Registration No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
INTERCHANGE FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey
(State or other jurisdiction of incorporation or organization)
--------------
6711 22-2553159
(Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
--------------
Park 80 West/Plaza Two
Saddle Brook, New Jersey 07663
(201) 703-2265
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Anthony S. Abbate, President
and Chief Executive Officer
Interchange Financial Service Corporation
Park 80 West/Plaza Two
Saddle Brook, New Jersey 07663
(201) 703-2265
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
Please send copies of all communications to:
PETER D. HUTCHEON, ESQ. VICTOR H. BOYAJIAN, ESQ. ADOLPH A. ROMEI, ESQ.
Norris, McLaughlin Sills Cummis Zuckerman Beattie Padovano LLC
& Marcus, P.A. Radin Tischman Epstein & 50 Chestnut Ridge Road
721 Route 202-206 Gross, P.A. P.O. Box 244
P.O. Box 1018 1 Riverfront Plaza Montvale, New Jersey
Somerville, New Jersey Newark, New Jersey 07102 07645-0244
08876-1018
(908) 722-0700
Approximate date of commencement of proposed sale to the public: At the
Effective Time of the Merger, as defined in the Agreement and Plan of Merger
dated January 27, 1998 (the "Merger Agreement") among the Registrant,
Interchange Bank (formerly known as Interchange State Bank) and The Jersey Bank
For Savings, attached as Appendix A to the Proxy Statement-Prospectus.
<PAGE>
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Amount Maximum Maximum Amount of
Title of each class of Securities to be Offering Price Aggregate Registration
to be Registered Registered** Per Share* Offering Price* Fees
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<S> <C> <C> <C> <C>
Common Stock 780,300 $19.1667 $14,955,766 $4,411.95
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</TABLE>
* Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457(f) under the Securities Act of 1933, as amended, based on the price
per share paid for Jersey Common Stock on March 20, 1998, the last known trade,
as reported on the Over-The-Counter Bulletin Board. There was no asked price for
Jersey Common Stock during the five trading days preceding the date of filing
hereof, as advised by Advest Inc., and Jersey Common Stock had a book value of
$13.18 per share on February 28, 1998.
** The Registrant also registers hereby such additional shares of its common
stock as may be issuable in the Merger pursuant to the anti-dilution provisions
of the Merger Agreement.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
PART I
INFORMATION REQUIRED IN PROSPECTUS
CROSS REFERENCE SHEET
Item 1. Cross Reference Sheet.
Pursuant to Item 501 of Regulation S-K, this cross-reference sheet shows
the location in the Prospectus/Proxy Statement of responses to Items 1 through
19 of Part I of Form S-4.
Item Location or Heading
No. Caption in Prospectus-Proxy Statement
- --- ------- -----------------------------
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement Forepart of Registration Statement;
and Outside Front Cover Page Cross Reference Sheet; Cover Page of
of Prospectus Proxy Statement-Prospectus
2. Inside Front and Outside Back Inside Front Cover; Available
Cover Pages of Prospectus Information; Information Incorporated
by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings Summary of Proxy Statement-Prospectus;
to Fixed Charges and Other Selected Financial Data of
Information Interchange; Comparative Per Share
Data; Pro Forma Combined Financial
Information
4. Terms of the Transaction Summary of Proxy Statement-Prospectus;
The Proposed Merger; Comparison of the
Rights of Shareholders of Interchange
and Jersey
5. Pro Forma Financial Information Pro Forma Combined Financial
Information
6. Material Contacts with the Company The Proposed Merger
Being Acquired
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to Be Underwriters
8. Interests of Named Experts Legal Opinion, Experts
and Counsel
<PAGE>
Item Location or Heading
No. Caption in Prospectus-Proxy Statement
- --- ------- -----------------------------
9. Disclosure of Commission Position Not Applicable
on Indemnification for Securities
Act Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to Not Applicable
S-3 Registrants
11. Incorporation of Certain Information Information Incorporated by Reference
by Reference
12. Information with Respect to S-2 or Not Applicable
S-3 Registrants
13. Incorporation of Certain Information Not Applicable
by Reference
14. Information with Respect to Not Applicable
Registrants Other Than S-3 or
S-2 Registrants
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Not Applicable
Companies
16. Information with Respect to S-2 or Not Applicable
S-3 Companies
17. Information with Respect to Certain Information Regarding Jersey;
Companies Other than S-2 The Jersey Bank for Savings; Selected
or S-3 Companies Financial Data of Jersey; Comparative
Per Share Data
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Introductory Statement; The Proposed
Authorizations are to be Solicited Merger; Information Delivered and
Incorporated by Reference
19. Information if Proxies, Consents Not Applicable
or Authorization are Not to be
Solicited or in an Exchange Offer
<PAGE>
THE JERSEY BANK FOR SAVINGS
2-8 South Kinderkamack Road
Montvale, New Jersey 07645-0333
April _____, 1998
To Our Shareholders:
A Special Meeting of Shareholders (the "Meeting") of The Jersey Bank For
Savings ("Jersey") will be held on May 27, 1998 at the Holiday Inn, Montvale,
New Jersey. At the Meeting holders of Jersey's Common Stock will be asked to
approve an Agreement and Plan of Merger by and among Jersey, Interchange
Financial Services Corporation ("Interchange") and Interchange Bank (formerly
known as Interchange State Bank) ("Bank"), pursuant to which Jersey will be
merged with and into Interchange Bank (the "Merger"). If the Merger is approved
and becomes effective, shareholders of Jersey will receive 1.5 shares of Common
Stock of Interchange (reflecting the 3 for 2 stock split of Interchange Common
Stock effective April 17, 1998) for each share of Jersey Common Stock held by
them, subject to adjustment, as more fully set forth in the Merger Agreement.
Holders of Jersey's Preferred Stock are not entitled to vote at the
Meeting. Each of them will be given the opportunity to enter into a Conversion
Agreement with Jersey by which their preferred stock will convert into Jersey
Common Stock, at a rate of .8695 shares of Jersey Common Stock for each share of
Jersey Preferred Stock, immediately prior to the Merger's effective time. In
such case, their shares of Jersey Common Stock will either (i) automatically be
exchanged for Interchange Common Stock at the rate of 1.5 Interchange shares for
each Jersey share; or (ii) if such holder gives written notice of dissent to
Jersey on or before Friday, May 22, 1998, have the right to compel an appraisal
of such shares and cash payment therefor under the terms and conditions of the
New Jersey Banking Act, as amended. To date, all but one holder of 300 shares of
Jersey Preferred Stock have entered into conversion agreements with Jersey.
Holders of Jersey Preferred Stock are receiving a copy of the Proxy
Statement-Prospectus for information purposes.
In the accompanying material you will find a Notice of Special Meeting of
Shareholders, a Proxy Card and a Proxy Statement-Prospectus which describes the
details of the proposed Merger, the conditions to consummation of the Merger and
information about Interchange, Bank and Jersey.
The Board of Directors and its Special Committee have unanimously approved
the Merger Agreement and the Board of Directors recommends that you vote "FOR"
the approval of the Merger Agreement.
Whether or not you are planning to attend the Meeting, it is important
that your shares be represented. Please complete, sign and date the enclosed
Proxy Card and mail it at your earliest convenience in the return envelope
provided. If you attend the Special Meeting and file a written notice of
revocation with the Secretary, you may vote in person even if you have already
marked your proxy card.
In connection with the execution of the Merger Agreement, all the
directors of Jersey agreed to vote in favor or the Merger Agreement all shares
of Jersey Common Stock which they hold.
The enclosed also constitutes a Prospectus of Interchange with respect to
the shares of Interchange Common Stock to be issued to the shareholders of
Jersey if the Merger is consummated.
Sincerely,
CLYDE BRITT
President and Chief Executive Officer
<PAGE>
THE JERSEY BANK FOR SAVINGS
2-8 South Kinderkamack Road
Montvale, New Jersey 07645-0333
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 27, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of The Jersey Bank For Savings ("Jersey") will be held at the Holiday
Inn, Montvale, New Jersey on May 27, 1998 at 10:00 a.m., for the purpose of
considering and voting upon the following matters:
1. A proposal to approve an Agreement and Plan of Merger, dated as of
January 27, 1998 (the "Merger Agreement") by and among Interchange Financial
Services Corporation ("Interchange"), Interchange's New Jersey chartered
commercial bank subsidiary, Interchange Bank (formerly known as Interchange
State Bank) and Jersey, under which Jersey will merge into Interchange Bank (the
"Merger"), and each share of Jersey Common Stock outstanding on the effective
date of the Merger will be converted into 1.5 shares of Interchange Common Stock
(reflecting the 3 for 2 stock split of Interchange Common Stock effective April
17, 1998) as described in the accompanying information.
2. Such other business as may properly come before the Meeting or any
adjournment thereof.
Only those holders of record of Jersey Common Stock as of the close of
business on April 21, 1998 will be entitled to notice of, and to vote, at the
Meeting. A list of such shareholders will be available at the Meeting.
Consummation of the Merger is subject to certain conditions, including
approval of the Merger Agreement by the affirmative vote at the Meeting of a
least two-thirds of the outstanding shares of Jersey Common Stock entitled to
vote, whether in person or by proxy. Your vote is important regardless of the
number of shares that you own. Whether or not you plan to attend the Meeting,
please mark, date and sign the enclosed proxy and return it as soon as possible
in the enclosed stamped envelope. You may revoke the proxy at any time prior to
its exercise, but only by delivering written notice of revocation to the
Secretary of Jersey prior to the Special Meeting at Jersey's principal office,
or to the Secretary of the Special Meeting while the Special Meeting is in
progress and before such shares are voted.
By Order of the Board of Directors,
/s/ William C. Ledgerwood
------------------------------
Secretary
Montvale, New Jersey
April , 1998
THE MERGER IS OF MAJOR IMPORTANCE TO THE SHAREHOLDERS OF THE JERSEY BANK
FOR SAVINGS. ACCORDINGLY, SHAREHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER
THE INFORMATION PRESENTED IN THE ATTACHED PROXY STATEMENT-PROSPECTUS.
<PAGE>
THE JERSEY BANK FOR SAVINGS
PROXY STATEMENT
for the Special Meeting of Shareholders of Jersey Bank
to be held on May 27, 1998
------------------
INTERCHANGE FINANCIAL SERVICES CORPORATION
PROSPECTUS
for the Common Stock of Interchange Financial Services Corporation
to be issued in connection with the Merger of The Jersey Bank For
Savings with and into Interchange Bank
------------------
This Proxy Statement-Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of The Jersey Bank for Savings
("Jersey") to be used at a special meeting of its shareholders (the "Meeting")
to be held on May 27, 1998 and any adjournments or postponements thereof. The
purpose of the Meeting is to consider and vote upon an Agreement and Plan of
Merger dated as of January 27, 1998 (the "Merger Agreement") by and among
Jersey, Interchange Financial Services Corporation ("Interchange"), and
Interchange's New Jersey chartered commercial bank subsidiary, Interchange Bank
(formerly known as Interchange State Bank) ("Interchange Bank" or "Bank"). A
copy of the Merger Agreement is attached as Appendix A to this Proxy
Statement-Prospectus.
In accordance with the terms of the Merger Agreement, upon approval of the
Merger Agreement by the shareholders of Jersey, receipt of all requisite
regulatory approvals and satisfaction or waiver of all other conditions, Jersey
will merge with and into Bank (the "Merger"). Upon consummation of the Merger,
each share of common stock of Jersey, $5.00 par value per share ("Jersey Common
Stock"), issued and outstanding immediately prior to the Effective Time of the
Merger, except for Excluded Shares (as defined below), will be converted into
1.5 shares (the "Exchange Ratio") of common stock of Interchange, no par value
per share ("Interchange Common Stock"), subject to certain adjustments more
fully described in this Proxy Statement-Prospectus. The Exchange Ratio reflects
the 3 for 2 stock split of Interchange Common Stock effective April 17, 1998.
Under the terms of the Merger Agreement, cash will be paid in lieu of fractional
shares of Interchange Common Stock.
Interchange has filed a Registration Statement pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), covering the shares of
Interchange Common Stock which will be issued in connection with the Merger. In
addition to constituting the Jersey Proxy Statement for the Meeting, this
document constitutes a Prospectus of Interchange with respect to the Interchange
Common Stock to be issued if the Merger is consummated.
JERSEY STOCK CERTIFICATES SHOULD NOT BE RETURNED TO JERSEY WITH THE
ENCLOSED PROXY AND SHOULD NOT BE FORWARDED UNTIL AFTER RECEIPT OF A LETTER OF
TRANSMITTAL WHICH WILL BE PROVIDED TO JERSEY SHAREHOLDERS UPON CONSUMMATION OF
THE MERGER.
<PAGE>
ALL INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE INTO THIS PROXY
STATEMENT WITH RESPECT TO JERSEY WAS SUPPLIED BY JERSEY FOR INCLUSION HEREIN.
ALL INFORMATION CONTAINED HEREIN OR INCORPORATED BY REFERENCE HEREIN WITH
RESPECT TO INTERCHANGE WAS SUPPLIED BY INTERCHANGE FOR INCLUSION HEREIN.
THE SHARES OF INTERCHANGE COMMON STOCK DESCRIBED IN THE ATTACHED PROXY
STATEMENT-PROSPECTUS ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF
A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO SELL, TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS AT ANY TIME, NOR ANY
DISTRIBUTION OF SHARES OF INTERCHANGE COMMON STOCK, SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
The date of this Proxy Statement-Prospectus is April __, 1998.
<PAGE>
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION..........................................................4
INFORMATION INCORPORATED BY REFERENCE..........................................5
SUMMARY........................................................................6
The Meeting ...............................................................6
The Companies..............................................................6
The Merger.................................................................7
Selected Financial Data of Interchange....................................14
Selected Financial Data of Jersey.........................................15
Comparative Per Share Data................................................16
Summary Pro Forma Financial Information...................................18
INTRODUCTORY STATEMENT........................................................19
CERTAIN INFORMATION REGARDING INTERCHANGE.....................................19
General...................................................................19
Interchange Bank..........................................................19
CERTAIN INFORMATION REGARDING JERSEY..........................................20
THE MEETING...................................................................20
General...................................................................20
Purpose of the Meeting....................................................21
Vote Required; Shares Entitled to Vote....................................21
Solicitation, Voting and Revocation of Proxies............................21
THE PROPOSED MERGER...........................................................22
General Description.......................................................22
Consideration.............................................................22
Exchange of Certificates..................................................23
Conversion of Stock Options...............................................24
Background of the Merger..................................................24
Reasons for the Merger....................................................25
Opinion of Jersey's Financial Advisor.....................................26
Conditions to Consummation of the Merger..................................30
Representations and Warranties............................................30
Regulatory Approvals......................................................31
Effective Time; Amendments; Termination...................................31
Amendment of the Merger Agreement.........................................32
Accounting Treatment of the Merger........................................32
Federal Income Tax Consequences...........................................32
Interests of Certain Persons in the Merger................................33
1
<PAGE>
Resale Considerations with Respect to the Interchange
Common Stock...........................................................34
Business Pending Consummation of the Merger...............................34
Management and Operations after the Merger................................35
Stock Option for Shares of Jersey Common Stock............................35
Rights of Dissenting Jersey Shareholders..................................37
PRO FORMA COMBINED FINANCIAL INFORMATION......................................38
THE JERSEY BANK FOR SAVINGS...................................................41
Business of Jersey........................................................41
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Jersey.......................................44
Supervision and Regulation of Jersey......................................61
Security Ownership of Certain Beneficial Owners...........................63
Certain Transactions of Jersey............................................64
DESCRIPTION OF INTERCHANGE COMMON STOCK.......................................65
General...................................................................65
Dividend Rights...........................................................65
Voting Rights.............................................................65
Liquidation Rights........................................................66
Assessment and Redemption.................................................66
Other Matters.............................................................66
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF
INTERCHANGE AND JERSEY....................................................67
Jersey....................................................................67
Voting Requirements...................................................67
Cumulative Voting.....................................................67
Classified Board of Directors.........................................67
Rights of Dissenting Shareholders.....................................67
Shareholder Consent to Corporate Action...............................67
Dividends.............................................................68
By-laws...............................................................68
Preemptive Rights.....................................................68
Interchange...............................................................68
Voting Requirements...................................................68
Classified Board of Directors.........................................69
Rights of Dissenting Shareholders.....................................69
Shareholder Consent to Corporate Action...............................69
Dividends.............................................................69
By-laws...............................................................70
2
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Preemptive Rights.....................................................70
Shareholder Protection Legislation....................................70
Preferred Stock.......................................................70
LEGAL OPINION.................................................................70
EXPERTS.......................................................................70
INDEX TO FINANCIAL STATEMENTS OF JERSEY.......................................71
APPENDIX A - MERGER AGREEMENT................................................A-1
APPENDIX B - STOCK OPTION AGREEMENT..........................................B-1
APPENDIX C - FAIRNESS OPINION OF CAPITAL CONSULTANTS, INC....................C-1
APPENDIX D - SECTIONS 140 THROUGH 145 OF THE NEW JERSEY BANKING
ACT OF 1948, AS AMENDED......................................D-1
3
<PAGE>
AVAILABLE INFORMATION
Interchange is subject to the information requirements of the Securities
Exchange Act of 1934, as amended and the rules and regulations thereunder (the
"Exchange Act") and, in accordance therewith, files reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC" or
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such materials can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission (such as
Interchange). The address of the Commission's web site is http://www.sec.gov. In
addition, Interchange Common Stock is listed on the American Stock Exchange, and
reports, proxy statements and other information relating to Interchange may be
inspected at the offices of the American Stock Exchange at: 86 Trinity Place,
New York, New York 10006.
Interchange has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act (together with all amendments and supplements
thereto, the "Registration Statement"), with respect to the shares of
Interchange Common Stock to be issued upon consummation of the Merger. This
Proxy Statement-Prospectus does not contain all of the information set forth in
the Registration Statement and exhibits thereto, certain portions of which have
been omitted as permitted by the rules and regulations of the Commission. Copies
of the Registration Statement are available for inspection and copying as set
forth above. Statements contained in this Proxy Statement-Prospectus or in any
document incorporated by reference in this Proxy Statement-Prospectus relating
to the contents of any contract or other document referred to herein or therein
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE TO
EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY
STATEMENT-PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO: BENJAMIN
ROSENZWEIG, CORPORATE SECRETARY, INTERCHANGE FINANCIAL SERVICES CORPORATION,
PARK 80 WEST /PLAZA TWO, SADDLE BROOK, NEW JERSEY 07663, (201) 703-2265. IN
ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY SUCH REQUEST SHOULD BE
MADE BY MAY 21, 1998.
4
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by Interchange with the Commission (Company
File No. 1-10518) are hereby incorporated by reference in this Proxy
Statement-Prospectus:
A. Annual Report on Form 10-K for the year ended December 31, 1997.
B. Current Report on Form 8-K filed with the Commission on March 17,
1998.
C. Current Report on Form 8-K filed with the Commission on March 17,
1998.
D. The description of Interchange Common Stock set forth under the
caption "Description of Capital Stock" in the final prospectus
included in Interchange's Registration Statement on Form S-2 filed
with the Commission on October 9, 1992 (File No. 33-49840)
All documents filed by Interchange pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy
Statement-Prospectus and prior to the Meeting shall be deemed incorporated by
reference into this Proxy Statement-Prospectus and shall be deemed a part hereof
from the date of filing of such documents.
All information contained or incorporated by reference in this Proxy
Statement-Prospectus with respect to Interchange and Bank was supplied by
Interchange and all information contained in this Proxy Statement-Prospectus
with respect to Jersey was supplied by Jersey. Although neither Interchange nor
Jersey have any knowledge that would indicate that any statements or information
relating to the other party contained or incorporated herein are inaccurate or
incomplete, neither Interchange nor Jersey can warrant the accuracy or
completeness of such information or statements as they relate to the other
entity or its subsidiaries.
Any statement contained herein, in any supplement hereto or in a document
incorporated by reference or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Proxy
Statement-Prospectus to the extent that a statement contained herein, in any
supplement hereto or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement-Prospectus or any supplement hereto.
5
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement-Prospectus. This summary is necessarily
incomplete and is qualified in its entirety by the more detailed information
contained elsewhere in this Proxy Statement-Prospectus, including the Appendices
hereto and the documents incorporated by reference herein. A copy of the Merger
Agreement is set forth as Appendix A to this Proxy Statement-Prospectus. Jersey
shareholders are urged to read carefully the entire Proxy Statement-Prospectus,
including the Appendices.
THE MEETING
Date, Time and Place of Meeting The special meeting of shareholders (the
"Meeting") of The Jersey Bank For Savings
("Jersey") will be held on Wednesday, May 27,
1998, at 10:00 a.m. at the Holiday Inn,
Montvale, New Jersey.
Record Date April 21, 1998 (the "Record Date").
Shares Entitled to Vote 456,270 shares of common stock, $5.00 par
value per share, of Jersey ("Jersey Common
Stock") were outstanding on the Record Date
and are entitled to vote at the Meeting.
Purpose of Meeting To consider and vote upon an Agreement and
Plan of Merger dated as of January 27, 1998
(the "Merger Agreement") by and among
Interchange Financial Services Corporation
("Interchange"), Interchange's chartered
commercial bank subsidiary, Interchange Bank
("Bank"), and Jersey.
Vote Required The affirmative vote, in person or by proxy,
of at least two-thirds of the outstanding
shares of Jersey Common Stock is required to
approve the Merger Agreement. In connection
with the execution of the Merger Agreement,
all the directors of Jersey agreed to vote in
favor of the Merger Agreement all shares of
Jersey Common Stock which they hold. As of
the Record Date, such persons held or had
voting control (excluding options) of
approximately 48% of the issued and
outstanding shares of Jersey Common Stock. As
of the Record Date, there were no executive
officers of Jersey who are not also
directors.
Recommendation of the The Jersey Board of Directors and its Special
Jersey Board of Directors Committee has unanimously approved the Merger
and its Special Committee Agreement and unanimously recommends that
holders of Jersey Common Stock vote "FOR"
approval of the Merger Agreement.
THE COMPANIES
Interchange Interchange is a bank holding company
organized under the laws of the State of New
Jersey and registered under the Bank Holding
Company Act of 1956, as amended (the "Bank
Holding Company Act"). Interchange Bank is
the
6
<PAGE>
only banking subsidiary of Interchange, which
operates 12 branches located in Bergen
County, New Jersey. Interchange Bank is a
member of the Federal Reserve System and its
deposits are insured by the Federal Deposit
Insurance Corporation (the "FDIC"). At
December 31, 1997, Interchange had
consolidated assets of approximately $548
million. Interchange's principal executive
offices are located at Park 80 West/Plaza
Two, Saddle Brook, New Jersey 07663 and its
telephone number is (201) 703-2265. See
"Certain Information Regarding Interchange,"
"Available Information" and "Information
Incorporated by Reference."
Jersey Jersey is a savings bank organized under the
laws of the State of New Jersey. Jersey
presently operates two branches located in
Bergen County, New Jersey. At December 31,
1997, Jersey had total assets of $77 million.
Jersey's principal executive offices are
located at 2-8 South Kinderkamack Road,
Montvale, New Jersey 07645-0333. See "Certain
Information Regarding Jersey;" and "The
Jersey Bank for Savings."
THE MERGER
General Description of the In accordance with the terms of the Merger
Merger; Effective Time Agreement, upon approval of the Merger
Agreement by the shareholders of Jersey,
receipt of all requisite regulatory approvals
and satisfaction or waiver of all other
conditions, including entrance by each holder
of Jersey preferred stock into a conversion
agreement as more fully defined below, Jersey
will merge with and into Bank (the "Merger"),
with Bank as the surviving entity. The Merger
will become effective after approval by the
Commissioner of Banking and Insurance of the
State of New Jersey (the "Commissioner") and
the Board of Governors of the Federal Reserve
System ("FRB"). The first calendar month end
after such approvals have been completed
shall be the "Effective Time". A closing
under the Merger Agreement (the "Closing")
will occur prior to the Effective Time on a
day mutually agreed to by Interchange and
Jersey within 30 days following the receipt
of all necessary regulatory and governmental
approvals and consents and satisfaction or
waiver of all other conditions to closing
(other than the delivery of documents to be
delivered at the Closing) but not later than
the last day of the calendar month in which
the last approval of the foregoing is
received, or on such other date as Bank and
Jersey agree upon. See "The Proposed Merger
-- General Description" and the full text of
the Merger Agreement, which is attached as
Appendix A to this Proxy
Statement-Prospectus.
Consideration Upon consummation of the Merger, each share
of Jersey Common Stock issued and outstanding
immediately prior to the Effective Time,
including the shares issuable upon the
conversion of Jersey Preferred Stock (except
for Excluded Shares) will be converted into
1.5 shares (the "Exchange
7
<PAGE>
Ratio") of common stock of Interchange, no
par value per share ("Interchange Common
Stock"). "Excluded Shares" are those shares
of Jersey Common Stock which (i) are held by
Jersey as treasury shares, (ii) are held
directly or indirectly by Interchange (other
than as trustee or in a fiduciary capacity or
in satisfaction of a debt previously
contracted for) or (iii) as to which
dissenters' rights have been validly
perfected under applicable law. The Exchange
Ratio (which reflects the 3 for 2 stock split
of Interchange Common Stock effective April
17, 1998) is subject to adjustment to take
into account any stock split, stock dividend,
stock combination, reclassification, or
similar transaction by Interchange with
respect to the Interchange Common Stock. In
lieu of receiving fractional shares of
Interchange Common Stock, Jersey shareholders
will be entitled to receive, without
interest, a cash payment equal to the value
of any fractional share interest to which
they would otherwise be entitled. The value
of such fractional share interest will be
determined by the "Average Closing Price" of
Interchange Common Stock, defined as the
average of the closing prices of Interchange
Common Stock as supplied by the American
Stock Exchange ("AMEX") and published in The
Wall Street Journal during the first 20 of
the 25 consecutive trading days immediately
preceding the Effective Time. The Average
Closing Price is subject to adjustment to
take into account any stock split, stock
dividend, stock combination,
reclassification, or similar transaction by
Interchange with respect to Interchange
Common Stock. See "The Proposed Merger --
Consideration; -- Termination of the Merger
Agreement."
Conversion of Stock Options At the Effective Time, any outstanding option
to purchase Jersey Common Stock (a "Jersey
Option") granted under the stock option plan
for certain executives of Jersey (the "Jersey
Option Plan") will be converted into a number
of whole shares of Interchange Common Stock
equal to (A) the excess of (x) the product
obtained by multiplying (i) the number of
shares of Jersey Common Stock covered by the
Jersey Option, times (ii) the Exchange Ratio,
times (iii) the Average Closing Price of
Interchange Common Stock, less (y) the
aggregate exercise price for the Jersey
Option, divided by (B) the Average Closing
Price. As of December 31, 1997, there were no
outstanding Jersey Options and none have been
granted subsequently.
Certain Federal Income Tax Consummation of the Merger is conditioned
Consequences upon the receipt of an opinion of Norris,
McLaughlin & Marcus, P.A. counsel to
Interchange, to the effect that the Merger
will constitute a tax-free reorganization as
defined in Section 368(a) of the Internal
Revenue Code of 1986, as amended (the
"Code"). For information regarding certain
federal income tax matters, see "The Proposed
Merger - Federal Income Tax Consequences."
Jersey shareholders are
8
<PAGE>
urged to consult their own tax advisors as to
the specific tax consequences to them of the
Merger under applicable tax laws.
Dissenters' Rights Pursuant to the provisions of Sections 140
through 145 of the New Jersey Banking Act of
1948, as amended ("Section 140"), any
shareholder of Jersey has the right to
dissent from the Merger by not voting for the
Merger at the Meeting or by giving notice in
writing at or prior to the Meeting to the
presiding officer of Jersey that he dissents
from the Merger and does not thereafter vote
in favor of the Merger. If the Merger is
consummated, each dissenting Jersey
shareholder who fully complies with the
requirements of Section 140 will be entitled
to receive from Interchange a cash payment
equal to the value of his Jersey shares as of
the Effective Time. Section 140 provides that
the value of the shares of any dissenting
shareholder shall be ascertained, as of the
Effective Time by an appraisal obtained as
described in Section 140. The value of the
shares ascertained is required to be paid by
Bank promptly to dissenting shareholders.
Shares represented by Jersey proxies that are
returned signed but unmarked as to voting
instructions will be voted in favor of the
Merger, and therefore shareholders of such
shares will have waived their rights to
dissent. See "Rights Of Dissenting Jersey
Shareholders" and Appendix D to this Proxy
Statement, which sets forth the steps to be
taken by a Jersey shareholder who wishes to
exercise the right to dissent.
Holders of Jersey's convertible preferred
stock, par value $5.00 per share ("Jersey
Preferred Stock") have been offered an
opportunity to enter into a written agreement
with Jersey (the "Conversion Agreements") to
convert their shares of Jersey Preferred
Stock into Jersey Common Stock immediately
prior to the Effective Time of the Merger.
Holders who so convert will receive shares of
Interchange Common Stock at the Exchange
Ratio at the Effective Time unless they give
written notice to Jersey on or before May 22,
1998 that they have elected to seek appraisal
and cash payment for their shares. Holders
who so elect will be entitled to assert
dissenters' rights under Section 140 in
connection with the Merger as if such holders
had been entitled to vote at the Meeting and
voted against Merger. To date, all but one
holder of 300 shares of Jersey Preferred
Stock have entered into Conversion Agreements
with Jersey.
Opinion of Jersey's Financial The Board of Directors of Jersey retained
Advisor Capital Consultants of Princeton, Inc.
("Capital Consultants") to evaluate the terms
of the Merger. Capital Consultants delivered
its written opinion dated January 27, 1998
and reissued its opinion dated April 14, 1998
to the Board of Directors of Jersey to the
effect that the consideration to be received
by the Jersey shareholders pursuant to the
9
<PAGE>
Merger is fair to such shareholders from a
financial point of view. For information
concerning the matters reviewed, assumptions
made and factors considered by Capital
Consultants, see "The Proposed Merger --
Opinion of Jersey's Financial Advisor" and
Appendix C to this Proxy
Statement-Prospectus, which sets forth
Capital Consultants' reissued fairness
opinion in its entirety.
Conditions to the Merger Consummation of the Merger is contingent upon
a number of conditions, including receiving
all necessary regulatory approvals; the
approval of the Merger by the requisite
two-thirds vote of the shareholders of Jersey
Common Stock; execution and delivery of
Conversion Agreements by Jersey and all
holders of Jersey Preferred Stock; an opinion
of Norris, McLaughlin & Marcus P.A., counsel
to Interchange, to the effect that the Merger
will result in a tax free reorganization; the
qualification of the Merger for
pooling-of-interests accounting treatment; an
opinion of Capital Consultants, advisor to
Jersey, that the Merger is fair to the
shareholders of Jersey from a financial point
of view. Capital Consultants' opinion is
included in its entirety as Appendix C (See
"The Proposed Merger -- Opinion of Jersey's
Financial Advisor; -- Conditions to the
Merger.")
Regulatory Approvals Consummation of the Merger requires the
approval of the Commissioner and the FRB.
Approval does not constitute an endorsement
of the Merger or a determination by either
the Commissioner or the FRB that the terms of
the Merger are fair to the shareholders of
Jersey. An application for the Commissioner's
approval was filed on February 13, 1998. An
application for FRB approval was filed on
March 13, 1998. While Interchange and Jersey
anticipate receiving such approvals, there
can be no assurance that they will be
granted, or that they will be granted on a
timely basis without conditions unacceptable
to Interchange or Jersey. See "The Proposed
Merger -- Regulatory Approvals."
Termination Rights The Merger Agreement may be terminated by
either Jersey or Interchange if the Effective
Time has not occurred by November 30, 1998.
For a more complete description of these and
other termination rights available to Jersey
and Interchange, see "The Proposed Merger
-Termination of the Merger Agreement."
Amendment of the Merger Agreement The terms of the Merger Agreement may be
amended, modified or supplemented by the
written consent of Interchange and Jersey at
any time prior to the Effective Time.
However, following Jersey shareholder
approval of the Merger Agreement, Jersey
shareholders must approve any amendment
reducing or changing the amount or form of
consideration to be received by them in the
Merger. See "The Proposed Merger -- Amendment
of the Merger Agreement."
10
<PAGE>
Accounting Treatment of The Merger is expected to be accounted for as
the Merger a pooling-of-interests for financial
reporting purposes. Under the
pooling-of-interests method of accounting,
Jersey's historical basis of assets,
liabilities and shareholders' equity will be
retained by Interchange as the surviving
entity. See "Pro Forma Combined Financial
Information" and "The Proposed Merger --
Accounting Treatment of the Merger."
Stock Option to Interchange In connection with the negotiation by
for Jersey Shares Interchange and Jersey of the Merger
Agreement, Interchange and Jersey entered
into a Stock Option Agreement (the "Stock
Option Agreement") dated as of January 27,
1998. Pursuant to the Stock Option Agreement,
Jersey granted Interchange an option (the
"Option"), exercisable only under certain
limited and specifically defined
circumstances, (each a "Triggering Event") to
purchase up to 126,950 authorized but
unissued shares of Jersey Common Stock,
representing approximately 19.9% of the
shares of Jersey Common Stock which would be
outstanding immediately following the
exercise of the Option, for an exercise price
of $18.75 per share. Additionally,
Interchange may request Jersey to repurchase
such shares of Jersey Common Stock purchased
by Interchange, in exercise of the Option, at
the then fair market value for such shares
under certain conditions described in the
Stock Option Agreement. Interchange does not
have any voting rights with respect to the
shares of Jersey Common Stock subject to the
Option prior to exercise of the Option. A
copy of the Stock Option Agreement is
attached as Appendix B to this Proxy
Statement-Prospectus.
In the event that certain Triggering Events
specifically enumerated in the Stock Option
Agreement occur and the Merger is not
consummated, Interchange would recognize a
gain on the sale of the shares of Jersey
Common Stock received pursuant to the
exercise of the Option if such shares of
Jersey Common Stock were sold at prices
exceeding $18.75 per share. The ability of
Interchange to exercise the Option and to
cause up to an additional 126,950 shares of
Jersey Common Stock to be issued may be
considered a deterrent to other potential
acquirers of control of Jersey, as it is
likely to increase the cost of an acquisition
of all of the shares of Jersey Common Stock
which would then be outstanding. The exercise
of the Option by Interchange may also make
pooling-of-interests accounting treatment
unavailable to a subsequent acquirer. See
"The Proposed Merger -- Stock Option for
Shares of Jersey Common Stock."
11
<PAGE>
Interests of Certain Persons The Merger Agreement provides that, in
in the Merger cancellation of their respective employment
agreements with Jersey and as a full release
of all other severance payments and similar
payment due either of them from Jersey,
within 30 days of the Closing, Interchange
will pay each of Clyde Britt, the President
and CEO of Jersey and William C. Ledgerwood,
the Senior Vice President and Treasurer of
Jersey, an amount substantially equal to the
amounts they would have received had the
severance provision of their employment
agreements been triggered. Bank may request
Mr. Britt and Mr. Ledgerwood to provide
services on mutually agreeable terms for a
brief period as consultants to Bank in
connection with the transition of operations
resulting from the Merger. Payments for such
consultancy, if any, will be at levels not
greater then their current compensation as
executive officers of Jersey.
