<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1996
OR
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-24862
IBS FINANCIAL CORP.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3301933
--------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1909 East Route 70
Cherry Hill, New Jersey 08003
--------------------------------- -----------------------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (609) 424-1000
Securities registered pursuant to Section 12(b) of the Act:
NOT APPLICABLE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK (PAR VALUE $.01 PER SHARE)
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
----
As of December 12, 1996, the aggregate value of the 8,533,433 shares of
Common Stock of the Registrant issued and outstanding on such date, which
excludes 1,402,472 shares held by all directors and officers of the
Registrant as a group, was approximately $132.3 million. This figure is
based on the last known trade price of $15.50 per share of the Registrant's
Common Stock on December 12, 1996.
Number of shares of Common Stock outstanding as of December 12, 1996:
9,935,905
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the
Part of the Form 10-K into which the document is incorporated:
(1) Portions of the Annual Report to Stockholders for the fiscal year ended
September 30, 1995 are incorporated into Parts II and IV.
(2) Portions of the definitive proxy statement for the Annual Meeting of
Stockholders are incorporated into Part III.
<PAGE>
PART I.
ITEM 1. BUSINESS
- ------- --------
GENERAL
IBS Financial Corp. (the "Company") is a New Jersey corporation and sole
stockholder of Inter-Boro Savings and Loan Association (the "Association")
which converted to the stock form of organization in October 1994. The only
significant assets of the Company are its investments in the capital stock of
the Association and IBSF Investment Corp., a wholly-owned investment
subsidiary, the Company's loan to an employee stock ownership plan, and
certain U.S. Government Agency securities.
The Association is a New Jersey chartered stock savings and loan
association which conducts business from ten offices located in Camden,
Burlington and Gloucester Counties, New Jersey. The Association's operations
date back to 1890. The Association's deposits are insured by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC") to the maximum extent permitted by law.
The Company has traditionally offered a variety of savings products to
its retail customers. The Company invests its funds in U.S. Government, U.S.
Government agency and mortgage-backed securities, other short term
investments and has concentrated its lending activities on real estate loans
secured by single (i.e., "one-to-four") family residential properties. In
fiscal 1996, the Company also expanded its investment in commercial real
estate loans. The commercial real estate loans originated are collateralized
by small professional and medical office buildings, commercial retail
establishments and religious organizations in its market area. In addition
and to a lesser degree, construction loans are originated to construct
primarily single family residences. In the past, the Company has also
purchased whole residential mortgage loans and participation interests in
commercial real estate projects located principally in New Jersey.
During fiscal 1996, the Company began emphasizing the origination of
single family residential loans and changed the mix of its origination to
include more commercial real estate loans in the local marketplace. In
addition, the Company continued to reduce its liquid assets by reinvesting
the proceeds of maturing investments into mortgage-backed securities
generally with maturities of five and seven years. This was designed to
increase the Company's yield on its loan portfolio. During fiscal 1996,
however, the Company experienced heavy repayments of higher yielding
residential loans and mortgage-backed securities that were reinvested in
lower yielding loan and mortgage-backed securities. As a result, the
Company's net interest margin was pressured, decreasing to 3.44% for the year
ended September 30, 1996 from 3.77% during fiscal 1995.
Financial highlights of the Company include:
- Profitability. Net income totalled $4.5 million, $9.9 million and
$5.0 million for the fiscal years ended September 30, 1996, 1995,
and 1994, respectively. As
<PAGE>
discussed herein, net income during fiscal 1996 was impacted by a
one-time special assessment of $3.7 million ($2.4 million after tax)
to recapitalize the SAIF. See Note 18 of the Notes to Consolidated
Financial Statements incorporated by reference in Item 8 hereof. The
Company manages its net interest margin and maintains relatively low
non-interest expense levels and high asset quality.
- Asset Quality. Management of the Company believes that high asset
quality is the key to long-term financial strength. Stringent loan
underwriting and investment guidelines applied by the Association
have resulted in a portfolio of high quality loans and investments.
At September 30, 1996, single-family residential loans comprised
89.0% of the Association's total loan portfolio. As of such date,
total non-performing loans and troubled debt restructurings
constituted .45% of total loans and total nonperforming assets and
troubled debt restructurings were .11% of total assets.
- Capital. The Company currently exceeds all minimum regulatory
capital requirements of the Office of Thrift Supervision ("OTS").
At September 30, 1996, it had tangible, core, and risk-based
capital ratios of 19.3%, 19.3% and 73.6%, respectively.
- Retail Deposit Base. The Company has ten offices located in
Camden, Burlington and Gloucester Counties, New Jersey. It
provides a full range of deposit products and other services to its
customers through this branch network. At September 30, 1996,
26.8% of the Association's deposit base of $571.4 million consisted
of core deposits, which include passbook, money market and NOW
accounts.
The Company as a bank holding company and savings and loan holding
company is subject to examination and regulation by the Board of Governors of
the Federal Reserve System ("FRB"), the OTS and the New Jersey Department of
Banking (the "Department"). The Association is also subject to examination
and comprehensive regulation by the Department and by the OTS. The
Association is also regulated by the FDIC, the administrator of the SAIF.
The Association is subject to certain reserve requirements established by the
FRB and is a member of the Federal Home Loan Bank ("FHLB") of New York, which
is one of the 12 regional banks comprising the FHLB System.
LENDING ACTIVITIES
GENERAL. The Association's lending operations follow the traditional
pattern of primarily emphasizing the origination of single-family residential
loans for portfolio retention and to a lesser degree, the origination of
commercial real estate loans (which was expanded in 1996), construction loans
on residential properties and consumer loans, including home
- 2 -
<PAGE>
equity or improvement loans. In past years, the Association has also
purchased a relatively small amount of participation interests in commercial
real estate loans.
The Association's primary market area consists primarily of Camden
County and Burlington County and, to a significantly lesser extent,
Gloucester County in southern New Jersey. Substantially all of the
Association's residential mortgage loans are secured by properties located in
New Jersey.
- 3 -
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of the Association's loan portfolio by type of loan at the dates
indicated.
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------- ------------------ ------------------ ------------------ ------------------
Amount % Amount % Amount % Amount % Amount %
--------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family $164,717 89.02% $ 132,251 93.28% $131,423 93.46% $146,556 93.34% $177,665 95.94%
Commercial 17,935 9.69 3,985 2.81 3,525 2.51 3,742 2.38 859 .46
Commercial participations 1,613 .87 4,563 3.22 4,916 3.50 6,286 4.00 5,830 3.15
Construction 1,256 .68 1,889 1.33 2,801 1.99 2,004 1.28 --- ---
Consumer and other loans 3,285 1.78 2,741 1.93 2,073 1.47 2,276 1.44 3,142 1.70
-------- ------ --------- ------ ------- ------ -------- ------ -------- ------
Total loans 188,806 102.04 145,429 102.57 144,738 102.93 160,864 102.44 187,496 101.25
-------- ------ --------- ------ ------- ------ -------- ------ -------- ------
Less:
Allowance for loan losses (1,024) (.55) (994) (0.70) (530) (0.38) (1,669) (1.06) (1,238) (0.67)
Loans in process (1,179) (.64) (1,672) (1.18) (2,618) (1.86) (1,271) (0.81) (91) (0.05)
Deferred loan fees (1,572) (.85) (982) (0.69) (972) (0.69) (893) (0.57) (978) (0.53)
Unearned interest --- --- --- --- --- --- (1) --- (1) ---
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Loans receivable, net $185,031 100.00% $141,781 100.00% $140,618 100.00% $157,030 100.00% $185,188 100.00%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
</TABLE>
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<PAGE>
CONTRACTUAL MATURITIES. The following table sets forth the scheduled
contractual maturities of the Association's loan portfolio at September 30,
1996. Demand loans, loans having no stated schedule of repayments and no
stated maturity and overdraft loans are reported as due in one year or less.
The amounts shown for each period do not take into account loan prepayments
and normal amortization of the Association's loan portfolio.
<TABLE>
<CAPTION>
Real Estate Loans
--------------------------------------------------
Consumer and
Single-family Commercial(1) Construction Other Loans Total
--------------- --------------- -------------- ------------ -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Amounts due in:
One year or less $16,166 $ 554 $1,256 $2,501 $20,477
After one year through three years 4,476 1,644 0 363 6,483
After three years through four years 5,750 0 0 108 5,858
After four years through ten years 13,834 174 0 133 14,141
After ten years through twenty years 57,314 5,846 0 180 63,340
More than twenty years 67,177 11,330 0 0 78,507
------- ------ ------ ------ -------
Total(2) $164,717 $19,548 $1,256 $3,285 $188,806
------- ------ ------ ------ -------
------- ------ ------ ------ -------
Interest rate terms on amounts due after one
year:
Fixed $142,215 $18,994 $ 0 $3,285 $164,494
Adjustable 22,502 554 1,256 0 24,312
------- ------ ----- ------ -------
$164,717 $19,548 $1,256 $3,285 $188,806
------- ------ ------ ------ -------
------- ------ ------ ------ -------
</TABLE>
_______________
(1) Includes commercial participations.
(2) Does not include adjustments relating to loans in process, the allowance
for loan losses, deferred loan fees and unearned interest.
- 5 -
<PAGE>
Scheduled contractual repayment of loans does not reflect the expected
term of the Association's loan portfolio. The expected average life of loans
is substantially less than their contractual terms because of prepayments and
due-on-sale clauses, which give the Association the right to declare a
conventional loan immediately due and payable in the event, among other
things, that the borrower sells the real property subject to the mortgage and
the loan is not repaid. The average life of mortgage loans tends to increase
when current mortgage loan rates are higher than rates on existing mortgage
loans and, conversely, decrease when rates on existing mortgage loans are
lower than current mortgage loan rates (due to refinancings of
adjustable-rate and fixed-rate loans at lower rates). Under the latter
circumstance, the weighted average yield on loans decreases as
higher-yielding loans are repaid or refinanced at lower rates.
Loan Origination, Purchase and Sales Activity. In fiscal 1995, unlike
the prior two fiscal years, gross loan balances increased substantially.
There was a net increase of $43.4 million in balances as loan originations
and purchases of $70.2 million exceeded loan repayments and other net
deductions of $26.8 million. The $52.0 million increase in total loan
originations and purchases in fiscal 1996 when compared to fiscal 1995 more
than offset a $6.2 million increase in principal loan repayments and
prepayments between such periods.
One of the Company's long range objectives is to increase loan production
volumes. To accomplish this objective, the Association has hired a loan
solicitor whose compensation is based on a commission for loan production.
Recently, the Association hired another loan solicitor and has plans to hire
a third loan solicitor in fiscal 1997. In addition, origination points
charged to the loan customer were reduced during fiscal 1995 to be very
competitive in the Association's lending area. The Association also adopted
a more aggressive loan pricing posture and initiated a sales call program
during fiscal 1995 that requires periodic and repetitive calls to area real
estate brokers and builders.
During the latter part of fiscal 1995 loan production volume began to
increase when compared to earlier in the fiscal year. During fiscal 1996
loan production volume increased significantly as the Company's initiatives
began to have an impact. In addition, the Company changed the mix of its
lending products to increase the amount of higher rate commercial real estate
loans originated. These commercial real estate loans, many of which were
secured by local medical and professional offices, represented 10.6% of total
loan balances at September 30, 1996 compared to 6.0% at the end of the
previous fiscal year. Funding for these commercial loan originations was
obtained from new borrowings in the form of FHLB advances.
- 6 -
<PAGE>
The following table shows the loan origination, purchase and sale
activity of the Association during the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- ---------------------
(In Thousands)
<S> <C> <C> <C>
Gross loans at beginning of period $145,429 $144,738 $160,864
-------- -------- --------
Loan originations:
Real estate:
Single-family 48,836 15,506 23,570
Commercial 14,734 220 275
Construction 594 --- 2,800
-------- -------- -------
Total real estate loans originated 64,164 15,726 26,645
-------- -------- -------
Consumer and other originations: 2,389 1,868 1,354
-------- -------- -------
Total loans originated for investment 66,553 17,594 27,999
-------- -------- -------
Purchase of whole loans and
participations 3,643 582 125
-------- -------- -------
Total originations and purchases of
loans 70,196 18,176 28,124
-------- -------- -------
Deduct:
Principal loan repayments and
prepayments (22,575) (16,390) (41,373)
Transferred to real estate owned (56) --- (1,019)
Loans sold (4,188) --- (273)
Loans assigned to and funded by
Association pension fund --- (1,095) (1,585)
-------- -------- -------
Subtotal (26,819) (17,485) (44,250)
-------- -------- -------
Net increase (decrease) in loans 43,377 691 (16,126)
-------- -------- --------
Gross loans at end of period $188,806 $145,429 $144,738
-------- -------- --------
-------- -------- --------
</TABLE>
Applications for residential mortgage and consumer loans are taken at
all of the Association's branch offices while applications for commercial
real estate loans are made at the Association's main office. Residential
mortgage loan applications are primarily developed from referrals from real
estate brokers and builders, existing customers and walk-in customers.
Commercial real estate loan applications are obtained primarily from previous
borrowers as well as referrals.
The Association's lending policy provides that residential mortgages up
to $275,000 may be approved with the signatures of three designated loan
officers who have been approved by the Chief Executive Officer or the General
Loan Committee. The General Loan Committee has been authorized by the Board
to grant loans up to $1.0 million, with
- 7 -
<PAGE>
loans in excess of this amount required to be presented to the full Board for
review and approval. Notwithstanding the foregoing, it has been the practice
of the Association's management to present all loans which are not
single-family residential loans to the General Loan Committee and/or the
Board of Directors for review and approval, and to have the Board of
Directors review any loan application which would exceed $500,000. Under
applicable regulations, the maximum amount of loans that the Association may
make to any one borrower, including related entities, is limited to 15% of
unimpaired capital and surplus, which amounted to $19.8 million at September
30, 1996. In addition, the Association limits lending on any one loan to
$5.0 million unless approved specifically by Board action. As of September
30, 1996, the Association had eight loans outstanding with principal balances
in excess of $1.0 million.
Historically, the Association has originated substantially all of the
loans retained in its portfolio. Although the Association has not been a
seller of loans in the secondary market, substantially all of the residential
real estate loans originated by the Association have been under terms,
conditions and documentation which permit their sale to the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC").
The Association has not been an active purchaser of loans. However, the
Association has in the past purchased whole loans on residential properties
located in New Jersey and may do so again if presented with what management
believes is a satisfactory lending opportunity. The Association has also
previously purchased loan participations secured by commercial real estate
located primarily in New Jersey, although the Association has also purchased
participations elsewhere. Such loans were presented to the Association from
contacts primarily at other financial institutions, particularly those which
have previously done business with the Association. At September 30, 1996,
$1.6 million or .9% of the Association's total loans receivable consisted of
participation interests in loans purchased from other financial institutions,
all of which were paying in accordance with their loan terms. The
Association will also consider the acquisition of an interest in a commercial
real estate loan in its general market area if presented with what management
believes is a satisfactory lending opportunity which is consistent with the
Association's underwriting standards.
SINGLE-FAMILY RESIDENTIAL REAL ESTATE LOANS. Historically, savings
institutions such as the Association have concentrated their lending
activities on the origination of loans secured primarily by first mortgage
liens on existing single-family residences. At September 30, 1996, $164.7
million or 89.0% of the Association's total loan portfolio consisted of
single-family residential real estate loans, substantially all of which are
conventional loans.
The Association historically has and continues to emphasize the
origination of fixed-rate loans with terms of up to 15 years or 30 years.
Although such loans are originated with the expectation that they will be
maintained in portfolio, these loans are originated only under terms,
conditions and documentation which permit their sale in the secondary market.
- 8 -
<PAGE>
The Association also makes available single-family residential
adjustable-rate mortgages ("ARMs") which provide for periodic adjustments to
the interest rate, but such loans have never been as widely accepted in the
Association's market area as the fixed-rate mortgage loan products. The ARMs
currently emphasized by the Association have up to 30-year terms and an
interest rate which adjusts every one or three years in accordance with a
designated index. Such loans have a 2% cap on any increase or decrease in
the interest rate per period, and there is currently a limit of 6% on the
amount that the interest rate can change over the life of the loan. The
Association has not offered below market or "teaser" rates and has not
engaged in the practice of using a cap on the loan payments, which could
allow the loan balance to increase rather than decrease, resulting in
negative amortization.
At September 30, 1996, approximately $143.9 million or 87.4% of the
single-family residential loans in the Association's loan portfolio consisted
of loans which provide for fixed rates of interest. Although these loans
generally provide for repayments of principal over a fixed period of 15 to 30
years, it is the Association's experience that because of prepayments and
due-on-sale clauses, such loans generally remain outstanding for a
substantially shorter period of time.
Property appraisals on the real estate and improvements securing the
Association's single-family residential loans are made by independent
appraisers approved by the Association's Board of Directors. Appraisals are
performed in accordance with federal regulations and policies. The
Association obtains title insurance policies on most first mortgage real
estate loans originated by it. If title insurance is not obtained or is
unavailable, the Association obtains an abstract of title and title opinion.
Borrowers also must obtain hazard insurance prior to closing and, when
required by the United States Department of Housing and Urban Development,
flood insurance. Borrowers may be required to advance funds, with each
monthly payment or principal and interest, to a loan escrow account from
which the Association makes disbursements for items such as real estate taxes
and mortgage insurance premiums as they become due.
The Association also purchases Federal Housing Administration ("FHA")
insured, fixed-rate individual whole loans secured by first liens on
single-family residential properties located in 'low and moderate income'
defined census tracts in the Association's primary market area. In order to
promote the program and to make it more affordable for eligible applicants,
loans will be originated at a rate of 1/2 of 1% under the then applicable
FNMA rate for FHA mortgages, which rate reduction is passed directly on to
the borrower. Loans are underwritten and documented following standard FHA
procedures, and are subject to approval by the Association in its sole
discretion prior to purchase. At September 30, 1996, the Association had
purchased 17 loans aggregating $705,000.
COMMERCIAL REAL ESTATE LOANS. The Association also originates mortgage
loans for the acquisition and refinancing of commercial real estate
properties. At September 30, 1996, $17.9 million or 9.7% of the
Association's total loan portfolio consisted of loans secured by existing
commercial real estate properties and an additional $1.6 million or .9% of
the total
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<PAGE>
loan portfolio consisted of commercial real estate participation. During
fiscal 1996, the Association originated nine loans aggregating $14.5 million,
which are secured by commercial real estate located in New Jersey.
The majority of the Association's commercial real estate loans are
secured by local medical and professional office facilities and other office
buildings, small retail establishments and synagogues. These types of
properties constitute the majority of the Association's commercial real
estate loan portfolio. The Association's commercial real estate loan
portfolio consists primarily of loans secured by properties located in its
primary market area.
Although terms vary, commercial real estate loans generally are
amortized over a period of 15-25 years. The Association's commercial real
estate loans (and loan participations) have a weighted average maturity of
7.7 years at September 30, 1996. The Association will originate these loans
either with fixed interest rates or with interest rates which adjust in
accordance with a designated index, which generally is negotiated at the time
of origination. As part of the criteria for underwriting commercial real
estate loans, the Association generally imposes a debt coverage ratio (the
ratio of net cash from operations before payment of debt service to debt
service) of at least 125%. It is also the Association's general policy to
obtain personal guarantees on its commercial real estate loans from the
principals of the borrower and, when this cannot be obtained, to impose more
stringent loan-to-value, debt service and other underwriting requirements.
At September 30, 1996 the Association's commercial real estate loan portfolio
consisted of 18 loans (including one commercial participation) with an
average principal balance of $1,000,000.
CONSTRUCTION LOANS. The Association will also originate loans to
construct primarily single-family residences, and, to a much lesser extent,
loans to acquire and develop real estate for construction of residential
properties. These construction lending activities generally are limited to
the Association's primary market area. At September 30, 1996, the
Association had one construction loan outstanding in the amount of $1.3
million or .7% of the Association's total loan portfolio, of which $1.2 had
been disbursed. Construction loans generally have maturities of 6 to 12
months, with interest payments being made monthly. Thereafter, the
Association will generally provide the permanent financing arrangements. The
loans are made with floating rates of interest based upon the prime rate plus
a margin. The Association also receives fees upon issuance of the commitment
which range from 1% to 3% of the commitment. Loan proceeds are disbursed in
stages after inspections of the project indicate that such disbursements are
for costs already incurred and added to the value of the project.
Prior to making a commitment to fund a construction loan, the
Association requires an appraisal of the property by independent appraisers
approved by the Board of Directors. The Association uses qualified
appraisers on all of its construction loans. Loan officers of the
Association also review and inspect each project at the commencement of
construction. In addition, the project is inspected by a loan officer of the
Association prior to every
- 10 -
<PAGE>
disbursement of funds during the term of the construction loan. Such
inspection includes a review for compliance with the construction plan,
including materials specifications.
Construction lending is generally considered to involve a higher level of
risk as compared to single-family residential lending, due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on real estate developers and
managers. Moreover, a construction loan can involve additional risks because
of the inherent difficulty in estimating both a property's value at
completion of the project and the estimated cost (including interest) of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. The Association has attempted to minimize
the foregoing risks by, among other things, limiting the extent of its
construction lending generally and by limiting its construction lending to
residential properties. In addition, the Association has adopted
underwriting guidelines which impose stringent loan-to-value, debt service
and other requirements for loans which are believed to involve higher
elements of credit risk, by limiting the geographic area in which the
Association will do business and by working with builders with whom it has
established relationships or which have quality reputations.
ASSET QUALITY
When a borrower fails to make a required payment on a loan, the
Association attempts to cure the deficiency by contacting the borrower and
seeking the payment. Late notices are sent and/or personal contacts are
made. In most cases, deficiencies are cured promptly. While the Association
generally prefers to work with borrowers to resolve such problems, when a
mortgage loan becomes 90 days delinquent, the Association institutes
foreclosure or other proceedings, as necessary, to minimize any potential
loss.
Loans are placed on non-accrual status when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. When a loan is placed on
non-accrual status, previously accrued but unpaid interest is deducted from
interest income. The Association does not accrue interest on loans past due
90 days or more.
Real estate acquired by the Association as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as real estate owned until it is
sold. When a property is acquired, it is recorded at the lower of cost or
fair value. Fair value is generally determined through the use of
independent appraisals. Any write-downs resulting at acquisition are charged
to the allowance for loan losses. All costs incurred in maintaining the
Association's interest in the property are capitalized between the date the
loan becomes delinquent and the date of acquisition. After the date of
acquisition, all costs incurred in maintaining the property are expenses and
costs incurred for the improvement or development of such property are
capitalized. As of September 30, 1996, the Association had no real estate
owned.
11
<PAGE>
Under generally accepted accounting principles, the Association is
required to account for certain loan modifications or restructurings as
"troubled debt restructurings." In general, the modification or
restructuring of a debt constitutes a troubled debt restructuring if the
Association for economic or legal reasons related to the borrower's financial
difficulties grants a concession to the borrower that the Association would
not otherwise consider. Debt restructurings or loan modifications for a
borrower do not necessarily always constitute troubled debt restructurings,
however, and troubled debt restructurings do not necessarily result in
non-accrual loans. During the fiscal year ended September 30, 1994, the
Association participated in the restructuring of a commercial real estate
loan participation, which was accounted for as a troubled debt restructuring.
The property securing the loan was 99% leased as of September 30, 1995 and
the loan had been performing on a timely basis since December 1993.
Accordingly, the loan was treated as a performing loan at September 30, 1996.
At September 30, 1995, During fiscal 1996, this loan was sold which generated
a gain of $16,000. At September 30, 1996, the Association had no troubled
debt restructurings.
NON-PERFORMING ASSETS AND TROUBLED DEBT RESTRUCTURINGS. The following
table sets forth the amounts and categories of the Association's
non-performing assets and troubled debt restructurings at the dates indicated.
<TABLE>
<CAPTION>
September 30,
--------------------------------------------
1996 1995 1994 1993 1992
-------- ------ ------ ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
Single-family residential(1) $827 $663 $1,005 $ 895 $1,040
Commercial participations --- --- --- 4,583 5,882
-------- ------ ------ ------ ----------
Total nonperforming loans 827 663 1,005 5,478 6,922
Real estate owned --- --- 819 --- 1,573
-------- ------ ------ ------ ----------
Total nonperforming assets $827 $663 $1,824 $5,478 $8,495
======== ====== ====== ====== ==========
Troubled debt restructurings $--- $ --- $3,261 $ --- $ ---
======== ====== ====== ====== ==========
Total nonperforming loans and
troubled debt restructurings
as a percentage of total loans 0.45% 0.47% 3.62% 3.49% 4.59%
======== ====== ====== ====== ==========
Total nonperforming assets
and troubled debt
restructurings as a percentage
of total assets 0.11% 0.09% 0.77% 0.82% 1.30%
======== ====== ======= ====== ==========
</TABLE>
(FOOTNOTES ON THE FOLLOWING PAGE)
12
<PAGE>
_______________
(1) Consists of an aggregate of 11, 15, 16, 16 and 21 loans at September 30,
1996, 1995, 1994, 1993 and 1992 respectively.
The Association's total non-performing assets and troubled debt
restructurings have declined from a high of $8.5 million or 1.30% of total
assets at September 30, 1992 to $800,000 million or .11% of total assets at
September 30, 1996. During the year ended September 1994, total
non-performing assets declined by $3.7 million or 66.7%, as the Association
participated in the troubled debt restructuring of a commercial real estate
participation and took an additional non-performing commercial real estate
loan participation into REO after charging $1.3 million of its carrying value
against the allowance for loan losses. During the year ended September 30,
1995, total non-performing assets declined by $1.2 million or 63.7% as the
Association sold the real estate owned and reduced single-family non-accruing
loans. During the year ended September 30, 1996, total non-performing assets
increased by $164,000 or 24.7% reflecting an increase in the amount of
non-accruing single-family loans.
At September 30, 1996 and 1995, approximately $69,000 and $60,000 in
gross interest income, respectively, would have been recorded in the period
then ended on loans accounted for on a non-accrual and restructured basis if
such loans had been current in accordance with their original terms and had
been outstanding throughout the period or since origination if held for part
of the period. For the years ended September 30, 1996 and 1995, $45,000 and
$46,000, respectively, were included in net income for these same loans prior
to the time they were placed on non-accrual status. The Association had no
accruing loans greater than 90 days delinquent.
ALLOWANCE FOR LOAN LOSSES. An allowance for loan losses is maintained at
a level that management considers adequate to provide for potential losses
based upon an evaluation of known and inherent risks in the loan portfolio.
Allowances for loan losses are based on estimated net realizable value.
Management's periodic evaluation is based upon examination of the portfolio,
past loss experience, current economic conditions, the results of the most
recent regulatory examinations, and other relevant factors. While management
uses the best information available to make such evaluations, future
adjustments to the allowance may be necessary if economic conditions differ
substantially from the assumptions used in making the evaluations.
13
<PAGE>
The following table summarizes changes in the allowance for loan losses
and other selected statistics for the periods presented.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average loans, net $159,628 $138,619 $147,691 $177,364 $197,103
======== ======== ======== ======== ========
Allowance for loan losses,
beginning of year $ 994 $ 530 $ 1,669 $ 1,238 $ 1,495
Charged-off loans(1) --- --- (1,319) --- (1,334)
Recoveries on loans previously
charged off --- 434 --- --- ---
Provision for loan losses 30 30 180 431 1,077
-------- -------- -------- -------- --------
Allowance for loan losses, end
of period $ 1,024 $ 994 $ 530 $ 1,669 $ 1,238
======== ======== ======== ======== ========
Net loans charged-off to
average loans, net ---% ---% 0.89% ---% 0.68%
======== ======== ======== ======== ========
Allowance for loan losses to
total loans 0.55% 0.70% 0.38% 1.06% 0.67%
======== ======== ======== ======== ========
Allowance for loan losses to
nonperforming loans 123.8% 149.91% 52.71% 30.51% 17.9%
======== ======== ======== ======== ========
Allowance for loan losses to
nonperforming loans and
troubled debt restructurings 123.8% 149.91% 12.41% 30.51% 17.9%
======== ======== ======== ======== ========
</TABLE>
_______________
(1) Comprised entirely of commercial participations.
During the year ended September 30, 1994, the Association took a
non-performing commercial participation into REO after charging off $1.3
million of its carrying value against the allowance for loan losses. In
addition, during the period, the Association participated in the troubled
debt restructuring of a commercial real estate participation. Primarily as a
result of such actions, during the year ended September 30, 1994, total
non-performing assets declined by $3.7 million or 66.7%, to $1.8 million. Due
to the relatively low level of non-performing assets in the Association's
portfolio in fiscal 1995 and 1996, the ratio of such allowance to total
non-performing loans increased during such period, from 30.5% at September
30, 1993 to 149.9% at September 30, 1995 and 123.8% at September 30, 1996.
The Association believes that its allowance is adequate based upon its actual
loss experience, which has historically been low due to its conservative
underwriting and primary reliance on single family residential loans.
14
<PAGE>
The following table presents the allocation of the allowance for loan
losses to the total amount of loans in each category listed at the dated
indicated.
