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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
_________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM____ TO ____
Commission File number 1-10518
INTERCHANGE FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2553159
_______________________________ __________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Park 80 West/Plaza Two, Saddle Brook, NJ 07663
________________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 703-2265
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Each Class which registered
___________________________ _________________________
Common Stock (no par value) American Stock Exchange
________________________
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
______________
None
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 report) 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. [ ]
The number of outstanding shares of the Registrant's common stock, no par
value per share, as of March 20, 2000, was as follows:
Class Number of Outstanding Shares
____________ ____________________________
Common Stock
(No par value) 6,518,864
The aggregate market value of Registrant's voting stock (based upon the
closing trade price on March 20, 2000), held by non-affiliates of the Registrant
was approximately $92,894,000.
Documents incorporated by reference:
Portions of Registrant's definitive Proxy Statement for the 2000 Annual Meeting
of Stockholders are incorporated by reference to Part III of this Annual Report
on Form 10-K.
Portions of Registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 1999 are incorporated by reference to Parts II and IV of this
Annual Report on Form 10-K.
INTERCHANGE FINANCIAL SERVICES CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
PART 1 PAGE
Item 1. Business................................................. 1
Item 2. Properties............................................... 9
Item 3. Legal Proceedings........................................ 9
Item 4. Submission of Matters to a Vote of Security Holders...... 9
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters.................................................. 10
Item 6. Selected Consolidated Financial Data..................... 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.13
Item 8. Financial Statements and Supplementary Data............... 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 13
PART III
Item 10. Directors and Executive Officers of the Registrant........ 13
Item 11. Executive Compensation.................................... 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 15
Item 13. Certain Relationships and Related Transactions............ 15
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................... 16
Signatures ...........................................................17
PART I
Item 1. Business
General
Interchange Financial Services Corporation (the "Company") is a New Jersey
business corporation and registered bank holding company under the Bank Holding
Company Act of 1956, as amended. It acquired all of the outstanding stock of
Interchange Bank, (formerly known as Interchange State Bank), a New Jersey
chartered bank (the "Bank" or "Interchange"), in 1986. The Bank is the Company's
principal subsidiary. The Company's principal executive office is located at
Park 80 West/ Plaza Two, Saddle Brook, New Jersey 07663, and the telephone
number is (201) 703-2265.
The Bank, established in 1969, is a full-service commercial bank
headquartered in Saddle Brook, New Jersey, and is a member of the Federal
Reserve System. It offers banking services for individuals and businesses
through its fifteen banking offices and one supermarket mini-branch in Bergen
County, New Jersey. In 1998, the Company acquired The Jersey Bank for Savings
("Jersey Bank"), which maintained two banking offices: one in Montvale, New
Jersey and another in River Edge, New Jersey. During 1998, the Company also
opened a full-service branch in Paramus, New Jersey adjacent to a shopping mall
along with a mini-branch within a 70,000 square foot supermarket located in the
same shopping mall in Paramus. No new branches were established during 1999.
In addition to the Bank, the Company has two other wholly owned direct
subsidiaries: Clover Leaf Mortgage Company, a New Jersey Corporation established
in 1988, which is not currently engaged in any business activity, and Washington
Interchange Corporation, a New Jersey Corporation, which was acquired by the
Company in May 1997 and owns one of the Bank's branch locations which it leases
to the Bank.
Subsidiaries of the Bank include: Clover Leaf Investment Corporation,
established in 1988 to engage in the business of an investment company pursuant
to New Jersey law; Clover Leaf Insurance Agency, Inc., established in 1990 to
engage in sales of tax-deferred annuities; Clover Leaf Management Realty
Corporation, established in 1998 is a Real Estate Investment Trust ("REIT")
which manages certain real estate assets of the Company in an effort to take
advantage of certain tax benefits; and Interchange Capital Company, L.L.C.,
established in 1999 to engage in equipment lease financing, specializing in
small ticket vendor leasing, and the solicitation of end users in the Bank's
current market. All of the Bank's subsidiaries are New Jersey corporations or
Limited Liability corporations and are 100% owned by the Bank, except for the
REIT which is 99% owned by the Bank.
Banking Operations
Through the Bank, the Company offers a wide range of consumer banking
services, including: checking and savings accounts, money-market accounts,
certificates of deposit, individual retirement accounts, residential mortgages,
home equity lines of credit and other second mortgage loans, home improvement
loans, automobile loans, personal loans
1
and overdraft protection. The Bank also offers a VISA(TM) credit card and
several convenience products including the Interchange Check Card, which permits
customers to access their checking accounts by using the card when making
purchases. It can also be used as an ATM card to perform basic banking
transactions. The Bank maintains seventeen automated teller machines (operating
within the MAC(TM), Plus(TM), HONOR(TM), CIRRUS(TM), VISA(TM), NYCE(TM), and
MasterCard(TM) networks), which are located at thirteen of the banking offices,
a supermarket and a mini-market.
