<TABLE>
Interchange Financial Services Corporation
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<CAPTION>
March 31, December 31,
1999 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 15,961 $ 20,109
Federal funds sold 15,950 23,175
-------------- --------------
Total cash and cash equivalents 31,911 43,284
-------------- --------------
Securities held to maturity at amortized cost (estimated market value of
$49,313 and $54,761 at March 31, 1999 and December 31, 1998, respectively) 48,935 54,159
-------------- --------------
Securities available for sale at estimated market value (amortized cost of
$101,751 and $93,872 at March 31, 1999 and December 31, 1998, respectively) 102,975 95,771
-------------- --------------
Loans 479,481 478,717
Less: Allowance for loan losses 5,853 5,645
-------------- --------------
Net loans 473,628 473,072
-------------- --------------
Premises and equipment, net 9,754 9,871
Foreclosed real estate 84 84
Accrued interest receivable and other assets 8,499 9,123
============== ==============
Total assets $675,786 $685,364
============== ==============
Liabilities
Deposits
Non-interest bearing $100,751 $107,408
Interest bearing 488,649 491,324
-------------- --------------
Total deposits 589,400 598,732
-------------- --------------
Securities sold under agreements to repurchase 7,250 8,780
Short-term borrowings 9,739 9,768
Accrued interest payable and other liabilities 5,779 5,712
-------------- --------------
Total liabilities 612,168 622,992
-------------- --------------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, without par value; 15,000,000 shares authorized;
7,214,002 and 7,200,133 shares issued and outstanding at March 31, 1999
and December 31, 1998, respectively 5,397 5,397
Capital surplus 21,316 21,256
Retained earnings 36,902 35,482
Accumulated other comprehensive income 782 1,192
-------------- --------------
64,397 63,327
Less: Treasury stock 779 955
-------------- --------------
Total stockholders' equity 63,618 62,372
============== ==============
Total liabilities and stockholders' equity $675,786 $685,364
============== ==============
- -------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Interchange Financial Services Corporation
- ----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31,
- ----------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
(unaudited)
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Interest income
Interest and fees on loans $ 9,507 $ 9,448
Interest on federal funds sold 219 381
Interest on deposits - 24
Interest and dividends on securities
Taxable interest income 1,944 1,978
Interest income exempt from federal income taxes 109 29
Dividends 71 63
------------- -------------
Total interest income 11,850 11,923
------------- -------------
Interest expense
Interest on deposits 4,275 4,560
Interest on securities sold under agreements to repurchase 92 208
Interest on short-term borrowings 145 -
Interest on long-term borrowings - 147
------------- -------------
Total interest expense 4,512 4,915
------------- -------------
Net interest income 7,338 7,008
Provision for loan losses 300 219
------------- -------------
Net interest income after provision for loan losses 7,038 6,789
------------- -------------
Non-interest income
Service fees on deposit accounts 569 625
Net gain on sale of securities 527 -
Other 251 333
------------- -------------
Total non-interest income 1,347 958
------------- -------------
Non-interest expenses
Salaries and benefits 2,540 2,484
Occupancy 659 564
Furniture and equipment 250 258
Advertising and promotion 246 199
Federal Deposit Insurance Corporation assessment 20 18
Foreclosed real estate 1 -
Acquisition - 111
Other 1,209 1,044
------------- -------------
Total non-interest expenses 4,925 4,678
------------- -------------
Income before income taxes 3,460 3,069
Income taxes 1,174 1,091
------------- -------------
Net income $ 2,286 $ 1,978
============= =============
Basic earnings per common share $0.32 $0.28
==== ====
Diluted earnings per common share $0.32 $0.27
==== ====
- ----------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Interchange Financial Services Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands except share data)
<CAPTION>
Accumulated
Other
ComprehensiveRetained Comprehensive Common Capital Treasury
Income Earnings Income Stock Surplus Stock Total
----------- --------- ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $29,698 $1,185 $5,396 $21,557 $(1,706) $56,130
Comprehensive income
Net Income $1,978 1,978 1,978
Other comprehensive income, net of taxes
Unrealized losses on equity securities (124)
Unrealized gains on debt securities 10
-----------
Other comprehensive loss (114) (114) (114)
-----------
===========
Comprehensive income $1,864
===========
Dividends on common stock (665) (665)
