<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
JUNE 30, December 31,
1998 1997
--------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,265 $ 19,215
Interest bearing demand deposits 1,003 1,968
Federal funds sold 22,200 15,400
--------------- --------------
Total cash and cash equivalents 41,468 36,583
--------------- --------------
Investment securities at amortized cost (approximate
market value of $52,121 and $60,834) 51,622 60,442
Securities available for sale at estimated market value
(amortized cost of $88,068 and $73,640) 89,441 75,556
Loans 471,085 438,273
Less: Allowance for loan losses 5,342 5,231
--------------- --------------
Net loans 465,743 433,042
--------------- --------------
Premises and equipment, net 9,831 9,548
Accrued interest receivable and other assets 8,687 9,879
--------------- --------------
TOTAL ASSETS $666,792 $625,050
=============== ==============
LIABILITIES
Deposits
Noninterest bearing $ 100,819 $ 95,437
Interest bearing 475,055 445,329
--------------- --------------
Total deposits 575,874 540,766
Securities sold under agreements to repurchase 18,450 13,027
Accrued interest payable and other liabilities 4,359 5,248
Long-term borrowings 9,824 9,879
--------------- --------------
TOTAL LIABILITIES 608,507 568,920
--------------- --------------
COMMITMENTS AND CONTINGENT LIABILITIES - -
STOCKHOLDERS' EQUITY
Common stock 5,397 5,396
Capital surplus 21,291 21,557
Retained earnings 31,718 29,698
Acumulated Other Comprehensive Income 867 1,185
--------------- --------------
59,273 57,836
Less: Treasury Stock (77,302 and 134,025 common shares) 988 1,706
--------------- --------------
Total stockholders' equity 58,285 56,130
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $666,792 $625,050
=============== ==============
- -----------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $9,731 $8,679 $19,210 $17,151
Interest on federal funds sold 423 264 803 386
Interest on interest bearing deposits 25 19 49 39
Interest and dividends on securities
Taxable interest income 2,004 2,167 3,982 4,302
Interest income exempt from federal income taxes 21 8 50 24
Dividends 68 55 131 114
------------- ----------- ------------ ------------
TOTAL INTEREST INCOME 12,272 11,192 24,225 22,016
------------- ----------- ------------ ------------
INTEREST EXPENSE
Interest on deposits 4,655 4,305 9,213 8,310
Interest on short-term borrowings 249 167 457 365
Interest on long-term borrowings 147 150 294 298
------------- ----------- ------------ ------------
TOTAL INTEREST EXPENSE 5,051 4,622 9,964 8,973
------------- ----------- ------------ ------------
NET INTEREST INCOME 7,221 6,570 14,261 13,043
Provision for loan losses 212 517 431 1,137
------------- ----------- ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,009 6,053 13,830 11,906
------------- ----------- ------------ ------------
NONINTEREST INCOME
Service fees on deposit accounts 649 492 1,274 945
Net gain on sale of loans - - - 1,067
Other 235 1,014 568 1,180
------------- ----------- ------------ ------------
TOTAL NONINTEREST INCOME 884 1,506 1,842 3,192
------------- ----------- ------------ ------------
NONINTEREST EXPENSES
Salaries and benefits 2,244 2,234 4,727 4,425
Net occupancy 572 533 1,136 1,080
Furniture and equipment 252 221 510 411
Advertising and promotion 213 222 390 386
Federal Deposit Insurance Corporation assessment 19 17 37 22
Foreclosed real estate expense, net - (3) - 5
Acquisition 1,278 - 1,389 -
Other 1,078 1,217 2,177 2,365
------------- ----------- ------------ ------------
TOTAL NONINTEREST EXPENSES 5,656 4,441 10,366 8,694
------------- ----------- ------------ ------------
Income before income taxes 2,237 3,118 5,306 6,404
Income taxes 810 1,095 1,901 2,247
------------- ----------- ------------ ------------
NET INCOME $ 1,427 $ 2,023 $ 3,405 $ 4,157
============= =========== ============ ============
BASIC EARNINGS PER COMMON SHARE $0.20 $0.28 $0.47 $0.58
============= =========== ============ ============
DILUTED EARNINGS PER COMMON SHARE $0.20 $0.28 $0.47 $0.57
============= =========== ============ ============
- ------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<CAPTION>
Accumulated
Other
Comprehensive Retained Comprehensive Common Capital Treasury
Income Earnings Income/(Loss) Stock Surplus Stock Total
---------- -------- ------------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $24,157 $256 $5,285 $20,350 - $50,048
