERIES A PREFERRED STOCK TO WHICH THEY ARE ATTACHED WILL BE
NULL AND VOID.
-59-
<PAGE>
Anyone with questions or needing assistance concerning the various
options available with respect to the Series A Preferred Stock called for
redemption should call (201) 825-1000 and ask to speak to Kevin J. Killian,
Executive Vice President, or call the Transfer Agent, [ ], at [ ] and ask to
speak to [ ] about the various options.
The Company's Employee Stock Ownership Plan and
Directors and Officers of the Company.
The Company's Employee Stock Ownership Plan ("ESOP") currently owns
187,387 shares of Series A Preferred Stock. All shares of Series A Preferred
Stock which are owned by the Company's ESOP and are called for redemption (i.e.,
[ ] shares) will be converted into shares of Common Stock. The Company's ESOP
has also indicated that it intends to fully exercise all Common Stock Purchase
Rights attached to the shares of Series A Preferred Stock called for redemption.
In order to fund the exercise of such Common Stock Purchase Rights, the ESOP has
received and accepted a commitment from Commerce Bank, N.A. for an additional
loan to finance the purchase by the ESOP of the common stock to be purchased
upon exercise of their Common Stock Purchase Rights. Commerce Bank, N.A. had
originally lent to the ESOP $1.5 million to finance the purchase by the ESOP of
the original 187,500 shares of Series A Preferred Stock purchased by the ESOP in
1992. This additional commitment from Commerce Bank, N.A. will be a five year
term loan requiring nineteen quarterly payments of principal and interest of
$[ ] and a final balloon payment of the remaining principal balance plus
interest. This loan will be secured by a pledge of the shares of Common Stock
purchased by the ESOP upon the exercise of the Common Stock Purchase Rights. In
addition, the Company will be required to guarantee repayment of the additional
loan and contribute annually to the ESOP in amounts sufficient to pay the
required debt service on this additional loan.
The directors and officers of the Company have indicated their
intention to convert substantially all of the shares of Series A Preferred Stock
owned by them which are called for redemption into Common Stock and exercise
substantially all of the Common Stock Purchase Rights associated with the shares
of Series A Preferred Stock called for redemption. See "Principal Stockholders."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses the federal income tax consequences
of the conversion of Series A Preferred Stock into Common Stock, of the
redemption of Series A Preferred Stock and of the exercise of the Common Stock
Purchase Rights. The discussion is based upon currently existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), existing regulations
thereunder and current administrative rulings and court decisions. The
discussion does not address federal income tax consequences of the sale of the
Series A Preferred Stock or other potentially relevant federal income tax
matters, nor does it address the federal income tax consequences that may be
relevant to particular categories of holders subject to special treatment under
certain federal income tax laws such as dealers in securities, tax-exempt
entities, banks, insurance companies, and foreign individuals and entities.
Accordingly, the federal income tax consequences to a particular holder of a
conversion or redemption of the Series A Preferred Stock and of the exercise of
the Common Stock Purchase Rights may differ from the consequences described
herein. The discussion also does not describe any tax consequences arising out
of the tax laws of any state, locality, or foreign jurisdiction. The following
discussion is for general information only, and holders of Series A Preferred
Stock should consult their own tax advisers about the federal, state, local, and
foreign tax consequences of the conversion or redemption of Series A Preferred
Stock and of the exercise of the Common Stock Purchase Rights.
-60-
<PAGE>
Conversion into Common Stock. Except as discussed below, a holder
generally will recognize no gain or loss for regular federal income tax purposes
on the conversion of Series A Preferred Stock into shares of Common Stock. A
holder's tax basis in shares of Common Stock received upon conversion in the
aggregate will be the same as the holder's tax basis in the Series A Preferred
Stock converted into such shares. If a holder holds Series A Preferred Stock as
a capital asset, the holder's holding period for shares of Common Stock received
upon conversion of the Series A Preferred Stock will include the holder's
holding period for the Series A Preferred Stock.
Redemption. A holder generally will recognize gain or loss equal to the
difference, if any, between the holder's tax basis in the Series A Preferred
Stock and the amount realized by the holder upon the redemption. (The amount
realized for purposes of determining gain or loss will not include the amount
paid in connection with the redemption for accrued dividends, which will be
taxable as dividend income.) Gain or loss resulting from redemption of the
Series A Preferred Stock will generally be taxed under Section 302 of the Code
as gain or loss from the sale or exchange of Series A Preferred Stock if the
redemption: (i) results in a "complete termination" of the holder's stock
interest in the Company under Section 302(b)(3) of the Code; (ii) is
"substantially disproportionate" with respect to the holder under Section
302(b)(2) of the Code; or (iii) is "not essentially equivalent to a dividend"
with respect to the shareholder under Section 302(b)(1) of the Code. For
purposes of determining whether any of these tests (the "Section 302 Tests")
have been met, shares considered owned by a holder by reason of certain
constructive ownership rules under the Code, as well as shares actually owned,
must generally be taken into account. A distribution to a shareholder will be
"not essentially equivalent to a dividend" if it results in a "meaningful
reduction" in the shareholder's stock interest in the Company.
If any of the Section 302 Tests are satisfied, the redemption of the
Series A Preferred Stock would generally result in taxable gain or loss to a
holder equal to the difference between the amount of cash received and the
shareholder's tax basis in the Series A Preferred Stock redeemed. Such gain or
loss would be capital gain or loss if the Series A Preferred Stock were held as
a capital asset, and would be long-term capital gain or loss if the holding
period for the Series A Preferred Stock were to exceed one year (determined as
of the Redemption Date). If the redemption does not satisfy any of the Section
302 Tests, the gross proceeds received by the shareholder would be treated as a
distribution taxable as a dividend to the extent of the Company's current and
accumulated earnings and profits (as determined for federal tax purposes) and
any excess would first be treated as a return of the holder's tax basis in the
redeemed shares (to the extent thereof) and then as a gain from a sale or
exchange of the Series A Preferred Stock.
Exercise of Common Stock Purchase Rights. Generally, a holder of Common
Stock Purchase Rights will not recognize any gain or loss on the purchase of
shares of Common Stock for cash upon exercise of the Common Stock Purchase
Rights. The tax basis of the shares received will be equal to the tax basis, as
adjusted, in the Common Stock Purchase Rights so exercised, plus the cash
exercise price. The holding period of the shares received upon exercise of a
Common Stock Purchase Right for cash will not include the period during which
the Common Stock Purchase Right was held, but will commence only upon the
exercise date of the Common Stock Purchase Right.
-61-
<PAGE>
Tax Withholding. Information reporting to the Internal Revenue Service
("IRS") will be required with respect to payments of dividends made on the
Series A Preferred Stock. Under applicable law and regulations, the Company
generally will be required to withhold, and will withhold, 31% of the dividends
paid on the Series A Preferred Stock, unless the holder or other payee furnishes
to the Company his taxpayer identification number (social security number or
employer identification number) and certifies that he is not subject to backup
withholding, and the Company has not been notified by the IRS that the payee has
under-reported interest or dividend payments. Information reporting and
withholding may also be required on the redemption or conversion of Series A
Preferred Stock if the holder fails to furnish his taxpayer identification
number or unless the holder is otherwise exempt from withholding. Similar
information reporting and withholding rules apply with respect to dividends on
and sales of the Common Stock.
STANDBY AND OTHER ARRANGEMENTS
Upon the terms and subject to the conditions contained in the Standby
Agreement, dated [ ], 1996 (the "Standby Agreement"), Janney Montgomery Scott
Inc. (the "Purchaser") has agreed to purchase from the Company (i) such number
of shares of Common Stock which, in the aggregate, would have been issuable upon
conversion of the Series A Preferred Stock surrendered for redemption or not
surrendered for conversion prior to the close of business on the Redemption
Date, and (ii) such number of shares of Common Stock which, in the aggregate,
would have been issuable upon exercise of the Common Stock Purchase Rights
attached to the shares of Series A Preferred Stock which have been called for
redemption but which were not exercised, for a negotiated per share purchase
price based on prevailing market conditions at the time of sale for all shares
of Common Stock sold pursuant to the Standby Agreement less an 8% discount.
The Purchaser may also acquire Series A Preferred Stock in the open
market or otherwise prior to the Redemption Date. The Purchaser has agreed to
convert into Common Stock all Series A Preferred Stock so purchased (and
exercise all related Common Stock Purchase Rights) and all other Series A
Preferred Stock (and all related Common Stock Purchase Rights) it may
beneficially own.