Issued 12,769 shares of common stock in connection with
Executive Compensation Plan 70 162 232
Exercise of 36,605 option shares (272) 454 182
--------- ------------ --------- ---------- -------- ----------
Balance at March 31, 1998 31,011 1,071 5,396 21,355 (1,090) 57,743
Comprehensive income
Net Income $6,631 6,631 6,631
Other comprehensive income, net of taxes
Unrealized gains on debt securities 197
Unrealized losses securities transferred from held to
maturity to available for sale - Acquisition (17)
Unrealized gains on equity securities 467
Less: gains on disposition of equity securities (526)
-----------
Other comprehensive income 121 121 121
-----------
===========
Comprehensive income $6,752
===========
Dividends on common stock (2,160) (2,160)
Fractional shares on 3 for 2 stock split and merger shares (5) (5)
Forfeiture of bonus stock (49) (49)
Exercised 13,789 option shares 1 (94) 184 91
--------- ------------ --------- ---------- -------- ----------
Balance at December 31, 1998 35,482 1,192 5,397 21,256 (955) 62,372
Comprehensive income
Net Income $2,286 2,286 2,286
Other comprehensive income, net of taxes
Unrealized losses on debt securities (97)
Unrealized gains securities transferred from held to
maturity to available to sale - Acquisition 32
Unrealized loss on equity securities (29)
Less: gains on disposition of equity securities (316)
-----------
Other comprehensive loss (410) (410) (410)
-----------
===========
Comprehensive income $1,876
===========
Dividends on common stock (866) (866)
Issued 14,489 shares of common stock in connection
with Executive Compensation Plan 60 176 236
--------- ------------ --------- ---------- -------- ----------
Balance at March 31, 1999 $36,902 $ 782 $5,397 $21,316 $ (779) $63,618
========= ============ ========= ========== ======== ==========
- -----------------------------------------------------------------------------------------------------------------------------------
All share data has been adjusted for the effects of the 3 for 2 stock split
issued on April 17, 1998 to shareholders of record on March 20, 1998.
</TABLE>
<PAGE>
<TABLE>
INTERCHANGE FINANCIAL SERVICES CORPORATION
- -----------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
- -----------------------------------------------------------------------------------------------------------------
(in thousands)
(unaudited)
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,286 $ 1,978
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 366 338
Amortization of securities premiums 244 220
Accretion of securities discounts (40) (46)
Amortization of premiums in connection with acquisition 78 111
Provision for loan losses 300 219
Net gain on sale of securities (527) -
Net loss on disposal of fixed assets 2 -
Decrease in operating assets
Accrued interest receivable 151 76
Deferred taxes - 243
Other 624 1,015
(Decrease) increase in operating liabilities
Accrued interest payable (45) (19)
Other 112 461
------------ ------------
Cash provided by operating activities 3,551 4,596
------------ ------------
Cash flows from investing activities
(Payments for) proceeds from
Net originations of loans (5,856) (6,603)
Purchase of loans - (3,626)
Purchase of term federal funds - (7,500)
Repayment of term federal funds 5,000 -
Purchase of securities available for sale (13,812) (322)
Maturities of securities available for sale 5,331 2,216
Sale of securities available for sale 955 -
Purchase of securities held to maturity (622) (4,260)
Maturities of securities held to maturity 5,816 4,260
Purchase of fixed assets (217) (390)
Sale of fixed assets 2 -
------------ ------------
Cash used in investing activities (3,403) (16,225)
------------ ------------
Cash flows from financing activities
Proceeds from (payments for)
Deposits less than/in excess of withdrawals (9,332) 27,267
Securities sold under agreements to repurchase and other borrowings 6,250 6,600
Retirement of securities sold under agreement to repurchase and
other borrowings (7,809) (2,325)
Repayment of long-term borrowings - (27)
Dividends (866) (665)
Common stock issued from treasury 236 232
Exercise of option shares - 182
------------ ------------
Cash (used in) provided by financing activities (11,521) 31,264
------------ ------------
(Decrease) increase in cash and cash equivalents (11,373) 19,635
Cash and cash equivalents, beginning of year 43,284 36,583
============ ============
Cash and cash equivalents, end of year $31,911 $56,218
============ ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 4,557 $ 4,934
Income taxes 1,335 423
Supplemental disclosure of non-cash investing activities:
Decrease - market valuation of securities available for sale 675 195
- -----------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(Unaudited)
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,
1998.