Comprehensive income
Net Income $4,157 4,157 4,157
Other comprehensive income, net of taxes
Unrealized losses on securities (264) 264 264
----------
Other comprehensive income (264)
----------
Comprehensive income $3,893
==========
Dividends on common stock (1,201) (1,201)
Fractional shares on 3 for 2 stock split (3) (3)
Issued 12,822 shares of common stock in connection
with Executive Compensation Plan (1) 9 159 168
Exercised 27,440 option shares (1) 20 143 163
Purchased 12,200 shares in exchange for option shares (1) (163) (163)
Issued 9,024 common shares under Dividend Reinvestment Plan 6 62 68
Issued 229,562 shares of common stock in merger with
Washington Interchange Corporation (1) 170 2,765 2,935
Acquired 187,283 shares of common stock held by
Washington Interchange Corporation (1) (2,394) (2,394)
Retired 187,283 shares of common stock held by
Washington Interchange Corporation (1) (138) (2,256) 2,394 -
Purchased 121,826 shares of common stock (1) (1,543) (1,543)
---------- -------- ------------- ------- -------- -------- --------
Balance at June 30, 1997 27,113 520 5,352 21,220 (1,706) 52,499
Comprehensive income
Net Income $3,768 3,768 3,768
Other comprehensive income, net of taxes
Unrealized gains on securities 665 665 665
----------
Other comprehensive income 665
==========
Comprehensive income $4,433
==========
Dividends on common stock (1,183) (1,183)
Exercised 23,225 option shares (1) 18 97 115
Exercised $23,100 options 17 137 154
Issued 11,480 common shares under Dividend Reinvestment Plan 9 103 112
-------- ------------- ------- -------- -------- --------
Balance at December 31, 1997 29,698 1,185 5,396 21,557 (1,706) 56,130
Comprehensive income
Net Income $3,405 3,405 3,405
Other comprehensive income, net of taxes
Unrealized losses on securities (278) (278) (278)
Unrealized losses securities transferred from held to
maturity to available to sale (40) (40) (40)
----------
Other comprehensive income (318)
----------
Comprehensive income $3,087
==========
Dividends on common stock (1,385) (1,385)
Fractional shares on 3 for 2 stock split and merger shares (6) (6)
Issued 12,769 shares of common stock in connection
with Executive Compensation Plan (1) 70 162 232
Exercise of 44,680 option shares (1) 1 (330) 556 227
------- ------------- ------- -------- -------- --------
Balance at June 30, 1998 $31,718 $867 $5,397 $21,291 $(988) $58,285
======== ============= ======= ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Adjusted for the effects of the 3 for 2 stock split issued on April 17, 1998
to shareholders of record on March 20, 1998
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the six months ended
June 30,
------------------------------
1998 1997
------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,405 $ 4,157
Non-cash items included in earnings
Depreciation and amortization of fixed assets 671 541
Amortization of securities premiums 454 485
Accretion of securities discounts (91) (51)
Amortization of premiums in connection with acquisition 222 222
Provision for loan losses 431 1,137
Net gain on sale of loans - (1,067)
Net gain on sale of foreclosed real estate - (6)
Increase in carrying value of loans available for sale - 2
Decrease (increase) in operating assets
Net repayment of loans available for sale - 13
Accrued interest receivable (252) 300
Other 1,405 (147)
Increase (decrease) in operating liabilities
Accrued interest payable 138 218
Other (1,027) (391)
------------ ----------
Cash provided by operating activities 5,356 5,413
------------ ----------
Cash flows from investing activities
(Payments for) proceeds from
Net originations of loans (22,415) (25,133)
Purchase of loans (3,626) -
Purchase of term federal funds (7,500) -
Sale of loans 409 5,945
Purchase of securities available for sale (10,546) (12,361)
Maturities of securities available for sale 5,717 2,112
Sale of foreclosed real estate - 616
Purchase of investment securities (11,716) (14,806)
Maturities of investment securities 10,574 26,408
Washington Interchange Merger - 37
Purchase of fixed assets (916) (1,123)
Sale of fixed assets 4 13
------------ ----------
Cash used in investing activities (40,015) (18,292)
------------ ----------
Cash flows from financing activities
Proceeds from (payments for)
Deposits more than withdrawals 35,108 28,592
Securities sold under agreements to repurchase 8,020 1,750
Retirement of other borrowings (55) (5,251)