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------- -------------------- ------------------- -------------------- ----------------------
% of Loans % of Loans % of Loans % of Loans % of Loans
in Each in Each in Each in Each in Each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------- ----------- ------ ----------- ------ ------------ ------ --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
Single-family $ 724 89.02% $699 93.28% $236 93.46% $ 246 93.33% $ 299 95.94%
Commercial
participations 16 0.87 252 3.22 250 3.50 1,358 4.00 908 3.15
Commercial 274 9.69 40 2.81 41 2.51 7 2.38 30 0.46
Construction 1 0.12 2 0.28 2 0.30 57 0.29 --- ---
Consumer and
other 9 0.30 1 0.41 1 0.23 1 --- 1 0.45
------ ----- ----- ----- ----- ----- ------- ------ ------ -----
Total $1,024 100.00% $994 100.00% $530 100.00% $1,669 100.00% $1,238 100.00%
====== ====== ==== ====== ===== ====== ======= ====== ====== ======
</TABLE>
15
<PAGE>
INVESTMENT ACTIVITIES
GENERAL. The Association's investment activities are managed by the
Chief Executive Officer with the assistance of other senior officers
designated by the Board of Directors. These activities are conducted in
accordance with a written investment policy which is reviewed and approved by
the Board of Directors at least annually. The Association's Asset Liability
Management Committee ("ALCO") has been designated to work with management and
the Board to implement and achieve the investment plan goals and to report at
least quarterly to the Board in conjunction with its review of the
Association's overall GAP and interest rate risk position. As reflected in
its investment policy, the Association's investment objective is to maintain
a balance of high quality and diversified investments with a minimum of
credit risk. Accordingly, the Association seeks a competitive return from
its investments, but the rate of return is only one consideration which is
weighed against the Association's other goals and objectives of liquidity and
operating in a manner deemed by the Board to reflect safety and soundness.
The Association has authority to invest in various types of assets. The
Association's investment officers are authorized by the Board to: purchase
or sell U.S. Government securities and securities issued by agencies thereof;
purchase, sell or trade any securities qualifying as eligible liquidity;
purchase or sell bonds, securities and money market investments under
repurchase or reverse repurchase agreements; purchase mortgage-related and
asset-backed securities; purchase whole loans and participations in the
secondary mortgage market; invest in financial institution certificates of
deposit, Federal and term funds, bankers' acceptances and other authorized
investments; invest in various corporate securities and bonds that have at
least an "AA" rating by two nationally recognized debt rating services; and
invest in various mutual funds and certain equity issues as authorized by the
Board. The Board does not permit investments in highly speculative
securities.
The Association's investments and mortgage-backed securities are
classified as either "held to maturity" or "available for sale." The
investments and mortgage-backed securities classified as held to maturity are
based upon the Association's intent and ability to hold such investments to
maturity at the time of investment in accordance with generally accepted
accounting principles. These investment securities and mortgage-backed
securities are carried at amortized cost, with any discount or premium
amortized to maturity. The investments and mortgage-backed securities
classified as available for sale are based upon the Association's intent that
such securities will be held for an indefinite period of time and may be sold
in response to market changes. These assets are carried at their estimated
fair value, which management has determined to be market value. The Company
sold securities in fiscal 1996 and recognized a gain on sale of $70,000.
In accordance with a FASB pronouncement issued in 1995, the Association
transferred certain securities with an aggregate amortized cost of $199,401
from the classification of held to maturity to available for sale in December
1995. See Notes 2, 4 and 5 of the Notes to Consolidated Financial Statements
in Item 8 hereof incorporated herein by reference.
- 16 -
<PAGE>
INVESTMENT SECURITIES. The following table sets forth certain information
relating to the Association's investment securities held to maturity portfolio
at the dates indicated.
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
--------- ------- --------- ------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities $ --- $ --- $ 49,977 $ 50,252 $ 80,944 $ 80,245
Obligations of U.S.
government
corporations
and agencies 26,366 26,378 114,994 115,275 133,497 132,817
Term deposits in FHLB 346 346 76,374 76,374 75,054 75,054
------- ------- -------- -------- -------- --------
Total $26,712 $26,724 $241,345 $241,901 $289,495 $288,116
======= ======= ======== ======== ======== ========
</TABLE>
The following table sets forth certain information relating to the
Association's investment securities available for sale portfolio at the date
indicated.
<TABLE>
<CAPTION>
September 30, 1996
-----------------------------
Carrying Market
Value Value
-------- ---------
(In Thousands)
<S> <C> <C>
U.S. government obligations $48,337 $48,337
-------- ---------
-------- ---------
</TABLE>
At September 30, 1996, all of the Association's investment securities
both held to maturity and available for sale were due in one year or less.
The weighted average yield on a fully tax equivalent basis for the held to
maturity portfolio and the available for sale portfolio at September 30, 1996
was 5.48% and 6.43%, respectively.
The decrease in investment securities at September 30, 1996 when compared
to September 30, 1995 reflects the Association's plan to reduce its liquid
assets. At September 30, 1996, the Association did not have investments in
the debt and/or equity securities of any issuer other than the U.S.
Government and U.S. Government agencies and corporations.
MORTGAGE-BACKED SECURITIES PORTFOLIO. The Association maintains a
portfolio of mortgage-backed securities as a means of investing in
housing-related mortgage instruments without the costs associated with
originating mortgage loans for portfolio retention and with limited credit
risk of default which arises in holding a portfolio of loans to maturity.
Mortgage-related securities (which also are known as mortgage participation
certificates or pass-through certificates) represent a participation interest
in a pool of single-family or multi-family mortgages, the principal and
interest payments on which are passed from the
17
<PAGE>
mortgage originators, through intermediaries (generally U.S. Government
agencies and government sponsored enterprises) that pool and repackage the
participation interests in the form of securities, to investors such as the
Association. Such U.S. Government agencies and government sponsored
enterprises, which guarantee the payment of principal and interest to
investors, primarily include the FHLMC, the FNMA and the GNMA.
The FHLMC is a public corporation chartered by the U.S. Government and
owned by the 12 Federal Home Loan Banks and federally-insured savings
institutions. The FHLMC issues participation certificates backed principally
by conventional mortgage loans. The FHLMC guarantees the timely payment of
interest and the ultimate return of principal. The FNMA is a private
corporation chartered by the U.S. Congress with a mandate to establish a
secondary market for conventional mortgage loans. The FNMA guarantees the
timely payment of principal and interest on FNMA securities. FHLMC and FNMA
securities are not backed by the full faith and credit of the United States,
but because the FHLMC and FNMA are U.S. Government-sponsored enterprises,
these securities are considered to be among the highest quality investments
with minimal credit risks. The GNMA is a government agency within the
Department of Housing and Urban Development which is intended to help finance
government-assisted housing programs. GNMA securities are backed by
FHA-insured and VA-guaranteed loans, and the timely payment of principal and
interest on GNMA securities are guaranteed by the GNMA and backed by the full
faith and credit of the U.S. Government. Because the FHLMC, the FNMA and the
GNMA were established to provide support for low- and middle-income housing,
there are limits to the maximum size of loans that qualify for these
programs. For example, the FNMA and the FHLMC currently limit their loans
secured by a single-family, owner-occupied residence to $203,150. To
accommodate larger-sized loans, and loans that, for other reasons, do not
conform to the agency programs, a number of private institutions have
established their own home-loan origination and securitization programs.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages, i.e., fixed rate or adjustable rate, as well as
prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security thus approximates the life of the
underlying mortgages.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans. Mortgage-backed
securities issued or guaranteed by FNMA or FHLMC (except interest-only
securities or the residual interests in collateralized mortgage obligations)
are weighted at no more than 20.0% for risk-based capital purposes, compared
to a weight of 50.0% to 100.0% for residential loans. See "Regulation - The
Association - Capital Requirements."
18
<PAGE>
The following table sets forth the composition of the Association's
mortgage-backed securities portfolio which includes both securities available
for sale and held at maturity at the dates indicated.
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
FNMA $ 41,468 $ 17,280 $ --- $ --- $ ---
GNMA 131,632 142,054 105,482 128,427 207,819
FHLMC 278,435 151,549 76,344 4,724 7,071
Private 726 870 1,065 1,526 2,151
-------- -------- -------- -------- --------
Total mortgage-backed
securities( 1) $452,261 $311,753 $182,891 $134,677 $217,041
======== ======== ======== ======== ========
</TABLE>
_________________
(1) Includes FNMA, GNMA and FHLMC securities held for sale at September
30, 1996 of $12,386, $15,729 and $138,879, respectively, or an aggregate of
$166,994.
The following table sets forth the purchases and principal repayments of
the Association's mortgage-backed securities for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Beginning balance $311,753 $182,891 $134,677
Mortgage-backed securities purchased 217,687 164,236 105,853
Principal repayments (78,778) (35,710) (57,948)
Unrealized gain, net of tax 1,509 --- ---
Deferred discounts, net 90 336 309
-------- -------- --------
Net change 140,508 128,862 48,214
-------- -------- --------
Ending balance $452,261 $311,753 $182,891
======== ======== ========
</TABLE>
At September 30, 1996, the weighted average contractual maturity of all
of the Association's mortgage-backed securities was in excess of 10.5 years
and the weighted average yield on the mortgage-backed securities portfolio
was 7.07%. The actual maturity of a mortgage-backed security is less than
its stated maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the life of the
security and adversely affect its yield to maturity. The yield is based upon
the interest income and the amortization of any premium or discount related
to the mortgage-backed security. Although prepayments of underlying
mortgages depend on many factors, including the type of mortgages, the coupon
rate, the age of mortgages, the geographical location of the underlying real
estate collateralizing the mortgages and general levels of market interest
rates, the difference between the interest rates on the underlying mortgages
and the
19
<PAGE>
prevailing mortgage interest rates generally is the most significant
determinant of the rate of prepayments. During periods of falling mortgage
interest rates, if the coupon rate of the underlying mortgages exceeds the
prevailing market interest rates offered for mortgage loans, refinancing
generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the
Association may be subject to reinvestment risk because to the extent that
the Association's mortgage-backed securities amortize or prepay faster than
anticipated, the Association may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate. The declining yields earned
during recent periods is a direct response to falling interest rates and
accelerated prepayments. At September 30, 1996, of the $452.3 million of
mortgage-backed securities, an aggregate of $391.5 million were secured by
fixed-rate mortgage loans and an aggregate of $60.8 million were secured by
adjustable-rate mortgage loans.
In February 1992, the OTS adopted a policy statement which states, among
other things, that mortgage derivative products (including CMOs and CMO
residuals and stripped mortgage-backed securities) which possess average life
or price volatility in excess of a benchmark fixed-rate 30-year
mortgage-backed pass-through security are "high-risk mortgage securities,"
are not suitable investments for depository institutions, must be carried in
the institution's trading account or as assets held for sale, and must be
marked to market on a regular basis. The Association has no "high risk"
mortgage securities at September 30, 1996 and has no present intention to
alter materially its investment policies and practices.
SOURCES OF FUNDS
GENERAL. The Association's principal source of funds for use in lending
and for other general business purposes has traditionally come from deposits
obtained through the Association's branch offices. The Association also
derives funds from amortization and prepayments of outstanding loans and
mortgage-backed securities and from maturing investment securities. The
Association also borrows from the FHLB of New York. The Association had $18.8
million of FHLB borrowings outstanding at September 30, 1996. Loan
repayments are a relatively stable source of funds, while deposits inflows
and outflows are significantly influenced by general interest rates and money
market conditions. In the event of the need for an additional source of
funds, the Board of Directors of the Company has authorized management to
borrow up to $10.0 million from the Federal Reserve Bank of Philadelphia
without the need for further Board approval. In addition, during the year
ended September 30, 1996, the Company's Board of Directors also provided
management with the authority to borrow up to $50 million from the Federal
Home Loan Bank of New York.
DEPOSITS. The Association's current deposit products include passbook
accounts, negotiable order of withdrawal (NOW) accounts, money market deposit
accounts and certificates of deposit ranging in terms from seven days to
seven years. The Association's deposit products also include Individual
Retirement Account ("IRA") and Keogh certificates and passbook accounts.
20
<PAGE>
The Association's deposits are obtained primarily from residents in its
primary market area of Camden, Burlington and Gloucester Counties in Southern
New Jersey. The Association to a lesser extent obtains deposits from other
locations in the greater Philadelphia metropolitan area. The Association
attracts deposit accounts by offering a wide variety of accounts, competitive
interest rates, and convenient branch office locations and service hours.
The Association primarily utilizes print media to attract new customers and
savings deposits. The Association has never utilized the services of deposit
brokers and had no brokered deposits at September 30, 1996. During fiscal
1995, the Association acquired three automated teller machines, two of which
are located at branch offices in Camden County and one at a Burlington County
branch office. The Association is affiliating with the MAC-Registered
Trademark- ATM System. In October 1996, the Association increased its branch
network from 8 offices to 10 offices. These new offices, which are full
service branches equipped with automated teller machines, are located in
Gloucester Township and Voorhees Township, Camden County, New Jersey. In
addition, the Association acquired another automated teller machine for use
at another Burlington County branch. Of the Associations 10 offices, 6 are
currently equipped with automated teller machines.
The Association has been competitive in the types of accounts and in
interest rates it has offered on its deposit products but does not
necessarily seek to match the highest rates paid by competing institutions.
With the significant decline in interest rates paid on deposit products, the
Association in recent years has experienced disintermediation of deposits
into competing investment products. However, the disintermediation
experienced has been consistent with the Association's strategy of
controlling growth.
21
<PAGE>
The following table shows the distribution of, and certain other
information relating to, the Association's deposits by type of deposit as of
the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------------------
1996 1995 1994
------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
-------- ------ -------- ----- -------- -----
Passbook and club accounts $ 59,323 10.4% $ 62,950 11.1% $ 80,494 13.3%
Money market 70,023 12.2 74,933 13.3 99,735 16.5
Certificate of deposit 417,773 73.1 403,736 71.4 396,194 65.7
NOW accounts 23,886 4.2 22,909 4.1 26,274 4.4
Accrued interest 361 .1 382 .1 383 0.1
-------- ------ -------- ----- -------- -----
Total deposits at end of
period $571,366 100.00% $564,910 100.0% $603,080 100.0%
-------- ------ -------- ----- -------- -----
-------- ------ -------- ----- -------- -----
</TABLE>
22
<PAGE>
The following table presents, by various interest rate categories, the
amount of certificates of deposit at September 30, 1996 and 1995, and the
amounts at September 30, 1996 which mature during the periods indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, AMOUNTS AT SEPTEMBER 30, 1996
MATURING WITHIN
-------------------- ----------------------------------------------
CERTIFICATES OF
DEPOSIT 1996 1995 ONE YEAR TWO YEARS THREE YEARS THEREAFTER
- --------------- -------- -------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
2.00% to 4.00% $ 8,522 $ 29,325 $ 1,494 $ 316 $ 1,725 $ 4,987
4.01% to 6.00% 337,123 282,158 216,942 67,269 38,496 14,416
6.01% to 8.00% 70,155 83,958 24,063 24,384 10,546 11,162
8.01% to 10.0% 1,973 8,295 305 561 1,072 35
10.01% or more 0 --- 0 0 0 0
-------- -------- -------- -------- -------- --------
Total certificate
accounts $417,773 $403,736 $242,804 $92,530 $51,839 $30,600
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
23
<PAGE>
The following table presents the average balance of each deposit type
and the average rate paid on each deposit type for the periods indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------------------
1996 1995 1994
------------------- ------------------- --------------------
AVERAGE AVERAGE AVERAGE
AVERAGE RATE AVERAGE RATE AVERAGE RATE
BALANCE PAID BALANCE PAID BALANCE PAID
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Passbook and club accounts $60,561 10.57% $ 67,810 2.94% $76,585 2.75%
Money market 72,798 12.71 83,482 3.09 103,982 2.83
Certificates of deposit 415,447 72.53 394,704 5.06 404,002 4.97
NOW accounts 24,020 4.19 23,742 2.07 25,178 2.08
-------- ------ -------- ---- -------- ----
Total deposits $572,826 100.00% $569,738 4.39% $609,747 4.20%
-------- ------ -------- ---- -------- ----
-------- ------ -------- ---- -------- ----
</TABLE>
The following table sets forth the Association's net savings flows
during the periods indicated.
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1996 1995 1994
-------- -------- ---------
(IN THOUSANDS)
Beginning balance $564,910 $603,080 $609,805
-------- -------- --------
Decrease before interest
credited (16,562) (59,836) (29,105)
Interest credited 23,018 21,666 22,380
-------- -------- --------
Net savings increase
(decrease) 6,456 (38,170) (6,725)
Ending balance $571,366 $564,910 $603,080
-------- -------- --------
-------- -------- --------
The following table sets forth maturities of the Association's
certificates of deposit of $100,000 or more at September 30, 1996 by time
remaining to maturity.
AMOUNTS IN
THOUSANDS
----------
Three months or less $ 8,051
Over three months through six months 8,717
Over six months through 12 months 7,399
Over 12 months 20,471
-------
Total $44,638
-------
-------
24
<PAGE>
SUBSIDIARIES
At September 30, 1996, the Company had two wholly-owned subsidiaries, the
Association and IBSF Investment Corp., a New Jersey-chartered investment
company formed in 1996, which had total assets of $12.2 million comprised
principally of investments in certificates of deposit and overnight funds at
the Federal Home Loan Bank of New York.
At September 30, 1996, the Association did not have any subsidiaries. In
December 1996, the Association received the non-objection of the OTS to
establish a Delaware operating subsidiary, IBS Delaware Investment Corp.
("IBSD"), solely to manage certain of the investments of the Association. The
Association is in the process of forming IBSD.
COMPETITION
The Association faces significant competition for real estate loans,
principally from mortgage banking companies, other savings institutions,
commercial banks and credit unions. Factors which affect competition
generally include the general and local economic conditions, current interest
rate levels and volatility in the mortgage markets. The Association also
faces significant competition in attracting deposits. Its most direct
competition for deposits has historically come from commercial banks and
other savings institutions located in its market area. The Association faces
additional significant competition for investors' funds from other
non-depository institutions, including mutual funds and brokerage firms. The
Association competes for deposits principally by offering depositors a variety
of deposit programs, convenient branch locations, hours and other services.
The Association does not rely upon any individual group or entity for a
material portion of its deposits.
Federal legislation in recent years has eliminated many of the
distinctions between commercial banks and savings institutions and holding
companies and allowed bank holding companies to acquire savings institutions.
Such legislation has generally resulted in an increase in the competition
encountered by savings institutions and has resulted in a decrease in both
the number of savings institutions and the aggregate size of the savings
industry.
REGULATION
THE COMPANY. The Company is a registered savings and loan holding
company and is subject to OTS regulations, examinations, supervision and
reporting requirements. As a subsidiary of a savings and loan holding
company, the Association is subject to certain restrictions in its dealings
with the Company and affiliates thereof. The Company is also subject to
regulation by the Department pursuant to the New Jersey Savings and Loan Act
(the "Act").
25
<PAGE>
The Company is also a bank holding company regulated by the Board of
Governors of the Federal Reserve system. The Company was required to become
a bank holding company by virtue of the Association having failed to comply
with the QTL test as of July 1993 and being unable to re-qualify as a
"qualified thrift lender" as of July 1994. As a bank holding company, the
Company is subject to regulation and supervision by the Federal Reserve
Board, is required to file periodic reports and annually a report of its
operations with, and is subject to examination by, the Federal Reserve Board.
The Association re-qualified as a qualified thrift lender in August 1995.
See "- BHCA Activities and Other Limitations" and "-The Association-Qualified
Thrift Lender Test."
FEDERAL ACTIVITIES RESTRICTIONS. There are generally no restrictions on
the activities of a savings and loan holding company which holds only one
subsidiary savings association. However, if the Director of the OTS
determines that there is reasonable cause to believe that the continuation by
a savings and loan holding company of an activity constitutes a serious risk
to the financial safety, soundness or stability of its subsidiary savings
association, the Director may impose such restrictions as deemed necessary to
address such risk, including limiting (i) payment of dividends by the savings
association; (ii) transactions between the savings association and its
affiliates; and (iii) any activities of the savings association that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings association. As was the case with
the Association, notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, under OTS
regulations, any savings and loan holding company is required to register as
a bank holding company within one year of the failure of the QTL Test by its
subsidiary insured institution. Under such circumstances, the holding
company becomes subject to all of the provisions of the BHCA and other
statutes applicable to bank holding companies, in the same manner and to the
same extent as if the company were a bank holding company. See "- BHCA
Activities and Other Limitations."
If the Company were to acquire control of another savings association,
other than through merger or other business combination with the Association,
the Company would thereupon become a multiple savings and loan holding
company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
association meets the QTL Test, as set forth below, the activities of the
Company and any of its subsidiaries (other than the Association or other
subsidiary savings associations) would thereafter be subject to further
restrictions. Among other things, no multiple savings and loan holding
company or subsidiary thereof which is not a savings association shall
commence or continue for a limited period of time after becoming a multiple
savings and loan holding company or subsidiary thereof any business activity,
other than: (i) furnishing or performing management services for a subsidiary
savings association; (ii) conducting an insurance agency or escrow business;
(iii) holding, managing, or liquidating assets owned by or acquired from a
subsidiary savings association; (iv) holding or managing properties used or
occupied by a subsidiary savings association; (v) acting as trustee under
deeds of trust; (vi) those activities authorized by regulation as of March 5,
1987 to be engaged in by multiple savings and loan holding companies; or
(vii) unless the
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Director of the OTS by regulation prohibits or limits such
activities for savings and loan holding companies, those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies. The activities described in (i) through (vi) above may only be
engaged in after giving the OTS prior notice and being informed that the OTS
does not object to such activities. In addition, the activities described in
(vii) above also must be approved by the Director of the OTS prior to being
engaged in by a multiple savings and loan holding company.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between
savings associations and any affiliate are governed by Sections 23A and 23B
of the Federal Reserve Act. An affiliate of a savings association is any
company or entity which controls, is controlled by or is under common control
with the savings association. In a holding company context, the parent
holding company of a savings association (such as the Company) and any
companies which are controlled by such parent holding company are affiliates
of the savings association. Generally, Sections 23A and 23B (i) limit the
extent to which the savings association or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of
such association's capital stock and surplus, and contain an aggregate limit
on all such transactions with all affiliates to an amount equal to 20% of
such capital stock and surplus and (ii) require that all such transactions be
on terms substantially the same, or at least as favorable, to the association
or subsidiary as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and other similar transactions. In addition to the restrictions
imposed by Sections 23A and 23B, no savings association may (i) loan or
otherwise extend credit to an affiliate, except for any affiliate which
engages only in activities which are permissible for bank holding companies,
or (ii) purchase or invest in any stocks, bonds, debentures, notes or similar
obligations of any affiliate, except for affiliates which are subsidiaries of
the savings association.
In addition, Sections 22(h) and (g) of the Federal Reserve Act places
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer
and to a greater than 10% stockholder of a savings institution (a "principal
stockholder"), and certain affiliated interests of either, may not exceed,
together with all other outstanding loans to such person and affiliated
interests, the savings institution's loans to one borrower limit (generally
equal to 15% of the institution's unimpaired capital and surplus). Section
22(h) also requires that loans to directors, executive officers and principal
stockholders be made on terms substantially the same as offered in comparable
transactions to other persons and also requires prior board approval for
certain loans. In addition, the aggregate amount of extensions of credit by
a savings institution to all insiders cannot exceed the institution's
unimpaired capital and surplus. Furthermore, Section 22(g) places additional
restrictions on loans to executive officers. At September 30, 1996, the
Association was in compliance with the above restrictions.
RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without
prior approval of the Director of
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the OTS, (i) control of any other savings
association or savings and loan holding company or substantially all the
assets thereof or (ii) more than 5% of the voting shares of a savings
association or holding company thereof which is not a subsidiary. Except
with the prior approval of the Director of the OTS, no director or officer of
a savings and loan holding company or person owning or controlling by proxy
or otherwise more than 25% of such company's stock, may acquire control of
any savings association, other than a subsidiary savings association, or of
any other savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls
savings associations in more than one state if (i) the multiple savings and
loan holding company involved controls a savings association which operated a
home or branch office located in the state of the association to be acquired
as of March 5, 1987; (ii) the acquiror is authorized to acquire control of
the savings association pursuant to the emergency acquisition provisions of
the Federal Deposit Insurance Act, or (iii) the statutes of the state in
which the association to be acquired is located specifically permit
institutions to be acquired by the state-chartered associations or savings
and loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
associations).
Under the BHCA, the FRB is authorized to approve an application by a
bank holding company to acquire control of a savings association. In
addition, a bank holding company that controls a savings association may
merge or consolidate the assets and liabilities of the savings association
with, or transfer assets and liabilities to, any subsidiary bank which is a
member of the Association Insurance Fund ("BIF") with the approval of the
appropriate federal banking agency and the Federal Reserve Board. As a
result of these provisions, there have been a number of acquisitions of
savings associations by bank holding companies in recent years.
Under New Jersey law, if the Company wishes to acquire another savings
institution, savings institution holding company, or substantially all the
assets of a savings institution, it must file an application under the
Banking Act and have it approved by the Commissioner. Legislation enacted in
New Jersey permits insured institutions or savings and loan holding companies
located in New Jersey to acquire or be acquired by insured institutions or
holding companies on either a regional or national basis upon the occurrence
of certain triggering conditions which are determined by the Commissioner.
The acquiror must be located in a state which has reciprocal legislation in
effect on substantially the same terms and conditions as stated in the New
Jersey legislation. This law explicitly prohibits interstate branching.
BHCA ACTIVITIES AND OTHER LIMITATIONS. The BHCA prohibits a bank
holding company from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any bank, or increasing such ownership
or control of any bank, without prior approval of the Federal Reserve Board.
The BHCA also generally prohibits a bank holding company
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from acquiring any
bank located outside of the state in which the existing bank subsidiaries of
the bank holding company are located unless specifically authorized by
applicable state law. No approval under the BHCA is required, however, for a
bank holding company already owning or controlling 50% of the voting shares
of a bank to acquire additional shares of such bank.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a
bank and from engaging in any business other than banking or managing or
controlling banks. Under the BHCA, the Federal Reserve Board is authorized
to approve the ownership of shares by a bank holding company in any company,
the activities of which the Federal Reserve Board has determined to be so
closely related to banking or to managing or controlling banks as to be a
proper incident thereto. In making such determinations, the Federal Reserve
Board is required to weigh the expected benefit to the public, such as
greater convenience, increased competition or gains in efficiency, against
the possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound banking
practices.
The Federal Reserve Board has by regulation determined that certain
activities are closely related to banking within the meaning of the BHCA.
These activities include operating a mortgage company, finance company,
credit card company, factoring company, trust company or savings association;
performing certain data processing operations; providing limited securities
brokerage services; acting as an investment or financial advisor; acting as
an insurance agent for certain types of credit-related insurance; leasing
personal property on a full-payout, non-operating basis; providing tax
planning and preparation services; operating a collection agency; and
providing certain courier services. The Federal Reserve Board also has
determined that certain other activities, including real estate brokerage and
syndication, land development, property management and underwriting of life
insurance not related to credit transactions, are not closely related to
banking and a proper incident thereto.
THE ASSOCIATION. The OTS and the Department have extensive regulatory
authority over the operations of savings associations. As part of this
authority, savings associations are required to file periodic reports with
the OTS and the Department and are subject to periodic examinations by the
OTS and the Department. The investment and lending authority of savings
associations are prescribed by federal and New Jersey laws and regulations
and they are prohibited from engaging in any activities not permitted by such
laws and regulations. Such regulation and supervision is primarily intended
for the protection of depositors.
For a discussion of the limitations on the aggregate amount of loans
that a savings association can make to any one borrower, including related
entities, see "Business of the Association - Lending Activities - Loan
Origination, Purchase and Sales Activity."
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The OTS' enforcement authority over all savings associations and their
holding companies includes, among other things, the ability to assess civil
money penalties, to issue cease and desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated
for violations of laws and regulations and unsafe or unsound practices.
Other actions or inactions may provide the basis for enforcement action,
including misleading or untimely reports filed with the OTS.
INSURANCE OF ACCOUNTS. The deposits of the Association are insured up
to $100,000 per insured member (as defined by law and regulation) by the SAIF
administered by the FDIC and are backed by the full faith and credit of the
United States Government. As insurer, the FDIC is authorized to conduct
examinations of, and to require reporting by, FDIC-insured institutions. It
also may prohibit any FDIC-insured institution from engaging in any activity
the FDIC determines by regulation or order to pose a serious threat to the
FDIC. The FDIC also has the authority to initiate enforcement actions
against savings associations, after giving the OTS an opportunity to take
such action.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Association, if it determines after a hearing that
the institution has engaged or is engaging in unsafe or unsound practices, is
in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement
with the FDIC. It also may suspend deposit insurance temporarily during the
hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If insurance of accounts is terminated,
the accounts at the institution at the time of the termination, less
subsequent withdrawals, shall continue to be insured for a period of six
months to two years, as determined by the FDIC. Management is aware of no
existing circumstances which could result in termination of the Association's
deposit insurance.
