<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
-------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks .................................................................... $ 26,510 $ 25,151
Federal funds sold ......................................................................... 200 --
-------- --------
Total cash and cash equivalents ............................................................ 26,710 25,151
-------- --------
Securities held to maturity at amortized cost (approximate
market value of $73,197 and $75,611 ) ................................................ 73,096 74,688
-------- --------
Securities available for sale at estimated market value
(amortized cost of $49,215 and $66,604 ) ............................................. 49,279 67,545
-------- --------
Loans ...................................................................................... 333,542 311,164
Less: Allowance for loan losses ........................................................... 3,567 3,647
-------- --------
Net loans .................................................................................. 329,975 307,517
-------- --------
Premises and equipment, net ................................................................ 5,346 5,510
Foreclosed real estate ..................................................................... 653 1,213
Accrued interest receivable and other assets ............................................... 8,262 9,833
-------- --------
TOTAL ASSETS ............................................................................... $493,321 $491,457
======== ========
LIABILITIES
Deposits
Noninterest bearing .................................................................. $ 73,982 $ 69,213
Interest bearing ..................................................................... 361,668 367,239
-------- --------
Total deposits ............................................................................. 435,650 436,452
Securities sold under agreements to repurchase ............................................. 10,150 1,704
Short-term borrowings ...................................................................... 1,250 9,200
Accrued interest payable and other liabilities ............................................. 3,627 3,860
-------- --------
TOTAL LIABILITIES .......................................................................... 450,677 451,216
-------- --------
STOCKHOLDERS' EQUITY
Common stock ............................................................................... 4,733 4,495
Capital surplus ............................................................................ 14,932 12,110
Retained earnings .......................................................................... 22,913 22,990
Unrealized gain - securities available for sale, net of income taxes ....................... 66 646
-------- --------
Total stockholders' equity ................................................................. 42,644 40,241
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................................. $493,321 $491,457
======== ========
- -----------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ -------------------
1996 1995 1996 1995
------ ------ ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ............................................ $ 7,295 $ 6,878 $21,468 $20,368
Interest on federal funds sold ........................................ 5 179 375 368
Interest and dividends on securities
Taxable interest income ........................................... 1,874 2,235 5,664 6,791
Interest income exempt from federal income taxes .................. 49 12 79 41
Dividends ......................................................... 39 43 115 123
------- ------- ------- -------
TOTAL INTEREST INCOME ................................................. 9,262 9,347 27,701 27,691
------- ------- ------- -------
INTEREST EXPENSE
Interest on deposits .................................................. 3,488 3,730 10,626 10,813
Interest on short-term borrowings ..................................... 89 90 344 352
Interest on long-term borrowings ...................................... -- 23 -- 130
------- ------- ------- -------
TOTAL INTEREST EXPENSE ................................................ 3,577 3,843 10,970 11,295
------- ------- ------- -------
NET INTEREST INCOME ................................................... 5,685 5,504 16,731 16,396
Provision for loan losses ............................................. 150 225 550 825
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ...................................................... 5,535 5,279 16,181 15,571
------- ------- ------- -------
NONINTEREST INCOME
Service fees on deposit accounts ...................................... 397 375 1,161 1,110
Net gain on sale of loans available for sale .......................... -- -- -- 22
Net gain on sale of securities available for sale ..................... -- -- 235 15
Accretion of discount in connection with acquisition .................. 131 190 511 570
Other ................................................................. 197 256 990 1,233
------- ------- ------- -------
TOTAL NONINTEREST INCOME .............................................. 675 821 2,897 2,950
------- ------- ------- -------
NONINTEREST EXPENSES
Salaries and benefits ................................................. 1,919 1,798 5,722 5,468
Net occupancy ......................................................... 539 522 1,637 1,547
Furniture and equipment ............................................... 171 177 534 506
Advertising and promotion ............................................. 213 201 561 580
Federal Deposit Insurance Corporation assessment ...................... 129 (14) 154 451
Foreclosed real estate expense ........................................ 116 46 235 156
Other ................................................................. 1,191 1,193 3,499 3,155
------- ------- ------- -------
TOTAL NONINTEREST EXPENSES ............................................ 4,228 3,923 12,342 11,863
------- ------- ------- -------
Income before income taxes ........................................... 1,982 2,177 6,736 6,658
Income taxes .......................................................... 694 762 2,358 2,273
------- ------- ------- -------
NET INCOME ............................................................ $ 1,288 $ 1,415 $ 4,378 $ 4,385
======= ======= ======= =======
PER COMMON SHARE ...................................................... $ 0.45 $ 0.49 $ 1.54 $ 1.52
======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
Unrealized
Gain/(Loss)
<CAPTION>
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, 1995 ....................... $ 5,000 $ 4,495 $ 11,333 $ 18,737 $ (1,813) $ (2,623) $35,129
Net income ....................................... 4,385 4,385
Dividends on common stock at $0.514 per share (1) (1,456) (1,456)
Dividends on preferred stock ..................... (85) (85)
Purchase of 32,000 preferred shares .............. (1,600) (1,600)
Retirement of 100,000 shares of preferred stock .. (5,000) 777 4,223 --
Increase in market valuation - securities
available for sale, net of income taxes ...... 1,226 1,226
-------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1995 .................... -- 4,495 12,110 21,581 (587) -- 37,599
Net income ....................................... 1,895 1,895
Dividends on common stock at $0.172 per share (1) (486) (486)
Dividends on preferred stock ..................... -- --
Increase in market valuation - securities
available for sale, net of income taxes ...... 1,233 1,233
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1995 ..................... -- 4,495 12,110 22,990 646 -- 40,241
Net income ....................................... 4,378 4,378
Dividends on common stock at $0.547 per share (1) (1,551) (1,551)
5% common stock dividend ......................... 226 2,678 (2,904) --
Fractional shares of 5% common stock dividend .... (5) (5)
Issued 7,498 shares of common stock
in connection with incentive plan ............ 12 149 161
Decrease in market valuation - securities
available for sale, net of income taxes ...... (580) (580)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1996 .................... $ -- $ 4,733 $ 14,932 $ 22,913 $ 66 $ -- $42,644
======== ======== ======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Restated for retroactive effect of 5% common stock dividend issued on April 19, 1996 to shareholders of record on March 20,1996
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the nine months ended
September 30,
---------------------------
1996 1995
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................................. $ 4,378 $ 4,385
Non-cash items included in earnings
Depreciation and amortization of fixed assets ........................................... 755 618
Amortization of securities premiums ..................................................... 801 1,106
Accretion of securities discounts ....................................................... (48) (40)
Amortization of premiums in connection with acquisition ................................. 333 333
Accretion of discount in connection with acquisition .................................... (511) (570)
Provision for loan losses ............................................................... 550 825
Net gain on sale of securities available for sale ....................................... (235) (15)
Net gain on sale of loans available for sale ........................................... -- (22)
Net loss/(gain) on sale of foreclosed real estate ....................................... 87 (13)
Decrease/(increase) in carrying value of loans available for sale ....................... 30 (74)
Loss on sale of fixed assets ............................................................ -- 27
(Increase) decrease in operating assets
Net origination of loans available for sale ............................................. (108) (484)
Proceeds from sale of loans available for sale .......................................... -- 837
Accrued interest receivable ............................................................. 616 56
Deferred income taxes ................................................................... (84) --
Other ................................................................................... 1,014 1,008
Increase/(decrease) in operating liabilities
Accrued interest payable ................................................................ 93 226
Other ................................................................................... (326) 194
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES ...................................................... 7,345 8,397
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from (payments for)
Net originations of loans ............................................................... (20,482) (4,407)
Purchase of loans ....................................................................... (2,116) (642)
Purchase of securities available for sale ............................................... (21,528) (4,915)
Maturities of securities available for sale ............................................. 618 1,351
Sale of securities available for sale ................................................... 38,349 2,484
Sale of foreclosed real estate .......................................................... 644 309
Purchase of securities held to maturity .................................................. (19,266) (3,999)
Maturities of securities held to maturity ................................................ 20,270 9,000
Proceeds from/(payments on) foreclosed real estate ...................................... 8 (78)
Purchase of fixed assets ............................................................... (582) (1,514)
Sale of fixed assets .................................................................... -- 4
-------- --------
CASH USED FOR INVESTING ACTIVITIES ......................................................... (4,085) (2,407)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments for) proceeds from
Deposits (less) more than withdrawals ................................................... (802) 4,111
Securities sold under agreements to repurchase .......................................... 15,828 --
Retirement of other borrowings .......................................................... (7,950) (9,750)
Retirement of securities sold under agreement
to repurchase ........................................................................ (7,382) (602)
Dividends ............................................................................... (1,551) (1,541)
Preferred stock ......................................................................... -- (1,600)
Common stock issued ..................................................................... 156 --
-------- --------
CASH USED FOR FINANCING ACTIVITIES ......................................................... (1,701) (9,382)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS ...................................................... 1,559 (3,392)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................................... 25,151 25,965
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................................... $ 26,710 $ 22,573
======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest ............................................................................. $ 10,876 $ 11,069
Income taxes ......................................................................... 2,960 2,524
Supplemental disclosure of non-cash investing activities:
Loans transferred to foreclosed real estate .......................................... $ 179 $ 593
Decrease/(increase)-market valuation of securities available
for sale .......................................................................... 876 (1,901)
Amortization of valuation allowance-securities
transferred from availabe to sale to held to maturity ............................. 21 --
See notes to consolidated financial statements
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
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, 1995.