Interchange Bank-Line(TM), which was updated in 1999, allows customers to
perform basic banking transactions over the telephone and offers Direct Bill
Payment, which allows customers to pay bills over the phone. Bill payments are
debited directly to the customer's checking account. In the second quarter of
1999, the Bank introduced toll free telephone access, 24 hours a day/7 days a
week, for the acceptance of consumer loan applications over the phone with a
live loan representative or through the Company's Internet web site. During the
fourth quarter of 1999, Interchange also established a new full service call
center. Interchange Bank-Line Center(TM) ("Bank-Line Center"), which is an
alternative delivery system designed to centralize inbound calls and give
customers the opportunity to open new accounts and apply for consumer credit
without the need to go to a branch. In addition, the Bank-Line Center will be
utilized as an outbound telemarketing resource for contacting targeted prospects
for new accounts in conjunction with current product promotions.
The Bank is engaged in the financing of local business and industry,
providing credit facilities and related services for smaller businesses,
typically those with $1 million to $5 million in annual sales. Commercial loan
customers of the Bank are businesses ranging from light manufacturing and local
wholesale and distribution companies to medium-sized service firms and local
retail businesses. Most forms of commercial lending are offered, including
working capital lines of credit, small business administration loans, term loans
for fixed asset acquisitions, commercial mortgages, equipment lease financing
and other forms of asset-based financing.
In addition to its origination activities, the Bank purchases packages of
loans. In 1999 and 1998, the Bank purchased $13.4 million and $4.6 million of
residential real estate loans, respectively. These loans were subjected to the
Bank's independent credit analysis prior to purchase. In the Bank's experience,
there are opportunities to sell the Bank's other products and services to the
borrowers whose loans are purchased. The Bank believes that purchasing loans
will continue to be a desirable way to augment its portfolios as opportunities
arise.
The Bank also engages in mutual fund and annuities sales and brokerage
services. An Investment Services Program is offered through an alliance between
the Bank and the Independent Community Bankers Association of America ("ICBA"),
under which mutual funds and annuities offered by ICBA are made available to the
Bank's customers by Bank employees. The Bank has also expanded its product
offerings by entering into an agreement with a third party provider to offer
discount brokerage services to its customers. Interchange offers securities
trading through its web site, which is hyperlinked to U.S. Clearing Corp., so
that customers can access their brokerage accounts via the Internet.
2
Further information on the Bank, our core values and purpose, and our products
and services can be found on our web site at www.interchangebank.com. There is
also a direct link from the Company's web site to the American Stock Exchange to
allow investors to keep informed of the daily quotes and market activity for the
Company's common stock. The Company's common stock trades on the American Stock
Exchange under the symbol IFC.
Deposits of the Bank are insured up to $100,000 per depositor by the Bank
Insurance Fund administered by the Federal Deposit Insurance Corporation
("FDIC").
Market Areas
The Company's principal market for its deposit gathering activities covers
major portions of Bergen County in the northeastern corner of New Jersey
adjacent to New York City. Bergen County has a relatively large affluent base
for the Company's services. The principal service areas of the Company represent
a diversified mix of stable residential neighborhoods with a wide range of per
household income levels; offices, service industries and light industrial
facilities; and large shopping malls and small retail outlets.
For years, the Bank has conducted periodic market research to keep aware of
market trends. Much of this research affirmed that consumer financial needs are
directly related to identifiable life stages. In response to these distinctive
preferences, the Bank has designed and marketed "packaged" products to appeal to
these different segments.
Since a preponderance of the population in the age groups of 35-54 and 55+
are within the Bank"s principal market, Interchange has strategically targeted
these two life stage segments by designing and marketing "packaged" products
(Money Maker Account and Prime Time Account) which include deposit, credit and
other services sold together as a product unit. We also recognized the needs of
"Generation X", customers with the Money Plus Account (25-34) and our youngest
customers with the Grow'N Up Savings(R) Passbook Account. The Bank was among the
first to offer such packaged financial products in its area and management
believes this strategy have been successful in attracting deposits and building
a loyal client base.
Competition
Competition in the banking and financial services industry in the Company's
market area is strong. The Bank competes actively with national and
state-chartered commercial banks, operating on a local and national scale and
other financial institutions, including savings and loan associations, mutual
savings banks, and credit unions. In addition, the Bank faces competition from
less heavily regulated entities such as brokerage institutions, money management
firms, consumer finance and credit card companies and various other types of
financial services companies. Many of these institutions are larger than the
Bank, some are better capitalized, and a number pursue community banking
strategies similar to those of the Bank.
Management believes that opportunities continue to exist to satisfy the
deposit and lending demands of small and
3
middle market businesses. Larger banks continued to show an appetite for only
the largest loans, finding themselves ill-equipped to administer smaller loans
profitably. Interchange has the desire and the ability to give smaller
businesses the service they require. Interchange meets this need through a
unique program called Rapid Response Banking. The program provides commercial
loans up to $100,000 with a streamlined approval process that borrows liberally
from standard consumer lending practices. Naturally, many small businesses
eventually become midsize businesses, with a corresponding change in their
financial requirements. While these businesses grow, they do not outgrow
Interchange because of its ability to be responsive to both small and midsize
business constituencies. To continue serving companies throughout the various
stages of their evolution, Interchange created Business Class Banking--a program
that grows with the customer. Business Class Banking supports a spectrum of
business-oriented financial products with value-added services. By designing
programs to accommodate the changing needs of growing businesses, Interchange is
extending the longevity of valuable customer relationships.