Retirement of securities sold under agreement to repurchase (2,597) (1,000)
Dividends (1,385) (1,201)
Common stock issued 226 236
Treasury stock - (1,543)
Exercise of option shares from Treasury 227 -
------------ ----------
Cash provided by financing activities 39,544 21,583
------------ ----------
Increase in cash and cash equivalents 4,885 8,704
Cash and cash equivalents, beginning of year 36,583 33,189
============ ==========
Cash and cash equivalents, end of period $41,468 $41,893
============ ==========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $9,826 $8,755
Income taxes 2,826 2,549
Supplemental disclosure of non-cash investing activities:
Decrease (increase) - market valuation of securities available for sale $541 $ (269)
Amortization of valuation allowance - securities transferred from
available for sale to held to maturity - 5
Securities transferred from held to maturity to available for sale 8,187 -
- ------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
1. Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in conformity with generally accepted accounting
principles and in accordance with the rules and regulations of the Securities
and Exchange Commission. Pursuant to such rules and regulations certain
information or footnotes necessary for a complete presentation of financial
condition, results of operations and cash flows in conformity with
generally accepted accounting principles have been condensed or omitted.
These consolidated financial statements should be read in conjunction with
the financial statements and schedules thereto included in the annual report
on Form 10-K of Interchange Financial Services Corporation (the "Company") for
the year ended December 31, 1997.
The consolidated financial data for the six months ended June 30,
1998 and 1997, are unaudited but reflect all adjustments consisting of only
normal recurring adjustments which are, in the opinion of management,
considered necessary for a fair presentation of the financial condition and
results of operations for the interim periods. The results of operations for
interim periods are not necessarily indicative of results to be expected for
any other period or the full year.
Effective May 31, 1998, the Company acquired The Jersey Bank for
Savings ("Jersey"). The acquisition has been accounted for under the
pooling-of-interests method of accounting, accordingly, the financial
statements have been retroactively restated to include the consolidated
accounts of Jersey for all periods presented. The transaction resulted in
the issuance of 780,198 shares of the Company's common stock.
2. Earnings Per Common Share
Basic earnings per common share is computed by dividing net income
by the weighted average number of shares of common stock outstanding.
Diluted earnings per common share is similar to the computation of basic
earnings per common share except that the denominator is increased to include
the number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued.
3. Legal Proceedings
The Company is a party to routine litigation involving various
aspects of its business, none of which, in the opinion of management and its
legal counsel, is expected to have a material adverse impact on the
consolidated financial condition, results of operations or liquidity of the
Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is an analysis of the consolidated
financial condition and results of operations of the Company for the three and
six months ended June 30, 1998 and 1997, and should be read in conjunction
with the consolidated financial statements and notes thereto included in
Item 1 hereof.
The Company issued a 3 for 2 stock split on April 17, 1998 to
shareholders of record on March 20, 1998. All per share and share data have
been retroactively restated to include the effects of the split for all periods
presented.
Effective May 31, 1998, the Company acquired The Jersey Bank for
Savings ("Jersey"). The acquisition has been accounted for under the pooling
of interests method of accounting, accordingly the financial statements have
been retroactively restated to include the consolidated accounts of Jersey for
all periods presented.
THREE MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Earnings Summary
Net income for the three months ended June 30, 1998, was $1.4 million
or $.20 diluted earnings per common share, as compared to $2.0 million or
$.28 diluted earnings per common share for the same period a year ago.