The FDIC is authorized to establish separate assessment rates for
deposit insurance for members of the BIF and the SAIF. The FDIC may increase
assessment rates for either fund to restore the fund's ratio of reserves to
insured deposits to its statutorily set target level within a reasonable
time, and may decrease such assessment rates if such target level has been
met. Until the SAIF fund meets its target level, savings associations may
not transfer to the BIF fund. Furthermore, any such transfers, when
permitted, would be subject to exit and entrance fees. Under current FDIC
regulations, institutions are assigned to one of three capital groups which
are based solely on the level of an institution's capital- "well
capitalized," "adequately capitalized," and "undercapitalized" - which are
defined in the same manner as the regulations establishing the prompt
corrective action system under Section 38 of the Federal Deposit Insurance
Act ("FDIA") as discussed below. These three groups are then divided into
three subgroups which reflect varying levels of supervisory concern, from
those which are considered to be healthy to those which are considered to be
of substantial supervisory concern. The matrix so created results in nine
assessment risk classifications, with rates ranging from .23% for well
capitalized, healthy institutions to .31%
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for undercapitalized institutions with substantial supervisory concerns. The
insurance premiums for the Association for the first semi-annual period in
calendar 1996 was .23%.
The BIF fund met its target reserve level in September 1995, but the
SAIF is not expected to meet its target reserve level until at least 2002.
Consequently, in late 1995, the FDIC approved a final rule regarding deposit
insurance premiums which, effective with respect to the semiannual premium
assessment beginning January 1, 1996, reduced deposit insurance premiums for
BIF member institutions to zero basis points (subject to an annual minimum of
$2,000) for institutions in the lowest risk category. Deposit insurance
premiums for SAIF members were maintained at their existing levels (23 basis
points for institutions in the lowest risk category).
On September 30, 1996, President Clinton signed into law legislation
which will eliminate the premium differential between SAIF-insured
institutions and BIF-insured institutions by recapitalizing the SAIF's
reserves to the required ratio. The legislation provides that all SAIF
member institutions pay a one-time special assessment to recapitalize the
SAIF, which in the aggregate will be sufficient to bring the reserve ratio in
the SAIF to 1.25% of insured deposits. The legislation also provides for the
merger of the BIF and the SAIF, with such merger being conditioned upon the
prior elimination of the thrift charter.
Effective October 8, 1996, FDIC regulations imposed a one-time special
assessment of 65.7 basis points of SAIF-assessable deposits as of March 31,
1995, which was collected on November 27, 1996. The Association's one-time
pre-tax special assessment amounted to $3.7 million, or $2.4 million after
tax. The payment of such special assessment, net of tax, had the effect of
immediately reducing the Association's capital by $2.4 million.
Nevertheless, management does not believe that this one-time special
assessment will have a material adverse effect on the Company's consolidated
financial condition or cause non-compliance with the Association's regulatory
capital requirements.
On October 16, 1996, the FDIC proposed to lower assessment rates for
SAIF members to reduce the disparity in the assessment rates paid by BIF and
SAIF members. Beginning October 1, 1996, effective SAIF rates would range
from zero basis points to 27 basis points. From 1997 through 1999, SAIF
members will pay 6.4 basis points to fund the Financing Corporation while BIF
member institutions will pay about 1.3 basis points. The Association's
insurance premiums, which have amounted to 23 basis points will be reduced to
6.4 basis points. Based upon the level of assessable deposits at September
30, 1996, the Association would expect to pay $900,000 less in insurance
premiums during fiscal 1997 or approximately $.06 per share, after tax.
CAPITAL REQUIREMENTS. Federally insured savings associations are
required to maintain minimum levels of regulatory capital. The OTS has
established capital standards applicable to all savings associations. These
standards generally must be as stringent as the comparable capital
requirements imposed on national banks. The OTS also is authorized to impose
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capital requirements in excess of these standards on individual associations
on a case-by-case basis.
Current OTS capital standards require savings associations to satisfy
three different capital requirements. Under these standards, savings
associations must maintain "tangible" capital equal to at least 1.5% of
adjusted total assets, "core" capital equal to at least 3.0% of adjusted
total assets and "total" capital (a combination of core and "supplementary"
capital) equal to at least 8.0% of "risk-weighted" assets. For purposes of
the regulation, core capital generally consists of common stockholders'
equity (including retained earnings), noncumulative perpetual preferred stock
and related surplus, minority interests in the equity accounts of fully
consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits, and "qualifying supervisory goodwill." Tangible capital is given
the same definition as core capital but does not include qualifying
supervisory goodwill and is reduced by the amount of all the savings
association's intangible assets, with only a limited exception for purchased
mortgage servicing rights. The Association had no goodwill or other
intangible assets at September 30, 1996. Both core and tangible capital are
further reduced by an amount equal to a savings association's debt and equity
investments in subsidiaries engaged in activities not permissible to national
banks (other than subsidiaries engaged in activities undertaken as agent for
customers or in mortgage banking activities and subsidiary depository
institutions or their holding companies).
In determining compliance with the risk-based capital requirement, a
savings association is allowed to include both core capital and supplementary
capital in its total capital, provided that the amount of supplementary
capital included does not exceed the savings association's core capital.
Supplementary capital generally consists of hybrid capital instruments;
perpetual preferred stock which is not eligible to be included as core
capital; subordinated debt and intermediate-term preferred stock; and general
allowances for loan losses up to a maximum of 1.25% of risk-weighted assets.
In determining the required amount of risk-based capital, total assets,
including certain off-balance sheet items, are multiplied by a risk weight
based on the risks inherent in the type of assets. The risk weights assigned
by the OTS for principal categories of assets are (i) 0% for cash and
securities issued by the U.S. Government or unconditionally backed by the
full faith and credit of the U.S. Government; (ii) 20% for securities (other
than equity securities) issued by U.S. Government-sponsored agencies and
mortgage-backed securities issued by, or fully guaranteed as to principal and
interest by, the FNMA or the FHLMC, except for those classes with residual
characteristics or stripped mortgage-related securities; (iii) 50% for
prudently underwritten permanent one- to four-family first lien mortgage
loans not more than 90 days delinquent and having a loan-to-value ratio of
not more than 80% at origination unless insured to such ratio by an insurer
approved by the FNMA or the FHLMC, qualifying residential bridge loans made
directly for the construction of one- to four-family residences and
qualifying multi-family residential loans; and (iv) 100% for all other loans
and investments, including consumer loans, commercial loans, and one- to
four-family residential real estate loans more than 90 days delinquent, and
for repossessed assets.
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In August 1993, the OTS adopted a final rule incorporating an
interest-rate risk component into the risk-based capital regulation. Under
the rule, an institution with a greater than "normal" level of interest rate
risk will be subject to a deduction of its interest rate risk component from
total capital for purposes of calculating its risk-based capital. As a
result, such an institution will be required to maintain additional capital
in order to comply with the risk-based capital requirement. An institution
with a greater than "normal" interest rate risk is defined as an institution
that would suffer a loss of net portfolio value exceeding 2.0% of the
estimated economic value of its assets in the event of a 200 basis point
increase or decrease (with certain minor exceptions) in interest rates. The
interest rate risk component will be calculated, on a quarterly basis, as
one-half of the difference between an institution's measured interest rate
risk and 2.0%, multiplied by the economic value of its assets. The rule also
authorizes the director of the OTS, or his designee, to waive or defer an
institution's interest rate risk component on a case-by-case basis. The
final rule became effective as of January 1, 1994, subject however to a two
quarter "lag" time between the reporting date of the data used to calculate
an institution's interest rate risk and the effective date of each quarter's
interest rate risk component. However, in October 1994 the Director of the
OTS indicated that it would waive the capital deductions for institutions
with a greater than "normal" risk until the OTS publishes an appeals process.
On August 21, 1995, the OTS released Thrift Bulletin 67 which established (i)
an appeals process to handle "requests for adjustments" to the interest rate
risk component and (ii) a process by which "well-capitalized" institutions
may obtain authorization to use their own interest rate risk model to
determine their interest rate risk component. The Director of the OTS
indicated, concurrent with the release of Thrift Bulletin 67, that the OTS
will continue to delay the implementation of the capital deduction for
interest rate risk pending the testing of the appeals process set forth in
Thrift Bulletin 67.
The following is a reconciliation of the Association's equity determined
in accordance with GAAP to regulatory tangible, core, and risk-based capital
at September 30, 1996.
September 30, 1996
-----------------------------------
Tangible Core Risk-based
Capital Capital Capital
-------- -------- ----------
(In Thousands)
GAAP equity $132,076 $132,076 $132,076
Unrealized gain on available for
sale securities, net of tax (1,045) (1,045) (1,045)
Goodwill --- --- ---
Assets required to be deducted --- --- ---
General valuation allowances --- --- 1,024
Total regulatory capital 131,031 131,031 132,055
Minimum capital requirement per
FIRREA published guidelines 10,942 21,883 15,474
------- ------- -------
Capital in Excess of Requirement $120,089 $109,148 $116,581
------- ------- -------
------- ------- -------
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LIQUIDITY REQUIREMENTS. All savings associations are required to
maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. The liquidity
requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings associations. At the
present time, the required minimum liquid asset ratio is 5%. The Association
has consistently exceeded such regulatory liquidity requirement and, at
September 30, 1996, had a liquidity ratio of 13.0%.
ACCOUNTING REQUIREMENTS. Applicable OTS accounting regulations and
reporting requirements apply the following standards: (i) regulatory reports
will incorporate GAAP when GAAP is used by federal banking agencies; (ii)
savings association transactions, financial condition and regulatory capital
must be reported and disclosed in accordance with OTS regulatory reporting
requirements that will be at least as stringent as for national banks; and
(iii) the Director of the OTS may prescribe regulatory reporting requirements
more stringent than GAAP whenever the Director determines that such
requirements are necessary to ensure the safe and sound reporting and
operation of savings associations.
The accounting principles for depository institutions are currently
undergoing review to determine whether the historical cost model or
market-based measure of valuation is the appropriate measure for reporting
the assets of such institutions in their financial statements. Such proposal
is controversial because any change in applicable accounting principles which
requires depository institutions to carry mortgage-backed securities and
mortgage loans at fair market value could result in substantial losses to
such institutions and increased volatility in their liquidity and operations.
Currently, it cannot be predicted whether there may be any changes in the
accounting principles for depository institutions in this regard beyond those
imposed by SFAS No. 115 or when any such changes might become effective.
QUALIFIED THRIFT LENDER TEST. Beginning January 1, 1993, a savings
association shall cease to be a qualified thrift lender when its qualified
thrift investments ("QTIs"), as measured by monthly averages over the
immediately preceding twelve month period, fall below 65% for four or more
of such months. Based on this regulatory standard, the Association ceased to
be a qualified thrift lender in July 1993.
A savings association that does not meet the QTL Test must either
convert to a bank charter or comply with the following restrictions on its
operations: (i) the association may not engage in any new activity or make
any new investment, directly or indirectly, unless such activity or
investment is permissible for a national bank; (ii) the branching powers of
the association shall be restricted to those of a national bank; (iii) the
association shall not be eligible to obtain any advances from its FHLB; and
(iv) payment of dividends by the association shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of
three years from the date the Association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for a national
bank and immediately repay any outstanding FHLB advances (subject to safety
and soundness
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considerations). To date, these restrictions have not limited
the Association's operations in any manner.
Under OTS regulations which govern the conduct of savings and loan
holding companies, any savings and loan holding company is required to
register as a bank holding company within one year of the failure of the QTL
Test by its subsidiary insured institution. Under such circumstances, the
holding company would become subject to all of the provisions of the BHCA and
other statutes applicable to bank holding companies, in the same manner and
to the same extent as if the company were a bank holding company. Because
the Association did not re-qualify as a QTL in July 1994, which is one year
from the date of its failure of the QTL test, in connection with the
conversion and the acquisition of all of the Association's capital stock by
the Company, the Company applied to, and received approval from, the Board of
Governors of the Federal Reserve System to become a bank holding company.
This is in addition to the Association's status as a savings loan holding
company.
During the last half of fiscal 1994, the Board of Directors authorized
the Association to initiate a "tiered" or laddered investment strategy
pursuant to which it anticipates investing approximately $400.0 million in
mortgage-backed securities and U.S. Government securities with varying
maturities and, with respect to longer-term investments, in mortgage loans.
See "Business-General." Based upon such investment program, the Association
as of August 1996 had maintained monthly averages of QTIs equal to at least
92.21% of portfolio assets for at least nine months over a twelve month
period, and had thereby re-qualified as a "qualified thrift lender." At
September 30, 1996, 96.62% of the Association's assets were invested in QTIs.
Under Section 2303 of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996, a savings association can comply with the QTL test by
either meeting the QTL test set forth in the Home Owners' Loan Act, as
amended ("HOLA") and implementing regulations or qualifying as a domestic
building and loan association as defined in Section 7701(a)(19) of the
Internal Revenue Code of 1986, as amended ("Code").
The QTL Test set forth in the HOLA requires that Qualified Thrift
Investments ("QTIs") represent 65% of portfolio assets. Portfolio assets are
defined as total assets less intangibles, property used by a savings
association in its business and liquidity investments in an amount not
exceeding 20% of assets. Generally, QTI's are residential housing related
assets. The 1996 amendments allow small business loans, credit card loans,
student loans, and loans for personal, family and household purposes to be
included without limitation as qualified investments. At September 30, 1996,
approximately 96.62% of the Association's assets were invested in QTIs, which
was in excess of the percentage required to qualify the Association under the
QTL Test in effect at that time.
RESTRICTIONS ON CAPITAL DISTRIBUTIONS. OTS regulations govern capital
distributions by savings associations, which include cash dividends, stock
redemptions or repurchases, cash-
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out mergers, interest payments on certain convertible debt and other
transactions charged to the capital account of a savings association to make
capital distributions. Generally, the regulation creates a safe harbor for
specified levels of capital distributions from associations meeting at least
their minimum capital requirements, so long as such associations notify the
OTS and receive no objection to the distribution from the OTS. Savings
institutions and distributions that do not qualify for the safe harbor are
required to obtain prior OTS approval before making any capital distributions.
Generally, savings associations that before and after the proposed
distribution meet or exceed their fully phased-in capital requirements, or
Tier 1 associations, may make capital distributions during any calendar year
equal to the higher of (i) 100% of net income for the calendar year-to-date
plus 50% of its "surplus capital ratio" at the beginning of the calendar year
or (ii) 75% of net income over the most recent four-quarter period. The
"surplus capital ratio" is defined to mean the percentage by which the
association's ratio of total capital to assets exceeds the ratio of its fully
phased-in capital requirement to assets. "Fully phased-in capital
requirement" is defined to mean an association's capital requirement under
the statutory and regulatory standards applicable on December 31, 1994, as
modified to reflect any applicable individual minimum capital requirement
imposed upon the association. Failure to meet fully phased-in or minimum
capital requirements will result in further restrictions on capital
distributions including possible prohibition without explicit OTS approval.
See "- Capital Requirements."
In order to make distributions under these safe harbors, Tier 1 and Tier
2 associations must submit 30 days written notice to the OTS prior to making
the distribution. The OTS may object to the distribution during that 30-day
period based on safety and soundness concerns. In addition, a Tier 1
association deemed to be in need of more than normal supervision by the OTS
may be downgraded to a Tier 2 or Tier 3 association as a result of such a
determination. The Association currently is a Tier 1 institution for
purposes of the regulation dealing with capital distributions.
OTS regulations also prohibit the Association from declaring or paying
any dividends or from repurchasing any of its stock if, as a result, the
regulatory (or total) capital of the Association would be reduced below the
amount required to be maintained for the liquidation account established by
it for certain depositors in connection with its conversion from mutual to
stock form.
On December 5, 1994, the OTS published a notice of proposed rulemaking
to amend its capital distribution regulation. Under the proposal,
institutions would be permitted to only make capital distributions that would
not result in their capital being reduced below the level required to remain
"adequately capitalized." Because the Association is a subsidiary of a
holding company, the proposal would require the Association to provide notice
to the OTS of its intent to make a capital distribution. The Association
does not believe that the proposal will adversely affect its ability to make
capital distributions if it is adopted substantially as proposed.
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FEDERAL HOME LOAN BANK SYSTEM. The Association is a member of the FHLB
of New York, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a
reserve or central bank for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans to members (i.e., advances)
in accordance with policies and procedures established by the Board of
Directors of the FHLB. At September 30, 1996, the Association had $18.8
million in FHLB advances.
As a member, the Association is required to purchase and maintain stock
in the FHLB of New York in an amount equal to at least 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. At September 30, 1996, the
Association had $4.6 million in FHLB stock, which was in compliance with this
requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community
investment and low- and moderate-income housing projects. These
contributions have adversely affected the level of FHLB dividends paid and
could continue to do so in the future. These contributions also could have
an adverse effect on the value of FHLB stock in the future. For the years
ended September 30, 1996 and 1995, dividends paid by the FHLB of New York to
the Association totalled approximately $277,000 and $259,000, respectively.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction
accounts (primarily NOW and Super NOW checking accounts) and non-personal
time deposits. As of September 30, 1996, no reserves were required to be
maintained on the first $4.2 million of transaction accounts, reserves of 3%
were required to be maintained against the next $54.0 million of net
transaction accounts (with such dollar amounts subject to adjustment by the
FRB), and a reserve of 10% (which is subject to adjustment by the FRB to a
level between 8% and 14%) against all remaining net transaction accounts. At
September 30, 1996, the Association was in compliance with applicable
requirements. However, because required reserves must be
maintained in the form of vault cash or a non interest-bearing account at a
Federal Reserve Association, the effect of this reserve requirement is to
reduce an institution's earning assets.
NEW JERSEY LAW. The Commissioner regulates the Association's internal
business procedures as well as it deposits, lending and investment
activities. The Commissioner must approve changes to the Association's
Certificate of Incorporation, establishment or relocation of branch offices,
mergers and the issuance of additional stock. In addition, the Commissioner
conducts periodic examinations of the Association. Certain of the areas
regulated by the Commissioner are not subject to similar regulation by the
FDIC.
Recent federal and state legislative developments have reduced
distinctions between commercial banks and SAIF-insured savings institutions
in New Jersey with respect to
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lending and investment authority as well as interest rate limitations. As
federal law has expanded the authority of federally chartered savings
institutions to engage in activities previously reserved for commercial
banks, New Jersey legislation and regulations ("parity legislation") have
given New Jersey chartered savings institutions, such as the Association, the
powers of federally chartered savings institutions.
FEDERAL AND STATE TAXATION
GENERAL. The Company and the Association are subject to the corporate
tax provisions of the Internal Revenue Code of 1986 (the "Code"), as well as
certain additional provisions of the Code which apply to thrift and other
types of financial institutions. The following discussion of tax matters is
intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Company and the Association.
FISCAL YEAR. The Company and the Association and its subsidiaries filed
a consolidated federal income tax return on a September 30 fiscal year end
basis, beginning with the fiscal year ended September 30, 1995.
METHOD OF ACCOUNTING. The Association maintains its books and records
for federal income tax purposes using the accrual method of accounting. The
accrual method of accounting generally requires that items of income be
recognized when all events have occurred that establish the right to receive
the income and the amount of income can be determined with reasonable
accuracy, and that items of expense be deducted at the later of (i) the time
when all events have occurred that establish the liability to pay the expense
and the amount of such liability can be determined with reasonable accuracy
or (ii) the time when economic performance with respect to the item of
expense has occurred.
BAD DEBT RESERVES. Under applicable provisions of the Code, savings
institutions such as the Association are permitted to establish reserves for
bad debts and to make annual additions thereto which qualify as deductions
from taxable income. The bad debt deduction is generally based on a savings
institution's actual loss experience (the "Experience Method"). In addition,
provided that certain definitional tests relating to the composition of
assets and the nature of its business are met, a savings institution may
elect annually to compute its allowable addition to its bad debt reserves for
qualifying real property loans (generally loans secured by improved real
estate) by reference to a percentage of its taxable income (the "Percentage
Method").
Under the Experience Method, the deductible annual addition is the
amount necessary to increase the balance of the reserve at the close of the
taxable year to the greater of (i) the amount which bears the same ratio to
loans outstanding at the close of the taxable year as the total net bad debts
sustained during the current and five preceding taxable years bear to the sum
of the loans outstanding at the close of those six years or (ii) the balance
in the reserve account at the close of the Association's "base year," which
was its tax year ended September 30, 1987.
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Under the Percentage Method, the bad debt deduction with respect to
qualifying real property loans is computed as a percentage of the
Association's taxable income before such deduction, as adjusted for certain
items (such as capital gains and the dividends received deduction). Under
this method, a qualifying institution such as the Association generally may
deduct 8% of its taxable income. The availability of the Percentage Method
has permitted a qualifying savings institution, such as the Association, to
be taxed at an effective federal income tax rate 8% lower than for
corporations generally.
The income of the Company would not be subject to the bad debt deduction
allowed the Association, whether or not consolidated tax returns are filed;
however, losses of the Company or its subsidiaries included in the
consolidated tax returns may reduce the bad debt deduction allowed the
Association if a deduction is claimed under the Percentage Method.
On August 20, 1996, President Clinton signed legislation which
eliminated the percentage of taxable income bad debt deduction for thrift
institutions for tax years beginning after December 31, 1995. The new
legislation also requires a thrift to generally recapture the excess of its
current tax reserves over its 1987 base year reserves. As the Company has
previously provided deferred taxes on this amount, no additional financial
statement tax expense should result from this new legislation. The recapture
amount may be suspended for two years if the Association meets certain
residential lending origination requirements.
DISTRIBUTIONS. If the Association were to distribute cash or property
to its sole stockholder having a total fair market value in excess of its
accumulated tax-paid earnings and profits, or were to distribute cash or
property to its stockholder in redemption of its stock, the Association would
generally be required to recognize as income an amount which, when reduced by
the amount of federal income tax that would be attributable to the inclusion
of such amount in income, is equal to the lesser of: (i) the amount of the
distribution or (ii) the sum of (a) the amount of the accumulated bad debt
reserve of the Association with respect to qualifying real property loans (to
the extent that additions to such reserve exceed the additions that would be
permitted under the experience method) and (b) the amount of the
Association's supplemental bad debt reserve.
MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of
20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The alternative minimum tax
is payable to the extent such AMTI is in excess of an exemption amount. The
Code provides that an item of tax preference is the excess of the bad debt
deduction allowable for a taxable year pursuant to the percentage of taxable
income method over the amount allowable under the experience method. The
other items of tax preference that constitute AMTI include (a) tax exempt
interest on newly-issued (generally, issued on or after August 8, 1986)
private activity bonds other than certain qualified bonds and (b) for taxable
years beginning after 1989, 75% of the excess (if any) of (i) adjusted
current earnings as defined in the Code, over (ii) AMTI (determined
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without regard to this preference and prior to reduction by net operating
losses). Net operating losses can offset no more than 90% of AMTI. Certain
payments of alternative minimum tax may be used as credits against regular
tax liabilities in future years.
AUDIT BY IRS. The Association's federal income tax returns for taxable
years through December 31, 1993 have been closed for the purpose of
examination by the Internal Revenue Service.
STATE TAXATION. The Company and its non-thrift subsidiaries that are
engaged in business in New Jersey are subject to the state's Corporate
Business Tax Act which imposes a "franchise tax" at the rate of 9 percent on
the Company's and its non-thrift subsidiaries' taxable income, before net
operating loss deductions and special deductions, as calculated for federal
income tax purposes. The Association is taxed at the rate of 3 percent on its
taxable income, before net operating loss deductions and special deductions
for federal income tax purposes.
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ITEM 2. PROPERTIES
The following table sets forth certain information with respect to the
Association's branch offices and operations center at September 30, 1996.
The table does not reflect the two additional branch offices opened by the
Association in October 1996 as discussed in Item 1 under "Business-Sources or
Funds-Deposits."
Net Book
Value of Amount of
Description/Address Leased/Owned Property Deposits
- ------------------------------------ ------------ -------- ---------
(In Thousands)
Main Office:
- ------------
Route 70 and Springdale Road Owned $ 360 $150,189
Cherry Hill, New Jersey 08003
Branch Offices:
- ---------------
Kings Highway and Chapel Avenue Leased(1) 1 48,754
Cherry Hill, New Jersey 08034
Centrum Shopping Center Leased(2) --- 36,498
219Y Haddonfield Berlin Road
Cherry Hill, New Jersey 08034
400 White Horse Pike 08021 Owned 320 166,874
Laurel Springs, New Jersey
Route 73 and Brick Road Leased(3) 7 27,611
Marlton, New Jersey 08053
Pleasant Valley Ave. and Owned 196 51,030
Fellowship Road
Mount Laurel, New Jersey 08054
Hurffville - Crosskeys Road and Owned 225 33,441
Altair Drive
Washington Township, New Jersey 08012
Route 70 and Hartford Road Owned 260 56,608
Medford, New Jersey 08055
Operations Center:
- ------------------
1909 E. Marlton Pike Owned 4,118 ---
Cherry Hill, New Jersey 08003 ----- -------
$5,487 $571,005(4)
----- -------
----- -------
_________________
(1) Ten year lease expires May 31, 2000 with no lease renewal options.
(2) Five year lease expires May 31, 1998 with two, five-year renewal options
thereafter.
(3) Five year lease expires March 31, 1998 with no lease renewal options.
(4) Does not include accrued interest of $361,000.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Company or its
subsidiary is a party or to which any of their property is subject.
In November 1995, Lawrence B. Seidman filed a complaint in the Superior
Court of New Jersey, Passaic County, against the Company and its directors,
alleging that a letter dated November 17, 1995, sent by the Company to its
shareholders in connection with the Company's solicitation of proxies for the
election of directors at the Annual Meeting held December 15, 1995, contained
defamatory statements about Mr. Seidman. The Complaint requested an
unspecified amount of damages (including punitive damages from the director
defendants), interest, costs and fees, as well as an injunction prohibiting
the Company from indemnifying the directors. An amended complaint was filed
in January 1996, when the court, instead of dismissing the original
complaint, permitted Mr. Seidman to amend his complaint. In November 1996,
the Court again allowed Mr. Seidman to amend his complaint, this time to add
allegations that two other letters sent by the Company to its shareholders
during the proxy contest also contained defamatory statements. The Company
and its directors have filed a motion for summary judgement; the motion has
not yet been decided. The Company believes the suit is frivolous and without
merit and intends to continue to defend the action vigorously.
On November 12, 1996, the Company filed suit in the United States
District Court for the District of New Jersey against Mr. Seidman, Richard
Whitman and other members of the "IBS Financial Corp. Committee to Maximize
Shareholder Value." The Company's complaint alleges that the Committee had
failed to disclose all the information required by the federal securities laws
and the Company's Certificate of Incorporation in the materials it had
submitted in connection with the nomination of Ernest Beier, Jr., for election
as a director of the Company, and in the Committee's Schedule 13D filings
with the Securities and Exchange Commission. The Company seeks a declaratory
judgment that the Committee's filings are incomplete and inadequate, that
the Company's Board properly rejected the nomination of Mr. Beier, and that
the Company need not, at this time, provide a shareholder list to the
Committee. The complaint also asks for an injunction against further
violations of the securities laws by Messrs. Seidman and Whitman and the
other members of their group. The Committee has counterclaimed, challenging
the action of the Company's Board, in July 1996, reducing the number of
directors from seven to six. Subsequent to the filing of the Company's
complaint, the Committee has amended its Schedule 13D twice to provide
certain of the information which the Company's complaint alleges was required
to be previously disclosed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Shares of the Company's common stock are traded nationally under the
symbol "IBSF" on the NASDAQ Stock Market, National Market System. See also
Note 20 of the Notes to Consolidated Financial Statements in Item 8 hereof
incorporated herein by reference.
At November 30, 1996 the Company had approximately 2,200 stockholders of
record.
ITEM 6. SELECTED FINANCIAL DATA.
The information required herein is incorporated by reference from page
5 of the Registrant's 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required herein is incorporated by reference from pages
6 to 18 of the Registrant's 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required herein is incorporated by reference from pages
19 to 41 of the Registrant's 1996 Annual Report.
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required herein is incorporated by reference from the
Registrant's definitive proxy statement for the Annual Meeting of
Stockholders to be filed within 120 days after the Registrant's fiscal year
end ("Definitive Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required herein is incorporated by reference from the
Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required herein is incorporated by reference from the
Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required herein is incorporated by reference from the
Definitive Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Document filed as part of this Report.
(1) The following documents are filed as part of this report and
are incorporated herein by reference from the Registrant's 1996 Annual
Report.
Report of Independent Auditors.
Consolidated Statements of Financial Condition at September 30, 1996 and
1995.
Consolidated Statements of Income for the Years Ended September 30,
1996, 1995, and 1994.
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<PAGE>
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended September 30, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Years Ended September 30,
1996, 1995 and 1994.
Notes to the Consolidated Financial Statements.
(2) All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are omitted
because they are not applicable or the required information is included in
the Consolidated Financial Statements or notes thereto.
(3)(a) The following exhibits are filed as part of this Form 10-K,
and this list includes the Exhibit Index.