Pursuant to the terms of the Merger
Agreement, each of Interchange and Bank have
agreed to expand their respective Boards of
Directors by two seats. Richard A. Gilsenan,
Chairman of the Board of Jersey and Arthur R.
Odabash, Vice Chairman of Jersey are to be
appointed to fill those seats.
The Bank has also agreed under the Merger
Agreement to indemnify the Directors and
Officers of Jersey for a period of six years
following the Effective Time of the Merger
and to continue the current Jersey directors
and officers liability insurance for that
same period.
As of the Record Date, the directors of
Jersey and their affiliates beneficially
owned, in the aggregate, (excluding options)
approximately 48% of the issued and
outstanding shares of Jersey Common Stock. In
connection with the execution of the Merger
Agreement, the directors of Jersey agreed to
vote in favor of the Merger Agreement. As of
the Record Date, there were no executive
officers of Jersey who are not also
directors. See "The Jersey Bank for Savings-
Security Ownership of Certain Beneficial
Owners and Management of Jersey."
Resale Considerations with The shares of Interchange Common Stock to be
Respect to Interchange issued in the Merger will be registered under
Common Stock the Securities Act of 1933, as amended (the
"Securities Act"), and will be freely
transferable, except for shares received by
persons, including directors and executive
officers of Jersey, who may be deemed to be
"affiliates" of Jersey under Rule 145
promulgated under the Securities Act. In
connection with pooling of interests
accounting rules such persons have agreed not
to sell or otherwise reduce their risk with
respect to Interchange Common Stock until the
publication of financial results reflecting
at least 30 days of combined operations
following the Effective Time. Further
restrictions
12
<PAGE>
apply to resales by affiliates under Rule
145. See "The Proposed Merger -- Resale
Considerations with Respect to the
Interchange Common Stock."
Differences in Shareholders' Jersey is a New Jersey chartered capital
Rights stock savings bank incorporated under the
Banking Act and Interchange is a business
corporation incorporated under the New Jersey
Business Corporation Act ("NJBCA"). The
rights of Jersey shareholders are currently
governed by the Banking Act. At the Effective
Time, each Jersey shareholder will become a
shareholder of Interchange and the rights of
Interchange shareholders are governed by the
NJBCA. The Banking Act and the NJBCA, and the
rights of shareholders thereunder, differ
with respect to voting requirements and
various other matters. In addition, the New
Jersey Shareholders Protection Act, which is
part of the NJBCA and has no counterpart in
the Banking Act, prohibits certain
transactions involving an "interested
shareholder" and a "resident domestic
corporation." See "Comparison of the Rights
of Shareholders of Interchange and Jersey."
Recent Events On February 26, 1998 the Interchange Board of
Directors approved a 3 for 2 split of all
shares of Interchange Common Stock issued and
outstanding on March 20, 1998 to be
distributed on April 17, 1998. As a result of
the 3 for 2 stock split, the Exchange Ratio
adjusted proportionately, from 1 to 1 to 1.5
to 1 pursuant to adjustment provisions in the
Merger Agreement. All per share data for
Interchange in this Proxy
Statement-Prospectus assumes that the 3 for 2
stock split has become effective.
The Interchange Board also approved an
increase in the quarterly dividend rate from
9(cent) per share to 10(cent) per share
(after taking into effect the 3 for 2 stock
split effective April 17, 1998 described
above).
On February 24, 1998 Interchange Bank amended
its Articles of Incorporation to change its
name from Interchange State Bank to
Interchange Bank.
On _________, 1998, the Board of Directors of
Jersey announced earnings for the quarter
ended March 31, 1998 of $__________, basic
earnings per common share of $_____ and
diluted earnings per common share and share
equivalents of $_______.
On ______, 1998, the Board of Directors of
Interchange announced earnings for the
quarter ended March 31, 1998 of $__________,
basic earnings per common share of $_____ and
diluted earnings per common share and share
equivalents of $_______ (after giving effect
to the 3 for 2 stock split effective April
17, 1998).
13
<PAGE>
Selected Financial Data of Interchange
The following table sets forth certain selected historical consolidated
financial data for Interchange. Such data has been derived from, and should be
read in conjunction with, the audited consolidated financial statements of
Interchange and are qualified in their entirety by reference to the more
detailed consolidated financial statements, incorporated by reference within.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Summary Earnings (in thousands)
Interest income $40,175 $37,284 $36,995 $32,612 $29,267
Interest expense 15,533 14,599 15,150 11,006 10,237
------- -------- -------- ------- --------
Net interest income 24,642 22,685 21,845 21,606 19,030
Provision for loan losses 1,630 700 1,200 944 1,065
------- -------- -------- ------- --------
Net interest income after provision
for loan losses 23,012 21,985 20,645 20,662 17,965
Noninterest income 4,596 4,118 4,459 3,571 4,861
Noninterest expenses 15,984 16,228 15,531 15,535 14,897
------- -------- -------- ------- --------
Income before cumulative effect of change in
accounting principle and income taxes 11,624 9,875 9,573 8,698 7,929
Income taxes 4,068 3,456 3,293 3,062 2,887
------- -------- -------- ------- --------
Income before cumulative effect of
change in accounting principle 7,556 6,419 6,280 5,636 5,042
Cumulative effect of change in accounting
principle -- -- -- -- (205)
------- -------- -------- ------- --------
Net income $ 7,556 $ 6,419 $ 6,280 $ 5,636 $ 4,837
======= ======== ======== ======= ========
Per Share Data (1)
Basic earnings per common share before cumulative
effect of change in accounting principle $1.18 $1.01 $0.97 $0.87 $0.76
Cumulative effect of change in accounting principle -- -- -- -- (0.03)
Basic earnings per common share 1.18 1.01 0.97 0.87 0.73
Diluted earnings per common share
and share equivalents 1.17 1.00 0.97 0.87 0.73
Cash dividends declared 0.36 0.33 0.31 0.29 0.29
Book value-end of year 7.83 6.94 6.31 5.14 4.85
Tangible book value-end of year 7.53 6.74 6.01 5.19 4.85
Weighted average shares outstanding (in thousands) 6,386 6,386 6,372 6,372 6,372
Balance Sheet Data-end of year (in thousands)
Total assets $548,037 $504,689 $491,457 $479,312 $421,659
Securities held to maturity and securities
available for sale 107,627 118,628 142,233 148,781 118,939
Loans 401,854 351,793 311,164 290,654 266,992
Allowance for loan losses 4,893 3,653 3,647 3,839 3,905
Total deposits 470,693 430,013 436,452 424,170 385,430
Long-term borrowings 9,879 9,983 -- 5,000 --
Total stockholders' equity 49,770 44,361 40,241 35,129 33,305
Selected Performance Ratios
Return on average total assets 1.45% 1.31% 1.32% 1.25% 1.23%
Return on average total stockholders' equity 16.05 15.18 16.66 16.58 15.63
Dividend payout ratio 30.27 32.36 32.28 35.47 41.39
Average total stockholders' equity to
average total assets 9.02 8.61 7.90 7.52 7.90
Net yield on interest earning assets
(taxable equivalent) 5.05 4.98 4.91 5.13 4.98
Noninterest expenses to average assets 3.06 3.31 3.26 3.44 3.65
Noninterest income to average assets 0.88 0.84 0.93 0.79 1.19
Efficiency ratio (2) 55.16 59.50 59.09 59.70 63.53
Ratio of earnings to fixed charges (3)
Excluding interest on deposits 9.79x 18.70x 16.03x 24.44x 793.90x
Including interest on deposits 1.75x 1.68x 1.63x 1.79x 1.77x
Asset Quality Ratios-end of year
Nonaccrual loans to total loans 0.38% 0.59% 0.81% 2.13% 1.47%
Nonperforming assets to total assets 0.38 0.68 1.06 1.58 1.25
Allowance for loan losses to nonaccrual loans 323.18 175.29 145.24 62.15 99.77
Allowance for loan losses to total loans 1.22 1.04 1.17 1.32 1.46
Net charge-offs to average loans for the year 0.11 0.21 0.48 0.37 0.48
Liquidity and Capital Ratios
Average loans to average deposits 82.21% 74.78% 68.60% 66.69% 70.34%
Total stockholders' equity to total assets 9.08 8.79 8.19 7.33 7.90
Tier I capital to risk-weighted assets 12.78 13.29 13.16 12.56 12.98
Total capital to risk-weighted assets 14.03 14.42 14.41 13.81 14.23
Tier I leverage ratio 8.86 8.66 7.98 7.57 7.96
</TABLE>
- --------------------------------------------------------------------------------
(1) All per share data has been restated to retroactively reflect the effects
of the 3 for 2 stock split to be distributed on April 17, 1998 to
shareholders of record on March 20, 1998. Interchange implemented
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
which changes the method of calculating earnings per share. The amounts
presented in 1994 and 1993 have been recalculated in accordance with SFAS
No. 128, but do not appear in the 1993 and 1994 financial statements and,
as such, are unaudited.
(2) The efficiency ratio is calculated by dividing noninterest expenses,
excluding amortization of intangibles and net expense of foreclosed real
estate by net interest income and noninterest income excluding gains on
sales of loans, securities, loan servicing and a branch location.
(3) The ratio of earnings to fixed charges excluding interest on deposits is
calculated by dividing income before taxes and extraordinary items before
interest on borrowings by interest on borrowings on a pretax basis. The
ratio of earnings to fixed charges including interest on deposits is
calculated by dividing income before taxes and extraordinary items before
interest on deposits and borrowings by interest on deposits plus interest
on borrowings on a pretax basis.
14
<PAGE>
Selected Financial Data of Jersey
The following table sets forth certain selected historical financial data
for Jersey. Such data has been derived from, and should be read in conjunction
with, the audited financial statements of Jersey and are qualified in their
entirety by reference to the more detailed financial statements, incorporated by
reference within.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Summary Earnings (in thousands)
Interest income $5,152 $4,114 $3,765 $3,004 $2,584
Interest expense 3,023 2,380 2,055 1,441 1,214
------- ------- ------- ------- -------
Net interest income 2,129 1,734 1,710 1,563 1,370
Provision for loan losses 23 47 39 40 50
------- ------- ------- ------- -------
Net interest income after provision
for loan losses 2,106 1,687 1,671 1,523 1,320
Noninterest income 166 135 126 91 79
Noninterest expenses 1,686 1,292 1,176 1,132 996
------- ------- ------- ------- -------
Income before income taxes 586 530 621 482 403
Income taxes 217 198 218 157 88
------- ------- ------- ------- -------
Net income $ 369 $ 332 $ 403 $ 325 $ 315
======= ======= ======= ======= =======
Per Share Data
Basic earnings per common share $0.75 $0.67 $0.83 $0.66 $0.74
Diluted earnings per common share
and share equivalents 0.73 0.67 0.81 0.73
Cash dividends declared per common share 0.12 0.12 0.12 0.10 0.04
Book value-end of year 13.15 12.35 12.01 10.46 10.61
Tangible book value-end of year 13.03 12.37 11.94 11.23 10.61
Weighted average shares outstanding (in thousands) 434 426 428 424 419
Balance Sheet Data-end of year (in thousands)
Total assets $77,012 $67,822 $56,763 $50,729 $45,212
Securities held to maturity and securities
available for sale 28,371 24,711 21,503 19,443 18,642
Loans 36,418 32,267 26,406 24,174 18,458
Allowance for loan losses 338 315 279 240 200
Total deposits 70,072 61,624 50,772 45,629 40,235
Total stockholders' equity 6,360 5,687 5,540 4,860 4,813
Selected Performance Ratios
Return on average total assets 0.49% 0.55% 0.75% 0.67% 0.74%
Return on average total stockholders' equity 6.20 5.90 7.54 6.48 7.59
Dividend payout ratio (1) 26.29 28.92 24.07 27.08 7.62
Average total stockholders' equity to
average total assets 7.96 9.27 9.94 10.36 9.78
Net yield on interest earning assets
(taxable equivalent) 2.97 2.99 3.26 3.30 3.32
Noninterest expenses to average assets 2.25 2.13 2.19 2.34 2.35
Noninterest income to average assets 0.22 0.22 0.23 0.19 0.19
Efficiency ratio (2) 73.46 69.13 64.05 68.44 68.74
Ratio of earnings to fixed charges (3)
Excluding interest on deposits -- -- -- -- --
Including interest on deposits 1.19x 1.22x 1.30x 1.33x 1.33x
Asset Quality Ratios-end of year
Nonaccrual loans to total loans, gross -- 1.37% -- -- --
Nonperforming assets to total assets -- 0.65 -- -- --
Allowance for loan losses to nonaccrual loans -- 71.11 -- -- --
Allowance for loan losses to total loans, net 0.94% 0.99 1.07% 1.00% 1.10%
Net charge-offs to average loans for the year -- 0.04 -- -- --
Liquidity and Capital Ratios
Average loans to average deposits 50.54% 51.52% 54.30% 50.75% 47.28%
Total stockholders' equity to total assets 8.26 8.39 9.76 9.58 10.65
Tier I capital to risk-weighted assets 19.75 19.29 23.33 25.62 29.53
Total capital to risk-weighted assets 20.81 20.36 24.51 26.80 30.75
Tier I leverage ratio 8.43 9.39 10.26 10.23 11.80
</TABLE>
- --------------------------------------------------------------------------------
(1) The dividend payout ratio is calculated by dividing cash dividends
declared on common and preferred stock by net income.
(2) The efficiency ratio is calculated by dividing noninterest expenses,
excluding amortization of intangibles and net expense of foreclosed real
estate by net interest income and noninterest income excluding gains. No
gains were excluded from Jersey's calculations for the years ended
December 31, 1993 through 1997.
(3) The ratio of earnings to fixed charges excluding interest on deposits is
calculated by dividing income before taxes and extraordinary items before
interest on borrowings by interest on borrowings on a pretax basis. The
ratio of earnings to fixed charges including interest on deposits is
calculated by dividing income before taxes and extraordinary items before
interest on deposits and borrowings by interest on deposits plus interest
on borrowings on a pretax basis.
15
<PAGE>
Comparative Per Share Data
The following table sets forth the earnings per share, period-end book
value per share and cash dividends per share of Interchange Common Stock and
Jersey Common Stock for each of the years in the three-year period ended
December 31, 1997, on an historical and pro forma basis, as well as pro forma
equivalent per share data for Jersey. The historical per share data have been
derived from the financial statements of Interchange and Jersey which are
contained herein or incorporated by reference herein. The pro forma combined
share data have been derived after giving effect to the Merger as if it occurred
at the beginning of the period presented using the pooling-of-interests method
of accounting.
The historical per share data for Interchange has been restated to
retroactively reflect the effects of the 3 for 2 stock split to be distributed
on April 17, 1998 to shareholders of record on March 20, 1998. See "Pro Forma
Combined Financial Information;" "Selected Financial Data of Interchange" and
"Selected Financial Data of Jersey."
Comparative Per Share Data
Pro
Forma
Equi-
valent
per
Historical Historical Pro Forma Jersey
Interchange Jersey Combined Share(1)
----------- ---------- -------- --------
Year Ended December 31, 1997
Basic Earnings Per Common Share $1.18 $ 0.75 $1.11 $ 1.67
Diluted Earnings Per Common Share 1.17 0.73 1.10 1.65
Book Value Per Share 7.83 13.15 7.86 11.79
Cash Dividends Per Share (2) 0.36 0.12 0.36 0.54
Year Ended December 31, 1996
Basic Earnings Per Common Share 1.01 0.67 0.95 1.43
Diluted Earnings Per Common Share 1.00 0.67 0.94 1.41
Book Value Per Share 6.94 12.35 7.02 10.53
Cash Dividends Per Share (2) 0.33 0.12 0.33 0.50
Year Ended December 31, 1995
Basic Earnings Per Common Share 0.97 0.83 0.93 1.40
Diluted Earnings Per Common Share 0.97 0.81 0.92 1.38
Book Value Per Share 6.31 12.01 6.43 9.65
Cash Dividends Per Share (2) 0.31 0.12 0.31 0.47
(1) Jersey pro forma equivalent per share data is computed by multiplying the
pro forma combined per share data (giving effect to the Merger) by the
Exchange Ratio of 1.50.
(2) The amount of future dividends payable by Interchange, if any, is subject
to the discretion of Interchange's Board of Directors. The Directors
normally consider Interchange's cash needs, general business conditions,
dividends from subsidiaries and applicable governmental regulations and
policies. Pro forma amounts assume that Interchange would have declared
cash dividends per share on Interchange Common Stock equal to its
historical cash dividends declared per share of Interchange Common Stock.
16
<PAGE>
<TABLE>
<CAPTION>
Equivalent
Closing Sale Last Bid Value of Interchange
Price Per Share Price Per Share Common Stock Per
of Interchange of Jersey Share of Jersey
Common Stock (1)(2)(3) Common Stock Common Stock
-------------------------- ---------------------- ------------------
High Low High Low High Low
----------- ------------ ---------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
1997
First quarter $14.67 $ 10.61 $11.50 $11.50 $22.00 $15.92
Second quarter 17.58 11.92 14.00 12.50 26.38 17.88
Third quarter 16.67 14.67 16.00 14.50 25.00 22.00
Fourth quarter 21.58 14.75 18.75 16.00 32.38 22.13
1996
First quarter 9.42 8.41 11.50 11.50 14.13 12.62
Second quarter 9.17 8.55 11.50 11.50 13.75 12.83
Third quarter 9.83 8.33 11.50 11.50 14.75 12.50
Fourth quarter 11.11 9.50 11.50 11.50 16.67 14.25
1995
First quarter 7.35 6.19 11.50 11.50 11.03 9.29
Second quarter 8.52 6.99 11.50 11.50 12.78 10.48
Third quarter 9.73 8.04 11.50 11.50 14.60 12.06
Fourth quarter 9.15 8.57 11.50 11.50 13.73 12.86
</TABLE>
The following table presents for (i) January 26, 1998, the last full trading day
before the public announcement of the signing of the Merger Agreement, and (ii)
the date two days prior to the date of this Proxy Statement, the reported
closing price per share of Interchange Common Stock and the reported last bid
price of Jersey Common Stock on the AMEX and Over-The-Counter Bulletin Board,
respectively.
Equivalent Value
Closing Sale Last Bid of Interchange
Price Per Share Price Per Share Common Stock Per
of Interchange of Jersey Share of Jersey
Date Common Stock (3) Common Stock Common Stock
- ------------------- ------------------ --------------- ----------------
January 26, 1998 $19.25 $18.75 $28.88
April 9, 1998 20.58 28.75 30.87
- -----------
(1) On February 22, 1996, Interchange declared a 5% Stock Dividend to be
distributed on April 19, 1996 to shareholders of record on March 20, 1996.
The high and low sales price and the cash dividends have been restated to
reflect the effects of the stock dividend.
(2) On February 27, 1997, Interchange declared a 3 for 2 Stock Split to be
distributed on April 17, 1997 to shareholders of record on March 20, 1997.
The high and low sales price and the cash dividends have been restated to
reflect the effects of the stock split.
(3) On February 26, 1998, Interchange declared a 3 for 2 Stock Split to be
distributed on April 17, 1998 to shareholders of record on March 20, 1998.
The high and low sales price and the cash dividends have been restated to
reflect the effects of the stock split.
17
<PAGE>
Summary Pro Forma Financial Information
The following tables present certain Unaudited Combined Financial
Information including the Pro Forma Unaudited Combined Condensed Results of
Operations for the years ended December 31, 1997, 1996 and 1995, and the Pro
Forma Unaudited Combined Balance Sheet at December 31, 1997. The Pro Forma
Unaudited Combined Financial Information gives effect to the proposed Merger,
accounted for as a pooling-of-interests, as if such transaction had been
consummated on January 1 of each year. For the purpose of the Pro Forma
Unaudited Combined Balance Sheet, the assumption is that the transaction had
been consummated as of December 31, 1997. This information which has been
prepared by Interchange's management is based on the historical financial
statements of Interchange and Jersey included or incorporated by reference
herein and should be read in conjunction with such financial statements and
notes. See "Information Incorporated By Reference". The pro forma financial
information assumes an Exchange Ratio of 1.5 shares of Interchange Common Stock
for each share of Jersey Common Stock outstanding.
The Pro Forma Unaudited Combined Financial Information should be read in
conjunction with the Pro Forma Financial Information and the related notes
thereto presented elsewhere in this Proxy Statement-Prospectus and the financial
statements and related notes included and the consolidated financial statements
incorporated by reference in this Proxy Statement-Prospectus. The Pro Forma
financial information is not necessarily indicative of the results of operations
which would have been achieved had the Merger been consummated as of the
beginning of the periods for which such data are presented and should not be
construed as being representative of future periods.
Pro Forma Unaudited Combined Financial Information
(in thousands, except per share data)
For the Years Ended December 31,
---------------------------------
1997 1996 1995
------- ------- -------
Results of Operations:
Net interest income $26,771 $24,419 $23,555
Provision for loan losses 1,653 747 1,239
------- ------- -------
Net interest income after
provision for loan losses 25,118 23,672 22,316
------- ------- -------
Total noninterest income 4,762 4,253 4,585
Total noninterest expenses 17,670 17,520 16,707
------- ------- -------
Income before income taxes 12,210 10,405 10,194
Income taxes 4,285 3,654 3,511
======= ======= =======
Net income $ 7,925 $ 6,751 $ 6,683
======= ======= =======
Basic earnings per common share $ 1.11 $ 0.95 $ 0.93
Diluted earnings per common share 1.10 0.94 0.92
As of
December 31, 1997
Balance Sheet: -----------------
Total Assets $625,049
Total Deposits 540,765
Total Stockholders' Equity 56,130
Book Value Per Common Share 7.86
The pro forma information does not include certain nonrecurring charges
incurred in conjunction with the merger subsequent to December 31, 1997. These
expenses are directly attributable to the merger and are expected to be included
in income within the next 12 months. The expenses are estimated to be $624
thousand, net of taxes of $351 thousand. As of December 31, 1997, no material
expenses were incurred that were directly related to the merger.
18
<PAGE>
INTRODUCTORY STATEMENT
All information contained in this Proxy Statement-Prospectus with respect
to Jersey was supplied by Jersey for inclusion herein. All information contained
herein or incorporated by reference herein with respect to Interchange and Bank
was supplied by Interchange. The first date on which this Proxy
Statement-Prospectus and the enclosed form of proxy are being sent to the
shareholders of Jersey is on or about April __, 1998.
This Proxy Statement-Prospectus does not cover any resales of shares of
Interchange Common Stock to be received by shareholders of Jersey upon
consummation of the Merger. Affiliates of Jersey will be subject to restrictions
on their ability to resell the Interchange Common Stock received by them in the
Merger. See "The Proposed Merger -- Resale Considerations with Respect to the
Interchange Common Stock."
CERTAIN INFORMATION REGARDING INTERCHANGE
General
Interchange is a one-bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Board of Governors") under the
Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act").
Interchange was organized under the laws of New Jersey on October 15, 1984 as a
bank holding company for Bank. Interchange Bank began operations in 1969. In
addition to Bank, Interchange directly owns Clover Leaf Mortgage Co., Inc. and
Washington Interchange Corporation and indirectly owns additional non-bank
subsidiaries through Bank, including Cloverleaf Development Corporation,
Cloverleaf Insurance Agency, Inc., and Cloverleaf Investment Corporation, Inc.
As of December 31, 1997 Interchange had consolidated assets of
approximately $548 million, deposits of $471 million and shareholders' equity of
$50 million.
Interchange Bank
Interchange Bank, a wholly owned subsidiary of Interchange, is a
commercial bank established in 1969 under the laws of the State of New Jersey.
Bank is a member of the Federal Reserve System and its deposits are insured by
the FDIC. Bank maintains its principal office in Saddle Brook, New Jersey and
operates 12 branches throughout Bergen County, New Jersey.
Interchange Bank is engaged in the financing of local businesses and
industry, providing credit facilities and related services for smaller
businesses, typically those with $1 million to $5 million in annual sales, in
light manufacturing, wholesale and retail distribution, and service businesses.
A wide range of commercial lending products is offered, including working
capital lines of credit, U.S. Small Business Administration - backed loans, term
loans for fixed asset acquisitions, commercial mortgages and other asset-based
financing.
Interchange Bank also provides personal consumer banking services,
including checking and savings accounts, money-market accounts, certificates of
deposit, individual retirement accounts, residential mortgages, home equity
lines of credit and other second mortgage loans, home improvement loans,
automobile loans, personal loans and overdraft lines. The Bank also offers a
VISATM credit card and the Interchange Bank-Line telephone banking system.
Certain employees are also licensed insurance agents qualified to offer tax
deferred annuities and related insurance products. The Bank also offers mutual
funds to its customers through a third party vendor. Automated teller machines
are located at ten of the banking offices, at two supermarkets and one
mini-market.
The principal market for the bank's deposit gathering activities covers
major portions of Bergen County in the Northeastern corner of New Jersey,
adjacent to New York City. The principal service area
19
<PAGE>
represents a diversified mix of stable residential neighborhoods with a wide
range of per household income levels; offices, service industries and light
industrial facilities; large shopping malls and small retail outlets.
The Bank currently has 180 full time equivalent employees. Its principal
executive offices are located at Park 80 West/Plaza Two, Saddle Brook, New
Jersey 07763. Its telephone number is (201) 703-2265.
CERTAIN INFORMATION REGARDING JERSEY
Jersey Bank
Jersey is a state-chartered non-member savings bank established in 1988
under the laws of the State of New Jersey. Jersey's deposits are insured by the
FDIC. Jersey maintains its administrative offices and a branch office in
Montvale, New Jersey, and operates a branch in River Edge, New Jersey. See "The
Jersey Bank for Savings".
Jersey offers a broad range of personal consumer banking services,
including checking and savings accounts, money market accounts, certificates of
deposit, individual retirement accounts, residential mortgages, home equity
lines of credit, second mortgage loans, automobile loans, personal loans,
overdraft loans, safe deposit boxes and telephone banking services. Twenty-four
hour automated teller machines are located both at the banking office and branch
office of Jersey.
Jersey also offers commercial banking services, including commercial real
estate based mortgage loans up to a maximum amount of approximately $900,000,
and issues performance letters of credit. Jersey also processes merchant credit
card receipts, is a federal tax payment depository, provides lease security
deposit account management and lock box arrangements for rental collection.
Jersey also offers attorney and other performance trust account facilities.
The principal market for Jersey's services is Northeastern Bergen County.
This principal service area encompasses a diversified mix of residential
neighborhoods tending towards the higher range of per-household income levels,
as well as offices, service industries and light industrial facilities, shopping
malls and small retail outlets.
Jersey currently has 20 full-time equivalent employees. Jersey's
administrative offices are located at 2-8 Kinderkamack Road, Montvale, New
Jersey 07645-0333. Its telephone number is (201) 930-0005.
THE MEETING
General
This Proxy Statement-Prospectus solicits, on behalf of the Jersey Board of
Directors, proxies to be voted at a Special Meeting of Shareholders (the
"Meeting") of Jersey which is to be held at the Holiday Inn, Montvale, New
Jersey on May 27, 1998 at 10:00 a.m., and at any adjournments or postponements
thereof.
20
<PAGE>
Purpose of the Meeting
At the Meeting, the Jersey shareholders will (i) consider and vote upon a
proposal to approve the Merger Agreement; and (ii) act on such other matters as
may be properly brought before the Meeting.
The Merger will only become effective after approval by Jersey
shareholders and by the Commissioner and FRB. A closing under the Merger
Agreement (the "Closing") will occur prior to the Effective Time on a day
mutually agreed to by Interchange and Jersey within 30 days following the
receipt of all necessary regulatory and governmental approvals and consents and
satisfaction or waiver of all other conditions of closing (other than the
delivery of documents to be delivered at the Closing) but not later than the
last day of the calendar month in which the last received of the foregoing is
received.
At the Effective Time, each outstanding share of Jersey Common Stock,
except for Excluded Shares (as defined below), will be converted into 1.5 shares
of Interchange Common Stock (which reflects the 3 for 2 stock split of
Interchange Common Stock effective April 17, 1998), subject to adjustment, as
more fully set forth in the Merger Agreement. See "The Proposed Merger --
General Description."
THE BOARD OF DIRECTORS OF JERSEY RECOMMENDS THAT THE SHAREHOLDERS OF JERSEY VOTE
IN FAVOR OF THE MERGER AGREEMENT.
Vote Required; Shares Entitled to Vote
Only holders of record of Jersey Common Stock at the close of business on
April 21, 1998 (the "Record Date") are entitled to notice of and to vote at the
Meeting. The number of shares of Jersey Common Stock issued, outstanding and
entitled to vote at the close of business on the Record Date was 456,270.
Holders of Jersey Common Stock of record on the Record Date are entitled to one
vote per share on any matter that may properly come before the Meeting.
The affirmative vote, in person or by proxy, of at least two-thirds of the
outstanding shares of Jersey Common Stock is required to approve the Merger
Agreement. In connection with the execution of the Merger Agreement, the
directors of Jersey have agreed to vote in favor of the Merger Agreement the
shares of Jersey Common Stock which they beneficially own (approximately 48% of
the issued and outstanding shares of Jersey Common Stock, excluding options, as
of the Record Date.) As of the Record Date, there were no executive officers of
Jersey who are not also directors. See "The Jersey Bank for Savings- Security
Ownership of Certain Beneficial Owners and Management of Jersey."
Solicitation, Voting and Revocation of Proxies
The enclosed proxy is designed to permit each shareholder of record on the
Record Date to vote on all matters to come before the Meeting or any adjournment
or postponement thereof. This proxy is solicited by the Board of Directors of
Jersey. Any proxy may be revoked at any time before its exercise by giving
written notice of revocation to William C. Ledgerwood, Secretary of Jersey, at
the main office of Jersey at 2-8 South Kinderkamack Road, Montvale, New Jersey
07645-0333. A subsequently dated and duly executed proxy, if properly presented,
will revoke a prior proxy. Any shareholder entitled to vote who has previously
executed a proxy may attend the Meeting and vote in person, provided the
shareholder has filed a written notice of revocation of such proxy with the
Secretary of the Meeting prior to the voting of such proxy. Where a shareholder
specifies a choice in the form of proxy with respect to a matter being voted
upon, the shares represented by the proxy will be voted in accordance with such
specification. If no such specification is made, the shares represented by
proxies will be voted in favor of the Merger Agreement.
21
<PAGE>
The Board of Directors of Jersey knows of no matters, other than the
proposed Merger described in this Proxy Statement-Prospectus, that will be
presented for consideration at the Meeting. However, if other matters properly
come before the Meeting, it is intended that the persons designated as proxies
will vote upon such additional matter(s) in accordance with their best judgment.
The cost of soliciting proxies for the Meeting will be borne by Jersey. In
addition to the use of the mail, proxies may be solicited personally, by
telephone or telegram, and by directors, officers and employees of Jersey acting
without additional compensation. Arrangements may also be made with brokers,
dealers, nominees and other custodians for the forwarding of solicitation
material to the beneficial owners of stock held of record by such persons, and
such persons may be reimbursed by Jersey for reasonable out-of-pocket expenses.
THE PROPOSED MERGER
Descriptions of the Merger and the Merger Agreement (which is attached as
Appendix A to this Proxy Statement-Prospectus) are qualified in their entirety
by reference to the Merger Agreement which is hereby incorporated in this Proxy
Statement-Prospectus by reference. Jersey shareholders are urged carefully to
review the Merger Agreement.
General Description
The Merger Agreement provides that, at the Effective Time, Jersey will
merge with and into Bank, with Bank as the surviving entity (the "Surviving
Bank"). The separate identity and existence of Jersey will cease upon
consummation of the Merger. All property, rights, powers and franchises of each
of Jersey and Interchange will vest in the Surviving Bank. The Surviving Bank
will be governed by the Certificate of Incorporation and bylaws of Bank in
effect immediately prior to the Effective Time.
Consideration
Upon consummation of the Merger, each share of Jersey Common Stock issued
and outstanding immediately prior to the Effective Time (except for Excluded
Shares) will be converted into 1.5 shares of Interchange Common Stock (which
reflects the 3 for 2 stock split of Interchange Common Stock effective April 17,
1998). "Excluded Shares" are those shares of Jersey common Stock which (i) are
held by Jersey as treasury shares, (ii) are held directly or indirectly by
Interchange (other than as trustee or in a fiduciary capacity or in satisfaction
of a debt previously contracted for) or (iii) as to which dissenters' rights
have been validly perfected under applicable law or pursuant to Conversion
Agreements, as described below. The Exchange Ratio is subject to adjustment to
take into account any stock split, stock dividend, stock combination,
reclassification, or similar transaction by Interchange with respect to the
Interchange Common Stock.
Under the terms and conditions of Jersey Preferred Stock, such stock is
convertible into Jersey Common Stock at any time, at the option of the holder.
However, such shares do not automatically convert to Jersey Common Stock as a
result of the Merger. The Merger makes no provision to exchange shares of Jersey
Preferred Stock for shares of Interchange Common Stock or any other securities,
cash or other property of Interchange or Interchange Bank. The Merger Agreement
requires Jersey to enter into agreements (the "Conversion Agreements") with each
holder of Jersey Preferred Stock which: (i) provides for the conversion of
Jersey Preferred Stock into Jersey Common Stock immediately prior to the
Effective Time upon the conversion terms set forth in Jersey's Certificate of
Incorporation; (ii) allow the holders thereof to elect, at any time on or before
May 22, 1998, the third business day prior to the Jersey Meeting, to exclude the
shares of Jersey Common Stock issuable upon conversion from participating in the
exchange for Interchange Common Stock at the Effective Time and, in lieu
thereof, to exercise dissenter's rights of appraisal upon the terms and
conditions set forth in Section 140 of the New Jersey Banking Act, as if such
shares were entitled to vote at the Jersey Meeting and were voted against the
Merger. It is a condition to Interchange's obligation to consummate
22
<PAGE>
the Merger that all holders of Jersey Preferred Stock enter into Conversion
Agreements or be compelled by a final non-appealable order of a court of
competent jurisdiction to so convert their shares upon the terms and conditions
set forth in the Conversion Agreements. If this condition were to be waived by
Interchange, the holders of Jersey Preferred Stock who do not convert such
shares into Jersey Common shares prior to the Effective Time will be precluded
from receiving consideration in the Merger. To date, all but one holder of 300
shares of Jersey Preferred Stock have entered into Conversion Agreements with
Jersey.
No shareholder of Jersey Common Stock will be entitled to receive
fractional shares of Interchange Common Stock, but instead will be entitled to
receive, without interest, a cash payment equal to the value of any fractional
share interest to which they would otherwise be entitled, determined by
multiplying the shareholder's fractional interest by the Average Closing Price
of Interchange Common Stock (as hereinafter defined). The "Average Closing
Price" of Interchange Common Stock is defined in the Merger Agreement as the
average of the closing prices of Interchange Common Stock as reported on the
AMEX and published in the Wall Street Journal during the first 20 of the 25
consecutive trading days immediately preceding the Effective Time. Both the
Exchange Ratio and the Average Closing Price are subject to adjustment to take
into account any stock split, stock dividend, stock combination,
reclassification, or similar transaction by Interchange with respect to
Interchange Common Stock.
Under New Jersey banking law, the Jersey shareholders are entitled to
dissenters' rights of appraisal in connection with the Merger. Holders of Jersey
Preferred Stock who enter into Conversion Agreements are also granted equivalent
dissenters' rights under such Agreements. See "Rights of Dissenting Jersey
Shareholders."