Consolidated financial data for the nine months ended September 30, 1996
and 1995, 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. LEGAL PROCEEDINGS
Interchange State Bank's (the "Bank"), a wholly owned subsidiary of the
Company was a party to a lawsuit commenced in April 1989 (Great American
Mortgage Corp., et al, v. Robert Utter, et al.), filed in the Superior Court of
New Jersey alleging that the Bank was statutorily liable in conversion for
having paid checks drawn on deposit accounts of plaintiffs at the Bank bearing
irregular endorsements. Various other legal proceedings related to the foregoing
were also instituted in which the Bank pursued various parties whom the Bank
alleged were liable to it. On August 2, 1996, the Bank paid $120,000 plus
prejudgment interest to settle the final matter pertaining to these occurrences.
The remainder of a reserve, which had been established in 1992, was sufficient
to cover the amount of the settlement. All legal proceedings related to these
occurrences have now been resolved.
The Company is also a party to routine litigation involving various aspects
of its business, none of which, in the opinion of management, after consultation
with legal counsel, is expected to have a material adverse impact on the
consolidated financial condition, results of operations or liquidity of the
Company.
3. EMPLOYEES' STOCK OPTION PLAN
In October 1995, the Financial Accounting Standards Board adopted Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which was
effective for the Company as of January 1, 1996. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages, but does not require compensation cost to be measured based on the
fair value of the equity instrument awarded. Companies are permitted, however,
to continue to apply APB Opinion No. 25, which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The Company will
continue to apply APB Opinion No. 25 to its stock-based compensation awards to
employees and will disclose the required pro forma effect on net income and
earnings per share in its annual financial statements.
<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 and nine months
ended September 30, 1996 and 1995, and should be read in conjunction with the
consolidated financial statements and notes thereto included in Item 1 hereof.
RESULTS OF OPERATIONS
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.
THREE MONTHS
Net Income for the quarter ended September 30, 1996, was $1.3 million or
$0.45 per share as compared to $1.4 million or $0.49 per share for the same
period a year ago. The decrease was attributable to several components which are
described in the following paragraphs.
Net income decreased because noninterest expenses for the third quarter
1996 increased $355 thousand or 9.0% over the same period a year ago. The
increase resulted primarily from a $143 thousand increase in Federal Deposit
Insurance Corporation ("FDIC") costs of which $114 thousand resulted from a one
time special assessment. The assessment represents the Company's apportionment
of an amount necessary to recapitalize the Savings Association Insurance Fund
("SAIF"). In addition, costs of $109 thousand incurred during the third quarter
of 1996 to sell nonperforming assets also contributed to the increase. Also, a
$121 thousand increase in salaries and benefits due largely to annual salary
increases was partly responsible for the change. Furthermore, noninterest
expenses were negatively affected by costs associated with the opening of a new
branch office during the second quarter of 1996.
Net income was negatively affected by a $96 thousand decrease in
noninterest income for the current quarter as compared to the same period a year
ago. The decrease was mostly attributable to the following components: a $46
thousand reduction of servicing fee income due to the sale of loan servicing
rights which occurred in the fourth quarter of 1995; and, a $59 thousand
decrease in the accretion of discounts in connection with an acquisition.
Earnings for the quarter were favorably impacted by a $181 thousand or 3.3%
growth in net interest income compared to the same period a year ago.
Contributing to this growth was an increase of $8.3 million in average interest
earning assets over the comparable 1995 period. The growth occurred mostly in
loans which had an average aggregate balance of $329.4 million, an increase of
$40.7 million or 14.1% over the comparable 1995 period. Proceeds from the sale
and maturity of investment securities funded a significant portion of the growth
in loans, thereby, resulting in a positive shift in the composition of the
Company's earning assets. The benefit derived from the positive trend in earning
assets was rather offset by a 22 basis point decrease in net yield on average
earning assets for the 1996 period as compared to the same 1995 period. In
addition, earnings for the period were positively affected by a decrease of 28
basis point in the Company's funding costs which provided a boost to the
Company's net interest spread for the 1996 period as compared to the 1995
period.
Earnings for the quarter ended September 30, 1996, were favorably affected
by a $75 thousand decrease in the provision for loan losses, as compared to the
same period a year ago. The amount provided for loan losses during 1996 was
reduced based upon the results of the analysis described in the section titled
"Provision for Loan Losses and Loan Loss Experience" in which, based on
management's opinion, using the best available information, it was determined
that the allowance for loan losses was sufficient to cover future loan losses on
existing loans.
NINE MONTHS
Net Income for the nine months ended September 30, 1996, was $4.4 million
or $1.54 per share, as compared to $4.4 million or $1.52 per share for the same
period a year ago. The significant components of net income are described in the
following paragraphs.
Earnings for the nine month period were positively affected by a $335
thousand or 2.0% growth in net interest income from the same period a year ago.
Contributing to the growth in net interest income was an increase of $12.0
million in average interest earning assets for the 1996 period over the
comparable 1995 period. The growth occurred mostly in loans which had an average
balance of $319.8 million, an increase of $32.2 million or 11.2% over the
comparable 1995 period. Proceeds from the sale and maturity of investment
securities funded a significant portion of the growth in loans, thereby,
generating a positive shift in the composition of the Company's earning assets.
The Company's net yield on average earning assets fell 22 basis points for the
1996 period as compared to the same 1995 period, while its funding costs
decreased 16 basis points for the same periods. This asymmetric shift in net
yield versus funding costs served to offset some of the positive benefits
attributed to the loan growth.
Noninterest income for the first nine months of 1996 decreased $53 thousand
or 1.8% despite a $235 thousand gain from the sale of securities that occurred
in the first quarter of 1996. The decrease was mostly attributable to the
following components: a $162 thousand reduction of servicing fee income due to
the sale of loan servicing rights which occurred in the fourth quarter of 1995;
and, a $59 thousand decrease in the accretion of discounts in connection with an
acquisition.
Noninterest expenses for the period increased $479 thousand or 4.0% over
the same period a year ago. This occurred because other noninterest expenses for
the 1995 period were favorably affected by the $250 thousand reversal of a
previously established litigation reserve resulting from the partial settlement
of a lawsuit. Adjusted for the reversal of the reserve, noninterest expenses for
the 1996 period would have increased $229 thousand or 1.9% as compared to the
same period a year ago. An increase of $254 thousand in salaries and benefits
due largely to annual salary increases contributed to the increase. Furthermore,
a one time special FDIC assessment (discussed previously) of $114 thousand and
costs of $109 thousand incurred during the third quarter of 1996 to sell
nonperforming assets also contributed to the increase. In addition, noninterest
expenses were negatively affected by costs associated with the opening of a new
branch office during the second quarter of 1996.
Earnings for the nine month period ended September 30, 1996, were favorably
affected by a $275 thousand decrease in the provision for loan losses as
compared to the same period a year ago. The amount provided for loan losses
during 1996 was reduced based upon the results of the analysis described in the
section titled "Provision for Loan Losses and Loan Loss Experience" in which,
based on management's opinion, using the best available information, it was
determined that the allowance for loan losses was sufficient to cover future
loan losses on existing loans.
