<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
JUNE 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks ............................... $ 26,326 $ 25,151
Federal funds sold .................................... -- --
--------- ---------
Total cash and cash equivalents ....................... 26,326 25,151
--------- ---------
Investment securities at amortized cost (approximate
market value of $76,383 and $75,611 ) ........... 76,432 74,688
--------- ---------
Securities available for sale at estimated market value
(amortized cost of $49,529 and $66,604 ) ........ 49,238 67,545
--------- ---------
Loans ................................................. 325,463 311,164
Less: Allowance for loan losses ...................... 3,824 3,647
--------- ---------
Net loans ............................................. 321,639 307,517
--------- ---------
Premises and equipment, net ........................... 5,389 5,510
Foreclosed real estate ................................ 1,140 1,213
Accrued interest receivable and other assets .......... 11,143 9,833
--------- ---------
TOTAL ASSETS .......................................... $ 491,307 $ 491,457
========= =========
LIABILITIES
Deposits
Noninterest bearing ............................. $ 75,916 $ 69,213
Interest bearing ................................ 361,968 367,239
--------- ---------
Total deposits ........................................ 437,884 436,452
Securities sold under agreements to repurchase ........ 100 1,704
Short-term borrowings ................................. 7,900 9,200
Accrued interest payable and other liabilities ........ 3,766 3,860
--------- ---------
TOTAL LIABILITIES ..................................... 449,650 451,216
--------- ---------
STOCKHOLDERS' EQUITY
Common stock .......................................... 4,733 4,495
Capital surplus ....................................... 14,932 12,110
Retained earnings ..................................... 22,151 22,990
Unrealized (loss) gain on securities available for sale,
net of income taxes .............................. (159) 646
--------- ---------
Total stockholders' equity ............................ 41,657 40,241
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $ 491,307 $ 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 Six months ended
June 30, June 30,
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ------------ --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ......................................... $ 7,107 $ 6,802 $14,173 $13,490
Interest on federal funds sold ..................................... 142 117 370 189
Interest and dividends on securities
Taxable interest income ........................................ 1,929 2,267 3,790 4,556
Interest income exempt from federal income taxes ............... 16 14 30 29
Dividends ...................................................... 38 50 76 80
------- ------- ------- -------
TOTAL INTEREST INCOME .............................................. 9,232 9,250 18,439 18,344
------- ------- ------- -------
INTEREST EXPENSE
Interest on deposits ............................................... 3,540 3,666 7,138 7,083
Interest on short-term borrowings .................................. 105 117 255 262
Interest on long-term borrowings ................................... -- 44 -- 107
------- ------- ------- -------
TOTAL INTEREST EXPENSE ............................................. 3,645 3,827 7,393 7,452
------- ------- ------- -------
NET INTEREST INCOME ................................................ 5,587 5,423 11,046 10,892
Provision for loan losses .......................................... 150 375 400 600
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ................................................... 5,437 5,048 10,646 10,292
------- ------- ------- -------
NONINTEREST INCOME
Service fees on deposit accounts ................................... 395 374 764 735
Net gain on sale of loans available for sale ....................... -- 11 -- 22
Net gain on sale of securities available for sale .................. -- 15 235 15
Accretion of discount in connection with acquisition ............... 190 190 380 380
Other .............................................................. 398 523 843 977
------- ------- ------- -------
TOTAL NONINTEREST INCOME ........................................... 983 1,113 2,222 2,129
------- ------- ------- -------
NONINTEREST EXPENSES
Salaries and benefits .............................................. 1,901 1,832 3,803 3,670
Net occupancy ...................................................... 553 515 1,098 1,025
Furniture and equipment ............................................ 185 178 363 329
Advertising and promotion .......................................... 190 189 348 379
Federal Deposit Insurance Corporation assessment ................... 13 240 25 465
Foreclosed real estate expense ..................................... 56 38 119 110
Other .............................................................. 1,248 849 2,358 1,962
------- ------- ------- -------
TOTAL NONINTEREST EXPENSES ......................................... 4,146 3,841 8,114 7,940
------- ------- ------- -------
Income before income taxes ........................................ 2,274 2,320 4,754 4,481
Income taxes ....................................................... 796 755 1,664 1,511