Interchange maintains a relational database, which enhances the Bank's
internal marketing analysis by providing information about account
relationships, their activity and their relative value to the Bank.
Interchange has maintained a program of primary research to keep abreast of
customer attitudes and preferences. Sales quotas and incentives for employees
are linked directly to bank-wide goals and are used to motivate employees to
sell the "right" products to the "right" customers.
Personnel
The Company had on average 204 full-time-equivalent employees during 1999.
The Company believes its relationship with employees to be good.
Regulation and Supervision
Banking is a complex, highly regulated industry. The primary goals of the
bank regulatory scheme are to maintain a safe and sound banking system and to
facilitate the conduct of sound monetary policy. In furtherance of those goals,
Congress has created several largely autonomous regulatory agencies and enacted
myriad legislation that governs banks, bank holding companies and the banking
industry. Descriptions and references to the statutes and regulations below are
brief summaries thereof and do not purport to be complete. The descriptions are
quantified in their entirety by reference to the specific statutes and
regulations discussed.
The Company
The Company is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended (the "Holding Company Act"), and as such, is
subject to supervision and regulation by the Board of Governors of the Federal
Reserve System (the "Federal Reserve "). As a bank holding company, the Company
is required to file an annual report with the Federal Reserve and such
additional information as the Federal Reserve may require pursuant to the
4
Holding Company Act and Federal Regulation Y. The Federal Reserve may conduct
examinations of the Company or any of its subsidiaries.
The Holding Company Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before it may acquire all or substantially
all of the assets of any bank (although the Federal Reserve may not assert
jurisdiction in certain bank mergers that are regulated under the Bank Merger
Act), or ownership or control of any voting shares of any bank if after such
acquisition it would own or control directly or indirectly more than 5% of the
voting shares of such bank.
The Holding Company Act also provides that, with certain limited
exceptions, a bank holding company many not (i) engage in any activities other
than those of banking or managing or controlling banks and other authorized
subsidiaries or (ii) own or control more than five percent (5%) of the voting
shares of any company that is not a bank, including any foreign company. A bank
holding company is permitted, however, to acquire shares of any company the
activities of which the Federal Reserve, after due notice and opportunity for
hearing, has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. The Federal Reserve has
issued regulations setting forth specific activities that are permissible under
the exception. A bank holding company and its subsidiaries are also prohibited
from engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
Under certain circumstances, prior approval of the Federal Reserve is
required under the Holding Company Act before a bank holding company may
purchase or redeem any of its equity securities.
Traditionally, the activities of bank holding companies have been limited
to the business of banking and activities closely related or incidental to
banking. The Gramm-Leach-Bliley Financial Services Modernization Act of 1999
(the "Modernization Act"), enacted on November 11, 1999, with an effective date
of March 11, 2000, expands the types of activities in which a bank holding
company may engage. Subject to various limitations, the Modernization Act
generally permits a bank holding company to elect to become a "financial holding
company." A financial holding company may affiliate with securities firms and
insurance companies and engage in other activities that are "financial in
nature." Among the activities that are deemed "financial in nature" are, in
addition to traditional lending activities, securities underwriting, dealing in
or making a market in securities, sponsoring mutual funds and investment
companies, insurance underwriting and agency activities, certain merchant
banking activities, and activities that the Federal Reserve considers to be
closely related to banking. A bank holding company may become a financial
holding company under the Modernization Act if each of its subsidiary banks is
"well capitalized" under the Federal Reserve guidelines (See "Capital Adequacy
Guidelines" below), is well managed and has at least a satisfactory rating under
the Community Reinvestment Act. In addition, the bank holding company must file
a declaration with the Federal Reserve
5
that the bank holding company wishes to become a financial holding company. A
bank holding company that falls out of compliance with such requirements may be
required to cease engaging in certain activities permitted only for financial
holding companies. Any bank holding company that does not elect to become a
financial holding company remains subject to the current restrictions of the
Holding Company Act. Interchange is considering, but has not yet decided,
whether to elect to become a financial holding company.
In a similar manner, a bank may establish one or more subsidiaries, which
subsidiaries may then engage in activities that are financial in nature.
Applicable law and regulation provide, however, that the amount of such
investments are generally limited to 45% of the total assets of the bank, and
such investments are not aggregated with the bank for determining compliance
with capital adequacy guidelines. Further, the transactions between the bank and
such a subsidiary are subject to certain limitations. (See generally, the
discussion of "Transactions with Affiliates" below.)
Under the Modernization Act, the Federal Reserve serves as the primary
"umbrella" regulator of financial holding companies, with supervisory authority
over each parent company and limited authority over its subsidiaries. Expanded
financial activities of financial holding companies will generally be regulated
according to the type of such financial activity: banking activities by banking
regulators, securities activities by securities regulators, and insurance
activities by insurance regulators. The Modernization Act also imposes
additional restrictions and heightened disclosure requirements regarding private
information collected by financial institutions. All implementing regulations
under the Modernization Act have not yet been promulgated in final form, and the
Company cannot predict the full sweep of the new legislation and has not yet
determined whether it will elect to become a financial holding company.