The Standby Agreement provides that the Purchaser will offer any Common
Stock purchased from the Company or acquired on conversion of purchased Series A
Preferred Stock (and upon the exercise of all related Common Stock Purchase
Rights) for resale as set forth on the cover page of this Prospectus. The
Purchaser may also make sales of such shares to certain securities dealers at
prices which may reflect concessions from the prices at which such shares are
then being offered to the public. The amount of such concessions will be
determined from time to time by the Purchaser. The shares of Common Stock so
offered are offered by the Purchaser subject to prior sale, when, as, and if
received by the Purchaser and subject to their right to reject orders in whole
and in part.
Pursuant to the terms of the Standby Agreement and in consideration of
their commitment and obligations thereunder, the Company has agreed to pay to
the Purchaser in addition to the commission referenced above an advisory fee
equal to $75,000 plus their out-of-pocket expenses in connection therewith up to
a maximum of $25,000.
-62-
<PAGE>
The Purchaser may assist in the solicitation of conversions by holders
of Series A Preferred Stock but will receive no commission therefor. The Company
has agreed to indemnify the Purchaser against certain liabilities, including
certain liabilities under the Securities Act, including civil liabilities which
arise out of or are based upon any untrue statement or alleged untrue statement
of certain material facts contained in this Prospectus or the omission or
alleged omission to state herein a material fact required to be stated herein or
necessary to make the statements herein not misleading and certain liabilities
under the Securities Act or to contribute to payments which the Purchaser may be
required to make in respect thereof.
In connection with this offering, the Purchaser and its respective
affiliates may engage in passive market making transactions in the Common Stock
on the NASDAQ National Market in accordance with Rule 10b-6A under the Exchange
Act, as amended, during a period before commencement of offers or sales of the
shares offered hereby. Under Rule 10b-6A, market makers in the Company's Common
Stock who are participating in the underwriting can continue to make a market
during the two day "cooling-off" period prior to the commencement of the
offering at a price no higher than the highest independent bid. The passive
market making transactions must comply with applicable volume and price limits
and be identified as such.
During the 90 days following the effective date of the Registration
Statement, except with the Purchaser's prior written consent and except for (i)
the issuance of the shares of Common Stock pursuant to the Standby Agreement,
(ii) the issuance of Common Stock upon conversion of the Series A Preferred
Stock and/or the issuance of Common Stock upon the exercise of Common Stock
Purchase Rights, and (iii) the issuance of Common Stock or options pursuant to
any existing employee stock option, restricted stock, stock purchase or 401(k)
plans, the Company will not offer for sale, sell, or otherwise dispose of, or
file a registration statement under the Securities Act covering, any shares of
its Common Stock, or sell or grant options, rights, or warrants with respect to,
or securities convertible into, any shares of its Common Stock.
-63-
<PAGE>
LEGAL MATTERS
An opinion will be delivered by Blank Rome Comisky & McCauley, Cherry
Hill, New Jersey and Philadelphia, Pennsylvania to the effect that the shares of
Common Stock will, when issued as contemplated in this Prospectus, be validly
issued, fully paid and non-assessable. Certain legal matters relating to the
standby agreement will be passed upon for the Purchaser by Saul, Ewing, Remick &
Saul, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 appearing in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
-64-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants............................... F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994........... F-2
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993.......................................F-3
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993.................. F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993.......................................F-5
Notes to Consolidated Financial Statements............................. F-6
-65-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Independence Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Independence
Bancorp, Inc. (a New Jersey corporation) and subsidiary as of December 31, 1995
and 1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Independence Bancorp, Inc. and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 10 to the consolidated financial statements, on
January 1, 1994 the Company changed its method of accounting for securities and
in 1995, retroactive to January 1, 1994, its method of accounting for its
Employee Stock Ownership Plan.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 19, 1996
F-1
<PAGE>
INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
==============================================================================
CONSOLIDATED BALANCE SHEETS
==============================================================================
<TABLE>
December 31
- ----------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1995 1994
- ----------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and due from banks (Note 2) .............................................. $20,280 $17,326
Interest bearing deposits in other banks ...................................... 5,811 4,860
Federal funds sold ............................................................ 12,820 8,550
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents ......................................... 38,911 30,736
- ----------------------------------------------------------------------------------------------------------------
Securities (Notes 1 and 3)
Available for sale, at market ............................................ 46,366 3,451
Held to maturity, at cost (market value $90,326 and $104,364) ........... 90,297 112,418
- ----------------------------------------------------------------------------------------------------------------
Total securities .................................................. 136,663 115,869
- ---------------------------------------------------------------------------------------------------------------
Loans (Notes 1, 4 and 5)
Commercial ............................................................... 26,592 27,109
Real estate-construction ................................................. 5,777 2,750
Real estate-commercial ................................................... 44,360 39,803
Real estate-residential .................................................. 29,378 28,205
Installment .................................................................. 36,387 32,591
- ---------------------------------------------------------------------------------------------------------------
Total loans ....................................................... 142,494 130,458
Less:
Allowance for possible loan losses ....................................... 2,694 2,630
- ---------------------------------------------------------------------------------------------------------------
Loans, net ........................................................ 139,800 127,828
- ---------------------------------------------------------------------------------------------------------------
Premises and equipment, net (Notes 1 and 6) ................................... 5,455 5,257
Accrued interest receivable ................................................... 2,759 1,890
Other real estate, net (Notes 1 and 4) ........................................ 1,230 1,148
Other assets .................................................................. 369 523
- ---------------------------------------------------------------------------------------------------------------
Total assets ...................................................... $325,187 $283,251
- ---------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits
Demand (non-interest bearing) ............................................ $80,877 $63,569
Money-market, NOW and super NOW .......................................... 91,293 81,928
Savings .................................................................. 64,928 66,397
Time certificates of $100,000 or more .................................... 13,078 6,047
Other time certificates .................................................. 54,170 47,491
- ---------------------------------------------------------------------------------------------------------------
Total deposits .................................................... 304,346 265,432
- ---------------------------------------------------------------------------------------------------------------
Other liabilities ............................................................. 1,020 1,100
Employee Stock Ownership Plan (ESOP) debt (Note 10) ........................... 1,194 1,307
- ---------------------------------------------------------------------------------------------------------------
Total liabilities ................................................. 306,560 267,839
- ---------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 7)
Stockholders' equity (Notes 8, 9, 10 and 12)
Preferred stock, no par value, 1,000,000 shares authorized .................... --- ---
Cumulative convertible preferred stock, 9% Series A, $1 par value,
776,875 issued and outstanding (liquidation value $6,215) ................ 777 777
Non convertible preferred stock, Series B, $1 stated value,
authorized 217,500 shares, none issued ................................... --- ---
Common stock, par value $1.667 per share, 5,000,000 authorized;
1,312,748 and 1,308,328, respectively, issued and outstanding ............ 2,189 2,182
Additional Paid-In Capital .................................................... 12,970 12,802
Retained earnings ............................................................. 3,594 1,084
Net unrealized holding gain (loss) on securities available for sale,
net of income taxes ...................................................... 291 (126)
Unearned ESOP preferred stock ................................................. (1,194) (1,307)
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity ........................................ 18,627 15,412
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity ........................ $325,187 $283,251
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-2
<PAGE>
INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
===============================================================================
CONSOLIDATED STATEMENTS OF INCOME
===============================================================================
<TABLE>
Year Ended December 31
- --------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C> <C>
Loans .................................................. $12,508 $10,554 $10,885
Securities:
Taxable ........................................... 7,120 6,012 5,092
Tax-exempt ........................................ 83 9 7
Deposits with banks .................................... 245 208 244
Federal funds sold ..................................... 755 290 243
- -------------------------------------------------------------------------------------------------
Total interest income .................................. 20,711 17,073 16,471
- -------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits ................................... 6,007 4,487 4,764
Interest on ESOP loan (Note 10) ....................... 115 123 ---
- -------------------------------------------------------------------------------------------------
Total interest expense ................................. 6,122 4,610 4,764
- -------------------------------------------------------------------------------------------------
Net interest income .................................... 14,589 12,463 11,707
Provision for possible loan losses .......................... 559 1,014 2,635