------- ------- ------- -------
NET INCOME ......................................................... $ 1,478 $ 1,565 $ 3,090 $ 2,970
======= ======= ======= =======
PER COMMON SHARE ................................................... $ 0.52 $ 0.54 $ 1.09 $ 1.03
======= ======= ======= =======
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<CAPTION>
Unrealized
Gain/(Loss)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 ....................................... 2,970 2,970
Dividends on common stock at $0.343 per share .... (971) (971)
Dividends on preferred stock ..................... (57) (57)
Increase in market valuation-securities
available for sale, net of income taxes ...... 1,253 1,253
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1995 ......................... 5,000 4,495 11,333 20,679 (560) (2,623) 38,324
Net income ....................................... 3,310 3,310
Dividends on common stock at $0.343 per share (1) (971) (971)
Dividends on preferred stock ..................... (28) (28)
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 ...... 1,206 1,206
-------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1995 ..................... -- 4,495 12,110 22,990 646 -- 40,241
Net income ....................................... 3,090 3,090
Dividends on common stock at $0.362 per share (1) (1,025) (1,025)
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 ...... (805) (805)
-------- -------- -------- -------- -------- -------- --------
BALANCE AT JUNE 30, 1996 ......................... $ -- $ 4,733 $ 14,932 $ 22,151 $ (159) $ -- $ 41,657
======== ======== ======== ======== ======== ======== ========
- --------
(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.
</TABLE>
<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the six months ended
June 30,
---------------------------
1996 1995
---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................................. $ 3,090 $ 2,970
Non-cash items included in earnings
Depreciation and amortization of fixed assets ........................................... 511 395
Amortization of securities premiums ..................................................... 550 748
Accretion of securities discounts ....................................................... (31) (27)
Amortization of premiums in connection with acquisition ................................. 222 222
Accretion of discount in connection with acquisition .................................... (380) (380)
Provision for loan losses ............................................................... 400 600
Net gain on sale of securities available for sale ....................................... (235) (15)
Net gain on sale of loans available for sale ........................................... -- (22)
Net gain on sale of foreclosed real estate .............................................. (7) (13)
Decrease/(increase) in carrying value of loans available for sale ....................... 42 (81)
Loss on sale of fixed assets ............................................................ -- 25
(Increase) decrease in operating assets
Net origination of loans available for sale ............................................. (114) (193)
Proceeds from sale of loans available for sale .......................................... -- 837
Accrued interest receivable ............................................................. 178 209
Deferred income taxes ................................................................... (84) 26
Other ................................................................................... (1,171) 735
Increase/(decrease) in operating liabilities
Accrued interest payable ................................................................ 51 141
Other ................................................................................... (145) 25
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES ...................................................... 2,877 6,202
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from (payments for)
Net (originations)/ repayment of loans .................................................. (12,451) 2,076
Purchase of loans ....................................................................... (1,798) (502)
Purchase of securities available for sale ............................................... (21,527) (4,915)
Maturities of securities available for sale ............................................. 365 1,146
Sale of securities available for sale ................................................... 38,349 2,359
Sale of foreclosed real estate .......................................................... 251 309
Purchase of investment securities ....................................................... (16,215) --
Maturities of investment securities ..................................................... 14,059 5,000
Net payments on foreclosed real estate .................................................. 8 (18)
Purchase of fixed assets ............................................................... (402) (1,100)
Sale of fixed assets .................................................................... -- 3
-------- --------
CASH PROVIDED BY INVESTING ACTIVITIES ...................................................... 639 4,358
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments for)
