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<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
March 31, December 31,
1995 1994
-------- -----------
<S> <C> <C>
Assets
Cash and due from banks $ 20,178 $ 22,865
Federal funds sold 7,900 3,100
-------- --------
Total cash and cash equivalents 28,078 25,965
-------- --------
Investment securities at amortized cost (approximate
market value of $117,071 and $116,718) 119,146 121,512
Securities available for sale at estimated market value
(amortized cost of $29,610 and $30,079) 27,647 27,269
Loans 286,837 290,654
Less: Allowance for loan losses 3,771 3,839
-------- -------
Net loans 283,066 286,815
-------- -------
Premises and equipment, net 4,945 4,606
Foreclosed real estate 1,190 880
Accrued interest receivable and other assets 11,001 12,265
-------- --------
Total assets $475,073 $ 479,312
======== ========
Liabilities
Deposits
Non-interest bearing $ 64,293 $ 66,435
Interest bearing 357,094 357,735
-------- --------
Total deposits 421,387 424,170
Short-term borrowings 9,302 11,702
Accrued interest payable and other liabilities 4,069 3,311
Long-term borrowings 3,750 5,000
-------- --------
Total liabilities 438,508 444,183
-------- --------
Stockholders' equity
Preferred stock 5,000 5,000
Common stock 4,495 4,495
Capital surplus 11,333 11,333
Retained earnings 19,627 18,737
Unrealized losses on securities available for sale (1,267) (1,813)
-------- -------
39,188 37,752
Less: Treasury stock 2,623 2,623
-------- -------
Total stockholders' equity 36,565 35,129
-------- -------
Total liabilities and stockholders' equity $475,073 $479,312
======== ========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except share data)
<CAPTION>
Three months ended
March 31,
1995 1994
----- ----
<S> <C> <C>
Interest income
Interest and fees on loans $6,688 $ 5,414
Interest on federal funds sold 72 94
Interest and dividends on securities
Taxable interest income 2,289 1,933
Interest income exempt from federal income taxes 14
Dividends 30 41
----- -----
Total interest income 9,094 7,496
Interest expense
Interest on deposits 3,417 2,389
Interest on short-term borrowings 145 3
Interest on long-term borrowings 63 -
----- -----
Total interest expense 3,625 2,392
----- -----
Net interest income 5,469 5,104
Provision for loan losses 225 225
----- -----
Net interest income after provision
for loan losses 5,244 4,879
----- -----
Non-interest income
Service fees on deposit accounts 361 334
Net gain on sale of loans available for sale 11 -
Accretion of discount in connection with acquisition 190 190
Other 454 257
----- -----
Total non-interest income 1,016 781
----- -----
Non-interest expenses
Salaries and benefits 1,838 1,709
Net occupancy 510 513
Furniture and equipment 151 172
Advertising and promotion 190 178
Federal Deposit Insurance Corporation assessment 225 211
Foreclosed real estate expense 72 124
Other 1,113 947
----- -----
Total non-interest expenses 4,099 3,854
----- -----
Income before income taxes 2,161 1,806
Income taxes 756 635
----- -----
Net income $ 1,405 $ 1,171
======= =======
Per common share $0.51 $0.42
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<CAPTION>
Unrealized
Losses on
Securities
Preferred Common Capital Retained Available Treasury
Stock Stock Surplus Earnings for Sale Stock Total
--------- ------ ------- -------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $5,000 $4,495 $11,333 $15,100 $ 9 $(2,623) $33,314
Net income 1,171 1,171
Dividends on common stock
at $0.175 per share (472) (472)
Dividends on preferred stock (28) (28)
Decrease in market valuation-
securities available for sale (781) (781)
------ ----- ------ ------ ------ ------ ------
Balance at March 31, 1994 5,000 4,495 11,333 15,771 (772) (2,623) 33,204
Net income 4,465 4,465
Dividends on common stock
at $0.525 per share (1,415) (1,415)
Dividends on preferred stock (84) (84)
Decrease in market valuation-
securities available for sale (1,041) (1,041)
------ ----- ------ ------ ----
Balance at December 31, 1994 5,000 4,495 11,333 18,737 (1,813) (2,623) 35,129
Net income 1,405 1,405
Dividends on common stock
at $0.18 per share (486) (486)
Dividends on preferred stock (29) (29)
Increase in market valuation-
securities available for sale 546 546
------ ----- ------ ------ ----
Balance at March 31, 1995 $5,000 $4,495 $11,333 $19,627 $(1,267) $(2,623) $36,565