The consolidated financial data for the three months ended March 31, 1999
and 1998, 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.
<PAGE>
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 months ended
March 31, 1999 and 1998, and should be read in conjunction with the consolidated
financial statements and notes thereto included in Item 1 hereof.
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.
Forward Looking Information
We discuss certain matters in this report regarding the financial
condition, results of operations and business of the Company which are not
historical facts, but which are "forward looking statements." These "forward
looking statements" include, but are not limited to, estimates of capital
expenditures, costs of remediation and testing, the timetable for implementing
the remediation and testing phases of Year 2000 planning, the possible impact of
third parties' Year 2000 issues on the Company, management's assessment of
contingencies and possible scenarios in its Year 2000 planning. The "forward
looking statements" in this report involve risks and uncertainties and reflect
what we currently anticipate will happen in each case. What actually happens
could differ materially from what we currently anticipate will happen due to a
variety of factors, including, among others, (i) increased competitive pressures
among financial services companies; (ii) changes in the interest rate
environment; (iii) general economic conditions, internationally, nationally, or
in the State of New Jersey; and (iv) legislation or regulatory requirements or
changes adversely affecting the business of the Company. We are not promising to
make any public announcement when we think "forward looking statements" in this
document are no longer accurate, whether as a result of new information, what
actually happens in the future or for any other reason.
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
Earnings Summary
For the first quarter of 1999, the Company reported net income of $2.3
million or $0.32 diluted earnings per common share, as compared with $2.0
million or $0.28 diluted earnings per common share for the same period of 1998,
an increase of $308 thousand or 15.6%. The increase was due, in part, to a $330
thousand improvement in net interest income resulting from a 6.6% growth in
average loans outstanding for the first quarter of 1999 as compared to the same
period in 1998. Further contributing to the growth in net income was the
recognition of $317 thousand of gains (after tax) from the sale of equity
securities. The improvements in net income were partially offset by an increase
of $247 thousand or 5.3% in non-interest expenses for the first quarter of 1999
as compared to the same period in 1998.
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 $356
thousand to $7.4 million for the quarter ended March 31, 1999 as compared to the
same quarter of 1998. The increase in net interest income is due to higher
levels of interest earning assets and increased loan production coupled with a
decrease in interest expense resulting from a shift in the deposit composition
("mix").
The loan growth was funded largely by a $35.1 million or 6.4% growth in
average deposits for the first quarter 1999 as compared to the same period in
1998. Non-interest bearing and interest-bearing demand deposits increased $11.6
million or 13.2% and $33.5 million or 21.4%, respectively, while higher yielding
certificates of deposits greater than $100 thousand decreased $5.6 million or
17.7%. The favorable change in the retail deposit mix served to reduce the yield
on total deposits, resulting in a favorable impact on net interest income. The
increase in net interest income was partly offset by lower average rates on
interest earning assets, particularly loans.
<PAGE>
Non-interest Income
For the quarter ended March 31, 1999, non-interest income amounted to $1.3
million, an increase of $389 thousand as compared to the same period in 1998.
The increase was principally due to the recognition of $527 thousand of gains
(pre-tax) from the sale of equity securities. The Company sold the equity
securities to eliminate the market-risk exposure following the announcement by
the underlying company that it had agreed to merge with another organization.
Offsetting these gains was a decrease in service fees on deposit accounts of $56
thousand or 9.0% from the first quarter of 1999 compared to the same period in
1998 and the recognition in the first quarter of 1998 of $53 thousand from the
sale of reverse mortgage servicing, which did not reoccur in the first quarter
of 1999.
Non-interest Expenses
For the quarter ended March 31, 1999, non-interest expenses amounted to
$4.9 million, an increase of $247 thousand or 5.3% as compared to the same
period in 1998. The increase was due in part to occupancy expense, which
increased $95 thousand resulting from the opening of a new branch in Paramus,
New Jersey during the fourth quarter of 1998. In addition, an increase in
salaries and benefits, the largest component of non-interest expenses, was
partly responsible for the growth in non-interest expenses. Salaries and
benefits expense increased $56 thousand or 2.2% resulting from normal
promotions, salary increases and the additions to staff associated with the new
branch opening. At March 31, 1999, full-time equivalent staff was 203 as
compared to 199 at March 31, 1998. Further, expenses associated with modifying
computer systems to address issues relating to Year 2000 totaled $57 thousand
for the three months ended, March 31, 1999. There were no Year 2000 expenses
during the same period in 1998.