NONPERFORMING ASSETS
Nonperforming assets, consisting of nonaccrual loans, restructured loans
and foreclosed real estate, decreased $1.2 million from $5.2 million at December
31, 1995, to $4.0 million at September 30, 1996. For the third quarter 1996,
nonperforming assets decreased $2.3 million from $6.3 million for the quarter
ended June 30, 1996. The reduction resulted primarily from a third quarter sale
of $1.8 million of nonperforming assets. The ratio of nonperforming assets to
total loans and foreclosed real estate decreased from 1.66% at December 31,
1995, to 1.20% at September 30, 1996. The ratio, at September 30, 1996,
decreased from 1.93% as of the quarter ended June 30, 1996.
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 $3.6 million at September 30, 1996, and
$3.6 million at December 31, 1995, representing 106.4% and 91.7% of
nonperforming loans at those dates, respectively.
<PAGE>
<TABLE>
SECURITIES
Securities held to maturity and securities available for sale consist of the following: (in thousands)
<CAPTION>
September 30, 1996
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ --------- ----------- -------------
<S> <C> <C> <C> <C>
Securities held to maturity
Obligations of U.S. Treasury ................... $ 50,664 $267 $ 8 $ 50,923
Obligations of U.S. Agencies ................... 11,085 -- 61 11,024
Obligations of state and political
subdivisions.................................. 5,842 1 10 5,833
Other debt securities .......................... 5,505 -- 88 5,417
-------- -------- -------- --------
73,096 268 167 73,197
-------- -------- -------- --------
Securities available for sale
Obligations of U.S. Treasury ................... 25,698 484 309 25,873
Obligations of U.S. Agencies ................... 17,452 15 126 17,341
Other debt securities .......................... 2,153 -- 34 2,119
Equity securities .............................. 3,912 34 -- 3,946
-------- -------- -------- --------
49,215 533 469 49,279
-------- -------- -------- --------
Total securities ............................. $122,311 $ 801 $ 636 $122,476
======== ======== ======== ========
<CAPTION>
December 31, 1995
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ --------- ----------- -------------
<S> <C> <C> <C> <C>
Securities held to maturity
Obligations of U.S. Treasury ................... $ 65,223 $ 942 $ 26 $ 66,139
Obligations of U.S. agencies ................... 8,037 7 -- 8,044
Obligations of states & political
subdivisions ................................. 1,278 -- -- 1,278
Other debt securities .......................... 150 -- -- 150
-------- -------- -------- --------
74,688 949 26 75,611
-------- -------- -------- --------
Securities available for sale
Obligations of U.S. Treasury ................... 40,888 1,466 184 42,170
Obligations of U.S. agencies ................... 23,282 -- 341 22,941
Equity securities .............................. 2,434 -- -- 2,434
-------- -------- -------- --------
66,604 1,466 525 67,545
-------- -------- -------- --------
Total securities ............................. $141,292 $2,415 $551 $143,156
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
At September 30, 1996, the contractual maturities of investment securities and securities available
for sale are as follows: (in thousands)
<CAPTION>
Securities
Securities Held to Maturity Available for Sale
------------------------------- ----------------------------
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Within 1 year $35,852 $35,997 - -
After 1 but within 5 years 26,586 26,661 $29,636 $29,805
After 5 but within 10 years 4,198 4,179 7,680 7,617
After 10 years 6,460 6,360 7,987 7,911
Equity securities - - 3,912 3,946
----------- ---------- ---------- ----------
Total $73,096 $73,197 $49,215 $49,279
=========== ========== ========== ==========
</TABLE>
<TABLE>
CAPITAL ADEQUACY
The table below presents the Company's capital position as of September 30, 1996: (dollars in thousands)
<S> <C>
Stockholders' equity .......................................... $ 42,644
Intangible assets ............................................. (1,088)
Unrealized gain - securities available for sale,
net of income taxes ...................................... (66)
--------
Tier 1 capital ................................................ 41,490
Allowable portion of allowance
for loan losses .......................................... 3,567
--------
Total risk-based capital ...................................... $ 45,057
========
Risk weighted assets $310,181
=========
<CAPTION>
Minimum
Actual Requirement
------------ --------------
<S> <C> <C>
Risk-based ratio
Tier 1 ................................... 13.38% 4.00%
Total .................................... 14.53 8.00
Leverage capital ratio ........................ 8.49 3.00
</TABLE>
<PAGE>
LIQUIDITY
Liquidity is the ability to provide sufficient resources to meet all
financial obligations and finance prospective business opportunities. Liquidity
levels over any given period of time are a product of the Company's operating,
financing and investing activities. The extent of such activities are often
shaped by such external factors as competition for deposits and demand for
loans.
Funding for the Company's loans and investments is derived primarily from
deposits, along with interest and principal payments on loans and investments.
At September 30, 1996, average total deposits increased by $9.0 million from
$425.7 million at December 31, 1995. Average total deposits increased by $10.2
million from $424.5 million at September 30, 1995.
In 1996, loan production continued to be the Company's principal investing
activity. Net loans at September 30, 1996 amounted to $330.0 million compared to
$307.5 million at December 31, 1995, an increase of $22.5 million for the
nine-month period. Furthermore, net loans increased $39.2 million from September
30, 1995.
The Company's most liquid assets are cash and due from banks and federal
funds sold. At September 30, 1996, the total of such assets amounted to $26.7
million compared to $25.1 million at December 31, 1995, an increase of $1.6
million. The Company's available for sale ("AFS") securities portfolio is also a
significant source of liquidity. At September 30, 1996, the Company's AFS
portfolio amounted to $49.3 million or 40.3% of total investments down from
$67.5 million or 47.5% at December 31, 1995. The decline resulted from the sale
of securities during the first quarter of 1996 in which only a portion of the
proceeds were reinvested in AFS securities.
Sales of securities under repurchase agreements ("Repos") amounting to $10
million were a significant financing activity for the Company in the third
quarter of 1996. The repos were used to replace repos and Federal Home Loan Bank
borrowings that matured earlier in the year.
In addition to the aforementioned sources of liquidity, the Company derives
liquidity from various other sources, including federal funds purchased from
other banks and sales of securities under repurchase agreements. The Bank also
has a $49.1 million line of credit available through its membership in the
Federal Home Loan Bank of New York. Another source of liquidity is the Bank's
ability to borrow from the Federal Reserve discount window.
Management believes that the Company's sources of funds are sufficient to
meet its funding requirements.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Form 10-K filed for the year ended December 31, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is furnished herewith:
EXHIBIT NO.
10 Material contracts
(a) Agreement for legal services between Andora, Palmisano
& Geaney and the Company dated April 25, 1996
(b) Lease for Oakland, New Jersey Branch Office dated March
11, 1996
11 Statement Re: Computation of Per Share Earnings
(b) No reports on Form 8-K have been filed during the quarter ended
September 30, 1996.
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
Date: November 14, 1996 by: /S/ROBERT N. HARRIS
Robert N. Harris, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer and
and Duly Authorized Officer)
AGREEMENT FOR LEGAL SERVICES
THIS AGREEMENT for legal services made this 25th day of April, 1996, by
and between:
ANDORA, PALMISANO & GEANEY
A Professional Corporation
303 Molnar Drive, P.O. Box 431
Elmwood Park, New Jersey 07407-0431
hereinafter referred to as "Attorneys",
and
INTERCHANGE FINANCIAL SERVICES CORPORATION
Park 80 West, Plaza Two
Saddle Brook, New Jersey 07662
and
INTERCHANGE STATE BANK
A Banking Corporation
Park 80 West, Plaza Two
Saddle Brook, New Jersey 07662
hereinafter referred to as "Clients".
IN CONSIDERATION of the mutual promises, covenants and undertakings
contained herein the Attorneys and the Clients agree as follows:
1. RETAINER
Clients hereby retain the services of Attorneys to act as its corporate
counsel for the term and compensation as outlined herein.
2. TERM
The Attorneys shall be retained by Clients until the next annual
reorganization meeting of Clients.
3. COMPENSATION
The Clients shall pay the Attorneys for services rendered as corporate
counsel an annual retainer of NINETY-FIVE THOUSAND DOLLARS ($95,000.00) payable
in equal monthly installments on the first day of each and every month
commencing the first day of the month following the execution of this Agreement.