====== ===== ====== ======= ====== ====== ======
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the three months ended
March 31,
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,405 $ 1,171
Non-cash items included in earnings
Depreciation and amortization of fixed assets 192 210
Amortization of securities premiums 378 390
Accretion of securities discounts (13) (2)
Amortization of premiums in connection with acquisition 111 59
Accretion of discount in connection with acquisition (190) (190)
Provision for loan losses 225 225
Provision for losses on foreclosed real estate - 75
Net gain on sale of loans available for sale (11) -
Increase in carrying value of loans available for sale (30) -
Loss on sale of fixed assets 25 -
(Increase) decrease in operating assets
Net origination of loans available for sale (215) (10,156)
Proceeds from sale of loans available for sale 254 -
Premium in connection with acquisition - (1,724)
Accrued interest receivable 289 (368)
Other 566 (333)
Increase (decrease) in operating liabilities
Accrued interest payable 103 (32)
Other 845 587
----- ------
Cash provided by (used for) operating activities 3,934 (10,088)
----- ------
Cash flows from investing activities
Proceeds from (payments for)
Net repayments of loans 3,512 5,004
Purchase of loans (356) (86)
Sale of loans - 305
Purchase of securities available for sale (363) (226)
Maturities of securities available for sale 710 184
Sale of securities available for sale 122 66
Sale of foreclosed real estate 60 -
Purchase of investment securities - (9,519)
Maturities of investment securities 2,000 5,000
Advances on foreclosed real estate - (79)
Purchase of fixed assets (560) (24)
Proceeds from sale of fixed assets 2 -
----- ------
Cash provided by investing activities 5,127 625
----- ------
Cash flows from financing activities
Proceeds from (payments for)
Deposits (less than) in excess of withdrawals (2,783) 12,456
Retirement of other borrowings (3,650) (307)
Acquisition of deposit accounts - 26,468
Dividends (515) (500)
----- ------
Cash (used for) provided by financing activities (6,948) 38,117
----- ------
Increase in cash and cash equivalents 2,113 28,654
Cash and cash equivalents, beginning of year 25,965 26,568
------ ------
Cash and cash equivalents, end of period $28,078 $ 55,222
====== ======
Supplemental disclosure of cash flow information: Cash paid for:
Interest $3,523 $ 2,424
Income taxes - 1,000
Supplemental disclosure of non-cash investing activities
Loans transferred to foreclosed real estate 370 77
Securitization of loans reclassified to securities
available for sale - 19,980
(Increase) decrease-market valuation of
securities available for sale (846) $ 1,291
See notes to consolidated financial statements
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
1. FINANCIAL STATEMENTS
The consolidated financial statements should be read in conjunction
with the financial statements and schedules as presented in the Annual Report on
Form 10-K of Interchange Financial Services Corporation (the "Company") for the
year ended December 31, 1994.
Consolidated financial data for the three months ended March 31, 1995
and 1994, are unaudited but reflect all adjustments consisting of only normal
recurring adjustments which are, in the opinion of management, considered
necessary for a fair presentation of the financial condition and results of
operations for the interim periods. Results for interim periods are not
necessarily indicative of results to be expected for any other period or the
full year.
2. RECENTLY ISSUED ACCOUNTING STANDARD
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114"). Under SFAS No. 114, 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 contractual terms of the loan agreement. The
collection of all amounts due according to contractual terms means that both the
contractual interest and principal payments of a loan will be collected as
scheduled in the loan agreement. SFAS No. 114 generally requires that impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral. The
fair value of collateral, as reduced by costs to sell on a discounted basis, is
utilized if a loan is collateral dependent or foreclosure is probable. The
adoption of these rules did not have an impact on the Company's financial
condition and results of operations.