Deposits more than withdrawals .......................................................... 1,432 7,872
Securities sold under agreements to repurchase .......................................... 5,778 --
Other borrowings ........................................................................ (1,300) (6,500)
Retirement of securities sold under agreement ........................................... --
to repurchase ........................................................................ (7,382) (602)
Dividends ............................................................................... (1,025) (1,028)
Common stock issued ..................................................................... 156 --
-------- --------
CASH USED FOR FINANCING ACTIVITIES ......................................................... (2,341) (258)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS ...................................................... 1,175 10,302
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................................... 25,151 25,965
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................................... $ 26,326 $ 36,267
======== ========
- --------
Supplemental disclosure of cash flow information:
Cash paid for:
Interest ............................................................................. $ 7,341 $ 7,311
Income taxes ......................................................................... 1,872 1,443
Supplemental disclosure of non-cash investing activities:
Loans transferred to foreclosed real estate .......................................... $ 179 $ 347
Decrease/(increase)-market valuation of securities available
for sale .......................................................................... 1,231 (1,941)
Amortization of valuation allowance-securities
transferred from availabe to sale to held to maturity ............................. 17 --
See notes to consolidated financial statements
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 six months ended June 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 six months ended June
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
EARNINGS SUMMARY
Net Income for the six months ended June 30, 1996, was $3.1 million or
$1.09 per share, as compared to $3.0 million or $1.03 per share for the same
period a year ago. The increase was attributable to several components which are
described in detail in the following paragraphs.
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.
Earnings for the six month period improved as a result of a $154 thousand
or 1.4% growth in net interest income from the same period a year ago.
Contributing to the growth in net interest income was an increase of $13.8
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 $315 million, an increase of $27.9 million or 9.7% over the
comparable 1995 period. The growth positively affected net interest income
despite a 9 basis points decrease in net yield on average earning assets for the
1996 period, as compared to the same 1995 period. Some of the benefit derived
from the positive trend in earning assets was offset by $4.7 million or 1.3%
increase in interest-bearing liabilities. While interest-bearing liabilities
increased, the Company's funding costs decreased 8 basis points for the 1996
period as compared to the 1995 period.
Earnings for the 1996 period also benefited from a $93 thousand net
increase in noninterest income. The increase was the result of a $235 thousand
gain from the sale of securities that occurred in the first quarter of 1996. The
benefit derived from the gain was partially offset by the reduction of service
fee income due to the sale of loan servicing rights which occurred in the fourth
quarter of 1995. The service fee income for the first six months of 1995 was
approximately $117 thousand.
Noninterest expenses for the period increased $174 thousand or 2.2% over
the same period a year ago despite a $440 thousand decrease in fees paid to the
Federal Deposit Insurance Corporation ("FDIC") for deposit insurance. 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
decreased $76 thousand or 1.0% as compared to the same period a year ago.
Earnings for the six month period ended June 30, 1996, were favorably
affected by a $200 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.
Net Income for the second quarter of 1996 was $1.5 million or $0.52 per
share as compared to $1.6 million or $0.54 per share for the same period a year
ago. The decrease was attributable to several components which are described in
detail in the following paragraphs.
Net income decreased because noninterest expenses for the second quarter
1996 increased $305 thousand or 7.9% over the same period a year ago despite a
$227 thousand decrease in fees paid to the FDIC for deposit insurance. 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 second quarter 1996 would
have increased $55 thousand or 1.3% as compared to the same period a year ago.
In addition to normal growth, noninterest expenses were negatively affected by
increased occupancy and start-up costs due largely to the opening of a new
branch office during the current quarter.
Earnings for the quarter were favorably impacted by a $164 thousand or 3.0%
growth in net interest income compared to the same period a year ago.