No. Description
- --- -----------------------------------------------------------------------
3.1 Certificate of Incorporation of IBS Financial Corp.(1)
3.2 Amended Bylaws of IBS Financial Corp.
4 Stock Certificate of IBS Financial Corp.(1)
10.1 IBS Financial Corp. Employee Stock Ownership Plan and Trust(1)*
10.2 Amendment No. 1 to the IBS Financial Corp. Employee Stock Ownership
Plan and Trust*
10.3 Employment Agreement between the Registrant and Joseph M. Ochman, Sr.*
10.4 Employment Agreement between Inter-Boro Savings and Loan Association
and Joseph M. Ochman, Sr.*
10.5 Employment Agreement between the Registrant, Inter-Boro
Savings and Loan Association and Richard G. Sharp(2)*
10.6 Stock Option Plan(2)*
10.7 Recognition and Retention Plan of Inter-Boro Savings and Loan
Association and Trust Agreement(2)*
13 1996 Annual Report to Stockholders
21 Subsidiaries of the Registrant - Reference is made to Item 1.
"Business" for the required information
27 Financial Data Schedule
(FOOTNOTES ON THE FOLLOWING PAGE)
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<PAGE>
_______________
(1) Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 33-80548) filed by the Registrant with the Securities and
Exchange Commission ("SEC") on June 21, 1994, as amended.
(2) Incorporated by reference from the Annual Report on Form 10-K filed by
the Registrant with the SEC on December 23, 1994.
* Management contract or compensatory plan or arrangement.
(3)(b) Reports filed on Form 8-K.
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
IBS FINANCIAL CORP.
By: /s/ Joseph M. Ochman, Sr.
------------------------------
Joseph M. Ochman, Sr.
Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Joseph M. Ochman, Sr.
- -------------------------------- December 20, 1996
Joseph M. Ochman, Sr.
Chairman of the Board, President and
Chief Executive Officer
/s/ Richard G. Sharp
- -------------------------------- December 20, 1996
Richard G. Sharp
Executive Vice President and
Chief Financial Officer
/s/ Matthew J. Kennedy
- -------------------------------- December 20, 1996
Matthew J. Kennedy
Executive Vice President
and Treasurer
/s/ Thomas J. Auchter
- ---------------------------- December 20, 1996
Thomas J. Auchter
Director
<PAGE>
/s/ John A. Borden
- ---------------------------- December 20, 1996
John A. Borden
Director
/s/ Albert D. Stiles, Jr.
- --------------------------- December 20, 1996
Albert D. Stiles, Jr.
Director
/s/ Frank G. Lockhart
- --------------------------- December 20, 1996
Frank G. Lockhart
Director
/s/ Francis X. Lorbecki, Jr.
- ------------------------------- December 20, 1996
Francis X. Lorbecki, Jr.
Director
/s/ Paul W. Gleason
- ------------------------------- December 20, 1996
Paul W. Gleason
Director
<PAGE>
BYLAWS
OF
IBS FINANCIAL CORP.
(AMENDED AND RESTATED EFFECTIVE AS OF JULY 19, 1996)
ARTICLE I. OFFICES
1.1 REGISTERED OFFICE AND REGISTERED AGENT. The registered office of IBS
Financial Corp. ("Corporation") shall be located in the State of New Jersey at
1909 East Route 70, Cherry Hill, New Jersey 08003, or at such place as may be
fixed from time to time by the Board of Directors upon filing of such notices as
may be required by law, and the registered agent shall have a business office
identical with such registered office.
1.2 OTHER OFFICES. The Corporation may have other offices within or
outside the State of New Jersey at such place or places as the Board of
Directors may from time to time determine.
ARTICLE II. STOCKHOLDERS' MEETINGS
2.1 MEETING PLACE. All meetings of the stockholders shall be held at the
principal place of business of the Corporation, or at such other place as shall
be determined from time to time by the Board of Directors, and the place at
which any such meeting shall be held shall be stated in the notice of the
meeting.
2.2 ANNUAL MEETING TIME. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on the third Friday of
January at the hour of 10:00 a.m., if not a legal holiday, and if a legal
holiday, then on the day following, at the same hour, or at such other date and
time as may be determined by the Board of Directors and stated in the notice of
such meeting.
2.3 ORGANIZATION. Each meeting of the stockholders shall be presided over
by the Chairman of the Board or by the President, or if neither the Chairman nor
the President is present, by an Executive or Senior Vice President or such other
officer as designated by the Board of Directors. The Secretary, or in his
absence a temporary Secretary, shall act as secretary of each meeting of the
stockholders. In the absence of the Secretary and any temporary Secretary, the
chairman of the meeting may appoint any person present to act as secretary of
the meeting. The chairman of any meeting of the stockholders, unless prescribed
by law or regulation or unless the Chairman of the Board has otherwise
determined, shall determine the order of the business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order.
<PAGE>
2.4 SPECIAL MEETINGS. Special Meetings of the Stockholders of the Company
shall be called and held as provided in the Company's Certificate of
Incorporation, which provision is incorporated herein by reference with the same
effect as if it were set forth herein.
2.5 NOTICE. Notice of the time, place and purpose or purposes of the
annual meeting or a special meeting of stockholders shall be given by delivering
personally or by mailing a written or printed notice of the same, at least ten
days and not more than sixty days prior to the meeting, to each stockholder of
record entitle to vote at such meeting. When any stockholders' meeting, either
annual or special, is adjourned for thirty days or more, or if a new record date
is fixed for an adjourned meeting of stockholders, notice of the adjourned
meeting shall be given as in the case of an original meeting. It shall not be
necessary to give any notice of the time and place of any meeting adjourned for
less than thirty days or of the business to be transacted thereat (unless a new
record date if fixed therefor), other than an announcement at the meeting at
which such adjournment is taken.
2.6 VOTING RECORD. At least ten days before each meeting of stockholders,
a complete record of the stockholders entitled to vote at such meeting, or any
adjournment thereof, shall be made, arranged in alphabetical order, with the
address of and number of shares held by each, which record shall be kept on file
at the registered office of the Corporation for a period of ten days prior to
such meeting. The record shall be kept open at the time and place of such
meeting for the inspection of any stockholder.
2.7 QUORUM. Except as otherwise provided by these Bylaws, the Certificate
of Incorporation or the Business Corporation Act of New Jersey:
(a) A quorum at any annual or special meeting of stockholders shall
consist of stockholders representing, either in person or by proxy, a
majority of the outstanding capital stock of the Corporation entitled to
vote at such meeting.
(b) The votes of a majority in interest of those present at any
properly called meeting or adjourned meeting of stockholders at which a
quorum, as defined above, is present, shall be sufficient to transact
business.
2.8 VOTING OF SHARES.
(a) Except as otherwise provided in these Bylaws or to the extent
that voting rights of the shares of any class or classes are limited or
denied by the Certificate of Incorporation or the Business Corporation Act
of New Jersey, each stockholder, on each matter submitted to a vote at a
meeting of stockholders, shall have one vote for each share of stock
registered in his name on the books of the Corporation.
(b) Stockholders shall not be permitted to cumulate their votes for
the election of directors. For the purposes of this Section, cumulative
voting means a stockholder's
2
<PAGE>
ability to vote, in person or by proxy, the number of shares owned by him or
her for as many persons as there are directors to be elected and for whose
election the stockholder has a right to vote, or to cumulate the votes by
giving one candidate as many votes as the number of such directors to be
elected multiplied by the number of his or her shares shall equal, or by
distributing such votes on the same principle among any number of
candidates.
(c) Directors are to be elected by a plurality of votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present. If, at any meeting of stockholders, due to a vacancy or vacancies
or otherwise, directors of more than one class of the Board of Directors
are to be elected, each class of directors to be elected at the meeting
shall be elected in a separate election by a plurality vote.
2.9 FIXING OF RECORD DATE. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend, the Board
of Directors may fix in advance a record date for any such determination of
stockholders, such date to be not more than sixty days and, in case of a meeting
of stockholders, not less than ten days prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
2.10 PROXIES. A stockholder may vote either in person or by proxy executed
in writing by the stockholder, or his or her duly authorized attorney-in-fact.
No proxy shall be valid after eleven months from the date of its execution,
unless otherwise provided in the proxy.
2.11 WAIVER OF NOTICE. A waiver of any notice required to be given any
stockholder, signed in person or by proxy of the person or persons entitled to
such notice, whether before or after the time stated therein for the meeting,
shall be equivalent to the giving of such notice.
2.12 VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When ownership
stands in the name of two or more persons, in the absence of written directions
to the Corporation to the contrary, at any meeting of the stockholders of the
Corporation any one or more of such stockholders may cast, in person or by
proxy, all votes to which such ownership is entitled. In the event an attempt
is made to cast conflicting votes, in person or by proxy, by the several persons
in whose names shares of stock stand, the written agreement, if any, which
governs the manner in which such shares shall be voted shall control, or if a
written agreement does not exist, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such stock and
present in person or by proxy at such meeting. If a majority of votes is not
present at the meeting in person or by proxy, the shares shall be divided
equally among those persons in whose names the ownership of the stock stands.
2.13 VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of
another corporation may be voted by an officer, agent or proxy as the bylaws of
such corporation
3
<PAGE>
may prescribe, or, in the absence of such provision, as the board of directors
of such corporation may determine. Shares held by an administrator, executor,
guardian or conservator may be voted by him or her, either in person or by
proxy, without a transfer of such shares into his or her name. Shares standing
in the name of a trustee may be voted by him or her, either in person or by
proxy. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his or her name if authority to
do so is contained in an appropriate order of the court or other public
authority by which such receiver was appointed. A stockholder whose shares are
pledged shall be entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred.
2.14 INSPECTORS. For each meeting of stockholders, the Board of Directors
may appoint one or more inspectors of election. If for any meeting the
inspector(s) appointed by the Board of Directors shall be unable to act or the
Board of Directors shall fail to appoint any inspector, one or more inspectors
may be appointed at the meeting by the chairman thereof. Such inspector(s)
shall conduct the voting in each election of directors and, as directed by the
Board of Directors or the chairman of the meeting, the voting on the matters
voted on at such meeting, and after the voting shall make a certificate of the
vote taken. Inspectors need not be stockholders.
ARTICLE III. CAPITAL STOCK
3.1 CERTIFICATES. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed by the
Chairman or Vice Chairman of the Board or President or a Vice President, and may
be countersigned by the Secretary or the Treasurer, and may be sealed with the
seal of the Corporation or a facsimile thereof. The signatures of such officers
may be facsimiles if the certificate is manually signed on behalf of a transfer
agent, or registered by a registrar, other than the Corporation itself or an
employee of the Corporation. If an officer who has signed or whose facsimile
signature has been placed upon such certificate ceases to be an officer before
the certificate is issued, it may be issued by the Corporation with the same
effect as if the person were an officer on the date of issue. Each certificate
of stock shall state:
(a) that the Corporation is organized under the laws of the State of
New Jersey;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series,
if any, which such certificate represents;
4
<PAGE>
(d) that the Corporation will furnish to any stockholder upon request
and without charge, a full statement of (i) the designations, relative
rights, preferences and limitations of the shares of each class and series
authorized to be issued, so far as the same have been determined, and (ii)
the authority of the Board of Directors to divide the shares into classes
or series and to determine and change the relative rights, preferences and
limitations of any class or series.
3.2 TRANSFERS.
(a) Transfers of stock shall be made only upon the stock transfer
books of the Corporation, kept at the registered office of the Corporation
or at its principal place of business, or at the office of its transfer
agent or registrar, and before a new certificate is issued, the old
certificate shall be surrendered for cancellation. The Board of Directors
may, by resolution, open a share register in any state of the United
States, and may employ an agent or agents to keep such register, and to
record transfers of shares therein.
(b) Shares of stock shall be transferred by delivery of the
certificates therefor, accompanied either by an assignment in writing on
the back of the certificate or an assignment separate from the certificate,
or by a written power of attorney to sell, assign and transfer the same,
signed by the holder of said certificate. No shares of stock shall be
transferred on the books of the Corporation until the outstanding
certificates therefor have been surrendered to the Corporation.
3.3 REGISTERED OWNER. Registered stockholders shall be treated by the
Corporation as the holders in fact of the stock standing in their respective
names and the Corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
below or by the laws of the State of New Jersey. The Board of Directors may
adopt by resolution a procedure whereby a stockholder of the Corporation may
certify in writing to the Corporation that all or a portion of the shares
registered in the name of such stockholder are held for the account of a
specified person or persons. The resolution shall set forth:
(a) The classification of stockholder who may certify;
(b) The purpose or purposes for which the certification may be made;
(c) The form of certification and information to be contained herein;
(d) If the certification is with respect to a record date or closing
of the stock transfer books, the date within which the certification must be
received by the Corporation; and
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(e) Such other provisions with respect to the procedure as are deemed
necessary or desirable.
Upon receipt by the Corporation of a certification complying with the above
requirements, the persons specified in the certification shall be deemed, for
the purpose or purposes set forth in the certification, to be the holders of
record of the number of shares specified in place of the stockholder making the
certification.
3.4 MUTILATED, LOST OR DESTROYED CERTIFICATES. In case of any
mutilation, loss or destruction of any certificate of stock, another may be
issued in its place upon receipt of proof of such mutilation, loss or
destruction. The Board of Directors may impose conditions on such issuance and
may require the giving of a satisfactory bond or indemnity to the Corporation in
such sum as they might determine, or establish such other procedures as they
deem necessary.
3.5 FRACTIONAL SHARES OR SCRIP. The Corporation may (a) issue fractions
of a share which shall entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any of the assets of the Corporation in
the event of liquidation; (b) arrange for the disposition of fractional
interests by those entitled thereto; (c) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such shares are
determined; or (d) issue scrip in registered or bearer form which shall entitle
the holder to receive a certificate for a full share upon the surrender of such
scrip aggregating a full share.
3.6 SHARES OF ANOTHER CORPORATION. Shares owned by the Corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation.
ARTICLE IV. BOARD OF DIRECTORS
4.1 POWERS. The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors. In addition to the powers
and authorities expressly conferred upon it by these Bylaws and the Certificate
of Incorporation, all powers of the Corporation may be exercised by or under the
authority of the Board of Directors, except as conferred on or reserved to the
stockholders by law or by these Bylaws or the Certificate of Incorporation.
4.2 NUMBER AND ELECTION OF DIRECTORS.
(a) The Board of Directors shall be divided into four classes as
nearly equal in number as possible. At the first annual meeting of stockholders
following the effective date of the Corporation's Certificate of Incorporation,
directors of the first class shall be elected to hold office for a term expiring
at the next succeeding annual meeting, directors
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of the second class shall be elected to hold office for a term expiring at the
second succeeding annual meeting, directors of the third class shall be elected
to hold office for a term expiring at the third succeeding annual meeting,
directors of the fourth class shall be elected to hold office for a term
expiring at the fourth succeeding annual meeting, and, with respect to directors
of each class, until their respective successors are elected and qualified. At
each subsequent annual meeting of stockholders, directors elected to succeed
those whose terms are expiring shall be elected for a term of office to expire
at the fourth succeeding annual meeting of stockholders and until their
respective successors are elected and qualified. Directors need not be
stockholders or residents of the State of New Jersey.
(b) The number of directors of the Corporation that shall constitute
the initial Board of Directors shall be seven. The number of directors may at
any time be increased or decreased by the affirmative vote of two-thirds of the
Whole Board of Directors and a majority of the Continuing Directors, as such
capitalized terms are defined in Article 8.1 of the Corporation's Certificate of
Incorporation, provided that no decrease shall have the effect of shortening the
term of any incumbent director (except as provided in Section 4.4 hereunder).
Notwithstanding anything to the contrary contained in these Bylaws, the number
of Directors may not be less than five nor more than fifteen.
4.3 VACANCIES. All vacancies in the Board of Directors, whether caused
by resignation, death or otherwise, shall be filled in the manner provided in
the Corporation's Certificate of Incorporation.
4.4 REMOVAL OF DIRECTORS. Directors may only be removed in the manner
provided in the Corporation's Certificate of Incorporation.
4.5 REGULAR MEETING. Regular meetings of the Board of Directors or any
committee may be held at the principal place of business of the Corporation or
at such other place or places, either within or without the State of New Jersey,
as the Board of Directors or such committee, as the case may be, may from time
to time designate. The annual meeting of the Board of Directors shall be held
without notice immediately after the adjournment of the annual meeting of
stockholders. Notice of all regular meetings of the Board of Directors shall be
given to each director by five days' service of the same by telegram, by letter
or personally. Such notice need not specify the business to be transacted at,
nor the purpose of, the meeting.
4.6 SPECIAL MEETINGS.
(a) Special meetings of the Board of Directors may be called at any
time by the Chairman, the President or by a majority of the authorized number of
directors, to be held at the principal place of business of the Corporation or
at such other place or places as the Board of Directors or the person or persons
calling such meeting may from time to time designate. Notice of all special
meetings of the Board of Directors shall be given to
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each director by five days' service of the same by telegram, by letter or
personally. Such notice need not specify the business to be transacted at, nor
the purpose of, the meeting.
(b) Special meetings of any committee may be called at any time by
such person or persons and with such notice as shall be specified for such
committee by the Board of Directors, or in the absence of such specification, in
the manner and with the notice required for special meetings of the Board of
Directors.
4.7 QUORUM AND ACTION BY BOARD. A majority of the Board of Directors
shall be necessary at all meetings to constitute a quorum for the transaction of
business. Any action approved by a majority of the votes of Directors present
at a meeting at which a quorum is present shall be the act of the Board of any
committee thereof.
4.8 WAIVER OF NOTICE. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice signed by
the director or directors, whether before or after the time stated for the
meeting, shall be equivalent to the giving of notice.
4.9 REGISTERING DISSENT. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his or her dissent shall be
entered in the minutes of the meeting, or unless he or she shall file his or her
written dissent to such action with the person acting as the secretary of the
meeting, before the adjournment thereof, or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
4.10 EXECUTIVE AND OTHER COMMITTEES. The Board of Directors may appoint an
Executive Committee and the Board of Directors or the Chairman of the Board may
appoint such other standing or special committees of the Board from its members
from time to time and invest such committees with such powers as are deemed
appropriate, subject to such conditions as are deemed appropriate may be
prescribed by the Board. An Executive Committee may be appointed by resolution
passed by a majority of the full Board of Directors. It shall have and exercise
all of the authority of the Board of Directors, except in reference to amending
the Certificate of Incorporation or these Bylaws, adopting a plan of merger or
consolidation, recommending the sale, lease or exchange or other dispositions of
all or substantially all the property and assets of the Corporation otherwise
than in the usual and regular course of business, recommending a voluntary
dissolution or a revocation thereof, or such other matters that are reserved by
the Business Corporation Act of New Jersey to the Board of Directors. All
committees so appointed shall keep regular minutes of the transactions of their
meetings and shall cause them to be recorded in books kept for that purpose in
the office of the Corporation. The designation of any such committee, and
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the delegation of authority thereto, shall not relieve the Board of Directors,
or any member thereof, of any responsibility imposed by law.
4.11 REMUNERATION. Directors, as such, may receive a stated salary for
their services in the form of a retainer. By resolution of the Board of
Directors, a reasonable fixed sum, and reasonable expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board of Directors; provided, that nothing herein contained shall be construed
to preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of standing or special committees may
be allowed like compensation for attending committee meetings.
4.12 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or which
may be taken at a meeting of the Board of Directors, or of a committee thereof,
may be taken without a meeting if a consent in writing, setting forth the action
so taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be. Such consent shall have the same
effect as a unanimous vote.
4.13 ACTION OF DIRECTORS BY COMMUNICATIONS EQUIPMENT. Any action required
or which may be taken at a meeting of directors, or of a committee thereof, may
be taken by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time.
ARTICLE V. OFFICERS
5.1 DESIGNATIONS. The officers of the Corporation shall be a President, a
Chief Executive Officer, a Secretary and a Treasurer, and such Vice Presidents,
Assistant Secretaries and Assistant Treasurers as the Board of Directors may
designate, who shall be elected for one year by the directors at their first
meeting after the annual meeting of stockholders, and who shall hold office
until their successors are elected and qualified. Any two or more offices may
be held by the same person.
5.2 POWERS AND DUTIES. The officers of the Corporation shall have such
authority and perform such duties as the Board of Directors may from time to
time authorize or determine. In the absence of action by the Board of
Directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
5.3 DELEGATION. In the case of absence or inability to act of any officer
of the Corporation and of any person herein authorized to act in his or her
place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer or any director or other person whom
it may select.
5.4 VACANCIES. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board
for the unexpired portion of the term.
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5.5 OTHER OFFICERS. Directors may appoint such other officers and agents
as they shall deem necessary or expedient, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
5.6 TERM - REMOVAL. The officers of the Corporation shall hold office
until their successors are chosen and qualify. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the Board of Directors, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
5.7 BONDS. The Board of Directors may, by resolution, require any and all
of the officers to give bonds to the Corporation, with sufficient surety or
sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI. DIVIDENDS AND FINANCE
6.1 DIVIDENDS. Dividends may be declared by the Board of Directors and
paid by the Corporation out of the unreserved and unrestricted earned surplus of
the Corporation, subject to the conditions and limitations imposed by the State
of New Jersey. The stock transfer books may be closed for the payment of
dividends during such periods of not in excess of sixty days, as from time to
time may be fixed by the Board of Directors. The Board or Directors, however,
without closing the books of the Corporation, may declare dividends payable only
to the holders of record at the close of business on any business day not more
than sixty days prior to the date on which the dividend is paid.
6.2 RESERVES. Before making up any distribution of earned surplus, there
may be set aside out of the earned surplus of the Corporation such sum or sums
as the directors from time to time in their absolute discretion deem expedient
as a reserve fund to meet contingencies, or for equalizing dividends, or for
maintaining any property of the Corporation, or for any other purpose. Any
earned surplus of any year not distributed as dividends shall be deemed to have
thus been set apart until otherwise disposed of by the Board of Directors.
6.3 DEPOSITORIES. The monies of the Corporation shall be deposited in the
name of the Corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
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ARTICLE VII. NOTICES
Except as may otherwise be required by law, any notice to any stockholder
or director may be delivered personally or by mail. If mailed, the notice shall
be deemed to have been delivered when deposited in the United States mail,
addressed to the addressee at his or her last known address in the records of
the Corporation, with postage thereon prepaid.
ARTICLE VIII. SEAL
The corporate seal of the Corporation shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors.
ARTICLE IX. BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes and proceedings of its stockholders and Board of
Directors; and it shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record of its
stockholders, giving the names and addresses of all stockholders and the number
and class of the shares held by each. Any books, records and minutes may be in
written form or any other form capable of being converted into written form
within a reasonable time.
ARTICLE X. AMENDMENTS
These Bylaws may be altered, amended or repealed in the manner set forth in
the Certificate of Incorporation.
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AMENDMENT NUMBER ONE TO
IBS FINANCIAL CORP.
EMPLOYEE STOCK OWNERSHIP PLAN
BY THIS AGREEMENT, the IBS Financial Corp. Employee Stock Ownership Plan
(herein referred to as the "Plan") is hereby amended as follows, effective as of
January 1, 1996;
1. Section 4.4(b) of the Plan is amended and restated to read as follows:
The Employer shall provide the Administrator with all information required
by the Administrator to make a proper allocation of the Employer's contributions
for each Plan Year. Within a reasonable period of time after the date of
receipt by the Administrator of such information, the Administrator shall
allocate such contribution as follows:
(1) With respect to the Employer's Elective Contribution made pursuant to
Section 4.1(a), to each Participant's Elective Account in an amount equal
to each such Participant's Deferred Compensation for the year.
(2) With respect to the Employer's Non-Elective Contribution made pursuant
to Section 4.1(b), to each Participant's Account in accordance with Section
4.1(b).
Only Participants who have completed a Year of Service during the Plan Year
shall be eligible to share in the matching contribution for the year.
(3) With respect to the Employer's Qualified Non-Elective Contribution
made pursuant to Section 4.1(c), to each Participant's Elective Account in
accordance with Section 4.1(c).
Only Non-Highly Compensated Participants and Non-Key Employees who have
completed a Year of Service during the Plan Year shall be eligible to share
in the Qualified Non-Elective Contribution for the year.
(4) With respect to the Employer's Non-Elective Contribution made pursuant
to Section 4.1(d), to each Participant's Account in the same proportion
that each such Participant's Compensation for the year bears to the total
Compensation of all Participants for such year.
Only Participants who have completed a Year of Service during the Plan Year
shall be eligible to share in the discretionary contribution for the year.
<PAGE>
2. Section 4.4(j) is hereby deleted in its entirety.
3. Section 4.4(m) of the Plan is amended and restated to read as follows:
For any Top Heavy Plan Year, the minimum allocations set forth above
shall be allocated to the Participant's Combined Account of all
Non-Key Employees who are Participants, including Non-Key Employees
who have (1) failed to complete a Year of Service; and (2) declined to
make mandatory contributions (if required) or, in the case of a cash
or deferred arrangement, elective contributions to the Plan.
4. Section 4.4(r)(1) is hereby amended and restated to read as follows:
The group of Participants eligible to share in the Employer's
contribution and Forfeitures for the Plan Year shall be expanded to
include the minimum number of Participants who would not otherwise be
eligible as are necessary to satisfy the applicable test specified
above. The specific Participants who shall become eligible under the
terms of this paragraph shall be those Participants who, when compared
to similarly situated Participants, have completed the greatest number
of Hours of Service in the Plan Year.
5. Section 4.4(r)(2) is hereby amended and restated to read as follows:
If after application of paragraph (1) above, the applicable test is
still not satisfied, then the group of Participants eligible to share
in the Employer's contribution and Forfeitures for the Plan Year shall
be further expanded to include the minimum number of Participants as
are necessary to satisfy the applicable test. The specific
Participants who shall become eligible to share shall be those
Participants, when compared to similarly situated Participants, who
have completed the greatest number of Hours of Service in the Plan
Year before terminating employment.
IN WITNESS WHEREOF, this Amendment has been executed this 19th day of
January, 1996.
Signed, sealed, and delivered
in the presence of:
IBS FINANCIAL CORP.
/s/ Chiara Eisennagel
_________________________
Chiara Eisennagel By: /s/ Joseph M. Ochman, Sr.
Secretary _______________________________________
Joseph M. Ochman, Sr.
President and Chief Executive Officer
<PAGE>
IBS FINANCIAL CORP. EMPLOYEE STOCK
OWNERSHIP PLAN
By: /s/ Joseph M. Ochman, Sr.
_______________________________________
Joseph M. Ochman, Sr., Trustee
By: /s/ Thomas J. Auchter
_______________________________________
Thomas J. Auchter, Trustee
By: /s/ John A. Borden
_______________________________________
John A. Borden, Trustee
<PAGE>
AGREEMENT
AGREEMENT, dated this 22nd day of April 1996, between IBS Financial Corp.
(the "Corporation"), a New Jersey corporation and JOSEPH M. OCHMAN, SR. (the
"Executive").
WITNESSETH
WHEREAS, the Executive is presently an officer of the Corporation and
Inter-Boro Savings and Loan Association (the "Association") (together, the
"Employers");
WHEREAS, the Employers desire to be ensured of the Executive's continued
active participation in the business of the Employers and currently have a joint
agreement with the Executive dated October 28, 1994;
WHEREAS, in accordance with Office of Thrift Supervision ("OTS") Regulatory
Bulletin 27a, the Corporation and the Association desire to enter into separate
agreements with the Executive with respect to his employment by each of the
Employers; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Employers and in consideration of the Executive's agreeing to remain in the
employ of the Employers, the parties desire to specify the severance benefits
which shall be due the Executive by the Corporation in the event that his
employment with the Corporation is terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby agree as follows:
1. DEFINITIONS. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) AVERAGE ANNUAL COMPENSATION. The Executive's "Average Annual
Compensation" for purposes of this Agreement shall be deemed to mean the average
level of compensation paid to the Executive by the Employers or any subsidiary
thereof during the most recent five taxable years preceding the Date of
Termination, including Base Salary and bonuses under any employee benefit plans
of the Employers.
(b) BASE SALARY. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(c) CAUSE. Termination of the Executive's employment for "Cause" shall
mean termination because of personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order or material breach of any provision of this Agreement.
<PAGE>
2
(d) CHANGE IN CONTROL OF THE CORPORATION. "Change in Control of the
Corporation" shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), or any successor thereto, whether or not the Corporation is registered
under the Exchange Act; provided that, without limitation, such a change in
control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing 25% or more of the
combined voting power of the Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(e) CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(g) DISABILITY. Termination by the Corporation of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits under
the applicable long-term disability plan maintained by the Employers or any
subsidiary or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
(h) GOOD REASON. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive following a
Change in Control of the Corporation based on:
(i) Without the Executive's express written consent, a reduction by
either of the Employers in the Executive's Base Salary as the
same may be increased from time to time or, except to the
extent permitted by Section 3(b) hereof, a reduction in the
package of fringe benefits provided to the Executive, taken as
a whole;
(ii) The principal executive office of either of the Employers is
relocated outside of the Cherry Hill, New Jersey area or,
without the Executive's express written consent, either of the
Employers require the Executive to be based anywhere other than
an area in which the Employers' principal executive office is
located, except for required travel on
<PAGE>
3
business of the Employers to an extent substantially
consistent with the Executive's present business travel
obligations;
(iii) Any purported termination of the Executive's employment for
Cause, Disability or Retirement which is not effected
pursuant to a Notice of Termination satisfying the
requirements of paragraph (j) below; or
(iv) The failure by the Corporation to obtain the assumption of and
agreement to perform this Agreement by any successor as
contemplated in Section 9 hereof.
(i) IRS. IRS shall mean the Internal Revenue Service.