Offsetting the increases in non-interest expenses in the first quarter of
1998, were certain merger-related charges totaling $111 thousand associated with
the Jersey Bank for Savings acquisition. The merger-related charges were not
repeated in the first quarter of 1999.
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, net expenses of
foreclosed real estate, Year 2000 expenses and acquisition costs, 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 March 31, 1999, was
58.4% as compared to 55.9% for the year 1998. The change in the efficiency ratio
was primarily due to expenses associated with the opening of the new branch. The
national peer group average (published by SNL Securities) for the year 1998 was
60.1%.
Income Taxes
Income tax expense as a percentage of pre-tax income was 33.9% for the
three months ended March 31, 1999 as compared to 35.5% for the first quarter of
1998. The decrease is attributable to the establishment of a Real Estate
Investment Trust ("REIT") in the second half of 1998. The REIT, which manages
certain real estate assets of the Company, was established in an effort to take
advantage of certain tax benefits.
Nonperforming Assets
Nonperforming assets are comprised of nonaccrual loans, restructured loans
and foreclosed real estate. At March 31, 1999, nonperforming assets amounted to
$2.9 million, an increase of $1.1 million or 59.9% from $1.8 million at March
31, 1998. The increase consisted almost solely of one commercial loan amounting
to $1.2 million, which was placed on nonaccrual status during the first quarter
of 1999. The ratio of nonperforming assets to total loans and foreclosed real
estate increased to 0.60% at March 31, 1999 from 0.38% at December 31, 1998 and
0.40% at March 31, 1998.
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 $5.9 million at March 31, 1999, and $5.6
million at December 31, 1998, representing 208.2% and 300.2% of nonperforming
loans at those dates, respectively. In the first quarter of 1999, the Company's
provision for loan losses was $300 thousand, an increase of $81 thousand from
the same period a year ago. The increase was largely due to continued loan
growth and an increase in nonperforming loans.
Market Risk
The Company's primary source of market risk exposure arises from changes in
market interest rates ("interest rate risk"). The Company's success is largely
dependent upon its ability to manage interest rate risk. Interest rate risk can
be defined as the exposure of the Company's net interest income to adverse
movements in interest rates. Although the Company manages other risks, as in
credit and liquidity risk, in the normal course of its business, management
considers interest rate risk to be its most significant market risk and could
potentially have the largest material effect on the Company's financial
condition. The primary objective of the asset/liability management process is to
measure the effect of changing interest rates on net interest income and market
value and adjust the balance sheet (if necessary) to minimize the inherent risk
and maximize income. The Company's exposure to market risk and interest rate
risk is reviewed on a regular basis by the [Asset/Liability Committee]. Tools
used by management to evaluate risk include an asset/liability simulation model.
At March 31, 1999, the Company simulated the effects on net interest income
given an instantaneous and parallel shift in the yield curve of 200 basis points
in either direction. Based on the simulation, the results did not materially
change from December 31, 1998. At March 31, 1999, the Company was within policy
limits established by the Board of Directors for changes in net interest income
and future economic value.
The Company does not have any material exposure to foreign currency
exchange rate risk or commodity price risk. The Company did not enter into any
market rate sensitive instruments for trading purposes nor did it engage in any
hedging transactions utilizing derivative financial instruments during the first
quarter of 1999.
The Company is, however, party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers. These instruments, which include commitments to extend credit and
standby letters of credit, involve to varying degrees elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
statement of condition. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates and may require
collateral from the borrower if deemed necessary by the Company. Standby letters
of credit are conditional commitments issued by the Company's subsidiary bank to
guarantee the performance of a customer to a third party up to a stipulated
amount and with specified terms and conditions. Commitments to extend credit and
standby letters of credit are not recorded on the Company's consolidated balance
sheet until the instrument is exercised.