Exchange of Certificates
At the Effective Time, holders of certificates formerly representing
shares of Jersey Common Stock will cease to have any rights as Jersey
shareholders and their certificates automatically will represent the right to
receive shares of Interchange Common Stock into which their shares of Jersey
Common Stock will have been converted by the Merger. At the Effective Time,
holders of certificates formerly evidencing Jersey Preferred Stock who have
entered into a Conversion Agreement, will cease to have rights as Jersey
Shareholders and their certificates automatically will represent the right to
receive shares of Interchange Common Stock issuable in exchange for the shares
of Jersey Common Stock into which such Jersey Preferred Stock is converted
immediately prior to the Effective Time. As soon as practicable after the
Effective Time, Interchange will send written notice to each holder of record of
Jersey Common Stock and converting holders of Jersey Preferred Stock (other than
those that exercise their dissenter's rights), indicating the number of shares
of Interchange Common Stock into which such holder's shares of Jersey Common
Stock have been converted.
Each holder of outstanding certificates for Jersey Common Stock, promptly
upon proper surrender of such certificates to Interchange after the Merger, will
receive a certificate representing the full number of shares of Interchange
Common Stock into which the shares of Jersey Common Stock previously represented
by the surrendered certificates have been converted. At the time of issuance of
a new Interchange stock certificate, each shareholder will receive a check for
the amount of any fractional share interest to which he may be entitled to cash
payment.
Each share of Interchange Common Stock into which shares of Jersey Common
Stock are converted will be deemed to have been issued at the Effective Time.
Accordingly, Jersey shareholders who receive Interchange Common Stock in the
Merger will be entitled to receive any dividend or other distribution which may
be payable to holders of record of Interchange Common Stock on or after the
Effective Time. However, no dividend or other distribution will actually be paid
until the certificate or certificates formerly representing shares of Jersey
Common Stock have been surrendered or Jersey Preferred Stock, as the case may
be, at which time any accrued dividends and other distributions on such shares
of Interchange Common Stock will be paid without interest.
23
<PAGE>
HOLDERS OF JERSEY COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS.
Conversion of Stock Options
The Merger Agreement provides that each outstanding and fully vested
option to purchase Jersey Common Stock (a "Jersey Option") will be converted at
the Effective Time into the right to receive shares of Interchange Common Stock,
as more fully described below.
At the Effective Time, each outstanding and fully vested Jersey Option
will be converted into an amount of Interchange Common Stock having a value
equal to the difference between the exercise price of the Jersey Option and the
value of the shares of Interchange Common Stock to be exchanged for each share
of Jersey Common Stock to be determined using the Average Closing Price of
Interchange Common Stock.
As of December 31, 1997, there were no outstanding Jersey Options and none
have been granted subsequently.
Background of the Merger
In June 1997, the Board of Directors of Jersey received a letter of
inquiry from Interchange with respect to the feasibility of a strategic
alliance. In August 1997, the Board of Directors formally retained the services
of Capital Consultants to provide the Board with a preliminary indication of
Jersey's share value in the context of a strategic transaction.
On September 19, 1997, the Board of Directors of Jersey received a formal
offer from Interchange under which Interchange proposed to purchase Jersey for
consideration equal to two times Jersey's book value, or $23.25 per share of
Jersey Common Stock. In response to this offer, the Board of Directors retained
Capital Consultants to, among other things, evaluate the offer, perform due
diligence and identify other potential strategic partners. During the course of
its engagement, Capital Consultants conducted an informal "market check" by
contacting other banking institutions.
On October 28, 1997, the Jersey Board formally appointed a Special
Committee, comprising Clyde C. Britt, Richard A. Gilsenan, Wilson Kaplen, Arthur
R. Odabash and Stanley H. Marcus to evaluate its strategic alternatives,
including the proposed transaction with Interchange, and to make a formal
recommendation to the Board. During the fourth quarter of 1997, the Special
Committee of Jersey met several times to evaluate Jersey's strategic
alternatives. In particular, three basic strategic options were considered: (i)
continuing the policy of independence with growth generated through internal
operations; (ii) a merger-of-equals type of transaction; and (iii) a merger with
a larger financial institution. During this period, the Special Committee,
and/or its representatives engaged in preliminary and exploratory discussions
with various financial institutions, including Interchange, which either
resulted in the receipt of certain informal proposals on terms less favorable
than the terms offered by Interchange, or no expression of interest.
On November 5, 1997 the Special Committee held a meeting with Interchange
to discuss the terms of the proposed offer; Capital Consultants participated in
this meeting. At this meeting there was no agreement with respect to any
material terms of the transaction, including structure and price.
In December 1997, the Special Committee met to discuss various strategic
alternatives, including Interchange's proposal. Capital Consultants presented
the Board with an analysis of the various strategic alternatives. In
consultation with Capital Consultants, and after careful consideration of the
financial condition of Interchange and other potential strategic partners, the
strategic benefits of
24
<PAGE>
an alliance between Interchange and Jersey, the pro forma financial performance
of a combined entity, the structure and terms of the proposed transaction and
the other factors discussed below, the Special Committee then determined to
pursue negotiations with Interchange.
During January 1998, members of the Special Committee and personnel of
Jersey and Capital Consultants continued a due diligence review. Simultaneously,
the Special Committee, with Jersey's special counsel and Capital Consultants,
continued negotiating the terms of the Merger Agreement and the related
documentation. On or about January 19,1998, the Special Committee met with its
advisors to analyze the terms of the proposed Interchange offer as reflected in
documents delivered by Interchange. An analysis of the proposed transaction was
prepared by special counsel and delivered to each member of the Jersey Board of
Directors. Capital Consultants presented an analysis of the proposed transaction
and confirmed its preliminary opinion of the fairness of the transaction from a
financial point of view to the shareholders of Jersey.
On January 27, 1998, the Board of Directors of Jersey and its Special
Committee convened to discuss the definitive terms of the proposed transaction.
Special counsel summarized the terms of the transaction. Capital Consultants
distributed its analyses and delivered its written opinion that the proposed
transaction was fair from a financial point of view to the shareholders of
Jersey. The Special Committee and the Board of Directors of Jersey also
discussed the potential financial and strategic benefits of the proposed
transaction, the results of the due diligence review, the anticipated tax and
accounting treatment of the proposed transaction, the various strategic
alternatives, and the terms of the Merger Agreement and transactions
contemplated thereby. The Special Committee, after due consideration of all of
the information presented and consultation with its advisors, voted unanimously
to approve the Merger Agreement and transactions contemplated thereby and made a
recommendation to the Board of Directors. The Board of Directors, after due
consideration and consultation with its advisors, voted unanimously to accept
the recommendation of the Special Committee and approved the Merger Agreement
(and related documentation) and the transactions contemplated thereby as being
in the best interest of Jersey Bank and its stockholders and recommended that
the Jersey stockholders approve the merger. The Merger Agreement was executed by
the parties that day.
Reasons for the Merger
THE BOARD OF DIRECTORS OF JERSEY HAS APPROVED THE MERGER AGREEMENT,
BELIEVES IT TO BE IN THE BEST INTERESTS OF THE SHAREHOLDERS OF JERSEY AND
RECOMMENDS THAT JERSEY SHAREHOLDERS VOTE "FOR" THE MERGER AGREEMENT. The Board
of Directors of Jersey believes that the terms of the Merger Agreement are fair
to Jersey's shareholders. In approving the Merger Agreement, the Board evaluated
the business, financial and market factors affecting Jersey, Interchange's
historical and pro forma financial results, the liquidity and trading
characteristics of the Interchange Common Stock, Interchange's credit policies,
asset quality, adequacy of loan loss reserves and interest rate risk, the
dividend income of the Interchange Common Stock and the Jersey Common Stock, the
outlook for each institution in a changing banking and financial services
industry, in consultation with its financial advisor. The Board also noted that
Jersey would become part of a larger entity that would compete more effectively
in the communities served by Jersey by offering a number of new or expanded
services to residents of such communities. Furthermore, the Board considered the
effect on shareholder value of Jersey's continuing as a stand-alone entity or
combining with other potential merger partners, and the risks associated with
such alternative strategies, compared to the effect of its combining with
Interchange. The Board concluded that the merger with Interchange presented the
best opportunity for maximizing shareholder value and increasing the liquidity
of the Jersey Common Stock.
The Board believes that shareholders of Jersey would be better served by
converting their investment in Jersey into an investment in Interchange at the
Exchange Ratio pursuant to the terms
25
<PAGE>
of the Merger Agreement. Among other things, Interchange, as a more diversified
institution with substantially greater assets than Jersey, is better positioned
to succeed in the increasingly competitive environment in which banks are now
operating. As part of Interchange, the offices of Jersey will have the support
of Interchange's greater resources and broader access to markets for capital and
lendable funds. This greater scope and depth of services coupled with the
ability to offer larger loans should enable the offices of Jersey to serve
effectively a wider range of customers. In addition, the Board of Directors
believes that ownership of Interchange Common Stock, which is traded on the
American Stock Exchange, will provide Jersey shareholders with a far more liquid
investment than will continued ownership of Jersey Common Stock. Finally, the
Board of Directors believes that Interchange's operations and business
philosophy are consistent with those of Jersey.
The foregoing discussion of the information and factors considered by the
Board of Directors of Jersey is not intended to be exhaustive. The Board of
Directors did not attach relative weight to the factors it considered in
reaching its decision but, considering all factors discussed above, determined
that the Merger pursuant to the Merger Agreement is in the best interest of, and
is fair to, Jersey's shareholders.
The Jersey Board of Directors unanimously approved the Merger Agreement
and unanimously recommends that the Merger Agreement be approved by the holders
of Jersey Common Stock.
Opinion of Jersey's Financial Advisor
The Jersey Board retained Capital Consultants to act as Jersey's financial
advisor to assist the Jersey Board of Directors and management in connection
with the Merger and related matters, and, if negotiations resulted in the
execution of a definitive agreement, to render its opinion with respect to the
fairness, from a financial point of view, to the shareholders of Jersey of the
consideration to be received in a potential merger.
Capital Consultants is regularly engaged in the valuation of banks, bank
holding companies, savings and loan associations, and thrift holding companies
in connection with mergers, acquisitions and other securities transactions.
Capital Consultants has knowledge of, and experience with, the New Jersey
banking and thrift market and financial organizations operating in that market
and was selected by Jersey because of its knowledge of, experience with, and
reputation in the financial services industry. Capital Consultants is not a
market maker in either Interchange Common Stock or Jersey Common or Preferred
Stock.
On January 27, 1998, the date the Board of Directors of Jersey approved
the Merger, Capital Consultants delivered to the Board of Directors its written
opinion that, based on and subject to various items discussed in the
presentations, the consideration to be received by Jersey's shareholders
pursuant to the Merger Agreement is fair from a financial point of view to
Jersey's shareholders. In requesting Capital Consultants' advice and opinion,
Jersey's Board did not impose any limitations upon Capital Consultants with
respect to the investigations made or procedures followed by it in rendering its
opinion.
Capital Consultants reissued its opinion as of the date of this Proxy
Statement-Prospectus.
The full text of the written opinion of Capital Consultants, which sets
forth assumptions made and matters considered, is attached as Appendix C to this
Proxy Statement-Prospectus. Jersey shareholders are urged to read this opinion
in its entirety. Capital Consultants' opinion is directed only to the financial
terms of the Merger and does not constitute a recommendation to any Jersey
shareholder as to how such shareholder should vote at the Meeting. The summary
information regarding Capital Consultants' opinion and the procedures followed
in rendering such opinion set forth in this Proxy Statement-Prospectus is
qualified in its entirety by reference to the full text of such opinion.
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In arriving at its opinion, Capital Consultants reviewed and analyzed,
among other things: (i) the Merger Agreement and related documents; (ii) the
Interchange Registration Statement on Form S-4 of which this Proxy
Statement-Prospectus is a part; (iii) publicly available information relating to
Interchange and Jersey including, for Interchange, annual reports to
shareholders and Annual Reports on Form 10-K filed with the SEC for the years
ended December 31, 1995 through 1997, the Consolidated Statements of Financial
Condition as of December 31, 1997, 1996 and 1995, and the related Consolidated
Statements of Income, Changes in Shareholders' Equity and Cash Flows for the
three year period ended December 31, 1997 included therein, and the quarterly
reports to shareholders and Quarterly Reports on Form 10-Q filed with the SEC
for the periods ended March 31, June 30, and September 30, 1997 and for Jersey,
annual reports to shareholders for the years ended December 31, 1994 through
1996, Statements of Financial Condition as of December 31, 1997, 1996, and 1995
and related Statements of Income, Changes in Shareholders' Equity and Cash Flows
for the three year period ended December 31, 1997, together with the Reports of
Independent Public Accountants and quarterly Reports of Condition and Income as
filed with the Federal Deposit Insurance Corporation for the periods ended March
31, June 30, and September 30, 1997; (iv) certain historical operating and
financial information provided to Capital Consultants by the managements of
Jersey and Interchange; (v) historical and current market data for the Jersey
Common Stock and the Interchange Common Stock; (vi) the publicly available
financial data and stock market performance data of publicly traded banking and
thrift institutions which Capital Consultants deemed generally comparable to
Jersey and Interchange; (vii) the nature and terms of recent acquisitions and
merger transactions involving banking institutions and bank and thrift holding
companies that Capital Consultants considered reasonably similar to Jersey and
Interchange in financial character, operating character, historical performance,
geographic market and economy; and (viii) such other studies, financial
forecasts, analyses, inquiries and reports as Capital Consultants deemed
appropriate. In addition, Capital Consultants conducted meetings with members of
senior management of Jersey and Interchange for purposes of reviewing the future
prospects of Jersey and Interchange. Capital Consultants evaluated the pro forma
ownership of the Interchange Common Stock by Jersey's shareholders, relative to
the pro forma contribution of Jersey's assets, deposits, equity and earnings to
the pro forma resulting company in the Merger. Capital Consultants also took
into account its experience in other transactions, as well as its knowledge of
the banking and thrift industries and its experience in securities valuations.
In rendering its opinion, Capital Consultants assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations provided to it by Jersey and Interchange.
Capital Consultants did not conduct a physical inspection of any of the
properties or assets of Jersey or Interchange and has not made any independent
evaluations or appraisal of any properties, assets or liabilities of Jersey or
Interchange. Capital Consultants has assumed and relied upon the accuracy and
completeness of the publicly available financial and other information provided
to it, has relied upon the representations and warranties of Jersey and
Interchange made pursuant to the Merger Agreement, and has not independently
attempted to verify any of such information.
In rendering its opinion, Capital Consultants assumed that in the course
of obtaining the necessary regulatory approvals for the Merger, no conditions
will be imposed that will have a material adverse effect on the contemplated
benefits of the Merger on a pro forma basis to Jersey.
In arriving at its opinion, Capital Consultants performed a variety of
financial analyses. Capital Consultants believes that its analyses must be
considered as a whole and that consideration of portions of such analyses and
the factors considered therein, without considering all factors and analyses,
could create an incomplete view of the analyses and the process underlying
Capital Consultants' opinion. The preparation of an opinion with respect to
fairness, from a financial point of view, of the consideration to be received by
shareholders is a complex process involving judgments and is not necessarily
susceptible to partial analyses and summary description.
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In its analyses, Capital Consultants made numerous assumptions with
respect to Jersey's and Interchange's industry performance, business and
economic conditions and other matters. Such assumptions and any forward-looking
estimates reflected in Capital Consultants analyses almost always vary from
actual results, and the difference between assumptions underlying such estimates
and actual results can be material. Factors which may make actual results differ
from anticipated results include, but are not limited to, changes in market
interest rates; unforeseen competition; changes in customer economic activity
which may affect loan activity; changes in the economy of the companies' market
area, and other uncertainties, all of which are difficult to predict and beyond
the control of Jersey or Interchange.
Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold.
In connection with its opinion, Capital Consultants performed various
analyses with respect to Jersey and Interchange. The following is a brief
summary of such analyses, certain of which were presented to the Jersey Board by
Capital Consultants.
Valuation Analysis
Using a valuation analysis, Capital Consultants estimated the present
value of theoretical values of Jersey based on a range of price-to-earnings
("P/E") multiples between 16.0x and 18.0x and a range of discount rates between
6% and 8%. The range of values were based on a range of estimated earnings for
the next three years assuming annual earnings growth from $400,000 in 1997 to
$900,000 in 2000. The results of this analysis indicated a range of theoretical
values for Jersey between $23.23 per share (P/E of 15.0x; 8% discount rate) and
$28.16 per share (P/E of 17.0x; 6% discount rate).
Capital Consultants also prepared a net present value analysis that
indicated theoretical values for Jersey based on range of terminal book value
multiples between 1.80x and 2.20x and a range of discount rates between 6% and
8%. The dividend payout remains the same and the range of terminal multiples of
book value are based on the current price / book value multiples estimated for
Jersey's value. The terminal values were discounted to present value using
discount rates which reflect assumptions regarding the required rates of return
of the current and prospective shareholders of Jersey Common Stock in these
economic times. The range of present values per share of Jersey resulting from
the above-referenced assumptions were $21.38 to $28.16 per share.
Comparable Company Analysis
Capital Consultants compared the operating performance of Jersey to
publicly traded thrifts that Capital Consultants deemed to be similar to Jersey.
The group consists of six publicly traded New Jersey based thrifts with total
assets of between $110 million and $372 million. Capital Consultants compared
Jersey with these institutions based on selected operating fundamentals,
including capital adequacy, profitability and asset quality. Using pricing data
as of December 31, 1997, the median price to stated book value was 161.5% for
the comparable thrifts and 153.2% for Jersey. The median price to trailing
twelve months earnings was 24.8x for the comparable thrifts and 27.6x for
Jersey. The median equity to assets ratio was 12.2% for the group of comparable
thrifts and 8.26% for Jersey. The median return on average assets for the twelve
months ended September 30, 1997 was 0.75% for the comparable group of thrifts
and 0.49% for Jersey. The median return on average equity for the twelve months
ended September 30, 1997 was 5.48% for the comparable group of thrifts and 5.74%
for Jersey.
Finally, Capital Consultants compared the market price, market-to-book
value and price-to-earnings multiples of the Interchange Common Stock with
individual market multiples and medians of
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twenty-one publicly traded New Jersey based commercial banks and bank holding
companies having total assets between $139 million and $29.1 billion. The
analysis also compared returns on average assets and average equity of
Interchange to those of selected financial institutions and the medians of the
comparable group. The analysis indicated that the Interchange common stock
traded in December 1997 at a price-to-earnings multiple of 16.0 times trailing
twelve months earnings for the period ended September 30, 1997 as compared to a
comparative group medium of 20.9 times trailing twelve months earnings for the
period ended September 30, 1997. While the Interchange Common Stock traded at a
price-to-book value of 258%, the comparative group median was 263%.
Interchange's financial performance, as measured by returns on average assets
and average equity for the trailing twelve months ended September 30, 1997, was
1.53% and 17.17%, respectively, as compared to the median of the selected
comparable financial institutions which was 1.18% and 13.52%, respectively. The
Capital Consultants analyses also included summary income statement and balance
sheet data and selected ratio analyses for Interchange and various other
potential acquirers of Jersey.
Contribution Analysis
Capital Consultants prepared a contribution analysis showing the
percentage of assets, deposits, net common equity and 1997 net income Jersey
would contribute to the combined company on a pro forma basis, and compared
these percentages to the pro forma ownership after the Acquisition. This
analysis showed that Jersey would contribute 12.3% of pro forma consolidated
total assets, 13.0% of pro forma consolidated deposits, 11.6% of pro forma
consolidated shareholders' equity and 4.5% of pro forma consolidated net income
for 1997, while Jersey shareholders would hold 10.9% of the pro forma ownership
of Interchange.
Impact Analysis
Capital Consultants analyzed the financial implications of the Merger on
Interchange's earnings per common share and book value per common share. This
analysis was based on December 31, 1997 financial data for Interchange and
Jersey and indicated that the acquisition of Jersey by Interchange would be (on
a pro forma basis for the twelve months ended December 31, 1997, assuming the
acquisition was effective as of January 1, 1997) approximately 6.2% dilutive to
the earnings per share of Interchange Common Stock before any cost reductions
were reflected and approximately 0.8% accretive to tangible book value per share
of Interchange Common Stock on a fully diluted basis.
Comparable Transaction Analysis
Capital Consultants performed an analysis of prices and premiums offered
in recently announced thrift institutions transactions in the region. Multiples
of earnings and fully diluted book value implied by the consideration to be
received by Jersey's shareholders in the Merger were compared with multiples
offered in such regional transactions, which included pending and completed
acquisitions announced between January 1, 1995 and January 26, 1998. The median
offer price to book value for this regional group of comparable transactions was
177%. The equivalent offer price to book value for Jersey was 236% based on the
assumed Interchange offer price of $28.875 for each outstanding share of Jersey
Common Stock and Jersey's book value as of December 31, 1997. Also, the median
price to last twelve months earnings for this regional group was 18 times versus
Interchange's offer for Jersey at 42.2x. Capital Consultants also reviewed the
core capital ratio to total assets of the comparative group and non-performing
assets as a percentage of total assets and in such analyses, Jersey was above
the median of the comparative group in non-performing assets as a percentage of
total assets and was very comparable on core capital to total assets ratio.
It is important to note that while Capital Consultants took into account
the values shown in the comparables used in connection with the rendering of its
opinion, no company or transaction used in
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these analyses was identical to Jersey or the Merger. Accordingly, an analysis
of the results in the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies involved, the timing of the transactions and
prospective buyer interest, the earnings trends and prospects for the future, as
well as other factors that could affect the public trading values of the
companies included in the comparisons.
For Capital Consultants' services in connection with the Merger, Jersey
has agreed to pay Capital Consultants a fee, if the Merger is consummated, of
approximately $140,000 plus reimbursement for reasonable out-of-pocket expenses.
Jersey has also agreed to indemnify Capital Consultants against certain
liabilities, including liabilities under the federal securities laws. Jersey has
paid Capital Consultants $34,500 to date, and an additional $25,000 is due upon
the mailing of this Proxy Statement-Prospectus. The balance of Capital
Consultants' fee is due at the Effective Time. The amount of Capital
Consultants' fee was determined by arms length negotiation between Jersey and
Capital Consultants.
Conditions to Consummation of the Merger
Consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including (i) approval by the requisite vote of the holders
of Jersey Common Stock; (ii) the receipt of all consents, approvals and
authorizations of all necessary federal government authorities (without any term
or condition which would materially impair the value of Jersey to Interchange)
and expiration of all required waiting periods necessary for the consummation of
the Merger (see "-- Regulatory Approvals"); (iii) the effectiveness of the
registration statement covering the shares of Interchange Common Stock to be
issued to Jersey shareholders, which shares shall also have been approved for
listing on the AMEX; (iv) each holder of Jersey Preferred Stock shall have
entered into a Conversion Agreement or shall be compelled by a final,
non-appealable order of a Court of competent jurisdiction to convert their
Jersey Preferred Stock into Jersey Common Stock on the terms and conditions set
forth in the Conversion Agreements; and (v) that the Merger will qualify for
pooling-of-interests accounting treatment (see "-- Accounting Treatment of the
Merger"). To date, all but one holder of 300 shares of Jersey Preferred Stock
have entered into Conversion Agreements with Jersey. In addition, consummation
of the Merger is conditioned upon receipt by the parties of an opinion of
Norris, McLaughlin & Marcus P.A. to the effect that the conversion of Jersey
Common Stock for Interchange Common Stock is a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code (the "Code") (See "--
Federal Income Tax Consequences").
Consummation of the Merger is also conditioned on, among other things, (i)
the continued accuracy in all material respects of the representations and
warranties of Jersey and Interchange contained in the Merger Agreement; (ii) the
performance by Jersey and Interchange, in all material respects, of their
respective obligations under the Merger Agreement; (iii) the absence of any
litigation that would restrain or prohibit the consummation of the Merger; and
(iv) receipt by the Board of Directors of Jersey of an opinion from Capital
Consultants to the effect that, in its opinion, the consideration to be paid to
Jersey shareholders under the Merger Agreement is fair to such shareholders from
a financial point of view. This opinion has been issued and is attached as
Appendix C to this Proxy Statement-Prospectus. See "-- Opinion of Jersey's
Financial Advisor."
Representations and Warranties
The Merger Agreement contains customary representations and warranties by
both Jersey and Interchange. The Merger Agreement also contains other
representations and warranties by Interchange relating to, among other things,
the adequacy of the capital of Interchange and Bank to satisfy all applicable
regulatory requirements.
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Regulatory Approvals
Consummation of the Merger is subject, among other things, to prior
receipt of all necessary regulatory approvals. Consummation of the Merger
requires the approval of the Commissioner of the New Jersey Department of
Banking and Insurance and FRB. The approvals of such agencies, if issued, do not
constitute an endorsement of the Merger or a determination by either of them
that the terms of the Merger are fair to the shareholders of Jersey. An
application for the Commissioner's approval was filed on February 13, 1998. An
application for FRB approval was filed on March 13, 1998. While Interchange and
Jersey anticipate receiving such approvals, there can be no assurance that they
will be granted, or that they will be granted on a timely basis without
conditions unacceptable to Interchange or Jersey. Interchange has the right to
terminate the Merger Agreement if any necessary regulatory or governmental
approval contains conditions which materially impair the value of Jersey, taken
as a whole, to Interchange.
Effective Time; Amendments; Termination
A closing under the Merger Agreement (the "Closing") will occur on a day
mutually agreed to by Interchange and Jersey within 30 days following the
receipt of all necessary regulatory and governmental approvals and consents and
the satisfaction or waiver of the other conditions to consummation of the
Merger. At the Closing, documents required to satisfy the conditions to the
Merger of the respective parties will be exchanged. The Merger shall become
effective upon filing with the Commissioner a copy of the Merger Agreement
together with a certification of the President of Interchange Bank and Jersey
that the Merger Agreement has been approved by the stockholders of each by the
requested vote. The date and time of such filing shall be the "Effective Time".
The parties are cooperating to try to ensure that the Effective Time will be May
31, 1998, although this date is dependent upon satisfaction of all conditions
precedent, some of which are not under control of Interchange and/or Jersey. No
assurances can be given that the conditions precedent will be met or waived by
such date. (See "-- Conditions to Consummation of the Merger").
Either Interchange or Jersey may terminate the Merger Agreement if (i) the
Effective Time has not occurred by November 30, 1998; (ii) the stockholders of
Jersey fail to approve the Merger Agreement at the Meeting, unless any such
occurrence was caused by the failure of the terminating party to perform or
observe its agreements set forth in the Merger Agreement; (iii) any application
for any necessary regulatory or governmental approval is denied or withdrawn at
the recommendation of the applicable regulatory agency or governmental
authority, unless any such occurrence was caused by the failure of the
terminating party to perform or observe its agreements set forth in the Merger
Agreement; (iv) there has occurred a material adverse change in the business,
operations, assets or financial condition of the other party; (v) the other
party materially breaches any of its representations, warranties, covenants,
agreements or obligations under the Merger Agreement and such material
breach(es) taken alone or in the aggregate, will result in a material adverse
effect on the business, operations, assets or financial condition of such
non-breaching party; or (vi) any closing condition cannot reasonably be met by
the other party after the other party has had a reasonable opportunity to cure
the deficiency with respect to such condition. The Merger Agreement may also be
terminated with the written consent of all parties thereto.
Upon the termination of the Merger Agreement, except as otherwise
described below, the transactions contemplated thereby other than the
confidentiality provisions contained therein will be abandoned without further
action by any party. Except as otherwise described below, in the event of a
termination, each party will bear its own expenses and each party will retain
all rights and remedies it may have at law or equity under the Merger Agreement.
Interchange and Jersey shall equally bear all expenses (other than
attorneys' fees) incurred in printing and filing this Proxy Statement-Prospectus
and the Registration Statement of which it is a part. If the Merger Agreement is
terminated by Jersey by reason of any material breach by Interchange of its
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obligations, Interchange shall pay Jersey the sum of $500,000 as liquidated
damages. If Jersey materially breaches the Merger Agreement, Interchange shall
have the right to sue for specific performance, or money damages (of any nature,
including all costs reasonably incurred under the Merger Agreement), up to
$2,000,000. If Jersey receives an unsolicited offer from a third party to
acquire Jersey and as a result thereof either: (i) the Merger is not consummated
on or before November 30, 1998; or (ii) Jersey terminates the Merger Agreement,
then Jersey is obligated to reimburse Interchange for all reasonable fees and
costs (including legal and accounting fees) incurred in connection with the
Merger Agreement and the transactions contemplated thereby. If the Merger is not
consummated on or before November 30, 1998 as a result of the failure by Jersey
to enter into Conversion Agreements and/or obtain court orders compelling
conversion of all outstanding Jersey Preferred Stock, then Jersey shall
reimburse Interchange for all costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby.
Amendment of the Merger Agreement
The terms of the Merger Agreement may be amended, modified or supplemented
by the written consent of Interchange and Jersey at any time prior to the
Effective Time. However, following Jersey shareholder approval of the Merger
Agreement, Jersey shareholders must approve any amendment reducing or changing
the amount or form of consideration to be received by them in the Merger.
Accounting Treatment of the Merger
The Merger will be accounted for by Interchange under the
pooling-of-interests method of accounting in accordance with generally accepted
accounting principles. See "Pro Forma Combined Financial Information."
Federal Income Tax Consequences
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL
INFORMATION ONLY. IT MAY NOT BE APPLICABLE TO CERTAIN CLASSES OF TAXPAYERS,
INCLUDING INSURANCE COMPANIES, SECURITIES DEALERS, FINANCIAL INSTITUTIONS,
FOREIGN PERSONS AND PERSONS WHO ACQUIRED SHARES OF JERSEY COMMON STOCK AS
COMPENSATION. JERSEY SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.
General. It is intended that the Merger will be treated as a
reorganization as defined in Section 368(a) of the Code, and that, accordingly,
no gain or loss will be recognized by Interchange or Jersey or by the
shareholders of Jersey upon the conversion of their shares of Jersey Common
Stock solely into shares of Interchange Common Stock pursuant to the Merger.
Counsel to Interchange is required, as a condition of Closing, to provide an
opinion to Interchange and to Jersey, with respect to the matter covered by the
foregoing sentence. With respect to this Proxy Statement-Prospectus, Norris,
McLaughlin & Marcus, P.A., counsel to Interchange, has provided an opinion that
based upon the circumstances as they presently exist, it expects to be able to
render the required opinion.
Under the Merger Agreement, the condition that Norris, McLaughlin &
Marcus, P.A. deliver the opinion described above can be waived by Interchange
and Jersey. However, in the event that the delivery of such opinion of counsel
is waived, or such opinion would otherwise set forth tax consequences materially
different to a stockholder than those described above, Interchange and Jersey
intend to resolicit proxies as required in accordance with the rules and
regulations of the SEC.
Consequences of Receipt of Cash in Lieu of Fractional Shares. In general,
cash paid in lieu of fractional share interests in corporate reorganizations is
treated as having been received in part or full
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payment in exchange for the fractional share interest (and therefore subject to
capital gains treatment if the related shares are held as capital assets) if the
cash distribution is undertaken solely for purposes of saving the corporation
the expense and inconvenience of issuing and transferring fractional shares and
is not separately bargained for consideration.
Basis of Interchange Common Stock. The basis of Interchange Common Stock
received by a Jersey shareholder who receives solely Interchange Common Stock
will be the same as the basis of such shareholder's Jersey Common Stock
converted therefrom. Where a Jersey shareholder receives both Interchange Common
Stock and cash, the basis of the Interchange Common Stock received will equal
(a) the basis of the Jersey Common Stock exchanged therefor, (b) decreased by
the amount of cash received and (c) increased by the amount of gain recognized,
if any, on the exchange.
Holding Period. The holding period of shares of Interchange Common Stock
received in the Merger by holders of Jersey Common Stock will include the
holding period during which such shares of Jersey Common Stock surrendered in
conversion therefor were held by the holder thereof, provided such shares of
Jersey Common Stock were held as capital assets.
Interests of Certain Persons in the Merger
The Merger Agreement provides that, in cancellation of their respective
employment agreements with Jersey and as a full release of all other severance
payments and similar payment due either of them from Jersey, within 30 days of
the Closing, Interchange will pay each of Clyde Britt, the President and CEO of
Jersey and William C. Ledgerwood, Senior Vice President and Treasurer of Jersey,
an amount substantially equal to the amounts they would have received had the
severance provisions of their employment contracts been triggered. The amounts
payable to Messrs. Britt and Ledgerwood, with respect to their severance from
Jersey, are to be paid into trusts established for their benefit at a financial
institution located in New Jersey and paid out to them over a three year period.
Bank may request Mr. Britt and/or Mr. Ledgerwood to provide services, on
mutually agreeable terms, for a brief period as consultants to Bank in
connection with the transition of operations resulting from the Merger. Payment
for such consultancy, if any, will be at levels not greater then their current
compensation as executive officers of Jersey.
Pursuant to the terms of the Merger Agreement, Interchange and Bank each
agreed to expand their respective Board of Directors by two seats. Following the
Effective Time, Richard A. Gilsenan, Chairman of the Board of Jersey, is to be
appointed to a seat on the Interchange Board to hold that seat until the 1999
annual meeting of Shareholders. For more than the past five years, Mr. Gilsenan,
who is 80, has been a principal of Gilsenan & Company, LLP, a privately held
real estate and insurance business. Interchange will also nominate Mr. Gilsenan
for an additional one-year term as Director of Interchange. Mr. Gilsenan will be
appointed to Director of Bank until Bank's 1999 annual meeting at which time he
will be proposed for re-election to an additional one-year term. Following the
Effective Time, Mr. Arthur R. Odabash, Vice Chairman of Jersey will be appointed
a Director of Interchange to serve until the 1999 annual meeting when he will be
nominated by Interchange to serve a two-year term as Director. For more than the
past five years, Mr. Odabash, who is 63, has been the President of Kent Builders
Management Company, a privately held real estate development firm. Mr. Odabash
will also be appointed Director of Bank until the 1999 annual meeting of Bank.
He will be proposed for re-election for additional one-year terms as Director of
Bank at the annual meetings in 1999 and 2000.
The Merger Agreement further provides that for a six year period following
the Effective Time, Interchange will indemnify the directors and officers of
Jersey against certain liabilities to the extent such persons were indemnified
under Jersey's Certificate of Incorporation and Bylaws. Jersey will purchase at
the expense of Interchange, continuation coverage for a period up to six (6)
years (as determined by Interchange in light of costs) following the Effective
Time under the policy of Director and Officer Liability Insurance Jersey
currently has.
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As of the Record Date, the directors of Jersey beneficially owned in the
aggregate approximately 48% of the issued and outstanding shares of Jersey
Common Stock. In connection with the execution of the Merger Agreement, the
directors of Jersey have agreed to vote in favor of the Merger Agreement. As of
the Record Date, there were no executive officers of Jersey who are not also
directors. See "The Jersey Bank For Savings- Security Ownership of Certain
Beneficial Owners and Management of Jersey".