Excluding the nonrecurring Jersey merger related charge of $824 thousand,
net of tax, the Company reported net income of $2.3 million, an increase of
$228 thousand or 11.3% from the prior comparable period. Diluted earnings per
common share, excluding the merger related charge, were $.31, an increase of
10.7% over the prior comparable period.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the most significant source of the
Company's operating income. Net interest income on a tax equivalent basis
increased $654 thousand to $7.2 million for the quarter ended June 30,
1998 as compared to the same quarter of 1997. The increase in net interest
income is principally due to higher levels of interest earning assets and
increased loan production. The loan growth was funded largely by the growth
in deposit liabilities.
Average interest earning assets increased $73.0 million or 13.2% to
$626.9 million for the quarter ended June 30, 1998, over the same period in
1997. The growth was mainly the result of an increase in loan volume,
particularly, commercial mortgages, home equity loans and consumer auto
leases. For the second quarter of 1998, average loans increased $64.2
million or 16.3% over the same period in 1997. The average yield on loans was
negatively impacted by a decline in market rates and increased competitive
factors. However, the increased loan volume contributed to a $1.1 million
growth in loan income that offset the decline in yield. The growth in loan
income was instrumental to the growth in net interest income.
For the quarter ended June 30, 1998, average interest bearing
deposits grew $40.4 million or 9.3% and noninterest bearing demand deposits
grew $13.4 million or 16.9%. The total growth in average deposits amounted
to 10.5%. Despite the strong growth in deposits, the Company's annualized cost
of deposits decreased 7 basis points over the second quarter of 1997.
Noninterest Income
For the quarter ended June 30, 1998, noninterest income amounted to
$884 thousand, a decrease of $622 thousand as compared to the same period in
1997. The decrease was principally due to a nonrecurring gain of $775
thousand recognized in the second quarter of 1997 from the payoff of a
commercial loan that was acquired at a discount. Adjusting for the
nonrecurring item, noninterest income increased $153 thousand and was
largely the result of a $157 thousand increase in service charges on deposits.
The higher levels of service charges on deposits can be attributed to the
growth of the deposit base.
Noninterest Expenses
For the quarter ended June 30, 1998, noninterest expenses amounted
to $5.7 million, an increase of $1.2 million as compared to the same period in
1997. The increase was due to one time merger related charges of $1.3 million
arising from the merger with The Jersey Bank for Savings.
<PAGE>
One of the Company's goals is to control expenses in order to
maximize earnings and shareholder value. Generally, the efficiency ratio
is one method utilized to measure a bank's operating expenses. The efficiency
ratio is gross operating expenses, excluding the amortization of intangibles,
the merger related expenses and net expenses of foreclosed real estate,
expressed as a percentage of net interest income (on a fully taxable equivalent
basis) and other noninterest income, excluding gains. Generally, the lower
the efficiency ratio the more effective the Company is in utilizing its
resources to produce income. The Company's efficiency ratio for the quarter
ended June 30, 1998, was 52.7% as compared to 59.4% for the same period in 1997.
The improvement was mostly attributable to the growth in net interest income
and noninterest income. The improvement was partially offset by a growth in
operating expenses resulting from the installation of a new mainframe
computer and the addition of new equipment and the renovation of a branch.
The national peer group average (published by SNL Securities) for the year 1997
was 60.4%.
Income Taxes
Income tax expense as a percentage of pre-tax income was 36.2% for
the quarter ended June 30, 1998 as compared to 35.1% for the second quarter of
1997. The increase is attributable to an increase in the effective state income
tax rate.
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Earnings Summary
Net income for the six months ended June 30, 1998, was $3.4 million or
$.47 diluted earnings per common share, as compared to $4.2 million or $.57
diluted earnings per common share for the same period a year ago. Excluding
the Jersey nonrecurring merger related charge of $896 thousand, net of tax,
the Company reported net income of $4.3 million, an increase of $144 thousand
or 3.5% from the prior comparable period. Diluted earnings per common share,
excluding the merger related charge, were $.59, an increase of 3.5% over the
prior comparable period.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income on a tax equivalent basis increased $1.2 million
to $14.3 million for the six months ended June 30, 1998 as compared to the same
period of 1997. The increase in net interest income is principally due to
higher levels of interest earning assets and increased loan production. The
loan growth was funded largely by the growth in deposit liabilities.