FINANCIAL CONDITION
At March 31, 1999, the Company's total assets were $675.8 million, a
decrease of $9.6 million or 1.4% to from total assets of $685.4 million at
December 31, 1998. At March 31, 1999, cash and cash equivalents decreased $11.4
million as compared to December 31, 1998. This is principally the result of
financing activities (reflecting principally deposit withdrawals and repayments
of borrowings) and investing activities (funding loans and investment growth)
utilizing cash more rapidly than the operating activities (reflecting net income
and changes in other assets) can provide it. This can be seen more completely on
the accompanying Statements of Cash Flows.
<PAGE>
<TABLE>
Securities
Securities held to maturity and securities available for sale consist of the following: (in thousands)
<CAPTION>
--------------------------------------------------------------------
March 31, 1999
--------------------------------------------------------------------
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 $ 13,994 $ 95 - $ 14,089
Mortgage-backed securities 17,536 218 $ 15 17,739
Obligations of U.S. agencies 7,987 104 6 8,085
Obligations of states & political subdivisions 9,294 18 37 9,275
Other debt securities 124 1 - 125
--------------- --------------- -------------- ---------------
48,935 436 58 49,313
--------------- --------------- -------------- ---------------
Securities available for sale
Obligations of U.S. Treasury 31,719 536 1 32,254
Mortgage-backed securities 49,262 408 72 49,598
Obligations of U.S. agencies 13,695 221 8 13,908
Obligations of states & political subdivisions 3,154 - 29 3,125
Equity securities 3,921 169 - 4,090
--------------- --------------- -------------- ---------------
101,751 1,334 110 102,975
--------------- --------------- -------------- ---------------
Total securities $150,686 $1,770 $168 $152,288
=============== =============== ============== ===============
--------------------------------------------------------------------
December 31, 1998
--------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- --------------- -------------- ---------------
Securities held to maturity
Obligations of U.S. Treasury $ 15,992 $ 180 - $ 16,172
Mortgage-backed securities 18,921 227 $ 23 19,125
Obligations of U.S. agencies 7,986 175 - 8,161
Obligations of states & political subdivisions 11,111 48 6 11,153
Other debt securities 149 1 - 150
--------------- --------------- -------------- ---------------
54,159 631 29 54,761
--------------- --------------- -------------- ---------------
Securities available for sale
Obligations of U.S. Treasury
Mortgage-backed securities 33,264 777 - 34,041
Obligations of U.S. agencies 42,824 398 156 43,066
Equity securities 13,687 190 53 13,824
4,097 743 - 4,840
--------------- --------------- -------------- ---------------
93,872 2,108 209 95,771
--------------- --------------- -------------- ---------------
Total securities
$148,031 $2,739 $238 $150,532
=============== =============== ============== ===============
</TABLE>
<PAGE>
<TABLE>
<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 $ 8,270 $ 8,281 $ 15,592 $ 15,636
After 1 but within 5 years 19,671 19,864 28,212 28,853
After 5 but within 10 years 10,276 10,326 15,658 15,818
After 10 years 10,718 10,842 38,368 38,578
Equity securities - - 3,921 4,090
--------------- -------------- --------------- -------------
Total $ 48,935 $49,313 $101,751 $ 102,975
=============== ============== =============== =============
</TABLE>
<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 March 31, 1999:
Total Capital (to Risk Weighted Assets):
The Company $67,983 15.54 % $35,009 8.00 % N/A N/A
The Bank 65,837 15.09 34,950 8.00 $43,687 10.00 %
Tier 1 Capital (to Risk Weighted Assets):
The Company 62,436 14.27 17,505 4.00 N/A N/A
The Bank 60,376 13.84 17,475 4.00 26,212 6.00
Tier 1 Capital (to Average Assets):
The Company 62,436 9.32 20,106 3.00 N/A N/A
The Bank 60,376 9.04 20,063 3.00 33,438 5.00
As of December 31, 1998:
Total Capital (to Risk Weighted Assets):
The Company $66,474 15.12 % $35,149 8.00 % N/A N/A
The Bank 63,777 14.59 34,976 8.00 $43,721 10.00 %
Tier 1 Capital (to Risk Weighted Assets):
The Company 60,646 13.80 17,575 4.00 N/A N/A
The Bank 58,312 13.34 17,488 4.00 26,232 6.00
Tier 1 Capital (to Average Assets):
The Company 60,646 9.08 20,041 3.00 N/A N/A
The Bank 58,312 8.76 19,979 3.00 33,299 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 are 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 March 31, 1999, total deposits amounted to $589.4 million, a decrease of $9.3
million or 1.6% from December 31, 1998. 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 March 31, 1999, advances from the FHLB and REPOS
amounted to $9.7 million and $7.2 million, respectively, as compared to $9.8
million and $8.8 million, respectively, at December 31, 1998.