<PAGE>
<TABLE>
The Company's recorded investment in impaired loans at January 1, 1995, is as follows: (in thousands)
<CAPTION>
Related
Allowance
For Loan
Investment Losses
---------- ---------
<S> <C> <C>
Impaired Loans:
With a related allowance for loan losses. . . . . . . $ 1,560,519 $ 276,541
Without a related allowance for loan losses. . . . . . 4,062,415 -
------------ -----------
$ 5,622,415 $ 267,541
============ ===========
</TABLE>
<TABLE>
Charges in the allowance for loan losses for the two quarters ended March 31, were as follows: (in
thousands)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance, beginning of year. . . . . . . . . . . $3,839 $3,905
Provision charged to operations . . . . . . . 225 225
Loans charged off . . . . . . . . . . . . . . (313) (367)
Recoveries . . . . . . . . . . . . . . . . . 20 32
------ ------
Balance, end of period . . . . . . . . . . . . . $3,771 $3,795
====== ======
</TABLE>
3. LEGAL PROCEEDINGS
Interchange State Bank (the "Bank"), a wholly owned subsidiary of the
Company, is a defendant in a lawsuit commenced in April 1989, (Great American
Mortgage Corp., et al vs. Robert Utter, et al.) filed in Superior Court of New
Jersey alleging that the Bank was statutorily liable in conversion for having
paid checks drawn on demand deposit accounts of plaintiffs at the Bank bearing
forged endorsements.
On December 2, 1992, the Court directed judgment to be entered against
the Bank in the total principal sum of $484,000, with prejudgment interest. On
April 5, 1993, the Bank filed a Notice of Appeal of this judgment and, by virtue
of post-judgment motions, the amount was reduced to the principal sum of
$311,000 plus pre-judgment interest. This judgment was appealed and, by virtue
of this appeal, the amount was further reduced to $245, 000. The matter remains
on appeal and it is likely that the Bank's ultimate liability for this judgment
will be either reduced to its proportionate share under contribution theories or
it will be exonerated under indemnification theories.
In a related matter, on January 8, 1993, an interlocutory judgment was
entered against the Bank in the principal sum of $120,000 with prejudgment
interest. The Bank has appealed this judgment and a stay of execution has been
effected.
The Bank is pursuing available legal actions against others who may be
determined to be liable to contribute to or stand liable for these judgments.
In 1992, the Company accrued $500,000 as a provision for an adverse
judgment in this litigation. After considering this accrual, the Company, after
consultation with legal counsel, anticipates no material adverse impact upon its
consolidated financial position or results of operations.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is an analysis of the consolidated financial
condition and results of operations of the Company for the three months ended
March 31, 1995 and 1994, and should be read in conjunction with the consolidated
financial statements and notes thereto included in Item 1 hereof. Results of
Operations
EARNINGS SUMMARY
Net income in the first quarter of 1995 improved $234 thousand or 20.0%
over the comparable 1994 period. The increase is primarily attributable to an
increase of $184 thousand in collections of acquired loans in excess of their
carrying values. In addition, earnings were positively affected by an increase
in net interest income during the first quarter of 1995, resulting from higher
levels of interest earning assets. In the first quarter of 1995, the average
balance of interest earning assets increased 9.3% as compared to the same period
in 1994.
Earnings for the period were adversely affected by an increase in
non-interest expenses of $245 thousand or 6.4%. This figure includes $129
thousand increase in salaries and benefits due to annual salary increases and
the addition of new employees. In addition, it includes $52 thousand of
additional deposit premium amortization resulting from a full quarter of
amortization in 1995 as compared to a partial quarter amortization in 1994
related to the acquisition of a failed bank's deposits. Without these expenses,
the overall increase would have been only 1.5% over last year.
The Company's most important revenue source is net interest income
which is the difference between interest earned on its interest earning assets,
such as loans and investments, and the interest paid on its interest bearing
liabilities, primarily deposits. Changes in net interest income from period to
period result from increases or decreases in the average balances of interest
earning assets and interest bearing liabilities and increases or decreases in
the spread between the average rates earned on such assets and the average rates
paid on such liabilities.