- -------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses ................................... 14,030 11,449 9,072
- -------------------------------------------------------------------------------------------------
Non-interest income:
Service charges on deposit accounts .................... 1,299 1,154 1,409
Gain on sale of -
Securities ........................................ --- --- 472
Residential mortgage loans and
related servicing rights ......................... 25 3 603
Other income ........................................... 807 900 849
- -------------------------------------------------------------------------------------------------
2,131 2,057 3,333
- -------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits ......................... 5,481 4,900 4,628
Occupancy .............................................. 1,499 1,452 1,396
Equipment .............................................. 1,041 892 788
Other expenses (Note 13) ............................... 3,779 3,756 4,100
- -------------------------------------------------------------------------------------------------
11,800 11,000 10,912
- -------------------------------------------------------------------------------------------------
Income before income taxes ............................. 4,361 2,506 1,493
Income tax provision (Notes 1 and 11) .................. 1,311 823 284
- -------------------------------------------------------------------------------------------------
Net income .................................................. 3,050 1,683 1,209
Dividends on preferred stock (Note 10) ............... 441 432 559
- -------------------------------------------------------------------------------------------------
Net income applicable to common stock ....................... $ 2,609 $ 1,260 $ 650
- -------------------------------------------------------------------------------------------------
Income per common share (Note 1)
Primary ..................................................... $ 1.79 $ 95 $ .50
Fully Diluted ............................................... 1.43 .87 .50
- -------------------------------------------------------------------------------------------------
Average common shares outstanding:
Primary ..................................................... 1,461 1,317 1,306
Fully diluted ............................................... 2,127 1,934 1,306
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-3
<PAGE>
INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES
- -------------------------------------------------------------------------------
IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Unrealized
Cumulative Gain (Loss) Unearned
Convertible Additional Retained on Securities ESOP Total
Preferred Common Paid-In Earnings Available Preferred Stockholders'
(In thousands, except share data) Stock Stock Capital (Deficit) for Sale Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 777 $2,177 $12,790 ($814) $ -- ($1,472) $13,458
Net income-1993 ............................ 1,209 1,209
Cash dividends on preferred stock
($.72 per share) ........................ (559) (559)
Principal payment on ESOP debt ............. 61 61
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 777 2,177 12,790 (164) -- (1,411) 14,169
Net income-1994 ............................ 683 1,683
Cash dividends on preferred stock
($.72 per share) ........................ (432) (432)
Common stock issued pursuant to
stock option plan (2,250 shares) ........ 4 10 14
Common stock issued pursuant to
stock bonus plan (410 shares) ........... 1 2 (3)
ESOP shares earned ......................... 104 104
Net unrealized holding loss on securities
available for sale, net of tax benefit .. (126) (126)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 777 2,182 12,802 1,084 (126) (1,307) 15,412
Net income-1995 ............................ 3,050 3,050
Cash dividends on preferred stock
($.72 per share) ........................ (441) (441)
Cash dividends on common stock
($.075 per share) ....................... (99) (99)
Common stock issued pursuant to
dividend reinvestment and
stock option plans (4,420 shares) ....... 7 40 47
ESOP shares earned ......................... 82 113 195
Tax benefit on dividends paid to ESOP ...... 46 46
Change in net unrealized holding gain (loss)
on securities available for sale, net of
income taxes ............................ 417 417
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 777 $2,189 $12,970 $3,594 $ 291 ($1,194) $18,627
===================================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
======================================================================================================================
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income ............................................................ $ 3,050 $ 1,683 $ 1,209
- ----------------------------------------------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for possible loan losses .................................... 559 1,014 2,635
Depreciation of bank premises and equipment ........................... 621 606 659
Net amortization and accretion on securities .......................... (37) 385 312
Provision for possible losses on other real estate .................... 230 277 375
Gain on sale of securities ............................................ -- -- (472)
Loss (gain) on sale of other real estate .............................. 3 (106) (37)
Gain on sale of residential mortgage loan and
related servicing rights ........................................ (25) (3) (603)
Increase in accrued interest receivable ............................... (869) (336) (162)
Decrease in other assets .............................................. 154 318 343
(Decrease) increase in other liabilities .............................. (80) 428 38
- ----------------------------------------------------------------------------------------------------------------------
Total adjustments ...................................... 556 2,583 3,088
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ............................. 3,606 4,266 4,297
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from sale of securities:
Held to maturity ................................................ -- -- 24,491
Proceeds from maturities of securities:
Available for sale .............................................. 3,345 2,194 --
Held to maturity ................................................ 17,681 13,872 20,992
Purchase of securities:
Available for sale .............................................. (3,842) -- --
Held to maturity ................................................ (37,574) 41,315) (69,571)
Net (increase) decrease in loans ...................................... (12,677) (8,728) 4,823
(Increase) decrease in other real estate .............................. (79) 1,560 (582)
Capital expenditures .................................................. (819) (979) (627)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ................................. (33,965) (33,396) (20,474)
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase in deposit accounts ...................................... 38,914 20,749 13,087
Principal payments on ESOP debt ....................................... 113 104 61
Proceeds from the issuance of common stock ............................ 47 14 --
Dividends paid on preferred stock ..................................... (441) (432) (559)
Dividends paid on common stock ........................................ (99) -- --
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities ............................. 38,534 20,435 12,589
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents .................. 8,175 (8,695) (3,588)
Cash and cash equivalents, beginning of year .......................... 30,736 39,431 43,019
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year ................................ $ 38,911 $ 30,736 $ 39,431
- ----------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest ........................................................ $ 6,007 $ 4,487 $ 4,764
Income taxes .................................................... 900 420 90
======================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
DECEMBER 31, 1995, 1994 AND 1993
- ------------------------------------------------------------------------------
(Amounts in thousands, except share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. Independence Bancorp, Inc. ( the "Company") commenced
operations in June, 1984, as a New Jersey corporation and as a bank holding
company registered under the Bank Holding Company Act of 1956. Through its
banking subsidiary Independence Bank of New Jersey (the "Bank"), the Company
provides a full range of banking services to individual and corporate customers
primarily located in Northeastern New Jersey. The Company is regulated by
various Federal and state agencies and is subject to periodic examination by
those regulatory authorities.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry. The significant accounting policies are summarized as follows:
Principles of Consolidation and Use of Estimates. The accompanying consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiary, the Bank and the Bank's wholly-owned investment subsidiary,
Independence Asset Management, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Securities. The Company adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS
115), effective January 1, 1994. SFAS 115 requires the Company to classify its
securities as: (1) held to maturity, (2) available for sale and (3) trading.
Securities held to maturity consist of debt securities that management intends
to, and the Company has the ability to, hold until maturity. Such securities are
stated at cost, adjusted for amortization of premium and accretion of discount.
Securities available for sale consist of debt and equity securities that are not
intended to be held to maturity and are not held for trading. Securities
available for sale are reported at fair value, with unrealized gains and losses
credited or charged, net of tax effect, directly to stockholders' equity.
Realized gains and losses on securities available for sale are determined on a
specific identification basis.
F-6
<PAGE>
The Company has not classified any of its securities as trading.
Loans. Substantially all loans classified as commercial loans are at least
partially secured by real estate. Loans are stated at their principal amount
outstanding, net of any unearned income and net of loan origination fees and
costs. Nonrefundable loan origination fees and certain direct loan origination
costs are deferred and recognized over the life of the loan as an adjustment to
the loan's yield. The Bank does not accrue interest on any loan when factors
indicate collectibility is doubtful. In general, the accrual of interest is
discontinued when a loan becomes 90 days past due as to principal or interest.
When interest accruals are discontinued, interest credited to income in the
current year is reversed, and interest accrued in the prior year is charged to
the allowance for possible loan losses. Management may elect to continue the
accrual of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest. Non-accrual
loans are returned to accrual status when interest is received on a current
basis and other factors indicating doubtful collection cease.
Allowance for Possible Loan Losses. The allowance for possible loan losses is
maintained at a level believed by management to be adequate to meet reasonably
foreseeable loan losses on the basis of many factors including the risk
characteristics of the portfolio, underlying collateral, current and anticipated
economic conditions that may affect the borrower's ability to pay, specific
problem loans, and trends in loan delinquencies and charge-offs. Possible losses
on loans are provided for under the allowance method of accounting. The
allowance is increased by provisions charged to earnings and reduced by loan
charge-offs, net of recoveries. Loans are charged off in whole or in part when,
in management's opinion, collectibility is not probable.