In 1999, despite heightened competition for loans and increased loan
prepayments, loan production continued to be the Company's principal investing
activity. Net loans at March 31, 1999 amounted to $473.6 million, up slightly
from $473.1 million at December 31, 1998. Net loans at December 31, 1998,
included $5.0 million in term federal funds which matured during the first
quarter of 1999. Adjusting for the matured term federal funds, net loans
increased $5.5 million at March 31, 1999 as compared to December 31, 1998.
The Company's most liquid assets are cash and due from banks and federal
funds sold. At March 31, 1999, the total of such assets amounted to $31.9
million or 4.7% of total assets, compared to $43.3 million or 6.3% of total
assets at year-end 1998.
Another significant liquidity source is the Company's available-for-sale
("AFS") securities. At March 31, 1999, AFS securities amounted to $103.0 million
or 67.8% of total securities, compared to $95.8 million or 63.9% of total
securities at year-end 1998.
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
$57.8 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>
Preparation for the Year 2000
The issue surrounding many of the world's computers is principally that
years are currently recorded in a two-digit format. The Company realizes that
many of the world's information systems and/or computer programs currently do
not have the ability to recognize four digit date code fields and, accordingly,
they do not have the ability to distinguish a year that begins with "20" instead
of the familiar "19". If not corrected, this problem will render many computer
applications incapable of interpreting dates beyond the year 1999, which could
significantly disrupt business. Hereinafter, this issue will collectively be
referred to as the "Year 2000 issue". A company's exposure to uncertainties and
costs associated with the Year 2000 issue depends on a number of factors,
including software, hardware, the industry in which it operates, and other
entities with which it electronically interacts.
The Company has developed and adopted a Year 2000 Compliance Plan (the
"Plan") and has established a Year 2000 Compliance Committee (the "Committee").
The objectives of the Plan and the Committee are to address the Year 2000 issues
and prepare the Company for the new millennium. As recommended by the Federal
Financial Institutions Examination Council, the Plan encompasses the following
phases: Awareness, Assessment, Renovation, Validation and Implementation. These
phases will enable the Company to identify risks, develop an action plan, and
perform adequate testing and complete certification that its processing systems
will be Year 2000 ready. In the Awareness phase, the Company defined the Year
2000 issues, informed management and staff and obtained executive level support
and funding. In addition, the Company compiled a comprehensive list of items
that may be affected by the Year 2000 compliance issues. Such items include
facilities and related non-information technology systems (embedded technology),
computer systems, hardware, and services and products provided by third parties.
In the Assessment phase, the Company evaluated the items identified in the
Awareness phase to assess whether the items will function properly with the
century date change. The items were ranked in the order that they will need to
be remediated based on their mission critical nature and the potential impact to
the Company. The Renovation phase includes an analysis of the items that are
affected by Year 2000, the identification of problem areas and the repair of
non-compliant items. The Validation (testing) phase includes a thorough testing
and verification of systems, databases and utilities, including present and
forward date testing which consists of simulating data conditions in the Year
2000. The Implementation phase consists of placing all the systems, databases
and utilities that have been renovated into production. As of March 31, 1999,
the Company has completed the Awareness and Assessment phases. In addition, the
Company has completed the Validation and Renovation phases with respect to its
mission critical applications. As of March 31, 1999, the Company continues to
conduct procedures associated with the Renovation, Validation and Implementation
phases. The Company expects to complete the Implementation phase by June 30,
1999.
The Company continues to survey and communicate with counterparties,
intermediaries and vendors ("Third Parties") with whom it has important
financial and operational relationships to determine the extent to which they
are vulnerable to Year 2000 issues and what impact, if any, their efforts will
have on the Company's business and operations. In the event that a Third Party's
system will not be year 2000 compliant, the Company will assess the potential
risk and, to the extent it is feasible, transfer its business to an alternate
vendor. As of March 31, 1999, the Company has received sufficient information
from its Third Parties to conclude that they are in the Renovation, Validation
and Implementation phases of their respective plans. However, as of March 31,
1999, the Company has not yet received conclusive information from all Third
Parties related to the Renovation, Validation and Implementation phases to
predict the outcome of their efforts.