Resale Considerations With Respect to the Interchange Common Stock
The shares of Interchange Common Stock that will be issued if the Merger
is consummated have been registered under the Securities Act of 1933, as amended
(the "Securities Act") and will be freely transferable, except for shares
received by persons, including directors and executive officers of Jersey, who
may be deemed to be "affiliates" of Jersey under Rule 145 promulgated under the
Securities Act. An "affiliate" of an issuer is defined generally as a person who
"controls" the issuer. Directors, executive officers and 10% shareholders are
generally presumed by the Commission to control the issuer. Affiliates may not
sell their shares of Interchange Common Stock acquired pursuant to the Merger,
except pursuant to an effective registration statement under the Securities Act
covering the Interchange Common Stock or in compliance with Rule 145 or another
applicable exemption from the registration requirements of the Securities Act.
Persons who may be deemed to be "affiliates" of Jersey have delivered
letters to Interchange in which they have agreed to certain restrictions on
their ability to sell, transfer or otherwise dispose of ("transfer") any Jersey
Common Stock owned by them and any Interchange Common Stock acquired by them in
the Merger. Pursuant to the accounting rules governing a pooling of interests,
the affiliates of Jersey have agreed not to transfer the shares during a period
commencing with the period beginning 30 days prior to the Effective Time and
ending on the date on which financial results covering at least 30 days of
post-merger combined operations of Interchange and Jersey have been published by
Interchange or filed by Interchange on a Form 8-K, 10-Q or 10-K. Also, in
connection with the pooling-of-interests rules, the affiliates have agreed not
to transfer their Jersey Common Stock in the period prior to 30 days before the
Effective Time without giving Interchange advance notice and an opportunity to
object if the transfer would interfere with pooling-of-interests accounting for
the Merger.
Certificates representing the shares of Interchange Common Stock acquired
by each such person pursuant to the Merger will bear a legend reflecting that
the shares are restricted in accordance with the letter signed by such person
and may not be transferred except in compliance with such restrictions.
Persons who may be deemed "affiliates" of Interchange have also delivered
letters in which they have agreed not to transfer Interchange Common Stock
beneficially owned by them in violation of the pooling of interests restrictions
set forth above with respect to Jersey.
Business Pending Consummation of the Merger
Jersey has agreed that prior to the Effective Time, except as otherwise
approved by Interchange in writing or as permitted or required by the Merger
Agreement, it will not: (i) change any provision of its Certificate of
Incorporation or Bylaws or any similar governing documents; (ii) except for the
issuance of Jersey Common Stock pursuant to the terms of outstanding Jersey
Options, change the number of shares of, or issue any more shares of or grant
any option or right with respect to, Jersey Common Stock, or split, combine or
reclassify any shares of Jersey Common Stock, or redeem or otherwise acquire any
shares of Jersey Common Stock (iii) except for the declaration and payment of
periodic cash dividend with respect to its capital stock in amounts not higher
than the last paid dividend and paid no more frequently than once a calendar
quarter, declare, set aside or pay any dividend, or other distribution in
respect of Jersey Common Stock or allow any optional purchases of capital stock
under Jersey's Divided Reinvestment and Stock Purchase; (iv) grant any severance
or termination pay (other
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<PAGE>
than pursuant to policies of Jersey in effect on the date of the Merger
Agreement and disclosed to Interchange or as agreed to by Interchange in
writing) to, or enter into or amend any employment agreement with, any of its
directors, officers or employees; adopt any new employee benefit plan or
arrangement of any type or amend any such existing benefit plan or arrangement;
or award any increase in compensation or benefits to its directors, officers or
employees other than regular and customary pay increases to its non-officer
employees and in no event to exceed the amount of salary or bonuses paid in or
with respect to 1997; (v) sell or dispose of any substantial amount of assets or
incur any significant liabilities other than in the ordinary course of business
consistent with past practices and policies; (vi) make any capital expenditures
other than in the ordinary course of business, other than pursuant to binding
commitments existing on the date of the Merger Agreement, and expenditures
necessary to maintain existing assets in good repair; (vii) file any application
or make any contract with respect to branching or site location or relocation;
(viii) agree to acquire any business or entity in any manner whatsoever (other
than to foreclose on collateral for a defaulted loan); (ix) make any material
change in its accounting methods or practices, other than changes required in
accordance with GAAP; or (x) agree to do any of the foregoing.
Jersey and Bank have entered into a service agreement dated April 8, 1998
under which Bank will provide loan processing and underwriting services for
consumer loans upon the request of Jersey. It is not anticipated that Jersey
will require substantial services under this agreement or that payments to Bank,
if any, will be material.
Jersey has further agreed that it will not, directly or indirectly,
encourage or solicit or hold discussions or negotiations with, or provide any
information to, any person, entity or group (other than Interchange) concerning
any merger or sale of shares of capital stock or sale of substantial assets or
liabilities not in the ordinary course of business, or similar transactions
involving Jersey (an "Acquisition Transaction"). Jersey has agreed to promptly
communicate to Interchange the terms of any proposal, whether written or oral,
which it may receive in respect of any Acquisition Transaction. The Jersey Board
may, however, enter into discussions or negotiations regarding an Acquisition
Transaction if, after consulting with counsel, it determines that in the
exercise of its fiduciary responsibilities such discussions or negotiations
should be commenced.
Management and Operations After the Merger
At the Effective Time, as a result of the Merger, Jersey will be merged
into Bank which will be the Surviving Bank. Bank will continue to operate as a
subsidiary of Interchange. The location of the principal office of Interchange
will remain unchanged: Park 80 West/Plaza Two, Saddle Brook, New Jersey.
Following the Merger, the two branch offices of Jersey will serve as branch
offices of Bank. Pursuant to the Merger Agreement any employee of Jersey who
becomes an employee of Bank as a result of the Merger will be entitled to
participate in compensation and benefit plans of Bank on the same basis as
persons of comparable experience (not employed by Bank) who are hired by Bank.
This provision does not provide any employee of Jersey any right of employment
with Bank or any right to any particular seniority position.
Pursuant to the terms of the Merger Agreement each of Interchange and Bank
have agreed to expand their respective Board of Directors by two seats. Richard
A. Gilsenan, Chairman of the Board of Jersey and Arthur R. Odabash, Vice
Chairman of Jersey are to be appointed to fill those seats. See "-Interests of
Certain Persons in the Merger."
Stock Option for Shares of Jersey Common Stock
In connection with the negotiation by Interchange and Jersey of the Merger
Agreement, Interchange and Jersey entered into the Stock Option Agreement on
January 27, 1998. A copy of the Stock Option Agreement is attached as Appendix B
to this Proxy Statement-Prospectus. Descriptions of
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<PAGE>
the Stock Option Agreement in this Proxy Statement-Prospectus are qualified in
their entirety by reference to the Stock Option Agreement.
Pursuant to the Stock Option Agreement, Jersey granted Interchange the
Option, exercisable only under certain limited and specifically defined
circumstances, to purchase up to 126,950 authorized but unissued shares of
Jersey Common Stock, representing approximately 19.9% of the shares of Jersey
Common Stock which would be outstanding immediately following the exercise of
the Option, for an exercise price of $18.75 per share. Interchange does not have
any voting rights with respect to the shares of Jersey Common Stock subject to
the Option prior to exercise of the Option.
In the event that certain Triggering Events (as hereinafter described)
specifically enumerated in the Stock Option Agreement occur, Interchange may
exercise the Option in whole or in part. Additionally, after Interchange's
exercise of the Option in whole or in part, Interchange may require Jersey to
repurchase the shares of Jersey Common Stock purchased by Interchange, at the
price per share determined, pursuant to the Option Agreement. In the event that
a Triggering Event occurs and the Merger is not consummated, Interchange would
recognize a gain on the sale of the shares of Jersey Common Stock received
pursuant to the exercise of the Option if such shares of Jersey Common Stock
were sold at prices exceeding $18.75 per share.
The term "Triggering Event" is defined in the Stock Option Agreement to
mean the occurrence of any of the following events: a person or group, as such
terms are defined in the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (the "Exchange Act"), other than Interchange or
an affiliate of Interchange and Jersey, (i) acquires beneficial ownership (as
such term is defined in Rule 13d-3 promulgated under the Exchange Act) of at
least 15% of the then outstanding shares of Jersey Common Stock; (ii) without
the prior consent of Interchange enters into a letter of intent or an agreement
with Jersey pursuant to which such person or any affiliate of such person would
(a) merge or consolidate, or enter into any similar transaction, with Jersey,
(b) acquire all or a significant portion of the assets or liabilities of Jersey,
or (c) acquire beneficial ownership of securities representing, or the right to
acquire the beneficial ownership or to vote securities representing, 15% or more
of the then outstanding shares of Jersey Common Stock; (iii) without the prior
consent of Interchange makes a filing with bank or thrift regulatory authorities
or publicly announces a bona fide proposal (a "Proposal") for (a) any merger,
consolidation or acquisition of all or a significant portion of all the assets
or liabilities of Jersey or any other business combination involving Jersey, or
(b) a transaction involving the transfer of beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to vote securities
representing, 15% or more of the outstanding shares of Jersey Common Stock, and
thereafter, if such Proposal has not been publicly withdrawn (as defined below)
at least 15 days prior to the Meeting and Jersey's shareholders fail to approve
the Merger by the vote required by applicable law at the Meeting; (iv) makes a
bona fide proposal and thereafter, but before such Proposal has been publicly
withdrawn, Jersey willfully takes any action in any manner that would materially
interfere with its ability to consummate the Merger or materially reduce the
value of the Merger to Interchange; or (v) which is the holder of more than 10%
of the outstanding shares of Jersey Common Stock solicits proxies in opposition
to approval of the Merger. The definition of "Triggering Event" also includes
the taking of any direct or indirect action by Jersey or any of its directors,
officers or agents, to invite, encourage or solicit any proposal which has as
its purpose a tender offer for the shares of Jersey Common Stock, a merger,
consolidation, plan of exchange, plan of acquisition or reorganization of
Jersey, or a sale of shares of Jersey Common Stock or any significant portion of
the assets or liabilities of Jersey comparable to (i) - (v) above. Under the
Stock Option Agreement, a significant portion means 20% of the assets or
liabilities of Jersey. "Publicly withdrawn" for purposes of the Stock Option
Agreement means an unconditional bona fide withdrawal of a Proposal coupled with
a public announcement of no further interest in pursuing such Proposal or
acquiring any controlling influence over Jersey or in soliciting or inducing any
other person (other than Interchange or any affiliate) to do so.
Interchange may not sell, assign or otherwise transfer its rights and
obligations under the Stock Option Agreement in whole or in part to any person
or any group of persons other than to an affiliate of
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<PAGE>
Interchange. The Option may not be exercised (i) in the absence of any required
governmental or regulatory approval or consent necessary for Jersey to issue the
Jersey Common Stock subject to the Option or Interchange to exercise the Option,
or prior to the expiration or termination of any waiting period required by law,
or (ii) so long as any injunction or other order, decree or ruling issued by any
federal or state court of competent jurisdiction is in effect which prohibits
the sale or delivery of the Jersey Common Stock subject to the Option.
The Stock Option Agreement further provides that after the occurrence of a
Triggering Event and upon receipt of a written request from Interchange, Jersey
shall prepare and file a registration statement with the Commission covering the
Option and such number of shares of Jersey Common Stock subject thereto as
Interchange shall specify in its request, and shall use its best efforts to
cause such registration statement to become effective in order to permit the
sale or other disposition of the Option and the shares of Jersey Common Stock
covered thereby; provided, however, that in no event will Interchange have the
right to have more than one such registration statement become effective.
The Stock Option Agreement terminates upon the earlier to occur of either
the termination of the Merger Agreement or the consummation of the transactions
contemplated thereby; provided that if the Merger Agreement terminates after the
occurrence of a Triggering Event, the Stock Option Agreement will terminate 18
months following the date of termination of the Merger Agreement.
The ability of Interchange to exercise the Option and to cause up to an
additional 126,950 shares of Jersey Common Stock to be issued may be considered
a deterrent to other potential acquirers of control of Jersey, as it is likely
to increase the cost of an acquisition of all of the shares of Jersey Common
Stock which would then be outstanding. The exercise of the Option by Interchange
may also make pooling-of-interests accounting treatment unavailable to a
subsequent acquirer.
Rights of Dissenting Jersey Shareholders
Pursuant to the provisions of Sections 140 through 145 of the New Jersey
Banking Act ("Section 140"), any holder of Jersey Common Stock has the right to
dissent from the Merger and to obtain payment of the value (determined as
provided below) of his Jersey Common Stock if the Merger is consummated. Holders
of Jersey Preferred Stock who enter into Conversion Agreements are granted
equivalent rights to dissent in respect of the shares of Jersey Common Stock
received by them under conversion.
Any shareholder of Jersey who contemplates exercising the right to dissent
is urged to read carefully the applicable provisions of Section 140 which are
attached as Appendix D to this Proxy Statement. In order to dissent, a
shareholder of Jersey must not vote to approve the merger. The following is a
summary of the steps to be taken if the right to dissent is to be exercised.
This summary is qualified in its entirety by the full text of Appendix D to this
Proxy Statement.
Each step must be taken in the indicated order and in strict compliance
with the applicable provisions of Section 140 in order to perfect dissenter's
rights. Any deviations from such steps may result in the forfeiture of
dissenter's rights.
Jersey shareholders whose shares are represented by proxies that are
returned signed but unmarked as to voting instructions will be voted in favor of
the Merger and, unless revoked (as described in "The Meeting -- Solicitation,
Voting and Revocation of Proxies"), will have waived their right to dissent.
Shareholders of Jersey who desire to dissent from the Merger and receive
the value of their shares of Jersey Common Stock in cash after the consummation
of the Merger must give notice of dissent in writing by registered mail or
delivered personally to Jersey (addressed to Clyde Britt, The Jersey Bank For
Savings, 2-8 South Kinderkamack Road, Montvale, New Jersey 07645-0333) which
37
<PAGE>
notice MUST BE RECEIVED BY JERSEY NO LATER THAN MAY 22, 1998, THE DAY THREE
BUSINESS DAYS PRIOR TO THE MEETING (a shareholder of Jersey who satisfies the
foregoing requirements will hereinafter be referred to as a "Dissenting
Shareholder").
Additionally, each Dissenting Shareholder must, within 30 days after the
consummation of the Merger, notify Interchange Bank in writing that such
Dissenting Shareholder desires to receive from Interchange Bank the value of
such Dissenting Shareholder's shares and Interchange Bank may, within 10 days of
such Dissenting Shareholder's demand for payment, offer to pay such Dissenting
Shareholder, in cash, an amount equal to the shares of Jersey owned by such
Dissenting Shareholder. Such demand must be given in writing by registered mail
or personally delivered to Interchange Bank, Park 80 West/Plaza Two, Saddle
Brook, New Jersey 07663, attn: Anthony S. Abbate, President.
If the Dissenting Shareholder fails to accept the Interchange Bank offer
of payment, the Dissenting Shareholder may, within 3 weeks after his or her
receipt of Interchange's offer, or if Interchange Bank did not make an offer,
within 3 weeks after the day on which the Dissenting Shareholder made his or her
demand for payment, institute an action in the Superior Court of New Jersey for
the appointment of a group of three appraisers to determine the value of the
Dissenting Shareholder's shares as of the day of the consummation of the Merger.
The appraisers will value such shares in accordance with Section 140. The
valuation agreed upon by any two of the three appraisers shall govern. The costs
of the appraisers shall be paid by Interchange Bank.
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information presents
the Pro Forma Combined Condensed Statement of Condition of Interchange and
Jersey at December 31, 1997, giving effect to the Merger as if it had been
consummated at such date. Also presented are the Pro Forma Combined Condensed
Statements of Income for years ended December 31, 1997, 1996, 1995, giving
effect to the Merger as if it was consummated on January 1 of each year. For the
purpose of the Pro Forma Unaudited Combined Balance Sheet, the assumption is
that the transaction had been consummated as of December 31, 1997. The unaudited
pro forma financial information is based on the historical financial statements
of Interchange and Jersey after giving effect to the Merger under the
pooling-of-interests method of accounting and based upon the assumptions and
adjustments contained in the accompanying Notes to Pro Forma Combined Condensed
Financial Statements.
The unaudited pro forma financial information has been prepared by
Interchange's management based upon the historical financial statements and
related notes thereto of Interchange and Jersey contained herein or incorporated
herein by reference. The unaudited pro forma financial information should be
read in conjunction with such historical financial statements and notes. The Pro
Forma Combined Condensed Statements of Income are not necessarily indicative of
operating results which would have been achieved had the Merger been consummated
as of the beginning of the periods for which such data are presented and should
not be construed as being representative of future periods.
The pro forma information does not include certain nonrecurring charges
incurred in conjunction with the merger subsequent to December 31, 1997. These
expenses are directly attributable to the merger and are expected to be included
in income within the next 12 months. The expenses are estimated to be $624
thousand, net of taxes of $351 thousand. As of December 31, 1997, no material
expenses were incurred that were directly related to the merger.
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<PAGE>
PRO FORMA COMBINED BALANCE SHEETS (unaudited)
December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Interchange
Adjustments and Jersey
Interchange Jersey (1) Combined
------------ --------- ----------- ---------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 17,797 $ 1,418 -- $ 19,215
Interest-bearing deposits in other banks -- 1,968 -- 1,968
Federal funds sold 8,400 7,000 -- 15,400
-------- ------- -------- ---------
Total cash and cash equivalents 26,197 10,386 -- 36,583
-------- ------- -------- ---------
Securities held to maturity at amortized cost 46,370 14,072 -- 60,442
-------- ------- -------- ---------
Securities available for sale at estimated market value 61,257 14,299 -- 75,556
-------- ------- -------- ---------
Loans 401,854 36,418 -- 438,272
Less: Allowance for loan losses 4,893 338 -- 5,231
-------- ------- -------- ---------
Net loans 396,961 36,080 -- 433,041
-------- ------- -------- ---------
Premises and equipment, net 7,871 1,677 -- 9,548
Accrued interest receivable and other assets 9,381 498 -- 9,879
-------- ------- -------- ---------
Total assets $548,037 $77,012 -- $ 625,049
======== ======= ======== =========
Liabilities
Deposits
Noninterest bearing $ 92,145 $ 3,308 -- $ 95,453
Interest bearing 378,548 66,764 -- 445,312
-------- ------- -------- ---------
Total deposits 470,693 70,072 -- 540,765
-------- ------- -------- ---------
Securities sold under agreements to repurchase 13,027 -- -- 13,027
Accrued interest payable and other liabilities 4,668 580 -- 5,248
Long-term borrowings 9,879 -- -- 9,879
-------- ------- -------- ---------
Total liabilities 498,267 70,652 -- 568,919
-------- ------- -------- ---------
Commitments and contingent liabilities
Stockholders' equity
Preferred stock -- 368 $ (368) (0)
Common stock 4,811 2,279 (1,694) 5,396
Capital surplus 15,836 2,655 2,062 20,553
Retained earnings 29,698 1,004 -- 30,702
Unrealized gain-securities available for
sale, net of tax effect 1,131 54 -- 1,185
-------- ------- -------- ---------
51,476 6,360 -- 57,836
Less: Treasury stock 1,706 -- -- 1,706
-------- ------- -------- ---------
Total stockholders' equity 49,770 6,360 -- 56,130
-------- ------- -------- ---------
Total liabilities and stockholders' equity $548,037 $77,012 -- $ 625,049
======== ======= ======== =========
</TABLE>
- ------------
(1) The pro forma adjustments represent the difference between the stated
value of Interchange and Jersey stock and the conversion of Jersey
preferred stock as per the Merger Agreement.
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<PAGE>
PRO FORMA COMBINED STATEMENTS OF INCOME (unaudited)
For the Year Ended December 31, 1997
(in thousands except per share data)
Pro Forma Interchange
Adjustments and Jersey
Interchange Jersey (1) Combined
----------- ------- ---------- ---------
Total interest income $40,175 $5,152 -- $45,327
Total interest expense 15,533 3,023 -- 18,556
------- ------ -------- -------
Net interest income 24,642 2,129 -- 26,771
Provision for loan losses 1,630 23 -- 1,653
------- ------ -------- -------
Net interest income after
provision for loan losses 23,012 2,106 -- 25,118
------- ------ -------- -------
Total noninterest income 4,596 166 -- 4,762
Total noninterest expenses 15,984 1,686 -- 17,670
------- ------ -------- -------
Income before income taxes 11,624 586 -- 12,210
Income taxes 4,068 217 -- 4,285
------- ------ -------- -------
Net income $ 7,556 $ 369 -- $ 7,925
======= ====== ======== =======
Weighted Average Common Shares
Outstanding 6,386 434 7,133
Basic earnings per common share $ 1.18 $ 0.75 $ 1.11
====== ====== =======
Diluted earnings per common share $ 1.17 $ 0.73 $ 1.10
====== ====== =======
- ------------
(1) The historical earnings per share of Interchange and Jersey have been
restated to give retroactive effect to Interchange's 3 for 2 stock split
effective April 17, 1998, and the conversion of Jersey preferred stock to
common stock.
PRO FORMA COMBINED STATEMENTS OF INCOME (unaudited)
For the Year Ended December 31, 1996
(in thousands except per share data)
Pro Forma Interchange
Adjustments and Jersey
Interchange Jersey (1) Combined
----------- ------- ---------- ---------
Total interest income $37,284 $4,114 -- $41,398
Total interest expense 14,599 2,380 -- 16,979
------- ------ --------- -------
Net interest income 22,685 1,734 -- 24,419
Provision for loan losses 700 47 -- 747
------- ------ --------- -------
Net interest income after
provision for loan losses 21,985 1,687 -- 23,672
------- ------ --------- -------
Total noninterest income 4,118 135 -- 4,253
Total noninterest expenses 16,228 1,292 -- 17,520
------- ------ --------- -------
Income before income taxes 9,875 530 -- 10,405
Income taxes 3,456 198 -- 3,654
------- ------ --------- -------
Net income $ 6,419 $ 332 -- $ 6,751
======= ====== ========= =======
Weighted Average Common Shares
Outstanding 6,386 426 7,124
Basic earnings per common share $ 1.01 $ 0.67 $ 0.95
====== ====== =======
Diluted earnings per common share $ 1.00 $ 0.67 $ 0.94
====== ====== =======
- -----------
(1) The historical earnings per share of Interchange and Jersey have been
restated to give retroactive effect to Interchange's 3 for 2 stock split
effective April 17, 1998, and the conversion of Jersey preferred stock to
common stock.
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<PAGE>
PRO FORMA COMBINED STATEMENTS OF INCOME (unaudited)
For the Year Ended December 31, 1995
(in thousands except per share data)
Pro Forma Interchange
Adjustments and Jersey
Interchange Jersey (1) Combined
----------- ------ --------- --------
Total interest income $36,995 $3,765 -- $40,760
Total interest expense 15,150 2,055 -- 17,205
------- ------ --------- -------
Net interest income 21,845 1,710 -- 23,555
Provision for loan losses 1,200 39 -- 1,239
------- ------ --------- -------
Net interest income after
provision for loan losses 20,645 1,671 -- 22,316
------- ------ --------- -------
Total noninterest income 4,459 126 -- 4,585
Total noninterest expenses 15,531 1,176 -- 16,707
------- ------ --------- -------
Income before income taxes 9,573 621 -- 10,194
Income taxes 3,293 218 -- 3,511
------- ------ --------- -------
Net income $ 6,280 $ 403 -- $ 6,683
======= ====== ========= =======
Weighted Average Common
Shares Outstanding 6,372 428 7,113
Basic earnings per
common share $ 0.97 $ 0.83 $ 0.93
======= ====== =======
Diluted earnings per
common share $ 0.97 $ 0.81 $ 0.92
======= ====== =======
- ------------
(1) The historical earnings per share of Interchange and Jersey have been
restated to give retroactive effect to Interchange's 3 for 2 stock split
effective April 17, 1998, and the conversion of Jersey preferred stock to
common stock.
THE JERSEY BANK FOR SAVINGS
Business of Jersey
Jersey, which is a savings bank chartered under the laws of New Jersey,
engages in the business of commercial and consumer banking. As a community bank,
Jersey offers a wide range of services to individuals, small businesses and
not-for-profit organizations, including demand, savings and time deposits and
commercial and consumer/installment loans, principally in Northeastern Bergen
County, New Jersey. Jersey, which commenced operations on January 19, 1989,
conducts its operations through its main office located in Borough of Montvale,
New Jersey and through one branch office located in River Edge, New Jersey
(which was opened in September 1996). Jersey is a non-member bank (i.e. is not a
member of the Federal Reserve System) and its deposits are insured up to
applicable legal limits by the FDIC. At December 31, 1997, Jersey had total
assets, deposits and shareholders' equity of approximately $77.0 million, $70.1
million and $6.4 million, respectively.
Since its inception, Jersey has experienced significant growth primarily
due to an increase in deposits. Jersey's strategy has been to pursue deposit
growth as the primary source of funds for its lending and investment activities
while at the same time maintaining a strong capital position. Jersey has sought
to encourage this growth by providing a high level of personal service as well
as an attractive array of deposit programs.
Jersey's business is subject to periodic fluctuations based on general
national and local and economic conditions. The fluctuations are neither
predictable nor controllable and may have material adverse consequences on the
operation and financial condition of Jersey even if other favorable events
occur. Jersey's financial condition is especially subject to fluctuations in the
economic conditions prevailing in New Jersey where both of its branches are
located.
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Lending
Jersey engages in a wide variety of lending activities which are primarily
categorized as residential mortgage lending. Sources to fund Jersey's loans are
derived primarily from deposits. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Jersey -- Deposits, -- Interest
Rate Sensitivity and -- Liquidity."
Jersey presently generates all of its loans in the State of New Jersey
with a significant portion in Northeastern Bergen County. At December 31, 1997,
Jersey's loan portfolio totaled $36.4 million and its lending limit to one
borrower under applicable regulations was approximately $950 thousand or 15% of
capital. Loans secured by 1-4 family residential properties comprised
approximately $26.1 million or 71.7% of Jersey's loan portfolio.
Loans are generated through Jersey's marketing efforts, its present
customers, walk-in customers and referrals. Jersey has been able to maintain
high overall credit quality through the establishment and observance of prudent
lending policies and practices. Jersey has established a written loan policy for
each of its categories of loans. These loan policies have been adopted by
Jersey's Board of Directors and are reviewed periodically. All loans to
directors (and their affiliates) must be approved by Jersey's Board of
Directors.
In managing the growth of its loan portfolio, Jersey has focused on: (i)
the application of prudent underwriting criteria; (ii) establishing internal
lending limits below Jersey's legal lending authority; (iii) active involvement
by Jersey's senior management and Board of Directors in the loan approval
process; and (iv) active monitoring of loans to ensure the repayments are made
in a timely manner and to identify potential problem loans. For discussion of
other aspects of Jersey's business see "--Management's Discussion and Analysis
of Financial Condition and Results of Operations --Deposits --Loan Portfolio."
Competition
Jersey experiences substantial competition in attracting and retaining
deposits and in making loans. Jersey competes with savings banks, savings and
loan associations, and commercial banks, as well as with regional and national
insurance companies and non-bank banks, regulated small loan companies and local
credit unions, regional and national issuers of money market funds and corporate
and government borrowers. The primary factors affecting competition for deposits
are interest rates, the quality and range of financial services offered and the
convenience of office locations and office hours. The primary factors in
competing for loans are interest rates, loan origination fees and the quality
and range of lending services offered. Other factors which affect competition
include the general availability of lendable funds and credit, general and local
economic conditions and the quality of service provided to customers.
In New Jersey generally, and in Jersey's Northeastern Bergen County market
in particular, large commercial banks, as well as savings banks and savings and
loan associations, dominate the banking and thrift industries. By virtue of
their larger capital, asset size and/or reserves, many such institutions have
substantially greater lending limits and other resources than Jersey. In
addition, many such institutions are empowered to perform a wider ranger of
services, including trust services, than Jersey is empowered to perform.
In addition to having established deposit bases and loan portfolios, these
institutions, particularly the large regional commercial and savings banks, have
the ability to finance extensive advertising campaigns and to allocate
considerable resources to locations and products perceived as profitable. These
institutions also have larger lending limits (ceilings on credit a bank may
provide a single customer that are linked to the institution's capital) and, in
certain cases, lower funding costs (the price a bank must pay for deposits and
other borrowed monies used to make loans to
42
<PAGE>
customers). Jersey's legal lending limit to one borrower or group of affiliated
borrowers is 15% of Jersey's capital, which lending limit equaled approximately
$950 thousand as of December 31, 1997. Accordingly, the size of loans which many
of Jersey's competitors with greater capitalization may offer is larger than
Jersey's.
Employees
As of December 31, 1997, Jersey had 20 full-time equivalent employees.
Jersey employees do not have a collective bargaining agreement. Jersey believes
its relationship with its employees to be satisfactory.
Legal Proceedings
Jersey is not presently involved in any legal proceedings which Jersey's
management believes to be material to its financial condition or results of
operations. As the nature of Jersey's business involves providing certain
financial services, the collection of loans and the enforcement and validity of
mortgages and other liens, Jersey is a plaintiff or defendant in various legal
proceedings which may be considered as arising in the ordinary course of
business.
Premises
Jersey owns in fee simple its branch office location in River Edge. The
property is not subject to any commercial liens. Jersey leases its 3,000 square
foot principal office in Montvale, New Jersey. The current annual rental of $65
thousand is subject to periodic adjustment. The lease expires in 2000 with
renewal options available for 5 five-year periods.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
This section presents management's discussion and analysis of the
financial condition and results of operations of The Jersey Bank For Savings
("Jersey"). The discussion and analysis cover the financial condition of Jersey
at December 31, 1997 and 1996, and results of operations for the twelve months
ending December 31, 1997, 1996 and 1995. Please review the discussion and
analysis in conjunction with the financial statements and notes thereto included
elsewhere in this Proxy Statement-Prospectus.
General
Jersey's results of operations depend primarily on its net interest
income, which is the difference between interest income on its interest-earning
assets, such as loans and investment securities, and the interest paid on its
interest-bearing liabilities, such as its deposits. The amount of net interest
income is a function of the difference between the weighted average rate
received on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities, as well as the average level of interest-bearing
assets as compared with that of interest-bearing liabilities. Net income is also
affected by the amount of non-interest income and by operating expenses.
Interest rates are highly sensitive to many factors, including domestic and
international economic and political conditions and governmental monetary
policies. Conditions such as inflation, recession, unemployment, money supply,
international disorders and other factors beyond the control of Jersey may
affect interest rates and adversely affect Jersey's operations.
Financial Condition
Total assets were $77.0 million and $67.8 million at December 31, 1997 and
December 31, 1996, respectively. Growth in deposits has provided virtually all
of the funding for the growth in total assets during the relevant periods.
Deposits were $70.1 million and $61.6 million at December 31, 1997 and December
31, 1996, respectively. Jersey's net loan portfolio was $36.1 million and $32.0
million at December 31, 1997 and December 31, 1996, respectively. The growth in
the total loan portfolio was attributable to an increase in business development
activities.
Investment securities were $28.4 million and $24.7 million at December 31,
1997 and December 31, 1996, respectively. Mortgage-backed securities were $25.0
million and $20.4 million at December 31, 1997 and December 31, 1996,
respectively. The growth in the mortgage-backed security portfolio was part of
Jersey's interest rate risk strategy. With regard to the mortgage-backed
securities as of December 31, 1997, Jersey had $10.9 million classified as
available for sale and $14.1 million classified as held to maturity. As of
December 31, 1996, Jersey had $8.1 million classified as available for sale and
$12.3 million classified as held to maturity.
Overnight Federal funds sold totaled $7.0 million and $6.0 million at
December 31, 1997 and December 31, 1996, respectively.
Shareholders' equity was $6.4 million and $5.7 million at December 31,
1997 and December 31, 1996, respectively. The growth in shareholders' equity was
primarily attributable to net income of $369 thousand augmented by the issuance
of 8,492 shares of common stock under Jersey's dividend reinvestment plan and
the exercise of options for 15,400 shares of common stock.
44
<PAGE>
Results of Operations
1997 was a positive year for Jersey, highlighted by significant loan
growth and improved earnings. Rapid growth of Jersey's River Edge branch, which
opened in September 1996, contributed to a better earnings performance.
Net income for the year ended December 31, 1997, was $369 thousand as
compared with $332 thousand in 1996, an increase of 11.1%. For the same period
basic earnings per common share rose 11.9% to $0.75 from $0.67 in 1996. Jersey's
relevant earnings performance measures showed mixed results. Jersey's returns on
average equity and average assets were 6.20% and 0.49%, respectively, in 1997
compared to 5.90% and 0.55%, respectively, in 1996.
An increase in net interest income of $395 thousand or 22.8%, compared to
the previous year, favorably affected 1997's earnings. The improvement resulted
from strong loan growth and an increase in the taxable investment securities
portfolio. Average total loans increased $6.4 million or 22.6%, while average
taxable investment securities increased $6.5 million or 29.4%. (See table on
following page: Average Balance Sheets and Analysis of Net Interest Earnings.)
A significant increase in interest-bearing demand deposits and time
deposits partially offset the benefit realized through the growth of
interest-earning assets mentioned above. Average interest-bearing demand
deposits increased $2.0 million or 55.0%, while average time deposits increased
$9.1 million or 27.5%. As a result there was a nominal decrease of two basis
points in the net interest margin, falling to 2.97% in 1997.
A $394 thousand or 30.5% increase in noninterest expenses attributed to
business expansion and other nonrecurring expenses adversely affected 1997's net
income. Business expansion included the addition of a senior loan officer and
expenses associated with operating Jersey's new branch and administrative office
for the entire year. Those expenses added approximately $292 thousand to
noninterest expenses. The difference, $102 thousand, resulted from nonrecurring
expenses. Nonrecurring expenses included charges associated with an unsuccessful
attempt to acquire another branch location and merger related expenses. Jersey
surpassed the projected deposit break-even point for its new branch office
during 1997. Management therefore expects that subsequent deposits will
contribute an incremental benefit to earnings.
In 1996, Jersey reported net income of $332 thousand or $0.67 basic
earnings per common share, as compared to $403 thousand or $0.83 basic earnings
per common share in 1995. Jersey's return on average equity and average assets
were 5.90% and 0.55%, respectively, in 1996 as compared to 7.54% and 0.75%,
respectively, in 1995.
45
<PAGE>
Average Balance Sheets and Analysis of Net Interest Earnings
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------------------- ------------------------------ -----------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance $ Expense $ Cost % Balance $ Expense $ Cost % Balance $ Expense $ Cost %
--------- --------- --------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans:
Real Estate 33,080 2,646 8.00 27,294 2,189 8.02 25,439 2,070 8.14
Installment 997 95 9.53 560 44 7.86 476 43 9.03
Other 420 47 11.19 275 22 8.00 193 15 7.77
Taxable investment securities 28,674 1,920 6.70 22,161 1,452 6.55 20,721 1,332 6.43
Interest-earning deposits in 1,769 78 4.41 2,185 104 4.76 2,160 102 4.72
other banks
Federal funds sold 6,631 366 5.52 5,594 303 5.42 3,432 203 5.91
--------- --------- --------- --------- --------- ---------
Total interest-earning assets 71,571 5,152 7.20 58,069 4,114 7.08 52,421 3,765 7.18
--------- --------- --------- --------- --------- ---------
Noninterest-earning assets:
Cash and due from banks 1,265 1,213 881
Allowance for loan losses
and deferred
Loan fees (377) (350) (333)
Other assets 2,320 1,749 797
--------- --------- ---------
TOTAL ASSETS 74,779 60,681 53,766
========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest-bearing liabilities:
Interest-bearing demand deposits 5,634 112 1.99 3,634 42 1.16 3,102 32 1.03
Savings deposits 17,637 544 3.08 16,046 498 3.10 16,596 522 3.15
Time deposits 42,211 2,367 5.61 33,102 1,840 5.56 26,973 1,501 5.56
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities 65,482 3,023 4.62 52,782 2,380 4.51 46,671 2,055 4.40
--------- --------- --------- --------- --------- ---------
Noninterest-bearing liabilities:
Demand deposits 2,769 1,811 1,412
Other liabilities 578 465 341
Shareholders' Equity 5,950 5,623 5,342
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 74,779 60,681 53,766
========= ========= =========
Net interest income/Net interest spread 2,129 2.58 1,734 2.57 1,710 2.78
========= ========= =========
Net yield on interest-earning assets 2.97 2.99 3.26
</TABLE>
Net interest income in 1996 increased $24 thousand or 1.4%, as compared to
1995. Average total loans increased $2.0 million or 7.7%, while average taxable
investment securities increased $1.4 million or 7.0%.