Transactions with Affiliates
The provisions of Section 23A of the Federal Reserve Act and related
statutes place limits on all insured banks (including the Bank) as to the amount
of loans or extensions of credit to, or investment in, or certain other
transactions with, their parent bank holding companies and certain of such
holding companies' subsidiaries and as to the amount of advances to third
parties collateralized by the securities or obligations of bank holding
companies or their subsidiaries. In addition, loans and extensions of credit to
affiliates of the Bank generally must be secured in the prescribed amounts.
Capital Adequacy Guidelines
The Federal Reserve issued guidelines establishing risk-based capital
requirements for bank holding companies having more than $150 million in assets
and member banks of the Federal Reserve System. The guidelines established a
risk-based capital framework consisting of (1) a definition of capital and (2) a
system for assigning risk weights. Capital consists of Tier I capital, which
includes common shareholders' equity less certain intangibles and a
supplementary component called Tier II, which includes a portion of the
allowance for loan losses. Effective October 1, 1998, the Federal
6
Reserve adopted an amendment to its risk-based capital guidelines that permits
insured depository institutions to include in their Tier II capital up to 45% of
the pre-tax net unrealized gains on certain available for sale equity
securities. All assets and off-balance-sheet items are assigned to one of four
weighted risk categories ranging from 0% to 100%. Higher levels of capital are
required for the categories perceived as representing the greater risks. The
Federal Reserve established a minimum risk-based capital ratio of 8% (of which
at least 4% must be Tier I). An institution's risk-based capital ratio is
determined by dividing its qualifying capital by its risk-weighted assets. The
guidelines make regulatory capital requirements more sensitive to differences in
risk profiles among banking institutions, take off-balance sheet items into
account in assessing capital adequacy, and minimize disincentives to holding
liquid, low-risk assets. Banking organizations are generally expected to operate
with capital positions well above the minimum rates. Institutions with higher
levels of risk, or which experience or anticipate significant growth, are also
expected to operate well above minimum capital standards. In addition to the
risk-based guidelines discussed above, the Federal Reserve requires that a bank
holding company and bank which meet the regulator's highest performance and
operational standards and which are not contemplating or experiencing
significant growth maintain a minimum leverage ratio (Tier I capital as a
percent of quarterly average adjusted assets) of 3%. For those financial
institutions with higher levels of risk or that are experiencing or anticipating
significant growth, the minimum leverage ratio will be increased. At December
31, 1999 the Bank satisfied these ratios and has been categorized as a
well-capitalized institution, which in the regulatory framework for prompt
corrective action imposes the lowest level of supervisory restraints.
Capital adequacy guidelines focus principally on broad categories of credit
risk although the framework for assigning assets and off-balance sheet items to
risk categories does incorporate elements of transfer risk. The risk-based
capital ratio does not, however, incorporate other factors that may affect a
company's financial condition, such as overall interest rate exposure,
liquidity, funding and market risks, the quality and level of earnings,
investment or loan concentrations, the quality of loans and investments, the
effectiveness of loan and investment policies and management's ability to
monitor and control financial and operating risks.
The Federal Reserve is vested with broad enforcement powers over bank
holding companies to forestall activities that represent unsafe or unsound
practices or constitute violations of law. These powers may be exercised through
the issuance of cease and desist orders or other actions. The Federal Reserve is
also empowered to assess civil penalties against companies or individuals that
violate the Holding Company Act, to order termination of non-banking activities
of non-banking subsidiaries of bank holding companies and to order termination
of ownership and control of non-banking subsidiaries by bank holding companies.
Neither the Company nor any of its affiliates has ever been the subject of any
such actions by the Federal Reserve.
7
The Bank
As a New Jersey state-chartered bank, the Bank's operations are subject to
various requirements and restrictions of state law pertaining to, among other
things, lending limits, reserves, interest rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends, locations of
branch offices and capital adequacy. The Bank is subject to primary supervision,
periodic examination and regulation by the New Jersey Department of Banking and
Insurance ("NJDBI"). As a member of the Federal Reserve System, the Bank is also
subject to regulation by the Federal Reserve. If, as a result of an examination
of a bank, the NJDBI determines that the financial condition, capital resources,
asset quality, earnings prospects, management, liquidity, or other aspects of
the bank's operations are unsatisfactory or that the bank or its management is
violating or has violated any law or regulation, various remedies are available
to the NJDBI. Such remedies include the power to enjoin "unsafe and unsound"
practices, to require affirmative action to correct any conditions resulting
from any violation or practice, to issue an administrative order that can be
judicially enforced, to, among other things, direct an increase in capital, to
restrict the growth of the Bank, to assess civil penalties and to remove
officers and directors. The Bank has never been the subject of any
administrative orders, memoranda of understanding or any other regulatory action
by the NJDBI. The Bank also is a member of the Federal Reserve System and
therefore subject to supervisory examination by and regulations of the Federal
Reserve Bank of New York.