While management uses available information to establish the allowance for
possible loan losses, future additions to the allowance may be necessary if
economic developments differ substantially from the assumptions used in making
the evaluation. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for possible
loan losses. Such agencies may require the Bank to recognize additions to the
allowance based on judgments different from those of management.
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended, as of January 1, 1995. This statement requires that certain
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's original effective interest rate. As a practical
expedient, impairment may be measured based on the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
When the measure of the impaired loan is less than the recorded investment in
the loan, the impairment is recorded through a valuation allowance. This
statement is not applicable to large groups of smaller homogeneous loans, such
as residential mortgage loans, credit card loans and consumer loans, which are
collectively evaluated for impairment.
The Company had previously measured the allowance for possible loan losses using
methods similar to those prescribed in the statement. As a result of adopting
these statements, no additional allowance for possible loan losses was required
as of January 1, 1995.
F-7
<PAGE>
Premises and Equipment. Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized on a straight-line basis over the lives of the
related leases, or the life of the improvement, whichever is shorter.
Other Real Estate. Other real estate is comprised of commercial and residential
real estate properties acquired in partial or total satisfaction of problem
loans.
Other real estate is carried at the lower of fair value, as determined by
current appraisals, less estimated costs to sell, or the recorded investment in
the loan on the property. Losses identified at the time of acquisition of such
properties are charged against the allowance for possible loan losses.
Subsequent write-downs that may be required to the carrying value of these
assets and losses realized from asset sales are charged to other operating
expenses. Costs of holding such property are charged to expense as incurred.
Gains, to the extent allowable, realized on the disposition of these properties
are included in other operating income.
Income Taxes. The asset and liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The Company files a consolidated Federal income tax return, and the amount of
income tax expense or benefit is allocated on a subsidiary by subsidiary basis.
Interest on Loans. Interest on commercial, industrial, simple interest
installment and real estate loans is credited to operations based upon the
principal amount outstanding. Interest on other installment loans is taken into
income on scheduled payment dates by use of the sum-of-the-month-digits method.
Net Income Per Common Share. Primary net income per common and common equivalent
shares, after preferred dividends, is based on the weighted average common
shares and common share equivalents, including stock options and warrants,
outstanding during the year, adjusted for the effect of subsequent common stock
dividends and after adjustment for the elimination of dividends paid on
unallocated shares of the ESOP Plan (See Note 10). Fully diluted income per
share is based on the weighted average number of common and common equivalent
shares outstanding adjusted for shares issuable upon conversion of preferred
stock and the elimination of dividends paid on unallocated shares of the ESOP
Plan. For the year ended December 31, 1993, shares issuable upon conversion of
preferred stock and stock options were antidilutive and have not been included
in the computations of per share information.
Statement of Cash Flows. For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks, interest bearing deposits with
banks and Federal funds sold.
F-8
<PAGE>
Reclassifications. Certain reclassifications have been made to prior period
consolidated financial statements to place them on a basis comparable with the
current period consolidated financial statements.
New Financial Accounting Standards. The Financial Accounting Standards Boards
(FASB) issued SFAS No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed Of." in March 1995. This statement is
effective for the year ended December 31, 1996. Statement No. 121 requires that
long-lived assets to be held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company has evaluated the impact of
Statement No. 121 on its financial statements and does not expect it to be
material.
NOTE 2. CASH AND DUE FROM BANKS
The Bank is required to maintain a cash reserve balance based upon its deposits
in accordance with banking regulations. The average amount of this reserve for
the years ended December 31, 1995 and 1994 was approximately $4,334 and $3,274,
respectively.
NOTE 3. SECURITIES
The amortized cost and estimated market values of the Company's securities
available for sale portfolio at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Available for Sale Cost Gains Losses Value
=================================================================================================================
<S> <C> <C> <C> <C>
U. S. Treasury securities ...................... $33,644 $ 462 ($ 10) $34,096
Obligations of other U.S. Government agencies... 11,283 68 (78) 11,273
Equity securities .............................. 997 -- -- 997
- -----------------------------------------------------------------------------------------------------------------
Total ................................ $45,924 $ 530 ($ 88) $46,366
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1994
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Available for Sale Cost Gains Losses Value
=================================================================================================================
<S> <C> <C> <C> <C>
Obligations of other U.S. Government agencies... $3,651 $ -- ($200) $3,451
=================================================================================================================
</TABLE>
F-9
<PAGE>
Information relative to the Company's securities held to maturity portfolio at
December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Held to Maturity Cost Gains Losses Value
===============================================================================================================
<S> <C> <C> <C> <C>
U. S. Treasury securities .......................... $ 23,496 $111 ($137) $23,470
Obligations of other U.S. Government agencies ...... 61,493 293 (241) 61,545
Obligations of states and political subdivisions ... 5,308 8 (5) 5,311
- ---------------------------------------------------------------------------------------------------------------
Total .................................... $ 90,297 $412 ($383) $90,326
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1994
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Held to Maturity Cost Gains Losses Value
===============================================================================================================
<S> <C> <C> <C> <C>
U. S. Treasury securities .......................... $ 57,471 $-- $(3,522) $53,949
Obligations of other U.S. Government agencies ...... 54,647 -- (4,532) 50,115
Obligations of states and political subdivisions ... 300 -- -- 300
- ---------------------------------------------------------------------------------------------------------------
Total .................................... $112,418 $-- $(8,054) $104,364
===============================================================================================================
</TABLE>
The contractual maturities of securities at December 31, 1995 are set forth in
the following table:
<TABLE>
<CAPTION>
Held to Maturity Available For Sale
-------------------------- -------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
===============================================================================================================
<S> <C> <C> <C> <C>
Due in one year .................................... $ 5,008 $ 5,004 $12,712 $12,745
Due after one year through five years .............. 52,015 52,062 20,897 21,177
Due after five years through ten years ............. 3,204 3,234 8,062 8,270
Mortgage-backed securities ........................ 30,070 30,026 3,256 3,178
Equity securities .................................. -- -- 997 997
- ---------------------------------------------------------------------------------------------------------------
Total securities ......................... $90,297 $90,326 $45,924 $46,366
===============================================================================================================
</TABLE>
Actual maturities on debt securities may differ from those presented above as
certain obligations provide the issuer the right to call or prepay the
obligation prior to scheduled maturity without penalty.
In November 1995, the FASB issued a special report - "A Guide to Implementation
of Statement No. 115 on Accounting for Certain Investments in Debt and Equity
Securities." This special report allowed a company to make a one-time
reclassification of securities from its held to maturity category without
tainting the classification of the other securities remaining within the
category. Accordingly, in December 1995, the Bank reclassified $40.7 million of
held to maturity securities to available for sale resulting in a mark-to-market
gain of $286, net of tax.
F-10
<PAGE>
In 1993, the Company sold securities totaling $24,982 for a gross gain of $472.
No securities were sold during 1994 and 1995.
The carrying value of securities pledged to secure public deposits, treasury tax
and loan deposits and for other purposes as required by law, approximate $1,243
at December 31, 1995.
NOTE 4. LOANS
Non-Performing Assets
The following table presents categories of non-performing assets, and the ratio
of total non-performing assets to total assets:
1995 1994
===========================================================================
Non-accrual loans:
Commercial .............................. $ 994 $2,207
Commercial lease financing .............. -- 22
Installment ............................. 272 306
Real estate-commercial .................. 285 758
Real estate-residential ................. 168 121
- ---------------------------------------------------------------------------
Total ......................... 1,719 3,414
- ---------------------------------------------------------------------------
Other real estate owned ...................... 1,301 1,222
- ---------------------------------------------------------------------------
Total non-performing assets .................. $3,020 $4,636
- ---------------------------------------------------------------------------
Ratio of non-performing assets to total assets 0.93% 1.64%
- ---------------------------------------------------------------------------
Accruing loans past due 90 days or more:
Commercial .............................. $ 21 $ 154
Installment ............................. 12 35
- ---------------------------------------------------------------------------
Total ......................... $ 33 $ 189
===========================================================================
The amount of interest income lost on those loans classified as non-accrual in
1995 and 1994, had these loans been current in accordance with their original
terms, was $136 and $250, respectively. There were no significant restructured
loan amounts at December 31, 1995 and 1994.