Average time deposits increased $6.1 million or 22.7%, putting pressure on
net interest income. The net interest margin reacted negatively to the increase
in interest expense relative to interest income. The net interest margin slipped
to 2.99% in 1996, from 3.26% a year earlier.
46
<PAGE>
A $116 thousand or 9.9% increase in noninterest expenses resulted from
business expansion during 1996. Expanding the staff to operate the new office
plus three months of occupancy expense contributed most of the increase in
noninterest expenses.
Net Interest Income
The following table presents changes in interest income and interest
expense by major asset and liability category for 1997 and 1996. It illustrates
the impact of average volume growth (estimated according to prior year rates)
and rate changes (estimated on the basis of prior year volumes). An allocation
based on the relationship of changes in volume and changes in rates apply when
there are changes not due solely to changes in either volume or rates.
Interest-earning assets include nonaccrual loans; computation of the average
rate earned on the loan portfolio includes any interest received on such loans.
Changes in Interest Income and Interest Expense
(dollars in thousands)
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 compared to December 31, 1996 compared to
December 31, 1996 December 31, 1995
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
-------------------------------- --------------------------------
Average Average Average Average
Volume $ Rate $ Net $ Volume $ Rate $ Net $
--------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans:
Real Estate 464 (7) 457 151 (32) 119
Installment 34 17 51 8 (7) 1
Other 12 13 25 6 1 7
Taxable investment securities 427 41 468 93 27 120
Interest-earning deposits in (20) (6) (26) 1 1 2
other banks
Federal funds sold 56 7 63 128 (28) 100
--------- --------- --------- ---------- --------- ---------
Total interest-earning assets 973 65 1,038 387 (38) 349
--------- --------- --------- ---------- --------- ---------
INTEREST EXPENSE:
Interest-bearing demand deposits 23 47 70 5 5 10
Savings deposits 49 (3) 46 (17) (7) (24)
Time deposits 506 21 527 341 (2) 339
--------- --------- --------- ---------- --------- ---------
Total interest-bearing liabilities 578 65 643 329 (4) 325
--------- --------- --------- ---------- --------- ---------
Net change in net interest income 395 - 395 58 (34) 24
========= ========= ========= ========== ========= =========
</TABLE>
Interest income totaled $5.2 million in 1997, an increase of $1.1 million
or 25.2% from $4.1 million in 1996. The increase was almost exclusively due to
an increase in the average volume of loans and taxable investment securities.
The average balance of residential and commercial mortgage loans totaled $31.2
million in 1997, compared to $26.8 million in 1996, an increase of $4.4 million
or 16.4%. The average yield on all interest-earning assets was 7.20% in 1997 as
compared to 7.08% in 1996, an increase of 12 basis points.
Interest expense totaled $3.0 million in 1997, an increase of $643
thousand or 27.0% from $2.4 million in 1996. The increase was almost entirely
due to an increase in the average volume of time deposits. The average balance
of time deposits was $42.2 million in 1997, compared to $33.1
47
<PAGE>
million in 1996, an increase of $9.1 million or 27.5%. The average balance of
interest-bearing demand deposits was $5.6 million in 1997, compared to $3.6
million in 1996, an increase of $2.0 million or 55.0%. A new interest-bearing
demand deposit account introduced in late 1996 fueled the growth. However, more
than two-thirds of the increase in interest expense attributed to this type of
account resulted from an increase in average rate due to its rate-tiered
structure, rather than average volume. The average cost of all interest-bearing
liabilities was 4.62% in 1997, as compared to 4.51% in 1996, an increase of 11
basis points.
In 1996, interest income was $4.1 million, an increase of $349 thousand or
9.3% from $3.8 million in 1995. The increase was almost exclusively due to an
increase in the average volume of loans and taxable investment securities. A
63.0% increase in average volume for federal funds sold also contributed to the
increase in interest income. Interest income suffered with respect to average
rate in 1996 compared to 1995. The average yield on all interest-earning assets
was 7.08% in 1996 as compared to 7.18% in 1995, a decrease of 10 basis points.
In 1996, interest expense totaled $2.4 million, an increase of $325
thousand or 15.8% from $2.1 million in 1995. The increase was almost entirely
due to an increase in the average volume of time deposits. The average cost of
all interest-bearing liabilities was 4.51% in 1996, as compared to 4.40% in
1995, an increase of 11 basis points.
See "-- Interest Rate Sensitivity"
Income Taxes
In 1997, income taxes amounted to $217 thousand as compared to $198
thousand and $218 thousand for 1996 and 1995, respectively. The effective tax
rate in 1997 was 37.0% as compared to 37.4% and 35.1% for 1996 and 1995,
respectively.
New Pronouncements
The Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income," in June 1997. This statement is effective for
years beginning after December 15, 1997. Statement No. 130 requires entities
that present a complete set of financial statements to include the components of
comprehensive income. Comprehensive income consists of net income or loss for
the current period and revenues, expenses, gains and losses that bypass the
income statement and are reported as a component of equity. The effect of
adopting Standard No. 130 is not expected to be material to Jersey's results of
operations or financial position.
Also in June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information," that is effective for all periods beginning after December 15,
1997. Statement No. 131 requires that public companies report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to shareholders. It also requires that public companies report certain
information about their products and services, the geographic areas in which
they operate, and their major customers. Management is currently evaluating the
disclosures impact of SFAS No. 131 on its financial statements and has not
determined if it has any reportable segments.
48
<PAGE>
Effects of Inflation and Changing Prices
The financial statements and related financial data presented herein have
been prepared in accordance with generally accepted accounting principles that
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than do general levels of inflation. Interest rates do not
necessarily move in the same magnitude as the price of goods and services.
Loan Quality
The following table provides an analysis of the allocation of Jersey's
allowance for loan losses. Additions to the general reserve represent
management's best estimate of the risk of future losses in the loan portfolio.
Factors considered include: growth in the loan portfolio; the condition of
borrowers; changes in the value of underlying collateral; past loss experience
and economic conditions.
Allocation of the Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------- -------------------- ------------------- -------------------- -------------------
Amount $ Loans % Amount $ Loans % Amount $ Loans % Amount $ Loans % Amount $ Loans %
--------- --------- ---------- -------- --------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT YEAR-END
APPLICABLE TO:
Commercial, financial &
agricultural -- 0.04 6 1.86 5 2.04 -- -- -- 0.00
Real estate - Construction 77 6.19 10 4.29 15 3.88 23 5.22 15 3.71
Real estate - Mortgage 223 91.10 271 90.26 243 92.45 182 92.84 162 94.24
Installment loans to
individuals 21 2.67 28 3.59 13 1.63 11 1.94 7 2.05
Unallocated 17 N/A -- N/A 3 N/A 24 N/A 16 N/A
--------- --------- ---------- -------- --------- -------- --------- --------- --------- --------
Total allowance for
loan losses 338 100.00 315 100.00 279 100.00 240 100.00 200 100.00
========= ========= ========== ======== ========= ======== ========= ========= ========= ========
</TABLE>
The allocation table provides information only and may not be indicative
of where in the portfolio future loan losses will occur.
49
<PAGE>
The following table provides an analysis of Jersey's loan loss experience.
Additions to the general loan loss reserve occur on a monthly basis to keep pace
with growth in the loan portfolio.
Analysis of the Allowance for Loan Losses
(dollar in thousands)
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- --------- ---------- ---------
Amount $ Amount $ Amount $ Amount $ Amount $
---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at beginning of the year 315 279 240 200 150
Charge-offs:
Installment loans to individuals -- 11 -- -- --
---------- --------- --------- ---------- ---------
Total charge-offs -- 11 -- -- --
---------- --------- --------- ---------- ---------
Recoveries -- -- -- -- -
Additions charged to operations 23 47 39 40 50
---------- --------- --------- ---------- ---------
Balance at end of the year 338 315 279 240 200
========== ========= ========= ========== =========
Ratio of net charge-offs to
average loans outstanding -- 0.04% -- -- --
Allowance for loan losses at
year-end to net loans
outstanding at year-end 0.94% 0.99% 1.07% 1.00% 1.10%
Allowance for loan losses at
year-end to nonperforming loans
at year-end N/A 71.11% N/A N/A N/A
</TABLE>
Loan loss provisions for 1997 amounted to $23 thousand, a decrease of $24
thousand from the previous year. The absence of any charge-offs in 1997 plus
Jersey receiving payment in full for two nonaccrual loans allowed Jersey to
reduce its 1997 provision to the loan loss reserve by 51.1%.
In 1996, the loan loss provision was $47 thousand, an increase of $8
thousand from 1995. In 1996, Jersey experienced for the first time the
classification of two loans; each received a substandard rating. Jersey's only
charge-off also occurred in 1996. As of year-end, nonaccrual loans totaled $443
thousand; the allowance for loan losses represented 71.1% of nonaccrual loans.
Jersey's management maintains a "watchlist" system that provides the board
of directors with an early warning of potential problem loans. These loans may
not be delinquent currently, but either past due at least once in the past six
months or there is an anticipated deterioration in the quality of the loan
sometime in the future. The table found on the following page quantifies
nonaccrual, past due and restructured loans over the previous five years. As of
December 31, 1997, disclosed in the table are any loans considered by Jersey's
management to have serious problems.
50
<PAGE>
Nonaccrual, Past Due and Restructured Loans
(dollars in thousands)
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Amount $ Amount $ Amount $ Amount $ Amount $
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NONACCRUAL LOANS:
Real estate - Mortgage -- 443 -- -- --
-------- -------- -------- -------- --------
Total nonaccrual loans -- 443 -- -- --
-------- -------- -------- -------- --------
LOANS PAST DUE 90 DAYS OR MORE
AND STILL ACCRUING: -- -- -- -- --
-------- -------- -------- -------- --------
TROUBLED DEBT RESTRUCTURINGS: -- -- -- -- --
-------- -------- -------- -------- --------
Total nonperforming loans -- 443 -- -- --
======== ======== ======== ======== ========
Total nonperforming assets -- 443 -- -- --
======== ======== ======== ======== ========
Nonaccrual loans to total loans, net -- 1.39% -- -- --
Nonperforming loans to total loans, gross -- 1.37% -- -- --
Nonperforming loans to total loans, net -- 1.39% -- -- --
Nonperforming loans to total assets -- 0.65% -- -- --
Nonperforming assets to total assets -- 0.65% -- -- --
</TABLE>
At December 31, 1997, 1995, 1994 and 1993, there were no nonaccrual, past
due or restructured loans.
Loan Portfolio
During 1997, Jersey continued to experience strong loan growth. At
December 31, 1997, gross loans outstanding amounted to $36.4 million, an
increase of $4.1 million or 12.9% over the previous year. Within the largest
category of loans, real estate mortgages, the distribution was as follows: first
and second mortgages on 1-4 family residential properties, $26.1 million; first
mortgages on multi-family properties, $921 thousand; first mortgages on
nonresidential properties, $6.2 million. Approximately $17.0 million of the
residential first mortgages were one, three or five year adjustable rate loans.
In 1996, gross loans outstanding increased $5.9 million to $32.3 million,
an increase of 22.2% compared to 1995. Within the largest category of loans,
real estate mortgages, the distribution was as follows: first and second
mortgages on 1-4 family residential properties, $23.7 million; first mortgages
on multi-family properties, $955 thousand; first mortgages on nonresidential
properties, $4.4 million. Approximately $16.0 million of the residential first
mortgages were one, three or five year adjustable rate loans.
The table on the following page provides a distribution of the loan
portfolio for each of the previous five years. There is also a reconciliation of
loan types to the loan categories shown earlier in the average balance sheets.
51
<PAGE>
Loan Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------------------- ------------------- -------------------- -------------------
Amount $ Percent % Amount $ Percent % Amount $ Percent % Amount $ Percent % Amount $ Percent %
-------- --------- -------- --------- -------- ---------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TYPES OF LOANS:
Commercial, financial
& agricultural 13 0.04 599 1.86 539 2.04 - - - -
Real estate - Construction 2,255 6.19 1,385 4.29 1,025 3.88 1,263 5.22 685 3.71
Real estate - Mortgage 33,177 91.10 29,125 90.26 24,411 92.45 22,441 92.84 17,394 94.24
Installment loans to
individuals 973 2.67 1,158 3.59 431 1.63 470 1.94 379 2.05
-------- -------- --------- --------- -------- -------- --------- --------- -------- --------
Total loans outstanding,
gross 36,418 100.00 32,267 100.00 26,406 100.00 24,174 100.00 18,458 100.00
-------- ======== --------- ========= -------- ======== --------- ========= -------- ========
Less: Allowance for
loan losses (338) (315) (279) (240) (200)
-------- --------- -------- --------- ---------
Total loans outstanding,
net 36,080 31,952 26,127 23,934 18,258
======== ========= ======== ========= =========
</TABLE>
The following schedule sets forth the maturity distribution of Jersey's
loan portfolio as of December 31, 1997. The table categorizes the loans as shown
in the previous table. Within one year, $9.5 million of the loan portfolio will
reprice to market interest rates. Between one year and five years, an additional
$18.0 million will reprice to market interest rates. The remaining $8.9 million
will reprice to market interest rates after five years.
Loan Portfolio by Contractual Maturities
(dollars in thousands)
At December 31, 1997
-----------------------------------------
After 1
Year But
Within 1 Within 5 After 5
Year $ Years $ Years $ Total $
--------- --------- --------- --------
TYPES OF LOANS:
Commercial, financial and agricultural 13 -- -- 13
Real estate - Construction 2,241 14 -- 2,255
Real estate - Mortgage 1,461 6,058 25,692 33,211
Installment loans to individuals 431 542 -- 973
--------- --------- --------- --------
Total loans outstanding, gross 4,146 6,614 25,692 36,452
========= ========= ========= ========
(1) (1) (2) (1) (2)
(1) Estimated scheduled repayments reported in the maturity category in the
which the payment is due.
(2) Of loans due after one year, $9,801 have fixed interest rates and $22,505
have adjustable interest rates.
Taxable Investment Securities Portfolio
Jersey has relied on taxable investment securities, particularly
mortgage-backed pass-through securities, when excess liquidity exceeds projected
loan originations. They are a source of earnings providing a better return than
federal funds sold but of course, considerably less than lending. In 1997, on
average, taxable investment securities represented 40.1% of Jersey's
interest-bearing assets, compared to 38.2% in 1996.
Jersey classifies each taxable investment security according to one of two
categories: available-for sale or held-to-maturity. Jersey classifies all
fixed-rate instruments and adjustable rate instruments with repricing intervals
of greater than one year as available-for-sale and adjustable rate
52
<PAGE>
instruments with repricing intervals of one year or less as held-to-maturity.
Historically, the ratio of held-to-maturity investments to available-for-sale
investments has been generally 50/50. Management considers securities classified
as available-for-sale an integral part of Jersey's asset and liability
management strategy. The following table identifies the components found in each
of the two investment categories.
Taxable Investment Securities Portfolio
(dollars in thousands)
At December 31,
-------------------------------------------
1997 1997 1996 1995
--------- ---------- --------- ---------
Fair Amortized Amortized Amortized
Value $ Cost $ Cost $ Cost $
--------- ---------- --------- ---------
HELD-TO-MATURITY:
Mortgage-backed pass-through
securities:
Guaranteed by GNMA 9,787 9,807 6,311 4,535
Issued by FNMA and FHLMC 4,261 4,265 5,993 5,682
--------- ---------- --------- ---------
Total held-to-maturity 14,048 14,072 12,304 10,217
--------- ---------- --------- ---------
AVAILABLE-FOR-SALE:
U.S. Treasury securities -- -- -- 1,000
Issued by U.S. Government-
sponsored agencies 2,992 3,000 4,000 6,000
Mortgage-backed pass-through
securities:
Guaranteed by GNMA 1,926 1,887 286 343
Issued by FNMA and FHLMC 8,930 8,869 7,782 3,563
Federal Home Loan Bank Stock 451 451 357 340
--------- ---------- --------- ---------
Total available-for-sale 14,299 14,207 12,425 11,246
--------- ---------- --------- ---------
Total taxable investment
securities 28,347 28,279 24,729 21,463
========= ========== ========= =========
Given the low interest rate environment at year-end, the market value
exceeded the book value of the available-for-sale portfolio. While more stable
as interest rates move up, the value of adjustable rate mortgage-backed
pass-through securities found in the held-to-maturity portfolio falls due to
prepayment concerns while interest rates are low. As expected, at year-end, the
book value was greater than the market value for the held-to-maturity portfolio.
A summary of the contractual maturities and weighted average yield for the
taxable investment securities portfolio follows on the next page.
53
<PAGE>
Taxable Investment Securities by Their Contractual Maturities
(dollars in thousands)
<TABLE>
<CAPTION>
At December 31, 1997
------------------------------------------------------------------------------------------------
After 1 Year But After 5 Years But
Within 1 Year Within 5 Years Within 10 Years After 10 Years
-------------------- -------------------- -------------------- --------------------
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost $ Yield % Cost $ Yield % Cost $ Yield % Cost $ Yield % Total $
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY:
Mortgage-backed pass-through
securities: (1)
Guaranteed by GNMA -- -- -- -- -- -- 9,807 7.08 9,807
Issued by FNMA and FHLMC -- -- -- -- -- -- 4,265 7.61 4,265
--------- --------- --------- --------- ---------
Total held-to-maturity -- -- -- 14,072 14,072
--------- --------- --------- --------- ---------
AVAILABLE-FOR-SALE:
Issued by U.S. Government-
sponsored agencies 1,987 5.03 -- -- 1,005 7.39 -- -- 2,992
Mortgage-backed pass-through
securities:
Guaranteed by GNMA -- -- -- -- 1,265 7.08 660 7.50 1,925
Issued by FNMA and FHLMC -- -- 565 7.93 2,547 6.67 5,819 7.18 8,931
Federal Home Loan Bank Stock 451 7.05 -- -- -- -- -- -- 451
--------- --------- --------- --------- ---------
Total available-for-sale 2,438 565 4,817 6,479 14,299
--------- --------- --------- --------- ---------
Total taxable investment
securities 2,438 565 4,817 20,551 28,371
========= ========= ========= ========= =========
Weighted average yield 5.40 7.93 6.93 7.23 7.03%
========= ========= ========= ========= =========
</TABLE>
(1) Mortgage-backed pass-through securities totaling $14,072 have adjustable
interest rates.
Within one year, $16.1 million of the taxable investment securities
portfolio will reprice to market interest rates. Between one year and five
years, an additional $3.1 million will reprice to market interest rates. The
remaining $8.7 million will reprice to market interest rates after five years.
Deposits
Jersey relies exclusively on its deposit base, rather than other
borrowings to fund its credit needs. Deposits totaled $70.1 million at December
31, 1997, an increase of $8.5 million from year-end 1996. Average total deposits
increased $13.7 million or 25.0% in 1997, compared to an increase of $6.5
million or 13.5% in 1996. Jersey attributes most of the deposit growth to the
new branch location. Certificates of deposit in amounts of $100,000 or more
continue to be a source of new money. These large certificates of deposit
totaled $12.4 million at December 31, 1997, an increase of $2.4 million from
year-end 1996.
While time deposits and savings deposits provided the foundation for
growth of the bank during its formative years, management continually looks to
increase both noninterest-bearing and interest-bearing demand deposits to
strengthen core deposits. Jersey always offered 24-hour banking through its
automated teller machines, but introducing telephone banking for all customers
and merchant processing for commercial customers helped to significantly boost
demand deposits. Average total demand deposits increased $3.0 million or 54.3%
in 1997, compared to an increase of $931 thousand or 20.6% in 1996.
54
<PAGE>
The following table provides average balances and weighted average cost by
type of account. The second table highlights maturity information for large
certificates of deposit.
Deposits
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
------------------- -------------------- -------------------
Average Average Average
Balance $ Cost % Balance $ Cost % Balance $ Cost %
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
DEPOSITS BY TYPE OF ACCOUNT:
Noninterest-bearing demand deposits 2,769 -- 1,811 -- 1,412 --
Interest-bearing demand deposits 5,634 1.99 3,634 1.16 3,102 1.03
Savings deposits 17,637 3.08 16,046 3.10 16,596 3.15
Time deposits 42,211 5.61 33,102 5.56 26,973 5.56
--------- --------- --------- --------- --------- ---------
Total deposits 68,251 4.43 54,593 4.36 48,083 4.27
========= ========= ========= ========= ========= =========
Maturing at December 31, 1997,
------------------------------------------------------
After 3 After 6
Mos. But Mos. But
Within 3 Within 6 Within 12 After 12
Months $ Months $ Months $ Months $ Total $
--------- --------- --------- --------- ---------
CERTIFICATES OF DEPOSIT IN
AMOUNTS OF $100,000 OR MORE 7,171 2,266 1,508 1,422 12,367
========= ========= ========= ========= =========
</TABLE>
Noninterest income is an important supplement to net interest income; it
consists of all income other than interest and dividends. Noninterest income
totaled $166 thousand for 1997, an increase of $31 thousand or 23.0% from $135
thousand for 1996. The largest component of noninterest income, service charges
on deposit accounts, provided $120 thousand or 72.3% of 1997's noninterest
income, compared to $107 thousand or 79.3% in 1996.
Interest Rate Sensitivity
Fluctuations in market interest rates can have a significant influence on
net interest income. Therefore, managing Jersey's interest rate sensitivity is a
primary objective of Jersey's management. Jersey's Investment Committee is
responsible for managing the exposure to changes in market interest rates. The
Investment Committee attempts to maintain stable net interest margins by
periodically evaluating the relationship between interest-rate sensitive assets
and interest-rate sensitive liabilities. The evaluation attempts to determine
the impact on net interest margin from current and prospective changes in market
interest rates.
Interest rate sensitivity is determined by analyzing the difference
between the amount of interest-earning assets maturing or repricing within a
specific time period and the amount of interest-bearing liabilities maturing or
repricing within that same period of time. This difference, or "sensitivity
gap," provides an indication of the extent to which Jersey's net interest income
may be affected by future changes in market interest rates. The cumulative gap
position as a percentage of total assets provides one relative measure of
Jersey's interest rate exposure.
55
<PAGE>
The cumulative gap between Jersey's interest-rate sensitive assets and its
interest-rate sensitive liabilities repricing within a one-year period was
(20.38%) at December 31, 1997. Since the cumulative gap was negative, Jersey has
a "negative gap" position that theoretically will cause its assets to reprice
more slowly than its deposit liabilities. In a declining interest rate
environment, interest costs may be expected to fall faster than the interest
received on earning assets, thus increasing the net interest spread. If interest
rates increase, a negative gap means that the interest received on earning
assets may be expected to increase more slowly than the interest paid on
Jersey's liabilities, therefore decreasing the net interest spread.
Certain shortcomings are inherent in the method of analysis presented in
the following table. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in market interest rates. The rates on certain types of assets and
liabilities may fluctuate in advance of changes in market rates, while rates on
other types of assets and liabilities may lag behind changes in market rates.
Actual prepayments of principal and early withdrawals of savings may deviate
significantly from the assumptions used in the gap analysis when interest rates
change. The ability of borrowers to service their debt may decrease in the event
of an interest rate increase. Management considers these factors when reviewing
its gap position and establishing its ongoing asset/liability strategy.
Considering past experience, savings deposits (identified as "other
savings deposits" in the following table) are generally not rate sensitive.
However, there is no assurance that these balances will actually remain
insensitive to interest rate changes in the future. As a result, the earliest
repricing interval includes total savings deposits.
56
<PAGE>
Interest Rate Risk Exposure Measurements: At Decemeber 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Time Horizons:
- -------------------------- ----------------------------------------------------------------------------------------------------
Rate sensitive assets $ Within WAvg $ Within WAvg $ Within WAvg $ Within WAvg $ Within WAvg $ Within WAvg
subject to 1/98-3/98 % 4/98-12/98 % 1/99-12/00 % 1/01-12/02 % 1/03-12/12 % 1/13- %
interest rate adjustment ----------------------------------------------------------------------------------------------------
within stated time $ Within $ Within $ Within $ Within $ Within $ Over
horizons 3 Months 1 Year 3 Years 5 Years 15 Years 15 Years
- -------------------------- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-4 family 1st mortgages:
Fixed rate -- -- -- -- -- -- 218 7.30 6,600 7.54 -- --
1-4 family 1st mortgages:
Adjustable rate 535 8.46 4,750 7.87 5,121 7.12 6,557 7.71 49 7.00 -- --
1-4 family subordinated liens:
Fixed rate -- -- 62 7.48 22 7.32 246 7.62 655 8.22 22 8.00
1-4 family subordinated liens:
Adjustable rate 1,259 9.84 -- -- -- -- -- -- -- -- -- --
Commercial mortgages:
Fixed rate -- -- -- -- 712 8.64 413 7.60 473 8.79 179 7.50
Commercial mortgages:
Adjustable rate 222 8.00 215 8.75 1,189 8.41 2,752 8.37 962 7.79 -- --
Construction mortgages:
Adjustable rate 2,255 9.26 -- -- -- -- -- -- -- --- -- --
Other loans: Fixed and
adjustable rate 161 9.66 33 8.40 681 9.77 110 8.94 -- -- -- --
Debt securities:
Mortgage-backed PCs 1,964 7.24 12,109 7.24 1,113 6.63 2,033 7.76 7,709 7.01 -- --
Debt securities: Others -- -- 1,987 5.03 -- -- -- -- 1,005 7.39 -- --
All other interest-
bearing assets 8,968 5.46 -- -- -- -- -- -- -- -- -- --
----------------------------------------------------------------------------------------------------
Total rate sensitive assets 15,364 6.79 19,156 7.19 8,838 7.56 12,329 7.86 17,453 7.37 201 7.55
----------------------------------------------------------------------------------------------------
Total rate sensitive
assets(cummulative) 15,364 34,520 43,358 55,687 73,140 73,341
----------------------------------------------------------------------------------------------------
Rate sensitive liabilities
Money market deposit accounts 1,766 3.06 -- -- -- -- -- -- -- -- -- --
Other savings deposits 12,230 3.32 -- -- -- -- -- -- -- -- -- --
Time deposits of $100,000 or more 7,171 5.49 3,774 5.77 1,089 5.91 333 6.40 -- -- -- --
Other time deposits of
less than $100,000 11,109 5.46 14,166 5.62 3,654 5.82 707 5.99 -- -- -- --
----------------------------------------------------------------------------------------------------
Total rate sensitive liabilities 32,276 4.52 17,940 5.65 4,743 5.84 1,040 6.12 -- -- -- --
----------------------------------------------------------------------------------------------------
Total rate sensitive
liabilities(cummulative) 32,276 50,216 54,959 55,999 55,999 55,999
----------------------------------------------------------------------------------------------------
Cummulative GAP (16,912) (15,696) (11,601) (312) 17,141 17,342
----------------------------------------------------------------------------------------------------
GAP as a % of
total assets($77,012) (21.96) (20.38) (15.06) (0.41) 22.26 22.52
----------------------------------------------------------------------------------------------------
Rate sensitive assets as a % of
rate sensitive liabilities 47.60 68.74 78.89 99.44 130.61 130.97
----------------------------------------------------------------------------------------------------
</TABLE>
Liquidity
A fundamental component of Jersey's business strategy is to manage
liquidity to ensure the availability of sufficient resources to meet all
financial obligations and finance prospective business opportunities. Jersey's
liquidity is a measure of its ability to fund loans, withdrawal of deposits and
other cash outflows in a cost effective manner. Liquidity management is critical
to the stability of Jersey. Liquidity levels over any given period of time is a
product of Jersey's operating, financing and investing activities. The extent of
such activities is often shaped by such external factors as competition for
deposits and loan demand.
Historically, financing for Jersey's loans and investments has been
derived primarily from deposits, along with interest and principal payments on
loans and investments. Deposit flows are greatly affected by general interest
rates, economic conditions and competition. At December 31, 1997, total deposits
amounted to $70.1 million, an increase of $8.4 million or 13.7% over the prior
comparable year.
57
<PAGE>
During 1997, loan production and the purchase of taxable securities were
Jersey's principal investing activities. Net loans at December 31, 1997, totaled
$36.1 million compared to $31.9 million at the end of 1996, an increase of $4.2
million or 13.2%. Total securities at December 31, 1997, totaled $28.4 million
compared to $24.7 million at the end of 1996, an increase of 15.0%.
Jersey's most liquid assets are cash and due from banks and federal funds
sold. At December 31, 1997, the total of such assets amounted to $10.4 million
or 13.5% of total assets, compared to $8.9 million or 13.1% of total assets at
year-end 1996.
Another significant liquidity source is available-for-sale securities. At
December 31, 1997, available-for-sale securities amounted to $14.3 million or
50.4% of total securities, compared to $12.4 million or 50.2% of total
securities at year-end 1996.
In addition to the aforementioned sources of liquidity, Jersey has a $3.2
million line of credit with the Federal Home Loan Bank of New York. Management
believes that Jersey's sources of funds are sufficient to meet its funding
requirements.
Capital Adequacy
At December 31, 1997, Jersey's shareholders' equity totaled $6.4 million
as compared to $5.7 million at December 31, 1996.
Jersey is subject to various regulatory capital requirements administered
by the Federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional, discretionary actions
by regulators that, if undertaken, could have a direct material effect on
Jersey's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Jersey must meet specific
capital guidelines that involve quantitative measures of Jersey's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. Jersey's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Jersey to maintain minimum amounts and ratios (set forth in the table
below) of Total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined). Management believes, as of December 31, 1997, that Jersey meets all
capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized Jersey as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized Jersey must maintain minimum total risk-based; Tier I risk-based;
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
58
<PAGE>
Jersey's actual capital amounts and ratios are also presented in the
table.
(dollars in thousands)
<TABLE>
<CAPTION>
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- ------------------
Amount $ Ratio % Amount $ Ratio % Amount $ Ratio %
------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted Assets) 6,644 20.81 => 2,554 => 8.00 => 3,193 => 10.00
Tier I Capital (to Risk Weighted Assets) 6,306 19.75 => 1,277 => 4.00 => 1,916 => 6.00
Tier I Capital (to Average Assets) 6,306 8.43 => 2,991 => 4.00 => 3,739 => 5.00
As of December 31, 1996:
Total Capital (to Risk Weighted Assets) 6,012 20.36 => 2,362 => 8.00 => 2,953 => 10.00
Tier I Capital (to Risk Weighted Assets) 5,697 19.29 => 1,181 => 4.00 => 1,772 => 6.00
Tier I Capital (to Average Assets) 5,697 9.39 => 2,427 => 4.00 => 3,034 => 5.00
</TABLE>
Key Ratios
The following table provides several key ratios for Jersey. The ratios
include return on assets (net income divided by average total assets), return on
equity (net income divided by average equity), dividend payout ratio (dividends
declared per share divided by net income per share) and equity to assets ratio
(average equity divided by average total assets).
Key Ratios
For the Year Ended December 31,
--------------------------------
1997 1996 1995
--------------------------------
RETURN ON ASSETS 0.49% 0.55% 0.75%
RETURN ON EQUITY 6.20% 5.90% 7.54%
COMMON STOCK DIVIDEND PAYOUT RATIO 16.00% 17.91% 14.46%
EQUITY TO ASSETS RATIO 7.98% 9.27% 9.94%
The Year 2000 Issue
Many existing computer programs use only two digits to identify a year in
the date field. As a result, the computer applications affected by such programs
could fail or produce incorrect results by or at the Year 2000. Jersey
acknowledges the need to ensure its operations will not be adversely affected by
Year 2000 computer software failures. Software failures due to processing
errors, potentially arising from calculations using the Year 2000 date, are a
known risk.
Jersey has completed almost all of its assessment of its Year 2000
compliance, including receipt of satisfactory certification from the outside
provider of its data processing services. Jersey expects that it would be able
to achieve full compliance with Year 2000 requirements on a timely basis but has
not yet determined the costs related to such compliance. Upon consummation of
the Merger, Jersey will be incorporated into Interchange's Year 2000 plan.
59
<PAGE>
Interchange has implemented a five step plan that involves awareness,
assessment, validation, renovation and implementation. It is currently assessing
the extent to which its systems may be affected and is communicating with all
necessary vendors concerning timely and completed remedies for those systems
that require modification. Interchange is also communicating with all third
parties, on which it relies, to assess their progress in evaluating their
systems and implementing any corrective measures. Interchange has been taking,
and will continue to pursue, all reasonably necessary steps to protect its
operations and assets. It is currently anticipated that by December 31, 1998,
Interchange will be Year 2000 compliant. At this time, Interchange has not yet
determined the cost, which will be expensed as incurred, of evaluating its
computer software or databases, or of making any modifications required to
correct any "Year 2000" problems.
60
<PAGE>
Supervision and Regulation of Jersey
Jersey
As a New Jersey state-chartered bank, Jersey's operations are subject to
various requirements and restrictions of state law pertaining, among other
things, to lending limits, reserves, interest rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends, locations of
branch offices and capital adequacy. Jersey is subject to primary supervision,
periodic examination and regulation by the New Jersey Department of Banking and
Insurance ("NJDBI"). If, as a result of an examination of a bank, the NJDBI
determines that the financial condition, capital resources, asset quality,
earnings prospects, management, liquidity, or other aspects of the bank's
operations are unsatisfactory or that the bank or its management is violating or
has violated any law or regulation, various remedies are available to the NJDBI.
Such remedies include the power to enjoin "unsafe and unsound" practices, to
require affirmative action to correct any conditions resulting from any
violation or practice, to issue an administrative order that can be judicially
enforced, to, among other things, direct an increase in capital, to restrict the
growth of Jersey, to assess civil penalties and to remove officers and
directors. Jersey has never been the subject of any administrative orders,
memoranda of understanding or any other regulatory action by the NJDBI.
Jersey's deposits are insured by the Bank Insurance Fund administered by
the FDIC up to a maximum of $100,000 per depositor. As an FDIC-insured
institution, Jersey is also subject to regulation and examination by, and the
supervision and control of, the FDIC. Additionally, Jersey is subject to
numerous federal, state and local laws regulating the taking of deposits, the
extension of credit, and the provision of banking services. Jersey must, for
example, comply with capital adequacy requirements imposed upon FDIC-insured
banks as further discussed herein. See "The Jersey Bank for Savings-
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Adequacy". Jersey is subject to federal regulations
governing disclosure of credit terms to borrowers (Federal Truth-in-Lending
Act), discrimination among credit customers (Equal Credit Opportunity Act) and
permissible credit collection practices (Fair Credit Reporting Act). Additional
federal legislation to which Jersey is subject includes rules concerning
customers' rights and liabilities arising from the use of automated teller
machines (Regulation E of the Electronic Transfer Act) and regulations limiting
the "float" Jersey may maintain on check deposits.