Contributing to this growth was an increase of $14.9 million in average interest
earning assets over the comparable 1995 period. The growth occurred mostly in
loans which had an average aggregate balance of $319 million, an increase of
$31.6 million or 11.0% over the comparable 1995 period. The growth positively
affected net interest income despite a 2 basis points decrease in net yield on
average earning assets for the 1996 period as compared to the same 1995 period.
Some of the benefit derived from the positive trend in earning assets was offset
by $4.4 million or 1.2% increase in interest bearing liabilities. While interest
bearing liabilities increased, the Company's funding costs decreased 25 basis
points and 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 June 30, 1996, were favorably affected by a
$225 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 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, increased $1.1 million from $5.2 million at December
31, 1995, to $6.3 million at June 30, 1996. For the second quarter 1996,
nonperforming assets increased $527 thousand from $5.8 million for the quarter
ended March 31, 1996. The ratio of nonperforming assets to total loans and
foreclosed real estate increased from 1.66% at December 31, 1995, to 1.93% at
June 30, 1996. The ratio, at June 30, 1996, increased from 1.82% as of the
quarter ended March 31, 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 $3.8 million at June 30, 1996, and $3.6
million at December 31, 1995, representing 74.0% and 91.7% of nonperforming
loans at those dates, respectively.
<PAGE>
<TABLE>
Securities
Investment securities and securities available for sale consist of the following: (in thousands)
<CAPTION>
June 30, 1996
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ --------- ----------- -------------
<S> <C> <C> <C> <C>
Investment securities
Obligations of U.S. Treasury ....................... $ 56,828 $ 238 $ 44 $ 57,022
Obligations of U.S. Agencies ....................... 11,093 -- 122 10,971
Obligations of state and political
subdivision ...................................... 2,794 -- 11 2,783
Other debt securities .............................. 5,717 -- 110 5,607
-------- -------- -------- --------
76,432 238 287 76,383
-------- -------- -------- --------
Securities available for sale
Obligations of U.S. Treasury ....................... 25,743 400 450 25,693
Obligations of U.S. Agencies ....................... 17,586 4 219 17,371
Other debt securities .............................. 2,288 -- 26 2,262
Equity securities .................................. 3,912 -- -- 3,912
-------- -------- -------- --------
49,529 404 695 49,238
-------- -------- -------- --------
Total securities ................................. $125,961 $ 642 $ 982 $125,621
======== ======== ======== ========
December 31, 1995
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ --------- ----------- -------------
Investment securities
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 June 30, 1996, 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 .......................................... $36,779 $36,925 $ -- $ --
After 1 but within 5 years ............................. 28,775 28,741 26,653 26,445
After 5 but within 10 years ............................ 4,206 4,173 10,712 10,733
After 10 years ......................................... 6,672 6,544 8,252 8,148
Equity securities ...................................... -- -- 3,912 3,912
------- ------- ------- -------
Total .......................... $76,432 $76,383 $49,529 $49,238
======= ======= ======= =======
</TABLE>
<TABLE>
CAPITAL ADEQUACY
The table below presents the Company's capital position as of June 30, 1996: (dollars in thousands)
<S> <C>
Stockholders' equity ......................................... $ 41,657
Intangible assets ............................................ (1,149)
Unrealized loss-securities available for sale,
net of income taxes ..................................... 159
---------
Tier 1 capital ............................................... 40,667
Allowable portion of allowance
for loan losses ......................................... 3,824
---------
Total risk-based capital ..................................... $ 44,491
=========
Risk weighted assets ......................................... $ 310,377
=========
<CAPTION>
Minimum
Actual Requirement
------------ ------------
<S> <C> <C>
Risk-based ratio
Tier 1 ................................... 13.10% 4.00%
Total .................................... 14.33 8.00
Leverage capital ratio ........................ 8.30 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 June 30, 1996, total deposits increased by $1.4 million from $436.5 million
at December 31, 1995. Total deposits increased by $5.8 million from $432.0
million at June 30, 1995.