Clients shall, in addition to the annual retainer, pay to the Attorneys all
out-of-pocket expenses, filing fees, or disbursements made by the Attorneys on
Clients' behalf. Clients shall, in addition to the payment of the annual
retainer and all costs, pay to the Attorneys a legal fee based on the rate per
hour as shown on SCHEDULE A for all legal services provided to Clients by the
Attorney which are "legal services rendered in addition to those rendered as
corporate counsel." Such fees and costs shall be billed by Attorneys to clients
on a thirty-day basis and Clients shall pay all bills within five (5) days after
each monthly Board of Director's meeting of the Clients.
4. DEFINITIONS
The following words and phrases shall have the following meanings:
A. "Legal services rendered as corporate counsel" shall mean and
include all of the following types of legal work:
1. Except as hereinafter set forth in subparagraph B, document
review and drafting of documents on behalf of the Clients
including, but not limited to: leases, notes, contracts,
mortgages, commitment letters, disclosure statements,
modifications, extensions and legal agreements not related
to third-party borrowers, except residential mortgage
reviews.
2. Providing legal advice required in the usual course of
Clients' business including compliance analysis.
3. Attendance at Board of Director's and Shareholders' Meetings
other than as a Director.
4. Advice regarding levies and executions
5. Preparation of annual SEC 10K, 10Q and "ordinary" proxy
filings.
B. "Legal services rendered in addition to those rendered as general
corporate counsel" shall mean and include, but not be limited to,
all of the following types of legal work which shall be billed on
an hourly basis:
1. Litigation in which Clients are named as defendants.
2. Litigation or other proceedings in which Clients and another
person or agency (i.e., Small Business Administration)
specially retain Attorney. The hourly rate for such legal
services shall be specifically agreed upon by Clients, the
agency, and Attorneys.
3. Foreclosure litigation, including lien protection litigation
in any Court including the Bankruptcy Court.
4. Regulatory or administrative law proceedings including but
not limited to Department of Banking, zoning agencies,
N.L.R.B., F.D.I.C., and Tax Court.
5. Loan reviews and closings, including modifications and
extensions thereof, except that the fee shall be based upon
$250.00 per hour plus costs and such fee shall not exceed
1/2% of the principal amount of the loan plus costs but in
no event shall such fee be less than $250.00.
6. Closings in which the bank is a buyer or seller.
7. SEC Filings other than annual 10K, 10Q or "ordinary" proxy
filings.
8. Mergers and Acquisitions.
9. All other legal services not specifically set forth in
Paragraph 4A.
5. BINDING EFFECT
This agreement shall be binding upon and shall inure to the benefit of
the parties' successors or assigns.
6. NO ASSIGNMENT
This agreement shall not be assigned or sublet without the express
written consent of the parties.
7. LAW APPLICABLE
This agreement shall be governed by the laws of the State of New
Jersey.
8. SEVERABILITY
In the event any clause, section or paragraph of this agreement shall
be declared invalid or unenforceable by a court of competent jurisdiction, such
invalidity or unenforceability shall not affect the remainder of this Agreement.
<PAGE>
IN WITNESS WHEREOF the parties have hereunto signed this agreement the
date first above written.
INTERCHANGE STATE BANK
ATTEST:
/S/BENJAMIN ROSENZWEIG /S/ ANTHONY S. ABBATE
Benjamin Rosenzweig, Secretary Anthony S. Abbate, President
INTERCHANGE FINANCIAL SERVICES CORPORATION
ATTEST:
/S/BENJAMIN ROSENZWEIG /S/ ANTHONY S. ABBATE
Benjamin Rosenzweig, Secretary Anthony S. Abbate, President
ATTEST: ANDORA, PALMISANO & GEANEY
JOHN P. PALMISANO, /S/ ANTHONY D. ANDORA
John P. Palmisano, Secretary Anthony D. Andora, President
<PAGE>
SCHEDULE A
The hourly rates contained herein are subject to change on the
anniversary dates of the Agreement of Legal Services.
Schedule A, reviewed and approved at Annual Reorganization Meeting on
April 25, 1996.
Andora D. Andora $200.00 per hour
John P. Palmisano $200.00 per hour
John F. Geaney $200.00 per hour
Other Partners and
Senior Associates $175.00 per hour
Other Associates $150.00 per hour
SPACE LEASE
THIS AGREEMENT, made as of the 11th day of March, 1996 by and between
ROBERT F. GALLO and W. CARY EDWARDS, JR., having an office at 3 Post Road,
Oakland, Bergen County, New Jersey 07436 (the "Landlord"), and
INTERCHANGE STATE BANK, having an office at Park 80 West/Plaza Two,
Saddle Brook, New Jersey 07662-5893 (the "Tenant");
WITNESSETH:
1. Premises and Term - The Landlord has let unto the Tenant and the
Tenant has hired from the Landlord 2565 square feet of space on the ground floor
of the building located at the northwesterly corner of Long Hill Road and Post
Road, in the Borough of Oakland, Bergen County, New Jersey, commonly known as 3
Post Road, Oakland, new Jersey (the space let being hereinafter called the
("premises") for a period of five (5) years beginning April 1, 1996 and ending
on March 31, 2001, to be used as a bank office or for any other business or
professional office use permitted by law and not otherwise. Notwithstanding the
foregoing, the Tenant will be permitted to occupy the premises prior to April 1,
1996 provided the Tenant has received all governmental and regulatory approvals
necessary for the operation of a branch banking facility at the premises and the
current tenant has vacated the premises. In the event the Tenant occupies the
premises prior to April 1, 1996, the term of this Lease shall commence on such
date and the Tenant shall pay rent for the portion of the period of time it goes
into possession prior to April 1, 1996 at the rate of $5,000.00 per month.
TO HAVE AND TO HOLD the premises, with the appurtenances thereto, unto
the Tenant for and during the full term of five (5) years, unless sooner
terminated as hereinafter provided.
2. Rent - The Tenant shall pay to the Landlord at its place of business
at 3 Post Road, Oakland, New Jersey 07436, or at such other place or places as
may be designated by the Landlord from time to time, the annual rent for the
first three (3) years of the term of $60,000.00, payable in equal monthly
installments of $5,000.00 on the first day of each and every month in advance,
annual rent for the fourth and fifth years of the term of this Lease shall be
$63,000.00, payable in equal monthly installments of $5,250.00 on the first day
of each and every month in advance subject to adjustments as provided in
Subsection 7.04 and, in addition, all other amounts, liabilities and obligations
which the Tenant assumes or agrees to pay or discharge pursuant to this Lease,
whether or not specifically designated as additional rent, which additional sums
are hereby declared to be additional rent and due and payable as rent under this
Lease, each of which, if not paid within the grace period hereinafter provided,
shall bear interest at a rate two percentage points above the Prime Rate in
effect from time to time from the day it is payable under the terms of this
Lease until it shall have been fully paid.
3. Definitions -
(a) The term "Improvements" means the building erected on the land in
which the premises are located, and all equipment, fixtures and items
of personal property attached to and used in the operation or
maintenance of the building, specifically including, but not limited
to, pavement, curbs, walks and other site improvements, machinery,
elevators, heating and air-conditioning systems and equipment and all
additions, alterations, restorations and repairs to and replacements
of any of the foregoing (but not including trade fixtures, machinery
and equipment and/or computers which are the property of a subtenant
or third parties).
(b) The term "Property" means the land and the Improvements located at
3 Post Road, Oakland, New Jersey.
(c) The term "Tenant" means the tenant in possession under this Lease
and shall include any successor assignee of the Tenant's interest in
this Lease.
(d) The term "Tenant's estate" means all the right, title and interest
of the Tenant in the premises.
(e) The term "Landlord's estate" means all the right, title and
interest of the Landlord in the Property.
(f) The term "Mortgage" means any mortgage, deed of trust or other
security instrument from Landlord to a third party which creates a
first lien on the Landlord's estate.
(g) The term "Mortgagee" means the mortgagee or a beneficiary under
the Mortgage.
(h) The term "Prime Rate" means the announced prime rate from time to
time of Tenant or by such banking institution as may have succeeded to
the business of Tenant.