Since 1989, Congress has passed two major pieces of banking legislation,
the Federal Institution Reform, Recovery and Enforcement Act of 1989 ("FIRREA"),
and the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). FIRREA and FDICIA have significantly changed the thrift and
commercial banking industries in an effort to protect deposit insurance funds
and depositors by, among other things, revising and limiting the types and
amounts of investment financial institutions may make, significantly increasing
minimum regulatory capital requirements and broadening the scope of powers of
federal bank and thrift regulators over financial institutions and affiliated
persons. These laws, and the resulting implementing regulations, have subjected
Jersey and the banking industry generally to extensive regulation, supervision,
supervision and examination by the FDIC. This has resulted in increased deposit
insurance premiums and increased administrative, professional and compensation
expenses incurred to comply with the increased number of new regulations and
policies. The regulatory structure created gives the regulatory authorities
extensive authority in connection with their supervisory and enforcement
activities and examination policies. Further, Congress could enact future
legislation that could significantly affect the powers, authority and operations
of Jersey.
61
<PAGE>
Under the Community Reinvestment Act, as amended ("CRA"), as implemented
by FDIC regulations, a bank has a continuing and affirmative obligation,
consistent with its safe and sound operation, to help meet the credit needs of
its entire community, including low-income and moderate-income neighborhoods.
CRA does not establish specific lending requirements or programs for financial
institutions and it does not limit an institution's discretion to develop the
type of products and services that it believes are best suited to its particular
community, provided they are consistent with CRA. CRA requires the FDIC to
assess an institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of certain applications by
such institution. Effective July 1, 1990, CRA, as amended by FIRREA, requires
public disclosure of an institution's CRA rating and requires that the FDIC
provide a written evaluation of an institution's CRA performance utilizing a
four-tiered descriptive rating system. An institution's CRA rating is taken into
account in determining whether to grant charters, branches and other deposit
facilities, relocations, mergers, consolidations and acquisitions. Poor
performance may be the basis for denying any application. In addition, under
applicable regulations, a bank having a less than satisfactory rating is not
entitled to participate on the bid list for RTC and FDIC offerings. Jersey has
continuously maintained a CRA rating of "satisfactory".
The Deposit Insurance Funds Act of 1996 ("Funds Act") authorized the
Financing Corporation ("FICO") to levy assessments on BIF and SAIF deposits and
stipulated that the BIF rate must equal one-fifth the SAIF rate through year-end
1999, or until the insurance funds are merged, whichever occurs first.
Thereafter, BIF and SAIF payers will be assessed on a pro-rata basis for FICO.
FICO assessment rates are adjusted quarterly to reflect changes in the
assessment bases of the respective funds based on quarterly Call Report and
Thrift Financial Report submissions. During 1997, Jersey's BIF FICO rates ranged
between 1.26 and 1.30 basis points and the SAIF FICO rates were between 6.30 and
6.50 basis points.
Dividend Restrictions
Jersey's ability to pay dividends is subject to certain statutory and
regulatory restrictions. The New Jersey Banking Act of 1948, as amended,
provides that no state-chartered bank may pay a dividend on its capital stock
unless, following the payment of each such dividend, the capital stock of the
bank will be unimpaired, and the bank will have a surplus of not less than 50%
of its capital, or, if not, the payment of such dividend will not reduce the
surplus of the bank. In addition, the payment of dividends is limited by the
requirement to meet the risk-based capital guidelines issued by the Federal
Reserve Board and other regulations.
Capital Requirements
Jersey had shareholders' equity of $6.4 million at December 31, 1997,
compared with $5.7 million at December 31, 1996.
The FDIC has issued guidelines to implement risk-based capital
requirements for state-chartered nonmember banks. The guidelines established a
risk-based capital framework consisting of (1) a definition of capital
consisting of Tier I capital, which includes common shareholders' equity less
certain intangibles and a supplementary component called Tier II, which includes
a portion of the allowance for loan losses and (2) a system for assigning assets
and off-balance-sheet items to one of the four weighted risk categories, with
higher levels of capital being required for the categories perceived as
representing the greater risks, and established a minimum risk-based capital
ratio of 8% (of which at least 4% must be Tier I). An institution's risk-based
capital ratio is determined by dividing its
62
<PAGE>
qualifying capital by its risk-weighted assets. The guidelines make regulatory
capital requirements more sensitive to differences in risk profiles among
banking institutions, take off-balance sheet items into account in assessing
capital adequacy, and minimize disincentives to holding liquid, low-risk assets.
Banking organizations are generally expected to operate with capital positions
well above the minimum rates. Institutions with higher levels of risk, or which
experience or anticipate significant growth, are also expected to operate well
above minimum capital standards. At December 31, 1997, Jersey satisfies these
ratios and has been categorized as a well-capitalized institution which in the
regulatory framework for prompt corrective action imposes the lowest level of
supervisory restraints.
Capital adequacy guidelines focus principally on broad categories of
credit risk although the framework for assigning assets and off-balance sheet
items to risk categories does incorporate elements of transfer risk. The
risk-based capital ratio does not, however, incorporate other factors that may
affect a company's financial condition, such as overall interest rate exposure,
liquidity, funding and market risks, the quality and level of earnings,
investment or loan concentrations, the quality of loans and investments, the
effectiveness of loan and investment policies and management's ability to
monitor and control financial and operating risks.
The federal regulatory agencies have also adopted a minimum leverage ratio
which is intended to supplement risk-based capital requirements and to insure
that all financial institutions continue to maintain a minimum level of capital.
Current regulations stipulate that banks maintain a minimum level of Tier I
capital to total assets. The most highly rated banks in terms of safe and sound
operation that are not experiencing or anticipating significant growth are
required to have Tier I capital equal to at least 3% of total assets. All other
banks are expected to maintain a minimum leverage capital ratio (i.e., Tier I
capital divided by total assets) in excess of the 3% minimum level. The FDIC
regulations require a financial institution to maintain a minimum ratio of 4% to
5%, depending on the condition of the institution. Jersey's leverage ratio was
8.43% at December 31, 1997.
Security Ownership of Certain Beneficial Owners and Management of Jersey
On the Record Date, there were 456,270 shares of Jersey Common Stock
issued and outstanding and no shares held in the treasury. Only shareholders of
record as of the Record Date shall be entitled to vote at the Special Meeting
and each share is entitled to one vote. As of the Record Date, Jersey's Board of
Directors and affiliated entities owned or controlled (excluding options)
approximately 48% of the outstanding shares of Jersey Common Stock. In
connection with the execution of the Merger Agreement, all of the directors of
Jersey agreed to vote in favor of the Merger Agreement. As of the Record Date,
there were no executive officers of Jersey who are not also directors.
63
<PAGE>
The following table sets forth information with respect to the
beneficial ownership of Jersey Common Stock as of the Record Date, and the
number and percentage of outstanding shares of Interchange Common Stock into
which such shares would be converted in the Merger, by (i) each person known by
Jersey to own beneficially more than 5% of the outstanding Jersey Common Stock,
(ii) each current director of Jersey, and (iii) all executive officers and
directors of Jersey as a group. Except as otherwise indicated, each of the
persons named below has sole voting and investment power with respect to the
Jersey Common Stock owned by them.
<TABLE>
<CAPTION>
Percent
of
Inter-
Total Percent of change
Common Total Common
Beneficial Beneficial Preferred Stock and Common Shares of Stock
Ownership Percent of Ownership Percent of Stock Assumed and Assumed Interchange to be
of Jersey Jersey of Jersey Jersey Assuming Converted Converted Common Stock held
Common Common Preferred Preferred Conversion Preferred Preferred to be Post
Name Stock Stock (1) Stock (2) Stock (2) to Common (3) Stock Stock Received (4) Merger
- -------------------- ---------- ---------- ---------- ---------- ------------- ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Richard A. Gilsenan 17,128 3.8 5,003 6.8 4,350 21,478 4.1 32,217 *
Clyde C. Britt 16,453 3.6 -- -- -- 16,453 3.2 24,680 *
Charles E. Clark 24,895 5.5 2,500 3.4 2,174 27,069 5.2 40,604 *
Elias E. Eliasof 21,576 4.7 5,000 6.8 4,348 25,924 5.0 38,886 *
Wilson Kaplen 52,254 11.5 6,750 9.2 5,869 58,123 11.2 87,185 1.3
William C. Ledgerwood 6,858 1.5 430 * 374 7,232 1.4 10,848 *
Nathan R. Levine 18,276 4.0 2,000 2.7 1,739 20,015 3.8 30,023 *
Jerome J. Lombardo 17,322 3.8 -- -- -- 17,322 3.3 25,983 *
Arthur R. Odabash 25,368 5.6 7,750 10.5 6,739 32,107 6.2 48,161 *
Stanley H. Marcus 2,322 * -- -- -- 2,322 * 3,483 *
Lois E. Marshall 6,507 1.4 -- -- -- 6,507 1.3 9,761 *
Ralph J. Padovano 2,808 * -- -- -- 2,808 * 4,212 *
Edwina Palmisano 6,787 1.5 -- -- -- 6,787 1.3 10,181 *
Directors and
executive officers
as a group 218,554 47.9 29,433 40.0 25,593 244,147 46.9 366,224 5.3
- ----------
</TABLE>
* Does not exceed one percent of class
(1) Does not include Jersey Preferred Stock, each share of which is
convertible into 0.8695 shares of Jersey Common Stock immediately prior to
the Effective Time. Holders of Jersey Preferred Stock have no vote until
the Jersey Preferred Stock is converted into Jersey Common Stock.
(2) Holders of Jersey Preferred Stock have no vote until the Jersey Bank
Preferred Stock is converted into Jersey Common Stock.
(3) The Conversion Agreements entered into pursuant to the Merger Agreement
provide for the conversion of Jersey Preferred Stock into Jersey Common
Stock immediately prior to the Effective Time at a conversion ratio of
0.8695.
(4) Assumes each share of Jersey Common Stock and converted Preferred stock
issued and outstanding immediately prior to the Effective Time is
converted into 1.5 shares of Interchange Common Stock.
Certain Transactions of Jersey
At the close of the fiscal year ending December 31, 1997, loans outstanding to
affiliates of Jersey totaled $3.6 million. Jersey paid to the law firm of
Beattie Padovano, LLC for legal services rendered as special legal counsel to
Jersey, both in connection with the merger and with other unrelated matters,
fees of $31 thousand during fiscal year ending December 31, 1997, and $63
thousand in 1998 to date. Ralph Padovano, a member of the Board of Directors of
Jersey, is a partner in the law firm of Beattie Padovano.
64
<PAGE>
DESCRIPTION OF INTERCHANGE COMMON STOCK
The authorized capital stock of Interchange consists of 15,000,000 shares
of Interchange common stock and 1,000,000 shares of preferred stock ("Preferred
Stock"). As of December 31, 1997, there were 6,360,588 shares of Interchange
Common Stock issued and outstanding, adjusted retroactively to give effect to a
3 for 2 split (effective April 17, 1998) approved February 26, 1998 by
Interchange's Board, and there were no shares of Preferred Stock outstanding.
General
Interchange is a New Jersey general business corporation governed by the
New Jersey Business Corporation Act and a registered bank holding company under
the Bank Holding Company Act. The following description of Interchange Common
Stock sets forth certain general terms of Interchange Common Stock. See
"Comparison of the Rights of Shareholders of Interchange and Jersey" for
additional information relevant to an understanding of the capital stock of
Interchange, including a description of the New Jersey Shareholders Protection
Act, which restricts certain transactions involving an "interested shareholder"
and a "resident domestic corporation".
Dividend Rights
Holders of Interchange Common Stock are entitled to dividends when, as and
if declared by the Board of Directors of Interchange out of funds legally
available for the payment of dividends. The only statutory limitation is that
such dividends may not be paid when Interchange is insolvent. Because funds for
the payment of dividends by Interchange must come primarily from the earnings of
Interchange's bank subsidiary, as a practical matter, any restrictions on the
ability of Bank to pay dividends will act as restrictions on the amount of funds
available for payment of dividends by Interchange.
The Banking Act provides that a New Jersey state chartered bank may
declare and pay dividends on its outstanding stock as long as, following the
payment of such dividend, the capital stock of the bank will be unimpaired and
the bank will have a surplus of not less than 50% of its capital stock or, if
not, the payment of such dividend will not reduce the surplus of the bank.
Interchange is also subject to the certain Federal Reserve Board policies
which may, in certain circumstances, limit its ability to pay dividends. These
policies require, among other things, that a bank holding company maintain a
minimum capital base. The Federal Reserve Board would most likely seek to
prohibit any dividend payment which would reduce a holding company's capital
below these minimum amounts.
Voting Rights
At meetings of shareholders, holders of Interchange Common Stock are
entitled to one vote per share. The quorum for shareholders' meeting is a
majority of the outstanding shares. Except as indicated below, actions and
authorizations to be taken or given by shareholders generally require the
approval of a majority of the votes cast by holders of Interchange Common Stock
at a meeting at which a quorum is present.
The Board of Directors is divided into three classes of directors, each
class being as nearly equal in number of directors as possible. Approximately
one-third of the entire Board of Directors is elected each year and the
directors serve for terms of up to three years and, in all cases, until their
respective successors are duly elected and qualified. The exact number of
directors and the number
65
<PAGE>
constituting each class is fixed from time to time by resolution adopted by a
majority of the entire Board of Directors.
Interchange's Certificate of Incorporation contains a "minimum price"
provision. No "Business Combination" (as defined in the Certificate of
Incorporation) between Interchange and an "Interested Shareholder" (as defined
in the Certificate of Incorporation to mean holders, directly or indirectly, of
more than 10% of Interchange's outstanding voting stock) and/or an "Affiliate"
(as defined in the Certificate of Incorporation) of an Interested Shareholder is
or may be consummated unless (i) the proposed Business Combination is first
approved by at least 80% of the then outstanding shares of capital stock of
Interchange entitled to vote on the election of directors or (ii) the proposed
Business Combination is first approved by a majority of "Continuing Directors"
(defined in the Certificate of Incorporation as directors (other than the
Interested Shareholder) who became directors prior to the time the Interested
Shareholder became an Interested Shareholder, or who were subsequently nominated
for director by a majority of other Continuing Directors) or (iii) the holders
of Interchange Common Stock are offered consideration in an amount equal to or
in excess of an amount determined in accordance with the formula contained in
the Certificate of Incorporation, and the consideration for such Interchange
Common Stock is in the form described in the Certificate of Incorporation.
Interchange has in the past paid dividends and issued capital stock in
accordance with the requirements described in the Certificate of Incorporation,
an Interested Shareholder has not received special treatment from Interchange
and a proxy or information pertaining to the proposed Business Corporation has
been delivered to the shareholders of Interchange in accordance with the
requirements set forth in the Certificate of Incorporation.
Liquidation Rights
In the event of liquidation, dissolution or winding up of Interchange,
holders of Interchange Common Stock are entitled to share equally and ratably in
assets available for distribution after payment of debts and liabilities.
Assessment and Redemption
All outstanding shares of Interchange Common Stock are fully paid and
nonassessable. The Interchange Common Stock is not redeemable at the option of
the issuer or the holders thereof.
Other Matters
Interchange can issue new shares of authorized but unissued Interchange
Common Stock or Preferred Stock without shareholder approval.
66
<PAGE>
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF JERSEY AND INTERCHANGE
Jersey is a New Jersey capital stock savings bank incorporated under the
New Jersey Banking Act of 1948, as amended (the "Banking Act"), and Interchange
is a business corporation incorporated in New Jersey under the New Jersey
Business Corporation Act (the "NJBCA"). The rights of Jersey shareholders are
currently governed by New Jersey banking law. At the Effective Time, each Jersey
shareholder will become a shareholder of Interchange and the rights of
shareholders of Interchange are governed by New Jersey corporate law. The
following is a comparison of certain provisions of New Jersey corporate law and
New Jersey banking law and the respective certificates of incorporation and
by-laws of each of Jersey and Interchange. This summary does not purport to be
complete and is qualified in its entirety by reference to the Banking Act and
the NJBCA, which statutes may change from time to time, and the Certificate of
Incorporation of Interchange, which also may be changed.
Jersey
Voting Requirements
The Banking Act generally provides that an amendment to the certificate of
incorporation of a New Jersey state chartered savings bank requires the
affirmative vote of two-thirds of the outstanding stock entitled to vote
thereon. The Banking Act provides that a New Jersey state chartered savings bank
conversion into, merger into, or consolidation with, a national bank or another
New Jersey state chartered savings bank requires the affirmative vote of
two-thirds of the bank's capital stock entitled to vote. Jersey's Certificate of
Incorporation does not contain greater vote provisions than those required by
the Banking Act.
All shareholder voting rights of Jersey are vested in the holders of the
Jersey Common Stock. All shareholder voting rights of Jersey are vested in the
holders of the Jersey Common Stock.
Cumulative Voting
Under the Banking Act, there is no ability for a New Jersey state
chartered savings bank to provide for cumulative voting.
Classified Board of Directors
Under the Banking Act, a New Jersey state chartered savings bank must have
a classified board of directors.
Rights of Dissenting Shareholders
Generally, shareholders of a New Jersey state chartered savings bank who
dissent from a conversion, merger or consolidation of the bank are entitled to
appraisal rights. The shareholders of Jersey have statutory rights of appraisal
with respect to the Merger. See "The Proposed Merger -- Rights of Dissenting
Jersey Shareholders."
Shareholder Consent to Corporate Action
The Banking Act provides that any action required or permitted to be taken
at a meeting of shareholders may be taken without a meeting if the shareholders
unanimously consent in writing.
67
<PAGE>
Dividends
The Banking Act provides that a New Jersey state chartered savings bank
may declare and pay dividends on its outstanding stock so long as, following the
payment of such dividend, the capital stock of the bank will be unimpaired and
the bank will have a surplus of not less than fifty percent of its capital stock
or, if not, the payment of such dividend will not reduce the surplus of the
bank. The Board's power to declare and issue dividends is also subject to the
oversight and approval of the New Jersey Commissioner of Banking.
By-laws
Under the Banking Act, the authority to adopt, amend, or repeal the
by-laws of a New Jersey state chartered savings bank is held exclusively by the
bank's shareholders. However, the certificate of incorporation of a New Jersey
state chartered savings bank may provide that the board of directors of the bank
may also adopt, amend or repeal by-laws, subject to the continuing right of the
shareholders of the bank to amend or repeal those by-laws.
Preemptive Rights
Shareholders of Jersey have no preemptive rights to subscribe for a pro
rata portion of any additional shares of Jersey Common Stock issued by Jersey
from time to time.
Interchange
Voting Requirements
Under the NJBCA, unless a greater vote is specified in the certificate of
incorporation, any amendment to a New Jersey corporation's certificate of
incorporation, the voluntary dissolution of the corporation, the sale or other
disposition of all or substantially all of a corporation's assets otherwise than
in the ordinary course of business or the merger or consolidation of the
corporation with another corporation, requires in each case the affirmative vote
of a majority of the votes cast by shareholders of the corporation entitled to
vote thereon. Interchange's Certificate of Incorporation does not presently
contain provisions specifying a greater vote in certain circumstances.
Under the NJBCA, the holders of a class or series of shares are entitled
to vote as a class upon a proposed amendment to the certificate of
incorporation, whether or not entitled to vote thereon by the provisions of the
certificate of incorporation, if the amendment would exclude or limit their
right to vote on any matter, limit or deny their preemptive rights, cancel or
otherwise adversely affect their dividends which have accrued but have not been
declared, create a new class or series having or convertible into shares having
rights or preferences superior to the class or increase the rights or preference
of any class or series. In addition, notwithstanding any provision of the
certificate of incorporation, the holders of a class or series of shares whose
rights or preferences would be subordinated or otherwise adversely affected by a
proposed amendment are entitled to vote as a class if the amendment would affect
their shares in the following manner: (i) decrease the par value; (ii) effect a
conversion, exchange or reclassification of their shares; (iii) effect a
conversion or exchange of any shares of another class or series into their class
or series; (iv) change the designation, preferences, limitations or relative
rights of their shares; (v) change the shares into a different number of shares,
or into the same number of another class or series; or (vi) divide their shares
into a series or determine the designation, preferences, limitation or relative
rights of any such series, or authorize the board to take any such action.
68
<PAGE>
Classified Board of Directors
The NJBCA permits a New Jersey corporation to provide for a classified
board in its certificate of incorporation and Interchange currently has a
classified Board of Directors. The Interchange Board is divided into three
classes, with one class of directors generally elected for three-year terms at
each annual meeting.
Rights of Dissenting Shareholders
Generally, shareholders of a New Jersey state chartered bank who dissent
from a conversion, merger or consolidation of the bank are entitled to appraisal
rights. The shareholders of Jersey have statutory rights of appraisal with
respect to the Merger. See "Rights Of Dissenting Jersey Shareholders."
Shareholders of a New Jersey corporation who dissent from a merger,
consolidation, sale of all or substantially all of the corporation's assets or
certain other corporate transactions are generally entitled to appraisal rights.
No statutory right of appraisal exists, however, where the stock of the New
Jersey corporation is (i) listed on a national securities exchange, (ii) is held
of record by not less than 1,000 holders, or (iii) where the consideration to be
received pursuant to the merger, consolidation or sale consists of cash or
securities or other obligations which, after the transaction, will be listed on
a national securities exchange or held of record by not less than 1,000 holders.
Shareholder Consent to Corporate Action
Interchange's Certificate of Incorporation provides that any action
required or permitted to be taken may only be effected at a duly called annual
or special meeting of Interchange's shareholders, except that any such action
may be taken by the unanimous written consent of Interchange shareholders
entitled to vote. Under the NJBCA, a shareholder vote on a plan of merger or
consolidation, if not conducted at a shareholders' meeting, may only be effected
by either: (i) unanimous written consent of all shareholders entitled to vote on
the issue with advance notice to any other shareholders, or (ii) written consent
of shareholders who would have been entitled to cast the minimum number of votes
necessary to authorize such action at a meeting, together with advance notice to
all other shareholders.
Dividends
Unless there are other restrictions contained in its certificate of
incorporation (and Interchange's Certificate of Incorporation presently contains
no such restriction), the NJBCA generally provides that a New Jersey corporation
may declare and pay dividends on its outstanding stock so long as the
corporation is not insolvent and would not become insolvent as a consequence of
the dividend payment. Because funds for the payment of dividends by Interchange
must come primarily from the earnings of Interchange's bank subsidiary, as a
practical matter, any restrictions on the ability of Bank to pay dividends act
as restrictions on the amount of funds available for the payment of dividends by
Interchange. At December 31, 1997, Interchange had $43.0 million available for
shareholder dividends. For a description of the regulatory restrictions on
dividend payments by Bank, see "Description of Interchange Capital Stock --
Dividend Rights."
69
<PAGE>
By-laws
Under the NJBCA, the board of directors of a New Jersey corporation has
the power to adopt, amend, or repeal the corporation's by-laws, unless such
powers are reserved in the certificate of incorporation to the shareholders
(which Interchange's Certificate of Incorporation presently does not do).
Preemptive Rights
Under the NJBCA, shareholders of New Jersey corporations have only such
preemptive rights as may be provided in the certificate of incorporation.
Interchange's Certificate of Incorporation does not provide shareholders with
preemptive rights.
Shareholder Protection Legislation
The New Jersey Shareholders Protection Act (the "NJSPA") prohibits certain
transactions involving an "interested shareholder" and a "resident domestic
corporation." An "interested shareholder" is one that is directly or indirectly
a beneficial owner of 10% or more of the voting power of the outstanding voting
stock of a resident domestic corporation. The NJSPA prohibits certain business
combinations between an interested shareholder and a resident domestic
corporation for a period of five years after the date the interested shareholder
acquired its stock, unless the business combination was approved by the resident
domestic corporation's board of directors prior to the stock acquisition date.
After the five-year period expires, the prohibition on certain business
combinations continues unless the combination is approved by the affirmative
vote of two-thirds of the voting stock not beneficially owned by the interested
shareholder, the combination is approved by the board prior to the interested
shareholder's stock acquisition date or certain fair price provisions are
satisfied.
Preferred Stock
Interchange can issue new shares of authorized but unissued Interchange
Common Stock or preferred stock without shareholder approval. See "Description
of Interchange Capital Stock."
LEGAL OPINION
Certain legal matters relating to the issuance of the shares of
Interchange Common Stock offered hereby and certain tax consequences of the
Merger will be passed upon by Norris, McLaughlin & Marcus, P.A. counsel to
Interchange.
EXPERTS
The financial statements of Jersey included in this Proxy
Statement-Prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm, as experts in accounting and auditing in giving said
reports.
The consolidated financial statements incorporated in this Proxy
Statement-Prospectus by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF THE JERSEY BANK FOR SAVINGS
Report of Independent Public Accountants.....................................F-1
Statements of Condition as of December 31, 1997 and 1996.....................F-2
Statements of Income for the years ended
December 31, 1997, 1996 and 1995............................................F-3
Statements of Changes in Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995........................F-4
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995............................................F-5
Notes to financial statements................................................F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors of
The Jersey Bank For Savings:
We have audited the accompanying statements of condition of The Jersey Bank For
Savings (a New Jersey Chartered Savings Bank) as of December 31, 1997 and 1996,
and the related statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Jersey Bank For Savings as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 27, 1998
(Except with respect to the matter discussed in Note 16,
as to which the date is February 26, 1998.)
F-1
<PAGE>
THE JERSEY BANK FOR SAVINGS
STATEMENTS OF CONDITION -- DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
----------- -----------
CASH AND DUE FROM BANKS -- Noninterest bearing $ 1,418,000 $ 1,502,000
FEDERAL FUNDS SOLD 7,000,000 6,000,000
----------- -----------
Total cash and cash equivalents 8,418,000 7,502,000
----------- -----------
DUE FROM BANKS -- INTEREST BEARING 1,968,000 1,365,000
----------- -----------
SECURITIES (Notes 2 and 3):
Available for sale, at market value 14,299,000 12,407,000
Held to maturity, at amortized cost 14,072,000 12,304,000
(aggregate market value of
$14,048,000 and $12,362,000 in 1997
and 1996, respectively)
----------- -----------
28,371,000 24,711,000
----------- -----------
LOANS (Notes 2, 4 and 5) 36,418,000 32,267,000
Less- Allowance for possible loan losses 338,000 315,000
----------- -----------
Net loans 36,080,000 31,952,000
----------- -----------
PREMISES AND EQUIPMENT, net (Notes 2 and 6) 1,677,000 1,693,000
----------- -----------
ACCRUED INTEREST RECEIVABLE 413,000 406,000
----------- -----------
OTHER ASSETS 85,000 193,000
----------- -----------
Total assets $77,012,000 $67,822,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits-
Demand-
Noninterest bearing $ 3,308,000 $ 2,160,000
Interest bearing 8,478,000 5,923,000
Savings 16,284,000 16,038,000
Time (Note 7) 42,002,000 37,503,000
----------- -----------
Total deposits 70,072,000 61,624,000
Accrued interest payable 367,000 336,000
Accrued expenses and other liabilities 213,000 175,000
----------- -----------
Total liabilities 70,652,000 62,135,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY (Notes 8 and 10):
Convertible preferred stock, 6% noncumulative
$5 par value, 300,000 shares authorized;
73,525 and 75,825 shares issued and
outstanding for 1997 and 1996, respectively
(liquidation value - $368,000) 368,000 379,000
Common stock, $5 par value, 2,000,000 shares
authorized; 455,785 and 429,894 shares issued
and outstanding for 1997 and 1996 2,279,000 2,150,000
Additional paid-in capital 2,655,000 2,495,000
Retained earnings 1,004,000 732,000
Treasury stock, at cost, 5,175 shares at
December 31, 1996 -- (58,000)
Unrealized gain (loss) on securities available
for sale, net of income taxes 54,000 (11,000)
----------- -----------
Total shareholders' equity 6,360,000 5,687,000
----------- -----------
Total liabilities and
shareholders' equity $77,012,000 $67,822,000
=========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
F-2
<PAGE>
THE JERSEY BANK FOR SAVINGS
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME (Note 2):
Interest on loans $2,787,000 $2,255,000 $2,128,000
Interest on securities and interest
bearing deposits with banks 1,998,000 1,556,000 1,434,000
Interest on Federal funds sold 367,000 303,000 203,000
---------- ---------- ----------
Total interest income 5,152,000 4,114,000 3,765,000
INTEREST EXPENSE -- Interest on deposits 3,023,000 2,380,000 2,055,000
---------- ---------- ----------
Net interest income 2,129,000 1,734,000 1,710,000
PROVISION FOR POSSIBLE LOAN LOSSES (Notes 2
and 5) 23,000 47,000 39,000
---------- ---------- ----------
Net interest income after provision
for possible loan losses 2,106,000 1,687,000 1,671,000
---------- ---------- ----------
OTHER INCOME:
Service charges on deposit accounts 120,000 107,000 100,000
Other income 46,000 28,000 26,000
---------- ---------- ----------
Total other income 166,000 135,000 126,000
---------- ---------- ----------
OTHER EXPENSES:
Salaries and employee benefits 702,000 551,000 527,000
Net occupancy expense 313,000 231,000 198,000
Other operating expenses (Note 14) 671,000 510,000 451,000
---------- ---------- ----------
Total other expenses 1,686,000 1,292,000 1,176,000
---------- ---------- ----------
Income before income taxes 586,000 530,000 621,000
PROVISION FOR INCOME TAXES 217,000 198,000 218,000
---------- ---------- ----------
Net income $ 369,000 $ 332,000 $ 403,000
========== ========== ==========
INCOME PER COMMON SHARE -- Basic (Notes 2
and 10) $ .75 $ .67 $ .83
========== ========== ==========
INCOME PER COMMON SHARE -- Diluted (Notes 2
and 10) $ .73 $ .67 $ .81
========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-3
<PAGE>
THE JERSEY BANK FOR SAVINGS
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Unrealized Gain
(Loss) on
Additional Securities Total
Preferred Common Paid-In Retained Treasury Available for Shareholders'
Stock Stock Capital Earnings Stock Sale Equity
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 $ 379,000 $ 2,142,000 $ 2,480,000 $ 190,000 -- ($ 331,000) $ 4,860,000
Issuance of 1,502 shares of -- 8,000 10,000 -- -- -- 18,000
common stock, under the
dividend reinvestment plan
(Note 8)
Purchase of 5,000 shares of -- -- -- -- $ (52,000) -- (52,000)
treasury stock
Reissuance of 4,410 shares of -- -- 5,000 -- 46,000 -- 51,000
treasury stock under the
dividend reinvestment plan
(Note 8)
Dividends-
Common stock ($.12 per share) -- -- -- (51,000) -- -- (51,000)
Preferred stock ($.60 per share) -- -- -- (46,000) -- -- (46,000)
Net income -- 1995 -- -- -- 403,000 -- -- 403,000
Change in unrealized gain (loss) -- -- -- -- -- 357,000 357,000
on securities available for
sale, net of deferred taxes
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995 379,000 2,150,000 2,495,000 496,000 (6,000) 26,000 5,540,000
Purchase of 11,488 shares of -- -- -- -- (131,000) -- (131,000)
treasury stock
Reissuance of 6,903 shares of -- -- -- -- 79,000 -- 79,000
treasury stock under the
dividend reinvestment plan
(Note 8)
Dividends-
Common stock ($.12 per share) -- -- -- (51,000) -- -- (51,000)
Preferred stock ($.60 per share) -- -- -- (45,000) -- -- (45,000)
Net income -- 1996 -- -- -- 332,000 -- -- 332,000
Change in unrealized gain (loss) -- -- -- -- -- (37,000) (37,000)
on securities available for
sale, net of deferred taxes
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1996 379,000 2,150,000 2,495,000 732,000 (58,000) (11,000) 5,687,000
Purchase of 260 shares of treasury -- -- -- -- (3,000) -- (3,000)
stock
Issuance of 8,492 shares of common -- 42,000 81,000 -- -- -- 123,000
stock under the dividend
reinvestment plan (Note 8)
Reissuance of 5,435 shares of -- -- 2,000 -- 61,000 -- 63,000
treasury stock under the
dividend reinvestment plan
(Note 8)
Conversion of 2,300 shares of (11,000) 10,000 -- -- -- -- (1,000)
preferred stock into 1,999
shares of common stock
Exercise of 15,400 stock options -- 77,000 77,000 -- -- -- 154,000
under the stock option plan
(Note 8)
Dividends-
Common stock ($.12 per share) -- -- -- (52,000) -- -- (52,000)
Preferred stock ($.60 per share) -- -- -- (45,000) -- -- (45,000)
Net income -- 1997 -- -- -- 369,000 -- -- 369,000
Change in unrealized gain (loss) -- -- -- -- -- 65,000 65,000
on securities available for
sale, net of deferred taxes
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1997 $ 368,000 $ 2,279,000 $ 2,655,000 $ 1,004,000 $ -- $ 54,000 $ 6,360,000
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-4
<PAGE>
THE JERSEY BANK FOR SAVINGS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 369,000 $ 332,000 $ 403,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Provision for possible loan losses 23,000 47,000 39,000
Loan charge-offs -- (11,000) --
Deferred tax (benefit) provision (12,000) (12,000) 26,000
Depreciation and amortization expense 114,000 68,000 75,000
Amortization of investment
securities premium/discount, net 54,000 27,000 2,000
(Increase) decrease in accrued interest
receivable (7,000) 42,000 (117,000)
(Increase) decrease in other assets 77,000 (60,000) (65,000)
Increase in accrued interest payable 31,000 89,000 100,000
Increase (decrease) in accrued expenses
and other liabilities 38,000 (29,000) 111,000
------------ ------------ ------------
Net cash provided by operating
activities 687,000 493,000 574,000
------------ ------------ ------------
INVESTING ACTIVITIES:
Net (increase) decrease in due from banks
-- interest bearing (603,000) 421,000 1,361,000
Purchases of securities-
Available for sale (5,767,000) (7,900,000) (3,500,000)
Held to maturity (5,331,000) (3,982,000) (2,523,000)
Proceeds from sale of available for
sale securities -- -- 1,101,000
Proceeds from maturities and repayments
of securities-
Available for sale 3,929,000 6,693,000 1,799,000
Held to maturity 3,563,000 1,895,000 1,626,000
Net increase in loans (4,151,000) (5,861,000) (2,232,000)
Capital expenditures (98,000) (906,000) (673,000)
------------ ------------ ------------
Net cash used for investing
activities (8,458,000) (9,640,000) (3,041,000)
------------ ------------ ------------
FINANCING ACTIVITIES:
Net increase in deposits 8,448,000 10,852,000 5,143,000
Proceeds from the issuance of common stock 245,000 -- 4,000
Proceeds from the sale of treasury shares 45,000 23,000 9,000
Purchase of treasury shares (3,000) (131,000) (52,000)
Cash dividends paid (48,000) (40,000) (41,000)
------------ ------------ ------------
Net cash provided by financing
activities 8,687,000 10,704,000 5,063,000
------------ ------------ ------------
Increase in cash and cash equivalents 916,000 1,557,000 2,596,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,502,000 5,945,000 3,349,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,418,000 $ 7,502,000 $ 5,945,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for-
Interest $ 2,992,000 $ 2,291,000 $ 1,955,000
Income taxes 136,000 238,000 205,000
============ ============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-5
<PAGE>
THE JERSEY BANK FOR SAVINGS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) NATURE OF OPERATIONS:
The Jersey Bank For Savings (the "Bank") provides community banking
services primarily to small to medium-size businesses and the professional
community, as well as individuals residing in Northeastern Bergen County,
New Jersey.