There are many risks associated with the Year 2000 issue, including the
possible failure of the Company's computer and non-financial technology systems.
Such failures could have a material adverse effect on the Company and may cause
system malfunctions, incorrect or incomplete transaction processing resulting in
the inability to reconcile accounting books and records. In addition, even if
the Company successfully remediates its Year 2000 issues, it can be adversely
affected by failures of Third Parties with which the Company has financial or
operational relationships to remediate their own Year 2000 issues. The failure
of Third Parties to remediate their Year 2000 issues in a timely manner could
result in a material financial risk to the Company. Such risks include business
interruption or shutdown, financial loss, regulatory actions and legal
liability. The Company is developing a Year 2000 specific contingency plan as
part of its overall Year 2000 plan in an effort to mitigate Year 2000 risk.
Based on current information, the Company does not anticipate that the
overall costs related to the implementation of the Year 2000 Plan to be material
in any single year. The Company estimates that the total external cost of
implementing its Year 2000 plan will amount to approximately $170 thousand. The
Year 2000 costs include all activities undertaken on Year 2000 related matters,
including, but not limited to, renovation, validation, third party review and
contingency planning. However, costs for compensation and benefits of the
Company's internal employees have not yet been determined. The cost of Year 2000
compliance and the estimated date of completion of necessary modifications are
based on the Company's best estimates, which were derived from various
assumptions of future events, including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
differ materially from those anticipated. Through March 31, 1999, the Company
has expended approximately $77 thousand on the Year 2000 project. All Year 2000
costs are expensed in the period incurred.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 3 of the Company's Consolidated Financial
Statements of this Form 10-Q.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holdings
None
Item 5. Other Information
On October 13, 1998, the Company hired Nicholas G. Verdi as Senior
Vice President of Retail Banking to replace Richard N. Latrenta who
resigned effective October 23, 1998 to pursue other interests.
Mr. Verdi has since resigned from his position with the Company
effective May 4, 1999.
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) Reports on Form 8-K
None filed for the quarter ended March 31, 1999
<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
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
Dated: May 14, 1999
<TABLE>
Exhibit 11. Computation Re: Earnings Per Share
<CAPTION>
--------------------------------------------------------------------------------
Three Months Ended,
--------------------------------------------------------------------------------
March 31, 1999 March 31, 1998
--------------------------------------- --------------------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
------------ ------------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings per
Common Share
Income available to
common shareholders $2,286 7,206 $0.32 $1,978 7,167 $0.28
============ ============
Effect of Dilutive Shares
Options issued to
management - 43 - 83
------------ -------------- ----------- -------------
Diluted Earnings per
Common Share $2,286 7,249 $0.32 $1,978 7,250 $0.27
============ ============= ============ =========== ============= ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 15,961
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 15,950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 102,975
<INVESTMENTS-CARRYING> 48,935
<INVESTMENTS-MARKET> 49,313
<LOANS> 479,481
<ALLOWANCE> 5,853
<TOTAL-ASSETS> 675,786
<DEPOSITS> 589,400
<SHORT-TERM> 16,989
<LIABILITIES-OTHER> 5,779
<LONG-TERM> 0
<COMMON> 5,397
0
0
<OTHER-SE> 58,221
<TOTAL-LIABILITIES-AND-EQUITY> 675,786
<INTEREST-LOAN> 9,507
<INTEREST-INVEST> 2,124
<INTEREST-OTHER> 219
<INTEREST-TOTAL> 11,850
<INTEREST-DEPOSIT> 4,275
<INTEREST-EXPENSE> 4,512
<INTEREST-INCOME-NET> 7,338
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 527
<EXPENSE-OTHER> 4,925
<INCOME-PRETAX> 3,460
<INCOME-PRE-EXTRAORDINARY> 3,460
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,286
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 4.53
<LOANS-NON> 2,298
<LOANS-PAST> 0
<LOANS-TROUBLED> 513
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,645
<CHARGE-OFFS> 100
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 5,853
<ALLOWANCE-DOMESTIC> 5,853
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 990
</TABLE>