4. Defaults -
(a) If the rent or any part thereof or any sum of money due or payable
as additional rent is not paid on any day such payment is due, and if
such default continues for a period of ten (10) days after notice and
demand, or
(b) If the Tenant at any time fails in the performance of or permits
the violation of any of the covenants, conditions, terms or provisions
contained in this Lease, which, on the part of the Tenant, are or
ought to be observed, performed or fulfilled and, except where a
specific time is provided for the performance of any covenant or
condition, when such default is not made good within thirty (30) days
after written notice and demand (or, if the default is of such a
nature that it cannot reasonably be cured within thirty (30) days,
when correction of such default has not been commenced within thirty
(30) days and diligently prosecuted to conclusion), then and in any of
the events enumerated in paragraphs (a) or (b) above, the Landlord
may, at its option, on five (5) days' notice in writing terminate this
Lease and this Lease and the term thereof shall automatically cease
and terminate at the expiration of such five (5) day period, and it
shall be lawful for the Landlord, at its option, to enter the premises
or any part thereof, and to have, hold, repossess and enjoy the
premises, and the Landlord may recover the premises and remove all
persons by summary proceedings or by any action or proceeding, or by
force or otherwise, anything herein contained to the contrary
notwithstanding, and any notice required by any statutes now or
hereafter in force are waived.
5. Tenant's Covenants - The Tenant covenants and agrees to and with
the Landlord as follows:
5.01 Payment of Rent - That it will pay the rent at the time and
place, and in the manner provided in Section 2.
5.02 Condition of Premises; Repairs - The Tenant will take good
care of the premises and, at its own cost and expense, make all repairs thereto,
except:
(a) Such repairs as are to be made by the Landlord as
hereinafter provided, or
(b) Such repairs as are necessary as a result of damage or
destruction by fire or other casualty and which are provided
for in Subsection 7.07; and, at the end or other expiration
of the term, deliver up the premises in good order or
condition, ordinary wear and tear excepted; all repairs
shall be in quality and class equal to the original work; if
the Tenant fails to make any such repairs, the Landlord may
make the same for the account of the Tenant.
5.03 Real Estate Taxes -
(a) It will pay to the Landlord, as additional rent, its
share of the real estate taxes assessed against the Property
each calendar year during the term of this Lease in excess
of the amount of the real estate taxes assessed against the
Property for the calendar year 1995.
(b) The Tenant's share of real estate taxes for each
calendar year after 1995 shall be 21% of the difference
between the tax which becomes due and payable with respect
to the Property for the calendar year 1995 and the tax which
becomes due and payable with the respect to the Property
during the calendar year in question. The Tenant shall be
entitled to deduct or be reimbursed for all reasonable
expenses incurred by Tenant in connection with a tax appeal
filed pursuant to the provisions hereof, including
reasonable filing fees, appraisal fees, legal fees and
disbursements. The balance of the proceeds of the refund in
excess of such expenses shall be turned over to the Landlord
and the Landlord will reimburse the Tenant in connection
with the percentage of taxes for which the Tenant has paid
under this Lease.
(c) The Tenant's share of the increase of real estate taxes
for each calendar year shall be due and payable within
thirty (30) days after billing therefor by the Landlord.
(d) If the expiration date of the Lease does not coincide
with the calendar year, then the Tenant's share of the
increase of tax for the year in which the Lease terminates
shall be proportionately reduced according to the portion of
the year which will elapse prior to the termination date.
(e) The Tenant may, in its own name or in the name of the
Landlord, with the consent of twenty-one (21%) percent
(based on floor area) of all of the tenants affected by any
real estate tax, file such applications or protests for the
correction or reduction of assessed valuations and prosecute
such actions or proceedings as it may deem advisable. The
Landlord shall sign such applications, protests and other
instruments as may be necessary for a review by any
regulatory body or by any court of such assessed valuation.
All expenses of any kind in connection with such
applications, protests or proceedings before any regulatory
body or any court for the foregoing purposes shall be paid
by the Tenant. The Landlord shall make available to the
Tenant in connection with any such applications or
proceedings such information as may be reasonably necessary
for the proper prosecution of any such action or proceeding.
5.04 Landlord's Operating Expense - It will reimburse the Landlord for
its share of the increase in the Landlord's gross cost of operation of the
Property, excluding real estate taxes and insurance, over the Landlord's gross
cost of operation of the Property for the calendar year 1995 in accordance with
the following:
(a) Common facilities shall mean common hallways, stairways,
elevator, parking area, driveways, sidewalks and all other
areas in the Property now or hereafter constructed and
intended to be used in common by or for the tenants of the
Property.
(b) The Tenant's share of the increase of the Landlord's
gross cost for the operation of the Property shall be
determined for each calendar year by subtracting the cost
for the year 1995 from the costs for the calendar year in
question and multiplying the difference by the same ratio as
is used to determine the Tenant's share of real estate taxes
in accordance with Subsection 5.03 (Real Estate Taxes).
(c) The Landlord's gross cost shall include:
(i) Electricity for lighting of common
facilities.
(ii) Repairs and maintenance to the common
facilities (including landscaping, snow
removal, trash removal and burglar alarm
services) not properly chargeable to
capital account under generally accepted
accounting principles.
(iii) Fuel for hot water.
(iv) Water
(v) Other similar direct costs, exclusive of
real estate taxes and insurance.
(vi) A management fee equal to ten (10)
percent of the aggregate of items (i)
through (v) above and the real estate
taxes for the applicable calendar year,
the insurance premiums payable for the
applicable year and the increase in
mortgage interest expenses as described
in Subsection 5.06.
(d) If the expiration date of the Lease does not coincide
with the calendar year, then the Tenant's share of the
increase of operating expense for the calendar year in which
the Lease terminates shall be proportionately reduced
according to the portion of the year which will elapse prior
to the termination date.
5.05 Insurance Premiums - It will pay to the Landlord as additional
rent its share of any increase in premiums for fire, extended coverage and
general liability insurance policies covering the Property ("insurance"),
whether resulting from an increase in premium rates (unless the increase is
caused by a higher risk use of other space in the building by another tenant) or
from a reasonable increase in the amount of insurance carried, in accordance
with the following provisions:
(a) The base premium shall be the total of the annualized
premiums for all insurance which is in effect at the last
day of the calendar year 1995.
(b) The increase in insurance premiums shall be calculated
at the close of each calendar year by subtracting the base
premium from the total of the annualized premiums for all
insurance in effect at the last day of each succeeding
calendar year.
(c) The Tenant's share of the increase in insurance premiums
for each calendar year shall be calculated by multiplying
the increase by the same fraction as that defined in
Subsection 5.03 (Real Estate Taxes) and shall be due and
payable within thirty (30) days after billing by the
Landlord.
(d) If the expiration date of the Lease does not coincide
with the calendar year and then the Tenant's share of the
increase of insurance premiums for the calendar year in
which the Lease terminates shall be proportionately reduced
according to the portion of the year which will elapse prior
to the termination date.
5.06 Increased Mortgage Interest Expense - It will pay to the Landlord
as additional rent its share of any increase in the interest paid by the
Landlord under any mortgage loan which the Landlord secures to refinance the
unamortized balance of the existing Mortgage at its maturity (a "new mortgage")
or the unamortized balance of any new mortgage at its maturity (likewise a "new
mortgage") in accordance with the following:
(a) There will be no additional rent payable if the interest
rate on a new mortgage loan is equal to or lower than the
interest rate on the Mortgage.
(b) The interest paid by the Landlord under any new mortgage
loan shall be the rate actually used to calculate interest
under any new mortgage.
(c) The Tenant's share of the Landlord's increased interest
cost shall be calculated by multiplying the increase
[determined from the calculation described in paragraph (b)]
by the same fraction as that defined in Subsection 5.03
(Real Estate Taxes) and shall be due and payable within 30
days after billing by the Landlord.
(d) Nothing contained in this Subsection 5.06 shall be
deemed to limit the right of the Landlord to refinance for
such principal amount and on such terms as it may wish.
(e) The Tenant shall not be responsible for the cost of any
such refinance of the Mortgage; nor shall the Tenant be
responsible for any interest on the principal balance of
such new mortgage in excess of the outstanding principal of
the Mortgage.