F-11
<PAGE>
Related Party Loans
Loans have been granted to officers and directors of the Company and its
subsidiary and to their associates. As of December 31, 1995, there were no
related party loans which were past due. The aggregate dollar amount of these
loans was $3,483 and $7,323 at December 31, 1995 and 1994, respectively. During
1995, there were $1,903 of new loans made and repayments totaled $3,016 and a
reduction of $2,727 due to the resignation of a director.
NOTE 5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is based upon estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reflected in
operations in the periods in which they become known.
A summary of the activity in the allowance for possible loan losses is as
follows:
1995 1994 1993
============================================================================
Balance at beginning of year ..... $ 2,630 $ 2,492 $ 3,400
Provision charged to operations... 559 1,014 2,635
Recoveries of charged-off loans... 431 360 466
Loans charged-off ................ (926) (1,236) (4,009)
- ----------------------------------------------------------------------------
Balance at end of year....... $ 2,694 $ 2,630 $ 2,492
============================================================================
A loan is considered impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. These loans consist primarily of non-accrual loans but may include
performing loans to the extent that situations arise which would reduce the
probability of collection in accordance with the contractual terms. As of
December 31, 1995, the Company's recorded investment in impaired loans and the
related valuation allowance calculated under SFAS No. 114 are as follows:
Recorded Valuation
Investment Allowance
---------- ---------
Impaired loans -
Valuation allowance required $ 160 $ 115
No valuation allowance required 1,559 --
------- ------
Total Impaired Loans $ 1,719 $ 115
======= ======
This valuation allowance is included in the allowance for possible loan losses
in the consolidated balance sheet.
F-12
<PAGE>
The average recorded investment in impaired loans for the year ended December
31, 1995 was $2,686. Interest payments received on impaired loans are recorded
as interest income unless collection of the remaining recorded investment is
doubtful at which time payments received are recorded as reductions of
principal. The Company did not recognize any interest income on impaired loans
for the year ended December 31, 1995.
NOTE 6. PREMISES AND EQUIPMENT
The net carrying amount of premises and equipment is summarized as follows:
December 31
--------------------
1995 1994
===========================================================================
Land and land improvements ......................... $1,476 $1,457
Building ........................................... 2,503 2,122
Furniture, fixtures and equipment .................. 3,316 2,820
Leasehold improvements ............................. 2,038 2,023
- ---------------------------------------------------------------------------
9,333 8,422
Less accumulated depreciation and amortization ..... 3,878 3,165
- ---------------------------------------------------------------------------
$5,455 $5,257
===========================================================================
NOTE 7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Certain Bank facilities are occupied under non-cancelable long-term operating
leases which expire at various dates through 2013. Certain lease agreements
provide for renewal options and increases in rental payments based upon
increases in the consumer price index or the lessor's cost of operating the
facility. Minimum aggregate annual lease payments for the remainder of the term
are as follows:
================================================================
1996 ................................................... $ 957
1997 ................................................... 740
1998 ................................................... 637
1999 ................................................... 671
2000 ................................................... 709
Thereafter ............................................. 4,405
- ----------------------------------------------------------------
Total lease commitments .......................... $8,119
================================================================
Net occupancy and equipment expense for 1995, 1994 and 1993 includes
approximately $1,106, $992 and $932, respectively, of rental expense for bank
facilities.
F-13
<PAGE>
The Bank leases one of its branches from a director and its headquarters
facility from a partnership in which a director has a substantial interest. In
management's opinion, the terms of these leases are considered comparable to
those which would exist with unaffiliated parties, and aggregate rental payments
under these leases totaled $554, $477 and $453, in 1995, 1994 and 1993,
respectively, and are included in net occupancy and equipment expense.
Financial Instruments With Off-Balance Sheet Risk
In the ordinary course of the business of meeting the financial needs of its
customers, the Company through its banking subsidiary, is party to various
financial instruments which are properly not reflected in the consolidated
financial statements. These financial instruments include standby letters of
credit, unused portions of lines of credit and commitments to extend various
types of credit.
These instruments involve, to varying degrees, elements of credit risk in excess
of the amounts recognized in the consolidated financial statements. The Company
seeks to limit any exposure of credit loss by applying the same credit
underwriting standards it uses for on-balance sheet lending facilities. The
following table provides a summary of financial instruments with off-balance
sheet risk at December 31, 1995:
Contract
Amount
==========================================================================
Standby letters of credit .................................... $ 3,276
Commitments under unused lines of credit ..................... 47,661
Outstanding loan commitments ................................. 12,737
- --------------------------------------------------------------------------
Total financial instruments with off-balance sheet risk $63,674
==========================================================================
Litigation
In the normal course of business, the Company may be a party to various legal
proceedings and claims. In the opinion of management, the consolidated financial
position or results of operations of the Company will not be materially affected
by the outcome of such legal proceedings and claims.
NOTE 8. BENEFIT PLANS
Stock Option Plan
Under the 1986 Employee Stock Option Plan and the 1994 Employee Stock Option
Plan (the "Option Plans") 102,102 and 100,000 shares of common stock,
respectively, were available for issuance under the plan to key employees of the
Company and its subsidiary.
F-14
<PAGE>
At the date the options are granted, the exercise price cannot be less than the
fair market value of the Company's common stock. The options may not be
exercised until one year from the date the options are granted, and expire ten
years from such date. The following is a summary of the option transactions
which occurred under the Option Plans during 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Number of
Shares Price Per Share
==================================================================================================
<S> <C> <C>
Balance, December 31, 1992 ...................................... 81,488 $5.50 - $22.68
Options granted ................................................. 25,400 6.25
Options canceled ............................................... (6,372) 6.00 - 22.68
- --------------------------------------------------------------------------------------------------
Balance, December 31, 1993 ...................................... 100,516 5.50 - 22.68
Options granted ................................................. 18,600 8.75
Options canceled ............................................... (25,081) 6.00 - 22.68
Options exercised ............................................... (2,250) 6.00
- --------------------------------------------------------------------------------------------------
Balance, December 31, 1994 ...................................... 91,785 5.50 - 22.68
Options granted ................................................. 20,600 13.25
Options canceled ............................................... (3,036) 6.00 - 22.68
Options exercised ............................................... (1,591) 6.00 - 8.75
- --------------------------------------------------------------------------------------------------
Balance, December 31, 1995 (40,100 shares exercisable) .......... 107,758 $5.50 - $22.68
==================================================================================================
</TABLE>
The 1990 Stock Option Plan for Non-Employee Directors (the "Non-Employee Plan")
reserves 84,000 shares of the Company's common stock for issuance under the plan
to members of the Board of Directors of the Company and its subsidiary who are
not also employees. At the date the options are granted, the exercise price
cannot be less than the fair market value of the Company's common stock. The
options may not be exercised until one year from the date the options are
granted and expire ten years from such date. The following is a summary of the
option transactions which occurred under the Non-Employee Plan during 1995, 1994
and 1993.
<TABLE>
<CAPTION>
Number of
Shares Price Per Share
==================================================================================================
<S> <C> <C>
Balance, December 31, 1992 ...................................... 12,725 $6.00 - $18.09
Options granted ................................................. 4,000 7.50
- --------------------------------------------------------------------------------------------------
Balance, December 31, 1993 ...................................... 16,725 6.00 - 18.09
Options granted ................................................. 8,000 8.00
- --------------------------------------------------------------------------------------------------
Balance, December 31, 1994 ...................................... 24,725 6.00 - 18.09
Options granted ................................................. 7,000 11.375
Options canceled ............................................... (3,025) 6.00 - 18.09
- --------------------------------------------------------------------------------------------------
Balance, December 31, 1995 (21,700 shares exercisable) .......... 28,700 $6.00 - $18.09
==================================================================================================
</TABLE>
F-15
<PAGE>
Dividend Reinvestment Plan
The Company's Dividend Reinvestment Plan authorizes the sale of 100,000 shares
of common stock to stockholders who choose to invest all or a portion of their
cash dividends. During 1995, 2,828 shares of common stock were issued through
the dividend reinvestment plan. During 1994 and 1993, no shares of common stock
were issued through the dividend reinvestment plan.
Retirement Savings Plan
The Company has a retirement savings plan covering substantially all of its
employees. Under the Plan, the Company matches 50 percent of the employee's
contribution (up to a maximum of three percent of their contribution). The
Company's contributions under the Plan were approximately $69, $61 and $59 in
1995, 1994 and 1993, respectively.
The Company and the Bank offer no postretirement or postemployment employee
benefits other than those described above.