Average interest earning assets increased $73.9 million or 13.6%
to $618.8 million for the six months ended June 30, 1998, over the same period
in 1997. The growth was mainly the result of an increase in loan volume,
particularly, commercial mortgages, home equity loans and consumer auto
leases. For the first six months of 1998, average loans increased $62.1
million or 15.9% over the same period in 1997. The average yield on loans was
negatively impacted by a decline in market rates and increased competitive
factors. However, the increased loan volume contributed to a $2.1 million
growth in loan income that offset the decline in yield.The growth in loan income
was instrumental to the growth in net interest income.
For the six months ended June 30, 1998, average interest bearing
deposits grew $42.7 million or 10.0% and noninterest bearing demand
deposits grew $13.9 million or 18.1%. The total growth in average deposits
amounted to 11.3%. Despite the strong growth in deposits, the Company's
annualized cost of deposits remained marginally the same as it was, on an
annualized basis, for the first six months of 1997.
Noninterest Income
For the six months ended June 30, 1998, noninterest income
amounted to $1.8 million, a decrease of $1.4 million from the same period in
1997. The decrease was principally due to the recognition of nonrecurring
gains in the first six months of 1997 of $1.1 million from the sale of
commercial loans and of $775 thousand from the payoff of a commercial loan
that was acquired at a discount. Adjusting for the nonrecurring items,
noninterest income increased $492 thousand and was largely the result of a
$329 thousand increase in service charges on deposits. The higher levels of
service charges on deposits can be attributed to the growth of the deposit
base.
A gain of $53 thousand from the sale of reverse mortgage servicing also
contributed to the increase in noninterest income.
<PAGE>
Noninterest Expenses
For the six months ended June 30, 1998, noninterest expenses
amounted to $10.4 million, an increase of $1.7 million as compared to the
same period in 1997. The predominant factor for the increase was the one time
merger related charges of $1.4 million resulting from the merger with The
Jersey Bank for Savings. Increases in salaries and benefits, the largest
component of noninterest expenses also contributed to the increase. Salaries
and benefits expense increased $302 thousand mostly due to normal salary
raises, promotions and increases in staff. At June 30, 1998, full-time
equivalent staff was 191 as compared to 190 at June 30, 1997.
Occupancy and equipment costs that increased $155 thousand from the
same period in 1997 were also partly responsible for the increase. The
increase in occupancy and equipment costs was mostly due to the installation of
a new mainframe computer, the addition of new equipment and the renovation of
a branch.
The Company's efficiency ratio for the six months ended June 30,
1998, was 54.4% as compared to 58.8% for the same period in 1997. The
improvement was mostly attributable to the growth in net interest income and
noninterest income. The improvement was partially offset by a growth in
operating expenses resulting from the installation of a new mainframe
computer and the addition of new equipment and the renovation of a branch.
The national peer group average (published by SNL Securities) for the year
1997 was 60.4%.
Income Taxes
Income tax expense as a percentage of pre-tax income was 35.8% for
the six months ended June 30, 1998 as compared to 35.1% for the same period in
1997. The increase is attributable to an increase in the effective state income
tax rate.
FINANCIAL CONDITION
At June 30, 1998, the Company's total assets increased $41.7
million or 6.7% to $666.8 million from $625.1 million at December 31, 1997.
At June 30, 1998, cash and cash equivalents increased $4.9 million as
compared to December 31, 1997. This is principally the result of operating
activities (reflecting net income and changes in other assets) and
financing activities (reflecting deposit and borrowing growth) providing cash
more rapidly than investing activities (funding loan and investment growth)
can utilize the cash.
Securities
During the second quarter, securities with a book value totaling $8.2
million, which had previously been classified by The Jersey Bank for Savings as
held to maturity, were transferred to available for sale upon the consummation
of the merger. The securities were reclassified to available for sale because
they have a higher degree of interest rate sensitivity and do not conform to
the Company's investment objectives or to its policy for managing interest rate
risk. The transfer of such securities was done in conformance with Statement
of Financial Accounting Standard No.115, "Accounting for Certain Investments in
Debt and Equity Securities". At that date the market value of the securities
was $8.1 million.