In 1996, loan production continued to be the Company's principal investing
activity. Net loans at June 30, 1996 amounted to $321.6 million compared to
$307.5 million at December 31, 1995, an increase of $14.1 million for the
six-month period. Furthermore, net loans increased $37.5 million from June 30,
1995.
The Company's most liquid assets are cash and due from banks and federal
funds sold. At June 30, 1996, the total of such assets amounted to $26.3 million
compared to $25.1 million at December 31, 1995, an increase of $1.2 million.
The Company's available for sale ("AFS") securities portfolio is also a
significant source of liquidity. At June 30, 1996, the Company's AFS portfolio
amounted to $49.2 million or 39.2% 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.
In addition to the aforementioned sources of liquidity, the Company derives
liquidity from various other sources, including federal funds purchased from
other banks, the Federal Reserve discount window and sales of securities under
repurchase agreements. The Bank also has a $47.5 million line of credit
available through its membership in the Federal Home Loan Bank of New York.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 23, 1996, at the annual meeting, the following matters were
submitted to a vote of security holders:
(a) Election of directors: Anthony S. Abbate, Anthony Amato, John J.
Eccleston and Eleanore S. Nissley were reelected, by the common shareholders, as
directors of Interchange Financial Services Corporation. The votes were as
follows:
FOR AGAINST
Anthony S. Abbate 2,384,240 3,690
Anthony Amato 2,384,991 2,939
John J. Eccleston 2,383,351 4,579
Eleanore S. Nissley 2,384,071 3,859
(b) Ratification of appointment of Deloitte & Touche LLP as independent
auditors. The votes were as follows:
FOR AGAINST ABSTAIN
2,369,939 2,377 15,614
The total number of shares of Interchange Financial Services Corporation
common stock outstanding as of April 18, 1996, the record date for the annual
meeting, was 2,704,598.
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
11 Statement Re: Computation of Per Share Earnings
(b) No reports on Form 8-K have been filed during the quarter ended
June 31, 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
by: /S/ROBERT N. HARRIS
-------------------
Robert N. Harris
Executive Vice President
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
<TABLE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Six months ended
June 30,
--------------------
1996 1995
------- -------
<S> <C> <C>
Net income ........................................... $3,090 $2,970
Preferred dividend requirements ...................... $ -- $ 57
Weighted average common shares outstanding ........... 2,837 2,832
------ ------
NET INCOME PER COMMON SHARE .......................... $ 1.09 $ 1.03
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Jun-30-1996
<CASH> 26,326
<INT-BEARING-DEPOSITS> 361,968
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,238
<INVESTMENTS-CARRYING> 76,432
<INVESTMENTS-MARKET> 76,383
<LOANS> 325,463
<ALLOWANCE> (3,824)
<TOTAL-ASSETS> 491,307
<DEPOSITS> 437,884
<SHORT-TERM> 8,000
<LIABILITIES-OTHER> 3,766
<LONG-TERM> 0
<COMMON> 4,733
0
0
<OTHER-SE> 36,924
<TOTAL-LIABILITIES-AND-EQUITY> 491,307
<INTEREST-LOAN> 14,173
<INTEREST-INVEST> 3,896
<INTEREST-OTHER> 370
<INTEREST-TOTAL> 18,439
<INTEREST-DEPOSIT> 7,138
<INTEREST-EXPENSE> 7,393
<INTEREST-INCOME-NET> 11,046
<LOAN-LOSSES> 400
<SECURITIES-GAINS> 235
<EXPENSE-OTHER> 8,114
<INCOME-PRETAX> 4,754
<INCOME-PRE-EXTRAORDINARY> 3,090
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,090
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
<YIELD-ACTUAL> 4.627
<LOANS-NON> 3,706
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,462
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,647
<CHARGE-OFFS> 382
<RECOVERIES> 159
<ALLOWANCE-CLOSE> 3,824
<ALLOWANCE-DOMESTIC> 3,824
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 905
</TABLE>