For the three months ended March 31, 1995, net interest income on a tax
equivalent basis, was $5.5 million, an increase of 7.1% over net interest income
of $5.1 million in the same period of 1994. The principal factor in this
improvement was an increase of approximately 9.3% in average interest earning
assets resulting from the acquisition of $32.6 million of loans. An increase in
interest expense partially offset the positive effects derived from interest
earning assets. Interest expense increased due to an increase of approximately
9.8% in average interest bearing liabilities. The increase occurred in
certificates of deposit and short and long-term borrowings which typically bear
the highest interest rate. The short-term and long-term borrowings were used
primarily to fund the loan acquisitions.
NONPERFORMING ASSETS
Nonperforming assets, consisting of nonaccrual loans, restructured
loans and foreclosed real estate, increased $1.5 million from $5.3 million at
March 31, 1994, to $6.8 million at March 31, 1995. For the first quarter 1995,
nonperforming assets decreased $800 thousand from $7.6 million for the quarter
ended December 31, 1994. The ratio of nonperforming assets to total loans and
foreclosed real estate increased from 2.0% at March 31, 1994, to 2.4% at March
31, 1995. The ratio at March 31, 1995, decreased as compared to 2.6% at December
31, 1994. Provision for Loan Losses and Loan Loss Experience
The provision for loan losses represents management's determination of
the amount necessary to bring the allowance for loan losses to a level that
management considers adequate to reflect the risk of future losses inherent in
the Company's loan portfolio. In its evaluation of the adequacy of the allowance
for loan losses, management considers past loan loss experience, changes in the
composition of nonperforming loans, the condition of borrowers facing financial
pressure, the relationship of the current level of the allowance to the credit
portfolio and to nonperforming loans and existing economic conditions. However,
the process of determining the adequacy of the allowance is necessarily
judgmental and subject to changes in external conditions. Accordingly, there can
be no assurance that existing levels of the allowance will ultimately prove
adequate to cover actual loan losses.
The allowance for loan losses was $3.8 million at March 31, 1995, and
$3.8 million at December 31, 1994, representing 55.7% and 50.7% of nonperforming
assets at those dates, respectively.
<PAGE>
<TABLE>
SECURITIES
Investment securities and securities available for sale consist of the following: (in thousands)
<CAPTION>
March 31, 1995
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Investment securities
Obligations of U.S. Treasury $ 119,146 $ 361 $ 2,436 $ 117,071
------- ---- ----- -------
Securities available for sale
U.S. Agencies 26,468 - 1,982 24,486
Obligations of states and
political subdivisions 1,116 17 - 1,133
Other debt securities 148 2 - 150
Equity securities 1,878 - - 1,878
------- ----- ----- ------
29,610 19 1,982 27,647
------- ----- ----- ------
Total securities $ 148,756 $ 380 $ 4,418 $ 144,718
======= ===== ===== =======
<CAPTION>
December 31, 1994
-------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- --------- --------- ------
<S> <C> <C> <C> <C>
Investment securities
Obligations of U.S. Treasury $ 121,512 $ 47 $ 4,841 $ 116,718
------- ---- ----- -------
Securities available for sale
Obligations of U.S. agencies 26,855 - 2,823 24,032
Obligations of states and
political subdivisions 1,442 12 2 1,452
Other debt securities 147 3 - 150
Equity securities 1,635 - - 1,635
------- ----- ------ ------
30,079 15 2,825 27,269
------- ----- ------ ------
Total securities $ 151,591 $ 62 $ 7,666 $ 143,987
======= ===== ====== =======
</TABLE>
<PAGE>
<TABLE>
At March 31, 1995, the contractual maturities of investment securities and securities available
for sale are as follows: (in thousands)
<CAPTION>
Securities
Investment Securities Available for Sale