<PAGE>
<TABLE>
Securities held to maturity and securities available for sale consist of
the following: (in thousands)
<CAPTION>
June 30, 1998
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Securities held to maturity
Obligations of U.S. Treasury $ 20,026 $ 112 - $ 20,138
Mortgage-backed securities 22,709 210 $37 22,882
Obligations of U.S. Agencies 6,726 213 - 6,939
Obligations of states & political subdivisions 2,012 - - 2,012
Other debt securities 149 1 - 150
------------- ------------ ------------- --------------
51,622 536 37 52,121
------------- ------------ ------------- --------------
Securities available for sale
Obligations of U.S. Treasury 35,359 587 33 35,913
Mortgage-backed securities 41,563 367 98 41,832
Obligations of U.S. Agencies 6,461 124 3 6,582
Equity securities 4,685 429 - 5,114
------------- ------------ ------------- --------------
88,068 1,507 134 89,441
------------- ------------ ------------- --------------
Total securities $139,690 $2,043 $171 $141,562
============= ============ ============= ==============
December 31, 1997
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------ ------------- --------------
Securities held to maturity
Obligations of U.S. Treasury $ 22,134 $ 122 - $ 22,256
Mortgage-backed securities 28,398 200 $ 96 28,502
Obligations of U.S. Agencies 6,711 166 - 6,877
Obligations of states & political subdivisions 3,049 - - 3,049
Other debt securities 150 - - 150
------------- ------------ ------------- --------------
60,442 488 96 60,834
------------- ------------ ------------- --------------
Securities available for sale
Obligations of U.S. Treasury 35,452 605 74 35,983
Mortgage-backed securities 26,871 308 30 27,149
Obligations of U.S. Agencies 6,954 71 12 7,013
Equity securities 4,363 1,048 - 5,411
------------- ------------ ------------- --------------
73,640 2,032 116 75,556
------------- ------------ ------------- --------------
Total securities $134,082 $2,520 $212 $136,390
============= ============ ============= ==============
</TABLE>
<PAGE>
<TABLE>
At June 30, 1998, the contractual maturities of securities held to maturity and
securities available for sale are as follows: (in thousands)
<CAPTION>
Securities Securities
Held to Maturity Available for Sale
---------------------------- ---------------------------
Amortized Market Amortized Market
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Within 1 year $14,065 $14,132 $ 7,196 $ 7,250
After 1 but within 5 years 13,436 13,578 37,443 38,097
After 5 but within 10 years 14,215 14,366 12,564 12,768
After 10 years 9,906 10,045 26,180 26,212
Equity securities - - 4,685 5,114
------------ ------------ ------------ ------------
Total $51,622 $52,121 $88,068 $89,441
============ ============ ============ ============
</TABLE>
Loans
At June 30, 1998, total loans increased $32.8 million or 7.5% to $471.1
million from $438.3 million at December 31, 1997. The following table reflects
the composition of the loan portfolio at June
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
_____________ _______________
<S> <C> <C>
Amounts of loans by type (in thousands)
Real estate-mortgage
Commercial $146,776 $134,972
1-4 family residential
First liens 83,590 73,275
Junior liens 16,336 16,795
Available for sale - -
Home equity 144,087 143,177
Commercial and financial 58,060 51,574
Real estate-construction 1,694 4,229
Installment
Credit cards and related plans 2,118 2,415
Other 1,423 1,736
Lease financing 9,502 10,101
Term Fed Funds 7,500 -
=============== ================
Total $471,085 $438,273
=============== ================
</TABLE>
<PAGE>
At June 30, 1998, total deposits increased $35.1 million or 6.5%
to $575.9 million from $540.8 million at December 31, 1997. The growth was
principally in interest and noninterest bearing demand deposits, which
grew $23.6 million and $5.4 million, respectively. Time deposits grew $2.7
million and represent 29.6% of all deposits at June 30, 1998, as compared to
31.1% at December 31, 1997.