5.07 Compliance with Laws - It will not use, occupy, or permit the
premises to be used or occupied for any unlawful purpose, and will promptly
execute and comply with all statutes, ordinances, rules, orders, regulations and
requirements of the Federal, State and Municipal Government, and of all of their
Departments and Bureaus applicable to the premises for the correction,
prevention and abatement of nuisances, violations or other grievances, in, upon
or connected with the premises during the term, and also promptly comply with
and execute all rules, orders and regulations of the Board of Fire Underwriters
for the prevention of fires, at its own cost and expense; nothing contained in
this paragraph shall apply to those portions of the building or the property
constructed or maintained by the Landlord pursuant to this Lease nor shall the
Tenant be responsible to pay for structural changes to the premises required by
the Tenant's use of the premises as a branch banking facility.
If it fails or neglects to comply with such statutes, ordinances,
rules, orders, regulations and requirements, or any of them, or if it fails or
neglects to make the repairs required to be made by the Tenant, then the
Landlord, or its agents, may enter the premises, provided Tenant's failure or
neglect has continued for ten (10) days after written notice from Landlord to
Tenant, and make such repairs and comply with all of such statutes, ordinances,
rules, orders, regulations or requirements at the cost and expense of the
Tenant, and in case of its failure to pay therefor, the cost and expense shall
be deemed to be additional rent and shall be due and payable as such. This
provision is in addition to the right of the Landlord to terminate this Lease by
reason of any default on the part of the Tenant.
5.08 Compliance with Insurance - It will comply with and cause the
premises to comply with all terms of any insurance policy covering or applicable
to the premises, all requirements of the issuer of any such policy and all
regulations and then current standards applicable to or affecting the premises
or any use or condition thereof which may at the time be recommended by either
(a) National Fire Protection Association (or any other body exercising similar
functions) or 9b) the Board of Fire Underwriters if any, having jurisdiction
over the premises; nothing contained in this paragraph shall apply to those
portions of the building or the Property constructed, furnished or maintained by
the Landlord pursuant to this Lease; nor shall the Tenant be responsible to pay
for structural changes to the premised required by Tenant's use of the premises
as a branch banking facility.
5.09 Mechanic's Liens' Construction Lien Claims - It will, within
twenty (20) days after the filing thereof, discharge by payment or by bonding or
any other lawful manner all mechanics' or other liens for the payment of money
filed against the premises for work claimed to have been done for, or for
materials claimed to have been furnished to, the Tenant; if the Tenant shall not
discharge the same, the Landlord, in addition to any other remedies it may have,
may pay the lien without inquiring into the validity thereof, and the amount so
paid shall be payable to the Landlord as additional rent; nothing contained in
this Lease shall be construed as constituting the consent or request of the
Landlord, expressed or implied, to or for the performance of any labor or
services or the furnishing of any goods or materials by any contractor,
subcontractor, laborer, material men or vendor.
5.10 Indemnity and Liability Insurance - It will indemnify and save
the Landlord harmless from and against any and all injury, loss or damage and
any and all claims for injury, loss or damage of whatever nature (a) caused by
or resulting from, or claimed to have been caused by or to have resulted from,
any act, omission or negligence of the Tenant or anyone claiming under or
through the Tenant (including, but without limitation, contractors of the
Tenant), no matter where occurring, and (b) occurring in or about the premises,
no matter how caused.
It will provide and keep in force, for the benefit of the Landlord and
the Tenant, general liability insurance in an insurance company selected by the
Tenant and reasonably satisfactory to the landlord; such insurance shall be in
amounts not less than $500,000./$1,000,000. in respect to personal injuries in
any one accident, and not less than $25,000.00 in respect to property damage;
the policies of such insurance shall provide that they may not be canceled by
the issuer except on ten (10) days' written notice to the Landlord; a
certificate of each such policy shall be delivered to the Landlord not less than
ten (10) days prior to the date upon which it is effective.
5.11 Surrender - It will, upon the expiration or earlier termination
of this Lease, peaceably leave and surrender the premises to the Landlord in the
same condition in which the premises were originally received from the Landlord
at the commencement of the term of this Lease, except as improved or altered as
provided in, permitted by or required by any provision of this Lease and except
for ordinary wear and tear.
5.12 Mortgages - This Lease is and shall be, without the execution of
any further instrument, subordinate at all times to all Mortgages in any
amounts, and all advances thereon, which may now or hereafter affect the
premises and to all renewals, modifications, consolidations, participations,
replacements and extensions thereof (the term "Mortgages" being deemed to
include trust indentures and deeds of trusts), provided that no action or
proceeding may be instituted or taken by any Mortgagee to terminate the Tenant's
estate in the premises for any reason other than one which would entitle the
Landlord to terminate this Lease; if any Mortgagee or any of its successors and
assigns shall hereafter succeed to the rights of the Landlord in the premises,
whether through possession or foreclosure action, the Tenant will attorn to and
recognize such successor as the Tenant's landlord under this Lease; the Tenant
will promptly execute such subordination or other documents or agreements as may
be requested or required by any Mortgagee to confirm the provisions of this
Subsection 5.12 and containing such other conditions as are not inconsistent
with the provisions of this Subsection 5.12. Landlord shall use reasonable
effort to obtain a non-disturbance agreement from each future Mortgagee but the
failure to obtain such non-disturbance agreement shall not effect the right of
the Tenant under this Subsection 5.12.
5.13 Broker - It has had no dealings with any broker or agent in
connection with the premises on the basis of which any broker or agent could
claim commission from the Landlord and will save and hold harmless the Landlord
from any claim which may be asserted by any broker or agent with reference to
this Lease where the claim is based upon any alleged dealing of the Tenant with
any broker or agent.
5.14 Electricity and Gas - It will pay all charges for electricity and
gas used by it in connection with the operation of the premises.
6. Landlord's Covenants - The Landlord, on its part, covenants and
agrees to and with the Tenant that:
6.01 Quite Possession - If the Tenant shall pay the rent and all other
amounts required to be paid by Tenant under this Lease as herein provided and
shall keep, observe and perform all of the other covenants of this Lease by it
to be kept, observed and performed, the Tenant may peaceably and quietly have,
hold and enjoy the premises for the term aforesaid.
6.02 Use of Common Areas - It grants to the Tenant the exclusive right
to use:
(a) 7 assigned parking spaces near the bank entrance in the
parking areas currently used by NatWest Bank.
(b) The drive-in lanes and stack-up space located at the
Property.
In addition, it hereby grants to the Tenant a nonexclusive right to
use:
(a) Any unassigned space in the parking areas for use by
Tenant's visitors.
(b) The public conveniences of the building, the hallways,
elevator, if any, walks, driveways and other similar common
facilities.
Employees of the Tenant shall use the upper parking area.
6.03 Repairs and Maintenance by Landlord - It will make all necessary
repairs to the foundation, roof, exterior walls and other structural components
of the building, the elevator (if any) and all portions of the electrical,
plumbing, heating, cooling and sewage disposal systems installed by it, and all
pavement, landscaping, curbs, walks and other site improvements.
In addition, it will do the following:
(a) Keep all of the common facilities of the building in a
neat and clean condition and in a good state of repair;
(b) Keep all walks, driveways and parking areas, including
drive-in and stack-up lanes, in good repair and reasonably
free from ice, snow, refuse and obstructions; and
(c) Keep all driveways and parking areas clearly striped and
marked for parking, stack-up spaces and traffic flow.
7. Mutual Covenants - It is hereby mutually agreed between the
Landlord and the Tenant as follows:
7.01 Furnishing and Fixturing - The Tenant may install in the premises
any and all fixtures, electric fixtures, trade equipment, (including alarm and
security equipment), furniture, furnishings and decoration as may be useful or
desirable in connection with the use of the premises as a banking office; the
Tenant may commence the installation of all of the same upon commencement of the
term of this Lease; the Landlord, at its option, shall have ownership of all
fixtures and electric fixtures and at the expiration of the term of this Lease,
at Landlord's option, the Tenant will remove any or all such fixtures and
electric fixtures and at the Tenant's cost restore the premises to the same
condition as existed prior to such installation; the Tenant shall have and
retain ownership of all equipment and furnishings from time to time installed by
the Tenant at the Tenant's expense; the Tenant reserves the right, at the
Tenant's election, to remove any of such equipment and furnishings at any time
during the term of this Lease, provided the Tenant promptly repairs any and all
damage to the building caused by any such removal; the Tenant's failure at the
expiration or other termination of this Lease to remove all or any part of such
equipment and furnishings installed by it, shall not be deemed or construed to
constitute a holdover by Tenant; any such property and equipment not removed
shall be deemed abandoned and become the property of the Landlord. The Tenant
recognizes and acknowledges that the premises are currently equipped as a full
service branch banking facility and all such furniture, fixtures and equipment
are the property of the Landlord. The Tenant shall have no obligation to remove
any furniture, fixtures or equipment belonging to the Landlord referred to in
the preceding sentence.