The Bank's ability to pay dividends is subject to certain statutory and
regulatory restrictions. The New Jersey Banking Act of 1948, as amended,
provides that no state-chartered bank may pay a dividend on its capital stock
unless, following the payment of each such dividend, the capital stock of the
bank will be unimpaired, and the bank will have a surplus of not less than 50%
of its capital, or, if not, the payment of such dividend will not reduce the
surplus of the bank. In addition, the payment of dividends is limited by the
requirement to meet the risk-based capital guidelines issued by the Federal
Reserve Board and other regulations.
The Bank's deposits are insured by the Bank Insurance Fund ("BIF")
administered by the Federal Deposit Insurance Corporation ("FDIC") up to a
maximum of $100,000 per depositor. For this protection, the Bank pays a
quarterly statutory deposit insurance assessment to, and is subject to the rules
and regulations of, the FDIC.
Under the FDIC's risk-based insurance assessment system, each insured bank
is placed in one of nine "assessment risk classifications" based on its capital
classification and the FDIC's consideration of supervisory evaluations provided
by the institution's primary federal regulator. Each insured bank's insurance
assessment rate is then determined by the risk category in which it has been
classified by the FDIC. There is currently a 27 basis point spread between the
highest and lowest assessment rates, so that banks classified as strongest by
the FDIC are subject in 2000 to 0% assessment, and banks classified as weakest
by the FDIC are subject to an assessment rate of 0.27%. In addition to its
insurance assessment, each insured bank is subject to a debt service assessment
of $0.0212
8
and $0.0208 per one hundred dollars of deposits during the first and second
quarters of 2000, respectively, to help recapitalize the Savings Association
Insurance Fund of the FDIC. During 1999, the Bank's BIF debt service assessment
rates ranged between 1.176 and 1.22 basis points and SAIF debt service
assessment rates ranged between 5.80 and 6.10 basis points. The Bank's deposit
insurance assessments may increase or decrease depending upon the risk
assessment classification to which the Bank is assigned by the FDIC. Any
increase in insurance assessments could have an adverse effect on the Bank's
earnings.
The foregoing is an attempt to summarize some of the relevant laws, rules
and regulations governing banks and bank holding companies, but does not purport
to be a complete summary of all applicable laws, rules and regulations governing
banks and bank holding companies.
Item 2. Properties
The Company leases ten banking offices, one mini-branch within a
supermarket, one operations/support facility and one administrative/executive
facility. It also leases two locations for the sole purposes of operating
Automated Teller Machines. It owns four banking offices and leases land on which
it owns one bank building. The Company owns land and a building to be used for a
future branch site. The Company also has entered into a lease agreement for a
future branch site. In addition, there is one lease expiring in June 2000 from
which a branch office has been relocated. All of the facilities are located in
Bergen County, New Jersey, which constitutes the Company's primary market area.
Net investment in premises and equipment totaled $10.3 million at December
31, 1999. Annual rental payments with respect to the Company's leased facilities
was $1.3 million for the year ended, December 31, 1999.
In the opinion of management, the physical properties of the Company and
its subsidiaries are suitable and adequate and, except for those facilities
which have been secured for future expansion are being fully utilized.
Item 3. Legal Proceedings
In the ordinary course of business, the Company is involved in routine
litigation involving various aspects of its business, none of which,
individually or in the aggregate, in the opinion of management and its legal
counsel, is expected to have a material adverse impact on the consolidated
financial condition, results of operations or liquidity of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
through the solicitation of proxies or otherwise during the three months ended
December 31, 1999.
9
Part II
Forward Looking Information
In addition to discussing historical information, certain matters included
in or incorporated into this report relate to the financial condition, results
of operations and business of the Company which are not historical facts, but
which are "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. When used herein, the words
"anticipate," "believe," "estimate," "expect," "will" and similar expressions
are generally intended to identify forward-looking statements. These "forward
looking statements" include, but are not limited to, statements about the
operations of the Company, the adequacy of the Company's allowance for future
losses associated with the loan portfolio, and the possible impact of third
parties' Year 2000 issues on the Company, management's assessment of
contingencies and possible scenarios in its Year 2000 planning. The "forward
looking statements" in this report involve known and unknown risks and
uncertainties and reflect what we currently anticipate will happen in each case.
What actually happens could differ materially from what we currently anticipate
will happen due to a variety of factors, including, among others, (i) increased
competitive pressures among financial services companies; (ii) changes in the
interest rate environment; (iii) general economic conditions, internationally,
nationally, or in the State of New Jersey; and (iv) legislation or regulatory
requirements or changes adversely affecting the business of the Company. Readers
should not place undue expectations on any "forward looking statements." We are
not promising to make any public announcement when we consider "forward looking
statements" in this document are no longer accurate, whether as a result of new
information, what actually happens in the future or for any other reason.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Company's common stock is traded on the American Stock Exchange under
the symbol "IFC." At February 27, 2000, there were approximately 1,232
shareholders of record. A portion of the Company's common stock is held in
"street name" by nominees for beneficial owners, so the actual number of
shareholders is probably higher. The following table sets forth, for the periods
indicated, the reported high and low sales prices by quarter:
10
High Low
------------- -------------
1997
First quarter (1)(2) $ 14.67 $ 10.61
Second quarter (2) 17.58 11.92
Third quarter (2) 16.67 14.67
Fourth quarter (2) 21.58 14.75
1998
First quarter (2) $ 21.25 $ 18.17
Second quarter 23.25 19.25
Third quarter 20.88 15.31
Fourth quarter 17.75 14.06
1999
First quarter $ 17.50 $ 16.00
Second quarter 17.38 15.50
Third quarter 19.63 16.63
Fourth quarter 18.13 16.13
- --------------------------------------------------------------------------------
(1) On February 27, 1997, the Company declared a 3 for 2 Stock Split to be
distributed on April 17, 1997 to shareholders of record on March 20, 1997.