(j) NOTICE OF TERMINATION. Any purported termination of the Executive's
employment by the Corporation for any reason, including without limitation for
Cause, Disability or Retirement, or by the Executive for any reason, including
without limitation for Good Reason, shall be communicated by written "Notice of
Termination" to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated, (iii)
specifies a Date of Termination, which shall be not less than thirty (30) nor
more than ninety (90) days after such Notice of Termination is given, except in
the case of the Corporation's termination of Executive's employment for Cause,
which shall be effective immediately; and (iv) is given in the manner specified
in Section 10 hereof.
(k) RETIREMENT. "Retirement" shall mean voluntary termination by the
Executive in accordance with the Employers' retirement policies, including early
retirement, generally applicable to their salaried employees.
2. TERM OF EMPLOYMENT.
(a) The Corporation hereby employs the Executive as President and Chief
Executive Officer and Executive hereby accepts said employment and agrees to
render such services to the Corporation on the terms and conditions set forth in
this Agreement. The term of employment under this Agreement shall be for three
years, commencing on the date of this Agreement and, upon approval of the Board
of Directors of the Corporation, shall extend for an additional year on each
annual anniversary of the date of this Agreement such that at any time the
remaining term of this Agreement shall be from two to three years. Prior to the
first annual anniversary of the date of this Agreement and each annual
anniversary thereafter, the Board of Directors of the Corporation shall consider
and review (with appropriate corporate documentation thereof, and after taking
into account all relevant factors, including the Executive's performance
hereunder) extension of the term under this Agreement, and the term shall
continue to extend each year if the Board of
<PAGE>
4
Directors approves such extension unless the Executive gives written notice to
the Employers of the Executive's election not to extend the term, with such
written notice to be given not less than thirty (30) days prior to any such
anniversary date. If the Board of Directors elects not to extend the term, it
shall give written notice of such decision to the Executive not less than thirty
(30) days prior to any such anniversary date. If any party gives timely notice
that the term will not be extended as of any annual anniversary date, then this
Agreement shall terminate at the conclusion of its remaining term. References
herein to the term of this Agreement shall refer both to the initial term and
successive terms.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Corporation as may be consistent with his titles and
from time to time assigned to him by the Corporation's Board of Directors.
3. COMPENSATION AND BENEFITS.
(a) The Employers shall compensate and pay Executive for his services
during the term of this Agreement at a minimum base salary of $548,000 per year
("Base Salary"), which may be increased from time to time in such amounts as may
be determined by the Boards of Directors of the Employers and may not be
decreased without the Executive's express written consent. In addition to his
Base Salary, the Executive shall be entitled to receive during the term of this
Agreement such bonus payments as may be determined by the Boards of Directors of
the Employers.
(b) During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Boards of Directors of the Employers. The Corporation shall not
make any changes in such plans, benefits or privileges which would adversely
affect Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executive officers of the Corporation
and does not result in a proportionately greater adverse change in the rights of
or benefits to Executive as compared with any other executive officer of the
Corporation. Nothing paid to Executive under any plan or arrangement presently
in effect or made available in the future shall be deemed to be in lieu of the
salary payable to Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be entitled to paid
annual vacation in accordance with the policies as established from time to time
by the Boards of Directors of the Employers, which shall in no event be less
than four weeks per annum. Executive shall not be entitled to receive any
additional compensation from the Employers for failure to take a vacation, nor
shall Executive be able to accumulate unused vacation time from one year to the
next, except to the extent authorized by the Boards of Directors of the
Employers.
<PAGE>
5
(d) During the term of this Agreement, in keeping with past practices, the
Employers shall continue to provide the Executive with the automobile he
presently drives. The Employers shall be responsible and shall pay for all costs
of insurance coverage, repairs, maintenance and other incidental expenses,
including license, fuel and oil. The Employers shall provide the Executive with
a replacement automobile of a similar type as selected by the Executive at
approximately the time that his present automobile reaches (3) years of age and
approximately every three (3) years thereafter, upon the same terms and
conditions.
(e) During the term of this Agreement, in keeping with past practices, the
Employers shall pay the Executive's annual membership dues at (2) two clubs of
his choice.
(f) The Employers shall provide continued medical insurance in the
Employers' health plan for the benefit of the Executive and his spouse until the
Executive shall have attained the age of 70, whether or not the Executive is
employed full time by the Employers, and such insurance shall be comparable to
that which is provided to the Executive as of the date of this Agreement
notwithstanding anything to the contrary in this Agreement and regardless of
whether the Executive is eligible to participate in the Employers' health plan.
In the event of the Executive's death before he attains the age of 70, the
Employers shall provide the Executive's spouse continued medical insurance in
the Employers' health plan comparable to that which is being provided to the
Executive's spouse at such time for three years from the date of the Executive's
death.
(g) In the event of the Executive's death during the term of this
Agreement or if the Executive is terminated due to Disability, his spouse,
estate, legal representative or named beneficiaries (as directed by the
Executive in writing) shall be paid on a monthly basis the Executive's annual
compensation from the Employers at the rate in effect at the time of the
Executive's death or termination due to Disability for the remainder of the term
of this Agreement.
(h) The Executive's compensation, benefits and expenses shall be paid by
the Corporation and the Association in the same proportion as the time and
services actually expended by the Executive on behalf of each respective
Employer.
4. EXPENSES. The Employers shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Employers, including,
but not by way of limitation, automobile expenses described in Section 3(d)
hereof, and traveling expenses, and all reasonable entertainment expenses
(whether incurred at the Executive's residence, while traveling or otherwise),
subject to such reasonable documentation and other limitations as may be
established by the Boards of Directors of the Employers. If such expenses are
paid in the first instance by Executive, the Employers shall reimburse the
Executive therefor.
<PAGE>
6
5. TERMINATION.
(a) The Corporation shall have the right, at any time upon prior Notice of
Termination, to terminate the Executive's employment hereunder for any reason,
including without limitation termination for Cause, Disability or Retirement,
and Executive shall have the right, upon prior Notice of Termination, to
terminate his employment hereunder for any reason.
(b) In the event that (i) Executive's employment is terminated by the
Corporation for Cause or Retirement or (ii) Executive terminates his employment
hereunder other than for Good Reason, Executive shall have no right pursuant to
this Agreement to compensation or other benefits for any period after the
applicable Date of Termination, except as provided for in Section 3(f) hereof in
the event of termination for Retirement.
(c) In the event that (i) Executive's employment is terminated by the
Corporation for other than Cause, Disability, Retirement or the Executive's
death or (ii) such employment is terminated by the Executive (a) due to a
material breach of this Agreement by the Corporation, which breach has not been
cured within fifteen (15) days after a written notice of non-compliance has been
given by the Executive to the Employers, or (b) for Good Reason, then the
Corporation shall
(A) pay to the Executive, in thirty-six (36) equal monthly
installments beginning with the first business day of the month following
the Date of Termination, a cash severance amount equal to three (3) times
that portion of the Executive's Base Salary paid by the Corporation, and
(B) maintain and provide for a period ending at the earlier of (i)
the expiration of the remaining term of employment pursuant hereto prior to
the Notice of Termination or (ii) the date of the Executive's full-time
employment by another employer (provided that the Executive is entitled
under the terms of such employment to benefits substantially similar to
those described in this subparagraph (B)), at no cost to the Executive, the
Executive's continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans, programs
and arrangements offered by the Corporation in which the Executive was
entitled to participate immediately prior to the Date of Termination (other
than stock option and restricted stock plans of the Employers), provided
that in the event that the Executive's participation in any plan, program
or arrangement as provided in this subparagraph (B) is barred, or during
such period any such plan, program or arrangement is discontinued or the
benefits thereunder are materially reduced, the Corporation shall arrange
to provide the Executive with benefits substantially similar to those which
the Executive was entitled to receive under such plans, programs and
arrangements immediately prior to the Date of Termination.
<PAGE>
7
(d) In the event of the failure by either of the Employers to elect or to
re-elect or to appoint or to re-appoint the Executive to the offices of
President and Chief Executive Officer of the Employers or a material adverse
change made by either of the Employers in the Executive's functions, duties or
responsibilities as President and Chief Executive Officer of the Employers
without the Executive's express written consent, the Executive shall be entitled
to terminate his employment hereunder and shall be entitled to the payments and
benefits provided for in Section 5(c)(A) and (B).
6. PAYMENT OF ADDITIONAL BENEFITS UNDER CERTAIN CIRCUMSTANCES.
(a) If the payments and benefits pursuant to Section 5 hereof, either
alone or together with other payments and benefits which Executive has the right
to receive from the Employers (including, without limitation, the payments and
benefits which Executive would have the right to receive from the Association
pursuant to Section 5 of the Agreement between the Association and Executive
dated April 22, 1996 ("Association Agreement"), before giving effect to any
reduction in such amounts pursuant to Section 6 of the Association Agreement),
would constitute a "parachute payment" as defined in Section 280G(b)(2) of the
Code (the "Initial Parachute Payment," which includes the amounts paid pursuant
to clause (A) below), then the Corporation shall pay to the Executive, in
thirty-six (36) equal monthly installments beginning with the first business day
of the month following the Date of Termination, a cash amount equal to the sum
of the following:
(A) the amount by which the payments and benefits that would have
otherwise been paid by the Association to the Executive pursuant to
Section 5 of the Association Agreement are reduced by the provisions of
Section 6 of the Association Agreement;
(B) twenty (20) percent (or such other percentage equal to the tax
rate imposed by Section 4999 of the Code) of the amount by which the
Initial Parachute Payment exceeds the Executive's "base amount" from the
Employers, as defined in Section 280G(b)(3) of the Code, with the
difference between the Initial Parachute Payment and the Executive's base
amount being hereinafter referred to as the "Initial Excess Parachute
Payment";
(C) such additional amount (tax allowance) as may be necessary to
compensate the Executive for the payment by the Executive of state and
federal income and excise taxes on the payment provided under clause (B)
above and on any
<PAGE>
8
payments under this clause (C). In computing such tax
allowance, the payment to be made under clause (B) above shall be
multiplied by the "gross up percentage" ("GUP"). The GUP shall be
determined as follows:
Tax Rate
GUP = ------------
1- Tax Rate
The Tax Rate for purposes of computing the GUP shall be the highest
marginal federal and state income and employment-related tax rate,
including any applicable excise tax rate, applicable to the Executive in
the year in which the payment under clause (B) above is made.
(b) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
the Executive is a party that the actual excess parachute payment as defined in
Section 280G(b)(1) of the Code is different from the Initial Excess Parachute
Payment (such different amount being hereafter referred to as the "Determinative
Excess Parachute Payment"), then the Corporation's independent tax counsel or
accountants shall determine the amount (the "Adjustment Amount") which either
the Executive must pay to the Corporation or the Corporation must pay to the
Executive in order to put the Executive (or the Corporation, as the case may be)
in the same position the Executive (or the Corporation, as the case may be)
would have been if the Initial Excess Parachute Payment had been equal to the
Determinative Excess Parachute Payment. In determining the Adjustment Amount,
the independent tax counsel or accountants shall take into account any and all
taxes (including any penalties and interest) paid by or for the Executive or
refunded to the Executive or for the Executive's benefit. As soon as
practicable after the Adjustment Amount has been so determined, the Corporation
shall pay the Adjustment Amount to the Executive or the Executive shall repay
the Adjustment Amount to the Corporation, as the case may be.
(c) In each calendar year that the Executive receives payments of benefits
under this Section 6, the Executive shall report on his state and federal income
tax returns such information as is consistent with the determination made by the
independent tax counsel or accountants of the Corporation as described above.
The Corporation shall indemnify and hold the Executive harmless from any and all
losses, costs and expenses (including without limitation, reasonable attorneys'
fees, interest, fines and penalties) which the Executive incurs as a result of
so reporting such information. Executive shall promptly notify the Corporation
in writing whenever the Executive receives notice of the institution of a
judicial or administrative proceeding, formal or informal, in which the federal
tax treatment under Section 4999 of the Code of any amount paid or payable under
this Section 6 is being reviewed or is in dispute. The Corporation shall assume
control at its expense over all legal and accounting matters pertaining to such
federal tax treatment (except to the extent necessary or appropriate for the
Executive to resolve any such proceeding with respect to any matter unrelated to
amounts paid or payable pursuant to this Section 6)
<PAGE>
9
and the Executive shall cooperate fully with the Corporation in any such
proceeding. The Executive shall not enter into any compromise or settlement
or otherwise prejudice any rights the Corporation may have in connection
therewith without the prior consent of the Corporation.
7. MITIGATION; EXCLUSIVITY OF BENEFITS.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
8. WITHHOLDING. All payments required to be made by the Corporation
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Corporation may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
9. ASSIGNABILITY. The Corporation may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any corporation,
bank or other entity with or into which the Corporation may hereafter merge or
consolidate or to which the Corporation may transfer all or substantially all of
their assets, if in any such case said corporation, bank or other entity shall
by operation of law or expressly in writing assume all obligations of the
Corporation hereunder as fully as if it had been originally made a party hereto,
but may not otherwise assign this Agreement or its rights and obligations
hereunder. The Executive may not assign or transfer this Agreement or any
rights or obligations hereunder.
10. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Corporation: Secretary
IBS Financial Corp.
1909 E. Marlton Pike
Cherry Hill, New Jersey 08003
To the Association: Secretary
Inter-Boro Savings and Loan Association
1909 E. Marlton Pike
Cherry Hill, New Jersey 08003
<PAGE>
10
To the Executive: Joseph M. Ochman, Sr.
774 Allison Court
Morrestown, New Jersey 08057
11. AMENDMENT; WAIVER. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Corporation to sign on
its behalf. No waiver by any party hereto at any time of any breach by any
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
12. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of New
Jersey.
13. NATURE OF OBLIGATIONS. Nothing contained herein shall create or
require the Corporation to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Corporation hereunder, such right shall be no
greater than the right of any unsecured general creditor of the Corporation.
14. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the Corporation and the Executive with respect to the matters agreed to
herein. All prior agreements between the Corporation and the Executive with
respect to the matters agreed to herein, including without limitation the
Agreement between the Employers and the Executive dated October 28, 1994, are
hereby superseded and shall have no force or effect. Notwithstanding the
foregoing, nothing contained in this Agreement shall affect the agreement of
even date being entered into between the Association and the Executive.
<PAGE>
11
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
Attest: IBS FINANCIAL CORP.
____________________ By: /s/ JOHN A. BORDEN
_____________________________
John A. Borden, Director and
Chairman of the Compensation
Committee of the Board
of Directors
EXECUTIVE
By: /s/ JOSEPH M. OCHMAN, SR.
_____________________________
Joseph M. Ochman, Sr.
<PAGE>
AGREEMENT
AGREEMENT, dated this 22nd day of April 1996, between Inter-Boro Savings
and Loan Association (the "Association"), a New Jersey chartered savings and
loan association and JOSEPH M. OCHMAN, SR. (the "Executive").
WITNESSETH
WHEREAS, the Executive is presently an officer of IBS Financial Corp. (the
"Corporation") and the Association (together, the "Employers");
WHEREAS, the Employers desire to be ensured of the Executive's continued
active participation in the business of the Employers and currently have a joint
agreement with the Executive dated October 28, 1994;
WHEREAS, in accordance with Office of Thrift Supervision ("OTS") Regulatory
Bulletin 27a, the Corporation and the Association desire to enter into separate
agreements with the Executive with respect to his employment by each of the
Employers; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Employers and in consideration of the Executive's agreeing to remain in the
employ of the Employers, the parties desire to specify the severance benefits
which shall be due the Executive by the Association in the event that his
employment with the Association is terminated under specified circumstances;
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby agree as follows:
1. DEFINITIONS. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) AVERAGE ANNUAL COMPENSATION. The Executive's "Average Annual
Compensation" for purposes of this Agreement shall be deemed to mean the average
level of compensation paid to the Executive by the Employers or any subsidiary
thereof during the most recent five taxable years preceding the Date of
Termination, including Base Salary and bonuses under any employee benefit plans
of the Employers.
(b) BASE SALARY. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(c) CAUSE. Termination of the Executive's employment for "Cause" shall
mean termination because of personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful
<PAGE>
2
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order or material breach of any
provision of this Agreement.
(d) CHANGE IN CONTROL OF THE CORPORATION. "Change in Control of the
Corporation" shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), or any successor thereto, whether or not the Corporation is registered
under the Exchange Act; provided that, without limitation, such a change in
control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing 25% or more of the
combined voting power of the Corporation's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(e) CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(g) DISABILITY. Termination by the Association of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits under
the applicable long-term disability plan maintained by the Employers or any
subsidiary or, if no such plan applies, which would qualify the Executive for
disability benefits under the Federal Social Security System.
(h) GOOD REASON. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive following a
Change in Control of the Corporation based on:
(i) Without the Executive's express written consent, a reduction by
either of the Employers in the Executive's Base Salary as the
same may be increased from time to time or, except to the extent
permitted by Section 3(b) hereof, a reduction in the package of
fringe benefits provided to the Executive, taken as a whole;
(ii) The principal executive office of either of the Employers is
relocated outside of the Cherry Hill, New Jersey area or, without
the Executive's
<PAGE>
3
express written consent, either of the Employers require the
Executive to be based anywhere other than an area in
which the Employers' principal executive office is located,
except for required travel on business of the Employers to an
extent substantially consistent with the Executive's present
business travel obligations;
(iii) Any purported termination of the Executive's employment for Cause,
Disability or Retirement which is not effected pursuant to a
Notice of Termination satisfying the requirements of paragraph (j)
below; or
(iv) The failure by the Association to obtain the assumption of and
agreement to perform this Agreement by any successor as
contemplated in Section 9 hereof.
(i) IRS. IRS shall mean the Internal Revenue Service.
(j) NOTICE OF TERMINATION. Any purported termination of the Executive's
employment by the Association for any reason, including without limitation for
Cause, Disability or Retirement, or by the Executive for any reason, including
without limitation for Good Reason, shall be communicated by written "Notice of
Termination" to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated notice which (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated, (iii)
specifies a Date of Termination, which shall be not less than thirty (30) nor
more than ninety (90) days after such Notice of Termination is given, except in
the case of the Association's termination of Executive's employment for Cause,
which shall be effective immediately; and (iv) is given in the manner specified
in Section 10 hereof.
(k) RETIREMENT. "Retirement" shall mean voluntary termination by the
Executive in accordance with the Employers' retirement policies, including early
retirement, generally applicable to their salaried employees.
2. TERM OF EMPLOYMENT.
(a) The Association hereby employs the Executive as President and Chief
Executive Officer and Executive hereby accepts said employment and agrees to
render such services to the Association on the terms and conditions set forth in
this Agreement. The term of employment under this Agreement shall be for three
years, commencing on the date of this Agreement and, upon approval of the Board
of Directors of the Association, shall extend for an additional year on each
annual anniversary of the date of this Agreement such that at any time the
remaining term of this Agreement shall be from two to three years. Prior to the
first annual anniversary of the date of this Agreement and each annual
anniversary thereafter, the Board of Directors of the Association shall consider
and review
<PAGE>
4
(with appropriate corporate documentation thereof, and after taking into account
all relevant factors, including the Executive's performance hereunder)
extension of the term under this Agreement, and the term shall continue to
extend each year if the Board of Directors approves such extension unless the
Executive gives written notice to the Employers of the Executive's election not
to extend the term, with such written notice to be given not less than thirty
(30) days prior to any such anniversary date. If the Board of Directors elects
not to extend the term, it shall give written notice of such decision to the
Executive not less than thirty (30) days prior to any such anniversary date. If
any party gives timely notice that the term will not be extended as of any
annual anniversary date, then this Agreement shall terminate at the conclusion
of its remaining term. References herein to the term of this Agreement shall
refer both to the initial term and successive terms.
(b) During the term of this Agreement, the Executive shall perform such
executive services for the Association as may be consistent with his titles and
from time to time assigned to him by the Association's Board of Directors.
3. COMPENSATION AND BENEFITS.
(a) The Employers shall compensate and pay Executive for his services
during the term of this Agreement at a minimum base salary of $548,000 per year
("Base Salary"), which may be increased from time to time in such amounts as may
be determined by the Boards of Directors of the Employers and may not be
decreased without the Executive's express written consent. In addition to his
Base Salary, the Executive shall be entitled to receive during the term of this
Agreement such bonus payments as may be determined by the Boards of Directors of
the Employers.
(b) During the term of the Agreement, Executive shall be entitled to
participate in and receive the benefits of any pension or other retirement
benefit plan, profit sharing, stock option, employee stock ownership, or other
plans, benefits and privileges given to employees and executives of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Boards of Directors of the Employers. The Association shall not
make any changes in such plans, benefits or privileges which would adversely
affect Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executive officers of the Association
and does not result in a proportionately greater adverse change in the rights of
or benefits to Executive as compared with any other executive officer of the
Association. Nothing paid to Executive under any plan or arrangement presently
in effect or made available in the future shall be deemed to be in lieu of the
salary payable to Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be entitled to paid
annual vacation in accordance with the policies as established from time to time
by the Boards of Directors of the Employers, which shall in no event be less
than four weeks per annum. Executive shall not be entitled to receive any
additional compensation from the Employers for failure to take a vacation, nor
shall Executive be able to accumulate unused vacation
<PAGE>
5
time from one year to the next, except to the extent authorized by the Boards of
Directors of the Employers.
(d) During the term of this Agreement, in keeping with past practices, the
Employers shall continue to provide the Executive with the automobile he
presently drives. The Employers shall be responsible and shall pay for all costs
of insurance coverage, repairs, maintenance and other incidental expenses,
including license, fuel and oil. The Employers shall provide the Executive with
a replacement automobile of a similar type as selected by the Executive at
approximately the time that his present automobile reaches (3) years of age and
approximately every three (3) years thereafter, upon the same terms and
conditions.
(e) During the term of this Agreement, in keeping with past practices, the
Employers shall pay the Executive's annual membership dues at (2) two clubs of
his choice.
(f) The Employers shall provide continued medical insurance in the
Employers' health plan for the benefit of the Executive and his spouse until the
Executive shall have attained the age of 70, whether or not the Executive is
employed full time by the Employers, and such insurance shall be comparable to
that which is provided to the Executive as of the date of this Agreement
notwithstanding anything to the contrary in this Agreement and regardless of
whether the Executive is eligible to participate in the Employers' health plan.
In the event of the Executive's death before he attains the age of 70, the
Employers shall provide the Executive's spouse continued medical insurance in
the Employers' health plan comparable to that which is being provided to the
Executive's spouse at such time for three years from the date of the Executive's
death.
(g) In the event of the Executive's death during the term of this
Agreement or if the Executive is terminated due to Disability, his spouse,
estate, legal representative or named beneficiaries (as directed by the
Executive in writing) shall be paid on a monthly basis the Executive's annual
compensation from the Employers at the rate in effect at the time of the
Executive's death or termination due to Disability for the remainder of the term
of this Agreement.
(h) The Executive's compensation, benefits and expenses shall be paid by
the Corporation and the Association in the same proportion as the time and
services actually expended by the Executive on behalf of each respective
Employer.
4. EXPENSES. The Employers shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Employers, including,
but not by way of limitation, automobile expenses described in Section 3(d)
hereof, and traveling expenses, and all reasonable entertainment expenses
(whether incurred at the Executive's residence, while traveling or otherwise),
subject to such reasonable documentation and other limitations as may be
established by the Boards of Directors of the Employers. If such expenses are
paid in the first instance by Executive, the Employers shall reimburse the
Executive therefor.
<PAGE>
6
5. TERMINATION.
(a) The Association shall have the right, at any time upon prior Notice of
Termination, to terminate the Executive's employment hereunder for any reason,
including without limitation termination for Cause, Disability or Retirement,
and Executive shall have the right, upon prior Notice of Termination, to
terminate his employment hereunder for any reason.
(b) In the event that (i) Executive's employment is terminated by the
Association for Cause or Retirement or (ii) Executive terminates his employment
hereunder other than for Good Reason, Executive shall have no right pursuant to
this Agreement to compensation or other benefits for any period after the
applicable Date of Termination, except as provided for in Section 3(f) hereof in
the event of termination for Retirement.
(c) In the event that (i) Executive's employment is terminated by the
Association for other than Cause, Disability, Retirement or the Executive's
death or (ii) such employment is terminated by the Executive (a) due to a
material breach of this Agreement by the Association, which breach has not been
cured within fifteen (15) days after a written notice of non-compliance has been
given by the Executive to the Employers, or (b) for Good Reason, then the
Association shall, subject to the provisions of Section 6 hereof, if applicable
(A) pay to the Executive, in thirty-six (36) equal monthly
installments beginning with the first business day of the month following
the Date of Termination, a cash severance amount equal to three (3) times
that portion of the Executive's Base Salary paid by the Association, and
(B) maintain and provide for a period ending at the earlier of (i)
the expiration of the remaining term of employment pursuant hereto prior to
the Notice of Termination or (ii) the date of the Executive's full-time
employment by another employer (provided that the Executive is entitled
under the terms of such employment to benefits substantially similar to
those described in this subparagraph (B)), at no cost to the Executive, the
Executive's continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans, programs
and arrangements offered by the Association in which the Executive was
entitled to participate immediately prior to the Date of Termination (other
than stock option and restricted stock plans of the Employers), provided
that in the event that the Executive's participation in any plan, program
or arrangement as provided in this subparagraph (B) is barred, or during
such period any such plan, program or arrangement is discontinued or the
benefits thereunder are materially reduced, the Association shall arrange
to provide the Executive with benefits substantially similar to those which
the Executive was entitled to receive under such plans, programs and
arrangements immediately prior to the Date of Termination.
<PAGE>
7
(d) In the event of the failure by either of the Employers to elect or to
re-elect or to appoint or to re-appoint the Executive to the offices of
President and Chief Executive Officer of the Employers or a material adverse
change made by either of the Employers in the Executive's functions, duties or
responsibilities as President and Chief Executive Officer of the Employers
without the Executive's express written consent, the Executive shall be entitled
to terminate his employment hereunder and shall be entitled to the payments and
benefits provided for in Section 5(c)(A) and (B).
6. LIMITATION OF BENEFITS UNDER CERTAIN CIRCUMSTANCES. If the payments
and benefits pursuant to Section 5 hereof, either alone or together with other
payments and benefits which Executive has the right to receive from the
Association, would constitute a "parachute payment" under Section 280G of the
Code, the payments and benefits payable by the Association pursuant to Section 5
hereof shall be reduced, in the manner determined by the Executive, by the
amount, if any, which is the minimum necessary to result in no portion of the
payments and benefits payable by the Association under Section 5 being
non-deductible to the Association pursuant to Section 280G of the Code and
subject to the excise tax imposed under Section 4999 of the Code. The parties
hereto agree that the payments and benefits payable pursuant to this Agreement
to the Executive upon termination shall be limited to three times the
Executive's average annual compensation (based upon the most recent five taxable
years) in accordance with OTS Regulatory Bulletin 27a. The determination of any
reduction in the payments and benefits to be made pursuant to Section 5 shall be
based upon the opinion of independent tax counsel selected by the Association's
independent public accountants and paid by the Association. Such counsel shall
be reasonably acceptable to the Association and the Executive; shall promptly
prepare the foregoing opinion, but in no event later than thirty (30) days from
the Date of Termination; and may use such actuaries as such counsel deems
necessary or advisable for the purpose. Nothing contained herein shall result
in a reduction of any payments or benefits to which the Executive may be
entitled upon termination of employment under any circumstances other than as
specified in this Section 6, or a reduction in the payments and benefits
specified in Section 5 below zero.
7. MITIGATION; EXCLUSIVITY OF BENEFITS.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
8. WITHHOLDING. All payments required to be made by the Association
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax
<PAGE>
8
and other payroll deductions as the Association may reasonably determine should
be withheld pursuant to any applicable law or regulation.
9. ASSIGNABILITY. The Association may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any corporation,
bank or other entity with or into which the Association may hereafter merge or
consolidate or to which the Association may transfer all or substantially all of
their assets, if in any such case said corporation, bank or other entity shall
by operation of law or expressly in writing assume all obligations of the
Association hereunder as fully as if it had been originally made a party hereto,
but may not otherwise assign this Agreement or its rights and obligations
hereunder. The Executive may not assign or transfer this Agreement or any
rights or obligations hereunder.
10. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Association: Secretary
Inter-Boro Savings and Loan Association
1909 E. Marlton Pike
Cherry Hill, New Jersey 08003
To the Corporation: Secretary
IBS Financial Corp.
1909 E. Marlton Pike
Cherry Hill, New Jersey 08003
To the Executive: Joseph M. Ochman, Sr.
774 Allison Court
Morrestown, New Jersey 08057
11. AMENDMENT; WAIVER. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Association to sign on
its behalf. No waiver by any party hereto at any time of any breach by any
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
12. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the State of New
Jersey.
<PAGE>
9
13. NATURE OF OBLIGATIONS. Nothing contained herein shall create or
require the Association to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Association hereunder, such right shall be no
greater than the right of any unsecured general creditor of the Association.
14. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. REGULATORY ACTIONS. The following provisions shall be applicable to
the parties to the extent that they are required to be included in employment
agreements between a savings association and its employees pursuant to Section
563.39(b) of the Regulations Applicable to all Savings Associations, 12 C.F.R.