Nonperforming Assets
Nonperforming assets are comprised of nonaccrual loans, restructured
loans and foreclosed real estate. At June 30, 1998, nonperforming assets
amounted to $1.8 million, a decrease of $1.0 million from $2.8 million at
June 30, 1997. The sale of $409 thousand of nonperforming loans comprised part
of the decrease. The ratio of nonperforming assets to total loans and
foreclosed real estate decreased to 0.38% at June 30, 1998 from 0.69% at
June 30, 1997. At June 30, 1998, nonperforming assets decreased $291 thousand
from $2.1 million at December 31, 1997. For the second quarter of 1998, the
ratio of nonperforming assets to total loans and foreclosed real estate
decreased 10 basis points from 0.48% at December 31, 1997.
Provision for Loan Losses and Loan Loss Experience
The provision for loan losses represents management's determination of
the amount necessary to bring the allowance for loan losses to a level that
management considers adequate to reflect the risk of future losses inherent in
the Company's loan portfolio. In its evaluation of the adequacy of the
allowance for loan losses, management considers past loan loss experience,
changes in the composition of performing and nonperforming loans, the condition
of borrowers facing financial pressure, the relationship of the current level
of the allowance to the credit portfolio and to nonperforming loans and
existing economic conditions. However, the process of determining the adequacy
of the allowance is necessarily judgmental and subject to changes in external
conditions. Accordingly, there can be no assurance that existing levels of the
allowance will ultimately prove adequate to cover actual loan losses.
The allowance for loan losses was $5.3 million at June 30, 1998, and
$5.2 million at December 31, 1997, representing 297.5% and 250.7% of
nonperforming loans at those dates, respectively. In the second quarter of
1998, the Company's provision for loan losses was $212 thousand, a decrease of
$305 thousand from the same period a year ago. In the second quarter of 1997,
the provision for loan losses was higher since, during that period, the
Company's loan growth and focus was largely in commercial lending. Such growth
and concentration can change the characteristics and potentially increase the
inherent credit risk of the Company's loan portfolio. Accordingly, during the
second quarter of 1997, the Company revised the risk allocation percentages
applied to commercial loans used in computing the allowance for loan losses to
capture such risk. This resulted in the increase in the provision for loan
losses during the period ended, June 30, 1997.
<PAGE>
<TABLE>
Capital Adequacy
The Company's and the Bank's capital amounts and ratios are as follows:
(dollars in thousands)
<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 June 30, 1998:
Total Capital (to Risk Weighted Assets):
The Company $62,104 14.35 % $34,626 8.00 % N/A N/A
The Bank 60,252 13.98 34,479 8.00 43,098 10.00%
Tier 1 Capital (to Risk Weighted Assets):
The Company 56,761 13.11 $17,313 4.00 N/A N/A
The Bank 54,909 12.74 17,239 4.00 25,859 6.00
Tier 1 Capital (to Average Assets):
The Company 56,761 8.65 19,679 3.00 N/A N/A
The Bank 54,909 8.40 19,599 3.00 32,665 5.00
As of December 31, 1997:
Total Capital (to Risk Weighted Assets):
The Company $59,185 14.51 % 32,631 8.00 % N/A N/A
The Bank 57,335 14.12 32,485 8.00 40,606 10.00%
Tier 1 Capital (to Risk Weighted Assets):
The Company 54,166 13.28 16,316 4.00 N/A N/A
The Bank 52,338 12.89 16,242 4.00 24,364 6.00
Tier 1 Capital (to Average Assets):
The Company 54,166 8.79 18,482 3.00 N/A N/A
The Bank 52,338 8.53 18,403 3.00 30,672 5.00
</TABLE>
<PAGE>
Liquidity
Liquidity is the ability to provide sufficient resources to meet all
financial obligations and finance prospective business opportunities.
Liquidity levels over any given period of time are a product of the Company's
operating, financing and investing activities. The extent of such activities
is often shaped by such external factors as competition for deposits and demand
for loans.
Financing for the Company's loans and investments is derived primarily
from deposits, along with interest and principal payments on loans and
investments. At June 30, 1998, total deposits amounted to $575.9 million, an
increase of $35.1 million or 6.5% from December 31, 1997. In addition, the
Company supplemented the more traditional funding sources with borrowings from
the Federal Home Loan Bank of New York ("FHLB") and with securities sold under
agreements to repurchase ("REPOS"). At June 30, 1998, advances from the FHLB
and REPOS amounted to $9.8 million and $18.5 million, respectively, as compared
to $9.9 million and $13.0 million, respectively, at December 31, 1997.