The high and low sales prices and the cash dividends have been restated to
reflect the effects of the stock split.
(2) On February 26, 1998, the Company declared a 3 for 2 Stock Split to be
distributed on April 17, 1998 to shareholders of record on March 20, 1998.
The high and low sales prices and the cash dividends have been restated to
reflect the effects of the stock split.
A cash dividend of $0.09, $0.10 and $0.12 was paid on each common share
outstanding in each quarter during 1997, 1998 and 1999, respectively.
The Company intends, subject to its financial results, contractual, legal,
and regulatory restrictions, and other factors that its Board of Directors may
deem relevant, to declare and pay a quarterly cash dividend on it's common stock
in the future. The principal source of the funds to pay any dividends on the
Company's common stock would be dividends from the Bank. Certain federal and
state regulators impose restrictions on the payment of dividends by banks. See
"Business - Supervision and Regulation" for a discussion of these restrictions.
Item 6. Selected Consolidated Financial Data
The following selected financial data are derived from the Company's
audited Consolidated Financial Statements. The information set forth below
should be read in conjunction with the Consolidated Financial Statements and the
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The Consolidated Statements of Financial Condition
as of December 31, 1999 and 1998, and the Consolidated Statements of Income,
Changes in Stockholders' Equity and Cash Flows for each of the years in the
three-year period ended December 31, 1999 and the report thereon of Deloitte &
Touche LLP are included on pages 28 through 46 of the Company's 1999 Annual
Report to Shareholders filed as Exhibit 13 hereto, which pages are incorporated
herein by reference.
11
Item 6. Selected Consolidated Financial Data
FINANCIAL HIGHLIGHTS
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- --------- --------- ---------
Income Statement Data (in thousands)
Interest income $ 49,301 $ 48,820 $ 45,310 $ 41,379 $ 40,765
Interest expense 18,783 19,864 18,566 16,983 17,208
________ ________ ________ ________ ________
Net interest income 30,518 28,956 26,744 24,396 23,557
Provision for loan losses 1,200 951 1,653 747 1,239
________ ________ ________ ________ ________
Net interest income after provision for loan losses 29,318 28,005 25,091 23,649 22,318
Non-interest income 5,339 4,928 4,774 4,248 4,579
Non-interest expenses 20,063 19,416 17,655 17,492 16,703
________ ________ ________ ________ ________
Income before income taxes 14,594 13,517 12,210 10,405 10,194
Income Taxes 4,959 4,908 4,285 3,654 3,511
________ ________ ________ ________ ________
Net income $ 9,635 $ 8,609 $ 7,925 $ 6,751 $ 6,683
======== ======== ======== ========= =========
Per Share Data
Before deducting acquisition costs
Basic earnings per common share $1.37 $1.32 $1.11 $0.95 $0.93
Diluted earnings per common share 1.36 1.31 1.10 0.94 0.92
After deducting acquisition costs
Basic earnings per common share 1.37 1.20 1.11 0.95 0.93
Diluted earnings per common share 1.36 1.19 1.10 0.94 0.92
Cash dividends declared 0.48 0.40 0.36 0.33 0.31
Book value--end of year 8.66 8.66 7.86 7.02 6.43
Tangible book value--end of year 8.60 8.56 7.71 6.80 6.16
Weighted average shares outstanding (in thousands)
Basic 7,031 7,189 7,132 7,124 7,113
Diluted 7,062 7,237 7,222 7,190 7,157
Balance Sheet Data--end of year (in thousands)
Total assets $ 706,125 $ 685,364 $625,050 $572,512 $548,220
Securities held to maturity and securitie available for sale 161,889 149,930 135,997 143,339 163,736
Loans 511,976 478,717 438,273 384,060 337,570
Allowance for loan losses 5,476 5,645 5,231 3,968 3,926
Total deposits 598,992 598,732 540,765 491,637 487,224
Securities sold under agreements to repurchase and short term
borrowings 30,406 18,548 13,028 10,904 11,702
Long-term borrowings 13,000 - 9,876 9,983 -
Total stockholders' equity 58,276 62,372 56,130 50,048 45,781
Selected Performance Ratios
Before deducting acquisition costs
Return on average total assets 1.39 % 1.44 % 1.33 % 1.22 % 1.26 %
Return on average total stockholders' equity 15.52 16.05 14.95 14.09 15.53
After deducting acquisition costs
Return on average total assets 1.39 1.31 1.33 1.22 1.26
Return on average total stockholders' equity 15.52 14.53 14.95 14.09 15.53
Dividend Payout 35.04 32.81 30.08 32.19 29.82
Average total stockholders' equity to average total assets 8.99 9.00 8.89 8.68 8.11
Net yield on interest earning assets (taxable equivalent) 4.64 4.62 4.78 4.75 4.74
Efficiency ratio (1) 56.81 53.59 56.47 60.02 59.38
Non-interest income to average total assets 0.77 0.75 0.80 0.77 0.86
Non-interest expenses to average total assets 2.90 2.95 2.96 3.17 3.15
Asset Quality--end of year (in thousands)
Nonaccrual loans to total loans 0.22 % 0.25 % 0.35 % 0.66 % 0.74 %
Nonperforming assets to total assets 0.22 0.26 0.33 0.67 0.95
Allowance for loan losses to nonaccrual loans--end of year 491.12 471.20 345.51 157.02 156.35
Allowance for loan losses to total loans--end of year 1.07 1.18 1.19 1.03 1.16
Net charge-offs to average loans 0.28 0.12 0.10 0.20 0.44
Liquidity and Capital
Average loans to average deposits 81.79 % 81.06 % 78.09 % 72.19 % 67.14 %
Total stockholders' equity to total assets 8.25 9.10 8.98 8.74 8.35
Tier I capital to risk weighted assets 12.72 13.80 13.19 13.79 13.92
Total capital to risk weighted assets 13.91 15.12 14.44 15.04 15.17
Tier I capital to average assets 8.32 9.08 8.79 8.65 8.16
All prior period information has been restated to reflect the Company's
acquisition of The Jersey Bank for Savings, which was completed on May 31, 1998
and was accounted for as a pooling of interests.