NOTE 9. PREFERRED STOCK
On October 16, 1992, the Company issued 776,875 shares of nonvoting Series A 9%
cumulative convertible preferred stock. The 9% convertible preferred stock bears
a cumulative annual dividend of $.72 per share and is convertible at any time at
the option of the holder into one share of common stock, subject to adjustment
in certain events. The 9% convertible preferred stock is redeemable at the
option of the Company, under certain circumstances, at redemption prices ranging
from $9.20 to $8.00 per share plus any accumulated and unpaid dividends to the
date fixed for redemption.
Each share of the 9% convertible preferred stock gives the holder thereof the
option to purchase one share of common stock for $9.60 per share, subject to
adjustment in certain events, until the earlier to occur of October 30, 1997 or
the conversion or redemption of the 9% convertible preferred stock. The common
stock purchase right is not transferable separately from the 9% convertible
preferred stock.
NOTE 10. EMPLOYEE STOCK OWNERSHIP PLAN
In 1992, the Company's Board of Directors approved the adoption of an Employee
Stock Ownership Plan ("ESOP"). The ESOP is a qualified retirement plan for the
benefit of eligible employees of the Company and its subsidiary. The ESOP
invests primarily in common stock or preferred stock which is convertible into
common stock. The assets of the ESOP are held in a trust fund pursuant to a
Trust Agreement. The trustees under the Trust Agreement are authorized to invest
up to 100% of the trust fund in common stock or convertible preferred stock of
the Company. The trustees are also authorized to borrow money for the purpose of
purchasing common stock or convertible preferred stock of the Company.
F-16
<PAGE>
The ESOP purchased directly from the Company 187,500 shares of the 9%
convertible preferred stock during the 1992 preferred stock offering. To
purchase such shares, the ESOP received a loan from a bank in which a former
director of the Company has a substantial interest. The loan bears interest at a
fixed annual rate of 9% and is a five year term loan requiring 19 quarterly
payments of principal and interest of $57 and a final quarterly balloon payment
of the remaining principal and interest. The loan is secured by a pledge of the
shares owned by the ESOP. In addition, the Company has guaranteed repayment of
the loan and is required to contribute annually to the ESOP an amount sufficient
to pay the required debt service on the loan. As part of the lending
arrangement, the Company has issued the lending bank a stock purchase warrant to
purchase 187,500 shares of the Company's Series B Preferred Stock.
The Accounting Standards Division of the American Institute of Certified Public
Accountants issued Statement of Position 93-6 (SOP 93-6), Employers' Accounting
for Employee Stock Ownership Plans, in November 1993. SOP 93-6 requires
accounting for ESOPs under the shares allocated method for shares purchased by
the ESOPs after December 31, 1992. Application of the guidance in this SOP may
be elected, and is encouraged, for shares acquired by ESOPs on or before
December 31, 1992. The Company elected to adopt this statement in 1995 with
retroactive application, as required, effective January 1, 1994.
A summary of dividends and expenses for the ESOP follows:
December 31,
----------------------
1995 1994
-------- --------
Compensation expense $ 196 $ 104
Interest expense 115 123
Dividends -
Allocated shares 17 8
Unallocated shares 118 127
In 1993, the Company reported compensation expense of $95 which is equal to the
ESOP debt principal repayments less dividends received by the ESOP. Interest
incurred on the ESOP debt of $132 in 1993 was not recorded by the Company.
Dividends paid on ESOP shares were reflected as a reduction of retained earnings
and all ESOP shares were considered outstanding for earnings per share
computations.
All dividends received by the ESOP are used to pay debt service. The ESOP shares
initially were pledged as collateral for its debt. As the debt is repaid, shares
are released from collateral and allocated to active employees based on the
proportion of debt service paid in the year. Debt of the ESOP is recorded as
debt of the Company and the shares pledged as collateral are reported as
unearned ESOP preferred stock in the balance sheet. As shares are released from
collateral, the Company reports compensation expense equal to the current market
price of the shares, and the shares become outstanding for earnings per share
computations. Dividends on allocated ESOP shares are recorded as a reduction of
retained earnings; dividends on unallocated ESOP shares are recorded as a
reduction of ESOP debt and related accrued interest. During 1993, 176,377 shares
of preferred stock were considered outstanding for earnings per share purposes
that are no longer considered outstanding 1995 and 1994.
F-17
<PAGE>
The ESOP preferred shares as of December 31, 1995 and 1994 are as follows:
1995 1994
---------- ----------
Allocated shares, beginning of year 24,100 11,123
Shares released for allocation on December 31 14,202 12,977
Unearned shares, at end of year 149,085 163,400
---------- ----------
Total ESOP preferred shares 187,387 187,500
---------- ----------
Fair value of unearned shares at December 31 $2,348,000 $1,797,000
========== ==========
During 1995, 113 shares were withdrawn from the ESOP.
F-18
<PAGE>
NOTE 11. INCOME TAXES
The current and deferred amounts of Federal income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
1995 1994 1993
==================================================================================================
<S> <C> <C> <C>
Current .................................................... $1,619 $594 $141
Deferred ................................................... (308) 229 143
- --------------------------------------------------------------------------------------------------
$1,311 $823 $141
==================================================================================================
</TABLE>
A reconciliation of the Federal income tax provision to the applicable
statutory Federal income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
1995 1994 1993
==================================================================================================
<S> <C> <C> <C>
Income before income taxes ................................. $ 4,361 $ 2,506 $ 1,493
Tax expense at statutory rate .............................. 1,483 852 508
Increase (decrease) in Federal income tax resulting from:
Tax-exempt interest .................................. (48) (25) (24)
Reduction of valuation allowance on deferred tax asset (124) -- (346)
Other, net ........................................... -- (4) 146
- --------------------------------------------------------------------------------------------------
$ 1,311 $ 823 $ 284
==================================================================================================
</TABLE>
The components of the net deferred tax asset (liability) at December 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1995 1994
=========================================================================================
<S> <C> <C>
Allowance for possible loan losses .................... ($302) ($172)
Depreciation .......................................... 149 (31)
Other, net ............................................ -- 35
Federal tax operating loss carryforwards .............. -- --
Federal MAT credit carryforward ....................... -- 403
- -----------------------------------------------------------------------------------------
Total ................................................. (153) 235
Valuation allowance ................................... -- (124)
- -----------------------------------------------------------------------------------------
(153) 111
Unrealized (gain) loss on securities available for sale (161) 74
- -----------------------------------------------------------------------------------------
($314) $ 185
=========================================================================================
</TABLE>
The Company recorded a valuation allowance of $124 thousand against its net
deferred tax asset at December 31, 1994. During 1995, this valuation allowance
was reversed as the Company believes its income levels have fully stabilized and
it is more likely than not that the Company will realize the benefit of its
deferred tax asset.
F-19
<PAGE>
NOTE 12. CAPITAL REQUIREMENTS
The Bank's regulators have classified and defined bank capital into the
following components: (1) Tier I capital which includes intangible stockholders'
equity for common stock and certain perpetual preferred stock and (2) Tier II
capital which includes a portion of the allowance for possible loan losses,
certain qualifying long-term debt and preferred stock which does not qualify for
Tier I capital. The Company's regulators have implemented risk-based capital
guidelines which require a bank to maintain certain minimum capital as a percent
of such bank's assets and certain off-balance sheet items adjusted for
predefined credit risk factors (risk-adjusted assets). The regulatory minimum
Tier I and combined Tier I and Tier II capital ratios are 4.0% and 8.0%,
respectively. In addition to the risk-based capital requirements, a bank is also
required by its regulators to maintain a certain level of Tier I capital as a
percent of average tangible assets (leverage ratio).
The following table reflects the Company and the Bank's capital ratios as of
December 31, 1995:
The following table reflects capital ratios as of December 31, 1995:
<TABLE>
<CAPTION>
Required Regulatory
Actual Capital Ratios (%)
=====================================================================================
<S> <C> <C>
Company
Tier I leverage capital .......................... 5.76% 4.00% to 5.00%
Risk-based capital
Tier I ................................... 10.70 4.00
Total (Tier I and Tier II) ............... 11.95 8.00
Bank
Tier I leverage capital .......................... 6.10% 4.00% to 5.00%
Risk-based capital
Tier I ................................... 11.29 4.00
Total (Tier I and Tier II) ............... 12.54 8.00
=====================================================================================
</TABLE>
The Federal Reserve Board (FRB) also stipulates certain capital requirements for
the Company and the Bank. In the opinion of management, the Company's leverage
capital ratio of 5.76% and the Bank's leverage capital ratio of 6.10% at
December 31, 1995, are in excess of the FRB's minimum requirements for such
ratios.