7.02 Signs - The Tenant may letter the windows of the premises; Tenant
is authorized to erect and display signs on the building, provided they comply
with all applicable rules and regulations of all governmental agencies and other
offices having jurisdiction thereof and provided they do not exceed in the
aggregate an area equal to the total sign area permitted for the entire building
multiplied by the same fraction as that used in Subsection 5.03 (Real Estate
Taxes). All such signs and lettering shall be subject to the approval of the
Landlord.
7.03 Options to Renew - The tenant may renew this Lease for three
further periods of five (5) years each at the same rental, except as provided in
Subsection 7.04, and upon the same terms and provisions as contained in this
Lease; if the Tenant wishes to renew this Lease for any such additional period,
it must give notice to that effect to the Landlord not later than twelve (12)
months prior to the expiration of the term of this Lease (or the expiration of
the next preceding exercised renewal period, as the case may be) time being of
the essence; notwithstanding the foregoing, no right of the Tenant to renew
shall, in any event, be deemed to be extinguished unless the Landlord has given
to the Tenant a notice advising the Tenant that its right to renew shall expire
ten (10) days after receipt of the notice and the Tenant thereafter fails to
exercise its option within such ten (10) day period.
7.04 Increase in Rent - The annual rent for the first three years of
any renewal term shall be the greater of (i) five (5) percent above the annual
rent for the year immediately preceding such renewal term or (ii) the annual
rent for the year immediately preceding such renewal term increased by the
percentage increase in the Index (as hereinafter defined) for the month of March
1, 1996 over the Index as of March 1st immediately preceding the commencement
date of any such renewal term but in no event shall the increase in rent
provided in this (ii) exceed seven (7) percent over the rent for the immediately
preceding year. Further, the annual rental for the fourth and fifth years of
each such renewal term shall be the greater of (i) five (5) percent above the
annual rent for the third year of such renewal term or (ii) the annual rent for
the third year of such renewal term increased by the percentage increase in the
Index for the month of March 1, 1996 over the Index as of March 1st of the third
year of such renewal term but in no event shall the increase in rent provided in
this (ii) exceed seven (7) percent over the rent for the immediately preceding
year. The Index shall mean the Consumer Price Index for the New York City area
for all items promulgated by the Bureau of Labor Statistics of the United States
Department of Labor or if the Consumer Price Index is no longer published, such
other index as the Landlord may reasonably determine.
7.05 Reletting on Default; Deficiency - If, at any time during the
term of this Lease, the Landlord should retake possession of the premises by
reason of any default on the part of the Tenant, (a) the rent shall become due
thereupon and be paid up until the time of re-entry, dispossess or expiration,
together with reasonable expenses of the Landlord as hereinafter defined; (b)
the Landlord may relet the premises or any part thereof, either in the name of
the Landlord or otherwise, for a term or terms which may, at the Landlord's
option, be less than or exceed the period which would otherwise have constituted
the balance of the term of this Lease, and may grant reasonable concessions; and
(c) the Tenant or the legal representatives of the Tenant shall pay to the
Landlord, for each month of the period which would otherwise have constituted
the balance of the term of this Lease, as liquidated damages for the failure of
the Tenant to observe and perform the terms and provisions of this Lease, the
deficiency between:
(i) the amount of the monthly rent for the month immediately preceding
such re-entry or termination, and
(ii) the net amount, if any, of the rents collected on account of the
lease or leases of the premises; in computing such liquidated damages,
there shall be added to the deficiency such reasonable expenses as the
Landlord may incur in connection with relenting, such as court costs,
attorneys' fees, brokerage commissions and the expenses of keeping the
premises in good order and of preparing the same for reletting; any
such liquidated damages shall be paid in monthly installments by the
Tenant: on the rent day specified in this Lease, and any suit brought
to collect the amount of the deficiency for any month shall not
prejudice in any way the right of the Landlord to collect the
deficiency for any subsequent month by a similar proceeding; the
making of any alterations or decorations in the premises which the
Landlord considers advisable and necessary for the purpose of
reletting the same shall not operate or be construed to release the
Tenant from liability hereunder.
7.06 Condemnation -
(a) If
(i) the whole of the premises shall be taken in or by
condemnation or other eminent domain proceedings pursuant to any
law, general or special, or (ii) only a portion of the premises
shall be so taken, and/or all or a portion of the drive-in and
stack-up areas, and if such taking is sufficient, in the
good-faith judgment of Tenant, to render the remaining portion of
the premises uneconomic for the Tenant's continued use or
occupancy, and if the Tenant shall elect to terminate this Lease,
then, in either of such events, the term of this Lease shall
cease and terminate as of the date of title vesting (unless the
Tenant shall occupy a portion of the premises thereafter, in
which event the term shall cease when the Tenant vacates);
(b) If any portion of the Property is taken in or by condemnation
or other eminent domain proceedings and if this Lease is not
terminated pursuant to the preceding sentence, the Landlord
shall, at its expense, repair any damage to the Property and to
the premises caused by such taking promptly after such taking so
that, after the completion of such repair, the Property and the
premises shall be, as nearly as practicable, in the same
condition as immediately prior to such taking;
(c) If the Tenant elects to terminate this Lease by reason of a
partial taking of the premises, or a taking of the drive-in and
stack-up areas, it must give notice to the Landlord to that
effect not later than sixty (60) days after the date on which
title vests in the condemning authority; in the event of a taking
as a result of which the term of this Lease is terminated, the
current annual rent and additional rent shall be apportioned as
of the date of vesting of title; if this Lease is not terminated,
the annual rent and additional rent payable hereunder shall be
reduced pro rata, based upon the proportion which the floor area
in the space taken bears to the entire floor area of the premises
immediately prior to such taking.
7.07 Damage or Destruction by Insurable Casualty - If, at any time
during the term of this Lease, the Property is damaged or destroyed by fire or
by any other casualty or by the elements, the Tenant shall give notice of such
damage or destruction to the Landlord and, except as hereinafter otherwise
provided, the Landlord, at the Landlord's expense, shall promptly repair,
rebuild and restore the Property as nearly as practicable to the condition
existing immediately prior to such damage or destruction; if, however, the
building in which the premises are located is so damaged or destroyed by fire or
any other casualty or by the elements that the Landlord shall decide not to
repair, rebuild or restore the same, then the Landlord may terminate this Lease
by giving written notice of termination to the Tenant not later than ninety (90)
days after such damage or destruction occurs.
7.08 Abatement of Rent - If the premises are destroyed or so damaged
by fire or by any other casualty or occurrence or by the elements so as to
become untenantable or unfit for occupancy or for the normal conduct of
business, then the annual rent and additional rent allocabble to the period from
the date of such destruction or damage until the premises are repaired or
restored and made fit for occupancy and use, or if this Lease be terminated
pursuant to this Subsection 7.08, until the date of such termination, shall be
abated during such period. In the event that the damage to the premises shall be
such as to render the same only partially untenantable, then during the period
from the date of such damage until the completion of the repair and restoration
of the premises (or if this Lease be terminated by the giving of notice of
termination pursuant to this Sub-section 7.08, then until the date of giving of
such notice), the annual rent and additional rent, if any, allocable to such
period payable by the Tenant hereunder shall abate in the proportion that the
part of the premises which shall be untenantable bears to the whole of the
premises.