(1) The efficiency ratio is calculated by dividing non-interest expenses,
excluding merger-related charges, amortization of intangibles and net
expense of foreclosed real estate by net interest income (on a fully
taxable equivalent basis) and non-interest income, excluding gains on sales
of loans, securities, loan servicing and a branch location.
12
Item 7. Management's Discussion and Analysis of Financial Condition Results of
Operations
The information contained in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 14
through 27 of the Company's 1999 Annual Report to Shareholders filed as Exhibit
13 hereto is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The information regarding the market risk of the Company's financial
instruments, contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 23 of the Company's 1999 Annual
Report to Shareholders filed as Exhibit 13 hereto is incorporated herein by
reference.
Item 8. Financial Statements and Supplemental Data
The financial statements required by this Item are included in the
Company's 1999 Annual Report to Shareholders on pages 28 through 46, filed as
Exhibit 13 hereto and incorporated herein by reference.
Page of Annual
Report to
Stockholders
______________
Report of Independent Public Accountants 28
Interchange Financial Services Corporation and Subsidiaries
Consolidated Balance Sheets 29
Consolidated Statements of Income 30
Consolidated Statements of Changes in Stockholders' Equity 31
Consolidated Statements of Cash Flows 32
Notes to Consolidated Financial Statements (Notes 1 - 21) 33 - 46
No supplementary data is included in this report as it is inapplicable, not
required, or the information is included elsewhere in the financial statements
or notes thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
PART III
Item 10. Directors and Executive Officers
a. Directors
The information contained in the section entitled "Nominees and
Directors" in the Company's definitive Proxy Statement for its 2000
Annual Meeting of Stockholders, to be filed not later than 120 days
after the close of the Company's fiscal year, is incorporated herein by
reference in response to this item.
b. Executive Officers
The following table sets forth the names, ages, and present positions
of the Company's and the Bank's principal executive officers:
13
Name Age Positions Held with the Company and the Bank
____ ___ ____________________________________________
ANTHONY S. ABBATE 60 President and Chief Executive Officer
ANTHONY J. LABOZZETTA 36 Executive Vice President and
Chief Financial Officer
FRANK R. GIANCOLA 46 Senior Vice President--Operations
PATRICIA D. ARNOLD 41 Senior Vice President--Commercial Lending
Business Experience
ANTHONY S. ABBATE, President and Chief Executive Officer of the
Bank since 1981; Senior Vice President and Controller from October
1980; President and Chief Executive Officer of Home State Bank
1978-1980. Engaged in the banking industry since 1959.
ANTHONY J. LABOZZETTA, Executive Vice President and Chief
Financial Officer since September 1997; Treasurer from 1995. Engaged in
the banking industry since 1989. Formerly a senior manager with an
international accounting firm, specializing in the financial services
industry.
FRANK R. GIANCOLA, Senior Vice President - Operations since
September 1997; Senior Vice President-Retail Banking from 1993; Senior
Vice President-Operations of the Bank from 1984; Senior
Operations Officer from 1982; Vice President/Branch
Administrator from 1981. Engaged in the banking industry since 1971.
PATRICIA D. ARNOLD, Senior Vice President - Commercial Lending
since August 1997; First Vice President from 1995; Department Head Vice
President from 1986; Assistant Vice President from 1985; Commercial Loan
Officer-Assistant Treasurer from 1983. Engaged in the banking industry
since 1981.
Officers are elected annually by the Board of Directors and
serve at the discretion of the Board of Directors. Management is not
aware of any family relationship between any director or executive
officer. No executive officer was selected to his or her position
pursuant to any arrangement or understanding with any other person.
c. Compliance with Section 16(a)
Information contained in the section entitled "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders, to be filed not later than 120 days after the close of
the Company's fiscal year, is incorporated herein by reference in
response to this item.