In the second quarter of 1998, loan production continued to be the
Company's principal investing activity. Net loans at June 30, 1998 amounted to
$465.7 million, compared to $433.0 million at the end of 1997, an increase of
$32.7 million or 7.6%.
The Company's most liquid assets are cash and cash equivalents and
federal funds sold. At June 30, 1998, the total of such assets amounted to
$41.5 million or 6.2% of total assets, compared to $36.6 million or 5.9% of
total assets at year-end 1997.
Another significant liquidity source is the Company's
available-for-sale ("AFS") securities. At June 30, 1998, AFS securities
amounted to $89.4 million or 63.4% of total securities, compared to $75.6
million or 55.6% of total securities at year-end 1997.
In addition to the aforementioned sources of liquidity, the Company
has available various other sources of liquidity, including federal funds
purchased from other banks and the Federal Reserve discount window. The Bank
also has a $51.0 million line of credit available through its membership in the
Federal Home Loan Bank of New York.
Management believes that the Company's sources of funds are sufficient
to meet its funding requirements.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Form 10-K filed for the year ended December 31,
1997.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are furnished herewith:
Exhibit No.
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Form 8-K filed June 12, 1998 announcing the completion of the
acquisition of the Jersey Bank for Savings by merger.
(c) 3 (a) Certificate of Incorporation and Amendments thereto
are incorporated herein by reference to Form S-4,
Registration Statement No. 333-50065.
Exhibits 3 filed April 27, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Interchange Financial Services Corporation
By: /s/ Anthony Labozzetta
______________________________
Anthony Labozzetta
Executive Vice President & CFO
<TABLE>
Exhibit 11. Computation re earnings per share
<CAPTION>
-------------------------------------------------------- --------------------------------------------------
Three Months Ended, Six Months Ended,
-------------------------------------------------------- --------------------------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 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 $1,427 7,193 $0.20 $2,023 7,218 $0.28 $3,405 7,180 $0.47 $4,157 7,174 $0.58
======= ======== ====== =======
Effect of Dilutive Shares
Options issued to
management - 70 - 74 - 70 - 74
--------- ---------- ------- -------- ------- --------- ------- -------
Diluted Earnings per
Common Share $1,427 7,263 $0.20 $2,023 7,292 $0.28 $3,405 7,250 $0.47 $4,157 7,248 $0.57
========= ========= ======== ======= ======== ======== ======= ========= ====== ======= ======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 18,265
<INT-BEARING-DEPOSITS> 1,003
<FED-FUNDS-SOLD> 22,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 89,441
<INVESTMENTS-CARRYING> 51,622
<INVESTMENTS-MARKET> 52,121
<LOANS> 471,085
<ALLOWANCE> 5,342
<TOTAL-ASSETS> 666,792
<DEPOSITS> 575,874
<SHORT-TERM> 18,450
<LIABILITIES-OTHER> 4,359
<LONG-TERM> 9,824
<COMMON> 5,397
0
0
<OTHER-SE> 52,888
<TOTAL-LIABILITIES-AND-EQUITY> 666,792
<INTEREST-LOAN> 19,210
<INTEREST-INVEST> 4,163
<INTEREST-OTHER> 852
<INTEREST-TOTAL> 24,225
<INTEREST-DEPOSIT> 9,213
<INTEREST-EXPENSE> 9,964
<INTEREST-INCOME-NET> 14,261
<LOAN-LOSSES> 431
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,366
<INCOME-PRETAX> 5,306
<INCOME-PRE-EXTRAORDINARY> 3,405
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,405
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
<YIELD-ACTUAL> 4.49
<LOANS-NON> 1,238
<LOANS-PAST> 3
<LOANS-TROUBLED> 558
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,231
<CHARGE-OFFS> 373
<RECOVERIES> 53
<ALLOWANCE-CLOSE> 5,342
<ALLOWANCE-DOMESTIC> 5,342
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 972
</TABLE>