Section 563.39(b), or any successor thereto, and shall be controlling in the
event of a conflict with any other provision of this Agreement, including
without limitation Section 5 hereof.
(a) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Association's affairs pursuant to
notice served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit
Insurance Act ("FDIA")(12 U.S.C. Sections 1818(e)(3) and 1818(g)(1)), the
Association's obligations under this Agreement shall be suspended as of the date
of service, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Association may, in its discretion: (i) pay Executive
all or part of the compensation withheld while its obligations under this
Agreement were suspended, and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.
(b) If Executive is removed from office and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C. Sections
1818(e)(4) and (g)(1)), all obligations of the Association under this Agreement
shall terminate as of the effective date of the order, but vested rights of the
Executive and the Association as of the date of termination shall not be
affected.
(c) If the Association is in default, as defined in Section 3(x)(1) of the
FDIA (12 U.S.C. Section 1813(x)(1)), all obligations under this Agreement shall
terminate as of the date of
<PAGE>
10
default, but vested rights of the Executive and the Association as of the date
of termination shall not be affected.
(d) All obligations under this Agreement shall be terminated pursuant to
12 C.F.R. Section 563.39(b)(5) (except to the extent that it is determined that
continuation of the Agreement for the continued operation of the Association is
necessary): (i) by the Director of the OTS, or his/her designee, at the time the
Federal Deposit Insurance Corporation ("FDIC") or Resolution Trust Corporation
enters into an agreement to provide assistance to or on behalf of the
Association under the authority contained in Section 13(c) of the FDIA (12
U.S.C. Section 1823(c)); or (ii) by the Director of the OTS, or his/her
designee, at the time the Director or his/her designee approves a supervisory
merger to resolve problems related to operation of the Association or when the
Association is determined by the Director of the OTS to be in an unsafe or
unsound condition, but vested rights of the Executive and the Employers as of
the date of termination shall not be affected.
18. REGULATORY PROHIBITION. Notwithstanding any other provision of this
Agreement to the contrary, any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C. Section 1828(k)) and any regulations
promulgated thereunder.
19. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the Association and the Executive with respect to the matters agreed to
herein. All prior agreements between the Association and the Executive with
respect to the matters agreed to herein, including without limitation the
Agreement between the Employers and the Executive dated October 28, 1994, are
hereby superseded and shall have no force or effect. Notwithstanding the
foregoing, nothing contained in this Agreement shall affect the agreement of
even date being entered into between the Corporation and the Executive.
<PAGE>
11
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
Attest: IBS FINANCIAL CORP.
____________________ By: /s/ JOHN A. BORDEN
_____________________________
John A. Borden, Director and
Chairman of the Compensation
Committee of the Board
of Directors
EXECUTIVE
By: /s/ JOSEPH M. OCHMAN, SR.
_____________________________
Joseph M. Ochman, Sr.
<PAGE>
IBS FINANCIAL CORP.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30,
------------------------
1996 1995
---- ----
<S> <C> <C>
EARNINGS PERFORMANCE FOR THE FISCAL YEAR:
Net interest income $24,733 26,668
Net income 4,537(a) 9,920
PER SHARE:
Net income $0.43(a) 0.84
Cash dividends declared 0.234 0.135
Book value 13.42 13.03
FINANCIAL CONDITION AT FISCAL YEAR END:
Total assets $742,051 726,536
Investments 26,712 241,345
Securities available for sale 215,331 0
Mortgage-backed securities 285,267 311,753
Loans 185,031 141,781
Deposits 571,366 564,910
Stockholders' equity 144,284 158,049
PERFORMANCE RATIOS:
Return on average assets 0.94%(b) 1.36%
Return on average equity 4.56%(b) 6.37%
Net interest margin 3.44% 3.77%
Operating expenses to average assets 1.92%(b) 1.68%
Efficiency ratio 55.96% 44.93%
</TABLE>
(a) Reflects a one-time assessment of $3.7 million or $2.4
million after tax ($.23 per share) incurred in the September
1996 quarter to recapitalize the Savings Association Insurance
Fund of the Federal Deposit Insurance Corporation. See Note 18
of Notes to the Consolidated Financial Statements.
(b) Exclusive of one-time SAIF assessment. Including the SAIF
assessment, return on average assets, return on average equity
and operating expenses to average assets were .61%, 2.96% and
2.42%, respectively.
<PAGE>
IBS FINANCIAL CORP.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in Thousands, Except per Share Data)
As of or For the Year Ended September 30,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION:
Total assets $742,051 726,536 663,866 665,933 652,614 626,075
Loans 185,031 141,781 140,618 157,030 185,188 199,027
Investments 26,712 241,345 289,495 238,138 205,916 99,430
Mortgage-backed
securities 285,267 311,753 182,891 134,677 217,041 279,186
Cash and equivalents 12,466 12,542 32,586 119,014 24,392 30,912
Deposits 571,366 564,910 603,080 609,805 603,722 583,292
Stockholders' equity 144,284 158,049 57,594 52,631 44,579 37,954
Nonperforming assets (1) 827 663 1,005 5,478 8,495 8,751
Full service offices 8 8 8 8 8 8
OPERATIONS:
Total interest income $ 52,152 51,692 41,525 47,458 53,451 55,921
Total interest expense 27,419 25,024 25,674 28,093 34,916 42,851
Net interest income 24,733 26,668 15,851 19,365 18,535 13,070
Provision for loan losses 30 30 180 431 1,077 337
Other operating income 687 663 901 1,663 928 500
Operating expenses 14,231 12,215 9,015 8,738 8,342 8,387
Special SAIF
assessment (2) 3,700 0 0 0 0 0
Income before taxes 7,459 15,086 7,557 11,859 10,045 4,846
Income taxes 2,922 5,166 2,594 3,807 3,527 1,676
Net income $ 4,537 9,920 4,963 8,052 6,518 3,169
PER COMMON SHARE:
Net income $ 0.43(2) 0.84 N/A N/A N/A N/A
Cash dividends 0.234 0.135 N/A N/A N/A N/A
OPERATING RATIOS (3):
Average yield earned on
interest-earning assets 7.25% 7.30% 6.36% 7.29% 8.52% 9.33%
Average rate paid on
interest-bearing
liabilities 4.70% 4.39% 4.20% 4.60% 5.86% 7.47%
Average interest rate
spread (4) 2.55% 2.91% 2.16% 2.69% 2.66% 1.86%
Net interest margin 3.44% 3.77% 2.43% 2.98% 2.96% 2.18%
Ratio of interest-earning
assets to
interest-bearing
liabilities 123.38% 124.27% 106.74% 106.62% 102.30% 105.24%
Net interest income to
operating expenses 173.80% 218.32% 175.83% 221.64% 222.19% 155.84%
Operating expenses as a
percent of average
assets 1.92% 1.68% 1.34% 1.32% 1.30% 1.37%
Return on average assets 0.61%(2) 1.36% 0.74% 1.21% 1.02% 0.52%
Return on average equity 2.98%(2) 6.37% 8.98% 16.33% 15.58% 8.76%
Ratio of average equity
to average assets 20.53% 21.18% 8.24% 7.43% 6.52% 5.90%
Dividend payout ratio 51.07% 17.06% N/A N/A N/A N/A
ASSET QUALITY RATIOS:
Nonperforming loans and
troubled debt
restructurings as a
percent of total loans 0.45% 0.47% 3.62% 3.49% 4.59% 4.40%
Nonperforming assets and
troubled debt
restructurings as a
percent of total assets 0.11% 0.09% 0.77% 0.82% 1.30% 1.40%
Allowance for loan losses
as a percent of total
loans 0.55% 0.70% 0.38% 1.06% 0.67% 0.75%
Allowance for loan losses
as a percent of
nonperforming loans 123.8% 149.9% 52.7% 30.5% 17.9% 17.1%
Charge-offs to average
loans receivable
outstanding during
the period -- -- 0.89% -- 0.68% --
</TABLE>
______________
(1) Nonperforming assets consist of nonperforming loans,
troubled debt restructurings and real estate owned ("REO").
Nonperforming loans consist of nonaccrual loans and accruing
loans 90 days or more overdue, while REO consists of real estate
acquired through foreclosure and real estate acquired by
acceptance of a deed-in lieu of foreclosure.
(2) Without giving effect to the special SAIF assessment, net
income per share would have been $.66 and return on average
assets and return on average equity would have been .94% and
4.56%, respectively. See Note 18 of Notes to the Consolidated
Financial Statements.
(3) Asset Quality Ratios are end of period ratios, except for
charge-offs to average loans. With the exception of end of
period ratios, all ratios are based on monthly balances during
the indicated periods.
(4) Interest rate spread represents the difference between the
weighted average yield on average interest- earning assets and
the weighted average cost of average interest-bearing
liabilities, and net interest margin represents net interest
income as a percent of average interest-earning assets.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
IBS Financial Corp. (the "Company") is a New Jersey corporation organized in
June 1994 by the Association for the purpose of acquiring all of the capital
stock of Inter-Boro Savings and Loan Association issued in the conversion of the
Association to stock form, which was completed on October 13, 1994. The only
significant assets of the Company are its investments in the capital stock of
the Association and IBSF Investment Corp., a wholly-owned investment subsidiary,
the Company's loan to an employee stock ownership plan, and certain U.S.
Government Agency securities.
The Association is a New Jersey chartered stock savings and loan association
which conducts business from ten offices located in Camden, Burlington and
Gloucester Counties, New Jersey. Two of these offices were just recently opened
in Gloucester and Voorhees Townships, Camden County. The Association's
operations date back to 1890. The Association's deposits are insured by the
Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC") to the maximum extent permitted by law.
IBS Financial Corp.'s consolidated operating results depend primarily upon its
net interest income, which is determined by the difference between interest and
dividend income on interest-earning assets, principally investment securities
and other investments, mortgage-backed securities and loans, and interest
expense on interest-bearing liabilities, which consist of deposits and advances
from the Federal Home Loan Bank of New York. The Company's net income is also
affected by its provision for loan losses, as well as the level of its other
income, including loan fees and late charges, gains on the sale of investments
and on the sale of real estate owned and other income and its general and
administrative expenses, such as compensation and employee benefits, net
occupancy and equipment expense, federal deposit insurance and miscellaneous
other expenses, and income taxes.
OPERATING STRATEGY
The Company has traditionally offered a variety of savings products to its
retail customers. The Company invests its funds in U.S. Government, U.S.
Government agency and mortgage-backed securities, other short term investments
and has concentrated its lending activities on real estate loans secured by
single (i.e., "one-to-four") family residential properties. In fiscal 1996 the
Company also expanded its investment in commercial real estate loans. The
commercial real estate loans originated are collateralized by small professional
and medical office buildings, commercial retail establishments and religious
organizations in its market area. In addition and to a lesser degree,
construction loans are originated to construct primarily single family
residences. In the past, the Company has also purchased whole residential
mortgage loans and participation interests in commercial real estate projects
located principally in New Jersey.
<PAGE>
The Company began to deemphasize its real estate lending in the late 1980's due
to, among other reasons, declining real estate values. With the significant
decline in interest rates experienced during the early 1990s, the Company was
unwilling to actively originate long-term, fixed-rate residential mortgage loans
or purchase fixed-rate mortgage-backed securities. During this period, the
Company elected to build its liquidity, investing in U.S. Government and U.S.
Government agency securities with short maturities and cash and cash
equivalents, particularly bankers' acceptances. During the last half of 1994
,with a rising rate environment, the Board of Directors authorized the Company
to initiate a "tired" or laddered investment strategy under which it anticipated
investing $400 million over approximately an 18 month time period in
mortgage-backed securities and U.S. Government securities with varying
maturities.
The Company successfully reinvested the approximately $400 million in
mortgage-backed securities and U.S. Government and agency securities during the
fiscal year ended September 30, 1995. At September 30, 1995 mortgage-backed
securities amounted to $311.8 million or 42.9% of assets compared to $182.9
million or 27.5% of assets at September 30, 1994. In addition, the Company's
net interest margin increased to 3.77% for the year ended September 30, 1995
compared to 2.43% for the fiscal year ended September 30, 1994.
During fiscal 1996, the Company began emphasizing the origination of single
family residential loans and changed the mix of its originations to include more
commercial real estate loans in the local marketplace. In addition, the Company
continued to reduce its liquid assets by reinvesting the proceeds of maturing
investments into mortgage-backed securities generally with maturities of five
and seven years. This was designed to increase the Company's yield on its loan
portfolio. However, the Company experienced heavy repayments of higher
yielding residential loans and mortgage-backed securities that were reinvested
in lower yielding loan and mortgage-backed securities. As a result, the
Company's net interest margin was pressured, decreasing to 3.44% for the year
ended September 30, 1996.
ASSET AND LIABILITY MANAGEMENT
The principal objective of the Company's asset liability management function is
to evaluate the interest-rate risk included in certain balance sheet accounts,
determine the level of risk appropriate given the Company's business focus,
operating environment, capital and liquidity requirements and performance
objectives, establish prudent asset concentration guidelines and manage the risk
consistent with Board approved guidelines. The Company seeks to reduce the
vulnerability of its operations to changes in interest rates and to manage the
ratio of interest-rate sensitive assets to interest-rate sensitive liabilities
within specified maturities or repricing dates. The Company's actions in this
regard are taken under the guidance of the Asset/Liability Management Committee
("ALCO"), which is chaired by the Chief Financial Officer and comprised
principally by members of the Company's senior management. The ALCO reviews,
among other things, the sensitivity of the Company's assets and liabilities to
interest rate changes, the book and market values of assets and liabilities,
unrealized gains and losses, purchase activity and maturity of investments. In
connection therewith, the ALCO generally reviews the Association's liquidity,
cash flow needs, maturities of investments, deposits and
<PAGE>
borrowings and current market conditions and interest rates. The Chief
Executive Officer has authority to adjust pricing weekly with respect to the
Association's retail deposits.
The Company's primary ALCO monitoring tool is assets/liability simulation models
prepared on a quarterly basis and are designed to capture the dynamics of
balance sheet, rate and spread movements and to quantify variations in net
interest income under different interest rate environments. The Company also
utilizes market-value analysis, which addresses the change in equity value
arising from movements in interest rates. The market value of equity is
estimated on a market value basis. Market value analysis is intended to
evaluate the impact of immediate and sustained interest-rate shifts of the
current yield curve upon the market value of the current balance sheet.
One measure of interest rate risk is the gap ratio, which is defined as the
difference between the dollar volume of interest-earning assets and
interest-bearing liabilities maturing or repricing within a specified period of
time as a percentage of total assets. A positive gap results when the volume of
interest rate-sensitive assets exceeds that of interest rate-sensitive
liabilities within comparable time periods. A negative gap results when the
volume of interest-bearing liabilities exceeds that of interest rate-sensitive
assets within comparable time periods.
As indicated in the table below, the Company's one year gap position at
September 30, 1996 was a negative 8.9%. The one year time frame has been keyed
on because the majority of the Company's interest-earning assets and
interest-bearing liabilities are subject to repricing or maturity within this
period. Generally, a financial institution with a negative gap position will
most likely experience increases in net interest income during periods of
falling interest rates and decreases in net interest income during periods of
rising interest rates.
The following rate sensitivity table sets forth certain information at September
30, 1996 relating to the Company's assets and liabilities based on scheduled
repricing for adjustable assets and liabilities, or by contractual maturity for
fixed-rate assets and liabilities.
RATE SENSITIVITY ANALYSIS
<PAGE>
IBS FINANCIAL CORP.
RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, 1996
--------------------------------------------------------------
SIX OVER 1-3 OVER 3-5 OVER 5
MONTHS ONE YEAR YEARS YEARS YEARS
-------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Interest-earning assets: $
Loans 15,095 24,452 40,904 26,127 80,939
Mortgage-backed securities 50,130 65,252 88,069 213,994 34,320
Investments 64,399 23,994 0 0 0
-------- ------- ------- ------- --------
Total 129,624 113,698 128,973 240,121 115,259
-------- ------- ------- ------- --------
Interest-bearing liabilities:
Maturing certificates of deposit 129,186 121,195 142,327 17,075 8,538
MMDA and NOW accounts 38,355 2,016 6,128 13,582 0
Passbook balances 7,872 7,872 31,488 33,722 13,885
Borrowed funds 1,490 1,536 6,618 6,495 2,652
-------- ------- ------- ------- -------
Total 176,903 132,619 186,561 70,874 25,075
-------- ------- ------- ------- -------
GAP $(47,279) (18,921) (57,588) 169,247 90,184
======== ======== ======= ======= =======
Cumulative GAP $(47,279) (66,200) (123,788) 45,459 135,643
======== ======== ======= ======= =======
Cumulative GAP to total assets -6.4% -8.9% -16.7% 6.1% 18.3%
======== ======== ======= ======= =======
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
The Company's net income for the year ended September 30, 1996 amounted to
$4.5 million or $.43 per share compared with $9.9 million or $.84 per share
for fiscal 1995. Net income, before the one-time special assessment by the
Savings Association Insurance Fund ("SAIF"), for the year ended September 30,
1996 amounted to $6.9 million or $.66 per share. Per share amounts for prior
periods have been restated to reflect the 10% stock dividend paid on March
15, 1996. In addition, the per share amount for the fiscal year ended
September 30, 1995 includes earnings from the completion date of the initial
public offering and conversion on October 13, 1994. The decrease in earnings,
before the special SAIF assessment, was principally attributable to increased
operating expenses as well as reductions in net interest income reflecting
increased deposit and borrowing costs.
The Company reported net income of $9.9 million for the year ended September 30,
1995, an increase of $4.9 million or 98.0% from the $5.0 million earned in
fiscal 1994. This significant increase was due to substantially increased
interest income, which was primarily attributable to the program of reinvesting
cash and cash equivalent assets. Approximately $400 million, including the $104
million of net proceeds raised in the Company's initial public offering, was
reinvested in mortgage-backed securities and U.S. Government and agency
securities with a range of varying maturities.
NET INTEREST INCOME
Net interest income decreased by $1.9 million or 7.3% to $24.7 million for the
year ended September 30, 1996 from $26.7 million for the prior fiscal year. The
decrease in net interest income for the year ended September 30, 1996 resulted
from a decrease in average net interest-earning assets of $1.9 million or 1.4%,
as well as a decrease in the average interest rate spread of 36 basis points.
For the year ended September 30, 1995 net interest income amounted to $26.7
million, a $10.8 million or 68.2% increase from fiscal 1994. The increase in
net interest income for the year ended September 30, 1995 resulted from an
increase in average net interest-earning assets of $97.1 million or 235.4%,
principally mortgage-backed securities, as well as an increase in the average
interest rate spread of 75 basis points.
Total interest income increased by $.5 million or .9% for the year ended
September 30, 1996 from $51.7 million for the comparable prior year. This
increase was primarily the result of increases in average interest-earning
assets of $11.7 million or 1.7%, principally mortgage-backed securities, which
more than offset the 5 basis point decline in the average yield earned for the
year ended September 30, 1996. For the year ended September 30, 1995, total
interest income increased by $10.2 million or 24.5% from $41.5 million for the
comparable prior period. This $10.2 million increase in total interest income
was primarily the result of an increase in average interest-earning assets of
$55.3 million or 8.5% for the year ended September 30, 1995, principally
mortgage-backed securities. The average balance of mortgage-backed securities
increased by $158.1 million or 130.5% which, despite a 157 basis
<PAGE>
point reduction in average yield earned, was more than sufficient to offset a
$93.8 million or 24.4% decrease in the average balance of investment
securities and a $9.1 million or 6.1% decrease in the average balance of
loans.
Total interest expense increased by $2.4 million or 9.6% for the year ended
September 30, 1996 to $27.4 million from $25.0 million for the prior fiscal
year. Increases in average deposit balances and increases in the rates paid for
the year ended September 30, 1996 were both contributing factors to the increase
in total interest expense. Increases in average deposit and advance balances
amounted to $13.6 million or 2.4% for the year ended September 30, 1996. The
rate paid on average interest-bearing deposits and advances increased by 31
basis points during the year ended September 30, 1996. For the year ended
September 30, 1995, total interest expense declined by $.7 million or 2.5% to
$25.0 million from the prior fiscal year. The decrease in interest expense was
attributable to a decrease in average deposit balances of $41.8 million or 6.8%,
which more than offset a 19 basis point increase in the average rates paid for
the year ended September 30, 1995. The decrease in average deposit balances
reflected higher market interest rates being available on other financial
instruments in the Company's marketplace as well as approximately $16.5 million
that reflected amounts charged against depositors accounts on October 13, 1994
for the purchase of the Company's stock in the initial public offering.
INTEREST YIELD/RATE SPREAD ANALYSIS
The following table sets forth for the periods indicated information regarding
(i) the Company's average balance sheet; (ii) the total dollar amounts of
interest income from interest-earning assets and the resulting average yields
(no tax equivalent adjustments were made); (iii) the total dollar amounts of
interest expense on interest-bearing liabilities and the resulting average
costs; (iv) average interest rate spread; and (vi) net interest margin.
Nonaccrual loan balances are included in total loans. Loan fees are included in
interest on total loans; however, such fees for all years presented are nominal.
<PAGE>
IBS Financial Corp.
Spread Analysis
<TABLE>
<CAPTION>
(Dollars in Thgousands)
Year Ended September 30,
1996 1995 1994
------------------------------ ----------------------------------- -------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- -------- ------ --------- -------- ------ --------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
assets:
Loans $159,628 $12,758 7.99% $138,619 $11,337 8.18% $147,691 $11,809 8.00%
Mortgage-backed
securities 380,677 28,226 7.41% 279,290 23,304 8.34% 121,176 12,005 9.91%
Investments 179,420 11,168 6.22% 290,121 17,051 5.88% 383,874 17,711 4.61%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-
earning assets 719,725 52,152 7.25% 708,030 51,692 7.30% 652,741 41,525 6.36%
------- ---- ------- ----
Noninterest-earning
assets 21,403 19,600 17,555
-------- -------- --------
Total assets $741,128 $727,630 $670,296
======== ======== ========
Interest-bearing
liabilities:
Deposits $572,826 26,753 4.67% 569,738 25,024 4.39% $611,514 25,674 4.20%
Borrowings 10,491 666 6.35% 0 0 0 0
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-
bearing
liabilities 583,317 27,419 4.70% 569,738 25,024 4.39% 611,514 25,674 4.20%
------- ---- ------- ---- ------- ----
Non-interest-
bearing
liabilities 5,655 3,763 3,524
Equity 152,156 154,129 55,258
-------- -------- --------
Total liabilities
and equity $741,128 $727,630 $670,296
======== ======== ========
Net interest income
and interest-rate
spread $24,733 2.55% $26,668 2.91% $15,851 2.16%
======= ==== ======= ==== ======= ====
Net yield on
interest-earning
assets 3.44% 3.77% 2.43%
==== ==== ====
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 123.38% 124.27% 106.74%
====== ====== ======
</TABLE>
<PAGE>
VOLUME/RATE ANALYSIS
The following tables set forth, among other things, the extent which changes in
interest rates and changes in the average balances of interest-earnings assets
and interest-bearing liabilities have affected interest income and expense
during the years ended September 30, 1996 and 1995.
IBS FINANCIAL CORP.
RATE VOLUME ANALYSIS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, 1996 YEAR ENDED SEPTEMBER 30, 1995
---------------------------------------------------------------------------------------------
RATE/ RATE/
RATE VOLUME VOLUME TOTAL RATE VOLUME VOLUME TOTAL
---- ------ ------ ----- ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $ (263) 1,719 (35) 1,421 266 (726) (12) (472)
Mortgage-backed securities (2,597) 8,456 (937) 4,922 (1,902) 15,669 (2,468) 11,299
Investments (841) (7,207) 2,165 (5,883) 7,294 (4,322) (3,632) (660)
--------- ------ ----- ------ ------ ------ ------ ------
Total (3,701) 2,968 1,193 460 5,658 10,621 (6,112) 10,167
--------- ------ ----- ------ ------ ------ ------ ------
Interest expense:
Deposits 1,595 136 (2) 1,729 1,162 (1,755) (57) (650)
Borrowings 0 0 666 666 0 0 0 0
--------- ------ ----- ------ ------ ------ ------ ------
Total 1,595 136 664 2,395 1,162 (1,755) (57) (650)
--------- ------ ----- ------ ------ ------ ------ ------
Net change in net interest income $ (5,296) 2,832 529 (1,935) 4,496 12,376 (6,055) 10,817
========= ====== ===== ====== ====== ====== ====== ======
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1994
------------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
<S> <C> <C> <C> <C>
Interest Income:
Loans (425) (2,443) 57 (2,811)
Mortgage-backed securities (792) (5,271) 232 (5,831)
Investments (519) 3,180 48 2,709
------ ------ --- ------
Total (1,736) (4,534) 337 (5,933)
------ ------ --- ------
Interest expense:
Deposits (2,474) 60 (5) (2,419)
Borrowings 0 0 0 0
------ ------ --- ------
Total (2,474) 60 (5) (2,419)
------ ------ --- ------
Net change in net interest income 738 (4,594) 342 (3,514)
====== ====== === ======
</TABLE>
PROVISION FOR LOAN LOSSES
The Company establishes provisions for loan losses, which are charged to
operations, in order to maintain the allowance for loan losses at a level which
is considered to be appropriate based upon loan and loss experience and an
evaluation of potential losses in the current loan portfolio, including the
evaluation of impaired loans under SFAS Nos. 114 and 118. A loan is considered
to be impaired when, based upon current information and events, it is probable
that the Company will be unable to collect all amounts due according to the
contractual terms of the loan. An insignificant delay or insignificant
shortfall in the amount of payments does not necessarily result in the loan
being identified as impaired. For this purpose, delays less than 90 days are
considered to be insignificant. As of September 30, 1996, 100% of the impaired
loan balance was measured for impairment based upon the fair value of the loan's
collateral. Impairment losses are included in the provision for loan losses.
SFAS 114 and 118 do not apply to large groups of smaller balance homogenous
loans that are collectively evaluated for impairment, except for those loans
restructured under a troubled debt restructuring. Loans collectively evaluated
for impairment include consumer loans and residential real estate loans. At
September 30, 1996, the Company's impaired loans consisted of smaller balance
residential mortgage loans.
For the years ended September 30, 1996, 1995 and 1994, provisions for loan
losses were $30,000, $30,000 and $180,000, respectively. The reduced provision
during the year ended September 30, 1995 compared to the previous fiscal year
reflects a $3.2 million reduction in troubled debt restructuring of a commercial
real estate participation as well as a reduction in nonperforming loans. At
September 30, 1996, nonaccrual loans for which interest has been fully reserved
totaled approximately $827,000. The Company's allowance for loan losses
<PAGE>
amounted to $1,204,000 or 145.6% of total nonperforming loans and troubled debt
restructurings and .55% of total loans receivable.
Although management utilizes its best judgment in providing for loan losses,
there can be no assurance that the Company will not have to increase its
provisions for loan losses in the future as a result of future increases in
nonperforming loans or for other reasons which could adversely affect the
Company's results of operations. In addition, various regulatory agencies
periodically review the allowance for loan losses. Such agencies may require
the Company to recognize additions to the allowance for loan losses based on
their judgments of information that is available to them at the time of their
examination.
OTHER OPERATING INCOME
Other operating income amounted to $687,000 for the year ended September 30,
1996, an increase of $24,000 or 3.6% over the comparable prior fiscal year. The
increase reflected a $70,000 gain on the sale of an investment as well as
increased loan fees and service charges on automated teller machine transactions
that was only partially offset by $100,000 of rental income from real estate
owned recognized in the prior fiscal year.
For the year ended September 30, 1995, other operating income decreased by $.2
million or 26.4% to $.7 million compared to $.9 million for the prior year. The
decline for the year ended September 30, 1995 reflects the absence of $.3
million of non-recurring income earned in fiscal 1994 associated with a troubled
debt restructuring, which was only partially offset by $.1 million of rental
income from real estate owned recognized in fiscal 1995.
OPERATING EXPENSES
Operating expenses amounted to $17.9 million for the year ended September 30,
1996, an increase of $5.7 million or 46.8% compared to $12.2 million for the
prior fiscal year. The SAIF special assessment amounted to $3.7 million of the
$5.7 million increase in operating expenses. On September 30, 1996 ,as part of
the omnibus appropriations package signed by the President, the government
mandated a special assessment to recapitalize the SAIF, which is part of the
Federal Deposit Insurance Corporation. The special assessment was levied
against all savings institutions in the country with deposits insured by the
SAIF. The Bank's future deposit insurance premiums will be significantly
reduced as a result of this recapitalization legislation. The annual deposit
insurance premiums will be reduced from $.23 for every $100 of deposits to $.064
for every $100 of deposits beginning January 1, 1997. The Bank expects to pay
approximately $.9 million less in insurance premiums during fiscal 1997 or
approximately $.06 per share based on the level of insured deposits at September
30, 1996.