F-20
<PAGE>
NOTE 13. OTHER EXPENSES
Other non-interest expense for the years ended December 31, 1995, 1994 and 1993
consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
======================================================================================
<S> <C> <C> <C>
Foreclosed real estate expense .................. $ 425 $ 491 $ 625
FDIC insurance assessment ....................... 339 643 644
Legal fees (a) .................................. 259 360 502
Audit and regulatory expenses ................... 104 221 379
Credit reports .................................. 195 172 298
Other ........................................... 2,457 1,869 1,652
- --------------------------------------------------------------------------------------
$3,779 $3,756 $4,100
======================================================================================
</TABLE>
(a) The Bank paid a total of $119, $135, and $192 in legal fees to a law firm
of which a director is a partner during the years ended December 31, 1995,
1994, and 1993, respectively.
NOTE 14. RESTRICTIONS ON SUBSIDIARY BANK DIVIDENDS
Certain bank regulatory limitations exist on the availability of subsidiary bank
undistributed net assets for the payment of dividends to the Company without the
prior approval of the bank regulatory authorities.
Under New Jersey State Law dividends may be paid only if capital would remain
unimpaired and remaining surplus would be no less than 50% of capital stock. In
addition to these statutory restrictions, the subsidiary bank is required to
maintain adequate levels of capital. At December 31, 1995, $4,522 was available
under the most restrictive limitations for the payment of dividends to the
Company.
F-21
<PAGE>
NOTE 15. INDEPENDENCE BANCORP, INC.
Financial Statements of Parent Company Only
<TABLE>
<CAPTION>
December 31
---------------------------
CONDENSED BALANCE SHEETS 1995 1994
=======================================================================================================
<S> <C> <C>
Assets:
Deposits in subsidiary ............................................. $ 124 $ 143
Other assets ....................................................... 205 44
Investment in subsidiary ........................................... 19,594 16,674
- -------------------------------------------------------------------------------------------------------
Total Assets ................................................. $19,923 $16,861
=======================================================================================================
Liabilities and Stockholders' Equity:
Employee Stock Ownership Plan (ESOP) Debt ........................... $ 1,194 $ 1,307
Other liabilities ................................................... 102 142
Stockholders' equity ................................................ 18,627 15,412
- -------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity .................... $19,923 $16,861
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
CONDENSED STATEMENTS OF INCOME 1995 1994 1993
=======================================================================================================
<S> <C> <C> <C>
Dividends from subsidiary .......................................... $ 816 $ 717 $ 517
Expenses:
Interest expense - ESOP loan .................................. 115 123 --
General and administrative expenses ........................... 296 182 162
- ------------------------------------------------------------------------------------------------------
Income before income taxes ......................................... 405 412 355
Income tax benefit ................................................. 139 77 32
- ------------------------------------------------------------------------------------------------------
Income before equity in undistributed income of subsidiary ......... 544 489 387
Equity in undistributed income of subsidiary ....................... 2,506 1,194 822
- ------------------------------------------------------------------------------------------------------
Net income ......................................................... $3,050 $1,683 $1,209
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS 1995 1994 1993
==============================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $3,050 $1,683 $1,209
Less equity in undistributed income of subsidiary .................. (2,506) (1,194) (822)
(Increase) decrease in other assets ................................ (161) (44) 21
Decrease in other liabilities ...................................... (40) (136) (5)
Other, net ......................................................... 18 -- --
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities .......................... 361 309 403
- --------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid - preferred ......................................... (441) (432) (559)
Dividends paid - common ........................................... (99) -- --
Issuance of common stock ........................................... 47 14 --
Principal payment on ESOP debt ..................................... 113 104 61
- --------------------------------------------------------------------------------------------------------------
Net cash used in financing activities .............................. (380) (314) (498)
- --------------------------------------------------------------------------------------------------------------
Net change in cash ................................................. (19) (5) (95)
Cash at beginning of year .......................................... 143 148 243
- --------------------------------------------------------------------------------------------------------------
Cash at end of year ................................................ $ 124 $ 143 $ 148
==============================================================================================================
</TABLE>
F-22
<PAGE>
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" (SFAS 107), requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. The fair
value of a financial instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. SFAS 107 excludes certain financial instruments
and all non-financial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the underlying value
of the Company.
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument. In cases
where the quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the entire holdings of a particular financial instrument. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimated future cash flows, and judgments regarding expected
loss experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates involve uncertainties
and are subjective in nature, and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are determined for on- and off-balance sheet financial
instruments, without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Tax implications related to the realization of the
unrealized gains and losses have a significant effect on fair value estimates
and have not been considered in any of the estimates.
Reasonable comparability between financial institutions may not be likely due to
the various valuation techniques permitted and numerous estimates which must be
made given the absence of secondary markets for many of the financial
instruments. This lack of uniform valuation methodologies introduces a greater
degree of subjectively of these estimated fair values.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
Cash and cash equivalents, and accrued interest receivable:
- -----------------------------------------------------------
The carrying amounts for cash and cash equivalents and accrued interest
receivable approximate fair value.
F-23
<PAGE>
Securities:
- -----------
The fair values for securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Loans:
- ------
The fair values of loans are estimated by discounting future cash flows, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality.
Deposits:
- ---------
The fair value of demand and savings deposits are equal to the carrying amounts
reported in the consolidated financial statements. For certificates of deposit,
fair value is estimated using the rates currently offered for deposits of
similar maturities.
Standby letters of credit and commitments to extend credit:
- -----------------------------------------------------------
These off-balance sheet instruments are primarily comprised of unfunded loan
commitments which are generally priced at market at the time of funding,
therefore, the fair values of these items are substantially similar to the
related notional amounts.
The carrying values and estimated fair values of the Bank's financial statements
are as follows:
<TABLE>
<CAPTION>
December 31
- ------------------------------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
========================================================================================================================
Financial Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents ............................. $38,911 $38,911 $30,736 $30,736
Securities available for sale ......................... 46,366 46,366 3,451 3,451
Securities held to maturity ........................... 90,297 90,326 112,418 104,364
Loans, net ............................................ 139,800 143,944 127,828 127,333
Accrued interest receivable ........................... 2,759 2,759 1,890 1,890
Financial liabilities:
Deposits .............................................. 304,346 304,882 265,432 265,519
Accrued interest payable .............................. 458 458 345 345
========================================================================================================================
</TABLE>
There is no material difference between the notional amount and the estimated
fair value of off-balance sheet unfunded loan commitments and standby letters of
credits which totaled $60,398 and $3,276, respectively, at December 31, 1995 and
$50,089 and $2,423 as of December 31, 1994, respectively.
F-24
<PAGE>
NOTE 17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following quarterly financial information for the two years ended December
31, 1995 is unaudited. However, in the opinion of management, all adjustments,
which include only normal recurring adjustments necessary to present fairly the
results of operations for the periods, are reflected. Results of operations for
the periods are not necessarily indicative of the results of the entire year or
any other interim period.
<TABLE>
<CAPTION>
Three Months Ended
- ---------------------------------------------------------------------------------------------------------------
1995 March 31 June 30 September 30 December 31
================================================================================================================
<S> <C> <C> <C> <C>
Total interest income ................................... $4,894 $5,198 $5,232 $5,387
Net interest income...................................... 3,522 3,687 3,705 3,675
Provision for possible loan losses ...................... 180 160 140 79
Net income .............................................. 549 700 831 970
Net income per share - primary .......................... $ 31 $ .42 $ .44 $ .64*
Net income per share - fully diluted .................... $ 26 $ .33 $ .35 $ .47*
- ----------------------------------------------------------------------------------------------------------------
1994
- ----------------------------------------------------------------------------------------------------------------
Total interest income ................................... $3,927 $4,167 $4,379 $4,600
Net interest income...................................... 2,901 3,092 3,237 3,233
Provision for possible loan losses ...................... 250 250 250 264
Net income .............................................. 401 431 456 395
Net income per share - primary ........................... $ 20 $ .22 $ .24 $ .28
Net income per share - fully diluted ..................... $ 19 $ .20 $ .21 $ .28
================================================================================================================
</TABLE>
* The Company adopted the AICPA Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans", in December 1995 (See Note
10). The required adjustments and per share effect have been reflected in the
fourth quarter of 1995 and 1994 since the effect on interim quarters would
not be significantly different from amounts previously reported.