----------------------- --------------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- ---------- --------- ------
<S> <C> <C> <C> <C>
Within 1 year $ 14,102 $ 14,140 $ 846 $ 851
After 1 but within 5 years 83,913 82,140 195 200
After 5 but within 10 years 21,131 20,791 123 125
After 10 years - - 26,568 24,593
Equity securities - - 1,878 1,878
------- ------- ------- ------
Total $119,146 $117,071 $29,610 $27,647
======= ======= ======= ======
</TABLE>
<PAGE>
<TABLE>
CAPITAL ADEQUACY
The table below presents the Company's capital position as of March 31, 1995: (dollars in thousands)
<S> <C> <C>
Stockholders' equity $ 36,565
Intangible assets (2,310)
Unrealized loss-securities available for sale 1,267
------
Tier 1 capital 35,522
Allowable portion of allowance
for loan losses
3,477
------
Total risk-based capital $ 38,999
======
Risk weighted assets $ 278,194
=======
Minimum
Actual Requirement
------ -----------
Risk-based ratio
Tier 1 12.77% 4.00%
Total 14.02 8.00
Leverage capital ratio 7.57 3.00
</TABLE>
<PAGE>
LIQUIDITY
Liquidity is the ability to provide promptly and economically the cash
necessary to meet customer credit needs and satisfy deposit withdrawal
requirements. Cash and cash equivalents totaled $28.1 million as of March 31,
1995, up from $26.0 million as of December 31, 1994. As of March 31, 1995,
securities maturing within one year amounted to $14.9 million, down from $15.3
million at December 31, 1994.
Another source of liquidity is borrowing capability. The Bank has a
variety of sources of short-term liquidity available, including federal funds
purchased from correspondent banks, the Federal Reserve discount window, credit
services through its membership in the Federal Home Loan Bank, sales of
securities under repurchase agreements as well as loan participation or sales of
loans and sales of securities available for sale. The Company also generates
liquidity from the regular principal payments made on its portfolio of loans.
The Company believes that these sources of liquidity are adequate to
meet its needs.
<PAGE>
<TABLE>
PART II OTHER INFORMATION
<S> <C>
Item 1. Legal Proceedings
Reference is made to Form 10-K filed for the year ended December 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is furnished herewith:
Exhibit No. 11 Statement Re: Computation of Per Share Earnings
(b) No reports on Form 8-K have been filed during the quarter ended March 31, 1995.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERCHANGE FINANCIAL SERVICES CORPORATION
by: /s/Robert N. Harris
-------------------
Robert N. Harris
Executive Vice President
<TABLE>
Exhibit 11
Computation of Per Share Earnings
(in thousands, except per share data)
<CAPTION>
Three months ended
March 31,
------------------------
1995 1994
---- ----
<S> <C> <C>
Net income $1,405 $ 1,171
Preferred dividend requirements $ 29 $ 28
Weighted average common shares outstanding 2,697 2,697
Net Income $ 0.51 $ 0.42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 20,178
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,647
<INVESTMENTS-CARRYING> 119,146
<INVESTMENTS-MARKET> 117,071
<LOANS> 286,837
<ALLOWANCE> 3,771
<TOTAL-ASSETS> 475,073
<DEPOSITS> 421,387
<SHORT-TERM> 9,302
<LIABILITIES-OTHER> 4,069
<LONG-TERM> 3,750
<COMMON> 4,495
0
5,000
<OTHER-SE> 39,188
<TOTAL-LIABILITIES-AND-EQUITY> 475,073
<INTEREST-LOAN> 6,688
<INTEREST-INVEST> 2,334
<INTEREST-OTHER> 72
<INTEREST-TOTAL> 9,100
<INTEREST-DEPOSIT> 3,417
<INTEREST-EXPENSE> 3,625
<INTEREST-INCOME-NET> 5,469
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,099
<INCOME-PRETAX> 2,161
<INCOME-PRE-EXTRAORDINARY> 2,161
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,405
<EPS-PRIMARY> 0.510
<EPS-DILUTED> 0.510
<YIELD-ACTUAL> 4.990
<LOANS-NON> 5,107
<LOANS-PAST> 0
<LOANS-TROUBLED> 470
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,839
<CHARGE-OFFS> 314
<RECOVERIES> 20
<ALLOWANCE-CLOSE> 3,771
<ALLOWANCE-DOMESTIC> 2,685
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,086
</TABLE>
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