7.09 Waiver of Subrogation - Each party shall endeavor to obtain and
maintain provisions in its fire insurance policies to the effect that any such
policy shall not be invalidated should the insured waive in writing, prior to a
loss, any or all right of recovery against any party for loss occurring to any
of the property covered by the policy; so long as such or similar provisions are
included in a fire insurance policy, each party hereby waives any right of
recovery against the other for any loss covered by either party's fire insurance
policies; if at any time a fire insurance carrier will not include such or
similar provisions in a fire insurance policy, the party to whom the policy is
issued shall have the other party named in the policy as one of the insured; if
any additional premium is imposed for the inclusion of any such provision or for
naming the other party as a party insured, as the case may be, the other party
shall pay such additional premium, except, however, in lieu of such payment, the
party may waive the provisions of this Subsection 7.09; so long as such or
similar provisions are included in party's fire insurance policies or the other
party is named in such policies as one of the insured, the party will look
solely to the proceeds of such policies to compensate it for any loss covered
thereunder. If either party is named as one of the insured in accordance with
the foregoing, it will endorse promptly without recourse any check, draft or
order for the payment of money representing the proceeds of any such policies or
representing any other payment growing out of or connected with any such policy
and each party does hereby irrevocably waive any and all rights in and to such
proceeds and payments and irrevocably appoints the party to whom the policy is
issued as its attorney-in-fact to endorse any such check, draft or order.
7.10 Holding Over - Should the Tenant hold over in possession after
the expiration of the original term or any renewal term, such holding over shall
not be deemed to extend the term or renew the Lease.
7.11 Assignment and Subletting - The Tenant may assign or transfer its
interest in this Lease and may sublet the whole or any part of the premises for
any use described in Paragraph 1. No assignment or transfer of this Lease shall
be binding upon the Landlord until a copy of the document of transfer or
assignment, executed by both the transferor and transferee, has been delivered
to the Landlord. In the event of any assignment or transfer pursuant to the
provisions of this Subsection 7.11, the transferee shall be deemed, without
further agreement, to have assumed and agreed to observe and perform all
obligations of the Tenant under this Lease. Any such assignment or subletting
shall not release the Tenant from its obligation under this Lease.
7.12 Permitted Contests - The Tenant shall not be required to comply
with any statute, law, order, rule, regulation or ordinance referred to in
Subsection 5.06 so long as the Tenant shall contest, in good faith and without
expense to the Landlord, the existence, amount or validity thereof by
appropriate proceedings which shall operate, during the pendancy thereof, to
prevent any interference with the use or occupancy of the Property or any part
thereof or the imposition of any criminal or quasi-criminal liability on the
Landlord; while any such proceedings are pending, the Landlord shall not have
the right to undertake compliance with any such statue, law, rule, order
regulation or ordinance; Tenant will promptly prosecute each such contest to a
final conclusion; the Tenant will pay or cause to be paid and save the Landlord
harmless from and against any and all losses, judgments, decrees and costs,
(including all reasonable attorneys' fees and expenses), in connection with any
such contest, and will promptly after the final settlement or determination of
such contest perform all acts, the performance of which shall be ordered or
decreed as a result thereof.
7.13 Waiver - The failure of either party to seek redress for
violation of or to insist on the strict performance of any covenant of this
Lease shall not prevent a subsequent act which would have originally constituted
a violation from having all the force and effect of any original violations. The
receipt by the Landlord of rent with knowledge of the breach of any covenant of
this Lease shall not be deemed a waiver of such breach.
7.14 Estoppel Certificates - Each party will, without charge at any
time and from time to time hereafter, within ten (10) days after request by the
other, certify by written instrument, duly executed and acknowledged, to any
mortgagee, purchaser or assignee as to the validity, force and effect of this
Lease in accordance with its tenor as then constituted, as to the existence of
any default on the part of either party, as to the existence of any offsets,
counterclaims or defenses on its part and to any other matters as may be
reasonably requested by the other party.
7.15 Limitation of Liability - The term "Landlord" as used in this
Lease means only the owner in fee or the mortgagee in possession for the time
being of the premises or the holder of the Landlord's interest in this Lease, so
that in the event of any transfer of the fee title or assignment of this Lease,
the Landlord shall be and is hereby entirely freed and relieved of all
obligations of the Landlord under this Lease, and it shall be deemed, without
further agreement between the transferor or assignor and the transferee or
assignee, that the transferee or assignee has assumed and agreed to perform all
obligations of the Landlord under this Lease.
If Landlord is in breach or default with respect to tits obligations
or otherwise under this Lease, Tenant shall look for satisfaction of Tenant's
damages, rights and remedies solely to the equity of Landlord in the Property
and Landlord shall be under no personal liability other than such equity
therein. Landlord's liability under the terms, covenants, conditions, warranties
and obligations of this Lease shall in no event exceed the loss of the equity
interest in the Property.
8. Notices - All notices given under this Lease or in any way
affecting this Lease shall be given in writing and delivered by Registered Mail,
Return Receipt Requested, addressed as follows:
To the Landlord at 3 Post Road, Oakland, new Jersey, 07436.
To the Tenant at 80 West/Plaza Two, Saddle Brook, New Jersey 07662 -
5893.
The date of deposit of a notice in a United States Post office with
the postage prepaid shall be considered as the date of service or giving of the
notice. Either party may change the place at which notice is to be given to it
by notice given in accordance with this section.
9. Recording - This Lease shall not be recorded or filed in any public
filing or recording office; if requested by either party, the other party will
join in the execution of a memorandum of this agreement containing such
provisions as either party may request except those provisions which would
disclose the amount of rental or other payments to be made to the Landlord,
which memorandum may be recorded or filed in lieu of recording or filing this
Lease.
10. Entire Agreement - This Lease contains the entire agreement
between the parties with respect to the premises and may not be changed, altered
or modified except by an agreement signed by the parties hereto.
11. Gender and Number - Throughout this Lease the masculine gender
shall be deemed to include the feminine or neuter gender, as the case may be,
and the singular the plural, and vice versa.
12. Binding Effect - This Lease, and all the covenants, provisions and
conditions herein contained shall endure to the benefit of, and be binding upon,
the parties hereto and their respective personal representatives, successors and
assigns, provided, however, that no assignment by, from , through or under the
Tenant in violation of any of the provisions of this Lease shall vest in the
assignee any right, title or interest whatsoever.
IN WITNESS WHEREOF, this Agreement has been executed and sealed by the
Landlord and the Tenant the day and year first above written. Signed, Sealed and
Delivered
in the Presence of
/S/ MADELINE EDWARDS ROBERT F. GALLO L.S.
Notary Public of New Jersey
My commission expires Oct 13, 1997
S/S CLINTON A. POFF, ESQ. S/S W. CARY EDWARDS, JR. L.S.
ATTEST: INTERCHANGE STATE BANK
S/S TIMOTHY MCDERMOTT S/S FRANK C. GIANCOLA
Assistant Secretary
<TABLE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- ---------------
1996 1995 1996 1995
------------------ ----------------
<S> <C> <C> <C> <C>
Net income ............................... $1,288 $ 1,415 $ 4,378 $4,385
Preferred dividend requirements .......... $ - $ 28 $ - $ 85
Weighted average common shares outstanding 2,840 2,832 2,838 2,832
-------- ------- ------ ------
NET INCOME PER COMMON SHARE .............. $0.45 $0.49 $1.54 $1.52
======== ======= ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 26,510
<INT-BEARING-DEPOSITS> 361,668
<FED-FUNDS-SOLD> 200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,279
<INVESTMENTS-CARRYING> 73,096
<INVESTMENTS-MARKET> 73,197
<LOANS> 333,542
<ALLOWANCE> (3,567)
<TOTAL-ASSETS> 493,321
<DEPOSITS> 435,650
<SHORT-TERM> 11,400
<LIABILITIES-OTHER> 3,627
<LONG-TERM> 0
<COMMON> 4,733
0
0
<OTHER-SE> 37,911
<TOTAL-LIABILITIES-AND-EQUITY> 493,321
<INTEREST-LOAN> 21,468
<INTEREST-INVEST> 5,858
<INTEREST-OTHER> 375
<INTEREST-TOTAL> 27,701
<INTEREST-DEPOSIT> 10,626
<INTEREST-EXPENSE> 10,970
<INTEREST-INCOME-NET> 16,731
<LOAN-LOSSES> 550
<SECURITIES-GAINS> 235
<EXPENSE-OTHER> 12,342
<INCOME-PRETAX> 6,736
<INCOME-PRE-EXTRAORDINARY> 6,736
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,378
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
<YIELD-ACTUAL> 4.89
<LOANS-NON> 2,353
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,647
<CHARGE-OFFS> 827
<RECOVERIES> 197
<ALLOWANCE-CLOSE> 3,567
<ALLOWANCE-DOMESTIC> 3,567
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 750
</TABLE>