Excluding the $3.7 million SAIF special assessment, operating expenses amounted
to $14.2 million, an increase of $2.0 million or 16.5% compared to the prior
fiscal year. Compensation and employee benefits increased $1.6 million or 21.8%
to $9.1 million from $7.5 million for the year ended September 30, 1995. The
substantial portion of this increase resulted from additional expenses
associated with the Company's ESOP of $.6 million, MRP of $.3 million and
supplemental pension plan of $.6 million. During fiscal 1996, the Company
terminated a defined benefit pension plan and the related supplemental pension
plan. The termination
<PAGE>
resulted in an aggregate of $1.1 million of expense for these plans in fiscal
1996, which costs will not be incurred in fiscal 1997. As an additional cost
savings measure, the Company also eliminated all bonuses to senior management
in fiscal 1996. Professional fees and other expenses increased $.4 million
representing additional proxy contest expenses incurred in connection with
the Company's annual meeting, costs associated with pending litigation, and
additional professional fees incurred as a result of being a public reporting
company.
For the year ended September 30, 1995, operating expenses amounted to $12.2
million, an increase of $3.2 million or 35.5% compared to $9.0 million for the
prior fiscal year. Most of the increase was due to costs associated with the
implementation of the Company's ESOP and MRP. In addition, professional fees
also increased during the 1995 fiscal year reflecting the additional costs
associated with being a public reporting company as well as the new ESOP and MRP
plans that were being implemented. Advertising expenses also increased during
the year ended September 30, 1995 reflecting additional promotions regarding
mortgage loans and savings programs.
INCOME TAXES
For the years ended September 30, 1996, 1995 and 1994, the Company incurred
income tax expense of $2.9 million, $5.2 million and $2.6 million, respectively.
The decrease in fiscal 1996 and the increase in fiscal 1995 compared to the
prior year, respectively, in income tax expense generally follows the change in
income before income taxes as well as, for fiscal 1996, additional state income
tax expense. For additional information regarding income tax expense, refer to
Note 11 of Notes to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits, repayments and
maturities of outstanding loans and mortgage-backed securities, maturities of
investment securities and other short-term investments, as well as advances from
the Federal Home Loan Bank and funds provided from operations. While scheduled
loan and mortgage-backed securities repayments and maturing investment
securities and short-term investments are relatively predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by the movement
of interest rates in general, economic conditions and competition. The
Association manages the pricing of its deposits to maintain a deposit balance
deemed appropriate and desirable. In addition, the Association invests in
short-term interest-earning assets which provide liquidity to meet lending
requirements. The Association also utilizes other borrowing sources,
principally advances from the Federal Home Loan Bank of New York. In the event
of the need for an additional source of funds, the Board of Directors of the
Association has provided management with the authority to borrow up to $10.0
million from the Federal Reserve Bank of Philadelphia, without the need for
<PAGE>
additional Board approval. In addition, during the year ended September 30,
1996 the Association's Board of Directors also provided management with the
authority to borrow up to $50 million from the Federal Home Loan Bank of New
York.
Liquidity management is both a daily and long-term function. Excess liquidity
is generally invested in short-term investments such as cash and cash
equivalents, U.S. Treasury, U.S. Government agencies and other qualified
investments. On a longer-term basis, the Association maintains a strategy of
investing in various mortgage-backed securities and other investment securities
and lending products. During the year ended September 30, 1996, the Association
used its sources of funds primarily to meet its ongoing commitments to pay
maturing savings certificates and savings withdrawals, fund loan and
mortgage-backed securities commitments and maintain an increasing portfolio of
mortgage-backed securities. At September 30, 1996, the total approved loan
commitments outstanding amounted to $4.9 million. Certificates of deposit
scheduled to mature in one year or less at September 30, 1996 totaled $242.8
million. Management of the Association believes that the Association has
adequate resources, including principal prepayments and repayments of loans and
mortgage-backed securities and maturing investments, to fund all of its
commitments to the extent required. Based upon its historical run-off
experience, management believes that a significant portion of maturing deposits
will remain with the Association.
The Association is required by the OTS to maintain average daily balances of
liquids assets and short-term liquid assets as defined in amounts equal to 5%
and 1%, respectively, of net withdrawable deposits and borrowings payable in one
year or less to assure its ability to meet demand for withdrawals and repayments
of short-term borrowings. The liquidity requirements may vary from time to time
at the direction of the OTS depending upon economic conditions and deposit
flows. The Association's average monthly liquidity ratio and short-term liquid
assets for September 30, 1996 was 14.0% and 13.0%, respectively. The
Association has substantially reduced its liquidity over the past two fiscal
years.
The Office of Thrift Supervision requires that the Company meet minimum
regulatory tangible, core and risk-based capital requirements. The Company is
required to maintain tangible capital equal to at least 1.5% of its adjusted
total assets, core capital equal to at least 3% of its adjusted total assets and
total capital equal to at least 8% of its risk-weighted assets. At September 30,
1996 the Company exceeded all regulatory capital requirements. At such date,
the Company had tangible capital equal to 19.3% of adjusted total assets, core
capital equal to 19.3% of adjusted total assets and total capital equal to 73.6%
of risk-weighted assets.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and related notes presented
herein have been prepared in accordance with generally accepted accounting
principles which 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.
<PAGE>
Unlike most industrial companies, substantially 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 the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates. In the current interest rate environment,
liquidity and the maturity structure of the Association's assets and liabilities
are critical to the maintenance of acceptable performance levels.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards ("SFAS") Nos.
114 and 118, "Accounting by Creditors for Impairment of a Loan and Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures", as of
October 1, 1995. This statement requires that certain impaired loans be
measured based on either the present value of expected future cash flows
discounted at the loan's effective interest rate, or the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. The adoption of these statements did not result in any additional
provisions for loan losses primarily because 100% of impaired loan valuations
continue to be based on the fair value of collateral.
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 "Accounting for Stock-Based Compensation" which provides companies with
a choice either to expense the fair value of employee stock options over the
vesting period (recognition method) or to continue the current practice but
disclose the pro forma effects on net income and earnings per share had the fair
value method been used (disclosure only method). Companies electing the
disclosure only method will be required to include the pro forma effects of all
awards granted in fiscal years beginning after December 15, 1994. IBS Financial
Corp. elected the disclosure only method during this fiscal year.
On November 15, 1995, the FASB issued a Special Report, "A Guide to
Implementation of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities". On December 31, 1995, in accordance with the
provisions in the Special Report, the Company reclassified $307 million
of securities from held-to-maturity to available-for-sale. This
reclassification resulted in a $3.8 million unrealized gain, net of tax, which
was included in stockholders' equity at December 31, 1995. At September 30,
1996, this unrealized gain, net of tax, amounted to $1.0 million.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights and Excess Servicing Receivables and for Securitization of Mortgage
Loans", which is effective for years beginning after December 15, 1995. This
statement will require the Company to recognize servicing rights as assets,
regardless of how such assets were acquired. Additionally, the Company will be
required to assess the fair value of these assets at each reporting date to
determine any potential impairment. Management of the Company has not completed
an analysis of the effects this pronouncement will have on its results of
operations or financial position.
<PAGE>
[LOGO]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
IBS Financial Corp.:
We have audited the accompanying consolidated statements of financial
condition of IBS Financial Corp. and subsidiaries (the "Company") as of
September 30, 1996 and 1995, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the three
years in the period ended September 30, 1996. These financial statements are
the responsibility of the Company'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, such consolidated financial statements present fairly, in all
material respects, the financial position of IBS Financial Corp. and
subsidiaries at September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1996 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Toche LLP
October 31, 1996
<PAGE>
IBS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ASSETS 1996 1995
---------- -----------
<S> <C> <C>
Cash and cash equivalents $ 12,466 $ 12,542
Investment securities held to maturity (estimated fair value 1996 -
$26,724; 1995 - $241,901) 26,712 241,345
Investment securities available for sale (amortized cost 1996 - $48,194) 48,337 -
Mortgage-backed securities held to maturity (estimated fair value
1996 - $285,831; 1995 - $323,630) 285,267 311,753
Mortgage-backed securities available for sale (amortized cost
1996 - $165,485) 166,994 -
Loans receivable - (net of allowance for loan losses 1996 -
$1,024; 1995 - $994) 185,031 141,781
Accrued interest receivable:
Loans 872 601
Mortgage-backed securities 2,682 3,069
Investments 965 3,394
Federal Home Loan Bank stock - at cost 4,590 3,672
Office properties and equipment - net 6,084 6,245
Prepaid expenses and other assets 2,051 2,134
--------- --------
TOTAL ASSETS $742,051 $726,536
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $571,366 $564,910
FHLB advances 18,792 -
Advances from borrowers for taxes and insurance 2,218 1,784
Accounts payable and accrued expenses 5,391 1,793
--------- --------
Total liabilities 597,767 568,487
--------- --------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 25,000,000
shares; issued, 11,609,723 shares 116 116
Additional paid-in capital 113,432 113,259
Common stock acquired by ESOP and MRP (11,097) (13,438)
Treasury stock - at cost; 1996 - 855,256 shares; 1995 - 580,486 shares (12,104) (7,751)
Net unrealized gain on securities available for sale, net of taxes 1,045 -
Retained earnings - substantially restricted 52,892 65,863
--------- ---------
Total stockholders' equity 144,284 158,049
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $742,051 $726,536
======== ========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
IBS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(Dollars in Thousands Except Per Share Data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans $ 12,758 $ 11,337 $ 11,809
Interest on mortgage-backed securities 28,226 23,304 12,005
Interest and dividends on investments 11,168 17,051 17,711
--------- --------- ---------
Total interest income 52,152 51,692 41,525
--------- --------- ---------
INTEREST EXPENSE:
Deposits 26,753 25,024 25,674
Borrowings 666 - -
--------- --------- ---------
Total interest expense 27,419 25,024 25,674
--------- --------- ---------
NET INTEREST INCOME 24,733 26,668 15,851
PROVISION FOR LOAN LOSSES 30 30 180
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 24,703 26,638 15,671
--------- --------- ---------
OTHER OPERATING INCOME:
Loan fees and late charges 360 259 393
Other income 327 404 508
--------- --------- ---------
Total other operating income 687 663 901
--------- --------- ---------
OTHER EXPENSES:
Compensation and employee benefits 9,116 7,483 4,926
Federal insurance premiums 1,300 1,346 1,397
SAIF assessment 3,700 - -
Occupancy and equipment - net 1,134 1,141 1,078
Professional fees 759 486 263
Advertising and promotion 425 467 291
Data processing 442 430 415
Other operating expenses 1,055 862 645
--------- --------- ---------
Total other expenses 17,931 12,215 9,015
--------- --------- ---------
INCOME BEFORE INCOME TAXES 7,459 15,086 7,557
INCOME TAXES 2,922 5,166 2,594
--------- --------- ---------
NET INCOME $ 4,537 $ 9,920 $ 4,963
========= ========= =========
EARNINGS PER SHARE $ 0.43 $ 0.84 $ -
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
IBS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(Dollars in Thousands)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Net
Stock Unrealized
Additional Acquired by Gains (Losses) Total
Common Paid-in ESOP Treasury on AFS Retained Stockholders'
Stock Capital and MRP Stock Securities Earnings Equity
------- ----------- ------------ -------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1993 $ - $ - $ - $ - $ - $ 52,631 $ 52,631
Net income - - - - - 4,963 4,963
------- ----------- ------------ -------- ------------- ---------- ------------
BALANCE, SEPTEMBER 30, 1994 - - - - - 57,594 57,594
Sale of 11,609,723 shares
of common stock, $.01 par value
(net of cost of $2,919) 116 113,062 - - - - 113,178
ESOP debt - - (9,288) - - - (9,288)
Payments on ESOP debt - - 1,063 - - - 1,063
Market adjustment - ESOP shares
released - 197 - - - - 197
Purchase of MRP stock - - (6,085) - - - (6,085)
MRP earned - - 872 - - - 872
Treasury stock purchased - - - (7,751) - - (7,751)
Cash dividends ($0.135 per share - - - - - (1,651) (1,651)
Net income - - - - - 9,920 9,920
-------- ---------- ----------- -------- -------- ---------- ---------
BALANCE, SEPTEMBER 30, 1995 116 113,259 (13,438) (7,751) - 65,863 158,049
Payments on ESOP debt - - 1,147 - - - 1,147
Market adjustment - ESOP shares
released - 388 - - - - 388
MRP earned - - 1,194 - - - 1,194
Treasury stock purchased - - - (19,830) - - (19,830)
Cash dividends ($0.234 per share) - - - - - (2,317) (2,317)
10% stock dividend - (180) - 15,371 - (15,191) -
Unrealized gain on transfer of
securities from held to
maturity to available for
sale, net of tax at December
1995 - - - - 3,149 - 3,149
Unrealized loss, net of taxes - - - - (2,104) - (2,104)
Stock option exercised - (35) - 106 - - 71
Net income - - - - - 4,537 4,537
-------- --------- ---------- ----------- ------- --------- ----------
BALANCE, SEPTEMBER 30, 1996 $ 116 $113,432 $(11,097) $ (12,104) $ 1,045 $ 52,892 $ 144,284
======== ========= ========== =========== ======= ========= ==========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
IBS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(Dollars in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,537 $ 9,920 $ 4,963
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 374 391 411
Provision for loan loss 30 30 180
Market adjustment on ESOP 388 197 -
MRP earned 1,194 872 -
Changes in assets and liabilities which
provided (used) cash:
Accrued interest receivable 2,545 (1,823) (733)
Prepaid expenses and other assets 83 1,385 (808)
Accounts payable and accrued expenses 2,991 256 (150)
------- -------- --------
Net cash provided by operating
activities 12,142 11,228 3,863
-------- --------- --------
INVESTING ACTIVITIES:
Principal repayments of:
Loans receivable 22,728 15,192 40,796
Mortgage-backed securities held to maturity 44,862 35,710 57,873
Mortgage-backed securities available for sale 33,916 - -
Purchases of:
Investments held to maturity (303,648) (640,701) (415,775)
Investments available for sale (10)
Mortgage-backed securities held to maturity (217,777) (164,572) (106,087)
Proceeds from:
Maturity of investments held to maturity 455,099 688,851 364,418
Maturity of investments available for sale 5,000
Loans originated or acquired (70,196) (16,818) (25,383)
Proceeds from loans sold 4,188 - -
(Purchase) redemption of Federal Home Loan
Bank stock (918) (1,068) 1,053
Proceeds from sale of real estate owned - 1,252 -
Proceeds from sale of investments 9,998 - -
Purchase of property and equipment (213) (543) (182)
-------- --------- --------
Net cash used in investing activities (16,971) (82,697) (83,287)
-------- --------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 6,456 (38,170) (6,725)
Net increase (decrease) in advances from
borrowers for taxes and insurance 434 129 (279)
Advances from FHLB 20,000 - -
Repayment of FHLB advances (1,208) - -
Cash dividends paid (2,317) (1,651) -
Proceeds from the sale of stock, net of ESOP
shares acquired - 103,890 -
Payments on ESOP debt 1,147 1,063 -
Treasury stock acquired (19,830) (7,751) -
Unearned MRP shares acquired - (6,085) -
Stock options exercised 71 - -
-------- -------- --------
Net cash provided by (used in)
financing activities 4,753 51,425 (7,004)
-------- -------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (76) (20,044) (86,428)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,542 32,586 119,014
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 12,466 $ 12,542 $ 32,586
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits $ 27,345 $ 25,025 $ 25,808
========= ========= =========
Income taxes $ 3,275 $ 4,345 $ 2,843
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES - Transfers from loans to real
estate owned $ 56 $ - $ 1,019
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
IBS FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(Dollars in Thousands)
- ------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
IBS Financial Corp. (the "Company") is a New Jersey Corporation
organized in June 1994 for the purpose of acquiring all the capital stock
of Inter-Boro Savings and Loan Association (the "Association") issued in
the conversion of the Association to stock form (the "Conversion") which
was completed on October 13, 1994 (see Note 17). The Association is a New
Jersey chartered stock savings bank with ten branch offices in Camden,
Burlington and Gloucester counties.
The Association is principally in the business of attracting deposits
through its branch offices and investing those deposits together with
funds from borrowings and operations primarily in single-family residential
loans. The Company and the Association are supervised and regulated by
the New Jersey Banking Department, the Office of Thrift Supervision, the
Federal Reserve Bank, and the Federal Deposit Insurance Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The financial statements of the Company have been
prepared on the basis of generally accepted accounting principles. Due
to the Conversion, the financial statements for year ended September 30,
1994 have been previously reported upon as Inter-Boro Savings and Loan
Association.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of IBS Financial Corp. and its wholly owned
subsidiaries Inter-Boro Savings and Loan Association and IBS Investment
Corporation. All significant intercompany accounts and transactions have
been eliminated.
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 income and expenses
during the reporting period. The most significant estimates and
assumptions in the Company's financial statements affect the allowance for
loan losses. Actual results could differ from those estimates.
INVESTMENT AND MORTGAGE-BACKED SECURITIES - In May 1993, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES. The Company adopted SFAS No. 115 effective
October 1, 1994. There was no effect on stockholders' equity or net
income of initially applying the new standard. The Company adopted the
requirements of SFAS No. 115 to classify and account for debt and equity
securities as follows:
HELD TO MATURITY - Debt securities that management has the positive
intent and ability to hold until maturity are classified as held to
maturity and are carried at their remaining unpaid principal balance,
net of unamortized premiums or unaccreted discount. Premiums are
amortized and discounts are accreted using the interest method over the
estimated remaining term of the underlying security.
-6-
<PAGE>
AVAILABLE FOR SALE - Debt and equity securities that will be held for an
indefinite period of time, including securities that may be sold in
response to changes in market interest or prepayment rates, needs for
liquidity and changes in the availability of and the yield of
alternative investments are classified as available for sale. These
assets are carried at their estimated fair value, which management has
determined to be market value. Market value is determined using
published quotes as of the close of business.
During 1995, FASB issued a Special Report, A GUIDE TO IMPLEMENTATION OF
STATEMENT NO. 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES - QUESTIONS AND ANSWERS (the "Q&A Guide"). In December 1995,
in accordance with the provision of the Q&A Guide, the Company transferred
certain securities with an aggregate amortized cost of $199,401 from the
classification of held to maturity to available for sale.
REAL ESTATE OWNED - Real estate owned is initially recorded at the lower
of carrying value of the loan or fair value at the date of foreclosure
less costs to dispose. Costs relating to the development and improvement
of property are capitalized, and those relating to holding the property
are charged to expense.
OFFICE PROPERTIES AND EQUIPMENT - Office properties and equipment are
recorded at cost. Depreciation is computed using the straight-line method
over the expected useful lives (3-40 years) of the assets. The costs of
maintenance and repairs are expensed as they are incurred, and renewals
and betterments are capitalized.
ALLOWANCES FOR LOAN LOSSES - Allowances for loan losses primarily include
charges to reduce the recorded balances of mortgage loans receivable. The
charges can represent a general reserve on the entire mortgage portfolio
or specific reserves for individual loans.
Allowances are provided for specific loans when losses are probable and
can be estimated. When this occurs, management considers the remaining
principal balance and estimated net realizable value of the property
collateralizing the loan. Current and future operating and/or sales
conditions are considered. These estimates are susceptible to changes
that could result in material adjustments to results of operations.
Recovery of the carrying value of such loans is dependent, to a great
extent, on economic, operating and other conditions that may be beyond
management's control.
Loan loss reserves are established as an allowance for losses based on the
perceived risk of loss in the loan portfolio. In assessing risk,
management considers historical experience, volume and composition of
lending conducted by the Company, industry standards, status of
nonperforming loans, general economic conditions as they relate to the
Company's market area, and other factors related to the collectibility of
the Association's loan portfolio.
The Company adopted SFAS Nos. 114 and 118, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN and ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A
LOAN - INCOME RECOGNITION AND DISCLOSURES, as of October 1, 1995. SFAS
No. 114 requires that certain impaired loans be measured based either on
the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent. The adoption
of SFAS Nos. 114 and 118 did not result in additional provisions for loan
losses primarily because 100% of impaired loan valuations continue to be
based on the fair value of collateral.
-7-
<PAGE>
INCOME RECOGNITION ON LOANS - Interest on loans is credited to income when
earned. Accrual of loan interest is discontinued and a reserve established
on existing accruals if management believes that after considering economic
and business conditions and collection efforts, the borrowers' financial
condition is such that collection of interest is doubtful.
DEFERRED LOAN FEES - The Company defers all loan origination fees net of
certain direct loan origination costs, and recognizes fees by accretion
into income as a yield adjustment over the life of the loan using the
interest method.
EARNINGS PER SHARE- For the year ended September 30, 1996, earnings per
share is based on income for the year ended September 30, 1996 divided by
the weighted-average number of shares and equivalent shares outstanding
during the period of 10,478,884. For the year ended September 30, 1995,
earnings per share is based on income from October 13, 1994 (the date of
the initial public offering) through September 30, 1995 of $9,679 divided
by the weighted-average number of shares and equivalent shares outstanding
during the period of 11,536,650 (restated for the stock dividend issued in
March 1996). Since the initial offering was completed on October 13, 1994,
earnings per share information for prior years is not applicable.
INCOME TAXES - The Company accounts for income taxes in accordance with
SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Under this method, deferred
income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Also under SFAS No. 109,
the effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash and
cash equivalents include cash and amounts due from depository institutions,
and federal funds sold with original maturities of less than 90 days.
STOCK OPTIONS - The Company accounts for stock options under Accounting
Principles Board Opinion No. 25 which measures compensation cost using the
intrinsic value based method. In October 1995, the FASB issued SFAS No.
123, ACCOUNTING FOR STOCK BASED COMPENSATION, establishing financial
accounting and reporting standards for stock-based employee compensation
plans. This statement encourages all entities to adopt a new method of
accounting to measure compensation cost of all employee stock compensation
plans based on the estimated fair value of the award at the date it is
granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the INTRINSIC VALUE BASED METHOD
of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the
existing accounting are required to disclose in a footnote to the financial
statements proforma net income and, if presented, earnings per share, as if
this Statement had been adopted. The accounting requirements of this
Statement are effective for transactions entered into fiscal years that
begin after December 15, 1995; however, companies are required to disclose
information for awards granted in their first fiscal year beginning after
December 15, 1994. Proforma disclosures for awards granted in the first
fiscal year beginning after December 15, 1995 need not be included in
financial statements for that fiscal year but shall be presented
subsequently whenever financial statements for that fiscal year are
presented for comprehensive purposes with financial statements in a later
fiscal year. Management of the Company has not completed an analysis of
the potential effects of this Statement on its financial condition or
results of operations.
-8-
<PAGE>
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS - In May 1995, the FASB issued
SFAS No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS AND EXCESS SERVICING
RECEIVABLES AND FOR SECURITIZATION OF MORTGAGE LOANS. SFAS No. 122, which
is effective for the years beginning after December 15, 1995, will require
the Company to recognize servicing rights as assets, regardless of how such
assets were acquired. Additionally, the Company would be required to
assess the fair value of these assets at each reporting date to determine
any potential impairment. Management of the Company has not completed an
analysis of the effects this pronouncement would have on its results of
operations or financial position. Although superseded, this standard is
applicable until the effective date of SFAS No. 125.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES - In June 1996, FASB issued SFAS
No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. Those standards are based on consistent
application of a FINANCIAL-COMPONENTS APPROACH that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered, and derecognizes liabilities when extinguished.
This statement requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be
initially measured at fair value, if practicable. It also requires that
servicing assets and other retained interests in the transferred assets
be measured by allocating the previous carrying amount between the assets
sold, if any, and retained interests, if any, based on their relative fair
values at the date of the transfer.
This statement amends SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES, to clarify that a debt security may not be
classified as held-to-maturity if it can be prepaid or otherwise settled
in such a way that the holder of the security would not recover
substantially all of its recorded investment. This statement amends and
extends to all servicing assets and liabilities the accounting standards
for mortgage servicing rights now in SFAS No. 65, ACCOUNTING FOR CERTAIN
MORTGAGE BANKING ACTIVITIES, and supersedes SFAS No. 122, ACCOUNTING FOR
MORTGAGE SERVICING RIGHTS.
This statement is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and
is to be applied prospectively. Earlier or retroactive application is not
permitted. Management has not yet determined the effect of adopting this
standard.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at September 30, 1996 and 1995 consist of the
following:
1996 1995
------- -------
Cash and amounts due from banks $ 4,966 $ 6,192
Federal funds sold - CoreStates (Interest rate,
1996 - 5.625%;
1995 - 6.375%) 7,500 6,350
------- -------
Total $12,466 $12,542
======= =======
-9-
<PAGE>
4. INVESTMENT SECURITIES
A comparison of amortized cost and estimated fair value of investment
securities is as follows:
<TABLE>
<CAPTION>
Held to Maturity
September 30, 1996
--------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government obligations $ 26,366 $ 12 $ - $ 26,378
Term and other deposits in the Federal
Home Loan Bank 346 - - 346
--------- ----- ---- ---------
Total $ 26,712 $ 12 $ - $ 26,724
========= ===== ==== =========
Available for Sale
September 30, 1996
--------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ---------- ----------
U.S. Government obligations $ 48,194 $ 143 $ - $ 48,337
========= ====== ===== =========
Held to Maturity
September 30, 1995
--------------------------------------------------------
Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ---------- ----------
U.S. Government obligations $ 164,971 $ 682 $ 126 $ 165,527
Term and other deposits in the Federal
Home Loan Bank 76,374 - - 76,374
--------- ----- ---- ---------
Total $ 241,345 $ 682 $126 $ 241,901
========= ===== ==== =========
</TABLE>
The amortized cost and estimated fair value of debt securities by
contractual maturity at September 30, 1996 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.
Estimated
Amortized Fair
Cost Value
--------- ---------
Due in one year or less $ 74,906 $ 75,061
Due after one year through
five years - -
-------- --------
$ 74,906 $ 75,061
======== ========
-10-
<PAGE>
5. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities at September 30, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
Held to Maturity
September 30, 1996
----------------------------------------------------
Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
FNMA pass-through certificates $ 29,082 $ - $ 832 $ 28,250
GNMA pass-through certificates 115,903 5,718 63 121,558
FHLMC pass-through certificates 139,556 227 4,465 135,318
Private pass-through certificates
(noninsured) 726 - 21 705
-------- ------- ------ --------
Total $285,267 $ 5,945 $5,381 $285,831
======== ======= ====== ========
Available for Sale
September 30, 1996
----------------------------------------------------
Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ---------- ---------
FNMA pass-through certificates $ 12,043 $ 343 $ - $ 12,386
GNMA pass-through certificates 15,509 220 - 15,729
FHLMC pass-through certificates 137,933 1,325 379 138,879
-------- ------- ------ --------
Total $165,485 $ 1,888 $ 379 $166,994
======== ======= ====== ========
Held to Maturity
September 30, 1995
----------------------------------------------------
Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ---------- ---------
FNMA pass-through certificates $ 17,280 $ 491 $ - $ 17,771
GNMA pass-through certificates 142,054 8,488 - 150,542
FHLMC pass-through certificates 151,549 2,925 - 154,474
Private pass-through certificates
(noninsured) 870 - 27 843
-------- ------- ------ --------
Total $311,753 $11,904 $ 27 $323,630
======== ======= ====== ========
</TABLE>
-11-
<PAGE>
6. LOANS RECEIVABLE
Loans receivable consist of the following:
September 30,
----------------------
1996 1995
-------- --------
Mortgage loans (1-4 residential loans) $164,717 $132,251
Construction loan 1,256 1,889
Loans on savings accounts 2,472 2,616
Commercial real estate loans 19,548 8,548
Consumer loans 813 125
-------- --------
Total 188,806 145,429
Less:
Deferred loan fees (1,572) (982)
Allowance for loan losses (1,024) (994)
Loans in process (1,179) (1,672)
-------- --------
Total $185,031 $141,781
======== ========
At September 30, 1996 and 1995, the Company had outstanding commitments to
purchase and originate fixed rate (ranging from 6.5% to 8.0%) mortgage
loans totaling $6,554 and $5,049, respectively. All commitments are
expected to be funded within 12 months. The Company uses the same credit
policies in extending commitments as it does for loans.
The Company originates and purchases both adjustable and fixed interest
rate loans and mortgage-backed securities. At September 30, 1996, the
composition of these loans and mortgage-backed securities are $552,748 at
fixed interest rates and $83,035 at adjustable interest rates.
The adjustable rate loans and mortgage-backed securities have interest
rate adjustment limitations and are generally indexed to the one-year U.S.
Treasury Note rate. Future market factors may affect the correlation of
the interest rate adjustment with the rates the Association pays on the
short-term deposits that have been primarily utilized to fund these loans.
Certain directors and executive officers of the Company have loans with the
Company. Such loans were made in the ordinary course of business at the
Company's normal credit terms, including interest rate and
collateralization, and do not represent more than a normal risk of
collection. Total loans to these individuals are summarized as follows:
September 30,
--------------
1996 1995
----- -----
Balance, beginning of year $ 216 $ 223
New loans made during year 3 -
Repayments (7) (7)
----- -----
Balance, end of year $ 212 $ 216
===== =====
-12-
<PAGE>
Most of the Company's activity is with customers located within the state
of New Jersey; therefore, the Company is lending subject to a concentration
of credit risk as it relates to this economic sector.