F-25
<PAGE>
==============================================================
No dealer, salesperson or any other individual has been
authorized to give any information or make any
representations not contained in this Prospectus in
connection with the offering covered by this Prospectus.
If given or made, such information or representations
must not be relied upon as having been authorized by
the Company or the Purchaser. This Prospectus does
not constitute an offer to sell, or a solicitation of an
offer to buy the Common Stock in any jurisdiction
where, or to any person to whom, it is unlawful to make
such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that there has not
been any change in the facts set forth in this Prospectus or
in the affairs of the Company since the date hereof.
-----------
TABLE OF CONTENTS
Page
Available Information....................................
Incorporation of Certain Documents by Reference..........
Prospectus Summary.......................................
Alternatives Available to Holders of
Series A Preferred Stock............................
Selected Consolidated Financial Information..............
Risk Factors.............................................
Use of Proceeds..........................................
Capitalization...........................................
Price Range of Common Stock..............................
Dividends................................................
Management's Discussion and Analysis
of Financial Condition and
Results of Operations..............................
Business.................................................
Supervision and Regulation...............................
Management...............................................
Principal Stockholders...................................
Description of Securities................................
Redemption of Series A Preferred Stock...................
Certain Federal Income Tax Consequences..................
Standby and Other Arrangements...........................
Legal Matters............................................
Experts..................................................
Index to Consolidated Financial Statements...............
==============================================================
<PAGE>
==============================================================
[ ] Shares
INDEPENDENCE BANCORP, INC.
Common Stock
PROSPECTUS
Janney Montgomery Scott Inc.
[ ], 1996
==============================================================
<PAGE>
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the Company in connection with the
issuance and distribution of the securities being registered hereby are as
follows:
<TABLE>
<CAPTION>
Amount
-------------
<S> <C>
Securities and Exchange Commission Registration Fee........................... $ 7,233
Printing and Engraving Expenses............................................... *
Accounting Fees and Expenses.................................................. *
Legal Fees and Expenses....................................................... *
Blue Sky Qualification Fees and Expenses...................................... *
Transfer Agent................................................................ *
Miscellaneous................................................................. *
-------------------
Total................................................................ *
===================
</TABLE>
- ------------
* To be completed by Amendment.
Item 15. Indemnification of Directors and Officers.
Section 14A:3-5 of the New Jersey Business Corporation Act provides, in
substance, that New Jersey corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents
against their expenses and liabilities in connection with any proceedings
brought against them and against their expenses in connection with any
proceeding by or in the right of the corporation, by reason of the fact that
they were or are such directors, officers, employees or agents.
Article VI of the Company's by-laws, filed an Exhibit hereto, provides
as follows:
ARTICLE VI. INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS.
Section 601. The Company shall, to the fullest extent now or hereafter
permitted by Section 14A:3-5 of the New Jersey Business Corporation Act, as
amended from time to time, indemnify any director or officer of the Company.
The Board of Directors, by resolution adopted in each specific
instance, may similarly indemnify any person other than a director or officer of
the Company for liabilities incurred by him in connection with services rendered
by him at the request of the Company or any of its subsidiaries.
II-1
<PAGE>
The provisions of this section shall be applicable to all actions,
suits or proceedings commenced after its adoption, whether such arise out of
acts or omissions which occurred prior to or subsequent to such adoption and
shall continue as to a person who has ceased to be a director or officer or to
render services at the request of the company and shall inure to the benefit of
the heirs, executors and administrators of such a person. The rights of
indemnification provided for herein shall not be deemed the exclusive rights to
which any director, officer, employee or agent of the company may be entitled.
Section 602. The Corporation may indemnify any person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the Corporation unless and only to the extent that the court of
the county in which the registered office of the Corporation is located or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
Section 603. The indemnification provided for in the preceding sections
shall be paid by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or other
agent is proper under the circumstances because he has met the applicable
standard of conduct set forth in each section, this determination to be made by
the Board of Directors by majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or in any other manner
authorized by law which the Board of Directors shall direct; provided, however,
that to the extent that a director, officer, employee or agent has been
successful on the merits or otherwise in defense of any such suit, action or
proceeding, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 604. Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 603 of this Article upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount unless
it shall be ultimately determined that he is entitled to be indemnified by the
corporation as authorized in this Article.
Section 605. The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
II-2
<PAGE>
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 606. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Section.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit No. Description
*1.1 Form of Standby Agreement (draft of , 1996)
between the Company and Janney Montgomery Scott Inc.
*3.1 Certificate of Incorporation of the Company, as amended.
*3.2 Bylaws of the Company, as amended.
*5.1 Opinion of Blank Rome Comisky & McCauley.
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Blank Rome Comisky & McCauley (included in
Exhibit 5.1).
24.1 Power of Attorney (included on the signature page of
Part II of this Registration Statement).
27.1 Financial Data Schedule.
*99.0 Transmittal Documents.
- ----------------
* To be filed by amendment.
(b) Financial Statement Schedules
Not applicable.
II-3
<PAGE>
Item 17. Undertakings.
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 that includes 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 purposes 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions 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 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus 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.
The undersigned registrant hereby undertakes to supplement the
prospectus after the expiration of the redemption period, to set forth the
II-4
<PAGE>
results of the redemption offer, the transactions by the underwriters during the
redemption period, the amount of securities to be purchased by the underwriters
and the terms of any subsequent reoffering thereof. If any public offering by
the underwriters is to be made on terms differing from those set forth on the
cover page of the prospectus, a post-effective amendment will be filed to set
forth the terms of such offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Ramsey, New Jersey, on this 18th day of March, 1996.
INDEPENDENCE BANCORP, INC.
By:/s/James R. Napolitano
-----------------------------------
James R. Napolitano, Chairman
of the Board
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons, in
the capacities indicated, on March 18, 1996. Each person whose signature appears
below hereby authorizes James R. Napolitano or Kevin J. Killian to file one or
more Amendments, including Post-Effective Amendments, to this Registration
Statement, which Amendments may make such changes as James R. Napolitano or
Kevin J. Killian deem appropriate, and each person whose signature appears
below, individually and in each capacity stated below hereby appoints James R.
Napolitano or Kevin J. Killian as attorney-in-fact to execute in his name and on
his behalf any such Amendments to this Registration Statement.
Signature Capacity
- --------------------------------- ---------------------------------------
/s/James R. Napolitano Chairman of the Board (Principal Executive
- --------------------------------- Officer)
James R. Napolitano
/s/A. Roger Bosma President and Director
- ---------------------------------
A. Roger Bosma
/s/Kevin J. Killian Executive Vice President and Chief Financial
- --------------------------------- Officer (Principal Financial Officer and
Kevin J. Killian Principal Accounting Officer)
/s/Joseph LoScalzo
- --------------------------------- Director
Joseph LoScalzo
II-6
<PAGE>
Signature Capacity
- --------------------------------- ---------------------------------------
/s/Esko J. Koskinen Director
- ---------------------------------
Esko J. Koskinen
/s/William F. Dator Director
- ---------------------------------
William F. Dator
/s/Julius J. Franchini Director
- ---------------------------------
Julius J. Franchini
/s/Robert F. Frasco Director
- ---------------------------------
Robert F. Frasco
/s/Robert O. Hagman Director
- ---------------------------------
Robert O. Hagman
/s/Joseph A. Haynes Director
- ---------------------------------
Joseph A. Haynes
II-7
<PAGE>
Exhibit 23.1
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Independence Bancorp, Inc.
As independent public accountants, we hereby consent to the use of our report
dated January 19, 1996 and to all references to our Firm included in or made a
part of this registration statement on Form S-3.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 15, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 20,280
<INT-BEARING-DEPOSITS> 5,811
<FED-FUNDS-SOLD> 12,820
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,366
<INVESTMENTS-CARRYING> 90,297
<INVESTMENTS-MARKET> 90,326
<LOANS> 142,494
<ALLOWANCE> 2,694
<TOTAL-ASSETS> 325,187
<DEPOSITS> 304,346
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,020
<LONG-TERM> 1,194
2,189
777
<COMMON> 0
<OTHER-SE> 15,661
<TOTAL-LIABILITIES-AND-EQUITY> 325,187
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</TABLE>