(2) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
A summary of significant accounting policies of the Bank applied in the
preparation of the accompanying financial statements follows.
Use of Estimates in the
Preparation of Financial Statements-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. The most significant estimates with regard to
these financial statements relate to the allowance for possible loan
losses and the fair value of financial instruments.
Securities-
Debt securities for which the Bank has both the positive intent and
ability to hold to maturity are carried at amortized cost. Debt
securities that the Bank does not have the positive intent and ability
to hold to maturity and all marketable equity securities, are
classified as available for sale and carried at fair value. Unrealized
holding gains and losses on securities classified as available for
sale are carried as a separate component of shareholders' equity, net
of tax.
Management determines the appropriate classification of debt
securities at the time of purchase. The amortized cost of debt
securities classified as held to maturity or available for sale is
adjusted for amortization of premiums and accretion of discounts to
maturity. Realized gains and losses, and declines in value other than
temporary, are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.
For securities in the Bank's held to maturity and available for sale
portfolios, fair value is determined by reference to quoted market
prices. If quoted market prices are not available, fair value is
estimated using quoted market values for similar securities. The Bank
had no securities held for trading purposes as of December 31, 1997 or
1996.
F-6
<PAGE>
Allowance For Possible Loan Losses-
The allowance for possible loan losses is maintained at a level
considered adequate to provide for potential loan losses. The
allowance is increased by provisions charged to expense and reduced by
net charge-offs. The level of the allowance is based on management's
evaluation of potential losses in the loan portfolio after
consideration of appraised collateral values, financial condition of
the borrowers, as well as prevailing and anticipated economic
conditions. Credit reviews of the loan portfolio, designed to identify
potential charges to the allowance, are made on a periodic basis
during the year by senior management.
Impaired Loans-
The Bank evaluates loans held in its portfolio for impairment, as
defined. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's original effective
interest rate. As a practical expedient, impairment may be measured
based on the loans observable market price or the fair value of the
collateral if the loan is collateral dependent. When the measure of
the impaired loan is less than the recorded investment in the loan,
the impairment is recorded through a valuation allowance.
Premises and Equipment-
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed primarily on
the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized on a straight-line basis
over the lives of the related leases, or the life of the improvement,
whichever is shorter.
Interest on Loans-
Interest on loans is credited to operations based upon the principal
amount outstanding. Net loan origination fees are deferred and
amortized over the life of the related loan as an adjustment to the
loan yield. When management believes there is sufficient doubt as to
the ultimate collectibility of interest on any loan, the accrual of
applicable interest is discontinued.
Income Taxes-
The Bank uses the liability method of computing deferred income taxes.
Deferred income taxes are recognized for tax consequences of
"temporary differences" by applying enacted statutory tax rates,
applicable to future years, to differences between the financial
reporting and the tax basis of existing assets and liabilities.
F-7
<PAGE>
Stock Options-
Effective January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based
Compensation." The Bank continues to apply APB Opinion 25 and related
Interpretations in accounting for stock options granted to employees
and directors and has elected to adopt only the disclosure
requirements of SFAS No.123, as permitted. The Bank had no options
granted in 1997 and 1996, therefore, no additional disclosures were
required in the 1997 financial statements for SFAS No. 123.
Cash and Cash Equivalents-
Cash and cash equivalents includes cash on hand, noninterest bearing
amounts due from banks and Federal funds sold. Generally, Federal
funds are sold for a one-day period.
Earnings Per Share-
The Bank adopted SFAS No. 128, "Earnings per Share" effective December
15, 1997. In accordance with this new accounting standard, basic
earnings per share is computed based on the weighted average number of
shares outstanding for the periods presented. Diluted earnings per
share is computed based on the weighted average number of shares
outstanding of the period presented adjusted for the effect of the
Bank's convertible preferred stock and stock options outstanding, if
dilutive. The Bank restated previous reporting earnings per share for
1996 and 1995 as required by this new accounting standard.
Dividend Restrictions-
New Jersey state law permits the payment of dividends to the
shareholders to the extent that the bank will have a surplus of not
less than 50% of its capital stock or if not, payment of the dividend
will not reduce its surplus.
New Financial Accounting Standards-
The Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income," in June 1997. This statement is
effective for years beginning after December 15, 1997. Statement No.
130 requires entities that present a complete set of financial
statements to include the components of comprehensive income.
Comprehensive income consists of net income or loss for the current
period and revenues, expenses, gains and losses that bypass the income
statement and are reported as a component of equity. The effect of
adopting Standards No.130 is not expected to be material to the Bank's
results of operations or financial position.
Also in June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information", which is effective for all periods beginning
after December 15, 1997. Statement No. 131 requires that public
companies report certain information about operating segments in
complete sets of financial statements of the enterprise and in
condensed financial statements of interim periods issued to
shareholders. It also requires that public companies report certain
information about their products and services, the geographic areas in
which they operate, and their major customers. Management is currently
evaluating the disclosures impact of SFAS No. 131 on its financial
statements and has not determined if it has any reportable segments.
F-8
<PAGE>
(3) SECURITIES:
Information with regard to the Bank's securities portfolio at December 31
is as follows-
1997
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
Available for sale
Mortgage backed securities $10,756,000 $ 111,000 ($ 12,000) $10,855,000
Other securities 3,451,000 5,000 (12,000) 3,444,000
----------- ----------- ----------- -----------
Subtotals 14,207,000 116,000 (24,000) 14,299,000
Held to maturity
Mortgage backed securities 14,072,000 47,000 (71,000) 14,048,000
----------- ----------- ----------- -----------
Totals $28,279,000 $ 163,000 ($ 95,000) $28,347,000
=========== =========== =========== ===========
1996
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
Available for sale
Mortgage backed securities $ 8,068,000 $ 52,000 ($ 45,000) $ 8,075,000
Other securities 4,357,000 5,000 (30,000) 4,332,000
----------- ----------- ----------- -----------
Subtotals 12,425,000 57,000 (75,000) 12,407,000
Held to maturity
Mortgage backed securities 12,304,000 80,000 (22,000) 12,362,000
----------- ----------- ----------- -----------
Totals $24,729,000 $ 137,000 ($ 97,000) $24,769,000
=========== =========== =========== ===========
The amortized cost and estimated market value of debt securities at
December 31, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Amortized Estimated
Cost Market Value
----------- ------------
Due in one year through five years $2,500,000 $ 2,493,000
Due in more than five years 500,000 500,000
Mortgage-backed securities 24,828,000 24,903,000
Other securities 451,000 451,000
----------- ------------
$28,279,000 $ 28,347,000
=========== ============
As of December 31, 1997 and 1996, securities having carrying values of
$186,000 and $214,000, respectively, were pledged to secure public funds or
for other purposes as required by law.
F-9
<PAGE>
(4) LOANS:
Loans outstanding by classification at December 31 are as follows-
1997 1996
------------ ------------
Loans secured by real estate-
Residential $ 26,096,000 $ 24,719,000
Commercial 7,129,000 4,453,000
Construction 2,255,000 1,385,000
Loans to individuals 972,000 1,757,000
Unearned income (34,000) (47,000)
------------ ------------
$ 36,418,000 $ 32,267,000
============ ============
As of December 31, 1997, the Bank had no impaired loans. As of December 31,
1996, the balance of impaired loans, which are defined as nonaccrual or
nonperforming loans (past due over 90 days), was $443,000. The fair value
of the collateral of these loans exceeded the Bank's respective recorded
investments, therefore, no valuation allowance was necessary.
Activity for 1997 related to loans to directors, executive officers and
their affiliated interests is as follows-
Balance, beginning of year $ 4,271,000
Loans granted 1,061,000
Repayments of loans (1,736,000)
-----------
Balance, end of year $ 3,596,000
===========
All such loans are current as to principal and interest payments as of
December 31, 1997.
(5) ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The allowance for possible loan losses is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reflected in
operations in the periods in which they become known.
An analysis of the allowance for possible loan losses is as follows-
1997 1996 1995
--------- --------- ---------
Balance, beginning of year $ 315,000 $ 279,000 $ 240,000
Provision charged to expense 23,000 47,000 39,000
Loan charge offs -- (11,000) --
--------- --------- ---------
Balance, end of year $ 338,000 $ 315,000 $ 279,000
========= ========= =========
F-10
<PAGE>
(6) PREMISES AND EQUIPMENT:
Premises and equipment consists of the following as of December 31-
1997 1996
---------- ----------
Land $ 581,000 $ 581,000
Building 837,000 767,000
Furniture and equipment 498,000 472,000
Leasehold improvements 332,000 327,000
---------- ----------
2,248,000 2,147,000
Less- Accumulated depreciation and amortization 571,000 454,000
---------- ----------
$1,677,000 $1,693,000
========== ==========
(7) DEPOSITS:
Time deposits in denominations of $100,000 or more totaled $12,367,000 and
$9,973,000 at December 31, 1997 and 1996, respectively.
Scheduled maturities of certificates of deposits are as follows-
Year Ended December 31, 1997
----------------------------------------------------------
Over Three Over One
Three Months Year Over
Months or Through Through Three
Less Twelve Months Three Years Years Total
----------- ------------- ----------- -------- -----------
$100,000 or more $ 7,171,000 $ 3,774,000 $ 1,089,000 $333,000 $12,367,000
Less than $100,000 11,108,000 14,166,000 3,654,000 707,000 29,635,000
Year Ended December 31, 1996
----------------------------------------------------------
Over Three Over One
Three Months Year Over
Months or Through Through Three
Less Twelve Months Three Years Years Total
----------- ------------- ----------- -------- -----------
$100,000 or more $ 5,882,000 $ 2,959,000 $ 504,000 $628,000 $ 9,973,000
Less than $100,000 10,148,000 11,808,000 5,087,000 487,000 27,530,000
(8) SHAREHOLDERS' EQUITY:
Stock Option Plan-
In June, 1990, under the Bank's stock option plan (the Plan) the Bank
granted 17,000 options to certain executives for the purchase of
common stock. The options become exercisable ratably over a five-year
period and are exercisable over a ten-year period at a price of $10
per share. At December 31, 1997, all 17,000 had been exercised or
expired.
F-11
<PAGE>
Convertible Preferred Stock-
During 1993 and 1994, the Bank issued a total of 75,825 shares of 6%
noncumulative convertible preferred stock at a price of $10 per share.
Each share of preferred stock is convertible, at the holders' option,
into one share of common stock of the Bank at a conversion price of
$11.50 per share. During 1997, 2,300 shares were converted. No shares
were converted in 1996.
Dividend Reinvestment Plan-
During 1993, the Bank instituted a common and preferred stock dividend
reinvestment plan (the Plan) by which shareholders may use their cash
dividends to purchase common stock of the Bank at $11.50 per share. In
addition to the reinvestment of cash dividends, shareholders may make
optional payments to the Plan in amounts not less than $100 and not
more than $5,000 per quarter, for the purchase of common stock of the
Bank. During 1997 and 1996, 13,927 and 6,903 shares of common stock
were purchased under this plan.
(9) INCOME TAXES:
The components of the income tax provision are as follows-
Year Ended December 31
-----------------------------------
1997 1996 1995
--------- --------- ---------
Federal income taxes (benefit)-
Current $ 211,000 $ 195,000 $ 174,000
Deferred (12,000) (12,000) 26,000
State 18,000 15,000 18,000
--------- --------- ---------
$ 217,000 $ 198,000 $ 218,000
========= ========= =========
Temporary differences result from accounting for certain income and expense
items in different time periods for financial statement purposes than for
income tax return purposes. Cumulative temporary differences at December
31, 1997 and 1996 are as follows-
Asset (Liability)
--------------------
1997 1996
-------- --------
Allowance for possible loan losses $ 80,000 $ 75,000
Deferred fee income 45,000 41,000
Depreciation (81,000) (42,000)
Unrealized (gain) loss on securities
available for sale (38,000) 7,000
Other -- (3,000)
-------- --------
Deferred tax asset $ 6,000 $ 78,000
======== ========
The Bank believes the existing net deductible temporary differences will
reverse during periods in which the Bank generates sufficient net taxable
income, accordingly, management has not recorded a valuation allowance as
of December 31, 1997 and 1996.
The difference between the provision for income taxes computed by applying
the Federal income tax rate of 34% and the effective tax rate for 1997,
1996 and 1995 is primarily the result of state tax expense, net of the
Federal benefit.
F-12
<PAGE>
(10) EARNINGS PER SHARE DISCLOSURES:
The following is a reconciliation of basic and dilutive earnings per share-
For the Year Ended December 31, 1997
------------------------------------
Weighted
Average Income
Income Shares Per Share
--------- --------- ---------
Net Income $ 369,000
Less - Preferred stock dividends (45,000)
---------
Net income per share - Basic income
available to common shareholders 324,000 433,842 $ 0.75
=========
Effect of dilutive securities-
Add-Preferred stock dividends 45,000
Convertible preferred shares 65,269
Options granted to employees 4,834
--------- ---------
Net income per share - Diluted income
available to common shareholders plus
assumed conversions $ 369,000 503,945 $ 0.73
========= ========= =========
For the Year Ended December 31, 1996
------------------------------------
Weighted
Average Income
Income Shares Per Share
--------- --------- ---------
Net Income $ 332,000
Less - Preferred stock dividends (45,000)
---------
Net income per share - Basic income
available to common shareholders 287,000 425,854 $ 0.67
=========
Effect of dilutive securities-
Add-Preferred stock dividends 45,000
Convertible preferred shares 65,930
Options granted to employees 2,217
--------- ---------
Net income per share - Diluted income
available to common shareholders plus
assumed conversions $ 332,000 494,001 $ 0.67
========= ========= =========
F-13
<PAGE>
For the Year Ended December 31, 1995
------------------------------------
Weighted
Average Income
Income Shares Per Share
--------- --------- ---------
Net Income $ 403,000
Less - Preferred stock dividends (46,000)
---------
Net income per share -- Basic income
available to common shareholders 357,000 428,179 $ 0.83
=========
Effect of dilutive securities-
Add-Preferred stock dividends 46,000
Convertible preferred shares 65,930
Options granted to employees 2,217
--------- ---------
Net income per share - Diluted income
available to common shareholders plus
assumed conversions $ 403,000 496,326 $ 0.81
========= ========= =========
(11) REGULATORY CAPITAL REQUIREMENTS:
The Bank is subject to various regulatory capital requirements administered
by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional,
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classifications are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of Total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets
(as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based; Tier I risk-based; and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the institutions' category.
F-14
<PAGE>
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ --------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997-
Total capital (to Risk
Weighted Assets) $6,644,000 20.81% => $2,554,000 => 8.00% => $3,193,000 => 10.00%
Tier I Capital (to Risk
Weighted Assets) 6,306,000 19.75% => 1,277,000 => 4.00% => 1,916,000 => 6.00%
Tier I Capital (to
Average Assets) 6,306,000 8.43% => 2,991,000 => 4.00% => 3,739,000 => 5.00%
As of December 31, 1996-
Total capital (to Risk
Weighted Assets) 6,012,000 20.36% => 2,362,000 => 8.00% => 2,953,000 => 10.00%
Tier I Capital (to Risk
Weighted Assets) 5,697,000 19.29% => 1,181,000 => 4.00% => 1,772,000 => 6.00%
Tier I Capital
(to Average Assets) 5,697,000 9.39% => 2,427,000 => 4.00% => 3,034,000 => 5.00%
</TABLE>
(12) BENEFIT PLAN:
The Bank maintains a 401(k) plan for all employees who complete one year of
service and attain the age of 21. Under the plan, the Bank will match 50%
of the employee contributions up to a maximum of the first 4% of
compensation deferred. Bank contributions are 100% vested when made. During
1997, 1996 and 1995, Bank contributions were approximately $7,000, $4,000
and $3,000, respectively.
(13) COMMITMENTS AND CONTINGENCIES:
The Bank currently leases its main office for a period of ten years with
options to renew for five five-year periods. The future minimum rental
payments are as follows-
Lease Year
1998 $65,000
1999 65,000
2000 65,000
2001 65,000
2002 65,000
Thereafter 1,170,000
----------
Total $1,495,000
==========
The above amounts represent the minimum rentals not adjusted for possible
future increases due to escalation provisions and assumes that all option
periods will be exercised by the Bank.
Total rent expense was $68,000, $66,000 and $63,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
The statement of condition does not reflect various commitments relating to
financial instruments which are used in the normal course of business.
Management does not anticipate that the settlement of those financial
instruments will have a material adverse effect on the Bank's financial
position. These instruments include commitments to extend credit and
letters of credit. These financial instruments carry various degrees of
credit risk, which is
F-15
<PAGE>
defined as the possibility that a loss may occur from the failure of
another party to perform according to the terms of the contract.
The Bank may, in the ordinary course of business, become a party to
litigation involving collection matters, contract claims and other legal
proceedings relating to the conduct of its business. The Bank also has
various commitments and contingent liabilities, including unused loan
commitments of approximately $6,587,000 which are not reflected in the
accompanying statement of condition. In management's judgment, the
financial position of the Bank will not be affected materially by the final
outcome of any present legal proceedings or other contingent liabilities
and commitments.
(14) OTHER OPERATING EXPENSES:
The components of other operating expenses for the year ended December 31,
are as follows-
1997 1996 1995
-------- -------- --------
Insurance $ 27,000 $ 26,000 $ 32,000
Marketing 46,000 75,000 38,000
Computer services 170,000 131,000 119,000
Regulatory, professional and other fees 133,000 71,000 66,000
Office expense 57,000 43,000 41,000
All other 238,000 164,000 155,000
-------- -------- --------
$671,000 $510,000 $451,000
======== ======== ========
(15) FAIR VALUE OF
FINANCIAL INSTRUMENTS:
The following is a summary of fair value versus the carrying value of the
Bank's financial instruments. For the Bank, as for most financial
institutions, the bulk of its assets and liabilities are considered
financial instruments. Many of the Bank's financial instruments lack an
available trading market as characterized by a willing buyer and willing
seller engaging in an exchange transaction. It is also the Bank's general
practice and intent to hold its financial instruments to maturity and not
engage in trading or sales activities. Therefore, significant estimations
and present value calculations were used by the Bank for the purpose of
this disclosure.
Estimated fair values have been determined by the Bank using the best
available data and an estimation methodology suitable for each category of
financial instruments. Financial instruments actively traded in the
secondary market have been valued using available market prices. The
estimation methodologies used, the estimated fair values, and the recorded
book balances, were as follows-
F-16
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $8,418,000 $8,418,000 $7,502,000 $7,502,000
Securities available for sale,
including accrued
interest receivable 14,314,000 (1) 14,406,000 12,548,000 (1) 12,530,000
Securities held to maturity,
including accrued
interest receivable 14,171,000 14,147,000 12,400,000 12,458,000
Loans, including accrued
interest receivable 36,657,000 37,010,000 32,499,000 32,551,000
Deposits, including
accrued interest payable 70,439,000 70,449,000 61,960,000 61,982,000
</TABLE>
(1) Securities available for sale are carried at their estimated fair
value. This amount represents amortized cost at December 31, 1997 and
1996. See Note 3.
Financial instruments with stated maturities have been valued using a
present value discounted cash flow with a discount rate approximating
current market for similar assets and liabilities. For those loans and
deposits with floating interest rates, it is assumed that estimated fair
values generally approximate the recorded book balances.
There is no material difference between the notional amount and the
estimated fair value of off-balance sheet unfunded loan commitments which
totaled $6,587,000 and $6,108,000 at December 31, 1997 and 1996,
respectively. Standby letters of credit totaling $64,000 and $97,000 as of
December 31, 1997 and 1996, respectively, are based on fees charged for
similar agreements; accordingly, the estimated fair value of standby
letters of credit is nominal. See also Note 13 for additional discussion
relating to these off-balance sheet activities.
(16) MERGER AGREEMENT:
On January 27, 1998, the Bank entered into an agreement and plan of merger
(the "Merger Agreement") with Interchange Financial Services Corporation
and Interchange State Bank (collectively "Interchange") providing for the
merger (the "Merger") of the Bank with Interchange. The Merger Agreement
provides that shareholders of the Bank will receive for each share of the
Bank's common stock, 1.5 shares of common stock of Interchange, after
giving effect to the 3 for 2 split of the common stock of Interchange,
which was approved on February 26, 1998. Holders of the Bank's preferred
stock will be given the opportunity to enter into a conversion agreement
with the Bank by which each share will convert into common shares at the
pre-determined conversion ratio of .8695 common shares for each preferred
share.
Completion of the Merger is subject to shareholder and regulatory approvals
and is expected to close in the second quarter of 1998. The Merger will be
accounted for as a pooling of interests under generally accepted accounting
principles.
Concurrently with the execution of the Merger Agreement the Bank entered
into a stock option agreement with Interchange providing for the grant by
the Bank to Interchange of an option (the "Option") to purchase a number of
shares of the Bank's common stock not to
F-17
<PAGE>
exceed 19.9% of the common stock outstanding on January 27, 1998. The
Option is exercisable only upon the occurrence of certain events, none of
which, to the best knowledge of the Bank, has occurred.
F-18
<PAGE>
Appendix A
Agreement and Plan of Merger, dated January 27, 1998 , by and among Interchange
Financial Services Corporation, Interchange Bank (formerly known as Interchange
State Bank) and The Jersey Bank for Savings, included as Appendix A to the Proxy
Statement/Prospectus is incorporated by reference to Exhibit 10(d) to the
Interchange Annual Report on Form 10-K for the year ended December 31, 1997, and
by reference to Exhibit 2(c) hereto.
A- 1
<PAGE>
Appendix B
Stock Option Agreement, dated January 27, 1998, by and among Interchange
Financial Services Corporation and The Jersey Bank for Savings, included as
Appendix B to the Proxy Statement/Prospectus is incorporated by reference to
Exhibit 10(e) to the Interchange Annual Report on Form 10-K for the year ended
December 31, 1997.
B- 1
<PAGE>
Appendix C
April 14, 1998
PRIVATE AND CONFIDENTIAL
Board of Directors
The Jersey Bank for Savings
2-8 South Kinderkamack Road
Montvale, NJ 07645-0333
Members of the Board:
The Jersey Bank for Savings ("JERSEY") has entered into an Agreement and Plan of
Merger and Stock Option Agreement dated January 27, 1998 ("MERGER AGREEMENT")
with Interchange Financial Services Corporation ("INTERCHANGE") and Interchange
Bank (formerly known as Interchange State Bank) which provides for the
acquisition of JERSEY by means of a transaction ("MERGER") pursuant to which
JERSEY would merge with and into Interchange Bank.
If the MERGER is approved and consummated, subject to the provisions of the
MERGER AGREEMENT, each share of JERSEY Common Stock issued and outstanding shall
be converted at the Effective Time into the right to receive 1.5 shares of
Common Stock, no par value, of INTERCHANGE.
Immediately prior to the effect date, each share of JERSEY Preferred Stock, par
value $5.00 per share, shall be converted into 0.8695 shares of JERSEY Common
Stock and thereby become eligible for conversion into INTERCHANGE Common Stock
as stated above.
In lieu of the issuance of applicable fractional shares, INTERCHANGE will make a
cash payment therefor based on the Average Closing Price of INTERCHANGE Common
Stock as defined in the MERGER AGREEMENT.
You have requested our opinion as to whether the consideration offered in the
MERGER is fair, from a financial point of view, to the shareholders of JERSEY.
Capital Consultants of Princeton, Inc. ("CAPITAL CONSULTANTS"), as a customary
part of its investment banking business, is engaged in the valuation of
commercial banking and thrift institutions and their securities in connection
with mergers and acquisitions, private placements and valuations for estate,
corporate and other purposes.
In arriving at our opinion we have reviewed and analyzed, among other things:
(i) the MERGER AGREEMENT; (ii) the INTERCHANGE Registration Statement on Form
S-4 of which this Proxy Statement-Prospectus is a part; (iii) publicly available
information relating to INTERCHANGE and JERSEY including, for INTERCHANGE,
annual reports to shareholders and annual reports on Form 10-K filed with the
SEC for the years ended December 31, 1995 through 1997, the Consolidated
Financial Statements of December 31, 1997, 1996, and 1995, and the quarterly
reports to shareholders and quarterly reports on Form 10-Q filed with the SEC
for the periods ended March 31, June 30, and September 30, 1997, and for JERSEY
annual reports to shareholders for the years ended December 31, 1994 through
1996, Financial Statements as of
C- 1
<PAGE>
December 31, 1997, 1996, and 1995 together with the Report of Independent Public
Accountants and quarterly reports of Condition and Income as filed with the
Federal Deposit Insurance Corporation for the periods ended March 31, June 30,
and September 30, 1997; (iv) certain historical operating and financial
information provided to CAPITAL CONSULTANTS by the managements of JERSEY and
INTERCHANGE; (v) historical and current market data for the JERSEY Common Stock
and the INTERCHANGE Common Stock; (vi) the publicly available financial data and
stock market performance data of publicly traded banking and thrift institutions
which CAPITAL CONSULTANTS deemed generally comparable to JERSEY and INTERCHANGE;
(vii) the nature and terms of recent acquisitions and merger transactions
involving banking institutions and bank and thrift holding companies that
CAPITAL CONSULTANTS considered reasonably similar to JERSEY and INTERCHANGE in
financial character, operating character, historical performance, geographic
market and economy; and (viii) such other studies, financial forecasts,
analyses, inquiries and reports as CAPITAL CONSULTANTS deemed appropriate. In
addition, CAPITAL CONSULTANTS conducted meetings with members of senior
management of JERSEY and INTERCHANGE for purposes of reviewing the future
prospects of JERSEY and INTERCHANGE. CAPITAL CONSULTANTS evaluated the pro forma
ownership of the INTERCHANGE Common Stock by JERSEY shareholders, relative to
the pro forma contribution of JERSEY assets, deposits, equity, and earnings to
the pro forma resulting company in the MERGER. CAPITAL CONSULTANTS also took
into account its experience in other transactions, as well as its knowledge of
the banking and thrift industries and its experience in securities valuations.
In addition, we considered the future prospects of JERSEY in the event that it
remained independent.
As part of our engagement, we have prepared analyses of strategic and financial
considerations of various strategic alternatives, and we have advised JERSEY in
connection with its consideration of such alternatives. In this regard, we
approached third parties to solicit interest in a possible strategic alliance
with, or acquisition of, JERSEY. We held preliminary discussions with certain of
these parties concerning the terms of their interest, of which you are aware. At
your request, we participated with JERSEY in the negotiation of the MERGER
AGREEMENT.
While we have taken care in our investigation and analysis, we have relied upon
and assumed the accuracy, completeness and fairness of the financial and other
information provided to us or publicly available, and have not attempted to
verify same. We have not made or obtained any independent evaluations or
appraisals of the assets or liabilities of JERSEY or INTERCHANGE.
In conducting our analysis and arriving at our opinion, we have considered such
financial and other factors as we have deemed appropriate in the circumstances.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary regulatory approvals for the MERGER, no conditions will be imposed
that would have a material adverse effect on the contemplated benefits of
MERGER. Our opinion is necessarily based upon market, economic, and other
conditions as they exist and can be evaluated as of the date of this letter.
Based upon and subject to the foregoing, it is our opinion as investment bankers
that the consideration to be paid in the MERGER is fair, from a financial point
of view, to the shareholders of JERSEY.
Very truly yours,
CAPITAL CONSULTANTS OF PRINCETON, INC.
C- 2
<PAGE>
Appendix D
New Jersey Banking Act of l948
l7:9A-l40. Rights of dissenting stockholders;
settlement by agreement
A. A stockholder who
(l) is entitled to vote at the meeting of stockholders prescribed by
section l37; and who
(2) serves a written notice of dissent from the merger agreement, in the
manner, at the place, and within the time prescribed in subsections B and C of
this section; and who
(3) does not vote to approve the merger agreement at the meeting
prescribed by section l37, or at any adjournment thereof, may, within thirty
days after the filing of the agreement in the department as provided by section
l37, serve a demand upon the receiving bank at its principal office, for the
payment to him of the value of his shares of stock. The receiving bank may,
within ten (l0) days after the receipt of such demand, offer to pay the
stockholder a sum for his shares, which, in the opinion of the board of
directors of the receiving bank, does not exceed the amount which would be paid
upon such shares if the business and assets of the bank whose stock such
stockholder holds were liquidated on the day of the filing of the agreement
pursuant to section l37.
B. Service of the notice of dissent prescribed by paragraph (2) of subsection A
of this section shall be made at the principal office of the bank whose stock is
held by the dissenting stockholder, and shall be made not later than the third
day prior to the day fixed for the meeting of the stockholders of such bank
pursuant to section l37.
C. Service of the notice of dissent and of the demand for payment prescribed by
this section may be made by registered mail or personally by the dissenting
stockholder or his agent.
l7:9A-l4l. Appointment of appraisers
If a stockholder fails to accept the sum offered for his shares pursuant
to section one hundred forty, he may, within three weeks after the receipt by
him of the bank's offer of payment, or, if no offer is made by the bank, within
three weeks after the date upon which his demand was served upon the bank as
specified in section one hundred forty, institute an action in the Superior
Court for the appointment of a board of three appraisers to determine the value
of his shares of stock as of the day of the filing of the merger agreement
pursuant to section one hundred thirty-seven. The court may proceed in the
action in a summary manner or otherwise. Any other stockholder who has the right
to institute a similar action may intervene. The court shall, in respect to any
one bank, appoint a single board of three appraisers to determine the value of
the shares of all stockholders of such bank who are parties to such action.
D- 1
<PAGE>
l7:9A-l42. Duties of appraisers; report; objections;
compensation; vacancies
A. The appraisers shall be sworn to the faithful discharge of their duties. They
shall meet at such place or places, and shall give such notice of their meetings
as the court may prescribe. The bank and each stockholder who is a party to the
action instituted pursuant to section one hundred forty-one, may be represented
by attorneys in the proceedings before such appraisers, and may present such
evidence to them as shall be material to the issue. The determination of any two
of the appraisers shall control. Upon the conclusion of their deliberations, the
appraisers shall file in the Superior Court a report and appraisal of the value
of the shares of stock, and shall mail a copy thereof to the bank and to each
stockholder who is a party to said action.
B. The bank and each stockholder who is a party to said action shall have ten
days after the filing of the report and appraisal within which to object thereto
in the Superior Court. In the absence of any objections, the report and
appraisal shall be binding upon the bank and upon such stockholders, and the
bank shall pay each such stockholder the value of his shares, as reported by the
appraisers, with interest from the date of the filing of the merger agreement
pursuant to section one hundred thirty-seven, at such rate, not in excess of the
legal rate, as shall be fixed by the appraisers. If objections are made, the
court shall make such order or judgment thereon as shall be just.
C. The Superior Court shall fix the compensation of the appraisers, which shall
be paid by the bank, and shall be vested with full jurisdiction over all matters
arising out of an action instituted pursuant to section one hundred forty-one.
In the case of a vacancy in the board of appraisers, the Superior Court shall,
on its own motion, or upon motion of a stockholder, or of the receiving bank,
fill such vacancy.
l7:9A-l43. Assignment of stock to bank
Upon payment by the bank of the value of shares of stock pursuant to this
article, the holder thereof shall assign such shares to the bank.
l7:9A-l44. Effect of stockholder's failure to act
A stockholder who fails to act pursuant to sections l40 or l4l shall be
forever barred from bringing any action to enforce his right to be paid the
value of his shares in lieu of continuing his status as a stockholder in the
receiving bank.
l7:9A-l45. Obligation of bank to pay stockholder
An offer by the bank and an acceptance thereof by the stockholder pursuant
to section l40 and the determination of value upon proceedings brought pursuant
to sections l4l and l42 shall constitute a debt of the receiving bank for the
recovery of which an action will lie.
D- 2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Indemnification. The New Jersey Business Corporation Act empowers a
corporation to indemnify a corporate agent against his expenses and liabilities
incurred in connection with any proceeding (other than a derivative lawsuit)
involving the corporate agent by reason of his being or having been a corporate
agent if (a) the agent acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and
(b) with respect to any criminal proceeding, the corporate agent had no
reasonable cause to believe his conduct was unlawful. For purposes of the Act,
the term "corporate agent" includes any present or former director, officer,
employee or agent of the corporation, and a person serving as a "corporate
agent" at the request of the corporation for any other enterprise.
With respect to any derivative action, the corporation is empowered to
indemnify a corporate agent against his expenses (but not his liabilities)
incurred in connection with any proceeding involving the corporate agent by
reason of his being or having been a corporate agent if the agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation. However, only the court in which the proceeding
was brought can empower a corporation to indemnify a corporate agent against
expenses with respect to any claim, issue or matter as to which the agent was
adjudged liable for negligence or misconduct.
The corporation may indemnify a corporate agent in a specific case if a
determination is made by any of the following that the applicable standard of
conduct was met: (i) the Board of Directors, or a committee thereof, acting by a
majority vote of a quorum consisting of disinterested directors; (ii) by
independent legal counsel, if there is not a quorum of disinterested directors
or if the disinterested quorum empowers counsel to make the determination; or
(iii) by the shareholders.
A corporate agent is entitled to mandatory indemnification to the extent
that the agent is successful on the merits or otherwise in any proceeding, or in
defense of any claim, issue or matter in the proceeding. If a corporation fails
or refuses to indemnify a corporate agent, whether the indemnification is
permissive or mandatory, the agent may apply to a court to grant him the
requested indemnification. In advance of the final disposition of a proceeding,
the corporation may pay an agent's expenses if the agent agrees to repay the
expenses unless it is ultimately determined he is entitled to indemnification.
Exculpation. Article VI of the Certificate of Incorporation of Interchange
provides:
"A director or officer of the Corporation shall not be personally liable
to the Corporation or its shareholders for damages for breach of any duty owed
to the Corporation or its shareholders, except for liability for any breach of
duty based upon an act or omission (a) in breach of such person's duty of
loyalty to the Corporation or its shareholders, (b) not in good faith or
involving a knowing violation of law, or (c) resulting in receipt by such person
of an improper personal benefit."
<PAGE>
Item 21.
A. Exhibits
Exhibit No. Description
- ----------- -----------
2(a) Agreement and Plan of Merger, dated January 27, 1998 , by and
among Interchange Financial Services Corporation, Interchange
Bank (formerly known as Interchange State Bank) and The Jersey
Bank for Savings, included as Appendix A to the Proxy
Statement/Prospectus. For purposes of filing this Registration
Statement on Form S-4 with the Commission incorporated by
Reference to Interchange Annual Report on Form 10-K for the year
ended December 31, 1997.
2(b) Stock Option Agreement, dated January 27, 1998, by and among
Interchange Financial Services Corporation and The Jersey Bank
for Savings, included as Appendix B to the Proxy
Statement/Prospectus. For purposes of filing this Registration
Statement on Form S-4 with the Commission incorporated by
Reference to Interchange Annual Report on Form 10-K for the year
ended December 31, 1997.
2(c) Amended Section 1.7 of the Agreement and Plan of Merger.
3 Certificate of Amendment to Certificate of Incorporation of
Interchange increasing the number of authorized shares to
15,000,000.