Item 11. Executive Compensation
Information contained in the section entitled "Executive Compensation" in
the Company's definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders, to be filed not later than 120 days after the close of the
Company's
14
fiscal year, is incorporated herein by reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the section entitled "Amount and Nature of
Beneficial Ownership" in the Company's definitive Proxy Statement for its 2000
Annual Meeting of Stockholders, to be filed not later than 120 days after the
close of the Company's fiscal year, is incorporated herein by reference in
response to this item.
Item 13. Certain Relationships and Related Transactions
The information contained in the section entitled "Transactions with
Management" in the Company's definitive Proxy Statement for its 2000 Annual
Meeting of Stockholders, to be filed not later than 120 days after the close of
the Company's fiscal year, is incorporated herein by reference in response to
this item.
15
PART IV
Item 14. Exhibits, Financial Statements and Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements: The Financial Statements listed under
Item 8 to this Report are set forth at pages 28 through 32,
and the Notes to Consolidated Financial Statements are set
forth at pages 33 through 46, of the Annual Report to
Shareholders for 1999 (See Exhibit 13 under paragraph (a)3 of
this Item 14).
2. Financial Statement Schedules: All required schedules for the
Company and its subsidiaries have been included in the
Consolidated Financial Statements or related Notes thereto.
3. Exhibits: Exhibits followed by a parenthetical reference are
incorporated by reference herein from the document described in
such parenthetical reference.
Exhibit 3(a) Certificate of Incorporation of Registrant, as
amended (Incorporated by reference to Exhibit 3
to Form S-4, filed April 27, 1998, Registration
Statement No. 333-50065)
Exhibit 3(b) Bylaws of registrant (Incorporated by reference
to Exhibit 3(b) to Form S-2, filed July 22, 1992,
Registration Statement No. 33-49840)
* Exhibit 10(a) Agreement for legal services between Andora,
Palmisano & Geaney and Registrant, dated
April 22, 1999
(1)Exhibit 10(b) Stock Option and Incentive Plan of 1997
(Incorporated by reference to Exhibit 4(c) to
Form S-8, filed September 30, 1997, Registration
Statement No. 33-82530)
(1)Exhibit 10(c) Directors' Retirement Program (Incorporated by
reference to Exhibit 10(i)(3) to Annual Report
on Form 10-K for fiscal year ended
December 31, 1994)
(1)Exhibit 10(d) Executives' Supplemental Pension Plan
(Incorporated by reference to Exhibit 10(i)(4)
to Annual Report on Form 10-K for fiscal year
ended December 31, 1994)
* Exhibit 11 Statement regarding Computation of per share
earnings
* Exhibit 13 Portion of the Annual Report to Shareholders for
the year ended December 31, 1999
* Exhibit 21 Subsidiaries of Registrant
* Exhibit 23 Independent Auditors' Consent of Deloitte &
Touche LLP
* Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K during the quarter ended December 31,1999:
None.
[FN]
______________________________
(1) Pursuant to Item 14(a) - 3 of Form 10-K, this exhibit represents management
contract or compensatory plan or arrangement required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c) of this item.
* Filed herewith
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Interchange Financial Services Corporation
By:/s/ Anthony S. Abbate By:/s/ Anthony Labozzetta
------------------------------------- ---------------------------------
Anthony S. Abbate Anthony Labozzetta
President and Chief Executive Officer Executive Vice President and Chief
Financial Officer
(principal executive officer) (principal financial and
accounting officer)
March 23, 2000
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 Company
and in the capacities and on the dates indicated:
/s/Anthony S. Abbate /s/James E. Healey
- ---------------------------------------- ------------------------------------
Anthony S. Abbate March 23, 2000 James E. Healey March 23, 2000
Director Director
President and Chief Executive Officer
/s/Anthony D. Andora /s/Anthony Labozzetta
- ---------------------------------------- ------------------------------------
Anthony D. Andora March 23, 2000 Anthony Labozzetta March 23, 2000
Director Executive Vice President and
Chairman of the Board Chief Financial Officer
/s/Donald L. Correll /s/Nicholas R. Marcalus
- ---------------------------------------- ------------------------------------
Donald L. Correll March 23, 2000 Nicholas R. Marcalus March 23, 2000
Director Director
/s/Anthony R. Coscia /s/Eleanore S. Nissley
- ---------------------------------------- ------------------------------------
Anthony R. Coscia March 23, 2000 Eleanore S. Nissley March 23, 2000
Director Director
/s/John J. Eccleston /s/Jeremiah F. O'Connor
- ---------------------------------------- ------------------------------------
John J. Eccleston March 23, 2000 Jeremiah F. O'Connor March 23, 2000
Director Director
/s/David R. Ficca /s/Robert P. Rittereiser
- ---------------------------------------- ------------------------------------
David R. Ficca March 23, 2000 Robert P. Rittereiser March 23, 2000
Director Director
/s/Richard A. Gilsenan /s/Benjamin Rosenzweig
- ---------------------------------------- ------------------------------------
Richard A. Gilsenan March 23, 2000 Benjamin Rosenzweig March 23, 2000
Director Director
17