Changes in the allowance for loan losses were as follows:
Year Ended September 30,
-------------------------
1996 1995 1994
------- ---- -------
Balance, beginning of year $ 994 $530 $ 1,669
Provision for loan losses 30 30 180
Charge-offs - - (1,319)
Recoveries - 434 -
------ ---- ------
Balance, end of year $1,024 $994 $ 530
====== ==== ======
The provision for loan losses charged to expense is based upon past loan
and loss experience and an evaluation of potential losses in the current
loan and lease portfolio, including the evaluation of impaired loans under
SFAS No. 114. A loan is considered to be impaired when, based upon
current information and events, it is probable that the Association will
be unable to collect all amounts due according to the contractual terms
of the loan. An insignificant delay or insignificant shortfall in amounts
of payments does not necessarily result in the loan being identified as
impaired. For this purpose, delays less than 90 days are considered to
be insignificant. SFAS No. 114 does not apply to large groups of smaller
balance homogeneous loans that are collectively evaluated for impairment,
except for those loans restructured under a troubled debt restructuring.
At September 30, 1996, the Association has no loans considered impaired
under SFAS No. 114.
Nonperforming loans (which include loans in excess of 90-day delinquency)
at September 30, 1996, 1995 and 1994 amounted to approximately $827, $663
and $1,005, respectively. The reserve for delinquent interest on loans
totaled $58, $49 and $49 at September 30, 1996, 1995 and 1994,
respectively.
7. MORTGAGE BANKING ACTIVITIES
At September 30, 1996, 1995 and 1994, the Company was servicing loans for
others amounting to approximately $1,718, $5,045 and $4,336, respectively.
Servicing loans for others generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors
and foreclosure processing. Loan servicing income is recorded on the
accrual basis and includes servicing fees from investors and certain
charges collected from borrowers, such as late payment fees.
-13-
<PAGE>
8. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at September 30, 1996 and 1995 are
summarized as follows:
1996 1995
------- -------
Land and buildings $ 9,009 $ 8,841
Furniture and equipment 1,990 1,947
Leasehold improvements 110 110
------- -------
Total 11,109 10,898
Accumulated depreciation and amortization (5,025) (4,653)
------- -------
Net $ 6,084 $ 6,245
======= =======
Rental expense under operating leases for certain branch offices amounted
to $105, $92 and $98 for the years ended September 30, 1996, 1995 and 1994,
respectively. The following is a summary of future minimum lease payments
required under the leases:
Year Ending Minimum
September 30, Lease Payments
--------------
1997 $ 83
1998 66
1999 45
2000 30
2001 -
-----
Total $ 224
======
-14-
<PAGE>
9. DEPOSITS
The major types of savings deposits by weighted interest rates, amounts
and the percentages of such types to total savings deposits at
September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------- -------------------------------------
Weighted Weighted
Percentage Interest Percentage Interest
Amount of Total Rate Amount of Total Rate
--------- ---------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances by interest rate:
NOW accounts $ 23,886 4.2 % 1.82 % $ 22,909 4.1 % 2.07 %
Money market deposit accounts 70,023 12.2 2.86 74,933 13.3 3.16
Passbook and club accounts 59,323 10.4 2.74 62,950 11.1 2.99
Interest Interest
Rate Rate
Range Range
-------- --------
Certificates by maturity:
Within 1 year 242,804 42.5 % 3.50 - 6.65 218,024 38.6 3.05 - 6.25
1 to 3 years 144,369 25.3 5.00 - 7.10 116,835 20.7 4.35 - 7.10
Beyond 3 years 30,600 5.3 5.25 - 9.00 68,877 12.1 5.00 - 9.00
--------- ---- --------- ----
Total certificates 417,773 73.1 403,736 71.4
--------- ---- --------- ----
Accrued interest on savings 361 0.1 382 0.1
--------- ---- --------- ----
Total deposits $ 571,366 100.0 % $ 564,910 100.0 %
========= ===== ========= =====
</TABLE>
A summary of interest expense on deposits is as follows:
Year Ended September 30,
----------------------------
1996 1995 1994
------- ------- ------
NOW $ 460 $ 492 $ 521
MMDA 2,113 2,586 2,941
Passbook and club 1,717 1,992 2,095
Certificates 22,463 19,954 20,117
------- ------- ------
Total $26,753 $25,024 $25,674
======= ======= =======
10. ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK
Advances from the Federal Home Loan Bank of New York which are amortizing
are as follows:
Interest September 30,
Due Rate 1996
---- -------- -------------
2001 5.918 % $ 9,275
2003 6.164 % 9,517
--------
$ 18,792
========
-15-
<PAGE>
The advances are collateralized by Federal Home Loan Bank stock and
substantially all first mortgage loans.
11. INCOME TAXES
The income tax provision consists of the following:
1996 1995 1994
------- ------- -------
Current:
Federal $ 3,439 $ 4,888 $ 2,694
State 261 550 199
------- ------- -------
Total current 3,700 5,438 2,893
------- ------- -------
Deferred:
Federal (752) (267) (293)
State (26) (5) (6)
------- ------- -------
Total deferred (778) (272) (299)
------- ------- -------
Total income tax provision $ 2,922 $ 5,166 $ 2,594
======= ======= =======
The Company's provision for income taxes differs from the amounts
determined by applying the statutory federal income tax rate to income
taxes for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax at federal rate $2,611 35.0% $5,280 35.0% $2,645 35.0%
Surtax exemption (75) (1.0) (100) (0.7) (76) (1.0)
State taxes 155 2.0 360 2.4 127 1.7
Other 231 3.0 (374) (2.5) (102) (1.4)
------ ---- ------ ----- ------ ----
Total $2,922 39.0% $5,166 34.2% $2,594 34.3%
====== ==== ====== ==== ====== ====
</TABLE>
-16-
<PAGE>
Items that gave rise to significant portions of the deferred tax
accounts, which are included in prepaid expenses and other assets at
September 30, 1996 and 1995, are as follows:
1996 1995
------- -------
Deferred tax assets:
SAIF special assessment $ 1,258 $ -
Deferred loan fees 293 353
Deferred loan costs 9 38
Supplemental pension 514 235
Deferred compensation - 360
Accrued interest expense on CDs 77 96
Deferred income 445 223
Other 93 269
------- -------
Total 2,689 1,574
------- -------
Deferred tax liabilities:
Unrealized gain on investments (596) -
Allowance for loan loss (753) (296)
Depreciation on office property and equipment (762) (882)
------- -------
Total (2,111) (1,178)
------- -------
Net deferred tax assets $ 578 $ 396
======= =======
The Company is permitted under the Internal Revenue Code (the "Code") to
deduct an annual addition to the reserve for bad debts in determining
taxable income, subject to certain limitations. The Company's deduction
is based upon the percentage of taxable income method as defined by the
Code. The bad debt deduction allowable under this method equals 8% of
taxable income determined without regard to that deduction and with
certain adjustments. This addition differs from the bad debt experience
used for financing accounting purposes.
In August 1996, the Small Business Job Protection Act (the "Act") was
signed into law. The Act repealed the percentage of taxable income
method of accounting for bad debts for thrift institutions effective for
years beginning after December 31, 1995. The Act required the Company as
of October 1, 1996 to change its method of computing reserves for bad
debts to the specific charge-off method. The bad debt deduction
allowable under this method is available to large banks with assets
greater than $500 million. Generally, this method will allow the
Company to deduct an annual addition to the reserve for bad debts equal
to the Association's charge-offs.
A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in a method of
accounting determined solely with respect to the "applicable excess
reserves" of the institution. The amount of the applicable excess
reserves will be taken into account ratably over a six-taxable year
period, beginning with the first taxable year beginning after December
31, 1995. The timing of this recapture may be delayed for a two-year
period provided certain residential loan requirements are met. For
financial reporting purposes, the Company will not incur any additional
tax expense. Amounts which had previously been deferred will be reversed
for financial reporting purposes and will be included in the income tax
return of the Company, increasing income tax payable. At
-17-
<PAGE>
September 30, 1996, under SFAS No. 109, deferred taxes totaling
approximately $800 were provided relating to such difference.
12. REGULATORY CAPITAL REQUIREMENTS
The Association is subject to various regulatory capital requirements
administered by the federal and state 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 Association's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Association must
meet specific capital guidelines that involve quantitative measurers of
the Association's assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. The
Association's capital amounts and classification 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 Association to maintain minimum amounts and ratios
(set forth in the table below) of tangible and core capital (as defined
in the regulations) to total adjusted assets (as defined), and of
risk-based capital (as defined) to risk-weighted assets (as defined).
Management believes, as of September 30, 1996, that the Association
meets all capital adequacy requirements to which it is subject.
As of September 30, 1996, the most recent notification from the Office
of Thrift Supervision categorized the Association as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Association must maintain minimum
tangible, core and risk-based ratios as set forth in the table. There
are no conditions or events since that notification that management
believes have changed the Association's category.
AT SEPTEMBER 30, 1996:
<TABLE>
<CAPTION>
Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
-------------------- ------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tangible $143,239 19.31% $11,126 1.5% N/A N/A
Core (Leverage) 143,239 19.31% 22,252 3.0% 37,086 5.0%
Tier 1 risk-based 143,239 73.11 7,837 4.0 11,756 6.0
Total risk-based 143,263 73.63 15,675 8.0 19,594 10.0
</TABLE>
AT SEPTEMBER 30, 1995:
<TABLE>
<CAPTION>
Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
-------------------- ------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tangible $124,015 17.90% $10,390 1.5% N/A N/A
Leverage 124,015 17.90% 20,779 3.0% 41,558 5.0%
Tier 1 risk -based 124,015 78.30 6,332 4.0 9,498 6.0
Total risk-based 125,009 79.00 12,664 8.0 15,830 10.0
</TABLE>
13. PENSION PLAN
The Company terminated the defined benefit retirement plan effective
September 1, 1996. Pending regulatory approval, the remaining net
assets, if any, will be distributed to participants on a pro rata basis.
Total pension expense for the year ending September 30, 1996 was $334.
-18-
<PAGE>
The net periodic pension costs for the years ended September 30, 1995
and 1994 included the following components:
1995 1994
------ -----
Service cost, benefits earned during the year $195 $ 185
Interest cost on projected benefit obligation 266 173
Actual return on plan assets (226) (220)
Amortization of unrecognized net assets and
other deferred amounts, net 16 13
---- -----
Net periodic pension cost $251 $ 151
==== =====
The following table sets forth the plan's funded status as of September
30, 1995:
1995
Actuarial present value of benefit obligation
(including vested benefit obligation $3,087) $3,151
======
Projected benefit obligation $3,996
Market value of plan assets 3,554
------
Plan assets less than projected benefit obligation (442)
Unrecognized net loss 839
Unrecognized net transition obligation being
amortized over fifteen years 75
------
Net pension asset $ 472
======
In determining the projected benefit obligation, the assumed discount
rate for each of the two years ended September 30, 1995 was 7.5%. The
weighted average rate of increase in compensation was 5%. The expected
long-term rate of return on assets used in determining net periodic
pension cost was 7.5%.
The Company also terminated a Supplemental Executive Retirement Plan
effective September 1, 1996. Total expense for the year ending
September 30, 1996 was $824.
-19-
<PAGE>
14. EMPLOYEE STOCK OWNERSHIP PLAN AND RECOGNITION AND RETENTION PLAN
In connection with the Conversion, the Company established an ESOP for
the benefit of eligible employees. The Company purchased 928,777 shares
(1,021,654 shares restated for the stock dividend issued in March 1996)
of common stock on behalf of the ESOP in the Conversion. At September
30, 1996 and 1995, 77,994 and 78,657 shares of the total ESOP shares
were committed to be released with 142,408 and 23,219 shares allocated
to participants, respectively. The Company accounts for its ESOP in
accordance with Statement of Position 93-6, EMPLOYERS' ACCOUNTING FOR
EMPLOYEE STOCK OWNERSHIP PLANS, which requires the Company to recognize
compensation expense equal to the fair value of the ESOP shares during
the periods in which they become committed to be released. To the
extent that the fair value of the ESOP shares differs from the cost of
such shares, this differential will be charged or credited to equity as
additional paid-in capital. During 1996 and 1995, the differential
aggregated $388 and $197, respectively. Management expects the recorded
amount of expense to fluctuate as continuing adjustments are made to
reflect changes in the fair value of the ESOP shares. Employers with
internally leveraged ESOP's, such as the Company, do not report the loan
receivable from the ESOP as an asset, and do not report the ESOP debt
from the employer as a liability. The Company recorded compensation and
employee benefit expense related to the ESOP of $1,901 and $1,345,
respectively for the years ended September 30, 1996 and 1995.
At the Company's annual meeting of stockholders held on January 19,
1995, the Recognition and Retention Plan and Trust (the "MRP") was
approved by the Company's stockholders. The MRP purchased 510,827
shares in the open market at an aggregate cost of $6,085 and all shares
available under the MRP have been awarded to the Company's Board of
Directors and the Association's executive officers and other key
employees.
At September 30, 1996 and 1995, respectively, the net deferred cost of
the unearned MRP shares amounted to $4,891 and $5,213 and is recorded as
a charge against stockholders' equity. Compensation expense will be
recognized over the five year vesting period for shares awarded. The
Company recorded compensation and employee benefit expense related to
the MRP of $1,194 and $872 for the years ended September 30, 1996 and
1995, respectively.
15. STOCK OPTION PLAN
The Company has a stock option plan which was established and approved
by the stockholders at the annual stockholders' meeting held on January
19, 1995. The 1995 Plan is for executive officers and selected
full-time employees and directors.
Under this plan, compensatory options were granted to non-employee
directors and incentive options were granted to selected officers
and employees. The option price per share for options granted may
not be less than the fair market value of the common stock on the
date of grant.
The compensatory options are exercisable six months after issuance in
increments of 85% with 7.5% exercisable in each of the two years
thereafter. The incentive options are exercisable one year after
issuance in increments of 20% a year. All options expire in 10 years.
-20-
<PAGE>
A summary of transactions under the Plan at September 30, 1996 and 1995
follows. All amounts are restated for the stock dividend issued in
March 1996.
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
----------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise price $ 9.432 $12.955 $13.864 $14.500 Total $9.432 $12.955 $13.864 Total
========== ======= ======= ======= ======= ====== ======= ======= =======
Outstanding,
beginning of
year 1,119,656 24,750 28,736 - 1,173,142 - -- - -
Options:
Granted - - - 2,000 2,000 1,119,656 24,750 28,736 1,173,142
Exercised (7,547) - - - (7,547) - - - -
Forfeited - - - - - - - - -
---------- ------- ------- ------ ---------- ---------- -------- ------- ----------
Outstanding,
end of year 1,112,109 24,750 28,736 2,000 1,167,595 1,119,656 24,750 28,736 1,173,142
---------- ------- ------- ------ ---------- ---------- -------- ------- ----------
Options exercisable 478,702 4,950 28,736 - 512,388 325,644 - - 325,644
========== ======= ======= ====== ========== ========== ======== ======= ==========
</TABLE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated
fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data
to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
----------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 12,466 $ 12,466 $ 12,542 $ 12,542
Investment securities held
to maturity 26,712 26,724 241,345 241,901
Investment securities available
for sale 48,337 48,337 - -
Mortgage-backed securities held
to maturity 285,267 285,831 311,753 323,630
Mortgage-backed securities
available for sale 166,994 166,994 - -
Loans receivable, net 185,031 188,799 141,781 142,978
Federal Home Loan Bank stock 4,590 4,590 3,672 3,672
Liabilities:
NOW accounts 23,886 23,886 22,909 22,909
Money market deposit accounts 70,023 70,023 74,933 74,933
Passbook and club accounts 59,323 59,323 62,950 62,950
Savings certificates 417,773 410,192 403,736 400,434
Advances from FHLB 18,792 18,792
Off-balance sheet commitments - 6,554 - 5,049
</TABLE>
-21-
<PAGE>
CASH AND CASH EQUIVALENTS - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES - The fair value of
investment securities and mortgage-backed securities is based on quoted
market prices, dealer quotes, and prices obtained from independent pricing
services.
LOAN RECEIVABLE - The fair value of loans is estimated based on present
value using approximately current entry-value interest rates applicable
to each category of such financial instruments.
FEDERAL HOME LOAN BANK STOCK - Although FHLB stock is an equity interest
in an FHLB, it is carried at cost because it does not have a readily
determinable fair value and it lacks a market.
NOW ACCOUNTS, MONEY MARKET DEPOSIT ACCOUNTS, PASSBOOK AND CLUB ACCOUNTS
AND SAVINGS CERTIFICATES - The fair value of NOW accounts, Money Market
Deposit accounts and passbook and club accounts is the amount reported in the
consolidated financial statements. The fair value of savings
certificates is based on a present value estimate using rates currently
offered for deposits of similar remaining maturity.
ADVANCES FROM FEDERAL HOME LOAN BANK - The fair value is the amount
payable on demand at the reporting date.
OFF-BALANCE SHEET COMMITMENTS - For commitments expiring within 90 days
or with a variable rate, the settlement amount is a reasonable estimate
of fair value. For commitments expiring beyond 90 days or with a fixed rate,
the fair value is the present value of the fees based on current loan
rates.
The fair value estimates presented herein are based on pertinent
information available to management as of September 30, 1996 and 1995.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these consolidated financial
statements since those dates and, therefore, current estimates of fair
value may differ significantly from the amounts presented herein.
17. STOCK CONVERSION
On October 13, 1994, the Association completed its Conversion from a New
Jersey chartered mutual savings and loan association to a New Jersey
chartered stock savings and loan association through the sale of 11,609,723
shares of common stock (par value $.01) of IBS Financial Corp., a New
Jersey corporation organized in June 1994 by the Association for the purpose
of acquiring all of the capital stock of the Association upon
consummation of the Conversion. Total proceeds of $116,097 were reduced by
Conversion expenses of approximately $2,919 and the excess of proceeds
over the par value of the stock was credited to paid-in capital in
excess of par. As a result of this Conversion, $56,600 of additional capital
was contributed to the Association from this newly formed holding
company in exchange for all of the outstanding capital stock of the
Association.
At the time of the Conversion, the Association established a liquidation
account in an amount equal to the Association's net worth as reflected
in the latest consolidated statement of financial condition of the
Association contained in the offering circular utilized in the
Conversion. The function of the liquidation account is to establish a
priority on liquidation and, except with respect to the payment of cash
dividends on, or the repurchase of, any of the common stock by the
Association, the existence of the liquidation account will not operate
to restrict the use or application of any of the net worth accounts of the
-22-
<PAGE>
Association. In the event of a complete liquidation of the Association
(and only in such event), each eligible account holder will be entitled
to receive a pro rata distribution from the liquidation account, based on
such holder's proportionate amount of the total current adjusted balance
from deposit accounts then held by all eligible account holders, before any
liquidation distribution may be made with respect to stockholders.
18. SAVINGS ASSOCIATION INSURANCE FUND ASSESSMENT
On September 30, 1996, an omnibus appropriations bill for fiscal year
1997, which includes the recapitalization of the Savings Association
Insurance Fund (SAIF) became law. Accordingly, all SAIF insured depository
institutions will be charged a one-time special assessment on their
SAIF-accessible deposits as of March 31, 1995 at the rate of 65.7 basis
points, payable on November 27, 1996. The Bank accrued $3,700 for this
special assessment at September 30, 1996.
19. PARENT COMPANY FINANCIAL INFORMATION
The financial statements of IBS Financial Corp. (Parent only) as of and
for the periods ended September 30,1996 and 1995 are presented below:
STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1996 AND 1995
(Dollars in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
-------- --------
<S> <C> <C>
Cash $ 122 $ 74
Investment in subsidiary 144,242 124,018
Investment securities held to maturity 354 34,000
Other assets 5 702
-------- --------
TOTAL ASSETS $144,723 $158,794
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES - Accrued expenses and other liabilities $ 439 $ 745
-------- --------
STOCKHOLDERS' EQUITY:
Common stock 116 116
Additional paid-in capital 113,432 113,259
Common stock acquired by ESOP and MRP (11,097) (13,438)
Treasury stock (12,104) (7,751)
Retained earnings 53,937 65,863
-------- --------
Total stockholders' equity 144,284 158,049
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $144,723 $158,794
======== ========
</TABLE>
-23-
<PAGE>
STATEMENT OF INCOME
PERIODS ENDED SEPTEMBER 30, 1996 and 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Interest income:
Interest on ESOP loan $ 701 $ 746
Interest and dividends on investments 1,109 2,762
------ ------
Total interest income 1,810 3,508
------ ------
Other operating income - 29
------ ------
Other expenses:
Management fee 980 1,132
Salaries and employee benefits 24 -
Professional services 451 139
Other operating expenses 350 224
Total other expenses 1,805 1,495
------ ------
Income before income taxes and equity in undistributed
earnings of subsidiaries 5 2,042
Income taxes (6) 827
------ ------
Income before equity in undistributed earnings of
subsidiaries 11 1,215
Equity in undistributed earnings of subsidiaries 4,526 8,705
------ ------
Net income $4,537 $9,920
====== ======
</TABLE>
-24-
<PAGE>
STATEMENT OF CASH FLOWS
PERIODS ENDED SEPTEMBER 30, 1996 and 1995
(Dollars in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 4,537 $ 9,920
Changes in assets and liabilities which
provided (used) cash:
Other assets 697 (702)
Accrued expenses and other liabilities (306) 745
Equity in undistributed earnings of subsidiaries (4,526) (8,705)
-------- --------
Net cash provided by operating activities 402 1,258
-------- --------
Investing activities:
Proceeds from maturity of investments 18,993 -
Purchase of investments - (34,000)
Investment in subsidiary - (57,719)
-------- --------
Net cash provided by (used in) investing
activities 18,993 (91,719)
-------- --------
Financial activities:
Cash dividends paid (2,317) (1,651)
Payments on ESOP debt, net 1,535 1,260
Treasury stock acquired (19,830) (7,751)
Amortization of MRP shares 1,194 -
Stock options exercised 71 -
Proceeds from the sale of stock, net of ESOP
shares acquired - 103,890
Unearned MRP shares acquired, net - 5,213
-------- --------
Net cash (used in) provided by financing
activities (19,347) 90,535
-------- --------
Increase in cash and cash equivalents 48 74
Cash and cash equivalents, beginning of period 74 -
-------- --------
Cash and cash equivalents, end of period $ 122 $ 74
======== ========
Supplemental noncash investing activity:
Transfer of investment securities to subsidiaries $ 12,100 $ -
======== ========
</TABLE>
-25-
<PAGE>
20. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly data for each of the
last two years:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
1996 1996 1996 1995 1995 1995 1995 1994
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $13,113 $13,090 $12,847 $13,102 $13,073 $13,355 $12,905 $12,359
Interest expense 6,930 6,896 6,750 6,843 6,649 6,426 6,044 5,905
------- ------- ------- ------- ------- ------- ------- -------
Net interest income 6,183 6,194 6,097 6,259 6,424 6,929 6,861 6,454
Provision for loan losses 10 10 10 - 10 10 10 -
Other operating income 151 247 154 135 141 138 123 261
Other expenses 7,601 3,407 3,299 3,624 3,288 3,360 2,990 2,577
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes (1,277) 3,024 2,942 2,770 3,267 3,697 3,984 4,138
Income taxes (413) 1,174 1,133 1,028 951 1,452 1,366 1,397
------- ------- ------- ------- ------- ------- ------- -------
Net income $ (864) $ 1,850 $ 1,809 $ 1,742 $ 2,316 $ 2,245 $ 2,618 $ 2,741
======= ======= ======= ======= ======= ======= ======= =======
Earnings per share $ (0.08) $ 0.18 $ 0.17 $ 0.16 $ 0.21 $ 0.20 $ 0.22 $ 0.21
======= ======= ======= ======= ======= ======= ======= =======
Dividends per share $ 0.060 $ 0.060 $ 0.060 $ 0.054 $ 0.045 $ 0.045 $ - $ 0.045
======= ======= ======= ======= ======= ======= ======= =======
Earnings per share is computed independently for each of the quarters
presented. Consequently, the sum of quarters may not equal the earnings
per share.
Prices of common stock:
High $ 15.13 $ 14.50 $ 14.88 $ 15.45 $ 15.57 $ 12.73 $ 11.25 $ 9.55
Low 12.63 12.50 13.30 13.18 12.39 10.91 8.88 8.18
</TABLE>
******
26
<PAGE>
IBS FINANCIAL CORP.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AS OF OR FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION:
Total assets $742,051 726,536 663,866 665,933 652,614 626,075
Loans 185,031 141,781 140,618 157,030 185,188 199,027
Investments 26,712 241,345 289,495 238,138 205,916 99,430
Mortgage-backed securities 285,267 311,753 182,891 134,677 217,041 279,186
Cash and equivalents 12,466 12,542 32,586 119,014 24,392 30,912
Deposits 571,366 564,910 603,080 609,805 603,722 583,292
Stockholders' equity 144,284 158,049 57,594 52,631 44,579 37,954
Nonperforming assets (1) 827 663 1,005 5,478 8,495 8,751
Full service offices 8 8 8 8 8 8
OPERATIONS:
Total interest income $ 52,152 51,692 41,525 47,458 53,451 55,921
Total interest expense 27,419 25,024 25,674 28,093 34,916 42,851
Net interest income 24,733 26,668 15,851 19,365 18,535 13,070
Provision for loan losses 30 30 180 431 1,077 337
Other operating income 687 663 901 1,663 928 500
Operating expenses 14,231 12,215 9,015 8,738 8,342 8,387
Special SAIF assessment (2) 3,700 0 0 0 0 0
Income before taxes 7,459 15,086 7,557 11,859 10,045 4,846
Income taxes 2,922 5,166 2,594 3,807 3,527 1,676
Net income $ 4,537 9,920 4,963 8,052 6,518 3,169
PER COMMON SHARE:
Net income $ 0.43(2) 0.84 N/A N/A N/A N/A
Cash dividends 0.234 0.135 N/A N/A N/A N/A
OPERATING RATIOS (3):
Average yield earned on interest-earning assets 7.25% 7.30% 6.36% 7.29% 8.52% 9.33%
Average rate paid on interest-bearing liabilities 4.70% 4.39% 4.20% 4.60% 5.86% 7.47%
Average interest rate spread (4) 2.55% 2.91% 2.16% 2.69% 2.66% 1.86%
Net interest margin 3.44% 3.77% 2.43% 2.98% 2.96% 2.18%
Ratio of interest-earning assets to interest-bearing
liabilities 123.38% 124.27% 106.74% 106.62% 102.30% 105.24%
Net interest income to operating expenses 173.80% 218.32% 175.83% 221.64% 222.19% 155.84%
Operating expenses as a percent of average assets 1.92% 1.68% 1.34% 1.32% 1.30% 1.37%
Return on average assets 0.61%(2) 1.36% 0.74% 1.21% 1.02% 0.52%
Return on average equity 2.98%(2) 6.37% 8.98% 16.33% 15.58% 8.76%
Ratio of average equity to average assets 20.53% 21.18% 8.24% 7.43% 6.52% 5.90%
Dividend payout ratio 51.07% 17.06% N/A N/A N/A N/A
ASSET QUALITY RATIOS:
Nonperforming loans and troubled debt restructurings
as a percent of total loans 0.45% 0.47% 3.62% 3.49% 4.59% 4.40%
Nonperforming assets and troubled debt
restructurings as a percent of total assets 0.11% 0.09% 0.77% 0.82% 1.30% 1.40%
Allowance for loan losses as a percent of total
loans 0.55% 0.70% 0.38% 1.06% 0.67% 0.75%
Allowance for loan losses as a percent of
nonperforming loans 123.8% 149.9% 52.7% 30.5% 17.9% 17.1%
Charge-offs to average loans receivable
outstanding during the period -- -- 0.89% -- 0.68% --
</TABLE>
- -------------
(1) Nonperforming assets consist of nonperforming loans, troubled debt
restructurings and real estate owned ("REO"). Nonperforming loans
consist of nonaccrual loans and accruing loans 90 days or more overdue,
while REO consists of real estate acquired through foreclosure and real
estate acquired by acceptance of a deed-in lieu of foreclosure.
(2) Without giving effect to the special SAIF assessment, net income
per share would have been $.66 and return on average assets and return on
average equity would have been .94% and 4.56%, respectively. See Note
18 of Notes to the Consolidated Financial Statements.
(3) Asset Quality Ratios are end of period ratios, except for
charge-offs to average loans. With the exception of end of period
ratios, all ratios are based on monthly balances during the indicated
periods.
(4) Interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the
weighted average cost of average interest-bearing liabilities, and net
interest margin represents net interest income as a percent of average
interest-earning assets.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 12466
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 311,979
<INVESTMENTS-MARKET> 215,331
<LOANS> 186,055
<ALLOWANCE> 1024
<TOTAL-ASSETS> 742051
<DEPOSITS> 571,366
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,609
<LONG-TERM> 18,792
0
0
<COMMON> 116
<OTHER-SE> 144168
<TOTAL-LIABILITIES-AND-EQUITY> 742051
<INTEREST-LOAN> 12,758
<INTEREST-INVEST> 39394
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 52,152
<INTEREST-DEPOSIT> 26753
<INTEREST-EXPENSE> 27419
<INTEREST-INCOME-NET> 24,733
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 70
<EXPENSE-OTHER> 17,931
<INCOME-PRETAX> 7459
<INCOME-PRE-EXTRAORDINARY> 4537
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4537
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
<YIELD-ACTUAL> 3.44
<LOANS-NON> 827
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 994
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,024
<ALLOWANCE-DOMESTIC> 1,024
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