5 Opinion of Norris, McLaughlin & Marcus, P.A. as to the legality
of the securities to be registered.
8 Opinion of Norris, McLaughlin & Marcus, P.A. as to certain tax
consequences of the Merger.
10(a) Form of Conversion Agreement entered in by Holders of Jersey
Preferred Stock.
10(b) Form of Trust Agreement to be entered into between Interchange
and a financial institution to be named with respect to payments
relating to severance of Clyde Britt and William C. Ledgerwood.
11 Computation re earnings per share - Interchange
12 Computation re Ratio of earnings to fixed charges excluding
interest on deposits and Ratio of earnings to fixed charges
including interest on deposits.
23(a) Consent of Deloitte & Touche LLP.
23(b) Consent of Arthur Andersen LLP.
23(c)* Consent of Norris, McLaughlin & Marcus, P.A. (Included in
Exhibits 5 and 8 hereto).
23(d) Consent of Capital Consultants, Inc.
99 Form of Proxy Card to be utilized by the Board of Directors of
The Jersey Bank for Savings.
* Included elsewhere in this registration statement.
<PAGE>
B. Financial Schedules
All financial statement schedules have been omitted because they are not
applicable or the required information is included in the financial statements
or notes thereto or incorporated by reference therein.
C. Report, Opinion or Appraisals
Form of Fairness Opinion of Capital Consultants of Princeton, Inc. is
included as Appendix C to Joint Proxy Statement/Prospectus.
Item 22. Undertakings
1. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
2. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called or
by the other items of the applicable form.
3. The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph 2 immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a) (3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
4. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
5. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
<PAGE>
6. Subject to appropriate interpretation, the undersigned registrant
hereby undertakes to supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration Statement
when it becomes effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
/s/Anthony S. Abbate /s/James E. Healey
- -------------------------------------- ---------------------------------------
Anthony S. Abbate April 9, 1998 James E. Healey April 9, 1998
Director Director
President and Chief Executive Officer
/s/Anthony D. Andora /s/Anthony Labozzetta
- -------------------------------------- ---------------------------------------
Anthony D. Andora April 9, 1998 Anthony Labozzetta April 9, 1998
Director Executive Vice President and
Chairman of the Board Chief Financial Officer
/s/Donald L. Correll /s/Nicholas R. Marcalus
- -------------------------------------- ---------------------------------------
Donald L. Correll April 9, 1998 Nicholas R. Marcalus April 9, 1998
Director Director
/s/Anthony R. Coscia /s/Eleanore S. Nissley
- -------------------------------------- ---------------------------------------
Anthony R. Coscia April 9, 1998 Eleanore S. Nissley April 9, 1998
Director Director
/s/John J. Eccleston /s/Jeremiah F. O'Connor
- -------------------------------------- ---------------------------------------
John J. Eccleston April 9, 1998 Jeremiah F. O'Connor April 9, 1998
Director Director
/s/David R. Ficca /s/Robert P. Rittereiser
- -------------------------------------- ---------------------------------------
David R. Ficca April 9, 1998 Robert P. Rittereiser April 9, 1998
Director Director
/s/Benjamin Rosenzweig
---------------------------------------
Benjamin Rosenzweig April 9, 1998
Director
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
Exhibit No. Description
- ----------- -----------
2(a) Agreement and Plan of Merger, dated January 27, 1998 ,
by and among Interchange Financial Services
Corporation, Interchange Bank (formerly known as
Interchange State Bank) and The Jersey Bank for
Savings, included as Appendix A to the Proxy
Statement/Prospectus. For purposes of filing this
Registration Statement on Form S-4 with the Commission
incorporated by Reference to Interchange Annual Report
on Form 10-K for the year ended December 31, 1997.
2(b) Stock Option Agreement, dated January 27, 1998, by and
among Interchange Financial Services Corporation and
The Jersey Bank for Savings, included as Appendix B to
the Proxy Statement/Prospectus. For purposes of filing
this Registration Statement on Form S-4 with the
Commission incorporated by Reference to Interchange
Annual Report on Form 10-K for the year ended December
31, 1997.
2(c) Amended Section 1.7 of the Agreement and Plan of Merger.
3 Certificate of Amendment to Certificate of
Incorporation of Interchange increasing the number of
authorized shares to 15,000,000.
5 Opinion of Norris, McLaughlin & Marcus, P.A. as to the
legality of the securities to be registered.
8 Opinion of Norris, McLaughlin & Marcus, P.A. as to
certain tax consequences of the Merger.
10(a) Form of Conversion Agreement entered in by Holders of
Jersey Preferred Stock.
10(b) Form of Trust Agreement to be entered into between
Interchange and a financial institution to be named
with respect to payments relating to severance of Clyde
Britt and William C. Ledgerwood.
11 Computation re earnings per share - Interchange
12 Computation re Ratio of earnings to fixed charges
excluding interest on deposits and Ratio of earnings to
fixed charges including interest on deposits.
23(a) Consent of Deloitte & Touche LLP.
23(b) Consent of Arthur Andersen LLP.
23(c)* Consent of Norris, McLaughlin & Marcus, P.A. (Included
in Exhibits 5 and 8 hereto).
23(d) Consent of Capital Consultants, Inc.
99 Form of Proxy Card to be utilized by the Board of
Directors of The Jersey Bank for Savings.
* Included elsewhere in this registration statement.
Exhibit 2(c)
To correct an inadvertent and technical omission from the Agreement and
Plan of Merger dated January 27, 1998 (the "Merger Agreement") the parties to it
agreed to amend the Agreement to revise the description of Interchange Bank's
authorized capital in Section 1.7 by adding the following language to the 9th
line of that section, after "... including capital reserves,":
"... and $465,850 net unrealized gain on securities available for
sale..."
An amended page incorporating the above change was circulated and
initiated by the parties and included with the Merger Agreement.
INTERCHANGE FINANCIAL SERVICES CORPORATION
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
Interchange Financial Services Corporation, organized under the laws of
the State of New Jersey, to amend its Certificate of Incorporation to increase
the number of authorized shares of Common Stock in connection with a division of
its outstanding shares of Common Stock in accordance with N.J.S.A. 14A:
7-15.1(3), hereby certifies:
FIRST: The name of the Corporation is Interchange Financial Services
Corporation.
SECOND: The Board of Directors, at a meeting duly called and held on
February 26, 1998, authorized and approved a 3 for 2 division of all of its
issued and outstanding shares of Common Stock, no par value, effective April 17,
1998 and distributable to shareholders of record as of the close of business on
March 20, 1998. As of the close of business on March 20, 1998 there were
4,329,742 shares of Common Stock, no par value issued and outstanding which are
divided to 6,494,435 share of Common Stock, no par value.
THIRD: To increase the number of authorized shares of the Corporation from
10,000,000 to 15,000,000, Article V of the Corporation's Certificate of
Incorporation is amended to delete the first paragraph thereof and replace it
with a paragraph reading as follows:
"Article V
CAPITAL STOCK
The Corporation is authorized to issue 15,000,000 shares of common
stock, all of which are without nominal or par value, as the Board of
Directors may determine. The Corporation is also authorized to issue
1,000,000 shares of preferred stock, all of which are without nominal or
par value, as the Board of Directors may determine."
Except as set forth in the foregoing amendment, all provisions of the
Corporation's Certificate of Incorporation shall continue in full force and
effect.
<PAGE>
FOURTH: The amendment described in Article THIRD will not adversely affect
the rights or preferences of the holders of outstanding shares of any class or
series and will not result in the percentage of authorized shares that remains
unissued after the share division described in Article SECOND exceeding the
percentage of authorized shares that was unissued before the division of shares.
FIFTH: The within amendment to the Certificate of Incorporation was
adopted by the Board of Directors of the Corporation at a meeting duly called
and held on February 26, 1998 in accordance with N.J.S.A. 14A7-15.1(2).
SIXTH: The foregoing amendment to the Corporation's Certificate of
Incorporation shall become effective on the later to occur of April 17, 1998 or
the date on which this Certificate of Amendment is filed with the Secretary of
State of the State of New Jersey.
IN WITNESS WHEREOF, the Corporation has caused its duly authorized officer
to execute this certificate this 13th day of April, 1998.
ATTEST: INTERCHANGE FINANCIAL SERVICES
CORPORATION
By: /s/ Benjamin Rosenzweig /s/ Anthony S. Abbate
---------------------------- ----------------------------
Benjamin Rosenzweig Anthony S. Abbate
Secretary President and Chief Executive
Officer
April ___, l998
Interchange Financial Services Corporation
Park 80 West, Plaza Two
Saddle Brook, NJ 07662
Attn: Anthony S. Abbate
President and Chief Executive Officer
Dear Mr. Abbate:
We have represented Interchange Financial Services Corporation ("IFSC"), a
New Jersey corporation which is a registered bank holding company, and
Interchange Bank (the "Bank"), a New Jersey chartered commercial bank which is a
subsidiary of IFSC, in connection with the proposed merger of The Jersey Bank
for Savings ("Jersey"), a New Jersey chartered capital stock savings bank, into
the Bank. The merger shall be effected pursuant to the provisions of an
Agreement and Plan of Merger dated January 27, 1998 by and among the IFSC, the
Bank and Jersey (the "Merger Agreement").
We have examined the Registration Statement on Form S-4 (the "Registration
Statement") to be filed by IFSC with the Securities and Exchange Commission in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), of shares of common stock of IFSC, no par value (the "Shares") to
be issued pursuant to the Merger Agreement.
We have also examined originals, or copies certified or otherwise
identified to our satisfaction, of the Merger Agreement, the Certificate of
Incorporation and By-Laws of IFSC, as currently in effect, and relevant
resolutions of the Board of Directors of IFSC; and we have examined such other
documents as we deemed necessary in order to express the opinion hereinafter set
forth. In our examination of such documents and records, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, and conformity with the originals of all documents submitted to us
as copies.
Based on the foregoing, it is our opinion that when, as and if the
Registration Statement shall have become effective pursuant to the provisions of
the Act, and the Shares shall have been duly issued and delivered in the manner
contemplated by the Merger Agreement and the Registration Statement, including
the Prospectus relating to the Shares included in the Registration Statement
(the "Prospectus"), the Shares will be legally issued, fully paid and
non-assessable.
The foregoing opinion is limited to the federal laws of the United States
and the laws of the State of New Jersey, and we are expressing no opinion as to
the effect of the laws of any other jurisdiction.
We consent to use of this opinion as an Exhibit to the Registration
Statement and to the reference to this firm under the heading "Legal Opinion" in
the Prospectus.
Very truly yours,
NORRIS, McLAUGHLIN & MARCUS
April____ , l998
The Jersey Bank For Savings
2-8 South Kinderkamack Road at Grand Avenue
Montvale, New Jersey 07645-0333
Attn: Clyde Britt, President and CEO
Interchange Financial Services Corporation
Park 80 West, Plaza Two
Saddle Brook, New Jersey 07662
Attn: Anthony S. Abbate, President and CEO
Dear Messers Britt and Abbate:
We have represented Interchange Financial Services Corporation
("Interchange"), a New Jersey corporation, and Interchange Bank (the
"Interchange Bank"), a New Jersey chartered commercial bank which is a
subsidiary of Interchange, in connection with the proposed merger of The Jersey
Bank for Savings ("Jersey"), a New Jersey chartered capital stock savings bank,
into Interchange Bank. The merger shall be effected pursuant to the provisions
of an Agreement and Plan of Merger dated January 27, 1998 by and among the
Interchange, Interchange Bank and Jersey (the "Merger Agreement"). This opinion
is delivered pursuant to Section 6.l(d) of the Merger Agreement. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed to them in the Merger Agreement.
Pursuant to the Merger Agreement, at the Effective Time the Merger shall
be effected by merging Jersey into Interchange Bank to New Jersey state law,
with Interchange Bank being the surviving legal entity. As a result of the
Merger, at the Effective Time, each outstanding share of Jersey Common Stock
(other than dissenting shares) shall be converted into the right to receive 1.5
shares of Interchange Common Stock (the "Exchange Ratio"), subject to adjustment
as set forth in the Merger Agreement. No fractional shares of Interchange Common
Stock shall be issued, and in lieu thereof, any holder of Jersey Common Stock
otherwise entitled to receive a fractional interest will receive an amount in
cash determined by multiplying such fractional interest by the Average Closing
Price of Interchange Common Stock. We have assumed that no stock of Interchange
Bank will be issued in the Merger.
In rendering our opinion, Interchange, Interchange Bank and Jersey have
delivered to us certificates in which they have made certain representations.
These representations are relevant to our opinion and we have relied on such
representations for purposes of our opinion.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
promulgated thereunder, applicable judicial authorities, interpretive rulings of
the Internal Revenue Service and such other authorities in effect on the date of
this letter that we consider relevant. This opinion is limited to the federal
income tax consequences of the Merger as described below and does not address
the state, local or foreign income tax consequences, if any, of the Merger.
Based on the foregoing, we are of the opinion that:
1. The Merger will, under current law, constitute a tax-free
reorganization within the meaning of Code Sections 368(a)(1)(A) and
368(a)(2)(D). Interchange, Interchange Bank and Jersey will each be a "party to
a reorganization" within the meaning of Code Section 368(b). For purposes of
this opinion we are assuming that the fair market value of the Interchange
Common Stock received by the shareholders
<PAGE>
of the Jersey Common Stock is equal to or greater than the fair market value of
the non-Interchange Common Stock consideration received by the Jersey
shareholders in the Merger.
2. No gain or loss will be recognized to the shareholders of Jersey Common
Stock as a result of the exchange of their shares of Jersey Common Stock for
shares of Interchange Common Stock pursuant to the Merger. Code Section
354(a)(1). However, gain or loss will be recognized on the receipt of cash, if
any, in lieu of fractional shares and/or in payment of dissenter's rights.
3. The tax basis of the Interchange Common Stock received in the Merger by
each shareholder of Jersey Common Stock will equal the tax basis of such
shareholder's shares of Jersey Common Stock exchanged in the Merger, reduced by
the amount of cash received, and increased by the amount of gain recognized, if
any, on the exchange. Code Section 358.
4. The holding period for the shares of Interchange Common Stock received
by each shareholder of Jersey Common Stock will include the period during which
such shareholder held the shares of Jersey Common Stock exchanged in the Merger,
provided such shares of Jersey Common Stock were held as capital assets. Code
Section 1223(1).
5. Interchange will not recognize gain or loss as a result of the Merger.
Code Sections 361(a) and 1032(a).
6. Interchange Bank will not recognize gain or loss as a result of the
Merger. Code Section 361(a).
7. Jersey will not recognize gain or loss as a result of the Merger. Code
Section 361(a).
Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local or foreign, of the Merger, including
but not limited to the tax consequences to or of (i) the conversion (prior to
the Merger) of the Jersey Preferred Stock into Jersey Common Stock; (ii) the
holders of the Excluded Shares; (iii) the holders of the Jersey Preferred Stock
who do not enter into a Conversion Agreement; (iv) the conversion of a Jersey
Option into Interchange Common Stock; (v) Interchange and Jersey under the Stock
Option Agreement; (vi) payments to certain directors and officers of Jersey in
cancellation of their employment agreements with Jersey and release of severance
and similar payments due to them by Jersey; and (vii) shareholders of Jersey
Common Stock who are insurance companies, securities dealers, financial
institutions, foreign persons and persons who acquired shares of Jersey Common
Stock as compensation.
This opinion is being furnished to you and is intended solely for you use
in connection with the transactions contemplated in this letter and may not be
otherwise reproduced, used, circulated, filed, quoted, relied upon or otherwise
referred to, in whole or in part, by you for any other purpose or by any other
person or used in connection with any other transaction, without the express
prior written consent of this firm.
We hereby consent to our being designated as an expert in the Registration
Statement with respect to the Federal income tax consequences of the Merger and
to the inclusion of this letter as an exhibit to the Registration Statement.
Very truly yours,
NORRIS, McLAUGHLIN & MARCUS
a Professional Corporation
Conversion Agreement
April 10, 1998
The Jersey Bank For Savings
2-8 South Kinderkamack Road at Grand Avenue
Montvale, New Jersey 07645-0333
Gentlemen
Reference is made to (i) the Agreement and Plan of Merger, dated as of
January 27, 1998 (the "Merger Agreement"), among Interchange Financial Services
Corporation ("Interchange"), Interchange State Bank ("Bank") and The Jersey Bank
For Savings ("Jersey"), pursuant to which Jersey will be merged into Bank (the
"Merger"); and (ii) the Certificate of Amendment to the Certificate of
Incorporation of Jersey filed with the New Jersey Department of Banking on May
14, 1993 (the "Amendment"), pursuant to which Jersey authorized the issuance of
the Jersey Preferred Stock (as such term is defined in the Merger Agreement).
All capitalized terms used herein, unless otherwise defined herein, shall have
the same meaning as if used in the Merger Agreement.
The undersigned, a record holder of [___] shares of Jersey Preferred
Stock, who expects to derive substantial benefit from the Merger, in order to
induce Interchange, Bank and Jersey to consummate the Merger, hereby agrees to
convert the each share of the Jersey Preferred Stock into .8695 shares of Jersey
Common Stock.
I understand that Jersey requires that I deliver this Agreement to Jersey
for transmission to Interchange before the close of business on Friday, February
27, 1998.
1. Agreement to Convert. Subject to Section 3 of this Agreement, pursuant
to and accordance with the Amendment, I agree that each of my shares of Jersey
Preferred Stock (except for shares of my Jersey Preferred Stock which I have
previously converted) shall immediately prior to the Effective Time
automatically be converted into .8695 shares of Jersey Common Stock. I
understand that I will not receive any fractional share resulting from such
conversion, but in lieu thereof, you will pay me a sum equal to the Average
Closing Price multiplied by such fraction of a whole share of Jersey Common
Stock.
2. Representations Concerning this Agreement. I now hold and will continue
to hold (until my shares are converted hereunder) my shares of Jersey Preferred
Stock free and clear of any liens, encumbrances, charges, restrictions or rights
of third parties and my entering into and performance of this Agreement will not
violate or conflict with any other agreement, court order, instrument, judgment,
order or decree by which I or any of my shares of Jersey Preferred Stock are
bound.
<PAGE>
3. Right to Dissent. If I timely execute and delivery this Agreement to
Jersey for delivery to Interchange, I will have a right to dissent to the
consummation of the Merger and receive a cash payment equal to the fair value of
the shares of Jersey Common Stock that I would receive under this Agreement. I
understand that fair value will be determined by an appraisal proceeding
supervised by a court of competent jurisdiction. I also understand that Jersey
will delivery to me a copy of the Proxy Statement/Prospectus when such Proxy
Statement/Prospectus is delivered to the Jersey Common Stockholders and I will
have adequate opportunity to review the Proxy Statement/Prospectus prior to the
expiration of my right to dissent to the Merger and seek a cash payment for my
shares. Unless I waiver my right to dissent and seek such cash payment, such
right shall continue after the delivery of the Proxy Statement/Prospectus and
until the third day prior to the day fixed for the meeting of the Jersey Common
Stockholders to vote on the Merger, as set forth in the Proxy
Statement/Prospectus
4. Acknowledgment of Receipt of Information and Effect of Merger. I
acknowledge that I have received copies of and have read the Amendment and the
Merger Agreement, together with all exhibits and disclosure schedules attached
thereto. I also have received copies and read each of the following: the Annual
Report of Interchange on Form 10-K for the year ended December 31, 1996, the
Quarterly Reports on Form 10-Q for the Quarters ended March 31, June 30 and
September 30, 1997 and the Proxy Statement for the 1997 Annual Meeting of
Interchange. I have had adequate opportunity to consult with my advisers
concerning any questions I might have regarding the conversion of my shares of
Jersey Preferred Stock or the Merger and I understand that at the I understand
that, at the Effective Time, each share of Jersey Common Stock received from the
conversion of my Jersey Preferred Shares shall be converted into one (1) share
of Interchange Common Stock.
___________________________________
TRUST UNDER AGREEMENT AND PLAN OF MERGER
This Agreement made this __ day of _____, 1998 by and between Interchange
Financial Services Corporation (Company) and ______________________ (Trustee);
WHEREAS, Company has agreed to pay Clyde Britt and William Ledgerwood
severance payments under the Agreement and Plan of Merger dated _____, 1998 (the
"Plan");
WHEREAS, Company has incurred or expects to incur liability with respect
to the Plan;
WHEREAS, Company wishes to establish a trust (hereinafter call "Trust")
and to contribute to the Trust assets that shall be held therein, subject to the
claims of Company's creditors in the event of Company's Insolvency, as herein
defined, until paid to Plan participants and their beneficiaries in such manner
and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
and
WHEREAS, it is the intention of Company to make contributions to the Trust
to provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plan.
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment Of Trust
(a) Company hereby deposits with Trustee in trust five hundred ninety
thousand dollars ($588,200), which shall become the principal of the Trust to be
held, administered and disposed of by Trustee as provided in this Trust
Agreement.
(b) The Trust shall become irrevocable upon approval by the Board of
Directors.
(c) The Trust is intended to be a grantor trust, of which Company is the
grantor, within the meaning subpart E, part I, subchapter J, chapter 1, subtitle
A of the Internal Revenue Code of 1986, as amended, and shall be construed
accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of Plan participants and general creditors as herein set
forth. Plan participants and their beneficiaries shall have no preferred claim
on, or any beneficial ownership interest in, any assets of the Trust. Any rights
created under the Plan and this Trust Agreement shall be mere unsecured
contractual rights of Plan participants and their beneficiaries against Company.
Any assets held by the Trust will be subject to the claims of Company's general
creditors under federal and state law in the event of Insolvency, as defined in
Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with Trustee
to augment the principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any Plan participant or
beneficiary shall have any right to compel such additional deposits.
<PAGE>
Section 2. Payments to Plan Participants and Their Beneficiaries.
(a) Company shall deliver to Trustee a schedule attached hereto as
Schedule A (the "Payment Schedule"), that indicates the amounts payable (subject
to Section 2(c)) in respect of each Plan participant (and his or her
beneficiaries), that provides a formula or other instructions acceptable to
Trustee for determining the amounts so payable, the form in which such amount is
to be paid (as provided for or available under the Plan), and the time of
commencement for payment of such amounts. Except as otherwise provided herein,
Trustee shall make payments to the Plan participants and their beneficiaries in
accordance with such Payment Schedule. The Trustee shall make provision for the
reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to the
terms of the Plan and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld and paid
by Company.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by Company or such party as it shall
designate under the Plan and any claim for such benefits shall be considered and
reviewed under the procedures set out in the Plan.
(c) Company, in its sole discretion, may make payment of benefits directly
to Plan participants or their beneficiaries as they become due under the terms
of the Plan. Company shall notify Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plan the Company shall not make or be required to make the balance
of each such payment as it falls due. If the principal of the Trust and any
earnings thereon are not sufficient to make all the payments due on Schedule A,
the Company shall not be obligated to fund any such shortfall. In the case of a
shortfall, the amount payable to any participant shall be reduced for such short
fall proportionately by the same percentage they share the Trust expenses.
Trustee shall notify Company where principal and earnings are not sufficient.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
When Company Is Insolvent.
(a) Trustee shall cease payment of benefits to Plan participants and their
beneficiaries if the Company is Insolvent. Company shall be considered
"insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay
its debts as they become due, or (ii) Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code or (iii) Company is
determined to be insolvent by the Board of Governors of the Federal Reserve
System.
(b) At all times during the continuance of this Trust, as provided in
Section l(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer of Company
shall have the duty to inform Trustee in writing of Company's Insolvency.
If a person claiming to be a creditor of Company alleges in writing to
Trustee that Company has become Insolvent, Trustee shall determine whether
Company is Insolvent and, pending such determination, Trustee shall
discontinue payment of benefits to Plan participants or their
beneficiaries.
(2) Unless Trustee has actual knowledge of Company's Insolvency, or has
received notice from Company or a person claiming to be a creditor
alleging that Company is Insolvent, Trustee shall have no duty to inquire
whether Company is Insolvent. Trustee may in all events rely on such
evidence concerning Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a determination
concerning Company's solvency.
<PAGE>
(3) If at any time Trustee has determined that Company is Insolvent,
Trustee shall discontinue payments to Plan participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of Plan participants or their beneficiaries to
pursue their rights as general creditors of Company with respect to
benefits due under the Plan or otherwise.
(4) Trustee shall resume the payment of benefits to Plan participants or
their beneficiaries in accordance with Section 2 of this Trust Agreement
only after Trustee has determined that Company is not Insolvent (or is no
longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues the
payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by Company in lieu of the payments provided
for hereunder during any such period of discontinuance.
Section 4. Payments to Company.
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, Company shall have no right or power to direct Trustee to return to
Company or to divert to others any of the Trust assets before all payment of
benefits have been made to Plan participants and their beneficiaries pursuant to
the terms of the Plan.
Section 5. Investment Authority.
The Trustee shall not be required to invest the Trust assets. If the
Trustee is to invest the assets it shall invest the trust assets in bonds or
other securities issued by the federal government or its agencies or money
market investments therein or interest bearing accounts in depository
institutions having assets of at least one billion dollars.
All rights associated with assets of the Trust shall be exercised by
Trustee or the person designated by Trustee, and shall in no event be
exercisable by or rest with Plan participants.
Section 6. Disposition of Income.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
Section 7. Responsibility of Trustee.
(a) Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims, provided, however, that Trustee shall incur
no liability to any person for any action taken pursuant to a direction, request
or approval given by Company which is contemplated by, and in conformity with,
the terms of the Plan or this Trust and is given in writing by Company. In the
event of a dispute between Company and a party, Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) Trustee may consult with legal counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder.
(c) Trustee may hire agents, accountants, actuaries, investment advisors,
financial consultants or other professionals to assist it in performing any of
its duties or obligations hereunder.
<PAGE>
(d) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(e) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701.2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 8. Compensation and Expenses of Trustee.
All fees and expenses shall be paid from the Trust corpus.
Section 9. Resignation and Removal of Trustee.
(a) Trustee may resign at any time by written notice to Company, which
shall be effective ninety (90) days after receipt of such notice unless Company
and Trustee agree otherwise.
(b) Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor Trustee.
The transfer shall be completed within ninety (90) days after receipt of notice
of resignation, removal or transfer, unless Company extends the time limit.
(c) If Trustee resigns a successor shall be appointed, in accordance with
Section 10 hereof, by the effective date of resignation under paragraph (a) of
this section. If no such appointment has been made, Trustee may apply to a court
of competent jurisdiction for appointment of a successor or for instructions.
All expenses of Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
Section 10. Appointment of Successor.
(a) If Trustee resigns in accordance with Section 9(a) hereof, Company may
appoint any third party, such as a bank trust department or other party that may
be granted corporate trustee powers under state law, as a successor to replace
Trustee upon resignation or removal. The appointment shall, be effective when
accepted in writing by the new Trustee, who shall have all of the rights and
powers of the former Trustee, including ownership rights in the Trust assets.
The former Trustee shall execute any instrument necessary or reasonably
requested by Company or the successor Trustee to evidence the transfer.
Section 11. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instrument executed
by Trustee and Company. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Plan or shall make the Trust revocable after it
has become irrevocable in accordance with Section 1(b) hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan. Upon termination, of the Trust any assets remaining in
the Trust shall be returned to Company.
(c) Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan, Company may terminate
this Trust prior to the time all benefit
<PAGE>
payments under the Plan have been made. All assets in the Trust at termination
shall be returned to Company.
Section 12. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey without regard to its conflict of law
principals.
Section 13. Effective Date.
The effective date of this Trust Agreement shall be ___________, 1998.
ATTEST:
INTERCHANGE BANK
_______________________________________
By: Anthony S. Abate, President and CEO
ATTEST: [BANK]
_______________________________________
<PAGE>
SCHEDULE A
PAYMENT SCHEDULE
Participant Total Payments to be Made
----------- -------------------------
Clyde Britt $361,200 less 61% of annual
Trustee fees subject to Section 2(c).
William Ledgerwood $227,000 less 39% of annual Trustee
fees subject to Section 2(c).
Total respective payment to be paid to each participant in 36 equal
monthly installments beginning on July 1, 1998.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Quarter Ended
-----------------------------------------------------------------------------------------------------
March 31, 1997 June 30, 1997 September 30, 1997 December 31, 1997
----------------------- ----------------------- ----------------------- -----------------------
Weighted Per Weighted Per Weighted Per Weighted Per
Average Share Average Share Average Share Average Share
Income Shares Amount Income Shares Amount Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings per
Common Share
Income available to
common shareholders $2,054 6,393 $ 0.32 $1,921 6,476 $ 0.30 $1,804 6,338 $ 0.28 $1,777 6,339 $ 0.28
====== ====== ====== ======
Effect of Dilutive Shares
Options issued to
management -- 74 -- 81 -- 86 -- 78
------ ----- ------ ----- ------ ----- ------ -----
Diluted Earnings per
Common Share $2,054 6,467 $ 0.32 $1,921 6,557 $ 0.29 $1,804 6,423 $ 0.28 $1,777 6,417 $ 0.28
====== ===== ====== ====== ===== ====== ====== ===== ====== ====== ===== ======
<CAPTION>
-----------------------------------------------------------------------------------------------------
Quarter Ended
----------------------- ----------------------- ----------------------- -----------------------
March 31, 1996 June 30, 1996 September 30, 1996 December 31, 1996
----------------------- ----------------------- ----------------------- -----------------------
Weighted Per Weighted Per Weighted Per Weighted Per
Average Share Average Share Average Share Average Share
Income Shares Amount Income Shares Amount Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings per
Common Share
Income available to
common shareholders $1,612 6,377 $ 0.25 $1,478 6,389 $ 0.24 $1,288 6,389 $ 0.20 $2,041 6,389 $ 0.32
====== ====== ====== ======
Effect of Dilutive Shares
Options issued to
management -- 48 -- 42 -- 44 -- 59
------ ----- ------ ----- ------ ----- ------ -----
Diluted Earnings per
Common Share $1,612 6,425 $ 0.25 $1,478 6,431 $ 0.23 $1,288 6,432 $ 0.20 $2,041 6,447 $ 0.32
====== ===== ====== ====== ===== ====== ====== ===== ====== ====== ===== ======
</TABLE>
Ratio of earnings to fixed charges including interest on deposits - Interchange
<TABLE>
<CAPTION>
-----------------------------------------------
December 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income before taxes & extraordinary items $11,624 $ 9,875 $ 9,573 $ 8,698 $ 7,929
Interest on borrowings 1,323 558 637 371 10
------- ------- ------- ------- -------
Income before taxes & extraordinary items and
interest on borrowings 12,947 10,433 10,210 9,069 7,939
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Interest on borrowings 1,323 558 637 371 10
------- ------- ------- ------- -------
Ratio of earnings to fixed charges excluding
interest on deposits 9.79x 18.70x 16.03x 24.44x 793.90x
======= ======= ======= ======= =======
</TABLE>
Ratio of earnings to fixed charges including interest on deposits - Interchange
<TABLE>
<CAPTION>
-----------------------------------------------
December 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income before taxes & extraordinary items $11,624 $ 9,875 $ 9,573 $ 8,698 $ 7,929
Interest on borrowings 1,323 558 637 371 10
Interest on deposits 14,210 14,041 14,513 10,635 10,227
------- ------- ------- ------- -------
Income before taxes & extraordinary items and
interest on deposits and borrowings 27,157 24,474 24,723 19,704 18,166
------- ------- ------- ------- -------
Interest on deposits 1,323 558 637 371 10
Interest on borrowings 14,210 14,041 14,513 10,635 10,227
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Fixed charges 15,533 14,599 15,150 11,006 10,237
------- ------- ------- ------- -------
Ratio of earnings to fixed charges including
interest on deposits 1.75x 1.68x 1.63x 1.79x 1.77x
======= ======= ======= ======= =======
</TABLE>
Ratio of earnings to fixed charges excluding interest on deposits - Jersey
<TABLE>
<CAPTION>
-----------------------------------------------
December 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income before taxes & extraordinary items $ 586 $ 530 $ 621 $ 482 $ 403
Interest on borrowings -- -- -- -- --
------- ------- ------- ------- -------
Income before taxes & extraordinary items and
interest on borrowings 586 530 621 482 403
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Interest on borrowings -- -- -- -- --
------- ------- ------- ------- -------
Ratio of earnings to fixed charges excluding
interest on deposits -- -- -- -- --
======= ======= ======= ======= =======
</TABLE>
Ratio of earnings to fixed charges including interest on deposits - Jersey
<TABLE>
<CAPTION>
-----------------------------------------------
December 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income before taxes & extraordinary items $ 586 $ 530 $ 621 $ 482 $ 403
Interest on borrowings -- -- -- -- --
Interest on deposits 3,023 2,380 2,055 1,441 1,214
------- ------- ------- ------- -------
Income before taxes & extraordinary items and
interest on deposits and borrowings 3,609 2,910 2,676 1,923 1,617
------- ------- ------- ------- -------
Interest on deposits -- -- -- -- --
Interest on borrowings 3,023 2,380 2,055 1,441 1,214
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Fixed charges 3,023 2,380 2,055 1,441 1,214
------- ------- ------- ------- -------
Ratio of earnings to fixed charges including
interest on deposits 1.19x 1.22x 1.30x 1.33x 1.33x
======= ======= ======= ======= =======
</TABLE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Interchange Financial Services Corporation on Form S-4 of our report dated
January 21, 1998, appearing in the Annual Report on Form 10-K of Interchange
Financial Services Corporation for the year ended December 31, 1997 and to the
reference to us under the heading "Experts" in the Proxy Statement-Prospectus,
which is part of this Registration Statement.
Deloitte & Touche, LLP
Parsippany, New Jersey
April 10, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 27, 1998, (except with respect to the matter discussed in Note 16,
as to which the date is February 26, 1998) regarding the financial statements
for The Jersey Bank for Savings as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997, and to all references to
our Firm included in or made part of this Registration Statement on Form S-4 and
in this Proxy Statement-Prospectus.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 10, 1998
Exhibit 23(d)
CONSENT OF CAPITAL CONSULTANTS, INC.
April 14, 1998
To Whom It May Concern:
We hereby consent to the use of our fairness opinion letter attached as Appendix
C and to the reference to our firm under the heading "Opinion of Jersey's
Financial Advisor" in the Registration Statement filed by Interchange Financial
Services Corp. with the Securities and Exchange Commission in connection with
the proposed acquisition of Jersey Bank for Savings by Interchange Financial
Services Corp.
Very truly yours,
/s/ Capital Consultants of Princeton, Inc.
Capital Consultants
PROXY THE JERSEY BANK FOR SAVINGS
2-8 South Kinderkamack Road, Montvale, New Jersey 07645-0333
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard A. Gilsenan and Clyde C. Britt as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of common
stock of The Jersey Bank for Savings ("Jersey") held of record by the
undersigned on May 22, 1998, at the annual meeting of stockholders to be held on
May 27, 1998, or any adjournment thereof.
1. TO APPROVE AN AGREEMENT AND PLAN OF MERGER BY AND AMONG JERSEY,
INTERCHANGE FINANCIAL SERVICES CORPORATION AND INTERCHANGE BANK (FORMERLY
KNOWN AS INTERCHANGE STATE BANK).
|_| FOR |_| AGAINST |_| ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
FOR Proposal 1.
Please sign exactly as name appears
below. When shares are held by joint
tenants, both should sign. When signing
as an attorney, as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
DATED:________________________,1998
___________________________________
Signature
___________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.